(Name, telephone,
e-mail and/or facsimile number and address of company contact person)
Securities registered
or to be registered pursuant to Section 12(b) of the Act:
* Not for trading; only
in connection with the registration of American Depositary Shares.
Securities registered or to be registered
pursuant to Section 12(g) of the Act.
Securities for
which there is a reporting obligation pursuant to Section 15(d) of the Act.
Indicate
the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report: 454,145,376 ordinary shares no par value each
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Note
— Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
If an emerging growth
company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected
not to use the extended transition period for complying with any new or revised financial accounting standards† provided
pursuant to Section 13(a) of the Exchange Act. ☐
† The term
“new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board
to its Accounting Standards Codification after April 5, 2012.
Indicate
by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
If
“Other” has been checked in response to the previous question, indicate by check mark which financial statement item
the registrant has elected to follow. N/A
If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
(APPLICABLE ONLY
TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. N/A
Some
of the statements under the sections entitled “Item 3. Key Information – Risk Factors,” “Item 4. Information
on the Company,” and “Item 5. Operating and Financial Review and Prospects” and elsewhere in this Annual Report
on Form 20-F constitute forward-looking statements. These statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements
by terms including “anticipates,” “believes,” “could,” “estimates,” “expects,”
“intends,” “may,” “plans,” “potential,” “predicts,” “projects,”
“should,” “will,” “would,” and similar expressions intended to identify forward-looking statements,
but these are not the only ways these statements are identified. Forward-looking statements reflect our current views with respect
to future events and are based on assumptions and subject to risks and uncertainties. In addition, the section of this annual
report on Form 20-F entitled “Item 4. Information on the Company” contains information obtained from independent industry
and other sources that we have not independently verified. You should not put undue reliance on any forward-looking statements.
Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise
any forward-looking statements. Readers are encouraged to consult the Company’s filings made on Form 6-K, which are periodically
filed with or furnished to the SEC.
Factors
that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include,
but are not limited to:
The
Company relied on an order by the Securities and Exchange Commission (the “SEC”) under Section 36 of the Securities
Exchange Act of 1934 Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies dated March
25, 2020 (Release No. 34-88465) to delay the filing of its Annual Report on Form 20-F for the year ended December 31, 2019 (the
“Report”) due to the circumstances related to COVID-19. In particular, COVID-19 and related precautionary responses
imposed by the State of Israel have caused severe disruptions in travel and transportation, and limited access to the Company’s
facilities to most of the Company’s employees. This, in turn, delayed the Company’s ability to complete its annual
financial closing process and prepare and complete the Report in a timely manner. In addition, our management has had to
devote significant time and attention to assessing the potential impact of COVID-19 and related events on our operations and financial
position and to developing operational and financial plans to address those matters, which has diverted management resources from
completing all of the tasks necessary to file the Report by its due date.
PART I
Item 1.
|
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not
applicable.
Item 2.
|
OFFER
STATISTICS AND EXPECTED TIMETABLE
|
Not applicable.
|
A.
|
Selected Financial Data
|
The following table
sets forth our selected financial data for the periods ended and as of the dates indicated. The following selected historical
financial data for our company 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 financial statements and related notes. The
selected financial data in this section is not intended to replace the financial statements and is qualified in its entirety thereby.
The selected statements
of operations data for the years ended December 31, 2019, 2018, and 2017, and the selected balance sheet data as of December 31,
2019 and 2018, have been derived from our audited financial statements set forth elsewhere in this Annual Report on Form 20-F.
The selected statements of operations data for the years ended December 31, 2016 and 2015, and the selected balance sheet data
as of December 31, 2017, 2016 and 2015, have been derived from our audited financial statements not included in this Form 20-F.
Our financial statements
included in this annual report were prepared in accordance with International Financial Reporting Standard, or the IFRS, as issued
by the International Accounting Standards Board, and reported in NIS. This annual report contains conversions of NIS amounts into
U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, for the purpose of the presentation
of financial data for the period ending on December 31, 2019, all conversions from NIS to U.S. dollars and from U.S. dollars to
NIS were made at a rate of 3.456 NIS to $1 U.S. dollar, the daily representative rate in effect as of December 31, 2019. No representation
is made that the NIS amounts referred to in this annual report could have been or could be converted into U.S. dollars at any
particular rate or at all.
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
NIS in thousands
|
|
|
Convenience
translation into USD in thousands(2)
|
|
Statements
of comprehensive loss data:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
10,736
|
|
|
|
9,397
|
|
|
|
19,423
|
|
|
|
72,056
|
|
|
|
68,645
|
|
|
|
19,863
|
|
Participation by the IIA and UNISEC
|
|
|
(2,830
|
)
|
|
|
(1,603
|
)
|
|
|
(646
|
)
|
|
|
(143
|
)
|
|
|
-
|
|
|
|
-
|
|
Research and development, net of participations expenses
|
|
|
7,906
|
|
|
|
7,794
|
|
|
|
18,777
|
|
|
|
71,913
|
|
|
|
68,645
|
|
|
|
19,863
|
|
Marketing, general and administrative expenses
|
|
|
3,397
|
|
|
|
4,106
|
|
|
|
4,879
|
|
|
|
5,154
|
|
|
|
9,706
|
|
|
|
2,808
|
|
Operating loss
|
|
|
11,303
|
|
|
|
11,900
|
|
|
|
23,656
|
|
|
|
77,067
|
|
|
|
78,351
|
|
|
|
22,671
|
|
Financial income
|
|
|
1,128
|
|
|
|
3,019
|
|
|
|
18
|
|
|
|
2,936
|
|
|
|
4
|
|
|
|
1
|
|
Financial expenses
|
|
|
(24
|
)
|
|
|
(303
|
)
|
|
|
(10,913
|
)
|
|
|
(13,596
|
)
|
|
|
(30,847
|
)
|
|
|
(8,926
|
)
|
Financial income (expenses), net
|
|
|
1,104
|
|
|
|
2,716
|
|
|
|
(10,895
|
|
|
|
(10,660
|
)
|
|
|
(30,843
|
)
|
|
|
(8,926
|
)
|
Net loss
|
|
|
(10,199
|
)
|
|
|
(9,184
|
)
|
|
|
(34,551
|
)
|
|
|
(87,727
|
)
|
|
|
(109,194
|
)
|
|
|
(31,596
|
)
|
Loss from available-for-sale financial assets
|
|
|
5
|
|
|
|
6
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total comprehensive loss
|
|
|
(10,204
|
)
|
|
|
(9,190
|
)
|
|
|
(34,557
|
)
|
|
|
(87,727
|
)
|
|
|
(109,194
|
)
|
|
|
(31,596
|
)
|
Basic and Diluted net loss per share (NIS)
|
|
|
(0.1
|
)
|
|
|
(0.07
|
)
|
|
|
(0.17
|
)
|
|
|
(0.34
|
)
|
|
|
(0.33
|
)
|
|
|
(0.09
|
)
|
Weighted average number of shares outstanding used to
compute basic and diluted loss per share (in thousands)
|
|
|
105,523
|
|
|
|
135,097
|
|
|
|
201,031
|
|
|
|
261,420
|
|
|
|
326,651
|
|
|
|
326,651
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
NIS in thousands
|
|
|
Convenience
translation into USD in thousands(2)
|
|
Statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
71,382
|
|
|
|
75,883
|
|
|
|
72,467
|
|
|
|
20,968
|
|
Other receivables
|
|
|
3,923
|
|
|
|
965
|
|
|
|
656
|
|
|
|
190
|
|
Rights of use assets
|
|
|
-
|
|
|
|
-
|
|
|
|
7,136
|
|
|
|
2,065
|
|
Property, plant and equipment
|
|
|
5,510
|
|
|
|
28,249
|
|
|
|
34,981
|
|
|
|
10,122
|
|
Other long term assets
|
|
|
880
|
|
|
|
740
|
|
|
|
510
|
|
|
|
148
|
|
Total assets
|
|
|
81,695
|
|
|
|
105,837
|
|
|
|
115,750
|
|
|
|
33,493
|
|
Trade payables
|
|
|
6,223
|
|
|
|
20,723
|
|
|
|
17,062
|
|
|
|
4,937
|
|
Other payables
|
|
|
660
|
|
|
|
1076
|
|
|
|
1,203
|
|
|
|
348
|
|
Current maturities of lease liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
694
|
|
|
|
201
|
|
Warrants
|
|
|
8,177
|
|
|
|
6,168
|
|
|
|
16,354
|
|
|
|
4,732
|
|
Liability in respect of government grants
|
|
|
10,300
|
|
|
|
14,643
|
|
|
|
14,812
|
|
|
|
4,286
|
|
Lease liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
6,809
|
|
|
|
1,970
|
|
Loan from others
|
|
|
-
|
|
|
|
94,360
|
|
|
|
123,780
|
|
|
|
35,816
|
|
Severance pay liability, net
|
|
|
83
|
|
|
|
82
|
|
|
|
89
|
|
|
|
26
|
|
Total liabilities
|
|
|
25,443
|
|
|
|
137,052
|
|
|
|
180,803
|
|
|
|
52,316
|
|
Total shareholders’ equity
|
|
|
(56,252
|
)
|
|
|
(31,215
|
)
|
|
|
(65,053
|
)
|
|
|
(18,823
|
)
|
(1)
|
Diluted loss per
share data is not presented because the effect of the exercise of our outstanding options is anti-dilutive.
|
|
|
(2)
|
Calculated using
the exchange rate reported by the Bank of Israel for December 31, 2019, at the rate of one U.S. dollar per NIS 3.456.
|
|
B.
|
Capitalization and Indebtedness
|
Not applicable.
|
C.
|
Reasons for the Offer and Use of Proceeds
|
Not applicable.
An investment in
our securities involves a high degree of risk. We operate in a dynamic industry that involves numerous risks and uncertainties.
You should carefully consider the factors described below, together with all other information contained in this annual report,
including our consolidated financial statements and the related notes included elsewhere in this annual report, before deciding
whether to invest in the securities. The following risks may adversely affect our business, financial condition, operating results
and cash flows and cause the trading price of the securities to decline, and you could lose all or part of your investment.
Risks Related to Our Financial Position and Capital Requirements
We are a clinical stage biopharmaceutical
company with a history of operating losses, are not currently profitable, do not expect to become profitable in the near future
and may never become profitable.
We are a clinical
stage biopharmaceutical company that was incorporated in 2003. Since our incorporation, we have primarily focused our efforts
on research and development and clinical trials of our product candidate, M-001. M-001 is in clinical trials and has not yet been
approved for commercial sale. We may not receive the necessary regulatory approvals to commercialize our product candidate. We
are not profitable and have incurred losses since inception, principally as a result of research and development, clinical trials
and general administrative expenses in support of our operations. We have not generated any revenue, expect to incur substantial
losses for the foreseeable future and may never become profitable. For the years ended December 31, 2017, 2018 and 2019, we had
net losses of $9,999, $25,384 and $31,596 thousands, respectively, and we expect such losses to continue for the foreseeable future.
In addition, as of December 31, 2019, we had an accumulated deficit of approximately $92,690 thousands, and we expect to experience
negative cash flow for the foreseeable future. As a result, we will ultimately need to generate significant revenues in order
to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability in the future. If
M-001 fails in clinical trials or does not gain regulatory clearance or approval, or if M-001 does not achieve market acceptance,
we may never become profitable. Our failure to achieve or maintain profitability, or substantial delays in achieving profitability,
could negatively impact the value of the securities and our ability to raise additional financing. A substantial decline in the
value of the securities would also affect the price at which we could sell them to secure future funding, which could dilute the
ownership interest of current shareholders. Even if we achieve profitability in the future, we may not be able to sustain profitability
in subsequent periods. Accordingly, it is difficult to evaluate our business prospects. Moreover, our prospects must be considered
in light of the risks and uncertainties encountered by an early-stage company in highly regulated and competitive markets, such
as the biopharmaceutical market, where regulatory approval and market acceptance of our products are uncertain. There can be no
assurance that our efforts will ultimately be successful or result in revenues or profits.
We will require substantial additional
financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce
or terminate our product development or commercialization efforts.
As of December 31,
2019, we had approximately $20,968 thousands in cash and cash equivalents, working capital of $15,672 thousands and an accumulated
deficit of $92,690 thousands. As of December 31, 2019, we had sufficient cash and cash commitments to fund operations for at least
twelve months if we do not raise additional capital. Since our inception, most of our resources have been dedicated to the development
of M-001. In particular, we have expended and believe that we will continue to expend significant operating and capital expenditures
for the foreseeable future developing M-001 and any future product candidate as well as preparing for the potential submission
of applications towards licensure or marketing approval to relevant regulatory bodies, such as the United States Food and Drug
Administration, or the FDA, and the European Medicines Agency, or the EMA, for M-001. These expenditures may include, but are
not limited to, costs associated with research and development, manufacturing, conducting clinical trials, contracting CMOs, hiring
additional management and other personnel, applying for regulatory approvals, acquisition of equipment, as well as commercializing
any products approved for sale. Furthermore, we incur additional costs associated with operating as a public company in the United
States. Because the outcome of our current Phase 3 clinical trials is highly uncertain, we cannot reasonably estimate the actual
amounts necessary to successfully complete the development and commercialization of our product candidates. We also expect to
incur additional costs for the purpose of conducting our ongoing and potential future clinical trials.
As a result of these
and other factors currently unknown to us, we will require additional funds, through public or private equity or debt financings
or non-dilutive sources or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition,
we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient
funds for our current or future operating plans. A failure to fund these activities may harm our growth strategy, competitive
position, quality compliance and financial condition.
Our future capital
requirements depend on many factors, including:
|
●
|
the scope, progress,
results and costs of researching and developing M-001 and any future product candidate, and conducting preclinical and clinical
trials;
|
|
|
|
|
●
|
the timing of, and
the costs involved in, obtaining regulatory approvals for M-001 and any future product candidate;
|
|
|
|
|
●
|
the cost of commercialization
activities, if any, of M-001 and any future product candidates approved for sale, including marketing, sales and
distribution costs;
|
|
|
|
|
●
|
the cost of manufacturing
M-001 and any future product candidate and any products we successfully commercialize;
|
|
|
|
|
●
|
our ability to establish
and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;
|
|
|
|
|
●
|
the costs involved
in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the
outcome of such litigation;
|
|
|
|
|
●
|
the timing, receipt
and amount of sales of, or royalties on, any future products;
|
|
|
|
|
●
|
the expenses needed to attract and retain skilled
personnel; and
|
|
|
|
|
●
|
any product liability or other lawsuits related
to any future products.
|
Additional funds may
not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on
a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research
and development activities for M-001 or any future product candidate or delay, limit, reduce or terminate our establishment of
sales and marketing capabilities or other activities that may be necessary to commercialize M-001 or any future product candidate.
We have entered into a finance contract
with the European Investment Bank, or EIB, for the receipt of a loan of 24 million Euro and into a security agreement and creation
of a first ranking floating charge over all assets of the Company in favor of EIB, and a breach of such finance contract or security
agreement may cause EIB to exercise the pledge and materialize certain of our assets.
We
entered into a finance contract, or the Finance Contract, with the European Investment Bank, or EIB, for the financing of up to
20 million Euro, which was extended to 24 million Euro, and up to 50% of the Company’s expected cost of developing and marketing
our product candidate, M-001. The main provisions of the Finance Contract are described in this annual report. As of the date
of this annual report, we have drawn down an amount of the loan equal to 24 million Euro.
We
have also entered into a security agreement, or the Security Agreement, whereby we created a first ranking floating charge over
all of our assets in favor of EIB, excluding assets and/or intellectual property rights subject to the license agreement with
YEDA Research and Development Company Limited (“Yeda”). While intellectual property rights are excluded from
the floating charge pledge, any breach of the Finance Contract or the Security Agreement may cause the EIB to exercise the floating
charge pledge and to foreclose on certain of our assets at the time of such exercise.
Raising additional capital may cause
dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or product
candidates.
We may seek additional
capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and
licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities,
the ownership interests of existing shareholders will be diluted, and the terms may include liquidation or other preferences that
adversely affect shareholder rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting
our ability to take certain actions, such as incurring future indebtedness, making capital expenditures or declaring dividends.
If we raise additional funds through strategic partnerships, alliances and licensing arrangements with third parties, we may have
to relinquish valuable rights to our technologies or any product candidate or grant licenses on terms that are not favorable to
us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit,
reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates
that we would otherwise prefer to develop and market ourselves.
Risks Related to Development, Clinical
Testing and Regulatory Approval of M-001 and Any Future Product Candidate
We have not yet commercialized any
products, and we may never become profitable.
We currently have
one product candidate, M-001, in Phase 3 clinical development and no products on the market or close to entering the market. We
do not know when or if we will complete our product development efforts, obtain regulatory approval for M-001 or successfully
commercialize M-001. Even if we are successful in developing M-001 or any product candidate that we may develop in the future
(if any), we will not be successful unless such product gains market acceptance for appropriate indications at favorable reimbursement
rates. The degree of market acceptance of these products will depend on a number of factors, including, but not limited to:
|
●
|
the timing of regulatory
approvals in the U.S. and other countries, and for the uses, we intend to pursue with respect to the commercialization of
M-001 or any future product candidate;
|
|
|
|
|
●
|
the competitive
environment;
|
|
|
|
|
●
|
the establishment
and demonstration in, and acceptance by, the medical community of the safety and clinical efficacy of our product candidate
and its potential advantages over other competitive products;
|
|
|
|
|
●
|
our ability to enter
into supply agreements with health organizations and governments around the world for the supply of our product candidate
or our ability to enter into strategic agreements with pharmaceutical and biopharmaceutical companies with strong marketing
and sales capabilities;
|
|
|
|
|
●
|
the establishment
of external, and potentially, internal, sales and marketing capabilities to effectively market and sell M-001 or any future
product candidate in the United States, Israel, Europe and other jurisdictions;
|
|
|
|
|
●
|
the adequacy and
success of our distribution, sales and marketing efforts; and
|
|
|
|
|
●
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the pricing and
reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations
and other plan administrators.
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Physicians, participants,
third-party payors or the medical community in general may be unwilling to accept, utilize or recommend, and in the case of third-party
payors, cover payment for M-001 or any future product candidate. As a result, we are unable to predict the extent of our future
losses or the time required for us to achieve profitability, if at all. Even if we successfully develop one or more products,
we may not become profitable.
We depend heavily on the success
of our M-001. If we are unable to successfully complete our Phase 3 clinical trial for M-001 as and when expected and obtain marketing
approvals for M-001, or if thereafter we fail to commercialize M-001 or experience significant delays in doing so, our business
will be materially harmed.
We have invested a
significant portion of our efforts and financial resources in the development of M-001. There remains significant risk that we
will fail to successfully develop M-001 for any indication. We do not expect to have top line data from our pivotal clinical efficacy
Phase 3 trial for M-001 available until the end of 2020, and there is no guarantee that the top line data will be available by
then. The timing of the availability of such top-line data and the completion of our pivotal clinical efficacy Phase 3 trial is
dependent in part on our ability to reach the statistically necessary number of laboratory confirmed influenza cases in order
to complete the study. If we ultimately obtain favorable results from this Phase 3 trial of M-001, we intend to submit application(s)
for marketing approval for M-001.
We may experience
numerous unforeseen events during, or as a result of, our Phase 3 clinical trial of M-001, that could delay or prevent our ability
to receive marketing approvals to commercialize M-001, including:
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Possible negative
or inconclusive results, compelling us to conduct additional clinical trials or abandon product development programs;
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Higher dropout rate of trial participants than
anticipated;
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Our third party contactors may fail to comply
with regulatory requirements or meet their contractual obligations to us in a timely manner;
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Regulators, institutional
review board or independent ethics committees may not authorize us or our investigators to commence a clinical trial or conduct
a clinical trial at a prospective trial site, or may require that we or our investigators suspend or terminate clinical research
for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed
to unacceptable health risks;
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The cost of clinical trials of our product candidate
may be greater than we anticipate;
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The supply or quality
of our product candidate or other materials necessary to conduct clinical trials may be insufficient or inadequate;
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Our M-001 may have
undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators, institutional review
board or independent ethics committees to suspend or terminate the trial(s);
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The naturally occurring influenza
attack rate may be lower than anticipated, thereby compelling us to increase the number of trial participants and/or extend
the trial to an additional season, as per our flexible enrollment trial protocol design; and
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The potential impact
of the COVID-19 pandemic.
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We may not develop additional product
candidates other than M-001.
M-001 is currently
our only product candidate in development. Other than M-001, we may not develop additional product candidates based on our research
and know-how and we may never attempt to develop other peptide-based products. As a result, our business and future success may
depend on our ability to obtain regulatory approvals of, and then successfully commercialize, only M-001.
We may never receive FDA regulatory
approval for the performance of additional clinical trials in the U.S.
We entered into a
pivotal clinical efficacy Phase 3 trial in Europe and a clinical trial agreement with the National Institute of Allergy and Infection
Diseases (NIAID) for a Phase 2 clinical trial in the U.S. using M-001, for which the first participants were enrolled in 2018.
In February 2020, we published the preliminary data regarding the Phase 2 clinical trial, and the clinical study report (CSR)
was submitted to NIAID to the FDA in June, 2020. We intend, subject to the successful results of our Phase 3 clinical trial in
Europe, to enter into discussions with the regulatory authorities regarding market approval of M-001 and to comply with the applicable
requirements. The FDA, however, may require that we conduct additional clinical trials in the U.S. prior to providing market approval
in the U.S. Although we believe that the previous approved preclinical and clinical trials we performed will serve as an adequate
basis for future FDA regulated clinical trials in the U.S., we may not receive FDA approval to conduct Phase 3 or other clinical
trials in the U.S. Failure to receive FDA approval to conduct Phase 3 or other clinical trials in the U.S. will materially reduce
our target market and the future profitability of M-001, may have a material adverse effect on our business and could potentially
cause us to cease operations. It is also possible that we may decide or that the FDA may require that we provide additional data
and information and meet additional standards for receipt of approval. If this were to occur, the time and financial resources
required for obtaining FDA approval for Phase 3 clinical trials, and complications and risks associated therewith, would likely
increase. Moreover, while receipt of clinical trial approval by the FDA does not ensure the receipt of clinical trial approval
in other countries, failure or delay in obtaining clinical trial approval by the FDA may have a negative effect on the regulatory
process in other countries. Any failure or any delay or setback in obtaining clinical trial approval in the U.S. or in other countries
would impair our ability to develop and commercialize M-001.
M-001 is subject to extensive regulation and may never
obtain regulatory approval.
M-001 must satisfy
rigorous standards of safety and efficacy before it can be approved for commercial use by the EMA or FDA or any other regulatory
authorities for all or any of the indications for which it has undergone or is planned to undergo testing. The EMA, FDA and any
other regulatory authorities have full discretion over this approval process. We may need to conduct significant additional research,
including testing in animals and in humans, before we can file applications for product approval. Typically, in the pharmaceutical
industry, there is a high rate of attrition for product candidates in preclinical testing and clinical trials. Satisfying EMA,
FDA and any other regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the
product and requires the expenditure of substantial resources. Success in preclinical testing and early clinical trials does not
ensure that later clinical trials will be successful. For example, a number of companies in the pharmaceutical industry have suffered
significant setbacks in advanced clinical trials, even after promising results in earlier trials. In addition, delays or rejections
may be encountered based upon additional government regulation, including any changes in legislation or EMA, FDA or any other
regulatory policy, during the process of product development, clinical trials and regulatory reviews. Failure to obtain EMA, FDA
or any other regulatory approval of M-001 in a timely manner or at all will severely undermine our business by delaying or halting
commercialization of our products, imposing costly procedures, diminishing competitive advantages and reducing the number of saleable
products and, therefore, corresponding product revenues.
M-001 and any product candidate
we may develop in the future will remain subject to ongoing regulatory requirements even if we receive regulatory approval to
market such product, and if we fail to comply with such requirements, we may not obtain such approvals or could lose those approvals
that have been obtained, and the sales of any approved commercial products could be suspended.
Even if we receive
regulatory approval to market M-001 and/or other product candidates, any such product will remain subject to extensive regulatory
requirements, including requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising,
promotion, distribution and record keeping. Even if regulatory approval of a product is granted, the approval may be subject to
limitations on the uses for which the product may be marketed or the conditions of approval, or may contain requirements for costly
post-marketing testing and surveillance to monitor the safety or efficacy of the product, which could negatively impact us or
our collaboration partners by reducing revenues or increasing expenses, and cause the approved product candidate not to be commercially
viable. In addition, as clinical experience with a drug expands after approval, typically because it is used by a greater number
and more diverse group of people after approval than during clinical trials, side effects and other problems may be observed over
time after approval that were not seen or anticipated during pre-approval clinical trials or other studies. Any adverse effects
observed after the approval and marketing of a product candidate could result in limitations on the use of, withdrawal of EMA,
FDA or any other regulatory approval or withdrawal of any approved products from the marketplace. Absence of long-term safety
data may also limit the approved uses of our products, if any. If we fail to comply with the regulatory requirements of the EMA,
FDA and any other applicable regulatory authorities, or previously unknown problems with any approved commercial products, manufacturers
or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions or other setbacks,
including, without limitation, the following:
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suspension or imposition
of restrictions on the products, manufacturers or manufacturing processes, including costly new manufacturing requirements;
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civil or criminal
penalties, fines and/or injunctions;
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product seizures
or detentions;
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import or export
bans or restrictions;
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voluntary or mandatory
product recalls and related publicity requirements;
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suspension or withdrawal
of regulatory approvals;
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total or partial
suspension of production; and
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refusal to approve
pending applications for marketing approval of new products or supplements to approved applications.
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If we or our collaborators
are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or adoption of new regulatory requirements
or policies, marketing approval for our product candidates may be lost or cease to be achievable, resulting in decreased revenue
from milestones, product sales or royalties, which would have a material adverse effect on our business, financial condition or
results of operations.
If clinical trials for M-001 are
prolonged or delayed, we would be unable to commercialize our M-001 on a timely basis, which would require us to incur additional
costs and delay our receipt of any revenues from potential M-001 sales.
We cannot predict
whether we will encounter problems with any of our completed, ongoing or planned clinical trials that will cause us or any regulatory
authority to delay or suspend those clinical trials or delay the analysis of data derived from them. A number of events, including
any of the following, could delay the completion of our ongoing and planned clinical trials and negatively impact our ability
to obtain regulatory approval for, and to market and sell, a particular product candidate:
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conditions imposed
on us by the FDA or any applicable foreign regulatory authority regarding the scope or design of our clinical trials;
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delays in recruiting
and enrolling participants or volunteers into any potential future clinical trials;
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delays in obtaining,
or our inability to obtain, required approvals from institutional review boards or other reviewing entities at clinical sites
selected for participation in our clinical trials;
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insufficient supply
or deficient quality of our product candidates or other materials necessary to conduct our clinical trials;
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lower than anticipated
retention rate of subjects and participants in clinical trials;
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negative or inconclusive
results from clinical trials, or results that are inconsistent with earlier results, that necessitate additional clinical
studies;
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serious and unexpected
drug-related side effects experienced by subjects and participants in clinical trials; or
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failure of our third-party
contractors to comply with regulatory requirements or otherwise meet their contractual obligations to us in a timely manner.
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Clinical trials require
sufficient participant enrollment, which is a function of many factors, including the size of the participant population, the
nature of the trial protocol, the proximity of participants to clinical sites, the availability of effective treatments for the
relevant disease and the eligibility criteria for the clinical trial. Delays in participant enrollment can result in increased
costs and longer development times. The failure to enroll participants in a clinical trial could delay the completion of the clinical
trial beyond our current expectations. In addition, the FDA or foreign applicable regulatory authorities could require us to conduct
clinical trials with a larger number of subjects than we have projected for any of our product candidates. We may not be able
to enroll a sufficient number of participants in a timely or cost-effective manner. Furthermore, enrolled participants may drop
out of clinical trials, which could impair the validity or statistical significance of those clinical trials.
Prior to commencing
clinical trials in the United States, we must submit an Investigational New Drug (IND) application to the FDA and the IND application
must become effective.
We do not know whether
additional clinical trials will begin as planned, will need to be restructured or will be completed on schedule, if at all. Delays
in our clinical trials will result in increased development costs for M-001. In addition, if our clinical trials are delayed,
our competitors may be able to bring products to market before we do and the commercial viability of M-001 or any other future
candidates could be limited.
Clinical trials are very expensive,
time-consuming and difficult to design and implement, and, as a result, we may suffer delays or suspensions in future trials which
would have a material adverse effect on our ability to generate revenues
Human clinical trials
are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements.
Regulatory authorities, such as the EMA and FDA, may preclude clinical trials from proceeding. Additionally, the clinical trial
process is time-consuming, failure can occur at any stage of the trials and we may encounter problems that cause us to abandon
or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including:
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unforeseen safety
issues;
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determination of
proper dosing;
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lack of effectiveness
or efficacy during clinical trials;
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failure of our contract
manufacturers or inability of our in-house facility to manufacture our product candidates in accordance with cGMP;
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failure of third
party suppliers to perform final manufacturing steps for the drug substance;
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slower than expected
rates of participant recruitment and enrollment;
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lack of healthy
volunteers and participants to conduct trials;
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inability to monitor
participants adequately during or after treatment;
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failure of third
party contract research organizations to properly implement or monitor the clinical trial protocols;
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failure of the FDA,
institutional review boards, or IRBs, or other regulatory bodies to approve our clinical trial protocols;
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inability or unwillingness
of medical investigators and IRBs to follow our clinical trial protocols; and
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lack of sufficient
funding to finance the clinical trials.
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In addition, we or
regulatory authorities may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable
health risks or if the regulatory authorities find deficiencies in our regulatory submissions or the conduct of these trials.
Any suspension of clinical trials will delay possible regulatory approval, if any, and adversely impact our ability to develop
products and generate revenue.
Specifically, we are
conducting a phase 3 clinical trial in Europe. If we fail to meet the obligations and planned time table for the performance of
this trial, either due to delays caused by factors that are not in our control or that are caused by third parties, we may suffer
delays in the commencement of the second cohort of the clinical trial. In addition, other factors, such as delays in the construction
of the mid-sized manufacturing facility and the manufacturing of M-001 batches for the clinical trial, may also delay or jeopardize
the completion of the planned clinical trial.
Although we are currently conducting
a pivotal clinical efficacy Phase 3 trial in Europe, we have never conducted a Phase 3 clinical trial in the U.S., and may
be unable to do so for M-001 or any other future product candidates we may develop.
We have never conducted a Phase 3 clinical
trial in the U.S, but we are currently conducting a clinical trial in Europe.
The submission of
a successful clinical trial plan, or IND application, and conducting of later-stage clinical trials are complicated processes.
As an organization, we have conducted only Phase 1 and Phase 2 clinical trials in Israel in accordance with Israeli Public Health
Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable Israeli legislation, and a
Phase 2b clinical trial in Europe, as part of the UNISEC consortium, and we are currently in the process of conducting a pivotal
clinical efficacy phase 3 trial in Europe. We also have had limited interactions with the FDA and have not discussed our proposed
future Phase 3 clinical trial designs or implementation with the FDA. Consequently, we may be unable to successfully and efficiently
execute and complete our planned and ongoing clinical trials in a way that leads to the approval of Phase 3 clinical trials for
M-001 in the U.S., if such clinical trials are required. We may require more time and incur greater costs than our competitors
and may not succeed in obtaining regulatory approvals of M-001. Failure to commence or complete, or delays in our planned clinical
trials, would prevent us from or delay us in developing and commercializing M-001 or any other product candidate we are developing.
We may be forced to abandon development
of M-001 altogether, which will significantly impair our ability to generate product revenues.
The results of any
clinical trial may not meet any or all of the trial’s endpoints. Further, success in preclinical testing and early clinical
trials does not ensure that later clinical trials will be successful, and the results of later clinical trials may not replicate
the results of prior clinical trials and preclinical testing. The clinical trial process may fail to demonstrate that M-001 is
safe for humans and effective for indicated uses. Any such failure may cause us to abandon M-001 and may delay development of
other product candidates. Any delay in, or termination or suspension of, our clinical trials will delay the requisite filings
with the relevant foreign regulatory authorities and, ultimately, our ability to commercialize M-001 and generate product revenues.
If the clinical trials do not support our drug product claims, the completion of development of M-001 may be significantly delayed
or abandoned, which would materially adversely affect our business, financial condition or results of operations.
Positive results in the previous
clinical trials of M-001 may not be replicated in future clinical trials, which could result in development delays or a failure
to obtain marketing approval.
Positive results in
the previous clinical trials of M-001 may not be predictive of similar results in future clinical trials. Also, interim results
during a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biopharmaceutical
industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in early-stage
development. Accordingly, the results from the completed preclinical studies and clinical trials for M-001 may not be predictive
of the results we may obtain in later stage trials. Our clinical trials may produce negative or inconclusive results, and we may
decide, or regulators may require us, to conduct additional clinical trials. Moreover, clinical data are often susceptible to
varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical
studies and clinical trials have nonetheless failed to obtain FDA or European Medicines Agency, or other applicable regulatory
agency, approval for their products.
If we experience delays in the enrollment
of participants in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able
to initiate or continue clinical trials for M-001 or any future product candidate. Participant enrollment, a significant factor
in the timing of clinical trials, is affected by many factors including the size and nature of the population eligible to participate,
the proximity of potential participants to clinical sites, the eligibility criteria for the trial, the design of the clinical
trial, competing clinical trials and clinicians’ and participants’ perceptions as to the potential advantages of the
drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications
we are investigating. If we fail to enroll and maintain the number of participants for which the clinical trial was designed,
the statistical power of that clinical trial may be reduced, which would make it harder to demonstrate that the product candidate
being tested in such clinical trial is safe and effective. Additionally, enrollment delays in our clinical trials may result in
increased development costs for M-001 and any future product candidate, which would cause our value to decline and limit our ability
to obtain additional financing. Our inability to enroll a sufficient number of participants for any of our future clinical trials
would result in significant delays or may require us to abandon one or more clinical trials altogether.
If we are not successful in discovering,
developing and commercializing additional product candidates, our ability to expand our business and achieve our strategic objectives
may be impaired.
Although all of our
efforts to date have been, and a substantial amount of our efforts in the future are expected to be focused on the development
of M-001, another possible future element of our strategy may include identifying and testing additional compounds that are optimized
for peptide-based products. Research programs designed to identify additional product candidates require substantial technical,
financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially
show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development or commercialization
for many reasons, including the following:
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the research methodology
used may not be successful in identifying potential product candidates;
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competitors may
develop alternatives that render our product candidates obsolete;
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a product candidate
may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective
or otherwise does not meet applicable regulatory criteria;
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a product candidate
may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
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a product candidate
may not be accepted as safe and effective by regulatory authorities, participants, the medical community or third-party payors.
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If we are unable to
identify suitable compounds for preclinical and clinical development, we may not be able to obtain sufficient product revenues
in future periods, which likely would result in significant harm to our financial position and adversely impact our ADS price.
Natural disasters, public health and
other states of emergency, such as the novel coronavirus outbreak, could adversely impact our business, including our Phase 3
trial for M-001.
Natural disasters,
public health and other states of emergency affecting the countries in which we operate, or the global economic markets may have
an adverse impact on our business. For example, in December 2019, a strain of novel COVID-19 virus surfaced in Wuhan, China and,
in January 2020, the World Health Organization (WHO) declared the novel COVID-19 virus outbreak a “Public Health Emergency
of International Concern” and the U.S. Department of State instructed travelers to avoid all nonessential travel to China.
Since then, the WHO declared the novel COVID-19 virus as a pandemic and many countries, including the U.S., Israel, Japan, the
United Kingdom and many other countries have imposed various measures designed to minimize the spread of the COVID-19 virus, such
as restrictions on international travel, domestic commute, public gatherings, employment and business operations, as well as limitations
on the presence of employees in any work place at a given time. Such measures, designed to limit the spread of the COVID-19 virus,
may impact our operations, including in connection with the conduct of clinical trials. We will continue to take appropriate and
feasible steps to enable us to publish results of this trial by the end of this year. However, we cannot guarantee that the COVID-19
virus pandemic will not delay the availability of the top line results from the trial currently scheduled to be received by the
end of this year.
The clinical portion
of the Phase 2 trial conducted by the U.S. National Institutes of Health (NIH) in the U.S. is complete, and data was published
by the NIH in January 2020. The NIH, which was responsible for creating and publishing the Clinical Study Report (CSR), completed
it in June 2020. We do not know if and to what extent the pandemic is impacting trial’s lead investigator’s efforts
to create and publish a manuscript
Also, as governments
and regulators focus on containing the recent COVID-19 virus outbreak, and prioritize their work and resources accordingly, there
is no guarantee that interruptions or delays in the operations of the U.S. Food and Drug Administration (FDA) will not impact
the review and approval timelines for the New Drug Application (NDA) we may submit for M-001.
Lastly, at this point
in time, there is significant uncertainty relating to the ongoing effect of the novel coronavirus on our business and, while we
maintain business continuity plans, they might not adequately protect us, travel restrictions and other restrictions may remain
or worsen, all of which would have a negative impact on our business, financial condition and results of operations.
Reimbursement may not be available
for M-001 (if and when approved for commercial sale) or any future product candidates, which could make it difficult for us to
sell such products profitably.
Market acceptance
and sales of M-001 or any future product candidate will depend on coverage and reimbursement policies and may be affected by healthcare
reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations,
decide which products they will pay for and establish reimbursement levels. We cannot be sure that coverage and reimbursement
will be available for our products. We also cannot be sure that the amount of reimbursement available, if any, will not reduce
the demand for, or the price of, our products. If reimbursement is not available or is available only at limited levels, we may
not be able to successfully compete through sales of our proposed products.
We are subject to extensive and costly government regulation.
The product we are
developing is, and any products we may develop in the future will be, subject to extensive and rigorous domestic government regulation,
including with respect to Europe, regulation by the EMA and other relevant regional, national and local authorities, with respect
to Israel, regulation by the Israeli Ministry of Health, and with respect to the U.S., regulation by the FDA, the CMS, other divisions
of the U.S. Department of Health and Human Services, including its Office of Inspector General, the U.S. Department of Justice,
the Departments of Defense and Veterans Affairs and, to the extent our products are paid for directly or indirectly by those departments,
state and local governments and their respective foreign equivalents. The FDA regulates the research, development, preclinical
and clinical testing, manufacture, safety, effectiveness, record keeping, reporting, labeling, storage, approval, advertising,
promotion, sale, distribution, and import and export of pharmaceutical products under various regulatory provisions. M-001 or
any product candidates we may develop, which will be tested and marketed abroad, will be subject to extensive regulation by foreign
governments, whether or not we have obtained EMA, the Israeli Ministry of Health’s approval and/or FDA approval for M-001
or any other given product and its uses. Such foreign regulation may be equally or more demanding than corresponding European,
Israeli or U.S. regulation.
Government regulation
substantially increases the cost and risk of researching, developing, manufacturing, and selling products. Our failure to comply
with these regulations could result in, by way of example, significant fines, criminal and civil liability, product seizures,
recalls, withdrawals, withdrawals of approvals, and exclusion and debarment from government programs. Any of these actions, including
the inability of our proposed products to obtain and maintain regulatory approval, would have a materially adverse effect on our
business, financial condition, results of operations and prospects.
Changes in regulatory requirements
and guidance or unanticipated events during our clinical trials may occur, which may result in necessary changes to clinical trial
protocols, which could result in increased costs to us, delay our development timeline or reduce the likelihood of successful
completion of our clinical trials.
Changes in regulatory
requirements and guidance or unanticipated events during our clinical trials may occur, as a result of which we may need to amend
clinical trial protocols. Amendments may require us to resubmit our clinical trial protocols to IRBs for review and approval,
which may adversely affect the cost, timing and successful completion of a clinical trial. If we experience delays in the completion
of, or if we terminate, any of our clinical trials, the commercial prospects for any affected product candidate would be harmed
and our ability to generate product revenue would be delayed, possibly materially.
If we acquire or license additional
technologies or product candidates, we may incur a number of additional costs, have integration difficulties and/or experience
other risks that could harm our business and results of operations.
We may acquire and
in-license additional product candidates and technologies. Any product candidate or technologies we in-license or acquire will
likely require additional development efforts prior to commercial sale, including extensive preclinical or clinical testing, or
both, and approval by the FDA and applicable foreign regulatory authorities, if any. All product candidates are prone to risks
of failure inherent in pharmaceutical product development, including the possibility that the product candidate or product developed
based on in-licensed technology will not be shown to be sufficiently safe and effective for approval by regulatory authorities.
In addition, we cannot assure you that any product candidate that we develop based on acquired or licensed technology that is
granted regulatory approval will be manufactured or produced economically, successfully commercialized or widely accepted or competitive
in the marketplace. Moreover, integrating any newly acquired or in-licensed product candidates could be expensive and time-consuming.
If we cannot effectively manage these aspects of our business strategy, our business may not succeed.
Risks Related to Our Business and Industry
We are a clinical stage biopharmaceutical
company with no approved products, which makes it difficult to assess our future viability.
We are a clinical
stage biopharmaceutical company with a limited operating history. We have not yet demonstrated an ability to successfully overcome
many of the risks and uncertainties frequently encountered by companies in rapidly evolving fields, particularly in the pharmaceutical
area. For example, to execute our business plan, we will need to successfully:
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execute product
candidate development activities;
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obtain required
FDA and applicable foreign regulatory approvals for the development and commercialization of any product candidate;
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maintain, leverage
and expand our intellectual property portfolio;
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build and maintain
robust sales, distribution and marketing capabilities, either on our own or in collaboration with strategic partners;
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gain market acceptance
for our products;
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develop and maintain
any strategic relationships we elect to enter into; and
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manage our spending
as costs and expenses increase due to drug discovery, preclinical development, clinical trials, regulatory approvals and commercialization.
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If we are unsuccessful
in accomplishing these objectives, we may not be able to develop product candidates, raise capital, expand our business or continue
our operations.
The members of our management team
and certain consultants are important to the efficient and effective operation of our business, and we may need to add and retain
additional leading experts. Failure to retain our management and consulting team and add additional leading experts could have
a material adverse effect on our business, financial condition or results of operations.
Our executive officers,
our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation
of our business, particularly Dr. Ron Babecoff, our Chief Executive Officer, and Dr. Tamar Ben-Yedidia, our Chief Scientific Officer.
Our failure to retain the personnel that have developed much of the technology we utilize today, or any other key management and
technical personnel, could have a material adverse effect on our future operations. Our success is also dependent on our ability
to attract, retain and motivate highly trained technical, and management personnel, among others, to continue the development
and commercialization of our current and future products.
We face significant competition. If we cannot successfully
compete with new or existing products, our marketing and sales will suffer and we may never be profitable.
We will compete against
fully integrated pharmaceutical and biopharmaceutical companies and smaller companies that are collaborating with pharmaceutical
companies, academic institutions, government agencies and other public and private research organizations. In addition, many of
these competitors, either alone or together with their collaborative partners, operate larger research and development programs
than we do, and have substantially greater financial resources than we do, as well as significantly greater experience in:
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developing immuno-modulating
products (including vaccines);
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undertaking preclinical
testing and human clinical trials;
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obtaining FDA approvals
and addressing various regulatory matters and obtaining other regulatory approvals of drugs;
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formulating and
manufacturing drugs; and
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launching, marketing
and selling drugs.
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Generally, our competitors
currently include large fully integrated pharmaceutical companies such as Sanofi-Pasteur, GlaxoSmithKline, Seqirus (Ex bioCSL
and Novartis flu vaccines), AstraZeneca and Abbott (Solvay) as well as companies and academic research institutes in various developmental
stages attempting to develop improved influenza vaccines, such as AltImmune, FluGen, Icahn School of Medicine at Mount Sinai,
Imutex, Medicago, National Institute of Allergy and Infectious Diseases, Vaxart, and Vivaldi Biosciences. If our competitors develop
and commercialize products faster than we do, or develop and commercialize products that are superior to our product candidates,
our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing and commercializing products
earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors
may also develop products or technologies that are superior to those we are developing, and render our product candidate obsolete
or non-competitive. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we
may never be profitable.
The extent to which
our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competition
in the biotechnology and biopharmaceutical industry is intense and has been accentuated by the rapid pace of technology development.
Our competitors also compete with us to:
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attract parties
for acquisitions, joint ventures or other collaborations;
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license proprietary
technology that is competitive with M-001;
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attract and hire
scientific talent and other qualified personnel.
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We may be subject to legal proceedings and/or to product
liability lawsuits.
We could incur substantial
costs in connection with product liability claims relating to our current or potential product candidates. We may incur substantial
liabilities and may be required to limit commercialization of our products in response to product liability lawsuits, which may
result in substantial losses.
M-001 or any future
product candidate could cause adverse events, including injury, disease or adverse side effects. These adverse events may not
be observed in clinical trials, but may nonetheless occur in the future. If any of these adverse events occur, they may render
M-001 or any future product candidate ineffective or harmful in some participants, and any future sales would suffer, materially
adversely affecting our business, financial condition and results of operations.
In addition, potential
adverse events caused by M-001 or any future product candidate could lead to product liability lawsuits. If product liability
lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit the marketing
and commercialization of any future product. Our business exposes us to potential product liability risks, which are inherent
in the testing, manufacturing, marketing and sale of pharmaceutical products. We may not be able to avoid product liability claims.
For example, changes in laws outside the U.S. are expanding our potential liability for injuries that occur during clinical trials.
Product liability insurance is expensive, subject to deductibles and coverage limitations, and may not be available in the amounts
that we desire for a price we are willing to pay. Product liability insurance for the pharmaceutical and biotechnology industries
is generally expensive, if available at all. If, at any time, we are unable to obtain sufficient insurance coverage on reasonable
terms or to otherwise protect against potential product liability claims, we may be unable to clinically test, market or commercialize
our product candidate. A successful product liability claim brought against us in excess of our insurance coverage, if any, may
cause us to incur substantial liabilities, and, as a result, our business, liquidity and results of operations would be materially
adversely affected. In addition, the existence of a product liability claim could affect the market price of the ADSs.
If our employees commit fraud or
other misconduct, including noncompliance with regulatory standards and requirements, and insider trading, our business may experience
serious adverse consequences.
We are exposed to
the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures: to comply with FDA
regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply
with federal and state health-care fraud and abuse laws and regulations, to report financial information or data accurately or
to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry
are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices.
These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,
customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information
obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Our
board of directors adopted a Code of Ethics. However, it is not always possible to identify and deter employee misconduct, and
the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or
losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance
with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves
or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant
fines or other sanctions.
In addition, during
the course of our operations, our directors, executives and employees may have access to material, non-public information regarding
our business, our results of operations or potential transactions we are considering. If a director, executive or employee was
to be investigated, or an action was to be brought against a director, executive or employee for insider trading, it could have
a negative impact on our reputation and the market price of the ADSs. Such a claim, with or without merit, could also result in
substantial expenditures of time and money, and divert attention of our management team from other tasks important to the success
of our business.
We may encounter difficulties in
managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results of
operations and financial condition.
We may not be able
to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentially
rapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place
a strain on our human and capital resources. To manage growth effectively, we will be required to continue to implement and improve
our operating and financial systems and controls to expand, train and manage our employee base. Our ability to manage our operations
and growth effectively will require us to continue to expend funds to enhance our operational, financial and management controls,
reporting systems and procedures, and to attract and retain sufficient talented personnel. If we are unable to scale up and implement
improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and
controls, then we will not be able to successfully commercialize our product candidate or future products. Failure to attract
and retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective
growth. Moreover, the management, systems and controls currently in place or to be implemented may not be adequate for such growth,
and the steps we have taken to hire personnel and to improve such systems and controls might not be sufficient. If we are unable
to manage our growth effectively, it will have a material adverse effect on our business, results of operations and financial
condition.
If we are unable to obtain adequate
insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss or damage.
Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience
difficulty in obtaining adequate directors’ and officers’ liability insurance.
Our business will
expose us to potential liability that results from risks associated with conducting clinical trials of M-001 and any future product
candidate. We are currently conducting a Phase 3 clinical trial in several countries in Europe. The clinical trial liability insurance
is subject in each country to local laws and ranges between $1,150 to $19,000 thousands per each country. A successful clinical
trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects, financial condition
and results of operations even though clinical trial insurance is successfully maintained or obtained. The current and planned
insurance coverages may only mitigate a small portion of a substantial claim against us.
In addition, we may
be unable to maintain sufficient insurance as a public company to cover liability claims made against our officers and directors.
If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers and
directors to manage the Company.
Recent disruptions in the financial markets and economic
conditions could affect our ability to raise capital.
In recent years, the
U.S. and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financial
crises as well as a variety of other factors including, among other things, the current COVID-19 pandemic, extreme volatility
in security prices, severely diminished liquidity and credit availability, ratings downgrades of certain investments and declining
valuations of others. The U.S. and certain foreign governments have taken unprecedented actions in an attempt to address and rectify
these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actions taken
by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability
to raise capital, if needed, on a timely basis and on acceptable terms or at all.
Our current management team has
limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately comply with federal
securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our
business, results of operations and financial condition.
Although our ordinary
shares were traded on the Tel Aviv Stock Exchange and we filed public reports in Israel in the past, our current management team
has limited experience managing and operating a company publicly traded in the U.S. Failure to comply or adequately comply with
any laws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely
affect our business, results of operation or financial condition and could result in delays in achieving the development of an
active and liquid trading market for the ADSs.
We may be subject to extensive environmental, health
and safety, and other laws and regulations in multiple jurisdictions.
Our business involves
the controlled use, directly or indirectly through our service providers, of hazardous materials, various biological compounds
and chemicals; therefore, we, our agents and our service providers may be subject to various environmental, health and safety
laws and regulations, including those governing air emissions, water and wastewater discharges, noise emissions, the use, management
and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. The risk of
accidental contamination or injury from these materials cannot be eliminated. If an accident, spill or release of any regulated
chemicals or substances occurs, we could be held liable for resulting damages, including for investigation, remediation and monitoring
of the contamination, including natural resource damages, the costs of which could be substantial. We are also subject to numerous
environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to
blood-borne pathogens and the handling of biohazardous materials and chemicals. Although we maintain workers’ compensation
insurance to cover the costs and expenses that may be incurred because of injuries to our employees resulting from the use of
these materials, this insurance may not provide adequate coverage against potential liabilities. Additional or more stringent
federal, state, local or foreign laws and regulations affecting our operations may be adopted in the future. We may incur substantial
capital costs and operating expenses and may be required to obtain consents to comply with any of these or certain other laws
or regulations and the terms and conditions of any permits or licenses required pursuant to such laws and regulations, including
costs to install new or updated pollution control equipment, modify our operations or perform other corrective actions at our
respective facilities or the facilities of our service providers. We have undergone inspections and obtained approvals from various
governmental agencies though limited our experience may be.
Governments may impose strict price
controls, which may adversely affect our revenues, if any.
In some countries,
including the countries comprising the European Union, or the EU, the pricing of pharmaceuticals and certain other therapeutics
is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable
time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we
may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies.
If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels,
our business could be harmed, possibly materially.
Risks Related to Dependence on Third Parties
M-001 is based on an exclusive license
from Yeda, and we could lose our rights to this license if a dispute with Yeda arises or if we fail to comply with the financial
and other terms of the license.
We license our core
intellectual property from Yeda under an exclusive license agreement, pursuant to which we received an exclusive worldwide license
for the development, manufacturing, use, marketing, sale, distribution and importing of products that are directly or indirectly
based on certain patents and patent applications owned by Yeda and/or certain other intellectual property to be developed by Yeda
and related thereto. Pursuant to the terms of the license agreement, unless earlier terminated in accordance with the provisions
thereof, the license agreement will expire upon the later of: (i) the expiration date of the last patent licensed thereunder;
or (ii) in the event only one product will be developed and/or commercialized by utilizing the licensed intellectual property,
15 years from the date of first commercial sale of such product in either the U.S or Europe, following receipt of New Drug Approval
from the FDA or equivalent approval in any European country for such product; or (iii) in the event that more than one product
will be developed and/or commercialized by utilizing the licensed intellectual property, following the receipt of New Drug Approval
from the FDA or equivalent approval in any European country for such product, the expiry of a 20 year period during which there
shall not have been a sale of any such products in either the U.S. or any country in Europe. However, Yeda is entitled to terminate
the exclusivity rights or to terminate the license agreement with 30 days prior written notice to us if: (a) no commercial sales
of at least one product are initiated during six months after receipt of an FDA or similar regulatory approval for commercial
marketing; or (b) no sales of any products are reported for over a year after sales of a product have commenced. Yeda and/or the
Company (where applicable) will also be entitled to terminate the license agreement by written notice: (x) in the event either
party materially breaches any of its obligations under the agreement, provided that such material breach is uncurable or, if curable,
is not cured by us within 30 days (or in the case of failure by us to make payments due to Yeda in connection with the license
agreement, 10 days) from receipt of notice of such breach; or (y) in the event a temporary or permanent liquidator is appointed
for our Company, a resolution is passed to voluntarily wind up our Company, or an order or act is granted for the winding up of
our Company, provided that if such order or act was initiated by any third party, such order or act is not cancelled within 120
days; or (z) we contest the validity of one of the patents registered by Yeda. Upon termination of the license agreement, all
rights and documents will be returned to Yeda, and other than in the case of expiration pursuant to (i) through (iii) above we
will be required to grant Yeda an exclusive world-wide irrevocable license to our know-how and products which are based on the
intellectual property licensed from Yeda or that were discovered or occur or arise from the performance of our development work
pursuant to the license agreement. In the event of termination of the license agreement due to any reason other than (a), (b)
or (x) through (z) above, we will be entitled to receive royalty payments equal to 25% of the net proceeds received by Yeda from
the grant to third parties, within the five years following the termination of the license agreement, of a license or other rights
which include our developments, up to the aggregate amount of research funds actually expended by us for development. If Yeda
terminates the license agreement, or licenses to a third party the intellectual property it had licensed to us pursuant to this
license agreement, or if any dispute arises with respect to our arrangement with Yeda, such dispute may disrupt our operations
and would likely have a material and adverse impact on us if resolved in a manner that is unfavorable to us. Our current product
candidate is based on the intellectual property licensed under the license agreement, and if the license agreement is terminated
prior to its expiration, it would have a material adverse effect on our business, prospects and results of operations.
We rely on third parties to conduct
our clinical trials and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion
of such trials
We do not independently
conduct our Phase 3 clinical trial of M-001 in Europe. We rely on third parties such as contract research organizations, clinical
data management organizations, medical institutions and clinical investigators, to perform this function. We expect to continue
to rely on such third parties in conducting our clinical trials of M-001, and expect to rely on these third parties to conduct
clinical trials of any other product candidate that we develop. Any of these third parties may terminate their engagement with
us at any time. If we need to enter into alternative arrangements, it would delay our product development activities.
Our reliance on these
third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities.
We remain responsible for ensuring that our clinical trial is conducted in accordance with the requirements of the relevant regulator,
and failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, third
parties that we rely on for our clinical development activities may also have relationships with other entities, some of which
may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines
or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain,
or may be delayed in obtaining, marketing approvals for M-001. Our product development costs will increase if we experience delays
in testing or obtaining marketing approvals.
Use of third parties to manufacture
our M-001 may increase the risk that we will not have sufficient quantities of M-001 at an acceptable cost, which could delay,
prevent or impair our development or commercialization efforts.
In August 2018, and
as planned, we relocated to our mid-sized manufacturing facility in Jerusalem, with potential capacity to annually produce up
to forty million doses of M-001 for Phase 3 clinical trial supply or commercial supply. Our production line is still under construction.
We currently rely on a third party CMO for the supply of M-001 until the completion of our independent production line.
Reliance on a third party CMO entails risks, including:
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Reliance on third party for regulatory compliance
and quality assurance;
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The possible breach of the manufacturing agreement
by the third party;
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The possible failure to manufacture sufficient
quantities of M-001 due to reasons outside of the reasonable control of the third party;
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The possible misappropriation
of our proprietary information, including our know-how; and
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The possible termination
or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.
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Our CMO may not be
able to comply with current cGMP regulations or similar regulatory requirements outside of the U.S. Our failure, or the failure
of our third party manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including
fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of
product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely
affect supplies of our product candidates.
Failure to complete the construction
of our independent production line in our new facility, in a timely manner or at all, will prolong our dependency on third parties
for the manufacturing of M-001 and may result in insufficient quantities of M-001.
In August 2018 we
moved to our new facility in Jerusalem. Construction of our independent production line of M-001 for the purpose of future clinical
trials and commercialization is complete, and we plan to be ready to produce commercial batches in 2021, subject to the successful
completion of the pivotal clinical efficacy Phase 3 trial we are currently conducting in Europe. If we fail to complete our production
line in a timely manner or at all, we will enter into agreements with CMOs or expand our existing agreement to manufacture M-001
for the purpose of conducting future clinical trials, as the case may be, and commercialization. If we fail to expand our existing
manufacturing agreement and/or enter into additional agreements, or if our partners do not manufacture adequate amounts of M-001
for reasons that are not within our control, we may not possess adequate amounts of M-001 for our anticipated purposes. Insufficient
amounts of M-001 may cause delays in our clinical development and commercialization of M-001.
We may not obtain the necessary
materials for the performance of additional clinical trials in the U.S. or other countries around the world.
Some of our clinical
trials involve obtaining materials and information that may not currently be in our possession and that we rely on suppliers and
manufacturers to provide. Specifically, as an example, we were not able to satisfy the FDA’s request for information regarding
the H5N1 vaccine (including information as to manufacturing, dosage, formulation, etc.) required for our previously contemplated
Phase 2 clinical trial in the U.S., and as a result we elected to convert our IND application submitted in June 2013 into a Drug
Master File. It is possible that the FDA or any other relevant regulatory body will request us to provide materials or information
that are not in our possession at that time before approving any proposed clinical trials.
Risks Related to Our Intellectual Property
If we fail to adequately protect,
enforce or secure rights to the patents which we own or that were licensed to us or any patents we may own or license in the future,
the value of our intellectual property rights would diminish and our business and competitive position would suffer.
Our success, competitive
position and future revenues, if any, depend in part on our ability to obtain and successfully leverage intellectual property
covering our products and product candidates, know-how, methods, processes and other technologies, to protect our trade secrets,
to prevent others from using our intellectual property and to operate without infringing the intellectual property rights of third
parties.
The risks and uncertainties
that we face with respect to our intellectual property rights include, but are not limited to, the following:
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the degree and range
of protection any patents will afford us against competitors;
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the patents concerning
our business activities were not registered in all countries and therefore our patent protection may be lacking in some territories;
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if and when patents
will be issued;
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whether or not others
will obtain patents claiming aspects similar to those covered by our own or licensed patents and patent applications;
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we may be subject
to interference proceedings;
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we may be subject
to opposition or post-grant proceedings in foreign countries;
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any patents that
are issued may not provide meaningful protection;
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we may not be able
to develop additional proprietary technologies that are patentable;
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other companies
may challenge patents licensed or issued to us or our customers;
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other companies
may independently develop similar or alternative technologies, or duplicate our technologies;
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other companies
may design around technologies we have licensed or developed;
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enforcement of patents
is complex, uncertain and expensive; and
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we may need to initiate
litigation or administrative proceedings that may be costly whether we win or lose.
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If patent rights covering
our products and methods are not sufficiently broad, they may not provide us with any protection against competitors with similar
products and technologies. Furthermore, if the United States Patent and Trademark Office, or the USPTO, or any foreign patent
office issue patents to us or our licensors, others may challenge the patents or design around the patents, or the patent office
or the courts may invalidate the patents. Thus, any patents we own or license from or to third parties may not provide any protection
against our competitors.
We cannot be certain
that patents will be issued as a result of any pending applications, and we cannot be certain that any of our issued patents or
patents licensed from Yeda (or any other third-party in the future) will give us adequate protection from competing products.
For example, issued patents, including the patents licensed by us, may be circumvented or challenged, declared invalid or unenforceable,
or narrowed in scope.
In addition, since
publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that
we were the first to make our inventions or to file patent applications covering those inventions.
It is also possible
that others may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses
requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that
we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement, and
we may be unable to do so.
In addition to patents
and patent applications, we depend upon proprietary know-how to protect our proprietary technology. We require our employees,
consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential
information to any other parties. We also require our employees and consultants to disclose and assign to us their ideas, developments,
discoveries and inventions. These agreements may not, however, provide adequate protection for our know-how or other proprietary
information in the event of any unauthorized use or disclosure.
Obtaining and maintaining our patent
protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental
patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance
fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the
patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,
fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be
cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights
in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application
include, but are not limited to, failure to respond to office actions within prescribed time limits, non-payment of fees and failure
to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would
have a material adverse effect on our business.
Costly litigation may be necessary
to protect our intellectual property rights and we may be subject to claims alleging the violation of the intellectual property
rights of others.
We may face significant
expense and liability as a result of litigation or other proceedings relating to patents and other intellectual property rights
of others. In the event that another party has also filed a patent application or been issued a patent relating to an invention
or technology claimed by us in pending applications, we may be required to participate in an interference proceeding declared
by the USPTO to determine priority of invention, which could result in substantial uncertainties and costs for us, even if the
eventual outcome is favorable to us. We, or our licensors, also could be required to participate in interference proceedings involving
issued patents and pending applications of another entity. An adverse outcome in an interference proceeding could require us to
cease using the technology or to license rights from prevailing third parties.
The cost to us of
any patent litigation or other proceeding relating to our licensed patents or patent applications, even if resolved in our favor,
could be substantial and could divert management’s resources and attention. Our ability to enforce our patent protection
could be limited by our financial resources, and may be subject to lengthy delays. A third party may claim that we are using inventions
claimed by their patents and may go to court to stop us from engaging in our normal operations and activities, such as research,
development and the sale of any future products. Such lawsuits are expensive and would consume time and other resources. There
is a risk that a court will decide that we are infringing the third party’s patents and will order us to stop the activities
claimed by the patents, redesign our products or processes to avoid infringement or obtain licenses (which may not be available
on commercially reasonable terms or at all). In addition, there is a risk that a court will order us to pay the other party damages
for having infringed their patents.
Moreover, there is
no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed
by the patent, or that such a license, if made available to us, could be acquired on commercially acceptable terms. In addition,
third parties may, in the future, assert other intellectual property infringement claims against us with respect to our product
candidate, technologies or other matters. Any claims of infringement asserted against us, whether or not successful, may have
a material adverse effect on us.
We rely on confidentiality agreements
that could be breached and may be difficult to enforce, which could result in third parties using our intellectual property to
compete against us.
Although we believe
that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure
of confidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us
of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them, the
agreements can be difficult and costly to enforce. Although we seek to enter into these types of agreements with our contractors,
consultants, advisors and research collaborators, to the extent that employees and consultants utilize or independently develop
intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated
with M-001 or any future product candidates. If a dispute arises, a court may determine that the right belongs to a third party.
In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary know-how
that we seek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others.
Despite the protective measures we employ, we still face the risk that:
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these agreements
may be breached;
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these agreements
may not provide adequate remedies for the applicable type of breach;
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our proprietary
know-how will otherwise become known; or
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our competitors
will independently develop similar technology or proprietary information.
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International patent protection
is particularly uncertain, and if we are involved in opposition proceedings in foreign countries, we may have to expend substantial
sums and management resources.
Patent law outside
the United States may be different than in the United States. Further, the laws of some foreign countries, such as China where
certain patents owned or licensed by us were granted, may not protect our intellectual property rights to the same extent as the
laws of the United States, if at all. A failure to obtain sufficient intellectual property protection in any foreign country could
materially and adversely affect our business, results of operations and future prospects. Moreover, we may participate in opposition
proceedings to determine the validity of our foreign patents or our competitors’ foreign patents, which could result in
substantial costs and divert management’s resources and attention. Additionally, due to uncertainty in patent protection
law, we have not filed patent applications in many countries where significant markets exist.
Intellectual property rights do not necessarily address
all potential threats to our competitive advantage.
The degree of future
protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and
may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
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others may be able
to make compounds that are the same as or similar to M-001 or any future product candidate but that are not covered by the
claims of the patents that we own or have exclusively licensed;
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we or our licensors
or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending
patent application that we own or have exclusively licensed;
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we or our licensors
or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;
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others may independently
develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property
rights;
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it is possible that
our pending patent applications will not lead to issued patents;
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issued patents that
we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable,
as a result of legal challenges by our competitors;
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our competitors
might conduct research and development activities in countries where we do not have patent rights and then use the information
learned from such activities to develop competitive products for sale in our major commercial markets;
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we may not develop
additional proprietary technologies that are patentable; and
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the patents of others
may have an adverse effect on our business.
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We may be subject to claims challenging the inventorship
of our patents and other intellectual property.
We may be subject
to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property
as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants
or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other
claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose
valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an
outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation
could result in substantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court
ruled in 2012 that an employee who receives a patent or contributes to an invention during his employment may be allowed to seek
compensation for such contributions from his or her employer, even if the employee’s contract of employment specifically
states otherwise and the employee has transferred all intellectual property rights to the employer. The Israeli Supreme Court
ruled that the fact that a contract revokes an employee’s right for royalties and compensation, does not rule out the right
of the employee to claim their right for royalties. As a result, it is unclear whether and, if so, to what extent our employees
may be able to claim compensation with respect to our future revenue. We may receive less revenue from future products if any
of our employees successfully claim for compensation for their work in developing our intellectual property, which in turn could
impact our future profitability.
Risks Related to Our Operations in Israel
Potential political, economic and
military instability in the State of Israel, where our senior management, our head executive office, research and development,
and manufacturing facilities are located, may adversely affect our results of operations.
Our head executive
office, our research and development facilities, our current manufacturing facility, as well as some of our clinical sites are
located in Israel. Our officers and most of our directors are residents of Israel. Accordingly, political, economic and military
conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment of the
State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any hostilities
involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our
operations and results of operations. In the last decade, there have been escalations in violence between Israel, on the one hand,
and Hamas, the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s
border with the Gaza Strip, which resulted in missiles being fired from Gaza into southern and central Israel, including near
Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikes against civilian targets in various parts
of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions
in Israel. Our offices and laboratory, located in Jerusalem, Israel, are within the range of the missiles and rockets that have
been fired at Israeli cities and towns from Gaza sporadically since 2006, with escalations in violence during which there were
a substantially larger number of rocket and missile attacks aimed at Israel. Any armed conflicts, terrorist activities or political
instability in the region could adversely affect business conditions and could harm our results of operations and could make it
more difficult for us to raise capital. Parties with whom we do business may decline to travel to Israel during periods of heightened
unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face.
In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance
in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions
in such agreements. Further, in the past, the State of Israel and Israeli companies were subjected to economic boycotts. Several
countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may
have an adverse impact on our operating results, financial condition or the expansion of our business.
Our operations may be disrupted as a result of the obligation
of Israeli citizens to perform military service.
Many Israeli citizens
are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the
age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military
conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant
call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations
could be disrupted by such call-ups, which may include the call-up of members of our management. Such disruption could materially
adversely affect our business, financial condition and results of operations.
Investors may have difficulties
enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws,
against us, or our executive officers and directors or asserting U.S. securities laws claims in Israel.
We
are incorporated in Israel. Most of our current executive officers and directors reside in Israel and most of our assets reside
outside of the United States. Therefore, a judgment obtained against us or any of these persons in the United States, including
one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and
may not be enforced by an Israeli court. It may also be difficult to effect service of process on these persons in the United
States or to assert U.S. securities law claims in original actions instituted in Israel.
Even
if an Israeli court agrees to hear such a claim, it may determine that Israeli, and not U.S., law is applicable to the claim.
Under Israeli law, if U.S. law is found to be applicable to such a claim, the content of applicable U.S. law must be proved as
a fact, which can be a time-consuming and costly process, and certain matters of procedure would be governed by Israeli law. There
is little binding case law in Israel addressing these matters.
Under applicable U.S. and Israeli
law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting
from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions
irrespective of their agreements with us, which in turn could impact our future profitability.
We generally enter
into non-competition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants,
if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of
time. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may
be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed
while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former
employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests
of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information
or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable
to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain
competitive may be diminished.
Your rights and responsibilities
as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of
shareholders of U.S. corporations.
Since we are incorporated
under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli
law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.-based
corporations. In particular, a shareholder of an Israeli company, such as us, has a duty to act in good faith and in a customary
manner in exercising its rights and performing its obligations towards us and other shareholders and to refrain from abusing its
power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment
to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions
that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders.
In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders
vote or to appoint or prevent the appointment of an office holder of ours or other power towards us has a duty to act in fairness
towards us. However, Israeli law does not define the substance of this duty of fairness. Since Israeli corporate law underwent
extensive revisions approximately 15 years ago, the parameters and implications of the provisions that govern shareholder behavior
have not been clearly determined. These provisions may be interpreted to impose additional obligations and liabilities on our
shareholders that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law may delay,
prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even when
the terms of such a transaction are favorable to us and our shareholders.
Israeli corporate
law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals
for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to
these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date that
a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date
that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of each class of securities
of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least
95% of the issued share capital (provided that a majority of the offerees that do not have a personal interest in such tender
offer shall have approved the tender offer, except that if the total votes to reject the tender offer represent less than 2% of
the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not
have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including those
who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender
offer, petition the court to alter the consideration for the acquisition (unless the acquirer stipulated in the tender offer that
a shareholder that accepts the offer may not seek appraisal rights).
Our articles of association
provide that our directors (other than external directors) are elected to terms, with only two or three of our directors (other
than external directors) to be elected each year, in each case for a term of three years. Our 2015 annual general meeting approved
the staggering and extension of the term of our board members. The staggering of the terms of our directors prevents a potential
acquirer from readily replacing our entire board of directors at a single annual general shareholder meeting. This could prevent
an acquirer from seeking to effect a change in control of our company by proposing an acquisition proposal offer opposed by our
board, even if beneficial to our shareholders.
Furthermore, Israeli
tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence
does not have a tax treaty with Israel exempting 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 numerous conditions, including a holding period
of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are
restricted. 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 actual disposition of the shares has occurred.
These and other similar
provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition
or merger would be beneficial to us or to our shareholders.
The Israeli government grants that
we received require us to meet several conditions and may restrict our ability to manufacture some of our product candidates and
transfer relevant know-how outside of Israel and require us to satisfy specified conditions.
We received Israeli
government grants for certain research and development expenditures. The terms of these grants may require us to satisfy specified
conditions in order to manufacture products and transfer technologies outside of Israel. In addition, under the Encouragement
of Research, Development and Technological Innovation in the Industry Law 5744-1984, or the Innovation Law, and related rules
and regulations promulgated thereunder to which we are subject due to our receipt of grants from the Israeli Innovations Authority,
or IIA (formerly known as the Office of the Chief Scientist of the Israeli Ministry of Economy, or OCS), a recipient of IIA grants
such as us must report to the IIA regarding any change of control or any change in the holding of the means of control of our
Company which transforms any non-Israeli citizen or resident into an “interested party”, as defined in the Innovation
Law, in our Company, and in the latter event, the non-Israeli citizen or resident shall execute an undertaking in favor of the
IIA, in a form provided under the IIA guidelines.
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 NIS, but some portion of our clinical trials and operational expenses are in U.S. Dollars and Euros.
As a result, we are exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions
to decrease the risk of financial exposure from fluctuations in the exchange rate of the currencies mentioned above in relation
to the NIS. These measures, however, may not adequately protect us from adverse effects.
We received Israeli government grants
towards some of our research and development activities. The terms of these grants may require us to satisfy specified conditions
in order to manufacture products and transfer technologies outside of Israel. We may be required to pay penalties in addition
to the repayment of the grants. Such grants may be terminated or reduced in the future, which would increase our costs.
Our research and development
efforts have been financed, partially, through grants that we received from the IIA, formerly known as the OCS. We therefore must
comply with the requirements of the Innovation Law and related rules and guidelines, including, but not limited to, paying royalties
to the IIA on income generated from the sale of products and related services associated with research and development programs
funded by the IIA. As of December 31, 2019, we received $5.5 million in IIA grants.
The discretionary
approval of an IIA committee will be required for any transfer to third parties outside of Israel of know-how related to M-001,
which has been developed with IIA funding. We may not receive the required approvals should we wish to transfer this technology,
manufacturing and/or development outside of Israel in the future. We may be required to pay penalties and/or additional payments
for such activities, such as with respect to a transfer of IIA funded know-how abroad, payment of a redemption fee calculated
according to the formulas provided in the IIA’s rules and guidelines, in addition to repayment of the grants. Such grants
may be terminated or reduced in the future, which would increase our costs. IIA approval is not required for the export of any
products resulting from the IIA funded research or development in the ordinary course of business.
Risks Related to our Securities
The controlling
share ownership position of Angels Investments in High Tech Ltd. will limit your ability to elect the members of our board of
directors, may adversely affect our share price and will result in our non-affiliated investors having limited influence on corporate
actions.
Angels
Investments in High Tech Ltd. (“AIHT”) is currently our controlling shareholder. As of May 15, 2020, AIHT beneficially
owned 37.6% of the voting power of our outstanding ordinary shares. Therefore, AIHT has the ability to substantially influence
us through this ownership position. For example, AIHT may be able to substantially influence elections of directors, amendments
of our organizational documents, and approval of any merger, amalgamation, sale of assets or other major corporate transaction.
AIHT’s interests may not always coincide with our corporate interests or the interests of other shareholders, and it may
exercise its voting and other rights in a manner with which you may not agree or that may not be in the best interests of our
other shareholders. So long as it continues to own a significant amount of our equity, AIHT will continue to be able to strongly
influence our decisions.
We incur significant costs as a
public company in the United States, and our management is required to devote substantial additional time to new compliance initiatives
as well as to compliance with ongoing U.S. and Israeli reporting requirements.
We are a publicly
traded company in the U.S. As a public company in the U.S., we incur additional significant accounting, legal and other expenses.
We also incur costs associated with corporate governance requirements of the SEC and the NASDAQ Capital Market, as well as requirements
under Section 404 and other provisions of the Sarbanes-Oxley Act. The implementation and testing of such processes and systems
may require us to hire outside consultants and incur other significant costs. Any future changes in the laws and regulations affecting
public companies in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, and the rules and
regulations adopted by the SEC and the NASDAQ Capital Market, for so long as they apply to us, will result in increased costs
to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain
certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements
could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board
committees, if any, or as executive officers.
We may currently be a passive foreign
investment company, or PFIC, for U.S. federal income tax purposes or may become one in any subsequent year. There may be negative
tax consequences for U.S. taxpayers that are holders of our ordinary shares or our ADSs.
Generally,
if for any taxable year 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production
of, or produce, passive income, we would be characterized as a PFIC for U.S. federal income tax purposes. Passive income for this
purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities
transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes such amounts
derived due to the temporary investment of funds, including those raised in a public offering. In determining whether a non-US
corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly,
at least a 25% interest (by value) is considered.
We believe we may
have become a PFIC in 2018, and although we have not determined whether we were a PFIC in 2019, or in any subsequent year, our
operating results for any such years may cause us to be a PFIC. If we were a PFIC in 2019, or any subsequent year, and a U.S.
shareholder does not make an election to treat us as a “qualified electing fund,” or QEF, or make a “mark-to-market”
election, then “excess distributions” to a U.S. shareholder, and any gain realized on the sale or other disposition
of our ordinary shares or ADSs will be subject to special rules. Under these rules: (i) the excess distribution or gain would
be allocated ratably over the U.S. shareholder’s holding period for the ordinary shares (or ADSs, as the case may be); (ii)
the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were
a PFIC would be taxed as ordinary income; and (iii) the amount allocated to each of the other taxable years would be subject to
tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed
deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition,
if the U.S. Internal Revenue Service, or the IRS, determines that we are a PFIC for a year with respect to which we have determined
that we were not a PFIC, it may be too late for a U.S. shareholder to make a timely QEF or mark-to-market election. U.S. shareholders
who hold our ordinary shares or ADSs during a period when we are a PFIC will be subject to the foregoing rules, even if we cease
to be a PFIC in subsequent years, subject to exceptions for U.S. shareholders who made a timely QEF or mark-to-market election.
A U.S. shareholder can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with
the instructions thereto. A QEF election generally may not be revoked without the consent of the IRS. Upon request, we will annually
furnish U.S. shareholders with information needed in order to complete IRS Form 8621 (which form would be required to be filed
with the IRS on an annual basis by the U.S. shareholder) and to make and maintain a valid QEF election for any year in which we
or any of our subsidiaries are a PFIC.
The application of
the PFIC rules may result in a U.S. shareholder incurring a tax liability in excess of cash received. For instance, the application
of the deemed deferral benefit under the excess distribution rules can result in an effective tax rate of more than one hundred
percent. Further, if a U.S. shareholder makes a QEF election, such U.S. shareholder will be subject to U.S. federal income tax
on a modified passthrough basis and may be allocated taxable income without receiving a corresponding distribution of cash to
pay any resulting tax. Likewise, a U.S. shareholder who makes a mark-to-market election will not receive a distribution of cash
to pay any resulting tax. Finally, the disposition of PFIC stock in an otherwise tax-deferred transaction may require a U.S. shareholder
to recognize the resulting gain as a PFIC inclusion.
Failure to achieve and maintain
effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our
business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in
our financial reporting, which could have a material adverse effect on the price of the ADSs.
Effective internal
controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document
and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which
requires annual management assessments of the effectiveness of our internal controls over financial reporting. In addition, if
we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to
time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial
reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal controls, failing to remediate
these deficiencies or weaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment
may cause investors to lose confidence in our reported financial information, which could have a material adverse effect on the
price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed.
As an “emerging growth company”
under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, which could make
the ADSs less attractive to investors.
For as long as we
are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and other
regulatory requirements that are generally unavailable to other public companies, including:
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an exemption from
the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section
404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; and
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an exemption from
compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory
audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional
information about our audit and our financial statements.
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We will be an emerging
growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1
billion or more, (ii) December 31, 2020, (iii) the date on which we have, during the previous three-year period, issued more than
$1 billion in non-convertible debt or (iv) the date on which we are deemed a “large accelerated issuer” as defined
in Regulation S-K of the Securities Act.
We cannot predict
if investors will find the securities less attractive because we may rely on these exemptions. If some investors find the securities
less attractive as a result, there may be a less active trading market for securities and the market price of the securities may
be more volatile.
We are a “foreign private
issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.
We are a foreign private
issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange
Act, we are subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S.
domestic reporting companies. For example, we are not required to issue quarterly reports or proxy statements that comply with
the requirements applicable to U.S. domestic reporting companies. Furthermore, although under the regulations promulgated under
the Companies Law, as an Israeli public company listed overseas we will be required to disclose the compensation of our five most
highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli
public companies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic
reporting companies. We also have four months after the end of each fiscal year to file our annual reports with the SEC and are
not required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our officers,
directors and principal shareholders are exempt from the requirements to report short-swing profit recovery contained in Section
16 of the Exchange Act. Also, as a “foreign private issuer,” we are also not subject to the requirements of Regulation
FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies reduce the frequency and scope of information
and protections available to you in comparison to those applicable to U.S. domestic reporting companies.
As a “foreign private issuer,”
we are permitted, and follow certain home country corporate governance practices instead of otherwise applicable SEC and NASDAQ
Capital Market requirements, which may result in less protection than is accorded to investors under rules applicable to domestic
U.S. issuers.
As a “foreign
private issuer,” we are permitted, and follow certain home country corporate governance practices instead of those otherwise
required under the listing rules of the NASDAQ Capital Market for domestic U.S. issuers. For instance, we intend to follow home
country practice in Israel with regard to, among other things, board independence requirements, director nomination procedures
and quorum requirements. In addition, we may follow our home country law instead of the listing rules of the NASDAQ Capital Market
that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment of certain
equity based compensation plans, an issuance that will result in a change of control, certain transactions other than a public
offering involving issuances of a 20% or greater interest in the Company, and certain acquisitions of the stock or assets of another
company. We also intend to follow our home country rules regarding the periodic approval of and changes to the formal charter
for our compensation committee instead of the listing rules of the NASDAQ Capital Market. We may in the future elect to follow
home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governance
practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the NASDAQ Capital Market may
provide less protection to you than what is accorded to investors under the listing rules of the NASDAQ Capital Market applicable
to domestic U.S. issuers.
If securities or industry analysts
do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their
recommendations or publish negative reports regarding our business or our traded securities, our securities price and trading
volume could be negatively impacted.
The trading market
for our securities may be influenced by the research and reports that industry or securities analysts publish about us, our business,
our market or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts
will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding
the securities, or provide more favorable relative recommendations about our competitors, the price of our securities would likely
decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we
could lose visibility in the financial markets, which in turn could negatively impact the price of our securities or their trading
volume.
The market price for the ADSs may
be volatile.
The market price for
the ADSs is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including the following:
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our failure to obtain
the approvals necessary to commence further clinical trials;
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results of clinical
and preclinical studies;
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announcements of
regulatory approval or the failure to obtain it, or specific label indications or patient populations for its use, or changes
or delays in the regulatory review process;
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announcements of
technological innovations, new products or product enhancements by us or others;
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adverse actions
taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;
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changes or developments
in laws, regulations or decisions applicable to our product candidates or patents;
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any adverse changes
to our relationship with manufacturers or suppliers;
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announcements concerning
our competitors or the pharmaceutical or biotechnology industries in general;
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achievement of expected
product sales and profitability or our failure to meet expectations;
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our commencement
of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual
property infringement actions;
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any major changes
in our board of directors, management or other key personnel;
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legislation in the
United States, Europe and other foreign countries relating to the sale or pricing of pharmaceuticals;
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announcements by
us of entering into or termination of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions
or capital commitments;
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expiration or terminations
of licenses, research contracts or other collaboration agreements;
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public concern as
to the safety of therapeutics we, our licensees or others develop;
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success of research
and development projects;
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developments concerning
intellectual property rights or regulatory approvals;
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variations in our
and our competitors’ results of operations;
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changes in earnings
estimates or recommendations by securities analysts, if our ADSs are covered by these analysts;
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future issuances
of ordinary shares, ADSs or other securities;
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general market conditions,
including the volatility of market prices for shares of biotechnology companies generally, and other factors, including factors
unrelated to our operating performance; and
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the other factors
described in this “Risk Factors” section.
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These factors and
any corresponding price fluctuations may materially and adversely affect the market price of the ADSs, which would result in substantial
losses by our investors.
In addition, the securities
market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance
of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs.
Substantial future sales or perceived
potential sales of our ADSs in the public market could cause the price of our ADSs to decline.
Substantial sales
of our ADSs on the NASDAQ may cause the market price of our ADSs to decline. Sales by us or our security holders of substantial
amounts of our ADSs, or the perception that these sales may occur in the future, could cause a reduction in the market price of
our ADSs.
The issuance of any
additional ADSs, or any securities that are exercisable for or convertible into our ordinary shares or ADSs, may have an adverse
effect on the market price of our ADSs and will have a dilutive effect on our existing shareholders and holders of ADSs.
We have not paid, and do not intend
to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors may not
benefit from holding our securities.
We have not paid any
cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in
the foreseeable future. Moreover, the Israeli Companies Law, as amended, or the Companies Law, imposes certain restrictions on
our ability to declare and pay dividends. As a result, investors in the ADSs will not be able to benefit from owning these securities
unless their market price becomes greater than the price paid by such investors and they are able to sell such securities. We
cannot assure you that you will ever be able to resell our securities at a price more than the price paid.
You may not receive the same distributions
or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive dividends
or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make
them available to you.
The depositary for
the ADSs has agreed to pay to you 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. You will receive these distributions in
proportion to the number of ordinary shares your 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, 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 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 effect 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 you may not receive the same distributions or dividends as those we make to the holders
of our ordinary shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends
if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value
of the ADSs.
Holders of ADSs must act through
the depositary to exercise their rights as our shareholders.
Holders of the ADSs
do not have the same rights of our ordinary 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 the ADSs may not receive sufficient notice of
a shareholders’ meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respect to
any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the
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 the 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 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 the ADSs may not be able to exercise their right to vote and they may lack
recourse if their ADSs are not voted as they requested. In addition, in the capacity as a holder of ADSs, they will not be able
to call a shareholders’ meeting.
You may be subject to limitations
on transfer of your ADSs.
Your ADSs are transferable
on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it
deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer
or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the
depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any
provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.
Your percentage ownership in us
may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholders vote.
Our board of directors
has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued
shares, including ordinary shares and ADSs issuable upon the exercise of outstanding options. Issuances of additional shares and
ADSs would reduce your influence over matters on which our shareholders vote.
Management will have broad discretion
as to the use of the proceeds from the exercise of the warrants, and we may not use the proceeds effectively.
As of May 15, 2020,
the period for exercising ADS warrants issued to investors in our initial public offering in the U.S. and the representative’s
warrants issued to underwriters in such offering has ended and we received aggregate gross proceeds of $4.2 million since issuance
of the warrants from the exercise of such warrants, some of which were exercised on a cashless basis. Our management has broad
discretion in the application of the proceeds from the exercise of the such warrants and could spend the proceeds in ways that
you do not agree with or that do not improve our results of operations or enhance the value of the ADSs. Our failure to apply
these funds effectively could have a material adverse effect on our business and cause the price of the ADSs to decline.
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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Our History
Our legal commercial
name is BiondVax Pharmaceuticals Ltd. We are a company limited by shares organized under the laws of Israel. We were incorporated
in Israel in 2003 as a privately held company. In February 2007, we completed an initial public offering of our ordinary shares
on the Tel Aviv Stock Exchange (TASE)., In May 2015, we completed an initial public offering of our ADSs and ADS Warrants on the
Nasdaq Capital Market, and we were dual listed from that date until we voluntarily delisted from the TASE as of January 22, 2018.
As of May 15, 2020, the period for exercising the ADS Warrants ended and almost all were exercised.
Our principal executive
offices are located at Jerusalem BioPark, 2nd floor, Hadassah Ein Kerem Campus, Jerusalem, Israel, and our telephone
number is +972-8-930-2529. Our website is www.biondvax.com. Information contained on, or accessible through, our website is not
incorporated by reference herein and shall not be considered part of this annual report. Our agent for service of process in the
United States is Puglisi & Associates, whose address is 850 Library Avenue, Suite 204, Newark, Delaware, and whose telephone
number is (302) 738-6680.
Our capital expenditures
for 2019, 2018, and 2017 amounted to approximately $2,150, $6,866 and $1,304 thousands, respectively. These expenditures were
primarily for factory leasehold improvements, computers and laboratory equipment.
We are a clinical
stage biopharmaceutical company focused on developing and, ultimately, commercializing immunomodulation therapies for infectious
diseases. Our current product candidate, M-001, is a synthetic peptide-based protein targeting both seasonal and pandemic strains
of the influenza virus. Unlike existing influenza vaccines, which offer only strain specific seasonal protection or pandemic prevention,
M-001 is designed to provide long-lasting protection against multiple existing and future influenza strains. As a result, we believe
that M-001 has the potential to become an attractive alternative to existing influenza vaccines.
M-001 is based on
research initially conducted at the Weizmann Institute of Science in Israel, or the Weizmann Institute, over a period of approximately
10 years prior to our inception in 2003. In 2003, we acquired from Yeda Research and Development Company Ltd., or Yeda, an affiliate
of the Weizmann Institute, an exclusive worldwide license for the development, manufacture, use, marketing, sale, distribution
and importation of products based, directly or indirectly, on patents and patent applications filed pursuant to the invention
titled “Peptide Based Vaccine for Influenza”, developed on the basis of the research conducted by Professor Ruth Arnon
and her team at the Weizmann Institute. Since 2003, we continued the research and development of M-001 under the supervision of
our Chief Scientific Officer, Dr. Tamar Ben Yedidia (who completed her doctorate in the lab of Professor Arnon at the Weizmann
Institute) and, at present, we own or license five families of patents filed in a large number of jurisdictions, the latest of
which is expected to be in force until 2035.
According to the US
Centers for Disease Control and Prevention (CDC), , the estimated adjusted seasonal influenza vaccine effectiveness (VE) from
2004 to 2019 in the U.S. varied between 10% during the 2004/2005 season to 60% during the 2010/2011 season. According to this
data, the average VE is about 40%. Most existing influenza vaccines are formulated based on weakened or dead strains of the influenza
virus that are predicted to be the most common circulating strains during the then upcoming influenza season or that are perceived
to have the greatest potential to cause a future pandemic outbreak. While the influenza virus frequently and unpredictably mutates,
resulting in novel strains, existing seasonal and pandemic influenza vaccines are strain-specific, and only target those specific
strains, and are not expected to protect against novel emerging influenza strains. In addition, the production cycle of most existing
influenza vaccines is long (approximately 5 to 6 months), considerably limiting the ability to quickly immunize the population
in case of a pandemic outbreak.
We intend to seek
regulatory approvals to market M-001 for the following indications: (i) as a universal influenza vaccine suitable to be administered
to the general population to provide protection against seasonal and pandemic strains of influenza; and (ii) as a pre-pandemic
influenza vaccine, or primer, for national stockpile, suitable to be administered to the general population, prior to a strain
specific pandemic vaccine, for enhanced pandemic preparedness.
We are conducting
a pivotal clinical efficacy Phase 3 trial in 85 clinical trial sites in seven Eastern European countries, subject, among others,
to the regulations of the European Medicines Agency (EMA). In March 2018 we entered into a master service agreement and work order
with a European contract research organization, or CRO, to conduct the first pivotal clinical efficacy Phase 3 trial of M-001.
Launched in August 2018, the primary endpoints of this trial are to demonstrate safety of M-001 and the clinical efficacy
conferred by M-001 administration, measured by reduction of confirmed flu cases in the vaccinated group versus placebo. A secondary
endpoint will assess reduction in flu illness severity among those receiving M-001 versus placebo. In October 2018 we announced
the successful enrollment of the last participant of the first cohort, consisting of 4,042 participants, for the first season
of this clinical trial. The Company also enrolled 8,421 participants in the trial’s second cohort (2019/20 flu season) in
85 sites in seven countries in eastern Europe. Results are expected by the end of 2020. The Data Safety Monitoring Board, or DSMB,
met in January 2019 in Warsaw, Poland, to review the safety data for our first cohort available at that time and notified us that
they have no safety concerns and recommended that the study continue as planned.
In addition, in November
2017 we entered into a Phase 2 clinical trial agreement in the U.S. for the administration of M-001 with the National Institute
of Allergy and Infectious Diseases (NIAID) one of the institutes and centers that make up the National Institutes of Health (NIH),
an agency of HHS . In April 2018 we reported the first participant enrollment in this clinical trial. In February 2020, preliminary
data regarding the Phase 2 clinical trial was published by NIAID, and NIAID completed the clinical study report (CSR) in June
2020.
In addition to these
ongoing clinical trials, we completed two Phase 1/2 clinical trials and three Phase 2 clinical trials in Israel pursuant to clinical
trial protocols approved by the Israeli Ministry of Health, and a Phase 2b clinical trial in Europe. These clinical trials were
designed for adults between the ages of 18 to 65 and older and included an aggregate of 698 participants. Because our product
candidate is a vaccine, we conducted our Phase 1/2 clinical trials on healthy participants to test both safety of M-001 as our
primary endpoint and the immunogenicity of M-001 as our secondary endpoint. Results from all our Phase 1/2 and Phase 2 clinical
trials indicated that M-001 was well tolerated and safe across all treatment groups within the trial population and that M-001
was effective in causing an immune reaction in clinical trial participants administered with M-001.
In October 2015 we
entered into a Development and Manufacturing Agreement for the production of clinical batches of M-001 with a CMO, based in the
U.S., for the purpose of upscaling the small-scale cGMP manufacturing process of M-001 for Phase 3 and commercial production.
As planned, on August 20, 2018, we announced our move to a new mid-sized factory in Jerusalem, with potential capacity to annually
produce up to forty million doses of M-001. The facility is planned for annual manufacturing capacity of 20 million doses in bulk
including up to 10 million doses in filled and finished (PFS packed) syringes. For this purpose, on July 18, 2017, we entered
into an agreement to lease approximately 1,800 square meters (20,000 square feet) in the Jerusalem BioPark, located in the Ein
Kerem Hadassah campus, next to Hadassah University Hospital and Hebrew University’s Medical School. We financed the costs
of the first stage of construction, in an amount of approximately $10 million, with funds and grants received by us, as well as
with our own financial resources. This first stage of construction included setting up laboratories, offices, and upstream and
downstream manufacturing suites for bulk production and limited capacity for single-dose syringe filling. We also completed setting
up an infrastructure to support our plans to be implemented upon successful Phase 3 results, when we intend to install additional
equipment such as a higher capacity syringe filling machine, automatic visual inspection, and packing machines in order to establish
commercial fill-and-finish capacity.
On June 19, 2017,
we entered into a Finance Contract with the EIB, for the financing of up to Euro 20 million, which was later expanded to Euro
24 million, and up to 50% of the Company’s expected cost of developing and marketing the Company’s product candidate,
M-001. To date, we have drawn down the amount of Euro 24 million and have entered into a security agreement placing a first ranking
floating charge over all our assets in favor of EIB, excluding assets and/or intellectual property rights subject to the license
agreement between the Company and Yeda.
The Israeli Innovation
Authority (IIA), formerly known as the Office of the Chief Scientist, has granted us since 2006 approximately $5.5 million in
funding, for the ongoing development of M-001. In addition, and subject to certain terms and conditions, we have been approved
by the Ministry of Economy and Industry of the State of Israel for a grant of approximately NIS 4 million to be utilized towards
the construction of our factory for the production of Phase 3 and commercial batches of M-001 in Jerusalem, Israel.
We intend, subject
to the successful results of our pivotal clinical efficacy Phase 3 clinical trial in Europe, to enter into discussions with the
Food and Drug Administration (FDA), another of the Federal agencies of HHS, regarding market approval of M-001 in the U.S., and
to comply with the applicable requirements. Although we have not yet submitted a Phase 3 Investigational New Drug (IND) application
to the FDA, we believe that the results of the Phase 2 clinical trials conducted by us so far or to be conducted in the future,
as well as those of our ongoing pivotal clinical efficacy Phase 3 trial in Europe, will further expand our data to provide greater
support for any Phase 3 clinical trial of M-001 we may conduct in the U.S. in the future.
We do not currently
have sufficient financial resources to complete new Phase 3 clinical trials of M-001 on our own. We may seek to establish collaborations
with large multinational pharmaceutical companies and/or national health authorities to finance additional Phase 3 clinical trials
of M-001. However, to the extent that we have sufficient capital to do so (whether through sales of debt or equity securities
or otherwise), we may seek to conduct Phase 3 clinical trials of M-001 without such collaborations.
Our Market Opportunity
Influenza is an infectious
disease caused by different strains of the influenza virus. The disease is common around the world and appears as seasonal or
pandemic outbreaks. The various strains of influenza are classified into A and B groups according to the type of proteins in the
virus. According to information published by the World Health Organization (WHO), a specialized agency of the United Nations,
the global annual attack rate of seasonal influenza is estimated at 5% – 10% in adults and 20% – 30% in children,
and up to 650,000 of those infected die annually as a result of influenza and associated respiratory diseases. In the U.S., the
CDC estimates that influenza was associated with an estimated 45 million illnesses during the 2017/18 flu season, including 810,000
hospitalizations and 61,000 deaths. Most severe morbidity and mortality was observed in adults aged 65 years and older. In addition,
during seasonal influenza epidemics from 1979/80 through 2000/01, the estimated overall number of influenza-associated hospitalizations
in the United States ranged from approximately 54,000 to 430,000 per epidemic, and 63% of these cases occurred among persons over
the age of 65. Infants, adults over the age of 50 and chronic disease patients are most likely to contract influenza and suffer
from complications.
The influenza virus
undergoes frequent mutations. These mutations decrease the effectiveness of the immune reaction of the human body. If the mutations
are very significant, the mutated virus strains may cause global pandemics. Over the last few years, new strains of the influenza
virus previously only existing in animals have appeared in humans, including Avian flu strains such as H5 and H7. We believe that
the appearance of new potentially pandemic strains is a growing concern among health authorities, as these strains increase the
risk of worldwide pandemics and high mortality and morbidity rates. Indeed, the WHO listed the threat of global influenza pandemic
as one of the “Ten threats to global health in 2019.” Furthermore, according to the scientific journal Vaccine (Molinari
et al. 2007), the direct financial loss attributed to the influenza disease in the U.S. was estimated at a total of $87.1 billion
annually, of which $55.7 billion related to incidents of the disease among adults aged 65 years or older. More recently, the White
House Council of Economic Advisors estimated that the annual economic burden for seasonal influenza is over $361 billion in the
U.S. (Mitigating the Impact of Pandemic Influenza through Vaccine Innovation, September 2019).
To date, the most
common therapeutic treatment methods for influenza focus on pain and symptom relief. While anti-viral treatments may shorten the
duration and severity of the disease, such treatments must be applied in the early stages of the course of the disease to be effective.
Many countries around the world, including the United States, provide preventative treatment in the form of annual or seasonal
influenza vaccines, which are especially recommended to patients in risk groups. Because seasonal vaccines target only particular
influenza strains predicted for the coming year, such vaccines may not be effective against the strains that actually do appear
(if different from those predicted) and may not protect against unexpected mutations of a particular influenza strain that was
predicted.
The seasonal influenza
vaccine market was dominated in 2018 by three large pharmaceutical companies Sanofi Pasteur, Seqirus, and GlaxoSmithKline plc
(GSK). According to GlobalData’s “Seasonal Influenza Vaccines – Global Drug Forecast and Market Analysis to
2025” report, dated November 2016, sales of seasonal influenza vaccines in the seven major markets (US, France, Germany,
Italy, Spain, UK, and Japan), will rise from $3.1 billion in 2015 to $4.3 billion by 2025. A CNBC report dated October 19, 2015,
quoted estimated seasonal flu vaccine revenue in the U.S. alone at $1.61 billion in 2014, with total distribution of 147.8 million
doses. The same CNBC report quotes a vaccine manufacturer’s estimated global market in 2015 at $4 billion.
Our Product Candidate M-001
Our current product
candidate, M-001, is comprised of nine peptides that activate the entire immune system (including both a humoral reaction, an
immune reaction causing the body to create antibodies against a pathogen or parts thereof, and a cellular immune reaction, an
immune reaction causing the body to kill or assist in killing pathogens), to prevent the spread of the influenza disease within
the body and shorten the duration of the illness. The selected peptides are from the HA, NP and M1 proteins of both influenza
Type A and Type B virus, and each peptide comprises up to 22 amino-acids. These peptides are common in the vast majority of influenza
virus strains and are combined into a single protein used in M-001.
In order to produce
M-001, we use an expression system that consists of bacteria and a DNA plasmid encoding for M-001. The DNA plasmid encoding is
inserted into a proprietary E. coli bacteria specifically designed for the production of peptide-based products. The bacteria
express M-001 synthetic protein from the DNA, and once expressed, M-001 is further purified from other non-related bacterial proteins.
M-001 is then formulated and filled into sterile vials or syringes (as in our new facility) that are kept in cooled storage until
used.
The following image
demonstrates the selection of certain peptides common in the influenza virus and the formulation of M-001:
M-001 is intended
to be intramuscularly injected into the body. Once administered, M-001 is designed to be recognized by the immune system, triggering
both humoral and cellular immune reactions. This process is expected to result in the creation of new memory cells which, upon
influenza infection, secrete antibodies to fight the influenza virus.
Our Competitive Strengths
We believe our product
candidate can potentially improve influenza protection by providing several distinct advantages, including:
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Multi-strain
flu protection. We believe that the peptide-based structure of M-001 will allow our product to be effective against many
existing and future strains of the influenza virus and to remain effective in protecting against new strains without required
updates and alterations. To test this hypothesis, in January and July 2014, we conducted a sequence examination and when possible,
animal studies in our laboratories, to compare the structure of M-001 with new flu strains (H7N7, H6N1, H5N8, H7N9 and H10N8)
discovered in humans in recent years similarly to the H5N1 strain. Although these strains have not yet been classified as
pandemic, they are dangerous for humans and have caused morbidity and death in the past. The results of such examination and
studies demonstrated that M-001 was compatible against these strains. This data supports our claim of the universality of
M-001 for existing and future influenza virus strains.
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Long-lasting
flu protection. M-001 is designed to enhance humoral and activate cellular reactions of the immune system. We therefore
believe that M-001, if approved for commercial sale, will be more effective and long-lasting compared to currently commercially
available vaccines that generally stimulate only humoral immune responses.
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Continuous sales
cycle not affected by seasonality. Because M-001 is designed to provide a multi-strain flu protection that is long
lasting and is not expected to require updates for future virus strains or mutations, we do not expect future sales of M-001
as a universal standalone vaccine or as a pandemic primer to be affected by the influenza season. Unlike traditional influenza
vaccines, which are sold and administered in western countries primarily during the period from September through November,
we believe that M-001 for these indications can be sold and administered or sold and stored throughout the entire year.
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Shorter production
times. We believe that the production time for M-001 will be only 6 to 8 weeks, as opposed to the 16 to 24 weeks
(on average) required to produce most currently available seasonal influenza vaccines. We expect that shorter production times
will give manufacturers greater flexibility in their production planning, as well as the ability to execute large orders of
vaccine doses in a short timeframe in response to pandemics.
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Absence of allergy
inducing egg proteins. Most influenza vaccines are produced in hen eggs and may therefore cause an allergic reaction
to those allergic to certain egg proteins. An epidemiological study performed by the European Food Safety Authority (EFSA)
in 2011 found that eggs are some of the most common allergens in the population. In contrast, M-001 is not produced using
eggs and does not cause egg protein allergic reactions.
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We also believe the
following key strengths provide us with competitive advantages relative to other companies seeking to develop novel treatments
for the prevention of influenza:
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M-001 is currently
in advanced clinical stage (Phase 3). We are currently conducting a Phase 3 clinical trial in Europe and have completed
two Phase 1/2 clinical trials and three Phase 2 clinical trials in Israel pursuant to clinical trial protocols approved by
the Israeli Ministry of Health, and an additional Phase 2b clinical trial in Europe. Our Phase 1/2 and Phase 2 clinical trial
results indicated that M-001 was well tolerated and safe across all treatment groups within the trial population and was effective
in causing an immune reaction in clinical trial participants administered with M-001.
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Extensive knowledge
and expertise in the use of peptide-based vaccines. We have extensive experience researching and developing peptide-based
compounds, including M-001. Our product candidate is based on years of research, including the research headed by Professor
Ruth Arnon at the Weizmann Institute during the 10 years prior to our inception. Over the course of that 10 year period the
scientific concept of a peptide-based influenza vaccine was established and confirmed in numerous preclinical and clinical
trials for various influenza virus strains. We believe that this knowledge and expertise gives us a competitive advantage
over other universal influenza vaccine developers with less significant experience and knowledge of these fields of study.
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In-house cGMP
production capacity and advanced stage of construction for a commercial manufacturing capacity. Our previous production
facility in Ness Ziona was Phase 1 and 2 clinical trial audited and approved for production according to cGMP standards by
a European qualified person. In October 2015 we entered into a Development and Manufacturing Agreement with a Contract Manufacturing
Organization (CMO) based in the U.S. for the production of clinical batches of M-001 for our current Phase 3 clinical trial.
As planned, on August 20, 2018, we announced our move to a new mid-sized manufacturing facility in Jerusalem, with potential
capacity to annually produce up to forty million doses of M-001 for Phase 3 and commercial use.
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Indications for our Product Candidate
M-001 is currently
in advanced stages of a pivotal clinical efficacy Phase 3 clinical trial.
The use of M-001 as
a universal flu vaccine for the general population is intended to provide prolonged protection against existing and future influenza
strains for a period of at least one year, and may be extended to periods of three to five years, subject to future regulatory
approval. According to the US CDC, approximately 40% of the adult population and 60% of the elderly population in the U.S. (ages
65 and up) is annually vaccinated against the influenza virus. Subject to competitive risks (including the risk that our competitors
may develop vaccines that are or are perceived by doctors to be more effective, longer lasting or less expensive), we expect that
M-001, if approved for commercial sale, will achieve a high penetration rate within its intended markets.
We believe that the
approval of M-001 will allow health authorities to more quickly and effectively protect the general population or targeted groups
from seasonal influenza and/or pandemic outbreaks, using national stockpiles.
Our Business Strategy
Our strategy is to
complete development of, and, thereafter, manufacture and commercialize M-001 for use as a global influenza prevention therapy.
Key elements of our current strategy include the following:
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Receive all required
regulatory approvals for the commercialization of M-001 as a preventative therapy for influenza. We have launched a pivotal
clinical efficacy Phase 3 clinical trial in Europe under the EMA, following the completion of several Phase 2 clinical trials
conducted in Israel and Europe. We have also entered into a clinical trial agreement with the NIAID for a Phase 2 clinical
trial in the U.S. for the administration of M-001 in participants.
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Seek attractive
partnership opportunities. We believe that the proprietary rights provided by M-001, together with the successful clinical
results and commercial scale manufacturing capacity, will create attractive partnership opportunities for large pharmaceutical
companies or health authorities in different countries around the world. We intend to seek to build a portfolio of commercially
attractive partnerships consisting of co-developments and licenses, which will allow us to commercialize M-001 worldwide.
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Further develop
our independent production line. Our previous production facility was Phase 1 and 2 clinical trial audited and approved
for production according to cGMP standards, by a European qualified person. In October 2015 we entered into a Development
and Manufacturing Agreement with a CMO located in the U.S. for the production of clinical batches of M-001 for our current
Phase 3 clinical trial. As planned, on August 20, 2018, we announced our move to a new mid-sized manufacturing facility in
Jerusalem, with potential capacity to annually produce up to forty million doses of M-001 for Phase 3 and commercial use. We
intend to complete the construction of our independent production line of our facility. We intend to complete the construction
of our independent production line of our facility by the end of 2021, subject to successfully completing the phase 3 pivotal
clinical trial we are currently conducting in Europe.
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Results of Our Clinical and Preclinical
Trials
General
All clinical trial
protocols and their results, including preceding safety and efficacy data, are submitted to the regulatory authorities in the
country where the trial is being conducted. The regulatory authority may demand additional preliminary tests before approving
the clinical trial as well as changes to the submitted outline of the clinical trial. These changes may affect the planned timetables,
costs and method of performance of our trials. Furthermore, regulatory authorities in different countries may have different requirements.
The design and execution
of the clinical trials and achieving performance benchmarks at different stages of the trials is a process normally required in
order to receive approval for marketing pharmaceutical products in countries where the clinical trials are performed. Generally,
it is possible to market the product in a country only if such product was approved by that specific country, however in some
countries it is possible to market the product even if the trials were not performed in that territory.
We are currently conducting
a pivotal clinical efficacy Phase 3 trial in 85 clinical trial sites in seven Eastern European countries, subject to, among others,
the regulation of the European Medicines Agency (EMA). Our Phase 3 clinical trial was initiated after we completed two Phase 1/2
clinical trials and three Phase 2 clinical trials in Israel pursuant to clinical trial protocols approved by the Israeli Ministry
of Health, and a Phase 2b clinical trial in Europe. We are assisted by professional advisers in examining the possibilities of
performing clinical trials in additional countries, taking into consideration the costs of the trials, speed of receiving the
approvals, and manner of performing the trials. We consider this information, together with marketing information regarding future
products in each country and whether each country regulatory authority consents to relying on prior approvals and research performed
in other countries, in choosing clinical trial sites.
Failure of clinical
trials at any stage may cause us to perform an additional trial or to cease the development of the product candidate entirely
for a specific indication. We make such decisions based on the nature of the results of the trials. In order to receive the various
approvals required in different countries, we set timetables, taking into account the seasonality of the influenza disease.
Ongoing Phase 3 Clinical trial
As planned, we initiated
a Phase 3 clinical trial in Europe starting at the 2018/2019 flu season. In this clinical trial, we are administering M-001 for
the following indication: as a universal influenza vaccine suitable to be administered to the general population to provide protection
against seasonal and pandemic strains of influenza. The placebo-controlled pivotal clinical efficacy Phase 3 trial enrolled a
total of 12,463 participants over two years, including 4,094 who were enrolled in the trial’s first cohort prior to the
2018/19 flu season and 8,421 who were enrolled in the trial’s second cohort for the 2019/20 flu season. Since assessment
of clinical efficacy of influenza vaccines largely depends on the attack rates of circulating influenza strains, the study features
flexible enrollment to adjust the required number of participants in the second year, and, optionally, the protocol allows us
to extend the clinical trial to a third flu season and a third cohort. The participants are 50 years and older, with at least
half over 65 years of age. The EMA’s Committee for Medicinal Products for Human Use (CHMP) reviewed our Phase 3 trial plan,
provided advice, and allowed us to proceed with the Phase 3 clinical trial plan for M-001. The Data Safety Monitoring Board,
or DSMB, met in January 2019 in Warsaw, Poland to review the safety data for our first cohort available at that time, and notified
us they have no safety concerns and recommended that the study continue as planned.
Clinical
trial number
|
|
Phase
|
|
Location
|
|
Regulatory
Authority
|
|
Trial
Design
|
|
Trial
Purpose
|
|
Population
|
|
Number
of Subjects
|
BVX-010
|
|
3
|
|
Europe
|
|
EMA
|
|
A randomized, double-blind,
placebo-controlled pivotal phase 3 trial
|
|
Primary Endpoints:
safety and clinical efficacy; Secondary Endpoint: reduction of severity of flu illness
|
|
Adults ages 50 and
older, at least 50% of participants are over 65 years old
|
|
Total 12,463, including
Cohorts 1 and 2 (flexible enrollment, divided into cohorts)
|
Results of our completed Clinical
Trials
The following table
summarizes the structure, design and purpose of our completed Phase 2 clinical trials conducted in Israel, Europe and the U.S.,
subject to the relevant regulatory approvals for each clinical trial:
Clinical
trial
number
|
|
Phase
|
|
Trial
Design
|
|
Trial
Purpose
|
|
Population
|
|
Number
of
Subjects
|
|
Results
|
BVX-002
|
|
1/2
|
|
randomized, single-centered,
single-blind, placebo-controlled escalating double-dose
|
|
Primary endpoint: Safety;
Secondary Endpoint: Immunogenicity
|
|
Adults
between ages 18 to 49
|
|
63
|
|
Well tolerated, safe
and induced priming
|
BVX-003
|
|
1/2
|
|
randomized, single-blind,
placebo-controlled escalating double-dose
|
|
Primary endpoint: Safety;
Secondary Endpoint: Immunogenicity
|
|
Elderly
between ages 55 to 75
|
|
60
|
|
M-001 was well tolerated
and a humoral and cellular immune reaction was observed.
|
BVX-004
|
|
2
|
|
randomized, two centered,
two stage, double-blind, placebo controlled double-dose
|
|
Primary Endpoint:
safety; Secondary Endpoint: Immunogenicity
|
|
Adults between
ages 18 to 49
|
|
200
|
|
M-001 was well tolerated
and a humoral and cellular immune reaction was observed.
|
BVX-005
|
|
2
|
|
multicenter, randomized,
placebo-controlled
|
|
Primary Endpoint:
safety; Secondary Endpoint: Immunogenicity
|
|
Elderly
ages 65+
|
|
120
|
|
M-001 was well tolerated
and a humoral and cellular immune reaction was observed.
|
BVX-006
|
|
2
|
|
Randomized, Placebo-Controlled,
Double-Blind
|
|
Primary Endpoint:
safety; Secondary Endpoint: immunogenicity
|
|
Adults between ages
50 to 64
|
|
36
|
|
M-001 was well tolerated
and a humoral and cellular immune reaction was observed.
|
BVX-007
|
|
2b
|
|
Randomized, Placebo-Controlled,
Double-Blind
|
|
Primary Endpoints:
safety and cell mediated immunity
|
|
Adults between ages
18 to 60
|
|
219
|
|
Safety and cellular
immune response of M-001 confirmed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BVX-008
|
|
2
|
|
A randomized, double-blind,
active-controlled phase 2 trial in collaboration with NIAID
|
|
Primary Endpoints:
Safety & cell mediated immunity
|
|
Adults between ages
18 to 49
|
|
120
|
|
Both primary endpoints
were achieved
|
BVX-002
We completed our BVX-002
Phase 1/2 clinical trial during the third quarter of 2009. This Phase 1/2 study was a single-center, single-blind, placebo-controlled,
first-in-man trial, intended to test the safety of M-001 as our primary endpoint and the immunogenicity of M-001 as our secondary
endpoint. More specifically, the study was aimed at assessing the safety of repeated intramuscular administration of two different
doses of the influenza-targeted M-001 vaccine prepared with or without an adjuvant. Three subjects designated as “pre-pioneer”,
were vaccinated once with a low dose (125 mcg) of M-001 and monitored for 7–9 days thereafter to ensure the vaccine’s
relative safety before exposing further subjects to higher doses. Only after evaluation of the responses of these three subjects,
and a minimum 72-hour observation window after release of the third subject, were further vaccinations and doses authorized. In
the remaining cohorts, three subjects of each cohort were always treated before the remainder of the cohort to ensure basic vaccine
safety. In addition, a dose escalation was only allowed after a 10-day observation period between the last dosing of the lower
dose cohorts and the first vaccination of the higher dose cohorts. The appropriate dosage of M-001 was intramuscularly administered
on days 0 and 21 of the clinical trial. Blood was drawn on vaccination days and on day 42 to assess safety and immune parameters.
Follow-up and recording of any adverse events extended up to three weeks after administration of the second vaccine dose.
The broadest immune
response was recorded among subjects vaccinated with two doses of 250mcg or 500mcg of M-001 with or without an adjuvant formulation.
M-001 exhibited a positive safety profile, in that no serious or severe adverse events were reported and no adverse events were
defined as probably or definitely related to treatment. The fewest number of adverse events were reported for the experimental
group administered with the 500mcg of M-001 with an adjuvant. Of the adverse events described as possibly-related to treatment
regimen, 92.6% were graded mild and 61% were overcome within one day of appearance. Only four participants suffered from fever
above 100.4°F.
BVX-003
We completed our BVX-003
Phase 1/2 clinical trial in April 2010. This study was a single-center, single-blind, placebo-controlled trial, intended for further
testing the safety of M-001 as our primary endpoint and the immunogenicity of M-001 as our secondary endpoint. More specifically,
the study was aimed at assessing the safety and tolerability of two successive intramuscular administrations of M-001, prepared
with or without an adjuvant, in elderly volunteers (ages 55 to 75). Subjects were randomly allocated to one of two dosing cohorts,
with 30 subjects per cohort, and treated with either 250mcg or 500 mcg active vaccines. An optional third vaccination with the
commercial trivalent seasonal influenza 2009/10 vaccine (TIV) (Vaxigrip, Sanofi-Pasteur or equivalent product) was supplied to
those interested subjects not immunized prior to the study.
The strongest immune
reactions, both humoral and cellular, were detected among subjects receiving the M-001-based vaccines in 250 or 500 mcg doses
with or without an adjuvant, compared to those receiving placebo with an adjuvant. Humoral responses to M-001 were most significant
among subjects primed with either of the adjuvanted or non adjuvanted M-001-based formulations and subsequently boosted with the
TIV, when compared to the combined control groups that were not previously primed with M-001. All variations of M-001 administration
(with an adjuvant or in different doses) proved safe and tolerable among the participants. The number of subjects reporting adverse
events after treatment with active vaccines was similar to their respective placebo cohorts, showing that the M-001 was well tolerated
and safe.
BVX-004
We completed our BVX-004
Phase 2 clinical trial in June 2011. This Phase 2 study was a multi-center, randomized, two stage, double-blind, placebo-controlled,
double-dosed administration study, intended for further testing the safety of M-001 as our primary endpoint and the immunogenicity
of M-001 as our secondary endpoint. More specifically, the study was aimed at assessing the safety and tolerability of intramuscular
administration of 500 mcg M-001, prepared with an adjuvant, in younger adult volunteers. 200 subjects of the study were randomized
to receive either: (i) two doses of adjuvanted 500 mcg M-001 vaccine (ii) two doses of the placebo (iii) two doses of the adjuvanted
placebo, and (iv) a single co-administration of adjuvanted M-001. The groups were then treated with a third administration of
TIV in different doses approximately 60 days from the second administration.
The results showed
increased humoral and cellular responses after two immunizations with adjuvanted M-001 as compared to after immunization with
adjuvanted placebo. In addition, increased humoral and cellular responses were detected after co-administration of adjuvanted
M-001 with TIV as compared to after co-administration of placebo and TIV. M-001 was found to be well tolerated and safe in all
treatment groups and no relation was found between adverse events and the administration of M-001.
BVX-005
We completed our BVX-005
Phase 2 clinical trial in February 2012. This Phase 2 clinical trial was intended for further testing the safety of M-001 as our
primary endpoint and the immunogenicity of M-001 as our secondary endpoint. Within the framework of this BVX-005 Phase 2 clinical
trial, 120 subjects received two injections of 500 mcg M-001, with or without an adjuvant, or placebo followed by TIV. Accordingly,
subjects were randomly allocated to the following treatment groups: (i) two administrations of M-001 followed by a third administration
of TIV (ii) one administration of M-001 followed by TIV (iii) one administration of adjuvanted M-001 followed by TIV, and (iv)
one administration of placebo followed by TIV.
Results revealed a
significant increase in the proportions of Interferon Gamma secreting cells and influenza infection-fighting antibodies, or influenza
antigens, which indicated an anti-viral immune response that was not observed in the placebo groups. A humoral immunity reaction
was strongest in participants treated with M-001 as a primer and boosted with TIV compared to the placebo group. In addition,
all formulations of M-001 were well tolerated and safe across all treatment groups.
We exposed the blood
plasma samples from the BVX-005 participants (taken following the completion of the trial in 2012) to the current influenza flu
epidemic H3N2, which in 2012 did not yet exist, and examined the immunogenicity (HAI) antibodies in each blood plasma sample.
We found significantly increased level of protective antibodies against the H3N2 strain in the samples taken from participants
that received the M-001 vaccine in comparison to the control group. An average of 50% or greater of the participants in the experimental
group receiving M-001 showed immunogenicity against this new strain versus only 10% on average in the control group, a result
which has statistically high significance. This concurs with the similar results found in our recent BVX-006 phase 2 trial showing
increased antibody response to the H3N2 epidemic flu strain in those that received our universal vaccine, although it was not
included in the commercially available seasonal flu vaccine of the 2014/15 season. We believe this data confirms the universal
nature of M-001, effective against all types of flu strains.
BVX-006
We completed our BVX-006
Phase 2 clinical trial in June 2015. This Phase 2 clinical trial was intended for further testing the safety and immunogenicity
of M-001 at regular and higher doses (0.5 mg and 1 mg, respectively) and after three consecutive administrations. Within the framework
of this BVX-006 Phase 2 clinical trial, 36 subjects between the ages of 50-65, divided into three groups, were intramuscularly
injected three times with M-001 or placebo, followed by an administration of the 2014/2015 season trivalent influenza vaccine
(TIV) 3 weeks later. Accordingly, subjects were randomly allocated to the following treatment groups: (i) three administrations
of 0.5mg of M-001 followed by an administration of TIV (ii) three administrations of 1.0 mg of M-001 followed by an administration
of TIV (iii) three administrations of placebo followed by TIV.
Clinical trial results
indicated that the administration of M-001 is safe and efficient against many strains of the influenza virus when administered
at 1mg for participants at the age of 50-65. M-001 in 1mg dose primed for immune responses in a manner consistent with previous
data in this age group. M-001 also elevated the immune response to other strains that were not included in the current influenza
seasonal vaccine, including against the drifted H3N2 strain of influenza that has caused 2014/2015 season’s epidemic in
the United States. In addition, cell mediated immunity which is specific to different pandemic strains (bird-flu strains) was
elicited after immunization with M-001 alone. These results support our claim that M-001 provides a broadened and improved protection
against multiple influenza type A and B virus strains.
BVX-007
We completed our BVX-007
Phase 2b clinical trial in September 2016. This Phase 2b clinical trial was conducted in Budapest, Hungry, as part of our membership
in the UNISEC Consortium that focused on development and evaluation of promising concepts for a universal influenza vaccine. Prior
to commencement, we received the requisite regulatory approvals for the clinical trial from the EMA and the relevant Hungarian
Regulatory Authority. BVX-007 was designed to evaluate the safety and immunogenicity of M-001 when used ahead of a sub optimal
dose of H5N1, an avian influenza vaccine, provided by a Hungarian supplier of seasonal and H5N1 flu vaccines. BVX-007 was conducted
in adults between the ages 18 to 60, initially including 222 participants. Following the withdrawal of three participants, the
clinical trial was completed with the participation of 219 participants. In July 2017, we announced positive results for the Phase
2b BVX-007 clinical trial: The safety of M-001 (primary endpoint) was confirmed: no treatment related severe adverse events were
observed. The primary immunogenicity endpoint was also achieved with a significant cell mediated immunity observed in the group
immunized with 1mg dose of M-001. The secondary immunogenicity endpoint aimed to show enhanced HAI antibodies to the H5N1 viruses.
Such enhancement was observed in 1 out of 4 strains tested. It should be noted that the sub optimal dose of the H5N1 vaccine alone
induced minimal responses and hence, it might be the reason that the priming effect conferred by the M-001 vaccine was not observed
in all H5N1 strains tested in this study.
BVX-008
On November 20, 2017
we announced the signing of a clinical trial agreement with the NIAID of the U.S. National Institutes of Health for a Phase 2
clinical trial in the U.S. using our product candidate, M-001. The primary endpoints of this clinical trial focused on safety
and cell-mediated immune response to the M-001. In addition, it assessed the ability of M-001 in humans to enhance immune response
provided by a currently marketed QIV seasonal vaccine (an inactivated quadrivalent split-virus seasonal influenza vaccine.
In April 2018, the first participant enrollment in this clinical trial was reported, and in February 2020 the NIAID published
the preliminary data regarding the clinical trial. The data, which are consistent with results of previous clinical trials of
M-001, indicate that both primary objectives were achieved. The clinical study report (CSR) was completed in June 2020 and submitted
by NIAID to the FDA
Safety and Efficacy Preclinical Trials
We conducted safety
and efficacy preclinical trials in rats and mice. These preclinical trials have demonstrated that M-001 provides an effective
flu protection, and an immune reaction against different flu virus strains. During these preclinical trials both humoral and cellular
immune reactions were recorded. The preclinical trials provided a proof of concept for all indications. While these results are
encouraging, we cannot determine the safety and efficacy of M-001 in human participants based on such preclinical trials.
At a pre-IND meeting
held with the FDA in 2012, the FDA indicated that our preclinical trials conducted to that date were sufficient to continue our
Phase 2 and Phase 3 clinical trials.
Future Phase 3 Clinical trials
We intend, subject
to the successful results of our Phase 3 clinical trial in Europe, to enter into discussions with the FDA regarding market approval
of M-001 in the U.S., and to comply with the applicable requirements. Although we have not yet submitted a Phase 3 Investigational
New Drug Application, or IND, to the FDA, we believe that the results of the Phase 2 clinical trials conducted by us so far or
to be conducted in the future, as well as those of our ongoing pivotal clinical efficacy Phase 3 trial in Europe, will further
expand our data to provide greater support for any Phase 3 clinical trial of M-001 we may opt to conduct in the U.S. in the future.
We do not currently
have sufficient financial resources to complete Phase 3 clinical trials of M-001 on our own. We intend to seek to establish collaborations
with large multinational pharmaceutical companies and/or national health authorities to finance Phase 3 clinical trials of M-001.
However, to the extent that we have sufficient capital to do so (whether through sales of debt or equity securities or otherwise),
we may seek to conduct Phase 3 clinical trials of M-001 without such collaborations.
Upon completion of
Phase 3 clinical trials for some or all of our indications, we may initiate Phase 4 post-marketing clinical trials to validate
the clinical efficacy of our product candidate. We also intend to use future revenues accrued from the commercialization of M-001
(if approved for commercial sale) for a specific indication to finance Phase 3 clinical trials for additional indications.
Competition
Currently marketed
flu vaccines are strain-specific. There are many vaccine candidates in development that feature either improved production processes
and/or broadened coverage against drifted vaccine strains. BiondVax’s M-001 is unique in that it is (i) A single formulation
designed to be effective against seasonal and pandemic influenza strains, including Influenza A and Influenza B; (ii) Most advanced
universal flu candidate (7 completed clinical trials, including five Phase 2, of which one is the NIH-sponsored Phase 2 trial
in the U.S., and an ongoing Phase 3 trial in Europe); (iii) Manufactured in E.coli, resulting in significantly shorter production
times and cost efficiency; and, finally (iv) Shelf-life of up to 24 months in refrigerated conditions (testing ongoing), and 6
months at approximately 25°C (room temperature) enabling stockpiling for proactive preparedness.
Currently marketed
Influenza Vaccines
Current influenza
vaccines are mostly produced and marketed by large fully integrated pharmaceutical companies such as Sanofi Pasteur (FluZone,
FluZone High-dose, Vaxigrip, Intanza, Mutagrip, Istivac, and FluBlok following the 2017 acquisition of Protein Sciences Corporation),
GlaxoSmithKline (Fluarix, FluLaval, Alpharix , Influsplit ), Seqirus (Afluria, Fluvirin, Fluad, Flucelvax, Agrippal),
AstraZeneca (FluMist, Fluenz tetra), and Abbott (Influvac, Imuvac). (Note that some of these are the same vaccine but marketed
under different names in different jurisdictions). Flublok is a recombinant protein strain-based influenza vaccine. All currently
marketed influenza vaccines are strain-specific, with each vaccine targeting three or four strains.
Influenza Vaccine
Candidates in Development
To our knowledge,
there are a number of companies and academic labs attempting to develop new influenza vaccines. Our information as to the identity
of our competitors, the nature of the competing product candidates and the development stage of such competing product candidates
relies solely on publicly available information. The following is a summary of known competitors and competing product candidates:
Imutex Limited, a
joint venture between SEEK, a privately held UK-based company, and hVIVO PLC, is developing a vaccine based on six specific peptides
to induce cellular immunity. In 2011 SEEK published Phase 2 challenge clinical trial results in 28 people which indicated that
its vaccine stimulated the immune system and was found to be safe. In April 2016, it was reported that SEEK and hVIVO invested
approximately $20 million to create Imutex, a startup with a “Phase 2a ready” universal flu vaccine candidate. In
March 2018 and January 2019, Imutex reported their FLU-v 004 Phase2b challenge trial achieved the primary endpoint of a statistically
significant reduction in mild to moderate influenza.
AltImmune’s
NasoVax is an intranasally delivered broad seasonal and pandemic T-cell booster recombinant candidate. Results of a Phase 2 trial
were reported in Q3 2018. FluGen is developing REDEE, a vaccine based on a live virus which cannot multiply or cause illness.
The U.S. based company has apparently raised $27 million from investors and received $27 million in federal funds. In 2018, the
company announced results of a Phase 1a trial and initiated a Phase 2 challenge trial. The Phase 2 interim results announced in
2019 reported a ‘serum antibody response’.
Medicago, majority
owned by Mitsubishi Tanabe Pharma, manufactures strain-specific vaccines in tobacco, which enables high capacity production compared
to current egg-based vaccines. In Q3 2018, the company announced the start of a Phase 3 trial.
Vivaldi Biosciences
reported two completed Phase 1 and one Phase 1/2 clinical trial of their deltaFLU LAIV vaccine. Vivaldi reports deltaFLU has been
shown to stimulate coverage against non-vaccine strains.
Vaxart reported results
from a Phase 2 trials of its oral adenovirus-based influenza vaccine in Q4 2018. Vaxart has also recently reported a Universal
Influenza vaccine collaboration with Janssen, and published results of an H1 seasonal influenza oral tablet vaccine challenge
study.
Osivax anticipates
results of a Phase 2a trial in 2021. NIAID are also developing new influenza vaccine candidates. It has been reported that companies
including Sanofi and Johnson & Johnson are also working to improve upon currently marketed influenza vaccines. As well, a
number of academic laboratories across the world are in the early stages of research of additional potential influenza vaccines
including a “chimeric” vaccine at the Icahn School of Medicine at Mount Sinai, New York.
Marketing and Sales
We do not currently
have any marketing or sales capabilities. We intend to license to, or enter into strategic alliances, with governments, health
systems or companies in the pharmaceutical business, which are equipped to market and/or sell our products, if and when approved.
We may seek to establish marketing and/or sales forces in the future, if and when appropriate, in addition to any such licensing
arrangements or strategic alliances.
Seasonal Effect
Generally, influenza
vaccines sales mostly occur during the months of September through November of each year. However, because M-001 is designed to
provide long-lasting (multi-year) protection and not just seasonal protection, we believe that M-001 as a universal standalone
vaccine, if approved, will not be subject to the seasonality experienced by current (seasonal) influenza vaccines on the market.
Manufacturing
M-001 is produced
using modified, non-pathogenic, E.coli bacteria. We produce M-001 in a standard, robust and low cost manufacturing
process according to cGMP standard. Our previous production facility was Phase 1 and 2 clinical trial audited and approved for
production according to cGMP, by a European qualified person. In October 2015 we entered into a Development and Manufacturing
Agreement with a CMO based in the U.S. for the production of clinical batches of M-001 for our current Phase 3 clinical trial.
As planned, on August 20, 2018, we announced our move to a new mid-sized factory in Jerusalem, with potential capacity to annually
produce up to forty million doses of M-001 for Phase 3 and commercial use. Although we contracted with a CMO for the manufacturing
of M-001 for Phase 3 clinical trial and commercialization, subject to the completion of our independent production line in our
new facility and obtaining the necessary funding and resources, we may decide to manufacture M-001 in-house.
Properties
Office Leasing
Agreement
Since August 2018,
our principal executive offices and main laboratory are located at Jerusalem BioPark, 2nd floor, Hadassah Ein Kerem Campus, Jerusalem,
Israel, next to Hadassah University Hospitals and Hebrew University’s Medical School. We lease this space, which presently
consists of a total area of approximately 1,845 square feet, from an unaffiliated third party as of July 18, 2017. The lease period
is 10 years with an option for an additional 5 years at our discretion.
We believe this existing
property is sufficient for our needs in the foreseeable future and that we have the ability to renew our lease at market terms
and expand if required.
Fixed assets
Our fixed assets are
comprised of factory leasehold improvements, laboratory equipment, furniture, software and improvements in the leased property.
The accumulated depreciation as stated in our financial reports is deducted from the fixed assets value. Our fixed assets, less
deduction for the accumulated depreciation, were at NIS 34.9 million ($10.1 million) for the period ended on December 31,
2019 and at NIS 28.3 million ($8.18 million) for the period ended on December 31, 2018.
Our Main Laboratory
Our Ness Ziona laboratory
was audited and approved according to the Good Manufacturing Practice standard pursuant to the European QP directive. Our new
facility in Jerusalem consists of laboratories, manufacturing suites, and offices. The laboratories include (i) an analytical
lab, which conducts quality tests on our products using our designated analytical methods; (ii) virology lab; and (iii) research
and development lab. The manufacturing suites, defined as “clean rooms”, include a fermentation suite (“upstream”),
a protein purification suite (“downstream”) and formulation suite.
The analytical lab
is equipped with advanced equipment and machinery including computerized analytical devices for qualitative and quantitative analysis,
equipment for measuring light absorption properties for identifying substances, equipment for measuring weight, acidity and temperature,
and equipment for identifying replication of DNA sequences.
Our laboratory also
includes a separate technician room which contains our computers and software used to collect the data received from our different
devices for the purpose of analyzing it. The lab also contains refrigerators and freezers which are consistently monitored and
that are connected to a computerized control system. The production rooms are equipped with a fermentation facility, machinery
for filtering and concentrating proteins, a computerized system for the characterization and separation of proteins, as well as
equipment allowing us to work under sterile conditions.
The virology lab is
equipped with microscopes, incubators for growing bacteria, animal cells and viruses, and equipment enabling us to work under
sterile conditions. The work performed at the virology lab involves various virus strains and therefore mandates strict safety
conditions and is subject to Israeli environmental regulation.
The facility also
includes a Water for Injection (WFI) water purification system. The WFI system is controlled and monitored continuously.
Research and other Grants
Research Grants
Grants under the Israeli
Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984
On July 29, 2015,
the Israeli parliament amended the Innvoation Law to establish the Israel Innovation Authority, or IIA, which replaced the OCS.
The IIA is intended to have greater power and freedom than the OCS in launching creative funding tracks and instituting new guidelines
that will govern the transferability and licensing of the resulting technology. IIA was formed as of January 1, 2016, and new
grant tracks and guidelines are published from time to time. Under the amendment, the IIA was granted vast authority to regulate
rules and procedures pertaining to obligations of recipients towards the IIA especially in the matters listed in this memorandum.
The following is a summary of OCS regulations that apply to us following the receipt of grants since 2006:
Under the Innovation
Law, research and development programs which meet specified criteria and are approved by the research committee of IIA, are eligible
for grants. The grants awarded are typically for up to 50% of the project’s expenditures, as determined by the research
committee. The grantee is required to pay royalties to the State of Israel on income generated from the sale of products (and
related services associated with such products), whether received by the grantee or any affiliated entity, developed, in whole
or in part, within the framework of an IIA--funded project or deriving therefrom at rates which are determined under the IIA’s
rules and guidelines (currently a yearly rate of 1.3% to 5% on sales of products or services developed under the approved programs,
depending on the type of the Recipient Company — i.e., whether it is a “Small Company,” a “Large
Company” or a “Traditional Industrial Company” as such terms are defined in the IIA’s rules and guidelines),
up to the aggregate amount of the total grants received by the IIA, plus annual interest based on LIBOR (as determined in the
IIA’s rules and guidelines). The terms of the IIA support also require that products developed using such grants be manufactured
in Israel and that the know-how and technology developed thereunder may not be transferred outside of Israel, unless approval
is received from the IIA (and subject to certain payments to the IIA calculated according to formulas provided under the IIA’s
rules and guidelines (which are capped to amounts specified under such rules and guidelines). Nothing in the foregoing restricts
the export of products that incorporate the funded technology. Should the Research Committee of the IIA approve the transfer of
manufacturing rights outside of Israel, the royalty payments will be subject to an increase of up to a cap of 120%, 150% or 300%
of the total IIA funding and accrued interest (LIBOR) (depending upon the portion of manufacture outside of Israel), and the royalty
rates will be subject to an increase as well. Such approval is not required for the transfer of a portion of the manufacturing
capacity which does not exceed, in the aggregate, 10% of the portion declared to be manufactured abroad in the applications for
funding, in which case there is a notification requirement, and the IIA has the discretion to forbid the transfer. 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.
Ordinarily, as a condition
to obtaining approval to manufacture outside Israel, we would be required to pay increased royalties, as set forth in the Innovation
Law and related rules and guidelines. The total amount to be repaid to the IIA would also be adjusted to between 120% and 300%
of the grants, plus interest at annual rate based on LIBOR, depending on the volume of manufacturing that is carried out outside
Israel.
The Innovation Law
restricts the transfer of know-how funded by the IIA outside of Israel. Transfer of IIA-funded know-how outside of Israel requires
prior IIA approval and is subject to certain payments to the IIA calculated according to formulae provided under the IIA’s
rules and guidelines (which are capped to amounts specified under such rules and guidelines). A transfer for the purpose of the
Innovation Law means an actual sale of the IIA-funded know-how, or any other transaction which in essence constitutes a transfer
of the know-how (such as providing an exclusive license to a foreign entity for R&D purposes, which precludes the IIA funded
company from further using such know-how).. A mere license solely to market products resulting from the IIA-funded know-how would
not be deemed a transfer for the purpose of the Innovation Law.
The IIA has published
rules and guidelines with respect to the grant to a foreign entity of the right to use know-how that was developed using the IIA’s
grants. According to these rules, the grant to a foreign entity of a right to use the funded know-how (which does not entirely
prevent the IIA funded company from using such know-how) is subject to receipt of the IIA’s prior approval. This approval
is subject to payment to the IIA in accordance with the formulas stipulated in these rules. On 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 IIA 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 payments.
If we wish to transfer
IIA-funded know-how, the terms for approval will be determined according to inter alia, the nature of the transaction and
the consideration paid to us for such transfer. The IIA approval to transfer know-how created, in whole or in part, in connection
with an IIA-funded project to a third party outside Israel where the transferring company remains an operating Israeli entity
is subject to payment of a redemption fee to the IIA calculated according to a formula provided under the Innovation Law that
is based, in general, on the ratio between the aggregate IIA grants to the company’s aggregate investments in the project
that was funded by these IIA grants, multiplied by the transaction consideration considering depreciation mechanism and less royalties
already paid to the IIA. The transfer of such know-how to a party outside Israel where the transferring company ceases to exist
as an Israeli entity is subject to a different redemption fee formula that is based, in general, on the ratio between the aggregate
amount of IIA grants received by the company and the company’s aggregate research expenses, multiplied by the transaction
consideration considering depreciation mechanism and less royalties already paid to the IIA. the Innovation Law and related rules
and guidelines establish a maximum payment of the redemption fee paid to the IIA under the above mentioned formulas and differentiates
between two situations: (i) in the event that the company sells its IIA-funded know-how, in whole or in part, or is sold as part
of certain merger and acquisition transactions, and subsequently ceases to conduct business in Israel, the maximum redemption
fee under the above mentioned formulas will be no more than six times the amount received (plus annual interest) for the applicable
know-how being transferred, or the entire amount received, as applicable; (ii) in the event that following the transactions described
above, under contract with the acquiror, the company continues to conduct its research activity in Israel (for at least three
years following such transfer and retains on staff at least 75% of the number of research employees it had for the six months
before the know-how was transferred), then the company is eligible for a reduced cap of the redemption fee of no more than three
times the amounts received (plus annual interest) for the applicable know-how being transferred, or the entire amount received,
as applicable. There are specific caps that are applicable to licensing transactions, whereby such payments shall be no less
than the amount of the grants received, and shall be no more than the cap stated in the Innovation Authority’s applicable
rules.
Subject to prior consent
of the IIA, the company may transfer the IIA-funded know-how to another Israeli company. If the IIA-funded know-how is transferred
to another Israeli entity, the transfer would still require IIA approval but will not be subject to the payment of the redemption
fee (we note that 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). In such case, the acquiring company would have to assume all of the selling company’s responsibilities
towards the IIA as a condition to IIA approval.
Our research and development
efforts have been financed, partially, through grants that we have received from the IIA. We therefore must comply with the requirements
of the Research Law and related regulations. As of December 31, 2019, we have received a total of $5.5 million in IIA grants.
We have not received
additional IIA grants from December 31, 2019 through the date of this annual report.
Finance Contract –
European Investment Bank
We
entered into a finance contract, or the Finance Contract, with the European Investment Bank, or EIB, for the financing of up to
Euro 20 million, which was extended to Euro 24 million, and up to 50% of the Company’s expected cost of developing and marketing
the Company’s product candidate, M-001. The finance contract is subject to the Horizon 2020 framework programme of the European
Union for Research and Technological Development (2014-2020) (Horizon 2020 Framework EU Programme), which provides that the financing
shall be used rationally and in the interest of the European Bank.
Prior
to its expansion to Euro 24 million, the EIB financing was made available in three tranches, all subject to receiving evidence
that the Company has funding available to it in an amount equal to the amount of the respective tranche, as follows: (i) the first
tranche was available during the 12 months following the date of the finance contract, in an amount of Euro 4-6 million; (ii)
the second tranche was available during the 24 months following the date of the Finance Contract, in an amount of Euro 4-6 million,
and subject to receiving evidence of the manufacturing of the first clinical batch for the planned phase 3 clinical trials; (iii)
the third tranche was available during the 36 months following the date of the Finance Contract, in amount that together with
the first and second tranche equalled Euro 20 million and was paid subject to receipt of authorization to launch the phase 3 clinical
trials. To date, we have drawn down all tranches of the loan and has received Euro 24 million.
The
additional Euro 4 million approved by the Management Committee of the European Investment Bank (EIB) was used in support of the
ongoing Phase 3 trial to increase the trial’s second cohort to approximately 8,000 participants, bringing the total size
of the trial to approximately 12,000 participants. The increase in the number of participants was intended to compensate for the
relatively mild 2018/19 flu season in Europe. The additional Euro 4 million was disbursed upon enrollment of the first participant
in the clinical trial’s second season and $US 10 million of funds disbursed pro rata being provided by the Company.
The
EIB financing is interest free and is repayable, per each tranche, in a single installment five years following the date each
tranche was received. A failure to pay any amount payable under the Finance Contract shall cause interest to accrue on each unduly
paid amount, at an annual rate equal to EURIBOR plus 2%.
In
the event the Company elects to prepay the EIB financing, or in the event the EIB shall demand prepayment following certain events,
including a change of control, senior management change or merger events, the Company shall be required to pay EIB the principal
amount of the tranches already paid, or the Prepayment Amount, plus the greater of: (i) the amount, as determined by EIB required
in order for the EIB to realize an internal rate of return on the relevant amount prepaid of 20%; and (ii) the Prepayment Amount.
The finance contract also stipulates that in the event the EIB demands prepayment of the loan due to any prepayment event to non-EIB
lenders, the Company shall be obligated to pay the Prepayment Amount plus an additional reduced amount.
In
addition, and as consideration for the EIB financing, EIB shall be entitled to 3% of any annual M-001 sales revenues as reported
in the Company’s annual financial statements, for a period of twelve years, or for a period longer than twelve years and
subject to the EIB realizing a cash-on-cash multiple of 2.8 times the principal amount of the tranche.
As
of December 31, 2019, we have drawn a sum of Euro 24 million ($26.4 million) in EIB loans.
The
Finance Contract includes certain representations and warranties provided by the Company. The Company shall pay all taxes, duties,
fees and other impositions applied in connection with this Finance Contract. The Finance Contract shall be governed by the laws
of England and Wales and the courts of England shall have exclusive jurisdiction to settle any dispute.
The Finance Contract
shall be subject to a security agreement, or the Security Agreement, creating a first ranking floating charge over all assets
of the Company in favor of the EIB, which will exclude assets and/or intellectual property rights subject to the license agreement
between the Company and YEDA.
Grant from the European
Union – UNISEC
We were a member of
the UNISEC Consortium. The UNISEC Consortium received a grant in the amount of Euro 6 million from the European Union, of which
we expected to receive approximately Euro 0.5 million (approximately $0.6 million) to finance our BVX-007 clinical trial. In June
2013, we entered into a framework agreement with the Department of Pharmaceutical Technology and Biopharmacy of Groningen University,
or the Coordinator, and the 11 other members of the Consortium. The framework agreement, which had a term of four years, defined
the rules of conduct of the Consortium as well as the conditions of our grant, based upon Regulation (EC) No 1906/2006 of the
European Parliament and the council of 18 December 2006. Pursuant to the framework agreement, we undertook to lead and coordinate
the research of cellular immune reaction as a possible indicator for the effectiveness of a universal influenza vaccine. Results,
including information, whether or not they can be protected, that are generated under the project, and including rights related
to copyright, design rights, plant variety rights or similar forms of protection, or foreground intellectual property, shall be
owned by the party carrying the work under the framework agreement. The Foreground shall be transferrable or published only by
the owner with a written prior notice to the parties of the framework agreement. Where Foreground is capable of industrial or
commercial application, its owner must provide for adequate and effective protection. If the owner does not intend to proceed
with filing the necessary intellectual property protections, it must provide notice to the European Commission, that then may
file the protection itself. According to the framework agreement, we may enter into a subcontract agreement with a third party;
however, we will remain solely responsible for the implementation and compliance under the framework agreement. In addition, we
are solely liable for the use of any proprietary rights of third parties. We will not be responsible to any other party to this
framework agreement for any indirect or consequential loss or similar damage, provided such act was not caused by a willful act
or by a breach of confidentiality. We will not be considered in breach of the framework agreement in the event that the breach
is caused by Force Majeure, defined as any unforeseeable and exceptional event affecting the fulfillment of any obligation under
this framework agreement by the parties, which is beyond their control and cannot be overcome despite their reasonable endeavors.
The framework agreement sets the terms and conditions by which the parties may make joint decisions, and, under certain provisions,
allows us to cast a veto vote on a specific decision. All payments shall be paid to us by the Coordinator according to a payment
schedule and following the submission of a financial management report. Should we spend less than the grant we received, we shall
be funded according to our actual expenditures. If we terminate the framework agreement, we will be obligated to return all payments
received and bear any reasonable and justifiable additional costs occurring to the other Parties in order to perform their tasks,
except the amount of contribution accepted by the European Commission or another contributor. The framework agreement is subject
to European Union Law and the laws of Belgium, and the Court of Justice of the European Union shall have sole jurisdiction.
Grant for the Construction
of a Manufacturing Facility in Jerusalem
On March 28, 2017,
we received an approval from the Investment Center of the Ministry of Economy and Industry of the State of Israel, for a grant
representing 20% of NIS 20 million budget, to be utilized towards the construction of our facility for the production of Phase
3 and commercial batches of the Company’s product candidate, M-001.
The receipt of the
Grant is subject to certain terms and conditions, including those outlined under the Israeli Encouragement of Capital Investment
Law, 1959. The terms and conditions include, inter alia, the following: (a) at least 24% of the investments in the planned manufacturing
facility’s fixed assets will be financed by additional share capital; (b) the Company will maintain its intellectual property
and manufacturing facility in Israel for a period of at least 10 years following receipt of the grant; (c) subject to the EIB’s
approval, a floating charge over our assets (excluding assets and/or intellectual property rights subject to the license agreement
between the Company and YEDA).
Raw Materials and Supplies
Our suppliers provide
us with equipment, materials and services used for the research and development of M-001. The main raw materials required for
producing M-001 are standard bacteria culture mediums. The equipment, materials and services we use for research varies in accordance
with the specific research and development we perform. We believe that the raw materials that we require to manufacture M-001,
as well as the raw materials that we require for our research and development operations relating to M-001, are widely available
from numerous suppliers and are generally considered to be generic pharmaceutical materials and supplies. However, replacing approved
suppliers may incur delays and require additional efforts.
Government Regulation
United States
FDA Regulations
In the United States,
the FDA regulates pharmaceuticals and biologics under the Food, Drug & Cosmetics Act, and the Public Health Service Act, and
their implementing regulations. These products are also subject to other federal, state, and local statutes and regulations, including
federal and state consumer protection laws, laws protecting the privacy of health-related information, and laws prohibiting unfair
and deceptive acts and trade practices.
The process required
by the FDA before a new drug product may be marketed in the United States generally involves the following: completion of extensive
preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s Good Laboratory
Practice, or GLP, regulations; submission to the FDA of an IND application, which the FDA must allow to become effective before
human clinical trials may begin and must be updated annually; performance of adequate and well-controlled human clinical trials
to establish the safety and efficacy of the product candidate for each proposed indication; and submission to the FDA of an NDA
for a drug, and Biologic License Application (BLA) for biological product, after completion of all pivotal clinical trials.
An IND application
while technically a request for a Federal approval to transport or distribute a drug across state lines, is, in effect, a request
for authorization from the FDA to administer an investigational drug product to humans. Although none of our clinical trials protocols
were conducted pursuant to an FDA approval, the NIH study (BVX-008) was done under an IND authorization of the FDA. The IND was
submitted by the Division of Microbiology and Infectious Diseases (DMID) of the NIAID and the NIH with cross reference to our
active IND for the product manufacturing (CMC) data. We had two pre-IND meetings in 2008 and 2012 with FDA representatives on
various aspects of M-001 and the clinical development program. The 2012 meeting served as the basis for our IND application submission
in June 2013. In June 2013 we submitted an IND application to the FDA for a contemplated Phase 2 clinical trial intended to be
conducted in the U.S. This Phase 2 clinical trial was designed to test the safety and efficacy of M-001 when administered as a
primer for the H5N1 Avian flu pandemic vaccine, by administering M-001 to participants prior to the administration of the H5N1
vaccine. This IND application included data, reports and summaries from our previously conducted Israeli preclinical and clinical
trials. The FDA reviewed and commented on our IND application and requested, among other things, that we provide to the FDA, prior
to the commencement of the proposed clinical trial, information regarding the H5N1 vaccine selected for use in this proposed clinical
trial and a summary of the toxicological effects of M-001.We provided the information regarding the toxicology of M-001 as requested;
however, we were unable to locate a source for or otherwise acquire the H5N1 vaccine (which was not publicly available) from
a manufacturer approved for the purpose of performing clinical trials in the U.S. As a result, we were not able to satisfy the
FDA’s request for information regarding such vaccine (including information as to manufacturing, dosage, formulation, etc.).
Without such information, we could not complete our IND application and the FDA placed a clinical hold on the trial. In light
of these events, we elected to convert our IND application into a Drug Master File. In the future, we intend to submit an IND
application to the FDA for initiating Phase 3 clinical trials or, if required, to conduct a bridging clinical study to allow licensure
of the M-001 in the U.S. pursuant to the successful completion of the ongoing Phase 3 clinical trial for M-001 in Europe. subject
to the success of the current European Phase 3 trial, subject to approval we plan to conduct these U.S. clinical trials, either
with one or more future collaborators, or, with available funds, on our own, in support of FDA approval to market M-001 in the
U.S.
Clinical trials involve
the administration of the investigational drug to human subjects under the supervision of qualified investigators in accordance
with current Good Clinical Practices, or GCP, which include the requirement that all research subjects provide their informed
consent for their participation in any clinical trial. A protocol for each clinical trial and any subsequent protocol amendments
must be submitted to the FDA as part of the IND. Additionally, approval must also be obtained from each clinical trial site’s
IRB, before the trials may be initiated, and the IRB must monitor the trial until completed. There are also requirements governing
the reporting of ongoing clinical trials and clinical trial results to public registries.
Generally, three phases
of clinical trials are conducted prior to receiving regulatory marketing approval: Phase 1 clinical trials are normally conducted
in small groups of healthy volunteers to assess safety and find the potential dosing range. After a safe dose has been established,
the drug is administered to small populations of eligible participants (Phase 2) to look for initial signs of efficacy in treating
the targeted disease or condition and to continue to assess safety. In the case of vaccines, the participants are healthy and
the signs of efficacy can be obtained in early Phase 1, therefore this Phase is defined as Phase 1/2. Phase 3 clinical trials
are usually 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 effectiveness of the drug.
The FDA, the IRB,
or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that
the research subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an
independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee.
This group reviews unblinded data from clinical trials and provides authorization for whether or not a trial may move forward
at designated check points based on access to certain data from the trial. We may also suspend or terminate a clinical trial based
on evolving business objectives and/or the competitive climate.
Assuming successful
completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational drug product
information is submitted to the FDA in the form of a BLA as compared to an NDA for generally traditional small molecule drugs
requesting approval to market the product for one or more indications. The application includes all relevant data available from
pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with
detailed information relating to the product’s chemistry, manufacturing, and controls and proposed labeling, among other
things. Given the complexities of manufacturing biological products that are processed from living material, BLA content must
also demonstrate purity specifically in terms of showing that the final product does not contain extra material.
Once the BLA submission
has been accepted for filing, the FDA’s goal is to review applications within 10 months of filing. However, the review process
is often significantly extended by FDA requests for additional information or clarification. 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.
After the FDA evaluates
the BLA and conducts inspections of manufacturing facilities where the drug product will be formulated and where the drug will
be produced, it may issue an approval letter or, instead, a Complete Response Letter. An approval letter authorizes commercial
marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that
the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter may
require additional clinical data and/or an additional Phase 3 clinical trial(s), and/or other significant, expensive and time-consuming
requirements related to clinical trials, preclinical studies or manufacturing. Even if such additional information is submitted,
the FDA may ultimately decide that the BLA does not satisfy the criteria for approval. The FDA could also approve the BLA with
a risk evaluation and mitigation strategy to mitigate risks, which could include medication guides, physician communication plans,
or elements to assure safe use, such as restricted distribution methods, participant 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 one or more post-market studies or clinical trials. Such post-market testing may include
Phase 4 clinical trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.
After regulatory approval
of a drug product is obtained, the drug producer is required to comply with a number of post-approval regulations. As a holder
of an approved BLA, we would be required to report, among other things, certain adverse reactions and production problems to the
FDA, to provide updated safety and efficacy information, and to comply with requirements concerning advertising and promotional
labeling for any of our products. These promotion and advertising requirements include, among others, standards for direct-to-consumer
advertising, prohibitions against promoting drugs for uses in participant populations that are not described in the drug’s
approved labeling (known as “off-label use”), rules for conducting industry-sponsored scientific and educational activities
and other promotional activities, Although physicians may prescribe legally available drugs for off-label uses, manufacturers
may not market or promote such off-label uses. Failure to comply with FDA requirements can have negative consequences, including
the immediate discontinuation of marketing activities and noncomplying materials, adverse publicity, enforcement letters from
the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Such enforcement may
also lead to scrutiny and enforcement by other government and regulatory bodies.
Also, quality control
and manufacturing procedures must continue to conform to cGMP after approval to ensure and preserve the long term stability of
the drug product. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive
procedural, substantive, and record keeping requirements. In addition, changes to the manufacturing process are strictly regulated
and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also
require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and
any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort
in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
Future FDA and state
inspections may identify compliance issues at our facilities or at the facilities of our CMOs or licensees that may disrupt production
or distribution, or require substantial resources to correct. In addition, discovery of previously unknown problems with a product
or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved
BLA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could
delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may require changes to a product’s
approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other
risk management measures. Also, new government requirements, including those resulting from new legislation, may be established,
or the FDA’s policies may change, which could delay or prevent regulatory approval of our current product candidate or any
product candidate we may develop in the future (if any).
The FDA also may require
post-marketing testing, or Phase 4 testing, as well as risk minimization action plans and surveillance to monitor the effects
of an approved product or place conditions on an approval that could otherwise restrict the distribution or use of the product.
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.
Efforts to ensure
that our business arrangements with third parties comply with applicable healthcare laws and regulations could be costly. Although
we believe our business practices are structured to be compliant with applicable laws, it is possible that governmental authorities
will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable
fraud and abuse or other healthcare laws and regulations. If our future operations are found to be in violation of any of these
laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative
penalties, damages, fines, exclusion from third party payor programs, such as Medicare and Medicaid, and the curtailment or restructuring
of our operations. If any of the physicians, providers or entities with whom we may do business with will be found to be not in
compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusion from
government funded healthcare programs.
Many aspects of these
laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety
of subjective interpretations which increases the risk of potential violations. In addition, these laws and their interpretations
are subject to change. Any action against us for violation of these laws, even if we successfully defend against it, could cause
us to incur significant legal expenses, divert our management’s attention from the operation of our business, and damage
our reputation.
In addition, from
time to time in the future, we may become subject to additional laws or regulations administered by the FDA, the Federal Trade
Commission, or by other federal, state, local or foreign regulatory authorities, to the repeal of laws or regulations that we
generally consider favorable, or to more stringent interpretations of current laws or regulations. We are not able to predict
the nature of such future laws, regulations, repeals or interpretations, and we cannot predict what effect additional governmental
regulation, if and when it occurs, would have on our business in the future. Such developments could, however, require reformulation
of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional
record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling,
additional scientific substantiation, additional personnel, or other new requirements. Any such developments could have a material
adverse effect on our business.
Israel
Israeli regulations
regarding clinical trials
Before an entity or
person can conduct clinical testing on humans in Israel, such entity or person must receive special authorization from the ethics
committee (also known as a “Helsinki Committee”) and general manager of the institution in which such entity or person
intends to conduct its study, as required under the Guidelines for Clinical Trials in Human Subjects implemented pursuant to the
Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation.
These regulations also require authorization from the Israeli Ministry of Health, except in certain circumstances, and in the
case of genetic trials, special fertility trials and similar trials, an additional authorization of the overseeing institutional
ethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely
to be derived from the project to determine if it justifies the risks and inconvenience to be inflicted on the human subjects,
and the committee must ensure that adequate protection exists for the rights and safety of the participants as well as the accuracy
of the information gathered in the course of the clinical testing. To date, five of seven completed clinical trials of M-001 were
conducted in Israel, one in Europe and one in the U.S. If we perform future clinical studies in Israel, we will be required to
obtain authorization from the ethics committee and general manager of each institution in which we intend to conduct our clinical
trials, and in most cases, from the Israeli Ministry of Health.
The Encouragement
of Industrial Research and Development Law, 5744-1984
We received grants
from the IIA and are therefore subject to the provisions of the R&D Law and a number of related restrictions. See “Business — Research
Grants — Grants under the Israeli Encouragement of Industrial and Development Law.”
Europe/Rest
of World
Whether or not we
obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries
before we can commence clinical trials or marketing of the product in those countries. For example, in the European Union, a clinical
trial application, or CTA, must be submitted to each member state’s national health authority and an independent ethics
committee. The CTA must be approved by both the national health authority and the independent ethics committee prior to the commencement
of a clinical trial in the member state. The approval process varies from country to country and the time frame may be longer
or shorter than that required for FDA approval. In addition, the requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary greatly from country to country. In all cases, clinical trials are conducted in accordance
with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Helsinki Declaration.
To obtain marketing
approval of a drug under European Union regulatory systems, we may submit marketing authorization applications under a centralized
procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European
Union member states. The centralized procedure is compulsory for medicines produced by certain biotechnological processes, products
designated as orphan medicinal products, and products with a new active substance indicated for the treatment of certain diseases,
including M-001, and optional for those products that are highly innovative or for which a centralized process is in the interest
of participants. M-001 falls under the compulsory centralized procedure category. Under the centralized procedure category in
the European Union, the maximum time frame for the evaluation of a marketing authorization application is 210 days (excluding
clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by
the Scientific Advice Working Party of the Committee of Medicinal Products for Human Use, or CHMP). Accelerated evaluation might
be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, defined
by three cumulative criteria: the seriousness of the disease, such as seriously disabling or life-threatening diseases, to be
treated; the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high therapeutic
benefit. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days.
The decentralized
procedure provides for approval by one or more other, or concerned, member states of an assessment of an application performed
by one member state, known as the reference member state. Under this procedure, an applicant submits an application, or dossier,
and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference
member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials
within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment
report, each concerned member state must decide whether to approve the assessment report and related materials. If a member state
cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed
points may eventually be referred to the European Commission, whose decision is binding on all member states.
For other countries
outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical
trials are conducted in accordance with GCPs and the applicable regulatory requirements and the ethical principles that have their
origin in the Helsinki Declaration.
If we fail to comply
with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of
regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Intellectual Property
As of December 31,
2019, we exclusively licensed two families of patents and own three additional families to use within our field of business. Such
patents were granted in various countries, including the United States, Israel, China, Canada, Australia, New Zealand, Mexico,
South Korea, Hong Kong, France, Germany, Spain, Switzerland, Ireland, the United Kingdom, Russia, Brazil, Japan and other countries.
There are also pending patent applications relating to these patent families in various jurisdictions, all of which are active
applications that have yet to be approved. Our patents and patent applications generally relate to influenza vaccines, particularly
M-001, and to their manufacture and use. Our patents and patent applications are expected to expire between 2020 and 2035.
The tables below summarize
material information regarding our patent families, including expected expiration date by territory:
Title: PEPTIDE-BASED VACCINE FOR INFLUENZA
Assignee: YEDA RESEARCH AND DEVELOPMENT CO. LTD.
Priority: Israel 127331 filed: 30-Nov-1998
PCT: WO 00/032228 filed 28-Nov-1999
Country
|
|
Application
No.
|
|
Filing
Date
|
|
Patent
No.
|
|
Expiration
Date
|
|
Status
|
Australia
|
|
200014066
|
|
28-Nov-1999
|
|
766883
|
|
28-Nov-2019
|
|
expired
|
Belgium
|
|
10003160.8
|
|
28-Nov-1999
|
|
2204187
|
|
28-Nov-2019
|
|
expired
|
Canada
|
|
2352454
|
|
28-Nov-1999
|
|
2352454
|
|
28-Nov-2019
|
|
expired
|
Europe
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10003160.8
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28-Nov-1999
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2204187
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|
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expired
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France
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10003160.8
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28-Nov-1999
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2204187
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28-Nov-2019
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expired
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Germany
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10003160.8
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28-Nov-1999
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69944207.9
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28-Nov-2019
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expired
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Hong Kong
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10111907.7
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28-Nov-1999
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1145448
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28-Nov-2019
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expired
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Israel
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143367
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28-Nov-1999
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143367
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28-Nov-2019
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expired
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Italy
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10003160.8
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28-Nov-1999
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2204187
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28-Nov-2019
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expired
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Korea
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10-2001-7006639
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28-Nov-1999
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0703571
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28-Nov-2019
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expired
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Mexico
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PA/A/2001/005398
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28-Nov-1999
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262260
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28-Nov-2019
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expired
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Netherlands
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10003160.8
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28-Nov-1999
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2204187
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28-Nov-2019
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expired
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New Zealand
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511918
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28-Nov-1999
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511918
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28-Nov-2019
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expired
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Spain
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10003160.8
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28-Nov-1999
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2204187
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28-Nov-2019
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expired
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Switzerland
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10003160.8
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28-Nov-1999
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2204187
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28-Nov-2019
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expired
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UK
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10003160.8
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28-Nov-1999
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2204187
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28-Nov-2019
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expired
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U.S.
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09/856920
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28-Nov-1999
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6740325
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28-Nov-2019
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expired
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U.S. -1 Div.
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10/846548
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28-Nov-1999
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7192595
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31-Aug-2020*
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granted
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|
*
|
Due to patent term
adjustment of 277 days
|
Title: IMPROVED INFLUENZA VACCINE
Assignee: YEDA RESEARCH AND DEVELOPMENT CO. LTD.
Priority: US Prov. 60/742574 filed: 06-Dec-2005
PCT: WO2007/066334 filed 06-Dec-2006
Country
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Application
No.
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Filing
Date
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Patent
No.
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|
Expiration
Date
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Status
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Australia
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2006322907
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06-Dec-2006
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2006322907
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06-Dec-2026
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granted
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Austria
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06821622.5
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06-Dec-2006
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552846
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06-Dec-2026
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granted
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Belgium
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06821622.5
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06-Dec-2006
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1968632
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06-Dec-2026
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granted
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Canada
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2632483
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06-Dec-2006
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2632483
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06-Dec-2026
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granted
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Denmark
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06821622.5
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06-Dec-2006
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1968632
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06-Dec-2026
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granted
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Europe
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06821622.5
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06-Dec-2006
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1968632
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granted
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France
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06821622.5
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06-Dec-2006
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1968632
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06-Dec-2026
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granted
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Germany
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602006028848.4
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06-Dec-2006
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1968632
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06-Dec-2026
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granted
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Greece
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06821622.5
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06-Dec-2006
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1968632
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06-Dec-2026
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granted
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Ireland
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06821622.5
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06-Dec-2006
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1968632
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06-Dec-2026
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granted
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Israel
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191977
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06-Dec-2006
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191977
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06-Dec-2026
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granted
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Italy
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06821622.5
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06-Dec-2006
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1962632
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06-Dec-2026
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granted
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Luxembourg
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06821622.5
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06-Dec-2006
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1968632
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06-Dec-2026
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granted
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Netherlands
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06821622.5
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06-Dec-2006
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1968632
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06-Dec-2026
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granted
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Portugal
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06821622.5
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06-Dec-2006
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1968632
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06-Dec-2026
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granted
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Spain
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06821622.5
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06-Dec-2006
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1968632
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06-Dec-2026
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granted
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Sweden
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06821622.5
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06-Dec-2006
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1968632
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06-Dec-2026
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granted
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Switzerland
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06821622.5
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06-Dec-2006
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1968632
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06-Dec-2026
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granted
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UK
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06821622.5
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06-Dec-2006
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1968632
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06-Dec-2026
|
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granted
|
U.S.
|
|
12/096322
|
|
06-Dec-2006
|
|
7914797
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|
22-Jan-2027**
|
|
granted
|
|
**
|
Due to patent term
adjustment of 47 days
|
Title: MULTIMERIC MULTIEPITOPE INFLUENZA VACCINES
Assignee: BiondVax Pharmaceuticals Ltd.
Priority: US Prov. 60/953498 filed 02-Aug-2007
PCT WO2009/016639 filed: 03-Aug-2008
Country
|
|
Application
No.
|
|
Filing
Date
|
|
Patent/Publication
No.
|
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Expiration
Date
|
|
Status
|
Australia
|
|
2008281384
|
|
03-Aug-2008
|
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2008281384
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03-Aug-2028
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granted
|
Brazil
|
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PI 0815008-7
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03-Aug-2008
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PI0815008-7
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19-Nov-2029
|
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granted
|
Canada
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2695399
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03-Aug-2008
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2965399
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03-Aug-2028
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granted
|
China
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200880101581.0
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03-Aug-2008
|
|
ZL200880101581.017
|
|
03-Aug-2028
|
|
granted
|
EURASIA
(RUSSIA)
|
|
201070219
|
|
03-Aug-2008
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017887
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|
03-Aug-2028
|
|
granted
|
Europe
Austria
Belgium
Croatia
Czech Republic
Denmark
Finland
France
Germany
Hungary
Ireland
Italy
Luxembourg
Netherlands
Poland
Portugal
Romania
Spain
Sweden
Switzerland
Turkey
UK
|
|
08789738.5
|
|
03-Aug-2008
|
|
2173376
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|
03-Aug-2028
|
|
granted
|
Hong Kong
|
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10109239.0
|
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03-Aug-2008
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1142809
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03-Aug-2028
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granted
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India
|
|
670/DELNP/2010
|
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03-Aug-2008
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290866
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03-Aug-2028
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granted
|
Israel
|
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203508
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03-Aug-2008
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203508
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03-Aug-2028
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granted
|
Japan
|
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2010-518815
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03-Aug-2008
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5654345
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|
03-Aug-2028
|
|
granted
|
Korea
|
|
10-2010-7003351
|
|
03-Aug-2008
|
|
10-1580660
|
|
03-Aug-2028
|
|
granted
|
Mexico
|
|
MX/A/2010/001284
|
|
03-Aug-2008
|
|
302245
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|
03-Aug-2028
|
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granted
|
U.S.
|
|
12/671617
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|
03-Aug-2008
|
|
8747861
|
|
18-Aug-2031***
|
|
granted
|
U.S.
|
|
14/263359
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|
03-Aug-2008
|
|
US2014/02886982
|
|
03-Aug-2028
|
|
granted
|
*** Due to patent term adjustment of 1110 days
Title: MULTIMERIC MULTIEPITOPE
POLYPEPTIDES AS ENHANCERS FOR SEASONAL AND PANDEMIC INFLUENZA VACCINES
Assignee: BiondVax Pharmaceuticals Ltd.
PCT WO2012/114323 filed: 22-Feb-2011
Country
|
|
Application
No.
|
|
Filing
Date
|
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Patent/Publication
No.
|
|
Expiration
Date
|
|
Status
|
Australia
|
|
2011360572
|
|
22-Feb-2011
|
|
2011360572
|
|
22-Feb-2031
|
|
granted
|
Canada
|
|
2828068
|
|
22-Feb-2011
|
|
|
|
22-Feb-2031
|
|
granted
|
U.S.
|
|
14/000815
|
|
22-Feb-2011
|
|
9303070
|
|
13-May-2031*
|
|
granted
|
* Due to patent term adjustment
of 80 days
Title: VACCINE COMPOSITIONS OF
MULTIMERIC MULTIEPITOPE INFLUENZA POLYPEPTIDES AND THEIR PRODUCTION
Assignee: BiondVax Pharmaceuticals Ltd.
PCT WO2015/151103 filed: 01-April-2015
Priority: US Prov. 61/974449 filed 03-Apr-2014
Country
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Application
No.
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Filing
Date
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Publication
No.
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Expiration
Date
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|
Status
|
Australia
|
|
2015242154
|
|
01-Apr-2015
|
|
|
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01-Apr-2035
|
|
granted
|
Canada
|
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2944768
|
|
01-Apr-2015
|
|
|
|
01-Apr-2035
|
|
filed
|
China
|
|
201580017121X
|
|
01-Apr-2015
|
|
CN106163553
|
|
01-Apr-2035
|
|
examination
|
Europe
|
|
15773045.8
|
|
01-Apr-2015
|
|
3125931
|
|
01-Apr-2035
|
|
examination
|
Hong Kong
|
|
17101579.8
|
|
01-Apr-2015
|
|
1227739
|
|
01-Apr-2035
|
|
filed
|
India
|
|
201627032852
|
|
01-Apr-2015
|
|
|
|
01-Apr-2035
|
|
filed
|
Israel
|
|
248055
|
|
01-Apr-2015
|
|
|
|
01-Apr-2035
|
|
examination
|
Japan
|
|
2016-559415
|
|
01-Apr-2015
|
|
|
|
01-Apr-2035
|
|
granted
|
U.S.
|
|
15/300529
|
|
01-Apr-2015
|
|
20170173142
|
|
01-Apr-2035
|
|
granted
|
U.S. -1
|
|
16/551991
|
|
01-Apr-2015
|
|
2020/0000910
|
|
01-Apr-2035
|
|
filed
|
We do not know of
any oppositions filed, difficulties or delays in connection with applications submitted by us for the registration of the above-mentioned
material patents, including claims submitted against the aforementioned patents that may adversely affect the registration of
the patent.
We do not know whether
any of our pending patent applications will result in the issuance of any future patents. Our issued patents and those that may
be issued in the future, or patents that we exclusively license, may be challenged, narrowed, circumvented or found to be invalid
or unenforceable, which could limit our ability to stop competitors from marketing related products or the length of term of patent
protection that we may have for our products. We cannot be certain that we were the first to invent the inventions claimed in
patents or patent applications owned by or assigned to us, nor can we be certain that the scientists of the Weizmann Institute
were the first to invent the invention claimed in the patents that we exclusively license from Yeda. In addition, our competitors
may independently develop similar technologies or duplicate any technology developed by us, and the rights granted under any issued
patents may not provide us with any meaningful competitive advantages against these competitors. Furthermore, because of the extensive
time required for development, testing and regulatory review of a potential product, it is possible that, before any of our products
can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby
reducing any advantage of the patent.
Yeda License Agreement
At present, among
other patents, we have an exclusive worldwide license to two families of patents from Yeda, the technology transfer arm of the
Weizmann Institute of Science of Rehovot, Israel, pursuant to a license agreement entered into with Yeda in 2003, as amended in
2005.
Pursuant to the license
agreement, Yeda granted us an exclusive worldwide license for the development, manufacturing, marketing, sale, distribution and
importing of products based, directly or indirectly, on patents and patent applications to be approved or submitted pursuant to
the invention titled “Peptide Based Vaccine for Influenza” and the invention titled “Improved Influenza Vaccine”,
developed by research headed by Prof. Ruth Arnon.
Unless terminated
earlier in accordance with the terms described below, the license granted will remain in effect in each county and for each product
developed based on the invention until the earliest of: (i) if a patent was granted in a specific county, the patent expiration
date in such country of the last of the patents; (ii) 15 years from the date of first commercial sale of a product, by us or a
sublicensee, in either the U.S or Europe, after obtaining of FDA New Drug Approval or equivalent approval in any European country,
if there is no patent covering such product in such country but there is however know how that is identifiable as a secret and
is not in the public domain which relates to such product, provided that such know how remains secret and of value.
In exchange for the
license grant, we or our future sub licensers will be obligated to pay royalties equaling 3% of the total amount invoiced by us
or a sub licensee in connection with the sale of products based on Yeda’s patents, or 2% of such amounts if they originated
from a country which did not grant a patent in connection with such products. All sales of products in connection with the license
agreement for any purpose other than for the purpose of clinical trials are required to be made for monetary consideration.
We are not permitted
to assign the license agreement to third parties without Yeda’s prior consent, unless in the framework of our merger with
another entity, as a result of which we are not the surviving entity, subject to certain conditions and requirements under the
license agreement. We are however entitled to grant sublicenses under the license agreement, subject to Yeda’s prior written
approval, provided, among other things, that any sublicense shall expire upon termination of the license agreement and that the
licensee (s) shall be bound by confidentiality obligations similar to our confidentiality obligations under the license agreement.
The sublicense shall not be transferable or sub licensable. To date we have yet to enter into any such sublicense agreement. We
sublicense our products we will be obligated to pay Yeda the following royalties: (i) 45% of consideration received (whether monetary
or otherwise) by us for the grant of or pursuant to sublicenses or in connection with sublicense options executed prior to the
completion of Phase 1 clinical trials; (ii) 35% of consideration received by us up to the first $20 million and 25% of any consideration
received by us exceeding such first $20 million, for the grant of or pursuant to sublicenses or in connection with sublicense
options executed after the completion of Phase 1 clinical trials and prior to the completion of Phase 2 clinical trials; (iii)
20% of consideration received by us up to the first $20 million and 15% of any consideration received by us exceeding such first
$20 million, for the grant of or pursuant to sublicenses or in connection with sublicense options executed after the completion
of Phase 2 clinical trials. We are not obligated to pay Yeda any royalties or other payments with respect to (a) the use or disposal
of a product, without consideration, for the sole purpose of conducting clinical trials in respect of such product; or (b) any
product in any country after the expiry of the license in such country with respect to the product.
We maintain the patents
and patent applications licensed from Yeda, and we are obligated to submit to Yeda a development plan for each potential product.
The license agreement
will terminate upon the later of: (i) the expiration date of the last patent licensed under the license agreement; (ii) in the
event only one product will be developed and/or commercialized by utilizing the licensed intellectual property, 15 years from
the date of first commercial sale of such product in either the U.S or Europe, following receipt of New Drug Approval from the
FDA or equivalent approval in any European country for such product; (iii) in the event that more than one product will be developed
and/or commercialized by utilizing the licensed intellectual property, following the receipt of New Drug Approval from the FDA
or equivalent approval in any European country for such product the expiry of a 20 year period during which there shall not have
been a sale of any such products in either the U.S. or Europe. However, Yeda shall be entitled, at its option and without our
consent, to modify the license so that it is non-exclusive or to terminate the license with 30 days prior written notice to us,
if any of the following occurs: (1) we fail to commence the commercial sale of at least one product based on the licensee’s
intellectual property, in at least one country, within six months following receipt of an FDA or similar foreign regulatory approval
for commercial marketing of such product and taking into account the seasonal nature of the products; or (2) we fail to sell any
product based on the licensee’s intellectual property, during a period of one year after commercial sale of a product has
commenced, during which no sales of the product take place (in both cases, except as a result of force majeure or other factors
beyond our control). In addition, Yeda is permitted to terminate our license agreement by written notice (a) in the event we materially
breach any of our obligations under the license agreement, provided that such material breach is incurable or, if curable, is
not cured by us within thirty days (or in the case of failure by us to make payments due to Yeda in connection with the license
agreement, ten days) from receipt of notice of such breach; or (b) in the event of the appointment of a temporary or permanent
liquidator to our Company or a resolution is passed to voluntarily wind up our Company, or if an order or act is granted for the
winding up of our Company, provided that if such order or act was initiated by any third party, such order or act is not cancelled
within 120 days; or (c) if we contest the validity of one of the patents registered by Yeda. Upon termination of the license agreement,
other than pursuant to (i) through (iii) above, all rights and documents will be returned to Yeda, and we will grant Yeda an exclusive
world-wide irrevocable license to our know-how and products which are based on the intellectual property licensed from Yeda or
that were discovered or occur or arise from the performance of our development work pursuant to the license agreement. In the
event that Yeda terminates the license agreement due to any reason other than termination in accordance with (1), (2) and (a)
through (c) above, we will be entitled to receive royalty payments equal to 25% of net proceeds received by Yeda from the grant
to third parties, within the five years following the termination of the license agreement, of a license or other rights, which
include our developments, up to the aggregate amount of research funds actually expended by us for development.
Environmental Matters
We are subject to
various environmental, health and safety laws and regulations, including those governing the use, management and disposal of hazardous,
radioactive and biological materials and wastes and the cleanup of contaminated sites. We believe that our business, operations
and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws
and regulations. Our laboratory personnel have ongoing communication with the Israeli Ministry of Environmental Protection in
order to verify compliance with relevant instructions and regulations. In addition, all of our laboratory personnel participate
in instruction on the proper handling of chemicals, including hazardous substances before commencing employment, and during the
course of their employment, with us. In addition, all information with respect to any chemical substance that we use is filed
and stored as a Material Safety Data Sheet, as required by applicable environmental regulations. Based on information currently
available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. The operation
of our facilities, however, entails risks in these areas. Significant expenditures could be required in the future if we are required
to comply with new or more stringent environmental or health and safety laws, regulations or requirements.
|
C.
|
Organizational Structure
|
We do not have any
subsidiaries and do not hold any investments in other entities.
|
D.
|
Property, Plants and Equipment
|
Since August 2018,
our principal executive offices and main laboratory are located at Jerusalem BioPark, 2nd floor, Hadassah Ein Kerem Campus, Jerusalem,
Israel, next to Hadassah University Hospitals and Hebrew University’s Medical School.
For the year ended
December 31, 2019, our office and laboratory cash outflow for leases amounted to NIS 1.1 million ($ 0.32 million).
Our fixed assets are
comprised of factory leasehold improvements, laboratory equipment, furniture and software. The accumulated depreciation as stated
in our financial reports is deducted from the fixed assets value. Our fixed assets, less deduction for the accumulated depreciation,
were at NIS 34.9 million ($10.1 million) for the period ended on December 31, 2019 and at NIS 28.3 million ($8.18 million) for
the period ended on December 31, 2018.
For a description
of our current laboratory see Item 4B. “Business Overview – Manufacturing”.
Item 4A.
|
UNRESOLVED STAFF COMMENTS
|
Not applicable.
Item
5.
|
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
|
The
information contained in this section should be read in conjunction with our consolidated financial statements for the year ended
December 31, 2019 and related notes and the information contained elsewhere in this annual report. Our financial statements have
been prepared in accordance with IFRS, as issued by the International Accounting Standards Board, or the IASB.
Company Overview
We are a clinical
stage biopharmaceutical company focused on developing and, ultimately, commercializing immunomodulation therapies for infectious
diseases. Our current product candidate, M-001, is a synthetic peptide-based protein targeting both seasonal and pandemic strains
of the influenza virus. Unlike existing influenza vaccines, which offer only strain specific seasonal protection or pandemic prevention,
M-001 is designed to provide long-lasting protection against multiple existing and future influenza strains. As a result, we believe
that M-001 has the potential to become an attractive alternative to existing influenza vaccines.
M-001 is based on
research initially conducted at the Weizmann Institute over a period of approximately 10 years prior to our inception in 2003.
In 2003, we acquired from Yeda an exclusive worldwide license for the development, manufacture, use, marketing, sale, distribution
and importation of products based, directly or indirectly, on patents and patent applications filed pursuant to the invention
titled “Peptide Based Vaccine for Influenza”, developed on the basis of the research conducted by Professor Ruth Arnon
and her team at the Weizmann Institute. Since 2003, we have continued the research and development of M-001 under the supervision
of our Chief Scientific Officer, Dr. Tamar Ben-Yedidia and, at present, we own or license five families of patents filed in a
large number of jurisdictions, the latest of which is expected to be in force until 2035.
According to the Centers
for Disease Control and Prevention, or CDC, an agency of the U.S. Department of Health & Human Services (HHS), the estimated
adjusted seasonal influenza vaccine effectiveness, or VE, from 2004 to 2019 in the U.S. varied between 10% during the 2004/2005
season to 60% during the 2010/2011 season. According to this data, the average VE is about 40%. Most existing influenza vaccines
are formulated based on weakened or dead strains of the influenza virus that are predicted to be the most common circulating strains
during the then upcoming influenza season or that are perceived to have the greatest potential to cause a future pandemic outbreak.
While the influenza virus frequently and unpredictably mutates, resulting in novel strains, existing seasonal and pandemic influenza
vaccines are strain-specific, and only target those specific strains, and are not expected to protect against novel emerging influenza
strains. In addition, the production cycle of most existing influenza vaccines is long (approximately 5 to 6 months), considerably
limiting the ability to quickly immunize the population in case of a pandemic outbreak.
Since our incorporation,
we have primarily focused our efforts on research and development and clinical trials of our product candidate, M-001. We are
not profitable and have incurred losses since inception, principally as a result of research and development, clinical trials
and general administrative expenses in support of our operations. We have not generated any revenue, expect to incur substantial
losses for the foreseeable future and may never become profitable. For the years ended December 31, 2017, 2018 and 2019, we had
net losses of $9,999, $25,384 and $31,596 thousands, respectively, and we expect such losses to continue for the foreseeable future.
In addition, as of December 31, 2019, we had an accumulated deficit of approximately $92,690 thousands and we expect to experience
negative cash flow for the foreseeable future.
Key Components of Statements of
Operations
Revenues
Sources of revenues. Since
our inception, we have generated significant losses in connection with our research and development, clinical trials and general
administrative expenses in support of our operations and, to date, have not generated revenues.
To date, we have funded
our operations primarily through the sale of equity securities (both in private placements, in public offerings on the TASE and
the NASDAQ Capital Market) and funding received from the IIA formerly known as the OCS. From our inception until our initial public
offering in Israel in June 2007, we raised approximately NIS 20.1 million ($5.3 million) in various private placements. We received
approximately NIS 10.12 million ($2.7 million) in net proceeds from our initial public offering in Israel and raised an additional
NIS 49.6 million ($13.2 million) from various public offerings since June 2007 in Israel. We also received gross proceeds of approximately
$10.12 million and approximately $8.54 million in net proceeds from our initial public offering in the U.S. in May 2015. In January
2017, we received gross proceeds of approximately $2.8 million from a private placement transaction with Angels Investments in
High Tech Ltd., a private Israeli company controlled by Mr. Marius Nacht, and an additional $3.2 million was raised from ADS issuance
under our ATM program, which was terminated as of September 13, 2017. We also raised approximately $10.4 million in gross proceeds
in a public underwritten offering completed in September 2017. We also raised total gross proceeds of $20 million in a rights
offering in July 2019 and raised total gross proceeds of $53 thousands following a warrant exercise in June 2019. During 2019,
we received NIS 15.8 million ($4.4 million) as loans from the European Investment Bank (EIB). As of December 31, 2019, we had
approximately NIS 72.4 million ($20.9 million) of cash and cash equivalents. We expect that we will incur additional losses soon
as a result of our research and development activities. Such research and development activities will require us to obtain and
expend further resources if we are to be successful. As a result, we expect to continue to incur operating losses, and we may
be required to obtain additional funds during 2020 to further develop our research and development programs and our product candidate
as well as prepare for the potential submission of an NDA with the FDA for M-001. As a result of, among other things, our
research and development activities, as well as our failure to generate revenues since our inception, for the year ended December
31, 2019, our net loss was approximately NIS 109.2 million ($31.6 million), respectively.
Cost of Revenues
Our
total cost of revenues includes expenses for the manufacturing of M-001, including the cost of raw materials, employee-related
expenses including salaries, equity based-compensation and other benefits and related expenses, rental fees, utilities and depreciation.
We expect that our cost of revenues will continue to increase.
Operating Expenses
Research and development
expenses. Our research and development expenses consist primarily of salaries and related personnel expenses,
fees paid to consultants, patent-related legal fees, costs of preclinical studies and clinical studies, drug and laboratory supplies,
and costs for facilities and equipment. We charge all research and development expenses to operations as they are incurred. We
expect our research and development expenses to remain our primary expense in the near future as we continue to develop M-001.
Increases or decreases in research and development expenditures are attributable to the number and/or duration of the clinical
studies that we conduct.
We expect that a large
percentage of our research and development expenses in the future will be incurred in support of our current and future clinical
development projects. 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 M-001 for potential commercialization. Clinical development
timelines, the probability of success and development costs can differ materially from expectations. We expect to continue to
conduct additional clinical trials for M-001 with associated research and development expenses.
While we are currently
focused on advancing our product development, our future research and development expenses will depend on the clinical success
of M-001, as well as ongoing assessments of M-001’s, and any future product candidates’ commercial potential. As we
obtain results from clinical studies, we may elect to discontinue or delay clinical studies for M-001 and any future product candidate
in certain indications in order to focus our resources on more promising product candidates. Completion of clinical studies may
take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use
of a product candidate.
We expect our research
and development expenses to increase in the future from current levels as we continue the advancement of our clinical product
development. The lengthy process of completing clinical studies and seeking regulatory approval for M-001 requires the expenditure
of substantial resources. Any failure or delay in completing clinical studies, 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. Because of the factors set forth above, we are not able to estimate with any certainty when
we would recognize any net cash inflows from our projects.
Developing drugs,
conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we will
need to raise substantial additional funds to achieve our strategic objectives. Although we believe that our existing cash resources
will be sufficient to fund our projected cash requirements for at least the next 15 months, we will require significant additional
financing in the future to fund our operations, including if and when we progress into additional clinical trials of our product
candidate, obtain regulatory approval for M-001, obtain commercial manufacturing capabilities and commercialize our product candidate.
Our future capital requirements will depend on many factors, including:
|
●
|
the progress and
costs of our clinical trials and other research and development activities;
|
|
|
|
|
●
|
the scope, prioritization
and number of our clinical trials and other research and development programs;
|
|
|
|
|
●
|
the amount of revenues
and contributions we receive under future licensing, collaboration, development and commercialization arrangements with respect
to our product candidates;
|
|
|
|
|
●
|
the costs of the
development and expansion of our operational infrastructure;
|
|
|
|
|
●
|
the costs and timing
of obtaining regulatory approvals for our product candidate;
|
|
|
|
|
●
|
the ability of us,
or our collaborators, to achieve development milestones, marketing approvals and other events or developments under our potential
future licensing agreements;
|
|
|
|
|
●
|
the costs of filing,
prosecuting, enforcing and defending patent claims and other intellectual property rights;
|
|
|
|
|
●
|
the costs and timing
of building and securing manufacturing arrangements for clinical or commercial production;
|
|
|
|
|
●
|
the costs of contracting
with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves;
|
|
|
|
|
●
|
the costs of acquiring
or undertaking development and commercialization efforts for any future products, product candidates or platforms;
|
|
|
|
|
●
|
the magnitude of
our general and administrative expenses; and
|
|
|
|
|
●
|
any cost that we
may incur under future in- and out-licensing arrangements relating to one or more of our product candidates.
|
Until we can generate
significant recurring revenues, we expect to satisfy our future cash needs through the net proceeds received from future private
or public equity raising, grants from governmental agencies such as the IIA, debt or equity or other non-dilutive financings such
as the loan from EIB, among other financing mechanisms. We cannot be certain that additional funding will be available to us on
acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of or eliminate research
or development plans for, or commercialization efforts with respect to, M-001 or any future product candidate.
Since 2006 and through
December 31, 2019, we received $5.5 million in IIA grants.
Marketing, General
and Administrative Expenses:
Our general and administrative
expenses consist primarily of salaries and expenses related to employee benefits, including share-based compensation, for our
general and administrative employees, which includes employees in executive and operational roles, including finance and human
resources, as well as consulting, legal and professional services related to our general and administrative operations.
Financial Income and Expenses
Financial income consists
primarily of interest income on our cash and cash equivalents, foreign currency exchange income and warrants valuation. Financial
expenses consist primarily of expenses related to bank charges foreign currency exchange expense and financial liabilities valuation.
Participation
by Third Parties
Our research and
development expenses are net of the following participations by third parties.
Participation
by the Office of the Chief Scientist.
Research and development
grants received from the OCS, today known as the IIA, are recognized upon receipt as a liability if future economic benefits are
expected from the project that will result in royalty-bearing sales. The amount of the liability for the grant is first measured
at fair value using a discount rate that reflects a market rate of interest that reflects the appropriate degree of risks inherent
in our business. If no economic benefits are expected from the research activity, the grant receipts are recognized as a reduction
of the related research and development expenses. In that event, the royalty obligation is treated as a contingent liability in
accordance with IAS 37, “Provisions, Contingent Liabilities and Contingent Assets.”
At the end of each
reporting period, we evaluate whether there is reasonable assurance that the received grants will not be repaid based on its best
estimate of future sales and, if so, no liability is recognized and the grants are recorded against a corresponding reduction
in research and development expenses.
Since our development
projects are currently in Phase 3 clinical trials, management estimates that future economic benefits of the project are possible,
and therefore liability with respect to the IIA has been recorded to date in the sum of NIS 14.8 million (approximately $4.2 million).
Research and development
grants received from the European Union are recorded against a corresponding reduction in research and development expenses.
Taxes on Income
Israeli resident companies,
such as the Company, are generally subject to corporate tax at the rate of 23% as of 2019.
Capital gains derived
by an Israeli resident company are generally subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation,
a corporation will be considered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated
in Israel; or (b) the control and management of its business are exercised in Israel.
Comparison of Period to Period
Results of Operations
The table below provides
our results of operations for the year ended December 31, 2019 as compared to the years ended December 31, 2018, 2017, 2016 and
2015:
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
|
|
|
Convenience
translation
into USD in
thousands(2)
|
|
Statements
of comprehensive loss data:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
10,736
|
|
|
|
9,397
|
|
|
|
19,423
|
|
|
|
72,056
|
|
|
|
68,645
|
|
|
|
19,863
|
|
Participation by the IIA and UNISEC
|
|
|
(2,830
|
)
|
|
|
(1,603
|
)
|
|
|
(646
|
)
|
|
|
(143
|
)
|
|
|
-
|
|
|
|
-
|
|
Research and development, net of participations
expenses
|
|
|
7,906
|
|
|
|
7,794
|
|
|
|
18,777
|
|
|
|
71,913
|
|
|
|
68,645
|
|
|
|
19,863
|
|
Marketing, general and administrative expenses
|
|
|
3,397
|
|
|
|
4,106
|
|
|
|
4,879
|
|
|
|
5,154
|
|
|
|
9,706
|
|
|
|
2,808
|
|
Operating loss
|
|
|
11,303
|
|
|
|
11,900
|
|
|
|
23,656
|
|
|
|
77,067
|
|
|
|
78,351
|
|
|
|
22,671
|
|
Financial income
|
|
|
1,128
|
|
|
|
3,019
|
|
|
|
18
|
|
|
|
2,936
|
|
|
|
4
|
|
|
|
1
|
|
Financial expenses
|
|
|
(24
|
)
|
|
|
(303
|
)
|
|
|
(10,913
|
)
|
|
|
(13,596
|
)
|
|
|
(30,847
|
)
|
|
|
(8,926
|
)
|
Financial income (expenses), net
|
|
|
1,104
|
|
|
|
2,716
|
|
|
|
(10,895
|
)
|
|
|
(10,660
|
)
|
|
|
(30,843
|
)
|
|
|
(8,925
|
)
|
Net loss
|
|
|
(10,199
|
)
|
|
|
(9,184
|
)
|
|
|
(34,551
|
)
|
|
|
(87,727
|
)
|
|
|
(109,194
|
)
|
|
|
(31,596
|
)
|
Loss from available-for-sale financial assets
|
|
|
5
|
|
|
|
6
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total comprehensive loss
|
|
|
(10,204
|
)
|
|
|
(9,190
|
)
|
|
|
(34,557
|
)
|
|
|
(87,727
|
)
|
|
|
(109,194
|
)
|
|
|
(31,596
|
)
|
Basic and Diluted net loss per share (NIS)
|
|
|
0.1
|
|
|
|
0.07
|
|
|
|
0.17
|
|
|
|
0.34
|
|
|
|
(0.33
|
)
|
|
|
(0.09
|
)
|
Weighted average number of shares outstanding used
to compute basic and diluted loss per share (in thousands)
|
|
|
105,523
|
|
|
|
135,097
|
|
|
|
201,031
|
|
|
|
261,420
|
|
|
|
326,651
|
|
|
|
326,651
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
NIS
in thousands
|
|
|
Convenience
translation
into USD in
thousands(2)
|
|
Statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
71,382
|
|
|
|
75,883
|
|
|
|
72,467
|
|
|
|
20,968
|
|
Other receivables
|
|
|
3,923
|
|
|
|
965
|
|
|
|
656
|
|
|
|
190
|
|
Rights of use assets
|
|
|
-
|
|
|
|
-
|
|
|
|
7,136
|
|
|
|
2,065
|
|
Property, plant and equipment
|
|
|
5,510
|
|
|
|
28,249
|
|
|
|
34,981
|
|
|
|
10,122
|
|
Other long term assets
|
|
|
880
|
|
|
|
740
|
|
|
|
510
|
|
|
|
148
|
|
Total assets
|
|
|
81,695
|
|
|
|
105,837
|
|
|
|
115,750
|
|
|
|
33,493
|
|
Trade payables
|
|
|
6,223
|
|
|
|
20,723
|
|
|
|
17,062
|
|
|
|
4,937
|
|
Other payables
|
|
|
660
|
|
|
|
1076
|
|
|
|
1,203
|
|
|
|
348
|
|
Current maturities of lease liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
694
|
|
|
|
201
|
|
Warrants
|
|
|
8,177
|
|
|
|
6,168
|
|
|
|
16,354
|
|
|
|
4,732
|
|
Liability in respect of government grants
|
|
|
10,300
|
|
|
|
14,643
|
|
|
|
14,812
|
|
|
|
4,286
|
|
lease liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
6,809
|
|
|
|
1,970
|
|
Loan from others
|
|
|
-
|
|
|
|
94,360
|
|
|
|
123,780
|
|
|
|
35,816
|
|
Severance pay liability, net
|
|
|
83
|
|
|
|
82
|
|
|
|
89
|
|
|
|
26
|
|
Total liabilities
|
|
|
25,443
|
|
|
|
137,052
|
|
|
|
180,803
|
|
|
|
52,316
|
|
Total shareholders’ equity
|
|
|
56,252
|
|
|
|
(31,215
|
)
|
|
|
(65,053
|
)
|
|
|
(18,832
|
)
|
|
(1)
|
Diluted
loss per share data is not presented because the effect of the exercise of our outstanding
options is anti-dilutive.
|
|
(2)
|
Calculated
using the exchange rate reported by the Bank of Israel for December 31, 2019, at the
rate of one U.S. dollar per NIS 3.456
|
Year Ended December
31, 2019 Compared to Year Ended December 31, 2018
Research and
Development Expenses, net
Our research and development
expenses, net for the year ended December 31, 2019 amounted to NIS 68.6 million ($19.8 million) compared NIS 71.9 ($20.8 million)
for the year ended December 31, 2018. The decrease in 2019 compared to 2018 was primarily a result of the clinical trial phase
3 expenses of NIS 15.4 ($4.45 million).
Marketing, General
and Administrative Expenses
Our marketing, general
and administrative expenses for the year ended December 31, 2019 amounted to NIS 9.7 million (approximately $2.8 million) compared
to NIS 5.1 million (approximately 1.47 million) for the year ended December 31, 2018. The increase primarily results from higher
professional services and salaries expenses.
Financial Expense
(Income), Net
Our financial expenses,
net for the year ended December 31, 2019 amounted to NIS 30.8 million ($8.9 million) primarily from financial expenses in respect
of loans from EIB, warrants revaluation and currency exchange expenses.
Our financial expenses,
net for the year ended December 31, 2018 amounted to NIS 10.6 million ($3.06 million) from primarily from primarily from financial
expenses in respect of loans from EIB and government grants.
Net Loss
As a result of the
foregoing research and development, marketing general and administrative expenses, and as we have not yet generated revenues since
our inception, our net loss for the year ended December 31, 2019 was NIS 109.2 million ($31.6 million), compared to our net loss
for the year ended December 31, 2018 of NIS 87.7 million ($25.37 million). The increase in 2019 compared to 2018 primarily resulted
from increases in marketing, general and administrative expenses, and financial expenses, net, as described above.
Year Ended December
31, 2018 Compared to Year Ended December 31, 2017
This analysis can
be found in Item 5 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018.
Quarterly Results
of Operations
The following tables
show our unaudited quarterly statements of operations for the periods indicated. We have prepared this quarterly information on
a basis consistent with our audited consolidated financial statements and we believe it includes all adjustments, consisting of
normal recurring adjustments necessary for a fair presentation of the information shown. Operating results for any quarter are
not necessarily indicative of results for a full fiscal year.
|
|
Three Months Ended
|
|
|
|
Mar-31
|
|
|
Jun-30
|
|
|
Sept. 30
|
|
|
Dec. 31
|
|
|
Mar-31
|
|
|
Jun-30
|
|
|
Sept. 30
|
|
|
Dec. 31
|
|
|
|
2018
|
|
|
2019
|
|
Research and development, net of participations (in thousand NIS)
|
|
|
11,745
|
|
|
|
29,205
|
|
|
|
4,347
|
|
|
|
26,616
|
|
|
|
5,732
|
|
|
|
15,172
|
|
|
|
16,133
|
|
|
|
31,608
|
|
Research and development, net of participations (in thousand US dollars)(1)
|
|
|
3,398
|
|
|
|
8,451
|
|
|
|
1,258
|
|
|
|
7,701
|
|
|
|
1,659
|
|
|
|
4,390
|
|
|
|
4,668
|
|
|
|
9,146
|
|
marketing, general and administrative (in thousand NIS)(1)
|
|
|
884
|
|
|
|
1,445
|
|
|
|
1,475
|
|
|
|
1,350
|
|
|
|
1,433
|
|
|
|
4,518
|
|
|
|
2,790
|
|
|
|
965
|
|
marketing, general and administrative (in thousand US dollars)
|
|
|
255
|
|
|
|
418
|
|
|
|
427
|
|
|
|
390
|
|
|
|
415
|
|
|
|
1,307
|
|
|
|
807
|
|
|
|
279
|
|
Operating loss (in thousand NIS)
|
|
|
12,629
|
|
|
|
30,650
|
|
|
|
5,822
|
|
|
|
27,966
|
|
|
|
7,165
|
|
|
|
19,690
|
|
|
|
18,923
|
|
|
|
32,573
|
|
Operating loss (in thousand US dollars) (1)
|
|
|
3,653
|
|
|
|
8,869
|
|
|
|
1,685
|
|
|
|
8,091
|
|
|
|
2,073
|
|
|
|
5,697
|
|
|
|
5,475
|
|
|
|
9,426
|
|
Financial expenses (income), net (in thousand NIS)
|
|
|
(1,573
|
)
|
|
|
(339
|
)
|
|
|
902
|
|
|
|
8,524
|
|
|
|
(2,023
|
)
|
|
|
(27,699
|
)
|
|
|
(432
|
)
|
|
|
(693
|
)
|
Financial expenses (income), net (in thousand US dollars) (1)
|
|
|
455
|
|
|
|
98
|
|
|
|
261
|
|
|
|
2,466
|
|
|
|
(585
|
)
|
|
|
(8,015
|
)
|
|
|
(125
|
)
|
|
|
(201
|
)
|
Net loss (in thousand NIS)
|
|
|
14,202
|
|
|
|
30,311
|
|
|
|
6,724
|
|
|
|
36,490
|
|
|
|
(9,188
|
)
|
|
|
(47,389
|
)
|
|
|
(19,355
|
)
|
|
|
(33,262
|
)
|
Net loss (in thousand US dollars) (1)
|
|
|
4,108
|
|
|
|
8,771
|
|
|
|
1,946
|
|
|
|
10,557
|
|
|
|
2,658
|
|
|
|
(13,712
|
)
|
|
|
(5,600
|
)
|
|
|
(14,942
|
)
|
|
(1)
|
Calculated
using the exchange rate reported by the Bank of Israel for December 31, 2019, at the
rate of one U.S. dollar per NIS 3.456.
|
Our
quarterly revenues and operating results of operations have varied in the past and can be expected to vary in the future due to
numerous factors. We believe that period to period comparisons of our operating results are not necessarily meaningful and should
not be relied upon as indications of future performance.
Liquidity and Capital Resources
Since
our inception, we have funded our operations primarily through public and private offerings of our equity securities in Israel
and the U.S., grants from the OCS (today known as the IIA), grants received by the Israeli Ministry of Economy and European grants
under the UNISEC consortium and the loan from the EIB.
As
of December 31, 2019, we had cash and cash equivalents of NIS 72.4 million ($20.9 million) as compared to NIS 75.8 million ($21.9
million) as of December 31, 2018. This increase is attributable to a loan taken from the European Investment Bank in the sum of
NIS 15.3 million ($4.4 million) during the year ended December 31, 2019.
Net
cash used in operating activities was NIS 77.06 million ($22.3 million) for the year ended December 31, 2019, compared with net
cash used in operating activities of NIS 57.2 million ($16.55 million) for the year ended December 31, 2018.
Net
cash used by investing activities for the year ended December 31, 2019, was NIS 7.2 million ($2.08 million) compared with net
cash provided by investing activities of NIS 23.5 million ($6.8 million) for the year ended December 31, 2018, and primarily reflects
purchase of fixed assets and change in long term assets.
Net
cash provided by financing activities for the year ended December 31, 2019 was NIS 85.2 million ($24.6 million) mostly from proceeds
from the issuance of shares and options in total of NIS 70.2 million ($20.3 million) and a loan taken from the European Investment
Bank in total of NIS 15.3 million ($4.4 million) compared 84.3 million ($24.4 million) as of December 31, 2018, which derived
from loans taken from the European Investment Bank.
At
December 31, 2019, our accumulated deficit amounted to $92.7 million. We had working capital of $15.6 million as of December 31,
2019. In the future, we may raise additional capital from external sources in order to continue the longer term efforts contemplated
under our business plan. We expect to continue incurring losses for the foreseeable future and may need to raise additional capital
to pursue our product development initiatives, to penetrate markets for the sale of our product candidates and continue operations
as presently maintained. We cannot provide any assurance that we will raise additional capital. Our management believes that we
have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations
or other means; however, we have not secured any commitment for new financing at this time nor can we provide any assurance that
new financing will be available on commercially acceptable terms, if at all. If the economic climate in the U.S. deteriorates,
our ability to raise additional capital could be negatively impacted. If we are unable to secure additional capital, we may be
required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve
cash in amounts sufficient to sustain operations and meet our obligations. These measures could cause significant delays in our
efforts to commercialize our products, which is critical to the realization of our business plan and our future operations.
On
July 16, 2019 the Company received subscriptions from existing shareholders for all the offered American Depositary Shares (“ADSs”)
and ordinary shares from a rights offering conducted by the Company, being a total of 3,057,466 ADSs and 18,298,898 ordinary shares,
raising total gross proceeds of US$20 million.
Mr.
Marius Nacht fully subscribed for the entire allotment available to him in the rights offering through his wholly owned entity
Angels Investments in High Tech Ltd. (“AIHT”). He also exercised his option to purchase, under the same terms of the
rights offering, 2,203,640 ADSs and 141,538 ordinary shares offered in the rights offering that were not purchased by other shareholders.
In total, Mr. Nacht’s investment through AIHT in this offering was US$16.67 million, making Mr. Nacht a Controlling Shareholder
(as defined under the Israeli Companies Law) with a holding of approximately 37.6% of the voting power of the Company.
As of May 15, 2020,
the period for exercising ADS warrants issued to investors in our initial public offering in the U.S. and the representative’s
warrants issued to underwriters in such offering has ended, and we received gross proceeds of $54 thousand during 2019 and aggregate
gross proceeds of $4.2 million since issuance of the warrants from the exercise of such warrants, some of which were exercised
on a cashless basis.
Trend Information
We
are a development stage company with no revenues to date. Accordingly, it is not possible for us to predict with any degree of
accuracy the outcome of our research, development or commercialization efforts, or identify any significant trends, uncertainties,
demands, commitments or events that are reasonably likely to have a material effect in the future on our net sales or revenues,
income from continuing operations, profitability, liquidity or capital resources. However, to the extent possible, certain trends,
uncertainties, demands, commitments and events are identified in the preceding subsections of this Item 5.
Application of Critical Accounting
Policies and Estimates
We
describe our significant accounting policies in Note 2 to our financial statements for the year ended December 31, 2019.
The
discussion and the analysis of our financial results of operation are based on our financial statements, which we prepare in accordance
with IFRS as issued by the IASB.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
Contractual
Obligations
Our
significant contractual obligations as of December 31, 2019 included the following (in thousands):
|
|
1
– 3 Years
|
|
|
4
– 5 Years
|
|
|
More
than
5 Years
|
|
|
Total
|
|
Operating Lease Obligations in NIS
|
|
|
3,385
|
|
|
|
2,348
|
|
|
|
4,109
|
|
|
|
9,842
|
|
Operating Lease Obligations in USD
|
|
|
979
|
|
|
|
679
|
|
|
|
1,189
|
|
|
|
2,848
|
|
Item 6.
|
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|
|
A.
|
Directors and Senior Management
|
Executive
Officers and Directors
We
are managed by a board of directors, which is currently comprised of eight members, and our executive officers. Each of our executive
officers is appointed by our board of directors. The table below sets forth our directors and executive officers. The business
address for each of our executive officers and directors is c/o BiondVax Pharmaceuticals Ltd., Jerusalem BioPark, 2nd floor, Hadassah
Ein Kerem Campus, Jerusalem, Israel.
Name
|
|
Age
|
|
Position
|
Mark Germain
|
|
69
|
|
Chairman of the
Board of Directors
|
Ron Babecoff
|
|
57
|
|
Chief Executive
Officer and Director
|
Tamar Ben Yedidia
|
|
56
|
|
Chief Scientist
|
Uri Ben Or
|
|
49
|
|
Chief Financial
Officer
|
Elad Mark
|
|
38
|
|
Chief Operating
Officer
|
Ester Abramov
|
|
42
|
|
QA Manager
|
Avner Rotman
|
|
75
|
|
Director
|
Adi Raviv(1)
(2)
|
|
64
|
|
Director
|
George H. Lowell
|
|
73
|
|
Director
|
Morris Laster(1)
|
|
54
|
|
Director
|
Ruth Ben Yakar(1)
(2)
|
|
49
|
|
Director
|
Isaac Devash
|
|
57
|
|
Director
|
Yael Margolin(1)
(2)
|
|
65
|
|
Director
|
Samuel Moed
|
|
57
|
|
Director
|
(1)
|
Member
of the Audit Committee.
|
(2)
|
Member
of the Compensation Committee.
|
Executive Officers
Dr. Ron Babecoff
co-founded us in 2003 and has served as our President and Chief Executive Officer since our inception. Prior to our founding,
Dr. Babecoff served as Marketing Manager at Omrix Biopharmaceuticals Ltd. from 2000 to 2003. Dr. Babecoff holds a D.V.M. degree
from the University of Liège (ULg), Belgium and a Master of Entrepreneurship and Innovation (MEI) from the Swinburne University
of Technology of Melbourne, Australia. We believe that Dr. Babecoff is qualified to serve on our board of directors based on his
many years of service as our President and CEO, his extensive knowledge of our company and his intimate knowledge of our business
plans and strategies as a co-founder of our business, and his experience within our industry.
Dr. Tamar Ben Yedidia
has served as our Chief Scientist since 2004 and is responsible for the pre-clinical and clinical development and trials of
the Company. Dr. Ben-Yedidia began her career at Biotechnology General (Israel) Ltd., BTG (Rehovot), where she was employed as
lab manager from 1991 to 1994. Dr. Ben-Yedidia joined the Department of Immunology at the Weizmann Institute of Science from 1994
– 2004. Dr. Ben-Yedidia was involved in two European Consortium projects related to the evaluation of different approaches
for vaccination, has been invited to address conferences worldwide and is published in various scientific journals. Dr. Ben-Yedidia
received her Ph.D. in immunology from the Weizmann Institute after completion of her doctoral thesis titled “A Peptide-Based
Vaccine Against Influenza”.
Mr. Uri Ben Or,
CPA, MBA, has served as our Chief Financial Officer since 2007. In January, 2007, Mr. Ben Or founded CFO Direct, in which he has
served as the chief executive officer and through which he provides his services to our company. Mr. Ben Or has over 20 years
of experience and significant expertise in corporate finance, accounting, M&A transactions and IPOs, and has served as CFO
with life science companies traded on the TASE, on Nasdaq and over the counter. Mr. Ben Or holds a B.A. degree in Business from
the College of Administration, and a M.B.A degree from the Bar Ilan University and is a certified public accountant in Israel.
Mr. Elad Mark
joined the Company in 2018 as Site Head and has served as Chief Operating Officer since September 2019. As COO he oversees BiondVax’s
manufacturing facility and scale up and technology transfer activities, including potential future CMO’s. Prior to joining
BiondVax, Mr. Mark served for more than three years at Novartis as TPM (Technical Process Manager) and Area Lead Process for a
large-scale biological facility establishment in Singapore, a $800 million investment in a biologics facility focused on drug
substance manufacturing based on cell culture technology, which was designed to support both clinical and commercial production
of potential new products that include monoclonal antibodies for use in helping patients with autoimmune, respiratory and oncology
disorders. Before that Mr. Mark served as the Head of the Engineering Department in Biopharmax Group, a company which focusing
on EPCM (Engineering, Procurement, Construction and Management) in the Pharmaceutical field. Mr. Mark is a principal bioprocess
engineer with over 12 consecutive years of biotechnology engineering experience with diverse project stages including feasibility
study, conceptual and detail design, commissioning, qualification and process validation. Mr. Mark holds a B.Sc. in Engineering
from the Afeka Academic College of Engineering in Tel Aviv and an MBA from the Open University of Israel.
Dr. Ester Abramov
has served as our QA Manager since 2013 and is responsible for managing quality systems, writing SOPs, policies, protocols
and reports, implementation of regulatory requirements, stability studies management, and validation of equipment and clean rooms.
Dr. Abramov began her career at the Company in 2007 as a QC Researcher and from 2011 to 2013 served as QC Manager. Dr. Abramov
received a B.Sc. in Biological Sciences in 1999 from Bar-Ilan University in Ramat-Gan, Israel, a M.Sc. in Molecular Biology from
Bar-Ilan in 2001 and a PhD. in Molecular & Cell Biology from Bar-Ilan in 2007.
Directors
Professor Avner
Rotman has been Chairman of our board of directors since 2005. Prof. Rotman founded in 2000, and has served since then and
continues to serve as the Chief Executive Officer and Chairman of the Board of Directors of Rodar Technologies Ltd. Prof. Rotman
also founded Bio-Dar Ltd. in 1984, and served as its President and CEO from 1985 until 2000. Prof. Rotman was also the chairman
of the I-Tech incubator at Kyriat Weizmann. Prof. Rotman is the Founder and Chairman of the Foundation of Cardiovascular Research
in Israel. Prof. Rotman holds a PhD in chemistry from the Weizmann Institute of Science, Israel, and an M.Sc and B.Sc in chemistry
from the Hebrew University of Jerusalem, Israel. We believe that Prof. Rotman is qualified to serve on our board of directors
based on his extensive experience and knowledge in the field of biotechnology and as an executive officer and director of multiple
biotechnology companies. On August 31, 2017, Following the European Investment Bank (EIB)’s significant €20 million funding
agreement, and as we progress towards Phase 3 clinical trials and construction of its commercial mid-size manufacturing facility,
our board of directors at the initiation of Prof. Rotman decided that we will focus its efforts on the international scene. In
that regard, it was decided, inter alia, to identify a new chairman of the board of directors with relevant global experience
to guide us through the anticipated upcoming international Phase 3 trials and global commercialization.
Mr. Mark Germain
has been involved as a founder, director, chairman of the board of, and/or investor in, over twenty companies in the biotech
field and assisted many of them in arranging corporate partnerships, acquiring technology, entering into mergers and acquisitions,
and executing financings and going public transactions. He graduated from New York University School of Law in 1975, Order
of the Coif, and was a partner in a New York law firm practicing corporate and securities law before leaving in 1986. Since then,
and until he entered the biotech field in 1991, he served in senior executive capacities, including as president of a public company
that was sold in 1991. In addition to being a director of BiondVax, Mr. Germain is a Managing Director at The Aentib Group,
a boutique merchant bank, and has served as a director on the board of Pluristem Therapeutics since 2007, including time as Co-Chairman.
Mr. Germain also serves or served as a director of the following companies that were reporting companies in the past: ChromaDex,
Inc., Stem Cell Innovations, Inc., Omnimmune Corp. and Collexis Holdings, Inc. He is also a co-founder and director of a
number of private companies in and outside the biotech field.
Prof. George H.
Lowell, M.D. has served as a member of our board of directors since 2008.He is also since 2019 a member of the Board of Directors
and the Chief Scientific Officer (CSO) of Healabels Ltd., an Israeli digital health start-up company. Prior to joining our company,
Prof. Lowell served as Chief Scientific Officer for BioDefense at GlaxoSmithkline Biologicals (GSK) (2006-2007) which acquired
ID Biomedical Corp. (IDB) and CSO of IDB (2001-2006) which acquired Intellivax Intl. and Intellivax Inc. Prof. Lowell served as
founding CEO and then as President and CSO of the vaccine R&D companies he founded, Intellivax, Inc. in Baltimore and Intellivax
International Inc. in Montreal from 1995 until 2001. From 1974, Prof. Lowell served on active duty in the US Army Medical R&D
Command, retiring in 1994 with the rank of Colonel. During this period he served as consultant in pediatric infectious diseases
at The Walter Reed Army Medical Center and director of his laboratories at The Walter Reed Army Institute of Research in Washington,
D.C. Prof. Lowell has held a number of academic posts, including Visiting Scientist at the Weizmann Institute of Science (Israel)
and Visiting Professor, Hebrew University-Hadassah Medical Center (Israel). Prof. Lowell holds a B.A. from Yeshiva University,
NY, NY, and an M.D. from the Albert Einstein College of Medicine of Yeshiva University, NY, NY. Prof. Lowell performed three years
of post-doctoral training in pediatrics and pediatric infectious diseases and immunology at NYU-Bellevue Medical Center, NY, NY
and The Mount Sinai Medical Center, NY, NY. We believe that Prof. Lowell is qualified to serve on our board of directors based
on his extensive experience and knowledge in the field of health care and years of executive leadership in the biomedical industry.
Dr. Ruth Ben Yakar,
PhD. is currently CEO and member of the Board of Directors at BioSight Ltd., a private biopharmaceutical company focused on
research and development of innovative hemato-ongology drugs. She has over 20 years of experience in the biomedical field, including
15 years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory
activities. Dr. Ben Yakar also serves as a Director at Maayan Ventures Ltd boards of directors. Dr. Ben Yakar formerly served
as the CEO of Procognia, a public biotech company, a Director at SHL telemedicine, Cellect Biomed, and IATI, the CEO of Thrombotech,
where she led a multi-center clinical trial and led the company towards acquisition, the Chief Business Officer of YEDA, the technology
transfer company of the Weizmann Institute of Science, and a Vice President in several Biotech companies. Dr. Ben Yakar holds
a PhD Cum Laude in molecular cell biology from the Weizmann Institute of Science.
Mr. Isaac Devash
is a business and social entrepreneur with over twenty years of experience in venture capital and private equity investments,
and several years of experience as an investment banker in mergers and acquisitions at Credit Suisse First Boston in New York,
London, and Tokyo. Mr. Devash established a number of private equity funds and assisted a variety of Israeli companies in their
international development and a number of leading international investors in their investments in Israel. Mr. Devash was a member
of the Goshen Committee for formulating the standards of corporate governance for Israeli public companies. Mr. Devash founded
and serves as the Chairman and President, respectively, of the Wharton and Harvard Business School alumni clubs of Israel. Mr.
Devash holds a bachelor’s degree, summa cum laude, from the Wharton School of the University of Pennsylvania and an MBA
from Harvard University.
Dr. Morris Laster has
served as a member of our board of directors since November 2017. Dr. Laster is a healthcare executive and entrepreneur with close
to 30 years of experience in the biopharmaceutical industry. His expertise lies in the identification, development, management
and financing of advanced biomedical drugs and technologies. Dr. Laster is currently the CEO of Clil Medical Ltd., a biomedical
consultancy company, a position he has held since 2010. Since 2013, he is a Medical Venture Partner at OurCrowd, where he has
led 28 investments and represents OurCrowd on the board of directors of HiL Applied Medical, BrainQ Technologies and DreaMed Diabetes.
Additionally, he serves as the chairman of the board of Oncohost. Dr. Laster has founded six companies that have gone public in
the U.S., UK or Israel, including co-founding and serving as CEO from 2010 to 2014 of Kitov Pharmaceuticals, which has received
FDA approval for its drug Consensi. Previously, he was the founding CEO of BioLineRx Ltd. (TASE:BLRX) from 2003 to 2009. In addition,
he was the chairman and CEO of Keryx Biopharmaceuticals (NASDAQ:KERX) from 1997 to 2002. Dr. Laster began his career as a VP of
medical venture capital at Paramount Capital in NYC. Dr. Laster received his MD from Downstate Medical Center, Brooklyn, NY in
1990 and a BS in Biology from SUNY Albany.
Adi Raviv is
a senior financial executive with a career spanning over 30 years. Since April 2016, Mr. Raviv has been a Principal at Capacity
Funding LLC, a company providing working capital solutions to small businesses. Prior to that, Mr. Raviv served in a chief financial
officer position in two other companies that provide similar types of funding alternatives – New Era Lending from May 2015
to March 2016, and Kapitus (formerly, Strategic Funding Source) from 2009 to 2014. Mr. Raviv has extensive capital markets, cash
management, corporate finance, investor relations, restructuring, tax and treasury, and transactional experience along with knowledge
of the private equity and venture capital arenas. Mr. Raviv co-founded THCG, Inc., a publicly traded technology merchant banking
and consulting company (where he was also CFO), and has been involved with companies in challenging startup, growth, and turnaround
environments. Mr. Raviv has served on the boards of directors of many private and several public companies, as well as various
non-profit entities. He received a bachelor’s degree in International Relations with honors from the Hebrew University of
Jerusalem and an MBA, with honors, from Columbia University in New York City.
Yael Margolin has
more than 35 years of experience as senior manager, CEO and board member in venture capital and in the pharmaceutical and biotech
industries, leading strategic and business planning, financing, team building, product development and corporate partnerships.
From 2005 to 2019, Dr. Margolin served as President, Chief Executive Officer and director of Gamida Cell Ltd., a clinical stage
biopharmaceutical company, leading the company from preclinical development through phase 3 international registration studies.
Prior to that, Dr. Margolin was Vice President of Denali Ventures LLC, a venture capital firm focused on healthcare, and a program
manager at Teva Pharmaceuticals. Dr. Margolin holds a bachelor of science in biology and a master of science Cum Laude from the
department of microbiology, both from Tel Aviv University in Israel, a Ph.D. from the department of membrane research at the Weitzman
Institute of Science in Rehovot, Israel and was a post-doctoral associate at the Yael University School of Medicine.
Samuel Moed
has served as Senior Vice President, Corporate Strategy at Bristol Myers Squibb (“BMS”), a global biopharma company
focused on innovative therapeutics, for the past six years, where he has led the strategic direction of the company with close
linkage to all of its major businesses, functions and geographies. Previously, Mr. Moed oversaw strategy for BMS’s Worldwide
Pharmaceuticals Group, encompassing a range of global strategic initiatives, and managed a global portfolio of strategic alliances.
He also led a number of businesses including President, US Pharma, and President WW Consumer Healthcare. Mr. Moed received a bachelor
of arts degree in history from Columbia University in New York City.
Our Scientific Advisory Team
Our Scientific Advisory
Team includes specialists and experts in Israel, with experience in the fields of biochemistry, infectious diseases and medical
research. Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development,
clinical trials and safety. Pursuant to their respective appointment letters, our advisory team members are entitled to receive
the following compensation: (i) a per diem cash payment of $1,000 plus VAT (aside from Professor Ruth Arnon who is entitled to
receive $1,400 plus VAT), for Scientific Advisory Team meetings attended in Israel or consultation services provided during a
period longer than 4 consecutive hours, or a proportion of such amount for a partial day of less than 4 consecutive hours (aside
from Professor Ruth Arnon, who shall be entitled to a full day amount or any proportion of such full day amount based on a full
day being 8 hours); (ii) a per diem cash payment of $2,000 plus VAT (aside from Professor Ruth Arnon who is entitled to receive
$2,400 plus VAT), per full day of Scientific Advisory Team meetings or full session consultation attended outside of Israel, provided,
that, in the event travel time exceeds 48 hours, additional compensation will be provided at a rate of $1,000 per each 24 hours;
and (iii) with respect to Professor Michel Revel, for occasional consultations (less than 4 consecutive hours per each consultation)
which do not fall under any of the above categories, the compensation shall be calculated based on a fee of $250 per full hour
of consultation. In addition, Prof. Arnon is also employed by us on a part time (5%) basis in exchange for a monthly salary of
$1,800. Each member of our Scientific Advisory Team was granted options to purchase ordinary shares of our Company pursuant to
their respective appointment letters.
The following table
sets forth certain biographical information with respect to our Scientific Advisory Team members:
Professor Ruth
Arnon is the inventor of the new synthetic influenza vaccine and head of BiondVax’s Scientific Advisory Board. Formerly
Vice-President of the Weizmann Institute of Science (1988-1997), Professor Arnon is an internationally acclaimed immunologist.
Along with Prof. Michael Sela, she conceptualized and developed Copaxone®, a drug for the treatment of multiple sclerosis
which was approved by the FDA and is presently marketed worldwide. Prior to her appointment as Vice-President of the Weismann
Institute, Prof. Arnon served as Head of the Department of Chemical Immunology and as Dean of the Faculty of Biology. From 1985
to 1994, Prof. Arnon was Director of the Weisman Institute’s McArthur Center for Molecular Biology of Tropical Diseases.
Prof. Arnon has made significant contributions in the fields of vaccine development, cancer research and to the study of parasitic
diseases. She has served as President of the European Federation of Immunological Societies, and as Secretary-General of the International
Union of Immunological Societies. Dr. Arnon is the recipient of numerous international and Israeli awards including the prestigious
Israel Prize. Prof. Arnon was also the Advisor for Science to the President of Israel. She is a member of the Israel
Academy of Sciences, where she served as President from 2010-2015. Prof. Arnon is the incumbent of the Paul Ehrlich Chair
in Immunochemistry at the Weizmann Institute.
Prof. Michel Revel,
has M.D. and Ph.D. degrees. Born in 1938 in France, he joined the Weizmann Institute of Science, Rehovot, Israel in 1968, where
he has been a full professor since 1973, heading for several periods the Departments of Virology and of Molecular Genetics. He
has been an emeritus professor since 2010. Prof. Revel is best known for his work on the mechanism of action of interferon and
the cloning of the genes for human interferon beta (IFN-β) and interleukin-6 (IL-6). He developed the first efficient genetic
engineering production of a protein (IFN-b) in animal cells (CHO cells). He was Chief Scientist of InterPharm (Serono group),
which produced the recombinant IFN-b (Rebif), a leading drug for treatment of multiple sclerosis, now 20 years in the market and
sold in 90 countries by Merck Kga. Since 2010, Prof. Revel is co-founder and Chief Scientist of Kadimastem, an Israeli company
producing human tissues by differentiation of pluripotent stem cells (ESC). The first product of Kadimastem, AstroRx, has recently
been approved for clinical trial in Amyotrophic Lateral Sclerosis (ALS). Kadimastem also develops ESC-derived islet-like
cells for the treatment of diabetes. Prof. Revel has received the Israel Prize for Medicine in 1999 and the Emet Prize in
2004. He was elected at the Israel National Academy of Science and Humanities in 2005. He served as chairman of the National Biotechnology
Committee of Israel (1999-2002).
Compensation of Directors and Executive
Officers
Compensation to Directors
During 2019, we paid
our directors a total of NIS 544 thousand ($157 thousand) in annual and meeting participation fees.
We are party to a
services agreement between the Company and Mr. Mark Germain, the vice chairman and director of the Company, to include: (1) the
grant of options under the Company’s ESOP exercisable to purchase up to 130,710 ADSs, representing 2% of the current outstanding
share capital of the Company (1.5% on a fully diluted basis); (2) a monthly payment of $10,000.
On March 24, 2020,
our general shareholders meeting approved that our external directors and our other current or future non-management directors
(other than our chairman) will be entitled to (i) an annual cash payment of NIS 26,080 (representing a quarterly cash payment
of NIS 6,520), and (ii) a cash payment of NIS 1,245 for attendance at each meeting of the Board of Directors and at each of its
committees, a cash payment of NIS 747 for each participation at each meeting of the Board of Directors and at each of its committees
by teleconference, and cash payment of NIS 622.50 for each written consent of the Board of Directors and each of its committees.
All such amounts listed above shall be paid in NIS or the U.S. dollars equivalent. The general shareholders meeting further approved
the grant to each external director of options to purchase 18,000 ADSs of the Company at an exercise price of $7.28 per ADS (equals
to $0.182 per Ordinary Share), which is equal to 130% of the average closing price of the Company’s ADSs during the 30 trading
days prior to November 20, 2019, the date of the Board of Directors meeting at which the grant was approved. The options would
vest in equal annual installments during a period of three years commencing one year following November 20, 2019. First vesting
is scheduled on November 20, 2020 and the options will become fully vested, in accordance with the terms of the grant, on November
20, 2022. The options will have a term of 10 years following November 20, 2019. The number of options and their terms are consistent
with grants of options provided to other non-management directors of the Company (not including our chairman). The compensation
of the Company’s external directors is under the “relative compensation” track for external directors in accordance
with the Companies Law Regulations (Rules Regarding the Compensation and Expenses of an External Director), 5760-2000, as amended
by the Companies Regulations (Relief for Public Companies with Securities Listed for Trade on Stock Exchange Outside of Israel),
5760-2000, as may be amended from time to time.
In addition, in August
2012 our general shareholders meeting approved the grant of the following conditioned bonuses to all our directors serving at
the time of such approval, except the external directors, during the term of their service: in the event that we duly enter into
one or more material agreement, defined as an agreement or a series of agreements, pertaining to a transaction with us (or any
other entity designated by us for the transaction by us) in connection with the sale of all or substantially all of our assets
or a commercialization of one of our products in the field of business, with aggregate proceeds received resultant of such agreement
are no less than a sum of $10,000,000 with any third party during their term, such directors shall each be entitled to receive
a one-time bonus per material agreement equal to 0.5% of the proceeds received by us as a result of the material agreement. According
to our compensation policy as amended and approved by our shareholders on March 1, 2015, this bonus shall be limited to an aggregate
amount of NIS 50 million ($14.5 million).
Compensation of Directors and Executive
Officers
The following table
presents in the aggregate all compensation we paid to all of our directors and senior management as a group for the year ended
December 31, 2019. The table does not include any amounts we paid to reimburse any of such persons for costs incurred in providing
us with services during this period.
|
|
Salaries,
fees,
commissions
and bonuses
(thousand NIS)
|
|
|
Salaries,
fees,
commissions
and bonuses
(thousand USD)(1)
|
|
|
Pension,
retirement,
options and
other similar
benefits
(thousand NIS)
|
|
|
Pension,
retirement,
options and
other similar
benefits
(thousand USD)
|
|
All directors and senior management
as a group, consisting of 11 persons
|
|
|
4,831
|
|
|
|
1,398
|
|
|
|
4,217
|
|
|
|
1,220
|
|
|
(1)
|
Calculated
using the exchange rate reported by the Bank of Israel for December 31, 2019, at the
rate of one U.S. dollar per NIS 3.456.
|
The following table
presents information regarding compensation actually received by our executive officers during the year ended December 31, 2019.
Annual Compensation (excluding option grants)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Name
|
|
Salary
and
related
benefits
(thousand
NIS) (1)
|
|
|
Salary
and
related
benefits
(thousand
$US)(2)
|
|
|
Salary
and
related
benefits
(thousand
NIS) (1)
|
|
|
Salary
and
related
benefits
(thousand
$US)(2)
|
|
Dr. Ron Babecoff, CEO and director
|
|
|
2,710
|
|
|
|
784
|
|
|
|
1,088
|
|
|
|
315
|
|
Dr. Tamar Ben Yedidia, Chief Scientific Officer
|
|
|
610
|
|
|
|
177
|
|
|
|
573
|
|
|
|
166
|
|
Mr. Mark Germain, Vice Chairman / Chairman (3)
|
|
|
432
|
|
|
|
125
|
|
|
|
249
|
|
|
|
72
|
|
Mr. Uri Ben Or, Chief Financial Officer
|
|
|
440
|
|
|
|
127
|
|
|
|
335
|
|
|
|
97
|
|
Mr. Elad Mark, Chief Operating Officer
|
|
|
489
|
|
|
|
141
|
|
|
|
131
|
|
|
|
38
|
|
|
(1)
|
“Salary
and related benefits” include payments to the National Insurance Institute, advanced
education funds, managers’ insurance and pension funds; vacation pay; and recuperations
pay as mandated by Israeli law.
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|
(2)
|
Calculated
using the exchange rate reported by the Bank of Israel for December 31, 2019, at the
rate of one U.S. dollar per NIS 3.456.
|
|
(3)
|
Mr.
Germain served as Vice Chairman of the Board until September 30, 2019 when he began serving
as Chairman of the Board.
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Employment and Services Agreements
Our employees are
employed under the terms prescribed in their respective personal contracts, in accordance with the decisions of our management.
Under these employment contracts, the employees are entitled to the social benefits prescribed by law and as otherwise provided
in their personal contracts. These employment contracts each contain provisions standard for a company in our industry regarding
non-competition, confidentiality of information and assignment of inventions. Under current applicable employment laws, we may
not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the
expertise of some of our former employees. We also provide certain of our employees with a company car, which is leased from a
leasing company, and a mobile phone and additional benefits.
Our executive officers
are also employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice
periods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the
executive officer will continue to receive base salary and benefits. These agreements also contain customary provisions regarding
non-competition, confidentiality of information and assignment of inventions.
Services and Employment Agreements
with Our Chief Executive Officer
Ron Babecoff
Dr. Babecoff is one
of our founders and has served as the CEO and a member of our board of directors since 2005. We retained Dr. Babecoff’s
services through Ron Executive Ltd., a company solely owned by him, with which we entered into a management services agreement
on April 1, 2007, as later amended on April 18, 2012, and extended and further amended as described below. Under the agreement,
Dr. Babecoff received a monthly salary of NIS 52,500 plus VAT. We also provide Dr. Babecoff with a leased company car. In addition,
in the event that we duly enter into one or more material agreement(s) (i.e. an agreement or a series of agreements, pertaining
to a transaction with us (or any other entity designated by us for the transaction by us) in connection with the sale of all or
substantially all of our assets or a commercialization of one of our products in the field of business, with aggregate proceeds
received resultant of such agreement are no less than a sum of US$10,000,000) with any third party during the term of Dr. Babecoff’s
engagement with us or during a period of three years commencing on the date of the termination of the management services agreement
by us, Dr. Babecoff shall be entitled to receive a one-time bonus per material agreement equal to 1.75% of the proceeds received
by us as a result of the material agreement. The term of Dr. Babecoff’s agreement was to expire on April 1, 2015, unless
earlier terminated. Dr. Babecoff’s service agreement may be terminated by us upon nine months prior written notice or immediately
if terminated for cause (i.e., termination due to a material breach by Ron Executive Ltd. of its obligations under the employment
agreement, a breach of trust, malfeasance or gross negligence by Ron Executive Ltd. and/or Dr. Babecoff; or the conviction of
Ron Executive Ltd. and/or Dr. Babecoff of any felony). Ron Executive Ltd. may also terminate the service agreement upon 90 days’
prior written notice.
On January 18, 2015,
our shareholders meeting approved an extension of Dr. Babecoff’s agreement, under the same terms and conditions, for an
additional period of five years. Dr. Babecoff also serves as a director in our company, for which he received unregistered options
as compensation.
On May 28, 2019, the
Company’s shareholders approved an extension of the management service agreement with Dr. Babecoff for additional five (5)
years and approved new compensation terms, as follows: (1) Dr. Babecoff shall be entitled to a 2% salary raise each year for 5
years; (2) the grant of 8,633,310 restricted share units, or RSUs, represented by 215,832 American Depositary Shares (“ADSs”,
each ADS represents 40 ordinary shares no par value) representing 3.3% of the current outstanding share capital of the Company
(2.48% on a fully diluted basis), in lieu of his forfeiture of 5,929,503 options previously granted to Dr. Babecoff; (3) the grant
of a onetime bonus equal to 12 monthly salaries in an aggregate amount of NIS 960,000, in recognition of Dr. Babecoff’s
recent extraordinary achievements and performance; (4) the grant of an annual bonus for the year of 2018, in an amount equal to
up to 9 monthly salaries of Dr. Babecoff, subject to the fulfillment of annual targets as determined by the board of directors.
On January 16, 2019, our compensation committee determined that Dr. Babecoff had fulfilled the relevant annual targets with respect
to the annual bonus for the year of 2018.
On August 27, 2019,
the Board approved an annual bonus for the year 2019 in an amount equal to up to nine monthly salaries for Dr. Babecoff, subject
to fulfillment of annual targets as determined by the Board. In June 2020, the compensation committee and Board determined that
Dr. Babecoff had fulfilled the relevant annual targets and approved the bonus subject to approval by Company shareholders.
Services and Employment Agreements
with Our Chief Scientific Officer
Tamar Ben Yedidia
Pursuant to her employment
agreement entered into with us on March 15, 2005, as amended to date, Dr. Ben Yedidia is employed on a full time basis and is
currently entitled to a monthly salary of NIS 40,000 which also includes monthly contributions equal to 7.5% of her monthly salary
to an Education Fund (“Keren Hishtalmut”, a short term savings plan available in Israel which is tax free to the employee
up to a cap determined by law). In addition, we provide Dr. Ben Yedidia with a leased company car and a mobile phone. Dr. Ben
Yedidia is entitled to 22 annual paid vacation days.
Dr. Ben Yedidia’s
employment agreement may be terminated by either us or Dr. Ben Yedidia upon 120 days’ prior written notice or by us immediately
for cause (i.e., termination due to embezzlement of our funds, or the material breach of the terms and conditions of the employment
agreement, or if Dr. Ben Yedidia is involved in an act which constitutes a breach of trust between her and us or constitutes a
severe breach of discipline, or conduct causing grave injury to us any, monetarily or otherwise, or Dr. Ben Yedidia’s inability
to carry out her duties for a period exceeding 120 consecutive days, provided that the her resumption of her duties for a period
of less than 15 consecutive days shall not be deemed to have broken the continuity of the aforementioned 120 days). Under her
employment agreement, Dr. Ben Yedidia received options to purchase 25,000 ordinary shares.
In addition, in February
2012 our board of directors approved the grant of the following conditioned bonus to Tamar Ben Yedidia: in the event that we duly
enter into one or more material agreement(s) (i.e. an agreement or a series of agreements, pertaining to a transaction with us
(or any other entity designated by us for the transaction by us) in connection with the sale of all or substantially all of our
assets or a commercialization of one of our products in the field of business, with aggregate proceeds received resultant of such
agreement are no less than a sum of $10 million) with any third party during the term of Dr. Ben Yedidia’s engagement with
us or during a period of three years commencing on the date of the termination of the employment agreement by us, Dr. Ben Yedidia
shall be entitled to receive a one-time bonus per material agreement equal to 1.25% of the proceeds received by us as a result
of the material agreement.
In May 2015, our compensation
committee and the Board of Directors approved increasing Ms. Tamar Ben Yedidia’s monthly salary from NIS 27,300 to NIS 30,000
and in August 2018 from 30,000 to 32,500 in compliance with our compensation plan. On the same dates, our compensation committee
and the Board of Directors also approved granting Ms. Tamar Ben Yedidia additional 500,000 unregistered options in accordance
with our 2005 Israeli Share Option Plan. The options are scheduled to vest over a period of three (3) years and shall expire 10
years from the grant date. Each option shall be exercisable at an exercise price equal to 130% of the average sale share price
on TASE during the thirty (30) trading days prior to the options’ grant date. In June 2020, our compensation committee and
Board voted to award Dr. Ben Yedidia an annual bonus for the year 2019 in an amount equal to NIS 162,500 and to increase Dr. Ben
Yedidia’s monthly salary to NIS 40,000. As of the date of this annual report, Dr. Ben Yedidia held options to purchase 920,000
ordinary shares, of which 920,000 are fully vested.
Services and Employment Agreement
with Our Chief Financial Officer
Uri Ben Or
Pursuant to the service
agreement entered into on June 20, 2007, between us, Mr. Ben Or and CFO Direct, an Israeli company solely owned by him through
which he provides his services to us, as amended on August 31, 2014 and extended on June 11, 2020. CFO Direct is entitled to a
monthly fee of NIS 15,000. The service agreement will remain in effect until June 2021, unless earlier terminated by either us
or CFO Direct with 60 days prior written notice. We may terminate our service agreement with CFO Direct at any time and effective
immediately, without need for prior written notice, and without derogating from any other remedy to which we may be entitled,
for cause (i.e., termination due to the conviction of CFO Direct and/or Uri Ben Or of any felony, the liability of CFO Direct
by a court of competent jurisdiction for fraud against us, any conduct that has a material adverse effect or is materially detrimental
to us, including but not limited to, a breach of contract or any claim by CFO direct or any one connect thereto that CFO Direct
is our employee. CFO Direct is entitled to receive a monthly compensation under the services agreement.
In addition, pursuant
to a separate employment agreement entered into between us and Mr. Ben Or on August 31, 2014 and extended on June 11, 2020, Mr.
Ben Or is also employed by us in a 60% employment capacity, for which he is entitled to a monthly salary of NIS 10,000. Mr. Ben
Or is entitled to 60% of the annual paid vacation days prescribed under applicable law, and we shall obtain and maintain with
Mr. Ben Or a pension insurance to Mr. Ben Or, in a Managers Insurance and/or a pension fund, according to Mr. Ben Or’s discretion.
Mr. Ben Or’s employment agreement will remain in effect until June 2021, unless earlier terminated by either us or Mr. Ben
Or with 60 days prior written notice, or by us immediately for cause.
On May 28, 2019, the
Company’s shareholders approved the grant of 260,000 options in accordance with our 2005 Israeli Share Option Plan. The
options are scheduled to vest over a period of three (3) years and shall expire 10 years from the grant date. Each option shall
be exercisable at an exercise price equal to 130% of the average sale share price on TASE during the thirty (30) trading days
prior to the options’ grant date. last 1/3 vest April 2021, three years from April 2018 Board approval date. During 2019
our compensation committee and the Board of Directors approved aggregate one-time payments to Mr. Ben Or equal to NIS 140,000, and in June 2020 approved a one-time payment to Mr. Ben Or
equal to NIS 90,000.
Equity Compensation Plans
2005 Israeli Share Option Plan
The 2005 Israeli Share
Option Plan, or the 2005 Plan, permits grants of options to employees, directors, consultants, service providers and other entities
which the board shall decide their services are considered valuable to the Company. Options granted under the 2005 Plan are subject
to applicable vesting schedules and generally expire 10 years from the grant date.
Upon the termination
of a recipient’s engagement with us for any reason other than death, disability or for cause, all unvested options allocated
shall automatically expire and all vested options allocated will automatically expire 90 days after the termination, unless expired
earlier due to their term. If the recipient’s engagement was terminated for cause (as defined in the 2005 Plan), the recipient’s
right to exercise any unexercised options, awarded and allocated in favor of such recipient, whether vested or not, will immediately
cease and expire as of the date of such termination. If the recipient dies or is disabled, any vested but unexercised options
will automatically expire 12 months from the termination of the engagement, unless expired earlier due to their term.
In the event that
options allocated under the 2005 Plan expire or otherwise terminate in accordance with the provisions of the 2005 Plan, such expired
or terminated options will become available for future grant awards and allocations under the 2005 Plan. In the event of (i) the
sale of all or substantially all of our assets; (ii) a sale (including an exchange) of all or substantially all of our share capital;
or (iii) a merger, acquisition or reorganization of the Company with or into another corporation, then, subject to obtaining the
applicable approvals of the Israeli tax authorities, unexercised options then outstanding shall be assumed or substituted for
an appropriate number of shares of the successor company subject to certain adjustments as determined by the board of directors
in its sole discretion. Subject to certain conditions, the board shall also have the power to provide for immediate acceleration
in a recipient’s option agreement in the event of such a transaction.
On May 15, 2020, the Company
had outstanding grants under the 2005 Option Plan to acquire 24,266,720 ordinary shares.
2018 Israeli Share Option Plan
The 2018 Israeli Share
Option Plan, or the 2018 Plan, permits the granting of options, restricted share units or allotment of shares or other equity-based
awards to employees, directors, consultants, service providers and other entities which the board shall decide their services
are considered valuable to the Company, under similar terms and conditions to the 2005 Plan.
Options granted under
the 2018 Plan are subject to applicable vesting schedules and generally expire 10 years from the grant date.
Upon the termination
of a recipient’s engagement with us for any reason other than death, disability or for cause, all unvested options allocated
shall automatically expire and all vested options allocated will automatically expire 90 days after the termination, unless expired
earlier due to their term. If the recipient’s engagement was terminated for cause (as defined in the 2018 Plan), the recipient’s
right to exercise any unexercised options, awarded and allocated in favor of such recipient, whether vested or not, will immediately
cease and expire as of the date of such termination. If the recipient dies or is disabled, any vested but unexercised options
will automatically expire 12 months from the termination of the engagement, unless expired earlier due to their term.
In the event that
options allocated under the 2018 Plan expire or otherwise terminate in accordance with the provisions of the 2018 Plan, such expired
or terminated options will become available for future grant awards and allocations under the 2018 Plan.
Restricted share units
granted under the 2018 Plan are subject to applicable vesting schedules, and the Board may condition the grant or vesting of restricted
share units upon the attainment of specified performance targets or such other factors as the Board may determine, in its sole
discretion.
In the event of (i)
the sale of all or substantially all of our assets; (ii) a sale (including an exchange) of all or substantially all of our share
capital; or (iii) a merger, acquisition or reorganization of the Company with or into another corporation, then, subject to obtaining
the applicable approvals of the Israeli tax authorities, unexercised awards then outstanding shall be assumed or substituted for
an appropriate number of shares of the successor company subject to certain adjustments as determined by the board of directors
in its sole discretion. Subject to certain conditions, the board shall also have the power to provide for immediate acceleration
in a recipient’s award agreement in the event of such a transaction.
The Company has reserved
an unlimited amount of the issued and outstanding capital of the Company available for issuance under the 2018 Plan.
On May 15, 2020, the Company
had awarded grants under the 2018 Option Plan to acquire 2,880,000 ordinary shares.
Board of Directors
Under the Companies
Law and our articles of association, our board of directors shall direct the Company’s policy and shall supervise the performance
of the Company’s Chief Executive Officer. Our board of directors may exercise all powers and may take all actions that are
not specifically granted to our shareholders or to management. Our executive officers are responsible for our day-to-day management
and have individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by, and serves
at the discretion of our board of directors, subject to a services agreement entered into with Ron Executive Ltd., a company solely
owned Dr. Ron Babecoff. All other executive officers are also appointed by our board of directors, and are subject to the terms
of any applicable employment or services agreements that we may enter into with them or with certain entities through which we
receive their services. Other than Dr. Babecoff, who is entitled to certain termination payments under his employment agreement
with us, none of our directors are entitled to benefits upon termination of their service.
Our board of directors
has affirmatively determined that a majority of our directors are independent, in compliance with the NASDAQ Capital Market rules.
The definition of independent director includes a set of statutory criteria that must be satisfied, including criteria whose aim
is to ensure that there is no factor which would impair the ability of the independent director to exercise independent judgment
in addition to the requirement that the board consider any factor which would impair the ability of the independent director to
exercise independent judgment. Independent directors may be elected by an ordinary majority of the general shareholders meeting.
Under our articles
of association, our board of directors must consist of at least three and not more than eleven directors, including any external
directors required by Israeli law. Our board of directors currently consists of ten members, including our non-executive Chairman
of the board of directors. Our directors, excluding the external directors, may be divided into three groups, as nearly equal
in number as practicable, with staggered three-year terms. group A, group B and group C shall each consist of one-third of the
directors, constituting our entire board of directors (other than the external directors). At each annual meeting, the three-year
duration of service of one group of directors shall expire and the directors of such group will stand for election. Each of the
directors or the successors elected to replace the directors of a group whose term shall have expired at such annual meeting shall
be elected to hold office until the third annual meeting held after the date of his or her election and until his or her respective
successor is elected. If no directors are appointed at the annual meeting, the directors appointed at the previous annual meeting
will continue their service. Directors whose service period has ended may be appointed again.
Under our articles
of association, our board of directors may appoint directors to fill vacancies on our board of directors, for a term of office
for the remaining period of time during which the director whose service has ended was filled would have held office, or the conclusion
of the term of office in accordance with our articles or any applicable law, subject to the maximum number of directors allowed
under the articles of association. In addition, our shareholders may appoint an additional director/s to the Company, whether
for the purpose of filling a position that was vacated or as an additional director/s.
Under the Companies
Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.
In determining the number of directors required to have such expertise, our 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 the
minimum number of directors of our company who are required to have accounting and financial expertise is two. Our board of directors
has determined that Adi Raviv and Isaac Devash have accounting and financial expertise and possess professional qualifications
as required under the Companies Law.
Chairman of the Board
Our articles of association
provide that the chairman of the board is appointed and dismissed by the members of the board of directors and serves as chairman
of the board throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law,
the chief executive officer or a relative of the chief executive officer may not serve as the chairman of the board of directors,
and the chairman or a relative of the chairman may not be vested with authorities of the chief executive officer without shareholder
approval by special majority and for periods of time not exceeding three years each.
In addition, a person
subordinated, directly or indirectly, to the chief executive officer may not serve as the chairman of the board of directors;
the chairman of the board may not be vested with authorities that are granted to those subordinated to the chief executive officer;
and the chairman of the board may not serve in any other position in the company or a controlled company, except as a director
or chairman of a controlled company.
External Directors
We have elected to
make advantage of an exception under the Companies Law, requiring us to elect at least two members who qualify as external directors,
one of which has accounting and financial expertise, subject to the following conditions: (i) none of our shareholders is a controlling
shareholder; (ii) we comply with NASDAQ rules and regulations with respect to the composition of our audit and compensation committees;
(iii) we comply with NASDAQ rules and regulations with respect to the requirements of independent directors. For so long as we
meet the requisite requirements, we intend to apply the exemption from appointing at least two external directors under the Companies
Law.
An external director
is elected for a period of three years. The provisions of the Companies Law set forth special approval requirements for the election
of external directors. External directors must be elected by a majority vote of the shares present and voting at a shareholders
meeting, provided that either:
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such majority includes
at least a majority of the shares held by all shareholders who are non-controlling shareholders and do not have a personal
interest in the election of the external director (other than a personal interest not deriving from a relationship with a
controlling shareholder) that are voted at the meeting, excluding abstentions, to which we refer as a disinterested majority;
or
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●
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the total number
of shares voted by non-controlling shareholders and by shareholders who do not have a personal interest in the election of
the external director, against the election of the external director, does not exceed 2% of the aggregate voting rights in
the company.
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The term controlling
shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding
such ability deriving solely from his or her position as a director of the company or from any other position with the company.
A shareholder is presumed to be a controlling shareholder if the shareholder holds 45% or more of the voting rights in a company
or has the right to appoint the majority of the directors of the company or its general manager. With respect to certain matters,
a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a public company if
no other shareholder holds more than 45% of the voting rights in the company.
Audit Committee
Our audit committee
consists of Mr. Adi Raviv, Dr. Yael Margolin, Dr. Ruth Ben Yakar and Dr. Morris Laster. Mr. Adi Raviv also serves as the chairman
of the audit committee.
Under the NASDAQ Capital
Market corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors,
each of whom is financially literate and one of whom has accounting or related financial management expertise.
All members of our
audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQ
Capital Market corporate governance rules. Our board of directors has affirmatively determined that Mr. Adi Raviv is an audit
committee financial expert as defined by the SEC rules and has the requisite financial experience as defined by the NASDAQ Capital
Market corporate governance rules.
Each of the members
of the audit committee are deemed “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act,
which is different from the general test for independence of board and committee members.
Audit Committee Role
Our board of directors
adopted an audit committee charter effective upon the listing of our ADSs and warrants on the NASDAQ Capital Market that set forth
the responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of the NASDAQ Capital Market,
as well as the requirements for such committee under the Companies Law, including the following:
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oversight of our
independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of
our independent registered public accounting firm to the board of directors in accordance with Israeli law;
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●
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recommending the
engagement or termination of the person filling the office of our internal auditor; and
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●
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recommending the
terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our
board of directors.
|
Our audit committee
provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting,
auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our
independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial
reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions that it
deems necessary to satisfy itself that the accountants are independent of management.
Compensation Committee and Compensation
Policy
Our compensation committee
currently consists of Mr. Adi Raviv, Dr. Yael Margolin and Dr. Ruth Ben Yakar. Dr. Yael Margolin also serves as the Chairman of
the Compensation committee. The duties of the compensation committee include the recommendation to the company’s board of
directors of a policy regarding the terms of engagement of office holders, to which we refer as a compensation policy. That policy
must be adopted by the company’s board of directors, after considering the recommendations of the compensation committee,
and will need to be brought for approval by the company’s shareholders, which approval requires a special approval for Compensation
as described below under “Approval of Related Party Transactions Under Israeli Law — Fiduciary Duties of Directors
and Executive Officers”.
Under the Companies
Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy.
The Compensation Policy
must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in
the Companies Law. The Compensation Policy must be approved by the company’s board of directors after considering the recommendations
of the compensation committee. In addition, the Compensation Policy needs to be approved by the company’s shareholders by
a simple majority, provided that (i) such majority includes a majority of the votes cast by the shareholders who are not controlling
shareholders and who do not have a personal interest in the matter, present and voting (abstentions are disregarded) or (ii) the
votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter who were
present and voted against the Compensation Policy, constitute two percent or less of the voting power of the company. Such majority
determined in accordance with clause (i) or (ii) is hereinafter referred to as the Compensation Majority.
To the extent a Compensation
Policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company may override
the resolution of the shareholders following a re-discussion of the matter by the board of directors and the compensation committee
and for specified reasons, and after determining that despite the rejection by the shareholders, the adoption of the Compensation
Policy is for the benefit of the company.
A Compensation Policy
that is for a period of more than three years must be approved in accordance with the above procedure every three years.
Notwithstanding the
above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders
and their relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee
determines that the amendment is not material in relation to its existing terms.
Pursuant to the Companies
Law amendment, following the recommendation of our compensation committee, our board of directors approved our compensation policy,
and our shareholders, in turn, approved the Compensation Policy at our annual general meeting of shareholders that was held in
January 16, 2014. In 2018, following the approval of the compensation committee and our board of directors, our general shareholders
meeting approved an update to the compensation policy and further update to the compensation policy was approved by the general
shareholders meeting on March 24, 2020 increasing the maximum amount of officer liability insurance premium coverage to $628,000.
The Compensation Policy
must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, including
exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement.
The Compensation Policy must relate to certain factors, including advancement of the Company’s objectives, the Company’s
business plan and its long-term strategy, and creation of appropriate incentives for office holders. It must also consider, among
other things, the Company’s risk management, size and the nature of its operations. The Compensation Policy must furthermore
consider the following additional factors:
|
●
|
the knowledge, skills,
expertise and accomplishments of the relevant office holder;
|
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|
●
|
the office holder’s
roles and responsibilities and prior compensation agreements with him or her;
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●
|
the ratio between
the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company,
including those employed through manpower companies, in particular the ratio between such cost and the average and median
compensation of the other employees of the company, as well as the impact such disparities may have on the work relationships
in the company;
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|
●
|
the possibility
of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit
on the exercise value of non-cash variable equity-based compensation; and
|
|
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|
●
|
as to severance
compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service
period, the company’s performance during that period of service, the person’s contribution towards the company’s
achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the
company.
|
The Compensation Policy
must also include:
|
●
|
a link between variable
compensation and long-term performance and measurable criteria;
|
|
|
|
|
●
|
the relationship
between variable and fixed compensation, and the ceiling for the value of variable compensation;
|
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|
●
|
the conditions under
which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon
which such compensation was based was inaccurate and was required to be restated in the company’s financial statements;
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|
●
|
the minimum holding
or vesting period for variable, equity-based compensation; and
|
|
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|
●
|
maximum limits for
severance compensation.
|
The compensation committee
is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequent
approval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office
holders as well as functions previously fulfilled by a company’s audit committee with respect to matters related to approval
of the terms of engagement of office holders, including:
|
●
|
recommending whether
a compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval
of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three
years);
|
|
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|
|
●
|
recommending to
the board of directors periodic updates to the compensation policy;
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|
●
|
assessing implementation
of the compensation policy; and
|
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|
|
●
|
determining whether
the compensation terms of the chief executive officer of the company need not be brought to approval of the shareholders.
|
Compensation Committee Role
Our compensation committee’s
responsibilities include:
|
●
|
reviewing and recommending
overall compensation policies with respect to our Chief Executive Officers and other executive officers;
|
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|
|
●
|
reviewing and approving
corporate goals and objectives relevant to the compensation of our Chief Executive Officers and other executive officers including
evaluating their performance in light of such goals and objectives;
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|
●
|
reviewing and approving
the granting of options and other incentive awards; and
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|
●
|
reviewing, evaluating
and making recommendations regarding the compensation and benefits for our non-employee directors.
|
Internal Auditor
Under the Companies
Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation
of the audit committee. An internal auditor may not be:
|
●
|
a person (or a relative
of a person) who holds more than 5% of the company’s outstanding shares or voting rights;
|
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|
|
●
|
a person (or a relative
of a person) who has the power to appoint a director or the general manager of the company;
|
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|
●
|
an office holder
(including a director) of the company (or a relative thereof); or
|
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|
●
|
a member of the
company’s independent accounting firm, or anyone on his or her behalf.
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|
●
|
The role of the
internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The
audit committee is required to oversee the activities and to assess the performance of the internal auditor as well as to
review the internal auditor’s work plan. On October 22, 2014, we appointed Mr. Gewirtz Yisrael as our internal auditor.
Mr. Gewirtz Yisrael is a certified internal auditor and a partner at Fahn Kanne & Co. Grant Thornton Israel, a certified
public accounting firm in Israel.
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|
●
|
The board of directors
shall determine the direct supervisor of the internal auditor. The internal auditor is required to submit his findings to
the audit committee, unless specified otherwise by the board of directors.
|
Approval of Related Party Transactions
under Israeli Law
Fiduciary Duties of Directors and
Executive Officers
The Companies Law
codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Executive Officers
and Directors” is an office holder under the Companies Law.
An office holder’s
fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level
of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of
loyalty requires that an office holder act in good faith and in the best interests of the company.
The duty of care includes
a duty to use reasonable means to obtain:
|
●
|
information on the
advisability of a given action brought for his or her approval or performed by virtue of his or her position; and
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|
|
|
|
●
|
all other important
information pertaining to any such action.
|
The duty of loyalty
includes a duty to:
|
●
|
refrain from any
conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;
|
|
|
|
|
●
|
refrain from any
activity that is competitive with the company;
|
|
|
|
|
●
|
refrain from exploiting
any business opportunity of the company to receive a personal gain for himself or herself or others; and
|
|
|
|
|
●
|
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.
|
Disclosure of Personal Interests of
an Office Holder and Approval of Certain Transactions
The Companies Law
requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of
and all related material information or documents concerning any existing or proposed transaction with 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. A personal interest includes an interest of any person in an act or transaction of a company,
including a personal interest of such person’s relative or of a corporate body in which such person or a relative of such
person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one
director or the general manager, but excluding a personal interest stemming from one’s ownership of shares in the company.
A personal interest furthermore includes the personal interest of a person for whom the office holder holds a voting proxy or
the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or she holds a proxy
even if such shareholder has no personal interest in the matter. An office holder is not however, obligated to disclose a personal
interest if it 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, an extraordinary transaction is defined as any of the following:
|
●
|
a transaction other
than in the ordinary course of business;
|
|
|
|
|
●
|
a transaction that
is not on market terms; or
|
|
|
|
|
●
|
a transaction that
may have a material impact on a company’s profitability, assets or liabilities.
|
If it is determined
that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction,
unless the company’s articles of association provide for a different method of approval. Our articles of association do
not provide otherwise. Further, so long as an office holder has disclosed his or her personal interest in a transaction, the board
of directors may approve an action by the office holder that would otherwise be deemed a breach of the duty of loyalty. However,
a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed by
the office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval
first by the company’s audit committee and subsequently by the board of directors. The compensation of, or an undertaking
to indemnify or insure, an office holder who is not a director requires approval first by the company’s compensation committee,
then by the company’s board of directors, and, if such compensation arrangement or an undertaking to indemnify or insure
is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart
from a number of specific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present
and voting at a shareholders meeting, provided that either: (a) such majority includes 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 compensation arrangement
(excluding abstaining shareholders); or (b) the total number of shares of non-controlling shareholders and shareholders who do
not have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s
aggregate voting rights. We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification
or insurance of a director require the approval of the compensation committee, board of directors and shareholders by ordinary
majority, in that order, and under certain circumstances, a Special Approval for Compensation.
Generally, a person
who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may
not be present at such a meeting or vote on that matter unless the chairman of the relevant committee or board of directors, as
applicable, determines that he or she should be present in order to present the transaction that is subject to approval. Generally,
if a majority of the members of the audit committee or the board of directors, as applicable, have a personal interest in the
approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors,
as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a
transaction, then the approval thereof shall also require the approval of the shareholders.
Disclosure of Personal Interests of
Controlling Shareholders and Approval of Certain Transactions
Pursuant to Israeli
law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controlling
shareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder
also includes a shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds more than
45% of the voting rights in the company. For this purpose, the holdings of all shareholders who have a personal interest in the
same transaction will be aggregated. The approval of the audit committee or the compensation committee, as the case may be, the
board of directors and the shareholders of the company, in that order is required for (a) extraordinary transactions with a controlling
shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or
his or her relative, directly or indirectly, for the provision of services to the company, (c) the terms of engagement and compensation
of a controlling shareholder or his or her relative who is not an office holder or (d) the employment of a controlling shareholder
or his or her relative by the company, other than as an office holder (collectively referred as Transaction with a Controlling
Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:
|
●
|
at least a majority
of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting
at the meeting approving the transaction, excluding abstentions; or
|
|
|
|
|
●
|
the shares voted
against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at
the meeting do not exceed 2% of the voting rights in the company.
|
To the extent that
any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every
three years, unless, with respect to certain transactions, the audit committee determines that the duration of the transaction
is reasonable given the circumstances related thereto.
Arrangements regarding
the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require
the approval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may
not be inconsistent with the company’s stated compensation policy.
Pursuant to regulations
promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder,
or a director that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval
upon certain determinations of the audit committee and board of directors.
Shareholder Duties
Pursuant to the Companies
Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and to
refrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder
class meetings with respect to the following matters:
|
●
|
an amendment to
the company’s articles of association;
|
|
|
|
|
●
|
an increase of the
company’s authorized share capital;
|
|
|
|
|
●
|
a merger; or
|
|
|
|
|
●
|
the approval of
related party transactions and acts of office holders that require shareholder approval.
|
In addition, a shareholder
also has a general duty to refrain from discriminating against other shareholders.
Certain shareholders
also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows
that he or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting
and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or other power
towards the company. The Companies Law does not define the substance of the duty of fairness, except to state that the remedies
generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness.
Exculpation, Insurance and Indemnification
of Directors and Officers
Under the Companies
Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. 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
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, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed
by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided
its articles of association include a provision authorizing such indemnification:
|
●
|
financial liability
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 reasonably
foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according
to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail
the abovementioned foreseen events and amount or criteria;
|
|
|
|
|
●
|
reasonable litigation
expenses, including attorneys’ fees, incurred by the office holder (i) 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 (A) no
indictment was filed against such office holder as a result of such investigation or proceeding; and (B) no financial liability,
such as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation
or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require
proof of criminal intent; and (ii) in connection with a monetary sanction; and
|
|
|
|
|
●
|
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.
|
Under the Companies
Law and the Israeli Securities Law 5728-1968, or the Israeli 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 the
duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe
that the act would not harm the company;
|
|
|
|
|
●
|
a breach of duty
of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office
holder; and
|
|
|
|
|
●
|
a financial liability
imposed on the office holder in favor of a third party.
|
Under our articles
of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:
|
●
|
a breach of duty
of care to the company or to a third party.
|
|
|
|
|
●
|
any other action
against which we are permitted by law to insure an office holder;
|
|
|
|
|
●
|
expenses incurred
and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including
the Efficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 5771-2011 and the Israeli
Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses
and attorney fees; and
|
|
|
|
|
●
|
a financial liability
in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.
|
Under the Companies
Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
|
●
|
a breach of the
duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty 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 harm the company;
|
|
|
|
|
●
|
a breach of duty
of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office
holder;
|
|
|
|
|
●
|
an act or omission
committed with intent to derive illegal personal benefit; or
|
|
|
|
|
●
|
a fine, civil fine,
administrative fine or ransom or levied against the office holder.
|
Under the Companies
Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committee
and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders.
See “— Approval of Related Party Transactions under Israeli Law.”
Our articles of association
permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies
Law and the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative
Enforcement Procedure.
We have entered into
agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our
articles of association, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association.
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 indemnification
amount set forth in such agreements is limited to an amount which shall not exceed 25% of our net assets based on our most recently
audited or reviewed financial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition
to any amount paid (if paid) under insurance and/or by a third-party pursuant to an indemnification arrangement
In the opinion of
the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act of 1933, however, is
against public policy and therefore unenforceable.
We have obtained directors’
and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage
and pay all premiums thereunder to the fullest extent permitted by the Companies Law. In addition, we entered into agreements
with each of our office holders undertaking to indemnify them to the fullest extent permitted by the Companies Law, including
with respect to liabilities resulting from the initial public offering in the U.S., to the extent that these liabilities are not
covered by insurance.
As of December 31,
2019, we have 25 employees, three of whom are employed in finance and administration and 22 of whom were employed in research
and development. These employees are in Israel.
Israeli labor laws
principally govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination
of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination
laws and other conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the
retirement, death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute,
which is similar to the U.S. Social Security Administration. Our employees have defined benefit pension plans that comply with
applicable Israeli legal requirements, which also include the mandatory pension payments required by applicable law and allocations
for severance pay.
While
none of our employees are party to any collective bargaining agreements, 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) are applicable to our employees by extension orders issued by the Israel Ministry of Economy
(previously the Israeli Ministry of Trade, Industry and Labor). These provisions primarily concern the length of the workweek,
pension fund benefits for all employees and for employees in the industry section, insurance for work-related accidents, travel
expenses reimbursement, holiday leave, convalescent payments and entitlement for vacation days. We generally provide our employees
with benefits and working conditions beyond the required minimums. We have never experienced any employment-related work stoppages
and believe our relationship with our employees is good.
For
information regarding the share ownership of our directors and executive officers, see “Item 7.A. Major Shareholders.”
Item 7.
|
MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
The
following table and notes set forth information, as of May 15, 2020, concerning the beneficial ownership of our securities by:
|
●
|
each of our directors
and executive officers;
|
|
|
|
|
●
|
all of our executive
officers and directors as a group; and
|
|
|
|
|
●
|
each person (or
group of affiliated persons) known by us to be the beneficial owner of more than 5% of the outstanding ordinary shares.
|
Beneficial
ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to ordinary
shares or Ordinary shares represented by our ADSs. Ordinary shares issuable under share options or other conversion rights that
were exercisable within 60 days after May 15, 2020, are deemed outstanding for the purpose of computing the percentage ownership
of the person holding the options or other conversion rights but are not deemed outstanding for the purpose of computing the percentage
ownership of any other person. The percentage of ordinary shares beneficially owned is based on 454,145,376 ordinary shares outstanding
as of May 15, 2020.
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.
Except
as otherwise indicated in the footnotes to this table, we believe the persons named in this table have sole voting and investment
power with respect to all the ordinary shares indicated.
Directors and Executive Officers
|
|
Ordinary
Shares
|
|
|
Percent
of
Class%
|
|
Ron Babecoff (1)
|
|
|
12,434,648
|
|
|
|
3
|
%
|
Avner Rotman (2)
|
|
|
238,900
|
|
|
|
*
|
|
George H. Lowell
|
|
|
*
|
|
|
|
*
|
|
Uri Ben Or
|
|
|
*
|
|
|
|
*
|
|
Tamar Ben Yedidia
|
|
|
*
|
|
|
|
*
|
|
Esther Abramov
|
|
|
*
|
|
|
|
*
|
|
Elad Mark
|
|
|
*
|
|
|
|
*
|
|
Mark Germain
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Ruth Ben Yakar
|
|
|
*
|
|
|
|
*
|
|
Isaac Devash
|
|
|
*
|
|
|
|
*
|
|
Morris Laster
|
|
|
*
|
|
|
|
*
|
|
Adi Raviv
|
|
|
*
|
|
|
|
*
|
|
Yael Margolin
|
|
|
*
|
|
|
|
*
|
|
Sam Moed
|
|
|
*
|
|
|
|
*
|
|
All executive officers and directors as a group (15 people)
|
|
|
19,971,115
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
*
|
|
Angels Investments in Hi Tech Ltd. (3)
|
|
|
170,961,770
|
|
|
|
37.6
|
%
|
Public
|
|
|
276,472,906
|
|
|
|
|
|
|
(1)
|
Consists
of 5,528,000 ordinary shares and 6,906,648 restricted shares.
|
|
(2)
|
Consists
of 158,900 ordinary shares and 80,000 ordinary shares issuable upon exercise of options
at an exercise price of NIS 0.81 per share and with an expiration date of October 28,
2021.
|
|
(3)
|
Consists
of 170,961,770 ordinary shares represented by 4,274,043 ADSs.
|
|
B.
|
Related Party Transactions
|
The
following is a description of some of the transactions with related parties to which we are a party to, and which were in effect
within the past three fiscal years. The descriptions provided below are summaries of the terms of such agreements and do not purport
to be complete and are qualified in their entirety by the complete agreements.
We
believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could
have obtained from unaffiliated third parties. See “Approval of Related Party Transactions under Israeli Law.”
Payment
to Dr. Ron Babecoff
On
March 29, 2016, and in connection with an investigation conducted by the Israeli Securities Authority (“ISA”)
regarding certain shareholders of the Company, not including among them Dr. Babecoff, alleged use of inside information,
Dr. Ron Babecoff, CEO, director and President, was investigated by the ISA under warning. After fully cooperating with the ISA
investigators, Dr. Babecoff was released subject to certain restrictions, including an obligation to make a cash deposit as collateral.
Dr. Babecoff continues to fulfill all his duties to the Company. The Company is not a party to the investigation.
On April 10, 2016,
the Audit Committee and the Board of Directors unanimously resolved to approve the payment of two hundred thousand NIS (NIS 200,000),
to be increased by an additional amount of up to NIS 200,000 as needed, for the benefit of CEO and director Dr. Ron Babecoff,
for the purpose of placing the bond required in connection with an investigation conducted by the ISA, regarding certain shareholders
of the Company, not including among them Dr. Babecoff, alleged use of inside information.
The resolution was
adopted, inter alia, in accordance with the exemption and indemnification letter between the Company and Dr. Babecoff presently
in effect, and in accordance with the Israeli applicable law. The approval of the bond is considered a Related Party Transaction,
as defined in the Israeli Companies Law, and thus required the approval of the Audit Committee, in addition to the approval of
the Board of Directors.
Dr. Babecoff entered,
on August 13, 2018, into a conditional arrangement agreement with the Israeli Tel Aviv District Attorney, to conclude the investigation
proceedings against Dr. Babecoff without filing an indictment. Dr. Babecoff has fulfilled all the conditions specified in the
agreement and the investigation has been closed.
Indemnification Agreements
Our articles of association
permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies
Law. We have obtained directors’ and officers’ insurance for each of our officers and directors and have entered into
indemnification agreements with all of our current officers and directors.
We have entered into
indemnification and exculpation agreements with each of our current office holders and directors exculpating them to the fullest
extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted
by the law and our articles of association, including with respect to liabilities resulting from the initial public offering in
the U.S., to the extent such liabilities are not covered by insurance. On March 1, 2015, our general shareholders meeting approved
the grant of an indemnification and exculpation agreement under the same terms and conditions for each of our current office holders
and directors.
Employment and Service Agreements
We have or have had
employment, service or related agreements with each member of our senior management. See Item 6.
Family Relationships
There are no family
relationships between any members of our executive management and our directors.
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C.
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Interests of Experts and Counsel
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Not applicable.
Item 8.
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FINANCIAL
INFORMATION
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A.
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Consolidated Statements and Other Financial
Information
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Consolidated Financial Statements
We
have appended our consolidated financial statements at the end of this annual report, starting at page F-2, as part of this annual
report.
Legal Proceedings
From time to time,
we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is
subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our
business.
Dividend Policy
We have never declared
or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings
in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of
our board of directors and will depend on a number of factors, including future earnings, our financial condition, operating results,
contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our board of directors
may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits the distribution of dividends
only out of distributable profits. In addition, if we pay a dividend out of income attributed to our Benefited Enterprise during
the tax exemption period, we may be subject to tax on the grossed-up amount of such income at the corporate tax rate which would
have been applied to such Benefited Enterprise’s income had we not enjoyed the exemption.
If we pay any dividends,
we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms
of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will
be paid to ADS holders in U.S. dollars.
No significant
changes have occurred since December 31, 2019, except as otherwise disclosed in this annual report.
Item 9.
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THE OFFER AND LISTING
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Our Ordinary Shares
were traded on the TASE under the symbol “BNDX” from June 18, 2007 and under the symbol “BVXV” from May
18, 2015 to February 2018 and were voluntarily delisted from trading on the TASE, effective February 2018. Our ADSs have traded
on the Nasdaq Capital Market under the symbol “BVXV” since May 11, 2015. The ADS warrants issued to investors in our
initial public offering in the U.S. were traded on the Nasdaq Capital Market under the symbol “BVXVW” from May 11,
2015 until May 13, 2020.
Not applicable.
Our ADSs, each
representing forty Ordinary Shares and evidenced by an American depositary receipt, or ADR, are traded on the Nasdaq Global Market
under the symbol “BVXV.” The ADRs were issued pursuant to a Depositary Agreement entered into with The Bank of New
York Mellon. .
Not applicable.
Not applicable.
Not applicable.
Item 10.
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ADDITIONAL INFORMATION
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Not
applicable.
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B.
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Articles of Association
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Our number with the
Israeli Registrar of Companies is 513436105. Our purpose is set forth in Section 4 of our Articles of Association and include
every lawful purpose in the Biotechnology field.
Following the approval
of the annual and extraordinary shareholders meeting from March 28, 2018, our authorized share capital consists of 600,000,000
ordinary shares, no par value each. As of December 31, 2019, there were 454,145,376 ordinary shares issued and outstanding (including
those represented by ADSs). All of our outstanding ordinary shares are validly issued, fully paid and non-assessable. Our ordinary
shares are not redeemable and do not have any preemptive rights.
Voting Rights
Holders of our ordinary
shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting.
Shareholders may vote at shareholder meetings either in person, by proxy or by written ballot. Israeli law does not allow public
companies to adopt shareholder resolutions by means of written consent in lieu of a shareholder meeting. The board of directors
shall determine and provide a record date for each shareholders meeting and all shareholders at such record date may vote. Unless
stipulated differently in the Companies Law or in the articles of association, all shareholders’ resolutions shall be approved
by a simple majority vote. Except as otherwise disclosed herein, an amendment to our articles of association requires the prior
approval of the holders of at least 75% of our shares, represented and voting at a general meeting.
Transfer of Shares
Our ordinary shares
that are fully paid for are issued in registered form and may be freely transferred under our articles of association, unless
the transfer is restricted or prohibited by applicable law or the rules of a stock exchange on which the shares are traded. The
ownership or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our articles of association
or Israeli law, except for ownership by nationals of some countries that are, or have been, in a state of war with Israel.
The Powers of the Directors
Our board of directors
shall direct the Company’s policy and shall supervise the performance of the Company’s Chief Executive Officer. Pursuant
to the Companies Law and our articles of association, our board of directors may exercise all powers and take all actions that
are not required under law or under our articles of association to be exercised or taken by our shareholders, including the power
to borrow money for company purposes.
Amendment of share capital
Our articles of association
enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must
be approved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital.
In addition, transactions that have the effect of reducing capital, such as the declaration and payment of dividends in the absence
of sufficient retained earnings and profits and an issuance of shares for less than their nominal value, require a resolution
of our board of directors and court approval.
Dividends
Under Israeli law,
we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that
the distribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become
due. Under the Companies Law, the distribution amount is further limited to the greater of retained earnings or earnings generated
over the two most recent years legally available for distribution according to our then last reviewed or audited financial statements,
provided that the date of the financial statements is not more than six months prior to the date of distribution. In the event
that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution,
we may seek the approval of the court in order to distribute a dividend. The court may approve our request if it is determines
that there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable
obligations as they become due.
Shareholder
Meetings
Under Israeli law,
we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than
15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders
are referred to as special meetings. Our board of directors may call special meetings whenever it sees fit, at such time and place,
within or outside of Israel, as it may determine. In addition, the Companies Law and our articles of association provide that
our board of directors is required to convene a special meeting upon the written request of (i) any two of our directors or one
quarter of the directors then in office; or (ii) one or more shareholders holding, in the aggregate either (a) 5% of our issued
share capital and 1% of our outstanding voting power, or (b) 5% of our outstanding voting power.
Subject
to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote
at general meetings are the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies
Law and our articles of association require that resolutions regarding the following matters must be passed at a general meeting
of our shareholders:
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amendments to our
articles of association;
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appointment or termination
of our auditors;
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appointment of directors
and appointment and dismissal of external directors;
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approval of acts
and transactions requiring general meeting approval pursuant to the Companies Law;
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director compensation,
indemnification and change of the principal executive officer;
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increases or reductions
of our authorized share capital;
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a merger;
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the exercise of
our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and
the exercise of any of its powers is required for our proper management; and
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authorizing the
chairman of the board of directors or his relative to act as the company’s chief executive officer or act with such
authority; or authorize the company’s chief executive officer or his relative to act as the chairman of the board of
directors or act with such authority.
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The
Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting
and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders
or interested or related parties, or an approval of a merger, notice must be provided at least 35 days prior to the meeting.
The
Companies Law does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently,
our articles of association do not allow shareholders to approve corporate matters by written consent.
Pursuant
to our articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted
to a vote before the shareholders at a general meeting.
Quorum
The
quorum required for our general meetings of shareholders consists of one or more shareholders present in person, by proxy or by
other voting instrument in accordance with the Companies Law who hold or represent, in the aggregate, at least 10% of the total
outstanding voting rights, within half an hour from the appointed time.
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 on a later
date if so specified in the summons or notice of the meeting. At the reconvened meeting, any number of our shareholders present
in person or by proxy shall constitute a lawful quorum.
Resolutions
Our
articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required
by applicable law or by another provision of the articles of association.
Israeli
law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot
in which the shareholder indicates how he or she votes on resolutions relating to the following matters:
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an appointment or
removal of directors;
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an approval of transactions
with office holders or interested or related parties, that require shareholder approval;
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an approval of a
merger;
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authorizing the
chairman of the board of directors or his relative to act as the company’s chief executive officer or act with such
authority; or authorize the company’s chief executive officer or his relative to act as the chairman of the board of
directors or act with such authority;
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any other matter
that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do
not stipulate any additional matters; and
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other matters which
may be prescribed by Israel’s Minister of Justice.
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The provision allowing
the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the
vote.
The Companies Law
provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its
other shareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when
voting at general meetings on matters such as changes to the articles of association, increasing the company’s registered
capital, mergers and approval of certain interested or related party transactions. A shareholder also has a general duty to refrain
from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, any shareholder
who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles
of association, can appoint or prevent the appointment of an office holder or other power towards the company, is required to
act with fairness towards the company. The Companies Law does not describe the substance of this duty except that the remedies
generally available upon a breach of contract will also apply to a breach of the duty to act with fairness, and, to the best of
our knowledge, there is no binding case law that addresses this subject directly.
Under the Companies
Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval
by a simple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the
resolution. Generally, a resolution for the voluntary winding up of the company requires the approval of holders of 75% of the
voting rights represented at the meeting, in person, by proxy or by written ballot and voting on the resolution.
In the event of our
liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares
in proportion to their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential
dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Access to Corporate Records
Under the Companies
Law, all shareholders of a company generally have the right to review minutes of the company’s general meetings, its shareholders
register and principal shareholders register, articles of association, financial statements and any document it is required by
law to file publicly with the Israeli Companies Registrar and the ISA. Any of our shareholders may request to review any document
in our possession that relates to any action or transaction with a related party, interested party or office holder that requires
shareholder approval under the Companies Law. We may deny a request to review a document if we determine that the request was
not made in good faith, that the document contains a commercial secret or a patent or that the document’s disclosure may
otherwise prejudice our interests.
Acquisitions
under Israeli Law
Full
Tender Offer
A
person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the target company’s
issued and outstanding share capital is required by the Companies Law to make a tender offer to all of the company’s shareholders
for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli
company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required
to make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and
outstanding shares of the same class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding
share capital of the company or of the applicable class, all of the shares that the acquirer offered to purchase will be transferred
to the acquirer by operation of law (provided that a majority of the offerees that do not have a personal interest in such tender
offer shall have approved the tender offer except that if the total votes to reject the tender offer represent less than 2% of
the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not
have a personal interest in such tender offer is not required to complete the tender offer). However, a shareholder that had its
shares so transferred may petition the court within six months from the date of acceptance of the full tender offer, whether or
not such shareholder agreed to the tender or not, to determine whether the tender offer was for less than fair value and whether
the fair value should be paid as determined by the court unless the acquirer stipulated in the tender offer that a shareholder
that accepts the offer may not seek appraisal rights, so long as prior to the acceptance of the full tender offer, the acquirer
and the company disclosed the information required by law in connection with the full tender offer. If the shareholders who did
not accept the tender offer hold 5% or more of the issued and outstanding share capital of the company or of the applicable class,
the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued
and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
Special
Tender Offer
The
Companies Law provides that an acquisition of shares of a public Israeli company must be made by means of a special tender offer
if as a result of the acquisition the purchaser would become a holder of 25% or more of the voting rights in the company, unless
one of the exemptions in the Companies Law is met. This rule does not apply if there is already another holder of at least 25%
of the voting rights in the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must
be made by means of a tender offer if as a result of the acquisition the purchaser would become a holder of 45% or more of the
voting rights in the company, if there is no other shareholder of the company who holds 45% or more of the voting rights in the
company, unless one of the exemptions in the Companies Law is met.
A
special tender offer must be extended to all shareholders of a company, but the offeror is not required to purchase shares representing
more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered
by shareholders. A special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s
outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares
whose holders objected to the offer.
If
a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the
purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target
company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless the
purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
Under
regulations enacted pursuant to the Companies Law, the above special tender offer requirements
may not apply to companies whose shares are listed for trading on a foreign stock exchange
if, among other things, the relevant foreign laws or the rules of the stock exchange,
include provisions limiting the percentage of control which may be acquired or that the
purchaser is required to make a tender offer to the public. However, the Israeli Securities
Authority’s opinion is that such leniency does not apply with respect to companies
whose shares are listed for trading on stock exchanges in the United States, including
the NASDAQ Capital Market, which do not provide for sufficient legal restrictions on
obtaining control or an obligation to make a tender offer to the public, therefore the
special tender offer requirements shall apply to such companies.
Merger
The Companies Law
permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under
the Companies Law are met, a majority of each party’s shares voted on the proposed merger at a shareholders’ meeting
called with at least 35 days’ prior notice.
For purposes of the
shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented
at the shareholders meeting that are held by parties other than the other party to the merger, or by any person who holds 25%
or more of the outstanding shares or the right to appoint 25% or more of the directors of the other party, vote against the merger.
If the transaction would have been approved but for the separate approval of each class or the exclusion of the votes of certain
shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting
rights of a company, if the court holds that the merger is fair and reasonable, taking into account the value of the parties to
the merger and the consideration offered to the shareholders.
Upon the request of
a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists
a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of
the parties to the merger, and may further give instructions to secure the rights of creditors.
In addition, a merger
may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed by
each party with the Israeli Registrar of Companies and 30 days have passed from the date the merger was approved by the shareholders
of each party.
Antitakeover Measures
The Companies Law
allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing
certain preferred rights, distributions or other matters and shares having preemptive rights. As of the date of this annual report,
we do not have any authorized or issued shares other than our ordinary shares. In the future, if we do create and issue a class
of shares other than ordinary shares, such class of shares, depending on the specific rights that may be attached to them, may
delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of
their ordinary shares. The authorization of a new class of shares will require an amendment to our articles of association which
requires the prior approval of the holders of at least 75% of our shares at a general meeting. In addition, the rules and regulations
of the TASE also limit the terms permitted with respect to a new class of shares and prohibit any such new class of shares from
having voting rights. Shareholders voting in such meeting will be subject to the restrictions provided in the Companies Law as
described above.
Other than the license
agreement with Yeda, the finance agreement with the European Investment Bank, our lease agreement for the new mid-sized factory
in Jerusalem, all referred to elsewhere in this annual report, the agreement with our CMO and CRO, the ATM Agreement and the investment
agreement described below, we have not entered into any other material agreements (other than agreements entered into in the ordinary
course of business) in the two years immediately preceding the date of this annual report.
Master Service Agreement with a CRO
On March 8, 2018,
we entered into a Master Service Agreement with a contract research organization, or CRO, engaged in the business of providing
clinical research, data management and related services in the pharmaceuticals, biotechnology and medical device industries, to
assist with our current phase 3 pivotal clinical trial in Europe.
The CRO’s responsibilities
will include preparing and maintaining a complete and accurate written and/or electronic records, accounts, materials and all
other data and reports, continuous contact with the Company’s representative, monitoring the performance of the study sites
and investigational terms, conducting audits of the study and conducting an audit, control or inspection of the study and to monitor
and audit the activities of the investigators and members of the study team during the study.
In exchange for the
services provided by the CRO, we have agreed to pay cash consideration. The agreement may be terminated with an immediate effect
in case of a material breach by the other party, if such breach is not cured within 30 days from the date of delivery of a written
notice on the discovered breach to the other party. In addition, we may terminate the agreement by giving a 45 day written notice.
Master Service Agreement with a CMO
On September 24, 2015,
we entered into a Master Service Agreement with a CMO for the manufacture of M-001 for phase 3 clinical trial at the CMO’s
facility located in the U.S.
Pursuant to this agreement,
the CMO will be responsible for performing all necessary tests to the components and raw materials supplied, as well as for procuring,
testing, releasing and maintaining the inventory of all raw materials necessary to perform the services and shall maintain adequate
stockpile. In addition, the CMO will be responsible to manufacture, package, ship, store and test the product and raw materials,
maintain any state or local licenses required to operate a facility performing and management controls in place to track and trend
investigations and commitments.
We may terminate this
agreement by provide at least 30 days written notice to the CMO without penalty. In addition, the agreement may be terminated
with a 30 day notice of a material breach, if such breach has not been cured within the time allotted under this agreement.
Investment Agreement
On January 1, 2017,
we entered into an Investment Agreement with Angels Investments in Hi Tech Ltd., or the Investor, a private Israeli company controlled
by Mr. Marius Nacht, an Israeli Investor, for the issuance of ordinary shares of the Company. Pursuant to the terms of the Agreement,
the Investor invested in the Company amount equal to NIS 10,904,749 (approximately $2.83 million), or the Investment Amount. In
consideration for the Investment Amount, the Company issued to the Investor 33,760,832 ordinary shares of the Company, NIS no
par value (equivalent to approximately 844,000 ADSs). The Investment Amount represented a price per share that is equal to the
closing share price on TASE as of December 29, 2016, which was NIS 0.323 per share, 19.99% of the Company’s issued and outstanding
capital, and 12.08% of the Company’s issued and outstanding capital on a fully diluted basis.
The issued shares
have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States or to a U.S. Persons
(other than distributors) unless registered under the Securities Act or an exemption therefrom is available. The issued shares
contain a legend indicating that the transfer is prohibited except in accordance with the provisions of Regulation S or pursuant
to registration under the Securities Act or an available exemption therefrom, and hedging transaction involving the Shares may
not be conducted unless in compliance with the Securities Act.
The Investment Amount
was utilized by us for working capital, operating expenses and other general corporate purposes.
In addition, following
the closing of this investment transaction, and as part of this transaction, Mr. Isaac Devash was appointed as a director of the
Company, commencing on February 14, 2017.
In
1998, Israeli currency control regulations were liberalized significantly, so that Israeli residents generally may freely deal
in foreign currency and foreign assets, and non-residents may freely deal in Israeli currency and Israeli assets. There are currently
no Israeli currency control restrictions on remittances of dividends on the ordinary shares or the proceeds from the sale of the
shares provided that all taxes were paid or withheld; however, legislation remains in effect pursuant to which currency controls
can be imposed by administrative action at any time.
Non-residents
of Israel may freely hold and trade our securities. Neither our articles of association nor the laws of the State of Israel restrict
in any way the ownership or voting of ordinary shares by non-residents, except that such restrictions may exist with respect to
citizens of countries which are in a state of war with Israel. Israeli residents are allowed to purchase our ordinary shares.
The following description
is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinary
shares or ADSs (both referred to below as 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, including
Israeli, or other taxing jurisdiction.
Israeli Tax Considerations and Government
Programs
The following is a
summary of the material Israeli income tax laws applicable to us. This section also contains a discussion of material Israeli
income tax consequences concerning the ownership and disposition of our Shares. This summary does not discuss all the aspects
of Israeli income tax law that may be relevant to a particular investor in light of his or her personal investment circumstances
or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents
of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that the
discussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot
assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion. This summary
is based on laws and regulations in effect as of the date of this prospectus and does not take into account possible future amendments
which may be under consideration.
General corporate tax structure
in Israel
Taxable income of
Israeli companies was subject to tax at the rate of 26.5% in 2015, 25% in 2016, 24% in 2017 and 23% in 2018 and thereafter. Capital
gains derived by an Israeli resident company are generally subject to tax at the same rate as the corporate tax rate. Under Israeli
tax legislation, a corporation will be considered as an “Israeli Resident” if it meets one of the following: (a) it
was incorporated in Israel; or (b) the control and management of its business are exercised in Israel.
Capital Gains Tax on Sales of Our
Ordinary Shares
Israeli law generally
imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and
on the sale of assets located in Israel, including shares in Israeli companies, by both residents and non-residents of Israel,
unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence
provides otherwise. The Tax Ordinance distinguishes between real gain and inflationary surplus. The inflationary surplus is a
portion of the total capital gain equivalent to the increase of the relevant asset’s purchase price attributable to an increase
in the Israeli consumer price index, or a foreign currency exchange rate, between the date of purchase and the date of sale. The
real gain is the excess of the total capital gain over the inflationary surplus.
The following discussion
refers to the sale of our ordinary shares. However, the same tax treatment would apply to the sale of our ADSs.
Taxation of Israeli residents
As of January 1, 2012,
the tax rate generally applicable to the capital gains derived from the sale of shares, whether listed on a stock market or not,
is 25% for Israeli individuals, unless such shareholder is considered a “significant shareholder” at any time during
the 12-month period preceding such sale (i.e., such shareholder holds directly or indirectly, including jointly with others,
at least 10% of any means of control in the company) in which case the tax rate will be 30%. Israeli companies are subject to
the corporate tax rate on capital gains derived from the sale of listed shares. However, different tax rates may apply to dealers
in securities and shareholders who acquired their shares prior to an initial public offering.
As of January 1, 2013,
shareholders that are individuals who have taxable income that exceeds NIS 800,000 in a tax year (linked to the CPI each year),
will be subject to an additional tax, referred to as Income Surtax, at the rate of 2% on their taxable income for such tax year
which is in excess of such threshold. Under an amendment enacted in December 2016 to the Tax Ordinance, for tax year 2017 and
thereafter the rate of High Income Tax was increased to 3% and will be applicable to annual income exceeding NIS 640,000 (linked
to the CPI each year – NIS 651,500 as for 2020). For this purpose, taxable income will include taxable capital gains from
the sale of our shares and taxable income from dividend distributions.
Taxation of Non-Israeli Residents
Non-Israeli residents
are generally exempt from Israeli capital gains tax on any gains derived from the sale of shares publicly traded on the TASE provided
such gains did not derive from a permanent establishment of such shareholders in Israel. Non-Israeli residents are also exempt
from Israeli capital gains tax on any gains derived from the sale of shares of Israeli companies publicly traded on a recognized
stock market outside of Israel, provided such shareholders did not acquire their shares prior to the issuer’s initial public
offering (in which case a partial exemption may be available), and that the gains did not derive from a permanent establishment
of such shareholders in Israel. However, non-Israeli corporations will not be entitled to such exemption if Israeli residents,
whether directly or indirectly (i) have a controlling interest of more than 25% in such non-Israeli corporation, or (ii) are the
beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation.
In addition, the sale,
exchange or disposition of our ordinary shares by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty),
and who holds ordinary shares as a capital asset, is also exempt from Israeli capital gains tax under the U.S.-Israel Tax Treaty
unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of our voting power during any
part of the 12-month period preceding such sale or (ii) the capital gains arising from such sale are attributable to a permanent
establishment of the shareholder located in Israel. If the above conditions are not met, the U.S. resident would be subject to
Israeli tax, to the extent applicable. However, under the U.S.-Israel Tax Treaty, the gain would be treated as foreign source
income for United States foreign tax credit purposes and such U.S. resident would be permitted to claim a credit for such taxes
against the United States federal income tax imposed on such sale, exchange or disposition, subject to the limitations under the
United States federal income tax laws applicable to foreign tax credits.
Taxation of Dividends Paid on our
Ordinary Shares
The following discussion
refers to dividends paid on our ordinary shares. However, the same tax treatment would apply to dividends paid on our ADSs.
Taxation of Israeli
Residents
Israeli resident individuals
are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares, other than bonus shares (share
dividends) or stock dividends. As of January 1, 2012, the tax rate applicable to such dividends is 25% or 30% for a shareholder
that is considered a significant shareholder at any time during the 12-month period preceding such distribution. Dividends paid
out of profits sourced from ordinary income are subject to withholding tax at the rate of 25% or 30%.
All dividend distributions
to Israeli resident corporations are not subject to a withholding tax.
For information with
respect to the applicability of Income Surtax on distribution of dividends, please see “Capital Gains Tax on Sales of Our
Ordinary Shares” and “Taxation of Israeli Residents” above in this Item.
Taxation of Israeli Resident Corporations
on Receipt of Dividends
Israeli resident corporations
are generally exempt from Israeli corporate income tax with respect to dividends paid on our Shares.
Taxation of Non-Israeli
Residents
Non-residents of Israel,
both companies and individuals, are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares,
at the aforementioned rates applicable to Israeli residents, which tax will be withheld at source, unless a different rate is
provided in a treaty between Israel and the shareholder’s country of residence.
Under the U.S.-Israel
Treaty, the maximum Israeli withholding tax on dividends paid by us is 25%. The U.S.-Israel Tax Treaty further provides for a
12.5% Israeli dividend withholding tax rate on dividends paid by an Israeli company to a U.S. corporation owning at least 10%
or more of such Israeli company’s issued voting power for, in general, the part of the tax year which precedes the date
of payment of the dividend and the entire preceding tax year. The lower 12.5% rate applies only to dividends paid from regular
income (and not derived from an Approved, Privileged or Preferred Enterprise) in the applicable period and does not apply if the
company has more than 25% of its gross income derived from certain types of passive income (if the conditions mentioned above
are met, dividends from income of an Approved, Privileged or Preferred Enterprise are subject to a 15% withholding tax rate under
the U.S.-Israel Tax Treaty). Residents of the United States generally will have withholding tax in Israel deducted at source.
They may be entitled to a credit or deduction for United States federal income tax purposes in the amount of the taxes withheld,
subject to detailed rules contained in United States tax legislation.
A non-resident of
Israel who has dividend income derived from or accrued in Israel, from which tax was withheld at source, is generally exempt from
the duty to file tax returns in Israel with respect to such income, provided such income was not derived from a business conducted
in Israel by the taxpayer and that the taxpayer is not subject to Income Surtax.
Estate and gift
tax
Israeli law presently
does not impose estate or gift taxes.
EACH PROSPECTIVE
INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING
OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
U.S. Federal Income Tax Consequences
The following is a
summary of the material U.S. Federal income tax consequences that apply to U.S. holders (defined below) who hold ADSs as capital
assets for tax purposes. This summary is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”),
existing final, temporary and proposed regulations thereunder, judicial decisions and published positions of the Internal Revenue
Service and the U.S.-Israel income tax treaty in effect as of the date of this annual report, all of which are subject to change
at any time (including changes in interpretation), possibly with retroactive effect. On December 22, 2017, the United States enacted
the U.S. Tax Reform which alters significantly the U.S. Federal income tax system, generally beginning in 2018. Given the
complexity of this new law, U.S. holders should consult their own tax advisors regarding its potential impact on the U.S. Federal
income tax consequences to them in light of their particular circumstances.
This summary does
not address all U.S. Federal income tax matters that may be relevant to a particular prospective holder or all tax considerations
that may be relevant with respect to an investment in ADSs.
This summary does
not address tax considerations applicable to a holder of an ADS that may be subject to special tax rules including, without limitation,
the following:
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dealers
or traders in securities, currencies or notional principal contracts;
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financial
institutions;
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insurance
companies;
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real
estate investment trusts;
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banks;
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investors
subject to the alternative minimum tax;
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tax-exempt
organizations;
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regulated
investment companies;
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investors
that actually or constructively own 10 percent or more of our voting shares;
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investors
that will hold the ADSs as part of a hedging or conversion transaction or as a position in a straddle or a part of a synthetic
security or other integrated transaction for U.S. Federal income tax purposes;
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investors
that are treated as partnerships or other pass through entities for U.S. Federal income tax purposes and persons who hold
the ADSs through partnerships or other pass through entities;
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investors
whose functional currency is not the U.S. dollar; and
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expatriates
or former long-term residents of the United States.
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This summary does
not address the effect of any U.S. Federal taxation other than U.S. Federal income taxation. In addition, this summary does not
include any discussion of state, local or foreign taxation or the indirect effects on the holders of equity interests in a holder
of an ADS.
You are urged to
consult your own tax advisor regarding the foreign and U.S. Federal, state and local and other tax consequences of an investment
in ADSs.
For purposes of this
summary, a “U.S. holder” is a beneficial owner of ADSs that is, for U.S. Federal income tax purposes:
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an
individual who is a citizen or a resident of the United States;
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a
corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under
the laws of the United States or any political subdivision thereof;
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an
estate whose income is subject to U.S. Federal income tax regardless of its source; or
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(a)
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a
court within the United States is able to exercise primary supervision over administration of the trust; and
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(b)
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one
or more United States persons have the authority to control all substantial decisions of the trust.
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If an entity that
is classified as a partnership for U.S. federal tax purposes holds ADSs, the U.S. federal income tax treatment of its partners
will generally depend upon the status of the partners and the activities of the partnership. Entities that are classified as partnerships
for U.S. federal tax purposes and persons holding ADSs through such entities should consult their own tax advisors.
In general, if you
hold ADSs, you will be treated as the holder of the underlying shares represented by those ADSs for U.S. Federal income tax purposes.
Accordingly, no gain or loss will be recognized if you exchange ADSs for the underlying shares represented by those ADSs.
U.S. Taxation of ADSs
Distributions
Subject to the discussion
under “Passive Foreign Investment Companies” below, the gross amount of any distribution, including the amount of
any Israeli taxes withheld from these distributions (see “Israeli Tax Considerations”), actually or constructively
received by a U.S. holder with respect to ADSs will be taxable to the U.S. holder as a dividend to the extent of our current and
accumulated earnings and profits as determined under U.S. Federal income tax principles. Distributions in excess of earnings and
profits will be non-taxable to the U.S. holder to the extent of, and will be applied against and reduce, the U.S. holder’s
adjusted tax basis in the ADSs. Distributions in excess of earnings and profits and such adjusted tax basis will generally be
taxable to the U.S. holder as a capital gain from the sale or exchange of property. We do not maintain calculations of our earnings
and profits under U.S. Federal income tax principles. If we do not report to a U.S. holder the portion of a distribution that
exceeds earnings and profits, the distribution will generally be taxable as a dividend even if that distribution would otherwise
be treated as a non-taxable return of capital or as a capital gain under the rules described above. The amount of any distribution
of property other than cash will be the fair market value of that property on the date of distribution. The U.S. holder will not,
except as provided by Section 245 of the Code, be eligible for any dividends received deduction in respect of the dividend otherwise
allowable to corporations.
Under the Code, certain
dividends received by non-corporate U.S. holders will be subject to a maximum income tax rate of 20%. This reduced income tax
rate is only applicable to dividends paid by a “qualified foreign corporation” that is not a “passive foreign
investment company” and only with respect to shares held by a qualified U.S. holder (i.e., a non-corporate holder) for a
minimum holding period (generally 61 days during the 121-day period beginning 60 days before the ex-dividend date). We should
be considered a qualified foreign corporation because (i) we are eligible for the benefits of a comprehensive tax treaty between
Israel and the U.S., which includes an exchange of information program, and (ii) the ADSs are readily tradable on an established
securities market in the U.S. In addition, based on our current business plans, we do not expect to be classified as a “passive
foreign investment company” (see “Passive Foreign Investment Companies” below). Accordingly, dividends paid
by us to individual U.S. holders on shares held for the minimum holding period should be eligible for the reduced income tax rate.
In addition to the income tax on dividends discussed above, certain non-corporate U.S. holders will also be subject to the 3.8%
Medicare tax on dividends as discussed below under “Medicare Tax on Unearned Income”.
The amount of any
distribution paid in a currency other than U.S. dollars (a “foreign currency”) including the amount of any withholding
tax thereon, will be included in the gross income of a U.S. holder in an amount equal to the U.S. dollar value of the foreign
currencies calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the foreign currencies
are converted into U.S. dollars. If the foreign currencies are converted into U.S. dollars on the date of receipt, a U.S. holder
generally should not be required to recognize foreign currency gain or loss in respect of the dividend. If the foreign currencies
received in the distribution are not converted into U.S. dollars on the date of receipt, a U.S. holder will have a basis in the
foreign currencies equal to its U.S. dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other
disposition of the foreign currencies will be treated as ordinary income or loss.
Generally, dividends
received by a U.S. holder with respect to ADSs will be treated as foreign source income for the purposes of calculating that holder’s
foreign tax credit limitation. Subject to certain conditions and limitations, any Israeli taxes withheld on dividends at the rate
provided by the U.S.-Israel tax treaty may be deducted from taxable income or credited against a U.S. holder’s U.S. Federal
income tax liability. The limitation on foreign taxes eligible for the U.S. foreign tax credit is calculated separately with respect
to “passive” income and “general” income. The rules relating to foreign tax credits and the timing thereof
are complex. U.S. holders should consult their own tax advisors regarding the availability of a foreign tax credit under their
particular situation.
Sale or Other Disposition of ADSs
If a U.S. holder sells
or otherwise disposes of its ADSs, gain or loss will be recognized for U.S. Federal income tax purposes in an amount equal to
the difference between the amount realized on the sale or other disposition and such holder’s adjusted tax basis in the
ADSs. Subject to the discussion below under the heading “Passive Foreign Investment Companies,” such gain or loss
generally will be a capital gain or loss, and will be long-term a capital gain or loss if the holder had held the ADSs for more
than one year at the time of the sale or other disposition. Long-term capital gains realized by individual U.S. holders generally
are subject to a lower marginal U.S. Federal income tax rate (currently up to 20%) than the marginal tax rate on ordinary income.
In addition to the income tax on gains discussed above, certain non-corporate U.S. holders will also be subject to the 3.8% Medicare
tax on net gains as discussed below under “Medicare Tax on Unearned Income”. Under most circumstances, any gain that
a holder recognizes on the sale or other disposition of ADSs will be U.S. sourced for purposes of the foreign tax credit limitation
and any recognized losses will be allocated against U.S. source income.
If a U.S. holder receives
foreign currency upon a sale or exchange of ADSs, gain or loss, if any, recognized on the subsequent sale, conversion or disposition
of such foreign currency will be ordinary income or loss, and will generally be income or loss from sources within the United
States for foreign tax credit limitation purposes. However, if such foreign currency is converted into U.S. dollars on the date
received by the U.S. holder, the U.S. holder generally should not be required to recognize any gain or loss on such conversion.
A U.S. holder who
holds shares through an Israeli stockbroker or other Israeli intermediary may be subject to Israeli withholding tax on any capital
gain recognized if the U.S. holder does not obtain approval of an exemption from the Israeli Tax Authorities or claim any allowable
refunds or reductions. U.S. holders are advised that any Israeli tax paid under circumstances in which an exemption from (or a
refund of or a reduction in) such tax was available will not give rise to a deduction or credit for foreign taxes paid for U.S.
federal income tax purposes. If applicable, U.S. holders are advised to consult their Israeli stockbroker or intermediary regarding
the procedures for obtaining an exemption or reduction.
Medicare Tax on Unearned Income
Certain U.S. holders
that are individuals, estates or trusts are required to pay an additional 3.8% tax on all or a portion of their “net investment
income,” which includes dividends and net gains from the sale or other dispositions of ADSs (other than ADSs held in a trade
or business).
Passive Foreign Investment Companies
For U.S. Federal income
tax purposes, we will be considered a passive foreign investment company (“PFIC”) for any taxable year in which either
75% or more of our gross income is passive income, or at least 50% of the average value of all of our assets for the taxable year
produce or are held for the production of passive income. For this purpose, passive income includes dividend, interest, royalty,
rent, annuity and the excess of gain over losses from the disposition of assets which produce passive income. If we were determined
to be a PFIC for U.S. Federal income tax purposes, highly complex rules would apply to U.S. holders owning ADSs.
We have not determined
whether we will be a PFIC in the year in which this offering is completed or in future years. Because the PFIC determination is
highly fact-intensive, there can be no assurance that we will not be a PFIC in the year in which this offering is completed or
any subsequent year.
Our status in any
taxable year will depend on our assets and activities in each year and because this is a factual determination made annually at
the end of each taxable year, there can be no assurance that we will not be considered a PFIC for any future taxable year. If
we were treated as a PFIC in any year during which a U.S. holder owns ADSs, certain adverse tax consequences could apply.
You are urged to
consult your own tax advisor regarding the possibility of us being classified as a PFIC and the potential tax consequences arising
from the ownership and disposition (directly or indirectly) of an interest in a PFIC.
The U.S. federal
income tax rules relating to PFICs, QEF elections, and mark-to market elections are complex. U.S. Investors are urged to consult
their own tax advisors with respect to the purchase, ownership and disposition of our Shares, any elections available with respect
to such Shares and the IRS information reporting obligations with respect to the purchase, ownership and disposition of our Shares.
Certain Reporting Requirements
Certain U.S. Investors
are required to file IRS Form 926, Return by U.S. Transferor of Property to a Foreign Corporation, and certain U.S. Investors
may be required to file IRS Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, reporting
transfers of cash or other property to us and information relating to the U.S. Investor and us. Substantial penalties may be imposed
upon a U.S. Investor that fails to comply.
In addition, recently
enacted legislation requires certain U.S. Investors to report information on IRS Form 8938 with respect to their investments in
certain “foreign financial assets,” which would include an investment in our Shares, to the IRS.
Investors who fail
to report required information could become subject to substantial civil and criminal penalties. U.S. Investors should consult
their tax advisors regarding the possible implications of these reporting requirements on their investment in our Shares.
Disclosure of Reportable Transactions
If a U.S. Investor
sells or disposes of the Shares at a loss or otherwise incurs certain losses that meet certain thresholds, such U.S. Investor
may be required to file a disclosure statement with the IRS. Failure to comply with these and other reporting requirements could
result in the imposition of significant penalties.
Backup Withholding Tax and Information
Reporting Requirements
Generally, information
reporting requirements will apply to distributions on our Shares or proceeds on the disposition of our Shares paid within the
United States (and, in certain cases, outside the United States) to U.S. Investors other than certain exempt recipients, such
as corporations. Furthermore, backup withholding (currently at 28%) may apply to such amounts if the U.S. Investor fails to (i)
provide a correct taxpayer identification number, (ii) report interest and dividends required to be shown on its U.S. federal
income tax return, or (iii) make other appropriate certifications in the required manner. U.S. Investors who are required to establish
their exempt status generally must provide such certification on IRS Form W-9.
Backup withholding
is not an additional tax. Amounts withheld as backup withholding from a payment may be credited against a U.S. Investor’s
U.S. federal income tax liability and such U.S. Investor may obtain a refund of any excess amounts withheld by filing the appropriate
claim for refund with the IRS and furnishing any required information in a timely manner.
THE DISCUSSION
ABOVE IS A GENERAL SUMMARY. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT
OF RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
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F.
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Dividends and Paying Agents
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Not applicable.
Not applicable.
We are subject to
the information reporting requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements
will file reports with the SEC through its electronic data gathering, analysis and retrieval (EDGAR) system. Our securities filings,
including this Annual Report and the exhibits thereto, are available for inspection and copying at the public reference facilities
of the SEC located at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates
by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330
for further information on the public reference room. The SEC also maintains a website at http://www.sec.gov from
which certain filings may be accessed.
As a foreign private
issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our
officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained
in Section 16 of the Exchange Act. Furthermore, as a foreign private issuer, we are also not subject to the requirements of Regulation
FD (Fair Disclosure) promulgated under the Exchange Act. In addition, we will not be required under the Exchange Act to file annual
or other reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered
under the Exchange Act.
We also intend to
furnish certain other material information to the SEC under cover of Form 6-K and to furnish to the SEC under cover of Form 6-K
English translations or summaries (in certain instances where applicable), in accordance with the provisions of Exchange Act Rule
12b-12(d), of such Hebrew language immediate reports or information furnished to the TASE and the ISA, as well as other material
agreements that we may enter into that are written in the Hebrew language.
In addition, our ordinary
shares traded on the TASE until January 22, 2018, and until such delisting date we have filed Hebrew language periodic and immediate
reports with, and furnish information to, the TASE and the ISA, as required under Chapter Six of the Israel Securities Law, 1968.
Copies of our filings with the ISA can be retrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il)
and the TASE website (www.maya.tase.co.il).
We maintain a corporate
website at www.biondvax.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.
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I.
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Subsidiary Information
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Not applicable.
Item 11.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
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We are exposed to
market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position,
results of operations or cash flows due to adverse changes in financial market prices and rates, including interest rates and
foreign exchange rates, of financial instruments. Our market risk exposure is primarily a result of interest rates and foreign
currency exchange rates.
Interest Rate Risk
Following the date
of this annual report, we do not anticipate undertaking any significant long-term borrowings. At present, our investments consist
primarily of cash and cash equivalents and financial assets at fair value.
Following the date
of this annual report, we may invest in investment-grade marketable securities with maturities of up to three years, including
commercial paper, money market funds, and government/non-government debt securities. The primary objective of our investment activities
is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk
and loss. Our investments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income
and the fair market value of our investments, if any. We manage this exposure by performing ongoing evaluations of our investments.
Due to the short-term maturities, if any, of our investments to date, their carrying value has always approximated their fair
value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold such investments
to maturity in order to limit our exposure to interest rate fluctuations.
Foreign Currency Exchange
Risk
Our foreign currency
exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency,
mainly against the U.S. dollar and the Euro. Although the NIS is our functional currency, a small portion of our expenses are
denominated in both U.S. dollar and Euro. Our U.S. dollar and Euro expenses consist principally of payments made to sub-contractors
and consultants for clinical trials and other research and development activities as well as payments made to purchase new equipment.
We anticipate that a sizable portion of our expenses will continue to be denominated in currencies other than the NIS. If the
NIS fluctuates significantly against either the U.S. dollar or the Euro, it may have a negative impact on our results of operations.
To date, fluctuations in the exchange rates have not materially affected our results of operations or financial condition for
the periods under review.
To date, we entered
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.
Item 12.
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DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES
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Not applicable.
Not applicable.
Not applicable.
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D.
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American Depositary
Shares
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American Depositary
Shares
The Bank of New York
Mellon, as depositary, registered and delivered American Depositary Shares, also referred to as ADSs. Each ADS represents forty
(40) ordinary shares (or a right to receive forty (40) ordinary shares) deposited with the principal Tel Aviv office of either
of Bank Leumi or Bank Hapoalim, as custodian for the depositary. Each ADS also represents any other securities, cash or other
property which may be held by the depositary. The depositary’s office at which the ADSs are administered is located at 101
Barclay Street, New York, New York 10286. The Bank of New York Mellon’s principal executive office is located at One Wall
Street, New York, New York 10286.
You may hold ADSs
either (A) directly (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing
a specific number of ADSs, registered in your name, or (ii) by having ADSs registered in your name in the Direct Registration
System, or DRS, or (B) indirectly by holding a security entitlement in ADSs through your broker or other financial institution.
If you hold ADSs directly, you are a registered ADS holder, also referred to as an ADS holder. This description assumes you are
an ADS holder. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution
to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to
find out what those procedures are.
The DRS is a system
administered by The Depository Trust Company, or DTC, under which the depositary may register the ownership of uncertificated
ADSs, which ownership is confirmed by periodic statements sent by the depositary to the registered holders of uncertificated ADSs.
As an ADS holder,
we will not treat you as one of our shareholders and you will not have shareholder rights. Israeli law governs shareholder rights.
The depositary will be the holder of the ordinary shares underlying your ADSs. As a registered holder of ADSs, you will have ADS
holder rights. A deposit agreement among us, the depositary, ADS holders and all other persons indirectly or beneficially holding
ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement
and the ADSs.
The following is a
summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit
agreement and the form of ADR. For directions on how to obtain copies of those documents see “Where You Can Find More Information”.
Dividends and Other
Distributions
How will you receive dividends
and other distributions on the shares?
The depositary has
agreed to pay to ADS holders the cash dividends or other distributions it or the custodian receives on ordinary shares or other
deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number
of ordinary shares your ADSs represent.
Cash. The
depositary will convert any cash dividend or other cash distribution we pay on the ordinary shares into U.S. dollars, if it can
do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government
approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only
to those ADS holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the
ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest.
Before making a distribution,
the depositary will deduct any withholding taxes, or other required governmental charges. The depositary will distribute only
whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during
a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution.
Shares. The
depositary may distribute additional ADSs representing any ordinary shares we distribute as a dividend or free distribution. The
depositary will only distribute whole ADSs. It may sell ordinary shares which would require it to deliver a fraction of an ADS
and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, the
outstanding ADSs will also represent the new shares. The depositary may sell a portion of the distributed ordinary shares sufficient
to pay its fees and expenses in connection with that distribution.
Rights to purchase
additional shares. If we offer holders of our securities any rights to subscribe for additional ordinary shares
or any other rights, the depositary may make these rights available to ADS holders. If the depositary decides it is not legal
and practical to make the rights available but that it is practical to sell the rights, the depositary will use reasonable efforts
to sell the rights and distribute the proceeds in the same way as it does with cash. The depositary will allow rights that are
not distributed or sold to lapse. In that case, you will receive no value for them.
If the depositary
makes rights available to ADS holders, it will exercise the rights and purchase the ordinary shares on your behalf. The depositary
will then deposit the ordinary shares and deliver ADSs to the persons entitled to them. It will only exercise rights if you pay
it the exercise price and any other charges the rights require you to pay.
U.S. securities laws
may restrict transfers and cancellation of the ADSs represented by ordinary shares purchased upon exercise of rights. For example,
you may not be able to trade these ADSs freely in the United States. In this case, the depositary may deliver restricted depositary
shares that have the same terms as the ADSs described in this section except for changes needed to put the necessary restrictions
in place.
Other Distributions. The
depositary will send to ADS holders anything else we distribute on deposited securities by any means it thinks is legal, fair
and practical. If it cannot make the distribution in that way, the depositary will have a choice. It may decide to sell what we
distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed,
in which case ADSs will also represent the newly distributed property. However, the depositary is not required to distribute any
securities (other than ADSs) to ADS holders unless it receives reasonably satisfactory evidence from us that it is legal to make
that distribution. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and
expenses in connection with that distribution
The depositary is
not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have
no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take
any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may
not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make
them available to you.
Deposit, Withdrawal
and Cancellation
How are ADSs issued?
The depositary will
deliver ADSs if you or your broker deposits ordinary shares or evidence of rights to receive ordinary shares with the custodian.
Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary
will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person
or persons that made the deposit.
How can ADS holders withdraw
the deposited securities?
You may surrender
your ADSs at the depositary’s office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes
or stock transfer taxes or fees, the depositary will deliver the ordinary shares and any other deposited securities underlying
the ADSs to the ADS holder or a person the ADS holder designates at the office of the custodian. Or, at your request, risk and
expense, the depositary will deliver the deposited securities at its office, if feasible.
How do ADS holders interchange
between certificated ADSs and uncertificated ADSs?
You may surrender
your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR
and will send to the ADS holder a statement confirming that the ADS holder is the registered holder of uncertificated ADSs. Alternatively,
upon receipt by the depositary of a proper instruction from a registered holder of uncertificated ADSs requesting the exchange
of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to the ADS holder an ADR evidencing those
ADSs.
Voting Rights
How do you vote?
ADS holders may instruct
the depositary how to vote the number of deposited ordinary shares their ADSs represent. Otherwise, you won’t be able
to exercise your right to vote unless you withdraw the shares. However, you may not know about the meeting sufficiently in advance
to withdraw the shares.
The depositary will
notify ADS holders of shareholders’ meetings and arrange to deliver our voting materials to them if we ask it to. 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 much 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 of our articles of association or similar documents, to vote or to
have its agents vote the ordinary shares or other deposited securities as instructed by ADS holders. The depositary will only
vote or attempt to vote as instructed or as described in the following sentence. If we ask the depositary to solicit your instructions
at least 30 days before the meeting date but the depositary does not receive voting instructions from you by the specified date,
it will consider you to have authorized and directed it to give a discretionary proxy to a person designated by us to vote the
number of deposited securities represented by your ADSs. The depositary will give a discretionary proxy in those circumstances
to vote on all questions at to be voted upon unless we notify the depositary that:
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we do not wish to
receive a discretionary proxy;
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there is substantial
shareholder opposition to the particular question; or
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the particular question
would have an adverse impact on our shareholders.
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We are required to
notify the depositary if one of the conditions specified above exists.
We cannot assure you
that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition,
the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out
voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do
if your ordinary shares are not voted as you requested.
In order to give you
a reasonable opportunity to instruct the Depositary as to the exercise of voting rights relating to Deposited Securities, if we
request the Depositary to act, we agree to give the Depositary notice of any such meeting and details concerning the matters to
be voted upon at least 30 days in advance of the meeting date.
Fees and Expenses
Persons
depositing or withdrawing ordinary shares or ADS holders
must pay:
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For:
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$5.00 (or less)
per 100 ADSs (or portion of 100 ADSs)
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Issuance of ADSs,
including issuances resulting from a distribution of ordinary shares or rights or other property Cancellation of ADSs for
the purpose of withdrawal, including if the deposit agreement terminates
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$.05 (or less) per
ADS
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Any cash distribution
to ADS holders
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A fee equivalent
to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary shares had been
deposited for issuance of ADSs
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Distribution of
securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders
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$.05 (or less) per
ADS per calendar year
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Depositary services
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Registration or
transfer fees
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Transfer and registration
of ordinary shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw ordinary
shares
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Expenses of the
depositary
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Cable, telex and
facsimile transmissions (when expressly provided in the deposit agreement) converting foreign currency to U.S. dollars
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Taxes and other
governmental charges the depositary or the custodian has to pay on any ADSs or ordinary shares underlying ADSs, such as stock
transfer taxes, stamp duty or withholding taxes
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As necessary
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Any charges incurred
by the depositary or its agents for servicing the deposited securities
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As necessary
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The depositary collects
its fees for delivery and surrender of ADSs directly from investors depositing ordinary 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 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 and/or share revenue from the fees collected from ADS holders, or waive fees
and expenses for services provided, generally relating to costs and expenses arising out of establishment and maintenance of the
ADS program. In performing its duties under the deposit agreement, the depositary may use brokers, dealers or other service providers
that are affiliates of the depositary and that may earn or share fees or commissions.
Payment of Taxes
You will be responsible
for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs.
The depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented
by your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented
by your American Depositary Shares to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells
deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds,
or send to ADS holders any property, remaining after it has paid the taxes.
Reclassifications,
Recapitalizations and Mergers
If
we:
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Then:
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● Change
the nominal or par value of our shares
● Reclassify,
split up or consolidate any of the deposited securities
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The cash, ordinary
shares or other securities received by the depositary will become deposited securities. Each ADS will automatically represent
its equal share of the new deposited securities.
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● Distribute
securities on the ordinary shares that are not distributed to you
● Recapitalize,
reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action
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The depositary may
distribute new ADSs representing the new deposited securities or ask you to surrender your outstanding ADRs in exchange for
new ADRs identifying the new deposited securities.
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Amendment and Termination
How may the
deposit agreement be amended?
We may agree with
the depositary to amend the deposit agreement and the ADSs without your consent for any reason. If an amendment adds or increases
fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile
costs, delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding
ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective,
you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement
as amended.
How may the
deposit agreement be terminated?
The depositary will
terminate the deposit agreement at our direction by mailing notice of termination to the ADS holders at least 30 days prior to
the date fixed in such notice for such termination. The depositary may also terminate the deposit agreement by mailing notice
of termination to us and the ADS holders if 60 days have passed from the date on which the depositary told us it wants to resign
but a successor depositary has not been appointed and accepted its appointment.
After termination,
the depositary and its agents will do the following under the deposit agreement but nothing else: collect distributions on the
deposited securities, sell rights and other property, and deliver ordinary shares and other deposited securities upon cancellation
of ADSs. Four months after termination, the depositary may sell any remaining deposited securities by public or private sale.
After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit
agreement for the pro rata benefit of the ADS holders that have not surrendered their ADSs. It will not invest the money and has
no liability for interest. The depositary’s only obligations will be to account for the money and other cash. After termination
our only obligations will be to indemnify the depositary and to pay fees and expenses of the depositary that we agreed to pay.
Limitations on
Obligations and Liability
Limits on our
Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADSs
The deposit agreement
expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the
depositary. We and the depositary:
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are only obligated
to take the actions specifically set forth in the deposit agreement without negligence or bad faith;
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are not liable if
we are or it are prevented or delayed by law or circumstances beyond our or its control from performing our or its obligations
under the deposit agreement;
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are not liable if
we or it exercise discretion permitted under the deposit agreement;
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are not liable for
the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made available to
holders of ADSs under the terms of the deposit agreement, or for any special, consequential or punitive damages for any breach
of the terms of the deposit agreement;
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have no obligation
to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf or on behalf
of any other person;
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are not liable for
the acts or omissions of any securities depository, clearing agency or settlement system; and
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may rely upon any
documents we believe or it believe in good faith to be genuine and to have been signed or presented by the proper person.
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In the deposit agreement,
we and the depositary agree to indemnify each other under certain circumstances.
Requirements for Depositary Actions
Before the depositary
will deliver or register a transfer of ADSs, make a distribution on ADSs, or permit withdrawal of shares, the depositary may require:
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payment of stock
transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer
of any ordinary shares or other deposited securities;
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satisfactory proof
of the identity and genuineness of any signature or other information it deems necessary; and
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compliance with
regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer
documents.
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The depositary may
refuse to deliver ADSs or register transfers of ADSs when the transfer books of the depositary or our transfer books are closed
or at any time if the depositary or we think it advisable to do so.
Your Right to Receive
the Ordinary Shares Underlying your ADSs
ADS holders have the
right to cancel their ADSs and withdraw the underlying ordinary shares at any time except:
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when temporary delays
arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the transfer of
ordinary shares is blocked to permit voting at a shareholders’ meeting; or (iii) we are paying a dividend on our shares;
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when you owe money
to pay fees, taxes and similar charges; or
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when it is necessary
to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal
of ordinary shares or other deposited securities.
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This right of withdrawal
may not be limited by any other provision of the deposit agreement.
Pre-release of
ADSs
The deposit agreement
permits the depositary to deliver ADSs before deposit of the underlying shares. This is called a pre-release of the ADSs. The
depositary may also deliver ordinary shares upon cancellation of pre-released ADSs (even if the ADSs are canceled before the pre-release
transaction has been closed out). A pre-release is closed out as soon as the underlying ordinary shares are delivered to the depositary.
The depositary may receive ADSs instead of ordinary shares to close out a pre-release. The depositary may pre-release ADSs only
under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being made
represents to the depositary in writing that it or its customer owns the ordinary shares or ADSs to be deposited; (2) the pre-release
is fully collateralized with cash or other collateral that the depositary considers appropriate; and (3) the depositary must be
able to close out the pre-release on not more than five business days’ notice. In addition, the depositary will limit the
number of ADSs that may be outstanding at any time as a result of pre-release, although the depositary may disregard the limit
from time to time if it thinks it is appropriate to do so.
Direct Registration
System
In the deposit agreement,
all parties to the deposit agreement acknowledge that DRS and the Profile Modification System, or Profile, will apply to uncertificated
ADSs upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC under which the depositary may register the
ownership of uncertificated ADSs, which ownership will be confirmed by periodic statements sent by the depositary to the registered
holders of uncertificated ADSs. Profile is a required feature of DRS that allows a DTC participant, claiming to act on behalf
of a registered holder of ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver
those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder
to register that transfer.
In connection with
and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand
that the depositary will not determine whether the DTC participant that is claiming to be acting on behalf of an ADS holder in
requesting registration of transfer and delivery described in the paragraph above has the actual authority to act on behalf of
the ADS holder (notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the parties agree
that the depositary’s reliance on and compliance with instructions received by the depositary through the DRS/Profile System
and in accordance with the deposit agreement will not constitute negligence or bad faith on the part of the depositary.
Shareholder communications;
inspection of register of holders of ADSs
The depositary will
make available for your inspection at its office all communications that it receives from us as a holder of deposited securities
that we make generally available to holders of deposited securities. The depositary will send you copies of those communications
if we ask it to. You have a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders
about a matter unrelated to our business or the ADSs.