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, 2018, 2017, and 2016, and the selected balance sheet data
as of December 31, 2018 and 2017, 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, 2015 and 2014, and the selected balance
sheet data as of December 31, 2016, 2015 and 2014, 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 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, 2018, all conversions from NIS to U.S. dollars and from U.S. dollars to NIS were made at a rate
of 3.748 NIS to $1 U.S. dollar, the daily representative rate in effect as of December 31, 2018. 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,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
NIS in thousands
|
|
|
Convenience translation into USD in thousands
(2)
|
|
Statements of comprehensive loss data:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
6,441
|
|
|
|
10,736
|
|
|
|
9,397
|
|
|
|
19,423
|
|
|
|
72,056
|
|
|
|
19,225
|
|
Participation by the IIA and UNISEC
|
|
|
(949
|
)
|
|
|
(2,830
|
)
|
|
|
(1,603
|
)
|
|
|
(646
|
)
|
|
|
(143
|
)
|
|
|
(38
|
)
|
Research and development, net of participations expenses
|
|
|
5,492
|
|
|
|
7,906
|
|
|
|
7,794
|
|
|
|
18,777
|
|
|
|
71,913
|
|
|
|
19,187
|
|
Marketing, general and administrative expenses
|
|
|
2,650
|
|
|
|
3,397
|
|
|
|
4,106
|
|
|
|
4,879
|
|
|
|
5,154
|
|
|
|
1,375
|
|
Operating loss
|
|
|
8,142
|
|
|
|
11,303
|
|
|
|
11,900
|
|
|
|
23,656
|
|
|
|
77,067
|
|
|
|
20,562
|
|
Financial income
|
|
|
394
|
|
|
|
1,128
|
|
|
|
3,019
|
|
|
|
18
|
|
|
|
2,936
|
|
|
|
783
|
|
Financial expenses
|
|
|
(16
|
)
|
|
|
(24
|
)
|
|
|
(303
|
)
|
|
|
(10,913
|
)
|
|
|
(13,596
|
)
|
|
|
(3,628
|
)
|
Financial income (expenses), net
|
|
|
378
|
|
|
|
1,104
|
|
|
|
2,716
|
|
|
|
(10,895
|
)
|
|
|
(10,660
|
)
|
|
|
(2,845
|
)
|
Net loss
|
|
|
7,764
|
|
|
|
10,199
|
|
|
|
9,184
|
|
|
|
34,551
|
|
|
|
87,727
|
|
|
|
23,407
|
|
Loss from available-for-sale financial assets
|
|
|
4
|
|
|
|
5
|
|
|
|
6
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
Total comprehensive loss
|
|
|
7,768
|
|
|
|
10,204
|
|
|
|
9,190
|
|
|
|
34,557
|
|
|
|
87,727
|
|
|
|
23,407
|
|
Basic and Diluted net loss per share (NIS)
|
|
|
0.14
|
|
|
|
0.1
|
|
|
|
0.07
|
|
|
|
0.17
|
|
|
|
0.34
|
|
|
|
0.09
|
|
Weighted average number of shares outstanding used to compute basic and diluted loss per share (in thousands)
|
|
|
54,286
|
|
|
|
105,523
|
|
|
|
135,097
|
|
|
|
201,031
|
|
|
|
261,420
|
|
|
|
261,420
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
NIS in thousands
|
|
|
Convenience translation into USD in thousands
(2)
|
|
Statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
15,705
|
|
|
|
71,382
|
|
|
|
75,883
|
|
|
|
20,246
|
|
Short-term deposits
|
|
|
7602
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Marketable securities – short term
|
|
|
2,017
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other receivables
|
|
|
815
|
|
|
|
3,923
|
|
|
|
965
|
|
|
|
258
|
|
Marketable securities – long term
|
|
|
2,050
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Property, plant and equipment
|
|
|
1,443
|
|
|
|
5,510
|
|
|
|
28,249
|
|
|
|
7,537
|
|
Other long term assets
|
|
|
478
|
|
|
|
880
|
|
|
|
740
|
|
|
|
197
|
|
Total assets
|
|
|
30,110
|
|
|
|
81,695
|
|
|
|
105,837
|
|
|
|
28,238
|
|
Trade payables
|
|
|
686
|
|
|
|
6,223
|
|
|
|
20,723
|
|
|
|
5,529
|
|
Other payables
|
|
|
689
|
|
|
|
660
|
|
|
|
1076
|
|
|
|
287
|
|
Warrants
|
|
|
3,043
|
|
|
|
8,177
|
|
|
|
6,168
|
|
|
|
1,645
|
|
Liability in respect of government grants
|
|
|
-
|
|
|
|
10,300
|
|
|
|
14,643
|
|
|
|
3,907
|
|
Loan from others
|
|
|
-
|
|
|
|
-
|
|
|
|
94,360
|
|
|
|
25,176
|
|
Severance pay liability, net
|
|
|
76
|
|
|
|
83
|
|
|
|
82
|
|
|
|
22
|
|
Total liabilities
|
|
|
4,494
|
|
|
|
25,443
|
|
|
|
137,052
|
|
|
|
36,566
|
|
Total shareholders’ equity
|
|
|
25,616
|
|
|
|
56,252
|
|
|
|
(31,215
|
)
|
|
|
(8,328
|
)
|
(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, 2018, at the rate of one U.S. dollar per NIS 3.748.
|
|
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, 2016, 2017
and 2018, we had net losses of $2,452, $9,220 and $23,407 thousands respectively, and we expect such losses to continue for the
foreseeable future. In addition, as of December 31, 2018, we had an accumulated deficit of approximately $56,335 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, 2018, we had approximately $20,246 thousands in cash and cash equivalents, a working capital of $14,688 thousands
and an accumulated deficit of $56,335 thousands. As of December 31, 2018, we had sufficient cash and cash commitments to fund
operations for at least 15 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. These expenditures
will include, but are not limited to, costs associated with research and development, manufacturing, conducting clinical trials,
contracting CMOs, hiring additional management and other personnel and obtaining regulatory approvals, 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 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 candidate are approved for sale, including marketing, sales and distribution
costs;
|
|
|
|
|
●
|
the cost of manufacturing
of 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 20 million euros,
which was extended to 24 million euros as described in this annual report, 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 euros, which was extended to 24 million euros as described in this annual report, and up to 50% of the Company’s
expected cost of developing and marketing our product candidate, M-001. A description of the main provisions of the Finance Contract
is described in this annual report. To the date of this annual report, we have drawn down an amount of the loan equal to 20 million
euros.
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. 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 materialize
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 debt, 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
|
|
|
|
|
●
|
the pricing and
reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations
and other plan administrators.
|
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. 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 locate and enroll a sufficient
number of eligible participants in our pivotal clinical efficacy Phase 3 trial on a timely basis. A significant delay in enrolment
would result in delays to our development timeline and additional development costs beyond what we have budgeted. If we ultimately
obtain favorable results from our pivotal clinical efficacy Phase 3 trial of M-001, we will 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:
|
●
|
Possible
negative or inconclusive results, compelling us to conduct additional clinical trials or abandon product development programs;
|
|
●
|
Slower or insufficient enrolment
rate of trial participants than anticipated;
|
|
●
|
Higher dropout rate of trial
participants than anticipated;
|
|
●
|
Our third party contactors
may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner;
|
|
●
|
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;
|
|
●
|
The cost of clinical trials
of our product candidate may be greater than we anticipate;
|
|
●
|
The
supply or quality of our product candidate or other materials necessary to conduct clinical trials may be insufficient or
inadequate; and
|
|
●
|
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).
|
|
●
|
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.
|
We
may not develop additional product candidates other than M-001.
M-001
is 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
depends on our ability to obtain regulatory approval of and then successfully commercialize M-001.
We
may never receive FDA regulatory approval for the performance of phase 3 clinical trial in the U.S.
We
have entered into a pivotal clinical efficacy phase 3 trial in Europe and a clinical trial agreement with NIAID, for a Phase 2
clinical trial in the U.S. using M-001, for which the first participants were enrolled in 2018. 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 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 clinical trials in the U.S. Failure to receive FDA approval to conduct Phase 3 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 conduct further clinical trials, 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 substantially 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 FDA or foreign regulatory
authorities for all or any of the indications for which it has undergone or is planned to undergo testing. The FDA and foreign
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 FDA
and foreign 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 foreign regulatory
policy, during the process of product development, clinical trials and regulatory reviews. Failure to obtain EMA, FDA or foreign
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 FDA or foreign 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 FDA and other applicable U.S. and foreign 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:
|
●
|
suspension
or imposition of restrictions on the products, manufacturers or manufacturing processes, including costly new manufacturing
requirements;
|
|
●
|
civil or criminal
penalties, fines and/or injunctions;
|
|
●
|
product seizures
or detentions;
|
|
●
|
import or export
bans or restrictions;
|
|
●
|
voluntary or mandatory
product recalls and related publicity requirements;
|
|
●
|
suspension or withdrawal
of regulatory approvals;
|
|
●
|
total or partial
suspension of production; and
|
|
●
|
refusal
to approve pending applications for marketing approval of new products or supplements to approved applications.
|
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:
|
●
|
conditions
imposed on us by the FDA or any applicable foreign regulatory authority regarding the scope or design of our clinical trials;
|
|
●
|
delays
in recruiting and enrolling participants or volunteers into clinical trials;
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
insufficient supply
or deficient quality of our product candidates or other materials necessary to conduct our clinical trials;
|
|
|
|
|
●
|
lower than anticipated
retention rate of subjects and participants in clinical trials;
|
|
●
|
negative or inconclusive
results from clinical trials, or results that are inconsistent with earlier results, that necessitate additional clinical
studies;
|
|
|
|
|
●
|
serious and unexpected
drug-related side effects experienced by subjects and participants in clinical trials; or
|
|
|
|
|
●
|
failure of our third-party
contractors to comply with regulatory requirements or otherwise meet their contractual obligations to us in a timely manner.
|
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 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:
|
●
|
unforeseen
safety issues;
|
|
|
|
|
●
|
determination of
proper dosing;
|
|
|
|
|
●
|
lack of effectiveness
or efficacy during clinical trials;
|
|
|
|
|
●
|
failure of our contract
manufacturers or inability of our in-house facility to manufacture our product candidates in accordance with cGMP;
|
|
|
|
|
●
|
failure of third
party suppliers to perform final manufacturing steps for the drug substance;
|
|
|
|
|
●
|
slower than expected
rates of participant recruitment and enrollment;
|
|
|
|
|
●
|
lack of healthy
volunteers and participants to conduct trials;
|
|
|
|
|
●
|
inability to monitor
participants adequately during or after treatment;
|
|
|
|
|
●
|
failure of third
party contract research organizations to properly implement or monitor the clinical trial protocols;
|
|
●
|
failure of the FDA,
institutional review boards, or IRBs, or other regulatory bodies to approve our clinical trial protocols;
|
|
|
|
|
●
|
inability or unwillingness
of medical investigators and IRBs to follow our clinical trial protocols; and
|
|
|
|
|
●
|
lack of sufficient
funding to finance the clinical trials.
|
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 Phase 3 clinical 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. 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. Although we have succeeded
in enrolling cohort 1 of our Phase 3 clinical trial in Europe, we will have to enroll additional participants for our cohort 2.
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 current or 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:
|
●
|
the
research methodology used may not be successful in identifying potential product candidates;
|
|
●
|
competitors
may develop alternatives that render our product candidates obsolete;
|
|
●
|
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;
|
|
●
|
a product
candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
|
|
●
|
a product
candidate may not be accepted as safe and effective by regulatory authorities, participants, the medical community or third-party
payors.
|
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.
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 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, 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 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 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:
|
●
|
execute
product candidate development activities;
|
|
●
|
obtain
required FDA and applicable foreign regulatory approvals for the development and commercialization of any product candidate;
|
|
●
|
maintain,
leverage and expand our intellectual property portfolio;
|
|
●
|
build
and maintain robust sales, distribution and marketing capabilities, either on our own or in collaboration with strategic partners;
|
|
●
|
gain
market acceptance for our products;
|
|
●
|
develop
and maintain any strategic relationships we elect to enter into; and
|
|
●
|
manage
our spending as costs and expenses increase due to drug discovery, preclinical development, clinical trials, regulatory approvals
and commercialization.
|
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:
|
●
|
developing
immuno-modulating products (including vaccines);
|
|
●
|
undertaking
preclinical testing and human clinical trials;
|
|
●
|
obtaining
FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals of drugs;
|
|
●
|
formulating
and manufacturing drugs; and
|
|
●
|
launching,
marketing and selling drugs.
|
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 Imutex, AltImmune, Inovio Pharmaceuticals,
Inc., FluGen, Inc., Medicago, Vivaldi Biosciences, Vaccitech, and Vaxart. 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:
|
●
|
attract parties
for acquisitions, joint ventures or other collaborations;
|
|
●
|
license proprietary
technology that is competitive with M-001;
|
|
●
|
attract and hire
scientific talent and other qualified personnel.
|
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 crisis as well as a variety of other factors including, among other things, 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 have 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. For instance, we have undergone inspections and obtained
approvals from various governmental agencies.
Governments
outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.
In
some countries, particularly 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; (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 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 will also
be entitled to terminate the license agreement by written notice: (x) in the event we materially breach any of our obligations
under the agreement, provided that such material breach is un-curable 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, other than in the case of expiration pursuant
to (i) through (iii) above, all rights and documents will be returned to Yeda, and 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 that Yeda terminates 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 licensed to us pursuant to the 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.
We
have entered into a finance contract with the European Investment Bank, or EIB, for the receipt of a loan of 20 million euros,
which was extended to 24 million euros as described in this annual report, 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 euros, which was extended to 24 million euros as described in this annual report, and up to 50% of the Company’s
expected cost of developing and marketing our product candidate, M-001. A description of the main provisions of the Finance Contract
is described in this annual report. To the date of this annual report, we have drawn down an amount of the loan equal to 20 million
euros.
We
have also entered into a security agreement, or the Security Agreement, whereby the Company 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. 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 materialize
certain of our assets at the time of such exercise.
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:
|
●
|
Reliance on third party for
regulatory compliance and quality assurance;
|
|
●
|
The
possible breach of the manufacturing agreement by the third party;
|
|
●
|
The possible failure to manufacture sufficient
quantities of M-001 due to reasons outside of the reasonable control of the third party;
|
|
●
|
The
possible misappropriation of our propriety information, including our know-how; and
|
|
●
|
The
possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.
|
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 candidate or product, 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.
We
currently rely on our CMO in the U.S. for the supply of M-001 clinical batches for our current pivotal clinical efficacy Phase
3 clinical trial. In August 2018 we moved to our new facility in Jerusalem and we intend to complete the construction of our independent
production line of M-001 for the purpose of future clinical trials and commercialization by the end of 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 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, 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 other materials that
are not in our possession before approving any proposed Phase 3 clinical trials to test the safety and efficacy of M-001 for such
indication.
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:
|
●
|
the
degree and range of protection any patents will afford us against competitors;
|
|
●
|
the
patents concerning our business activities were not registered in all countries and therefore our patent protection may be
lacking in some territories;
|
|
●
|
if and
when patents will be issued;
|
|
●
|
whether
or not others will obtain patents claiming aspects similar to those covered by our own or licensed patents and patent applications;
|
|
●
|
we may
be subject to interference proceedings;
|
|
●
|
we may
be subject to opposition or post-grant proceedings in foreign countries;
|
|
●
|
any
patents that are issued may not provide meaningful protection;
|
|
●
|
we may
not be able to develop additional proprietary technologies that are patentable;
|
|
●
|
other
companies may challenge patents licensed or issued to us or our customers;
|
|
●
|
other
companies may independently develop similar or alternative technologies, or duplicate our technologies;
|
|
●
|
other
companies may design around technologies we have licensed or developed;
|
|
●
|
enforcement
of patents is complex, uncertain and expensive; and
|
|
●
|
we may
need to initiate litigation or administrative proceedings that may be costly whether we win or lose.
|
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:
|
●
|
these
agreements may be breached;
|
|
●
|
these
agreements may not provide adequate remedies for the applicable type of breach;
|
|
●
|
our
proprietary know-how will otherwise become known; or
|
|
●
|
our
competitors will independently develop similar technology or proprietary information.
|
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:
|
●
|
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;
|
|
●
|
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;
|
|
●
|
we or
our licensors or any future strategic partners might not have been the first to file patent applications covering certain
of our inventions;
|
|
●
|
others
may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our
intellectual property rights;
|
|
●
|
it is
possible that our pending patent applications will not lead to issued patents;
|
|
●
|
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;
|
|
●
|
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;
|
|
●
|
we may
not develop additional proprietary technologies that are patentable; and
|
|
●
|
the
patents of others may have an adverse effect on our business.
|
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. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed
conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. In December 2008, January 2009, November
2012 and July 2014, there were 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 the Gaza Strip 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. In addition, since February 2011, Egypt has experienced political turbulence and
an increase in terrorist activity in the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence
included protests throughout Egypt, and the appointment of a military regime in his stead, followed by the elections to parliament
which brought groups affiliated with the Muslim Brotherhood (which had been previously outlawed by Egypt), and the subsequent
overthrow of this elected government by a military regime. Such political turbulence and violence may damage peaceful and diplomatic
relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has
occurred in other countries in the region, including Syria which shares a common border with Israel, and is affecting the political
stability of those countries. Since April 2011, internal conflict in Syria has escalated, and evidence indicates that chemical
weapons have been used in the region. This instability and intervention by third parties such as Russia may lead to deterioration
of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the
potential for causing additional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed
to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in the region, such
as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, a violent jihadist group named
Islamic State of Iraq and the Levant (known as ISIS) is involved in hostilities in Iraq and Syria, and has executed terror attacks
in Europe and around the world. Although ISIS’s activities have not directly affected the political and economic conditions
in Israel, ISIS’s stated purpose is to take control of the Middle East, including Israel. These situations may potentially
escalate in the future to more violent events which may affect Israel and us. 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 have been subjected to economic boycotts.
Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies
may have an adverse impact on our operating results, financial 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.
None
of our directors or officers are residents of the United States, except for director Mark Germain. Director George Lowell is a
dual U.S. and Israel citizen. Most of our directors’ and officers’ assets and our assets are located outside the United
States. Service of process upon us or our non-U.S. resident directors and officers and enforcement of judgments obtained in the
United States against us or our non-U.S. directors and executive officers may be difficult to obtain within the United States.
We have been informed by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original
actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli
courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because
Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim,
it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content
of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure
will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israeli
courts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against
us or our officers and directors.
Moreover,
among other reasons, including but not limited to, fraud or absence of due process, or the existence of a judgment which is at
variance with another judgment that was given in the same matter if a suit in the same matter between the same parties was pending
before a court or tribunal in Israel, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws
do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely
to prejudice the sovereignty or security of the State of Israel.
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.
We
have received Israeli government grants for certain research and development expenditures. The terms of these grants and loans
may require us to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel. In
addition, under the Encouragement of Industrial, Research and Development Law, 5744-1984, or the Research Law, 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 Research 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 operations expenses are in the U.S.
Dollar and Euro. 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
have 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 have received from the formerly known as
the OCS, or IIA. We therefore must comply with the requirements of the Research Law and related regulations, including, but not
limited to, pay royalties to the IIA on income generated from the sale of products and related services associated with such products.
As of December 31, 2018, we have 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 rights 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 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
We
incur significant additional increased costs as a public company in the United States as well as in Israel, 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 that we did not incur before our initial public offering. 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. We expect these rules and regulations to increase our legal and financial compliance costs, introduce new costs such as investor
relations, stock exchange listing fees and shareholder reporting, and to make some activities more time consuming and costly.
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.
Although
we were not a PFIC in 2016, we believe we may have become a PFIC in 2017, and although we have not determined whether we became
a PFIC in 2018, or in any subsequent year, our operating results for any such years may cause us to be a PFIC. If we are a PFIC
in 2018, 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 and warrants.
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 and warrants. 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 and ADS warrants 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:
|
●
|
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
|
|
|
|
|
●
|
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.
|
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, 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 will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore,
our officers, directors and principal shareholders will be 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 will reduce the frequency
and scope of information and protections available to you in comparison to those applicable to a 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 of us, 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 will be influenced by the research and reports that industry or securities analysts may publish
about us, our business, our market or our competitors. We do not have any control over these analysts, and we cannot provide any
assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change
their recommendation regarding the securities, or provide more favorable relative recommendations about our competitors, the price
of the 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 the
securities or their trading volume.
The
market price for the ADSs and ADS warrants may be volatile.
The
market price for the ADSs and ADS warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous
factors including the following:
|
●
|
our
failure to obtain the approvals necessary to commence further clinical trials;
|
|
|
|
|
●
|
results of clinical
and preclinical studies;
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
announcements of
technological innovations, new products or product enhancements by us or others;
|
|
|
|
|
●
|
adverse actions
taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;
|
|
|
|
|
●
|
changes or developments
in laws, regulations or decisions applicable to our product candidates or patents;
|
|
|
|
|
●
|
any adverse changes
to our relationship with manufacturers or suppliers;
|
|
|
|
|
●
|
announcements concerning
our competitors or the pharmaceutical or biotechnology industries in general;
|
|
|
|
|
●
|
achievement of expected
product sales and profitability or our failure to meet expectations;
|
|
|
|
|
●
|
our commencement
of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual
property infringement actions;
|
|
|
|
|
●
|
any major changes
in our board of directors, management or other key personnel;
|
|
|
|
|
●
|
legislation in the
United States, Europe and other foreign countries relating to the sale or pricing of pharmaceuticals;
|
|
|
|
|
●
|
announcements by
us of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions or capital commitments;
|
|
|
|
|
●
|
expiration or terminations
of licenses, research contracts or other collaboration agreements;
|
|
|
|
|
●
|
public concern as
to the safety of therapeutics we, our licensees or others develop;
|
|
|
|
|
●
|
success of research
and development projects;
|
|
|
|
|
●
|
developments concerning
intellectual property rights or regulatory approvals;
|
|
|
|
|
●
|
variations in our
and our competitors’ results of operations;
|
|
|
|
|
●
|
changes in earnings
estimates or recommendations by securities analysts, if our ADSs are covered by analysts;
|
|
|
|
|
●
|
future issuances
of ordinary shares, ADSs or other securities;
|
|
|
|
|
●
|
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
|
|
|
|
|
●
|
the other factors
described in this “Risk Factors” section.
|
These
factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and ADS warrants,
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 ADS and ADS warrants.
The
warrants are speculative in nature and with no established trading market.
The
ADS warrants do not confer any rights of ownership of ADSs on its holders but only represent the right to acquire ADSs at a fixed
price for a limited period of time. Specifically, commencing on the date of issuance, holders of the warrants may exercise their
right to acquire the ADSs and pay an exercise price per share of $6.25 per ADS, subject to adjustment upon certain events, prior
to five years from the date of issuance, after which date any unexercised ADS warrants will expire and have no further value.
Furthermore, at the time of exercise a fee and any other applicable taxes or charges for issuance of ADSs may be payable by the
holder.
Substantial
future sales or perceived potential sales of our ordinary shares, ADSs or warrants in the public market could cause the price
of our ADSs and warrants to decline.
Substantial
sales of our ordinary shares the ADSs or ADS warrants on the NASDAQ may cause the market price of our ADSs and ADS warrants to
decline. Sales by us or our security holders of substantial amounts of our ordinary shares, ADSs or ADS warrants, or the perception
that these sales may occur in the future, could cause a reduction in the market price of our ADSs or ADS warrants.
The
issuance of any additional ordinary shares, 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 ordinary shares, the ADSs and the ADS warrants
and will have a dilutive effect on our existing shareholders and holders of ADSs and ADS warrants.
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 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 and ADS warrants 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 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 and ADS warrants 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 and ADS warrants 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 warrants and 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.
Our
management will have broad discretion in the application of the net proceeds from the exercise of the ADS warrants held by the
public investor and the representatives of the underwriters 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 ADSs or ADS warrants. Our failure to apply these funds effectively
could have a material adverse effect on our business and cause the price of the ADSs and ADS warrants to decline.
Item 4.
|
INFORMATION ON THE
COMPANY
|
|
A.
|
History and Development of the Company
|
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 TASE, however, we voluntarily delisted from TASE as of January 22, 2018. In May 2015, we completed
an initial public offering of our ADSs and ADS Warrants on the Nasdaq Capital Market.
As
of August 2018, 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 2018, 2017, and 2016 amounted to approximately $6,332, $1,202 and $5 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 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 (VE) from 2005 to 2018 in the USA varied between 10% during the
2004/2005 season to 60% during the 2010/2011 season. In the 2014/15 season, VE was estimated at only 19%. 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 54 clinical trial sites in four European countries, subject, among
other, to the regulation 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 4,094 participants, for the first season of this clinical trial. We expect the second cohort of at least approximately 8,000
or more participants to be enrolled prior to the 2019/2020 flu season. 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 clinical trial agreement with the
National
Institute of Allergy and Infection Diseases (NIAID) of the U.S. National Institutes of Health (NIH) for a Phase 2 clinical trial
in the U.S., for the administration of M-001 in participants, and in April 2018 we reported the first participant enrollment in
this clinical trial.
In
addition to these ongoing clinical trials, we 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 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 USA, 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 extended
to Euro 24 million as described in this annual report, 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 20 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
Company has amended its financial information as of September 30, 2018 which was previously reported on form 6-K, in order
to adjust certain amounts previously recorded for the three and nine months ended on September 30, 2018 relating to
the measurement of the EIB loan fair value. The adjustment set forth above resulted in increase in the fair value of the
loans reflected on the company’s balance sheet of NIS 9,294 thousand (approximately $2,563 thousand) against increase in
financial expenses, net. the underlying contractual loan obligation of the company remains the same at 12 million euros as at
September 30, 2018 (20 million euros as at December 31, 2018, reflecting the full draw down of the EIB loan as previously disclosed),
repayable in accordance with the terms of the loan and security agreement previously disclosed.
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 a factory for the production of Phase 3 and commercial batches of M-001.
We
intend, subject to the successful results of our pivotal clinical efficacy 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 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 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 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 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 WHO, 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 as a result of influenza
and associated respiratory diseases. In the U.S., the CDC estimates that influenza was associated with nearly 49 million illnesses
during the 2017/18 flu season, including 959,000 hospitalizations and 79,400 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
USA 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.
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 2017 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, and 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:
|
●
|
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.
|
|
●
|
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.
|
|
●
|
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.
|
|
●
|
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.
|
|
●
|
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.
|
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:
|
●
|
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 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.
|
|
●
|
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.
|
|
●
|
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 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.
|
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:
|
●
|
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 in 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.
|
|
●
|
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.
|
|
|
|
|
●
|
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.
|
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
course of the clinical trials and performance of the 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 54 clinical trial sites in four European countries, subject,
among other, to the regulation of the European Medicines Agency (EMA). Our Phase 3 clinical trial was initiated after we 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 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 trials
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 plans to enroll a minimum of approximately 12,000 participants over two years, including 4,094 who were enrolled
in the trial’s first cohort prior to the 2018/19 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 will be 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
|
|
A minimum of approximately
12,000 (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 and
Hungry, 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
|
|
|
|
Adults
(ages 18 to 49)
|
|
63
|
|
M-001 was well tolerated
and a humoral and cellular immune reaction was observed.
|
BVX-003
|
|
1/2
|
|
randomized, single-blind,
placebo-controlled escalating double-dose
|
|
|
|
Elderly
(ages 55 to 75)
|
|
60
|
|
|
BVX-004
|
|
2
|
|
randomized, two centered,
two stage, double-blind, placebo controlled double-dose
|
|
Primary Endpoint:
Safety
|
|
Adults
(ages 18 to 49)
|
|
200
|
|
|
BVX-005
|
|
2
|
|
multicenter, randomized,
placebo-controlled
|
|
Secondary Endpoint:
immunogenicity
|
|
Elderly
(ages 65+)
|
|
120
|
|
|
BVX-006
|
|
2
|
|
Randomized, Placebo-Controlled,
Double-Blind
|
|
Primary Endpoint:
Safety Secondary Endpoint: immunogenicity
|
|
adults between ages
of 50 to 64
|
|
36
|
|
|
BVX-007
Phase 2b
|
|
2
|
|
Randomized, Placebo-Controlled,
Double-Blind
|
|
Primary Endpoint:
Safety and cell mediated immunity
|
|
adults between ages
of 18 to 60
|
|
219
|
|
Safety and cellular
immune response of M-001 confirmed.
|
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, a significant cell mediated immunity was
observed in the group immunized with 1mg dose of M-001. The secondary immunogenicity endpoint aimed to show enhance HAI antibodies
to the H5N1 viruses. Such enhancement was observed towards 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.
Ongoing
Phase 2 Clinical Trial by the NIAID
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 endpoint of this clinical trial focuses
on cell-mediated immunity to the M-001, in addition, it will assess the ability of M-001 in humans to serve as a primer to the
QIV seasonal vaccine by enhancing protective immunity to these influenza strains. in April 2018 we reported the first participant
enrollment in this clinical trial.
The
following table summarizes the structure, design and purpose of this clinical trial:
Clinical
trial number
|
|
Phase
|
|
Location
|
|
Regulatory
Authority
|
|
Trial
Design
|
|
Trial
Purpose
|
|
Population
|
|
Number
of Subjects
|
BVX-008
|
|
2
|
|
United States
|
|
FDA
|
|
A randomized, double-blind,
active-controlled phase 2 trial in collaboration with NIAID
|
|
Primary
Endpoint: Safety & immunogenicity (CMI) Secondary Endpoint:
Safety
& immunogenicity (HAI)
|
|
Adults between ages
18-49
|
|
120
|
Safety
and Efficacy Preclinical Trials
We
have 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 U.S. Food
and Drug Administration, or 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 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 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.
On
March 25, 2019, we have filed a draft of registration statement on form F-1 for a contemplated rights offering.
Upon
completion of Phase 3 clinical trials for some or all 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 and
(ii) Most advanced universal flu candidate (6 completed clinical trials, including four Phase 2, and in an ongoing NIH-sponsored
Phase 2 trial in the USA and an ongoing Phase 3 trial in Europe), and (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 candidate and the development stage of such competing product candidates relies
solely on publicly available information that we are aware of. 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 Phase2b challenge trial achieved the primary endpoint of a statistically significant
reduction in mild to moderate influenza.
In Q1 2018 Vaccitech
Limited raised £20m ($27.1m) in Series A financing by investors including GV, Sequoia China, and Oxford Sciences Innovation.
In Q3 Vaccitech decided to stop a Phase 2 trial in which its MVA encoding NP+M1 which is designed to induce a T-cell response against
Influenza A virus strains was co-administered with a currently recommended seasonal influenza vaccine. The company announced its
intention to continue development of the vaccine.
AltImmune’s NasoVax
is an intransally delivered broad seasonal and pandemic T-cell booster recombinant candidate. Results of a Phase 2 trial were reported
in Q3 2018. Inovio is developing synthetic DNA vaccines. In May 2012 Inovio reported that in Phase 1 clinical trial the avian influenza
vaccine SynCon caused a protective antibody reaction against six strains of H5N1, and in Q1 2018 reported successful results in
a pre-clinical challenge study in ferrets. In Q3 2018, the company reported positive immune responses in mice to the Company’s
H3N2 influenza DNA vaccine. FluGen is developing REDEE, a vaccine based on a live virus which cannot multiply or cause illness.
The U.S. based company has raised $22m from investors and received $13m in federal funds. In 2018, the company announced results
of a Phase 1a trial and initiated a challenge trial. 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. 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 any. We may seek
to establish marketing and/or sales forces in the future 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 28.3 million ($7.5 million) for the period ended on December 31, 2018
and at NIS 5.5 million ($1.5 million) for the period ended on December 31, 2017.
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 Industrial and Development Law
On July 29, 2015, the
Israeli parliament amended the Research 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 Research
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 (as defined in the Royalty Regulations),
developed, in whole or in part, within the framework of an IIA--funded project or deriving therefrom. In accordance with the provisions
of the Royalty Regulations, royalties are paid at rates ranging between 3% to 6% of the revenues generated by the product, depending
on the applicable criteria, and are payable until the repayment of the full amount of the total IIA funding (linked to the US Dollar)
and accrued interest (LIBOR). The terms of the IIA support also require that products developed using such grants be manufactured
in Israel and that the technology developed thereunder may not be transferred outside of Israel, unless approval is received from
the IIA. 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.
Ordinarily, as a condition
to obtaining approval to manufacture outside Israel, we would be required to pay increased royalties, as set forth in the Research
Law. The total amount to be repaid to the IIA would also be adjusted to between 120% and 300% of the grants, depending on the volume
of manufacturing that is carried out outside Israel.
The Research 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 Research Law. A
transfer for the purpose of the Research Law means an actual sale of the IIA-funded know-how, any license to further develop the
IIA-funded know-how or the products resulting from the IIA-funded know-how or any other transaction, which, in essence, constitutes
a transfer of the IIA-funded 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 Research Law. It should be noted that there are specific regulations regarding licensing
of IIA-funded know-how which allow for payments to the IIA which are pro rata to amounts received by the licensor. published.
If we wish to transfer
IIA-funded know-how, the terms for approval will be determined according to 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 OCS calculated according to a formula provided under the Research 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. 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. As per the As per current regulations, 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, which
also result in a cap of no more than six times the amount received (plus annual interest).
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, 2018, we have received a total of $5.5 million in IIA grants.
We have not received
additional OCS grants from December 31, 2018 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 as described in this annual report, 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 extension 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 shall be available during the 12 months following the date of the finance contract, in an amount of Euro 4-6 million; (ii)
the second tranche shall be 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 shall be available during the 36 months following the date of the Finance Contract, in amount that together
with the first and second tranche shall be equal to up to Euro 20 million, and shall be paid subject to receipt of authorization
to launch the phase 3 clinical trials. To date, we have drawn down all three tranches of the loan made available prior to its extension
to Euro 24 million and have received Euros 20 million.
The
Management Committee of the European Investment Bank (EIB) has agreed to extend the financing agreement by an additional Euro 4
million to Euro 24 million. The additional funds will be used in support of the ongoing Phase 3 trial. With the additional funds,
the trial’s second cohort is expected to increase up to 8,000 participants, bringing the planned total size of the trial
to approximately 12,000 participants. The increase in the number of participants is intended to compensate for the relatively mild
2018/19 flu season in Europe. The additional Euro 4 million will be disbursed upon enrollment of the first participant in the clinical
trial’s second season and $US 10 million of funds to be disbursed pro rata being provided by the Company.
The
EIB financing shall be provided interest free and shall be repayable, per each tranche, in a single instalment five years following
the date of payment for each tranche. 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 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 to 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 EIB realizing a cash-on-cash multiple of 2.8.
As
of December 31, 2018, we have drawn a sum of Euro 20 million ($23 million) in EIB loan.
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 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 are a member of
the UNISEC Consortium. The UNISEC Consortium has received a grant in the amount of Euro 6 million from the European Union, of which
we expect 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 has a term of four years, defines
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, 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, who 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 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 its and 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 for the production of Phase 3 and commercial
batches of the Company 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, 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 for biological product, after completion of all pivotal clinical trials.
An IND application
is 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, we have 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 effect 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 in the U.S., either with one or more future collaborators, or, subject to 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 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,
controls and proposed labeling, among other things.
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 pivotal 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 or 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. Failure to comply with FDA requirements can have negative consequences, including the immediate
discontinuation of 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. Although physicians may prescribe legally available drugs for off-label uses, manufacturers
may not market or promote such off-label uses.
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 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. Since we intend to perform a portion of our clinical studies on certain of our therapeutic candidates 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.
To date, all but one
of our completed clinical trials were conducted in Israel.
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,
and optional for those products that are highly innovative or for which a centralized process is in the interest of participants.
Under the centralized procedure 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 heavy 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,
2018, 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, Japan and other countries. There
are also pending patent applications relating to these patent families in various jurisdictions, including Brazil, 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 in Europe between
2019 and 2035 and in United States 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
|
|
granted
|
Belgium
|
|
10003160.8
|
|
28-Nov-1999
|
|
2204187
|
|
28-Nov-2019
|
|
granted
|
Canada
|
|
2352454
|
|
28-Nov-1999
|
|
2352454
|
|
28-Nov-2019
|
|
granted
|
Europe
|
|
10003160.8
|
|
28-Nov-1999
|
|
2204187
|
|
|
|
granted
|
France
|
|
10003160.8
|
|
28-Nov-1999
|
|
2204187
|
|
28-Nov-2019
|
|
granted
|
Germany
|
|
10003160.8
|
|
28-Nov-1999
|
|
69944207.9
|
|
28-Nov-2019
|
|
granted
|
Hong Kong
|
|
10111907.7
|
|
28-Nov-1999
|
|
1145448
|
|
28-Nov-2019
|
|
granted
|
Israel
|
|
143367
|
|
28-Nov-1999
|
|
143367
|
|
28-Nov-2019
|
|
granted
|
Italy
|
|
10003160.8
|
|
28-Nov-1999
|
|
2204187
|
|
28-Nov-2019
|
|
granted
|
Korea
|
|
10-2001-7006639
|
|
28-Nov-1999
|
|
0703571
|
|
28-Nov-2019
|
|
granted
|
Mexico
|
|
PA/A/2001/005398
|
|
28-Nov-1999
|
|
262260
|
|
28-Nov-2019
|
|
granted
|
Netherlands
|
|
10003160.8
|
|
28-Nov-1999
|
|
2204187
|
|
28-Nov-2019
|
|
granted
|
New Zealand
|
|
511918
|
|
28-Nov-1999
|
|
511918
|
|
28-Nov-2019
|
|
granted
|
Spain
|
|
10003160.8
|
|
28-Nov-1999
|
|
2204187
|
|
28-Nov-2019
|
|
granted
|
Switzerland
|
|
10003160.8
|
|
28-Nov-1999
|
|
2204187
|
|
28-Nov-2019
|
|
granted
|
UK
|
|
10003160.8
|
|
28-Nov-1999
|
|
2204187
|
|
28-Nov-2019
|
|
granted
|
USA
|
|
09/856920
|
|
28-Nov-1999
|
|
6740325
|
|
28-Nov-2019
|
|
granted
|
USA-1 Div.
|
|
10/846548
|
|
28-Nov-1999
|
|
7192595
|
|
31-Aug-2020*
|
|
granted
|
|
*
|
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
|
|
Application No.
|
|
Filing Date
|
|
Patent No.
|
|
Expiration Date
|
|
Status
|
Australia
|
|
2006322907
|
|
06-Dec-2006
|
|
2006322907
|
|
06-Dec-2026
|
|
granted
|
Austria
|
|
06821622.5
|
|
06-Dec-2006
|
|
552846
|
|
06-Dec-2026
|
|
granted
|
Belgium
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
Canada
|
|
2632483
|
|
06-Dec-2006
|
|
2632483
|
|
06-Dec-2026
|
|
granted
|
Denmark
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
Europe
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
|
|
granted
|
France
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
Germany
|
|
602006028848.4
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
Greece
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
Ireland
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
Israel
|
|
191977
|
|
06-Dec-2006
|
|
191977
|
|
06-Dec-2026
|
|
granted
|
Italy
|
|
06821622.5
|
|
06-Dec-2006
|
|
1962632
|
|
06-Dec-2026
|
|
granted
|
Luxembourg
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
Netherlands
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
Portugal
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
Spain
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
Sweden
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
Switzerland
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
UK
|
|
06821622.5
|
|
06-Dec-2006
|
|
1968632
|
|
06-Dec-2026
|
|
granted
|
USA
|
|
12/096322
|
|
06-Dec-2006
|
|
7914797
|
|
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.
|
|
Expiration Date
|
|
Status
|
Australia
|
|
2008281384
|
|
03-Aug-2008
|
|
2008281384
|
|
03-Aug-2028
|
|
granted
|
Brazil
|
|
PI 0815008-7
|
|
03-Aug-2008
|
|
PI0815008-7
|
|
03-Aug-2028
|
|
examination
|
Canada
|
|
2695399
|
|
03-Aug-2008
|
|
2965399
|
|
03-Aug-2028
|
|
granted
|
China
|
|
200880101581.0
|
|
03-Aug-2008
|
|
ZL200880101581.017
|
|
03-Aug-2028
|
|
granted
|
EURASIA (RUSSIA)
|
|
201070219
|
|
03-Aug-2008
|
|
017887
|
|
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
|
|
03-Aug-2028
|
|
granted
|
Hong Kong
|
|
10109239.0
|
|
03-Aug-2008
|
|
1142809
|
|
03-Aug-2028
|
|
granted
|
India
|
|
670/DELNP/2010
|
|
03-Aug-2008
|
|
290866
|
|
03-Aug-2028
|
|
granted
|
Israel
|
|
203508
|
|
03-Aug-2008
|
|
203508
|
|
03-Aug-2028
|
|
granted
|
Japan
|
|
2010-518815
|
|
03-Aug-2008
|
|
5654345
|
|
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
|
|
03-Aug-2028
|
|
granted
|
USA
|
|
12/671617
|
|
03-Aug-2008
|
|
8747861
|
|
18-Aug-2031***
|
|
granted
|
USA
|
|
14/263359
|
|
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
|
|
Patent/Publication No.
|
|
Expiration Date
|
|
Status
|
Australia
|
|
2011360572
|
|
22-Feb-2011
|
|
2011360572
|
|
22-Feb-2031
|
|
granted
|
Canada
|
|
2828068
|
|
22-Feb-2011
|
|
|
|
22-Feb-2031
|
|
allowed
|
USA
|
|
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
|
|
Application No.
|
|
Filing Date
|
|
Publication No.
|
|
Expiration Date
|
|
Status
|
Australia
|
|
2015242154
|
|
01-Apr-2015
|
|
|
|
01-Apr-2035
|
|
examination
|
Canada
|
|
2944768
|
|
01-Apr-2015
|
|
|
|
01-Apr-2035
|
|
filed
|
China
|
|
201580017121X
|
|
01-Apr-2015
|
|
CN106163553
|
|
01-Apr-2035
|
|
filed
|
Europe
|
|
15773045.8
|
|
01-Apr-2015
|
|
3125931
|
|
01-Apr-2035
|
|
filed
|
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
|
|
filed
|
Japan
|
|
2016-559415
|
|
01-Apr-2015
|
|
|
|
01-Apr-2035
|
|
examination
|
USA
|
|
15/300529
|
|
01-Apr-2015
|
|
20170173142
|
|
01-Apr-2035
|
|
examination
|
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 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 sublicenses,
in either the U.S or Europe, after obtainment 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 such sublicense agreement. If 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 licenses intellectual property,
in at least one country, within six months following receipt of after 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 licenses 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 un-curable 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 voluntary 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, 2018, our office and laboratory leasing costs amounted to NIS 480,103.
Our fixed assets are
comprised of factory leasehold improvements, laboratory equipment, furniture, 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 28.3 million ($7.5 million) for the period ended on December 31, 2018 and at NIS 5.5 million ($1.5 million) for the
period ended on December 31, 2017.
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, 2018 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 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 2005 to 2017 varied between 10% during the 2004/2005 season to 60%
during the 2010/2011 season. In the 2014/15 season, VE was estimated at only 19%. 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, 2016, 2017 and 2018, we had net losses
of $2,452, $9,220 and $23,407 thousands, respectively, and we expect such losses to continue for the foreseeable future. In addition,
as of December 31, 2018, we had an accumulated deficit of approximately $56,335 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, and, to date, have not to
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 have raised an additional
NIS 49.6 million ($13.2 million) from various public offerings since June 2007 in Israel. We received gross proceeds of approximately
$10.12 million from our initial public offering in the U.S. in May 2015, and approximately $8.54 in net proceeds. Our expenses
for the initial public offering in the U.S. amounted to $1.49 million, in addition to the grant of options to our underwriter valued
at $90,000, for no consideration. We have received gross proceeds of approximately $2.8 million from a private placement transaction
with Angels in January 2017, and $3.2 million from ADS issuance under our ATM program, which was terminated as of September 13,
2017. We have also raised approximately $10.4 million in gross proceeds in a public underwritten offering completed in September
2017. During 2018, we have received NIS 84.3 million ($22.5 million ) as loans from the European investing bank As of December
31, 2018, we had approximately NIS 75.8 million ($20.2 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 2019, to further develop our research and development programs and our product
candidate. 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, 2018, our net loss was approximately NIS 87.7 million ($23.4 million), respectively.
Cost of Revenues
Our
total cost of revenues includes expenses for the manufacturing 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 expense 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 expense 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.
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 approval for our product candidate;
|
|
|
|
|
●
|
the ability of us, or our collaborators, to achieve development milestones, marketing approval 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 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 our initial public
offering in the U.S., future private or public equity raising, grants from governmental agencies such as the IIA, debt or equity
or other non-dilutive financings. 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, 2018, we have received $5.5 million in OCS 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 loan 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, the management estimate that future economic benefits of the project are possible,
therefor liability with respect to the OCS was recorded to date in the sum of NIS 14.6 million ( approximately $3.9 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 2018.
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, 2018 as compared to the years ended December 31, 2017, 2016, 2015 and
2014:
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
Convenience translation into USD in thousands
(2)
|
|
Statements of comprehensive loss data:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
6,441
|
|
|
|
10,736
|
|
|
|
9,397
|
|
|
|
19,423
|
|
|
|
72,056
|
|
|
|
19,225
|
|
Participation by the IIA and UNISEC
|
|
|
(949
|
)
|
|
|
(2,830
|
)
|
|
|
(1,603
|
)
|
|
|
(646
|
)
|
|
|
(143
|
)
|
|
|
(38
|
)
|
Research and development, net of participations expenses
|
|
|
5,492
|
|
|
|
7,906
|
|
|
|
7,794
|
|
|
|
18,777
|
|
|
|
71,913
|
|
|
|
19,187
|
|
Marketing, general and administrative expenses
|
|
|
2,650
|
|
|
|
3,397
|
|
|
|
4,106
|
|
|
|
4,879
|
|
|
|
5,154
|
|
|
|
1,375
|
|
Operating loss
|
|
|
8,142
|
|
|
|
11,303
|
|
|
|
11,900
|
|
|
|
23,656
|
|
|
|
77,067
|
|
|
|
20,562
|
|
Financial income
|
|
|
394
|
|
|
|
1,128
|
|
|
|
3,019
|
|
|
|
18
|
|
|
|
2,936
|
|
|
|
783
|
|
Financial expenses
|
|
|
(16
|
)
|
|
|
(24
|
)
|
|
|
(303
|
)
|
|
|
(10,913
|
)
|
|
|
(13,596
|
)
|
|
|
(3,628
|
)
|
Financial income (expenses), net
|
|
|
378
|
|
|
|
1,104
|
|
|
|
2,716
|
|
|
|
(10,895
|
)
|
|
|
(10,660
|
)
|
|
|
(2,844
|
)
|
Net loss
|
|
|
7,764
|
|
|
|
10,199
|
|
|
|
9,184
|
|
|
|
34,551
|
|
|
|
87,727
|
|
|
|
23,407
|
|
Loss from available-for-sale financial assets
|
|
|
4
|
|
|
|
5
|
|
|
|
6
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
Total comprehensive loss
|
|
|
7,768
|
|
|
|
10,204
|
|
|
|
9,190
|
|
|
|
34,557
|
|
|
|
87,727
|
|
|
|
23,407
|
|
Basic and Diluted net loss per share (NIS)
|
|
|
0.14
|
|
|
|
0.1
|
|
|
|
0.07
|
|
|
|
0.17
|
|
|
|
0.34
|
|
|
|
0.09
|
|
Weighted average number of shares outstanding used to compute basic and diluted loss per share (in thousands)
|
|
|
54,286
|
|
|
|
105,523
|
|
|
|
135,097
|
|
|
|
201,031
|
|
|
|
261,420
|
|
|
|
261,420
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
Convenience translation into USD in thousands
(2)
|
|
Statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
15,705
|
|
|
|
|
|
|
|
71,382
|
|
|
|
75,883
|
|
|
|
20,246
|
|
Short-term deposits
|
|
|
7,602
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Marketable securities – short term
|
|
|
2,017
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other receivables
|
|
|
815
|
|
|
|
|
|
|
|
3,923
|
|
|
|
965
|
|
|
|
258
|
|
Marketable securities – long term
|
|
|
2,050
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Property, plant and equipment
|
|
|
1,443
|
|
|
|
|
|
|
|
5,510
|
|
|
|
28,249
|
|
|
|
7,537
|
|
Other long term assets
|
|
|
478
|
|
|
|
|
|
|
|
880
|
|
|
|
740
|
|
|
|
197
|
|
Total assets
|
|
|
30,110
|
|
|
|
|
|
|
|
81,695
|
|
|
|
105,837
|
|
|
|
28,238
|
|
Trade payables
|
|
|
686
|
|
|
|
|
|
|
|
6,223
|
|
|
|
20,723
|
|
|
|
5,529
|
|
Other payables
|
|
|
689
|
|
|
|
|
|
|
|
660
|
|
|
|
1,076
|
|
|
|
287
|
|
Warrants
|
|
|
3,043
|
|
|
|
|
|
|
|
8,177
|
|
|
|
6,168
|
|
|
|
1,645
|
|
Liability in respect of government grants
|
|
|
-
|
|
|
|
|
|
|
|
10,300
|
|
|
|
14,643
|
|
|
|
3,907
|
|
Loan from others
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
94,360
|
|
|
|
25,176
|
|
Severance pay liability, net
|
|
|
76
|
|
|
|
|
|
|
|
83
|
|
|
|
82
|
|
|
|
22
|
|
Total liabilities
|
|
|
4,494
|
|
|
|
|
|
|
|
25,443
|
|
|
|
137,052
|
|
|
|
36,567
|
|
Total shareholders’ equity
|
|
|
25,616
|
|
|
|
|
|
|
|
56,252
|
|
|
|
(31,215
|
)
|
|
|
(8,328
|
)
|
|
(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, 2018, at the rate of one U.S. dollar per NIS 3.748
|
Year Ended
December 31, 2018 Compared to Year Ended December 31, 2017
Research and
Development Expenses, net
Our research and development
expenses, net for the year ended December 31, 2018 amounted to NIS 71.9 million ($19.2 million) compared NIS 18.8 ($5 million)
for the year ended December 31, 2017. The increase in 2018 compared to 2017 was primarily a result of the clinical trial phase
3 expenses of NIS 53.6 ($14.3 million).
Marketing, General
and Administrative Expenses
Our marketing, general
and administrative expenses for the year ended December 31, 2018 amounted to NIS 5.1 million (approximately $1.37 million) compared
to NIS 4.8 million (approximately 1.3 million) for the year ended December 31, 2017. 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, 2018 amounted to NIS 10.6 million ($2.8 million) primarily from financial expenses in respect
of loans from EIB and government grants.. Our financial expenses, net for the year ended December 31, 2017 amounted to NIS 10.9
million ($2.9 million) from primarily from exchange differences on cash and cash equivalent and revaluation of the warrants.
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, 2018 was NIS 87.7 million ($23.4 million), compared to our net loss
for the year ended December 31, 2017 of NIS 34.5 million ($9.3 million). The increase in 2018 compared to 2017 primarily resulted
from our research and development expenses and marketing, general and administrative expenses as described above.
Year Ended December
31, 2017 Compared to Year Ended December 31, 2016
Research and
Development Expenses
, net
Our research and development
expenses, net for the year ended December 31, 2017 amounted to NIS 18.8 million ($5 million) compared NIS 7.8 ($2.1 million) for
the year ended December 31, 2016. The increase in 2017 compared to 2016 was primarily a result of increase in liability with respect
to government grants of NIS 10.3 ($2.7 million) which was recorded as an expenses due to revenues forecast.
Marketing, General
and Administrative Expenses
Our marketing, general
and administrative expenses for the year ended December 31, 2017 amounted to NIS 4.8 million ($1.3 million) compared to NIS 4.1
million 1.1 million) for the year ended December 31, 2016. 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, 2017 amounted to NIS 10.9 million ($2.9 million) primarily from exchange differences on cash
and cash equivalent and revaluation of the options. Our financial income, net for the year ended December 31, 2016 amounted to
NIS 2.7 million ($0.7 million)
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, 2017 was NIS 34.5 million ($9.2 million), compared to our net loss
for the year ended December 31, 2016 of NIS 9.1 million ($2.4 million). The increase in 2017 compared to 2016 primarily resulted
from our research and development expenses and marketing, general and administrative expenses as described above.
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
|
|
|
|
2017
|
|
|
2018
|
|
Research and development, net of participations
(in thousand NIS)
|
|
|
1,874
|
|
|
|
2,022
|
|
|
|
1,174
|
|
|
|
13,707
|
|
|
|
11,745
|
|
|
|
29,205
|
|
|
|
4,347
|
|
|
|
26,616
|
|
Research and development, net of participations
(in thousand US dollars)
(1)
|
|
|
541
|
|
|
|
583
|
|
|
|
339
|
|
|
|
3,953
|
|
|
|
3,134
|
|
|
|
7,792
|
|
|
|
1,160
|
|
|
|
7,101
|
|
marketing, general and administrative
(in thousand NIS)
(1)
|
|
|
1,094
|
|
|
|
569
|
|
|
|
2,036
|
|
|
|
1,180
|
|
|
|
884
|
|
|
|
1,445
|
|
|
|
1,475
|
|
|
|
1,350
|
|
marketing, general and administrative
(in thousand US dollars)
|
|
|
316
|
|
|
|
164
|
|
|
|
587
|
|
|
|
340
|
|
|
|
236
|
|
|
|
386
|
|
|
|
394
|
|
|
|
360
|
|
Operating loss
(in thousand NIS)
|
|
|
2,968
|
|
|
|
2,591
|
|
|
|
3,210
|
|
|
|
14,887
|
|
|
|
12,629
|
|
|
|
30,650
|
|
|
|
5,822
|
|
|
|
27,966
|
|
Operating loss
(in thousand US dollars)
(1)
|
|
|
856
|
|
|
|
747
|
|
|
|
926
|
|
|
|
4,293
|
|
|
|
3,370
|
|
|
|
8,178
|
|
|
|
1,554
|
|
|
|
7,461
|
|
Financial expenses (income), net
(in thousand NIS)
|
|
|
8,864
|
|
|
|
9,081
|
|
|
|
(4,513
|
)
|
|
|
(2,537
|
)
|
|
|
1,573
|
|
|
|
(339
|
)
|
|
|
902
|
|
|
|
8,524
|
|
Financial expenses (income), net
(in thousand US dollars)
(1)
|
|
|
2,557
|
|
|
|
2,619
|
|
|
|
(1,303
|
)
|
|
|
(730
|
)
|
|
|
420
|
|
|
|
(90
|
)
|
|
|
241
|
|
|
|
2,274
|
|
Net loss
(in thousand NIS)
|
|
|
11,832
|
|
|
|
11,672
|
|
|
|
(1,303
|
)
|
|
|
12,350
|
|
|
|
14,202
|
|
|
|
30,311
|
|
|
|
6,724
|
|
|
|
36,490
|
|
Net loss
(in thousand US dollars)
(1)
|
|
|
3,413
|
|
|
|
3,367
|
|
|
|
(376
|
)
|
|
|
3,562
|
|
|
|
3,790
|
|
|
|
8,088
|
|
|
|
1,795
|
|
|
|
9,734
|
|
|
(1)
|
Calculated
using the exchange rate reported by the Bank of Israel for December 31, 2018, at the rate of one U.S. dollar per NIS 3.748.
|
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. and
grants from the OCS, today known as the IIA, grants received by the Israeli Ministry of Economy and European grants under the UNISEC
consortium.
As of December 31,
2018, we had cash and cash equivalents of NIS 75.8 million ($20.2 million) as compared to NIS 71.3 million ($19 million) as of
December 31, 2017. This increase is attributable a loan taken from the European investment bank in the sum of NIS 84.3 million
($22.5 million) during the year ended December 31, 2018.
Net cash used in operating
activities was NIS 57.2 million ($15.26 million) for the year ended December 31, 2018, compared with net cash used in operating
activities of NIS 10.05 million ($2.7 million) for the year ended December 31, 2017.
Net cash used by invest
activities for the year ended December 31, 2018, was NIS 23.5 million ($6.2 million) compared with net cash provided by investing
activities of NIS 6.7 million ($1.8 million) for the year ended December 31, 2017, 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, 2018 was NIS 84.3 million ($22.5 million) mostly from loans taken from the
European investment bank compared NIS 61.8 million ($16.5 million) as of December 31, 2017, which derived from issuance of shares
and options to the public and private placements.
At December 31, 2018,
our accumulated deficit amounted to $56.3 million. We had working capital of $14.6 million as of December 31, 2018. 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. 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 its 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 March 25, 2019,
we have filed a draft of registration statement on form F-1 for a contemplated rights offering.
Assuming exercise of
all ADS warrants held by investors for cash, we will receive gross proceeds of $11.02 million. Assuming the exercise of all of
the representative’s warrants for cash, we will receive gross proceeds of $0.4 million.
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, 2018.
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, 2018 included the following (in thousands):
|
|
1 – 3 Years
|
|
|
4 – 5 Years
|
|
|
More than 5 Years
|
|
|
Total
|
|
Operating Lease Obligations in NIS
|
|
|
3,369
|
|
|
|
2,179
|
|
|
|
5,385
|
|
|
|
10,932
|
|
Operating Lease Obligations in USD
|
|
|
947
|
|
|
|
612
|
|
|
|
1,513
|
|
|
|
3,073
|
|
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
|
Avner Rotman
|
|
74
|
|
Chairman of the Board of Directors
|
Mark Germain
|
|
68
|
|
Vice Chairman of the Board of Directors
|
Ron Babecoff
|
|
56
|
|
Chief Executive Officer and Director
|
Tamar Ben Yedidia
|
|
55
|
|
Chief Scientist
|
Uri Ben Or
|
|
48
|
|
Chief Financial Officer
|
Michal Marom Brikman
(1)
|
|
48
|
|
Director
|
George H. Lowell
|
|
72
|
|
Director
|
Morris Laster
(1)
|
|
53
|
|
Director
|
Ruth Ben Yakar
(1)
|
|
48
|
|
Director
|
Isaac Devash
|
|
56
|
|
Director
|
|
(1)
|
Member
of the Audit Committee and 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. 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
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 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.
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 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.
Ms. Michal Marom
Brikman
is a certified public accountant in Israel since 1994. She holds an M.A. degree in business from the Israeli College
of Business in Rishon Letziyon, Israel, and a M.S.F from the Baruch College of Business in New York City, NY. Since 2011, Ms. Brikman
has been serving as the Chief Financial Officer of Linkury Ltd., an Israeli private company. In addition, Ms. Brikman serves as
an external director, as defined under Israeli Companies law, in a number of Israeli public companies, including: Union Bank of
Israel Ltd. (TLV:UNON), Ado Group Ltd. (TLV:ADO), Arko Holdings, Ltd. (TLV:ARKO), Spectronix Ltd. (TLV:SPCT), Algomizer Ltd. (TLV:ALMO),
Naaman Vardinon Ltd. (TLV:NAMN) and Dan Hotels Ltd. (TLV: DANH).
Prof. George H.
Lowell, M.D.
has served as a member of our board of directors since 2008. Prior to joining our company, Prof. Lowell served
as Chief Scientific Officer for BioDefense at GlaxoSmithkline Biologicals (GSK) from 2006 to 2007 and CSO of ID Biomedical Corp.
(IDB) from 2001 to 2006. Prof. Lowell served 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 cancer targeted pro-drugs. She has over 20 years of experience in the biomedical fi eld,
including 15 years of management in the biotech industry, leading diverse corporate, business, operational, fi nancial, clinical
and regulatory activities. Dr. Ben Yakar also serves as a Director at SHL Telemedicine and Cellect Biomed boards of directors.
Dr. Ben Yakar formerly served as the CEO of Procognia, a public biotech company, a Director at IATI, the CEO of Thrombotech, where
she led a multi-center clinical trial and led the company towards acquisition, the Chief Business Offi cer 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 C. Laster
has served as a member of our board of directors since November 2017. Dr. Laster possesses over 25 years of experience in the
Biomed industry, with expertise in identification, evaluation, finance and management of biomedical innovations in both public
and private companies. Dr. Laster is a Venture Partner at OurCrowd a world leading crowd funding platform and is the CEO of Clil
Medical Ltd., a biomedical consultancy company. He is also the CEO of Vital Spark Inc., a new company developing novel dual action
cannabinoids licensed from the NIH. Previously, he served as the founding CEO and director of BioLineRx Ltd. (NASDAQ/TASE: BLRX)
from 2003 and until 2010. Dr. Laster is also one of the founders of Kitov Pharmaceuticals Holdings Ltd. (NASDAQ: KTOV; TASE: KTOV),
and has served as a director in Kitov from 2010 and until 2014. Dr. Laster holds an M.D. degree from SUNY Health Science Center
At Brooklyn (SUNY HSCB) and B.S. in Biology, Magna Cum Laude, from State University of New York at Albany.
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. According to the appointment letters, we granted a total of 666,050 options that expired
during November and December 2015.
In September 2016 Professor
Shai Ashkenazi was appointed to serve as a member of our Scientific Advisory Board. Professor Ashkenazi will receive a compensation
for his services under similar terms and conditions to those granted to previous members appointed to serve in the Advisory Board
in the past, as follows: as compensation for his services, Professor Ashkenazi will be paid $ 1,000 per day (or part thereof) on
which he provides consultation services to the Company. Professor Ashkenazi will be reimbursed for all out-of-pocket expenses.
In addition, Professor Ashkenazi will receive unregistered options exercisable for up to 54,000 ordinary shares, no par value each,
representing 1,350 ADSs, under the Company’s option plan, intended to be approved at the upcoming annual general shareholders
meeting, at a per share exercise price of $0.12. The Options are scheduled to vest in four equal installments, 13,500 shares, commencing
on the first anniversary date of the appointment and on each anniversary thereafter until all Options are vested at the fourth
anniversary.
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 U.S. Food and Drug Administration and is presently marketed worldwide. Prior to her appointment as Vice-President, 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 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 (EFIS), and as Secretary-General of the International Union of Immunological
Societies (IUIS). Dr. Arnon is the recipient of numerous international and Israeli awards including the prestigious Israel Prize.
Prof. Arnon is also the Advisor for Science to the President of Israel and a member of the Israel Academy of Sciences, where she
presently chairs its Science Division. Prof. Arnon is the incumbent of the Paul Ehrlich Chair in Immunochemistry at the Weizmann
Institute. Prof. Arnon is also employed by us on a part time (5%) basis in exchange for a monthly salary of $1,800.
Prof. Michel Revel
,
Professor of Biochemistry and Molecular Genetics at the Weizmann Institute of Science is well known for his contributions to the
field of immunology. Prof. Revel’s research on Interferon, its mechanisms of action and the isolation of the human Interferon-beta
gene, have led to the biotechnological development of Interferon-beta and its application in medicine. Prof. Revel also discovered
the human gene for the cytokine Interleukin-6 which was developed at his laboratory and at InterPharm-Serono based on its activity
for protecting nerve cells and the nerve myelin coating.
Alongside his research
and development activity, Prof. Revel is deeply involved in the ethics of science and biotechnology, and serves as chairman of
the Bioethics Advisory Committee of the Israel Academy of Sciences and as a member of the International Bioethics Committee of
UNESCO. He integrates his work in science with traditional Judaism and Jewish philosophy in addressing bioethical issues such as
use of human embryo stem cells, genetic intervention in man and cloning. Prof. Revel was the recipient of the Israel Prize for
medical research and the Michael Landau Prize for biotechnology. He has been a member of Israel’s National Committee for
Biotechnology since its establishment, serving for three years as its chairman.
Professor Shai Ashkenazi
,
is a clinical and regulatory vaccine expert, with significant contributions to flu and other infectious disease vaccine research
and development. He has served on the clinical trial advisory boards for the development of a pediatric flu vaccine, vaccines for
enteric infections, as well as other infectious diseases. Also, Professor Ashkenazi has a deep understanding and experience with
the Company’s universal flu vaccine as he served as the head of the data and safety monitoring board (DSMB) in all of the
Company’s clinical trials in Israel and abroad. In addition, Professor Ashkenazi is an editorial board member of several
international medical journals, has served on numerous national and international committees, authored over 200 medical publications
and is editor of the Israeli Textbook of Pediatrics.
Compensation of Directors and Executive
Officers
Compensation to Directors
During 2018, we paid
our members of our audit and compensation committee, Dr. Ruth Ben Yakar and Ms. Michal Marom Brikman , an annual fee of NIS 76,022
($21,927) for meetings participation and annual fee.
Professor Avner Rotman
has been the chairman of our board of directors since 2005. In May 2010 our general shareholders meeting approved a gross monthly
payment of NIS 6,000 plus VAT ($1,730 plus VAT) to Professor Rotman as compensation for his service as the chairman of the board,
to be paid by us to Rodar Technologies Ltd., a private company controlled by Prof. Rotman. On February 12, 2015, our shareholders
approved the extension of Prof. Rotman’s term and compensation for an additional period of two years. Our board of director
did not yet approve new compensation terms to Prof. Rotman following the end of the compensation period.
Subject to the approval
of the Company’s shareholders, our compensation committee and our board of directors have approved 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.
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 ($14.4 million).
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, 2018. 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 9 persons
(2)
|
|
|
2,510
|
|
|
|
670
|
|
|
|
570
|
|
|
|
152
|
|
|
(1)
|
Calculated
using the exchange rate reported by the Bank of Israel for December 31, 2018, at the rate of one U.S. dollar per NIS 3.748.
|
|
(2)
|
Includes
compensation paid to Liora Katzenstein who served as an external Director until June 2018 in accordance with the Companies Law
and Regulations promulgated hereof.
|
The following table
presents information regarding compensation actually received by our executive officers during the year ended December 31, 2018.
Annual Compensation (excluding option grants)
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Name
|
|
Salary and related benefits (in NIS)
|
|
|
Salary and related benefits (in $US)
(1)
|
|
|
Salary and related benefits (in NIS)
|
|
|
Salary and related benefits (in $US)
(1)
|
|
Avner Rotman
|
|
|
72,000
|
|
|
|
19,210
|
|
|
|
72,000
|
|
|
|
19,210
|
|
Ron Babecoff
|
|
|
1,087,727
|
|
|
|
290,215
|
|
|
|
1,007,000
|
|
|
|
268,677
|
|
Tamar Ben Yedidia
|
|
|
573,070
|
|
|
|
152,900
|
|
|
|
525,000
|
|
|
|
140,075
|
|
Ruth Ben Yakar
|
|
|
59,945
|
|
|
|
15,994
|
|
|
|
53,000
|
|
|
|
14,141
|
|
Michael Marom Brikman
|
|
|
58,739
|
|
|
|
15,672
|
|
|
|
54,000
|
|
|
|
14,408
|
|
Irit Ben Ami
|
|
|
-
|
|
|
|
-
|
|
|
|
23,000
|
|
|
|
6,137
|
|
Morris Laster
|
|
|
44,626
|
|
|
|
11,907
|
|
|
|
-
|
|
|
|
-
|
|
Mark Germain
|
|
|
248,398
|
|
|
|
66,275
|
|
|
|
-
|
|
|
|
-
|
|
Uri Ben Or
|
|
|
335,242
|
|
|
|
89,446
|
|
|
|
534,000
|
|
|
|
142,476
|
|
|
(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.
|
|
(2)
|
Calculated
using the exchange rate reported by the Bank of Israel for December 31 2018, at the rate of one U.S. dollar per NIS 3.748
|
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.
Subject to the approval
of the Company’s shareholders, our compensation committee and our board of directors have, on April 30, 2018, approved the
extension of the management service agreement between the Company and Dr. Babecoff for additional five (5) years, and have 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 then 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.
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 on April 2012, Dr. Ben Yedidia is employed on a full time basis and
is currently entitled to a monthly salary of NIS 27,300 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 US$10,000,000) 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.
On May 26 and 28, 2015,
our compensation committee and the Board of Directors, respectively, approved Ms. Tamar Ben Yedida’s monthly salary from
NIS 27,300 to NIS 30,000 and on 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 Yedida 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. 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, CFO Direct is entitled to a monthly fee of NIS 2,500. The
service agreement will remain in effect for a period of five years from the amendment date and shall expire on August 31, 2019,
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. In addition, pursuant to the provisions of the service agreement, for services
provided in connection with the preparation the initial public offering in the U.S., CFO Direct was entitled to receive NIS 192,500
in four equal installments on the first of each month commencing on September 1, 2014. Furthermore, following the consummation
of the initial public offering in the U.S., CFO Direct are entitled to receive a one-time cash payment of NIS 87,500, and from
such date the monthly compensation under the services agreement will be increased to NIS 15,000.
In addition, pursuant
to a separate employment agreement entered into between us and Mr. Ben Or on August 31, 2014, as of such date, 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 for a period of five years and shall expire on August 31, 2019, unless earlier terminated
by either us or Mr. Ben Or with 60 days prior written notice, or by us immediately for cause (i.e., if he is convicted of a felony
or is held liable by a court of competent jurisdiction for fraud against us, a breach of trust due to theft or embezzlement by
him, any conduct which has a material adverse effect or is materially detrimental to us, any breach of his fiduciary duties or
duties of care to us, including without limitation, any material conflict of interest for the promotion of his benefit, fraud,
felonious conduct, dishonesty or insubordination, and any circumstances in which Israeli law or his employment agreement deny the
right for severance payment, in whole or in part). In August 2016, our compensation committee and board of directors approved the
payment of NIS 25,000 for his efforts in preparing a registration statement on Form F-3 and an ATM prospectus filed in November
2016. In January 2017, our compensation committee and board approved a one time bonus of NIS 120,000 (approximately $34.6 thousands)
for Mr. Ben Or’s efforts in the capital raise completed in September 2017.
On May 26 and 28, 2015,
our compensation committee and the Board of Directors, respectively, approved the grant of 500,000 unregistered option 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. As of as of the date of this annual report,
Mr. Uri Ben Or held options to purchase 620,000 ordinary shares, of which 620,000 are fully vested.
Equity Compensation Plan
In March 2018, the
Company’s board of directors as well as the annual general meeting of the shareholders approved and adopted the 2018 BiondVax
share option plan to employees, directors, consultants, service providers and other entities which the board shall decide their
services are considered valuable to the company, or the 2018 Plan, under similar terms and conditions to the Previous Plan. We
have not yet granted options under the 2018 Plan.
Options granted under
the 2018 Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.
Upon the termination
of a Participant’s engagement with us for any reason other than death, retirement, disability or due 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 Participant’s engagement was terminated for cause (as defined in the 2018
Plan), the Participant’s right to exercise any unexercised options, awarded and allocated in favor of such Participant, whether
vested or not, will immediately cease and expire as of the date of such termination. If the Participant dies, retires 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.
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, consolidation or like transaction of ours with or into another corporation, then, subject to obtaining
the applicable approvals of the Israeli tax authorities, the board of directors in its sole discretion, will resolve: (a) if and
how any unvested options will be cancelled, replaced or accelerated; (b) if and how any vested options (including options with
respect to which the vesting period has been accelerated according to the foregoing), will be exercised, replaced and/or sold by
a trustee or us (as the case may be) on the behalf of the respective Israeli Participants; and (c) how any underlying shares issued
upon exercise of the options and held by a trustee on behalf any Israeli Participants will be replaced and/or sold by such trustee
on behalf of the Israeli Participants.
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.
Under our articles
of association, our board of directors must consist of at least three and not more than nine directors. Our board of directors
currently consists of seven members, including our non-executive Chairman of the board of directors. Our directors may be divided
into three classes with staggered three-year terms. Class I, Class II and Class III shall each consist of two directors, constituting
our entire board of directors (other than the external directors).
In addition, our articles
of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office
ending on the earlier of the next annual general meeting of our shareholders, 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.
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 Michael Marom Brikman 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 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:
|
●
|
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
|
|
|
|
|
●
|
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.
|
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 Ms. Michal Brikman, Ms. Ruth Ben Yakar and Mr. Morris Laster. Ms. Michal Brikman 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 Ms. Michal Brikman 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:
|
●
|
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;
|
|
|
|
|
●
|
recommending the engagement or termination of the person filling the office of our internal auditor; and
|
|
|
|
|
●
|
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 Ms. Michal Brikman, Ms. Ruth Ben Yakar and Mr. Morris Laster. Ms. Michal Brikman 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 2014. On March 1, 2015, following the approval of the compensation committee and our board of directors, our general shareholders
meeting approved an amendment to the compensation policy increasing the maximum amounts of bonuses and the scope of liability insurance
policies permitted under such compensation policy in connection with our directors and officers.
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;
|
|
|
|
|
●
|
the office holder’s roles and responsibilities and prior compensation agreements with him or her;
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
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
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
the minimum holding or vesting period for variable, equity-based compensation; and
|
|
|
|
|
●
|
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);
|
|
|
|
|
●
|
recommending to the board of directors periodic updates to the compensation policy;
|
|
|
|
|
●
|
assessing implementation of the compensation policy; and
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
reviewing and approving the granting of options and other incentive awards; and
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;
|
|
|
|
|
●
|
an office holder (including a director) of the company (or a relative thereof); or
|
|
|
|
|
●
|
a member of the company’s independent accounting firm, or anyone on his or her behalf.
|
|
●
|
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.
|
|
|
|
|
●
|
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
|
|
|
|
|
●
|
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,
2018, we have 21 employees, 3 of whom employed in finance and administration and 18 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 December 31, 2017, 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, warrants or other conversion rights currently
exercisable or that are exercisable within 60 after April 30, 2018, are deemed outstanding for the purpose of computing the percentage
ownership of the person holding the options, warrants or other conversion rights but are not deemed outstanding for the purpose
of computing the percentage ownership of any other person.
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.
|
|
Ordinary Shares
|
|
|
Percent of Class%
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
Ron Babecoff
|
|
|
11,537,503
|
(1)
|
|
|
4.28
|
%
|
Avner Rotman
|
|
|
238,900
|
(2)
|
|
|
*
|
|
George H. Lowell
|
|
|
435,000
|
(3)
|
|
|
*
|
|
Uri Ben Or
|
|
|
820,000
|
(4)
|
|
|
*
|
|
Tamar Ben Yedidya
|
|
|
1,270,000
|
(5)
|
|
|
*
|
|
All executive officers and directors as a group (5 people)
|
|
|
14,301,403
|
|
|
|
5.3
|
%
|
|
|
|
53,760,832
|
|
|
|
|
|
Angels Investments in Hi Tech Ltd.
|
|
|
19,000,000
|
(6)
|
|
|
20.56
|
%
|
Eastern Capital Limited
|
|
|
14,360,000
|
(7)
|
|
|
7.27
|
%
|
IBEX Investors, LLC
|
|
|
11,537,503
|
(8)
|
|
|
5.49
|
%
|
(1)
|
Consists of 5,528,000 ordinary shares, 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 31, 2021 and 5,929,503 ordinary shares issuable upon exercise of options at an exercise price of NIS 0.7461 per share and with an expiration date of August 3, 2025.
|
(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 31, 2021.
|
|
|
(3)
|
Consists of 355,000 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 31, 2021.
|
|
|
(4)
|
Consists of 5,000 ADSs, representing 200,000 ordinary shares, 70,000 ordinary shares issuable upon exercise of options at an exercise price of NIS 1.325 per share and with an expiration date of November 26, 2022, 50,000 ordinary shares issuable upon exercise of options at an exercise price of NIS 0.45 per share and with an expiration date of August 7, 2020 and 500,000 ordinary shares issuable upon exercise of options at an exercise price of NIS 0.7461 per share and with an expiration date of October 15, 2025.
|
|
|
(5)
|
Consists of 5,000 ADSs, representing 200,000 ordinary shares, 150,000 ordinary shares, 120,000 ordinary shares issuable upon exercise of options at an exercise price of NIS 0.45 per share and with an expiration date of November 26, 2022, 300,000 ordinary shares issuable upon exercise of options at an exercise price of NIS 1.325 per share and with an expiration date of July 8, 2020, and , 500,000 ordinary shares issuable upon exercise of options at an exercise price of NIS 0.7461 per share and with an expiration date of November 26, 2022
|
|
|
(6)
|
Consists of 33,760,832 ordinary shares and 20,000,000 ordinary shares represented by 500,000 ADSs.
|
|
|
(7)
|
Consists of 19,000,000 ordinary shares represented by 475,000 ADSs.
|
|
|
(8)
|
Consists of 14,360,000 ordinary shares represented by 359,000 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.
|
C.
|
Interests of Experts and Counsel
|
Not applicable.
Item 8.
|
FINANCIAL INFORMATION
|
|
A.
|
Consolidated Statements and Other Financial Information
|
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, 2018, except as otherwise disclosed in this annual report.
Item 9.
|
THE OFFER AND LISTING
|
Price Range of our
ADSs
Our ADSs have been
trading on the Nasdaq Capital Market under the symbols “BVXV” and “BVXVW”, respectively. The following
tables set forth for the periods indicated the high and low sales prices per ADS and ADS warrants as reported on the NASDAQ Capital
Market:
BVXV
|
|
|
|
|
|
|
Month Ended
|
|
High
|
|
|
Low
|
|
Annual:
|
|
|
|
|
|
|
2018
|
|
$
|
7.49
|
|
|
$
|
3.97
|
|
Quarterly:
|
|
|
|
|
|
|
|
|
Fourth Quarter 2018
|
|
$
|
5.99
|
|
|
$
|
3.97
|
|
Third Quarter 2018
|
|
$
|
6.78
|
|
|
$
|
5.50
|
|
Second Quarter 2018
|
|
$
|
6.93
|
|
|
$
|
5.55
|
|
First Quarter 2018
|
|
|
7.49
|
|
|
|
5.43
|
|
Most Recent Six Months:
|
|
|
|
|
|
|
|
|
April, 2019
|
|
$
|
7.18
|
|
|
$
|
5.43
|
|
Mar-19
|
|
$
|
5.59
|
|
|
$
|
4.76
|
|
Feb-19
|
|
$
|
5.80
|
|
|
$
|
4.83
|
|
Jan-18
|
|
$
|
5.60
|
|
|
$
|
4.82
|
|
December 31, 2018
|
|
$
|
5.70
|
|
|
$
|
3.97
|
|
November 30, 2018
|
|
$
|
5.99
|
|
|
$
|
5.32
|
|
BVXVW
|
|
|
|
|
|
|
Month Ended
|
|
High
|
|
|
Low
|
|
Annual:
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
1.95
|
|
|
$
|
0.69
|
|
Quarterly:
|
|
|
|
|
|
|
|
|
Fourth Quarter 2018
|
|
$
|
1.17
|
|
|
$
|
0.69
|
|
Third Quarter 2018
|
|
$
|
1.35
|
|
|
$
|
1.15
|
|
Second Quarter 2018
|
|
$
|
1.59
|
|
|
$
|
1.10
|
|
First Quarter 2018
|
|
$
|
1.95
|
|
|
$
|
1.10
|
|
Most Recent Six Months:
|
|
|
|
|
|
|
|
|
April, 2019
|
|
$
|
1.45
|
|
|
$
|
0.31
|
|
Mar-19
|
|
$
|
0.55
|
|
|
$
|
0.31
|
|
Feb-19
|
|
$
|
0.75
|
|
|
$
|
0.41
|
|
Jan-18
|
|
$
|
1.00
|
|
|
$
|
0.75
|
|
December 31, 2018
|
|
$
|
1.15
|
|
|
$
|
0.81
|
|
November 30, 2018
|
|
$
|
1.15
|
|
|
$
|
0.92
|
|
On April 26, 2019,
the last reported sale price of our ADS and the ADS warrants on the Nasdaq Capital Market was $7.05.
No trading market currently
exists for our ordinary shares. Our ordinary shares have been trading on the TASE under the symbol “BNDX” since June
18, 2007 and under the symbol “BVXV” since May 18, 2015, but have been voluntarily delisted from the TASE as of January
22, 2018.
Not applicable.
See “Listing
Details” above.
Not applicable.
Not applicable.
Not applicable.
Item 10.
|
ADDITIONAL INFORMATION
|
Not
applicable.
|
B.
|
Articles of Association
|
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, 2018 and as of this annual report, there were 261,419,599 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:
|
●
|
amendments to our articles of association;
|
|
|
|
|
●
|
appointment or termination of our auditors;
|
|
|
|
|
●
|
appointment of directors and appointment and dismissal of external directors;
|
|
|
|
|
●
|
approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;
|
|
|
|
|
●
|
director compensation, indemnification and change of the principal executive officer;
|
|
|
|
|
●
|
increases or reductions of our authorized share capital;
|
|
|
|
|
●
|
a merger;
|
|
|
|
|
●
|
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
|
|
|
|
|
●
|
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.
|
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:
|
●
|
an appointment or removal of directors;
|
|
|
|
|
●
|
an approval of transactions with office holders or interested or related parties, that require shareholder approval;
|
|
|
|
|
●
|
an approval of a merger;
|
|
●
|
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;
|
|
|
|
|
●
|
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
|
|
|
|
|
●
|
other matters which may be prescribed by Israel’s Minister of Justice.
|
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 Angles 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.
ATM Agreement
On November 4, 2016,
we entered into an At-the-Market Agreement with FBR Capital Markets & Co., or FBR, that was terminated as of September 13,
2017. Pursuant to the ATM agreement, FBR was authorized, at our discretion and at such times as it shall determine from time to
time, sell our ADSs, or the Placement Shares, through an “at the market offering” program, or the ATM Program, pursuant
to Instruction I.B.5. of the Registration Statement on Form F-3.
Any sales of Placement
Shares were sold under the Registration Statement on Form F-3 filed by us and declared effective on December 15, 2016. We have
paid FBR a commission equal to 3.0% of the gross sales price of the Placement Shares sold pursuant to the ATM Agreement and reimburse
FBR for its reasonable out-of-pocket expenses, in connection with the offering. We have provided FBR with customary representations
and warranties, and indemnification rights. In addition, the Company has agreed to pay Aegis Capital Corp., or Aegis, a fee equal
to up to 2.0% of the gross sales price of the Placement Shares sold on our behalf by FBR through and including May 11, 2017, for
Aegis’ waiver of its right of first refusal in accordance with the underwriting agreement entered by us and Aegis on May
11, 2015 in connection with our initial public offering.
We have raised a total
of $3.2 million in gross proceeds from at the market offerings and issued a total of 366,666 ADSs. We terminated the ATM agreement
effective as of September 13, 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). 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), 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 (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, whether directly or indirectly.
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.
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:
|
●
|
dealers or traders in securities, currencies or notional principal contracts;
|
|
|
|
|
●
|
financial institutions;
|
|
|
|
|
●
|
insurance companies;
|
|
|
|
|
●
|
real estate investment trusts;
|
|
|
|
|
●
|
banks;
|
|
●
|
investors subject to the alternative minimum tax;
|
|
|
|
|
●
|
tax-exempt organizations;
|
|
|
|
|
●
|
regulated investment companies;
|
|
|
|
|
●
|
investors that actually or constructively own 10 percent or more of our voting shares;
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
investors whose functional currency is not the U.S. dollar; and
|
|
|
|
|
●
|
expatriates or former long-term residents of the United States.
|
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:
|
●
|
an individual who is a citizen or a resident of the United States;
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
an estate whose income is subject to U.S. Federal income tax regardless of its source; or
|
|
(a)
|
a court within the United States is able to exercise primary supervision over administration of the trust; and
|
|
(b)
|
one or more United States persons have the authority to control all substantial decisions of the trust.
|
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.
|
F.
|
Dividends and Paying Agents
|
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 thepublic 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.
|
I.
|
Subsidiary Information
|
Not applicable.
Item 11.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
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.
|
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not applicable.
For a description
of the ADS warrants, see Item 12D.
Not applicable.
|
D.
|
American Depositary Shares
|
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:
|
●
|
we do not wish to receive a discretionary proxy;
|
|
●
|
there is substantial shareholder opposition to the particular question; or
|
|
●
|
the particular question would have an adverse impact on our shareholders.
|
We are required to
notify the depositary if one of the conditions specified above exists.
We cannot assure you
that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition,
the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out
voting instructions.
This means that you may not be able to exercise 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
:
|
|
For
:
|
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
|
|
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
|
$.05 (or less) per ADS
|
|
Any cash distribution to ADS holders
|
A fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary shares had been deposited for issuance of ADSs
|
|
Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders
|
$.05 (or less) per ADS per calendar year
|
|
Depositary services
|
Registration or transfer fees
|
|
Transfer and registration of ordinary shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw ordinary shares
|
Expenses of the depositary
|
|
Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) converting foreign currency to U.S. dollars
|
Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or ordinary shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes
|
|
As necessary
|
Any charges incurred by the depositary or its agents for servicing the deposited securities
|
|
As necessary
|
The depositary collects
its fees for delivery and surrender of ADSs directly from investors depositing 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:
|
|
Then:
|
● Change
the nominal or par value of our shares
●
Reclassify, split up or consolidate any of the deposited securities
|
|
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.
|
●
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
|
|
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.
|
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:
|
●
|
are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;
|
|
●
|
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;
|
|
●
|
are not liable if we or it exercise discretion permitted under the deposit agreement;
|
|
●
|
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;
|
|
●
|
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;
|
|
●
|
are not liable for the acts or omissions of any securities depository, clearing agency or settlement system; and
|
|
●
|
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.
|
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:
|
●
|
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;
|
|
●
|
satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and
|
|
●
|
compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.
|
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:
|
●
|
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;
|
|
●
|
when you owe money to pay fees, taxes and similar charges; or
|
|
●
|
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.
|
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.
ADS warrants
The following summary
of certain terms and provisions of the ADS warrants offered as part of the initial public offering in the U.S. is not complete
and is subject to, and qualified in its entirety by the provisions of the ADS warrant Agent Agreement and form of Warrant Certificate,
which were filed as exhibits to the registration statement of which this post-effective amendment is a part. Prospective investors
should carefully review the terms and provisions set forth in the ADS Warrant Agent Agreement and form of Warrant Certificate.
ADS warrants issued in connection with the initial public offering in the U.S. are administered by The Bank of New York Mellon.
Exercisability.
The
warrants are exercisable immediately upon issuance and at any time up to the date that is five years from the date of issuance.
The warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise
notice accompanied by payment in full for the number of ADSs purchased upon such exercise (except in the case of a cashless exercise
as discussed below), together with any ADS issuance fee and other applicable charges and taxes. Unless otherwise specified in the
warrant, the holder does not have the right to exercise the warrants, in whole or in part, if the holder (together with its affiliates)
would beneficially own in excess of 4.99% of the number of our ordinary shares outstanding immediately after giving effect to the
exercise, as such percentage is determined in accordance with the terms of the warrants.
Cashless Exercise.
In
the event that a registration statement covering ADSs underlying the warrants is not effective, and an exemption from registration
is not available for the resale of such shares of ordinary shares underlying the warrants, the holder may, in its sole discretion,
exercise warrants and, in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment
of the aggregate exercise price, elect instead to receive upon such exercise the net number of shares of ordinary shares determined
according to the formula set forth in the warrant agreement. An issuance fee, as well as other applicable charges and taxes, may
be due and payable upon any cashless exercise.
Exercise Price.
The
initial exercise price per share of ADSs purchasable upon exercise of the warrants is $6.25 per ADS. In addition to the exercise
price per share of ADS, an issuance fee and other applicable charges and taxes may be due and payable upon exercise.
Anti-Dilution Provisions.
The
exercise price is subject to adjustment in the event of sales of our ADSs or equivalent number of ordinary shares during the one-year
period following the closing at a price per share less than the exercise price then in effect (or securities convertible or exercisable
into ADSs or equivalent number of ordinary shares at a conversion or exercise price less than the exercise price then in effect
subject to customary exceptions). In addition, the exercise price and the number of shares issuable upon exercise are subject to
appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock subdivisions and combinations,
reclassifications or similar events affecting our ADSs or ordinary shares.
Transferability.
Subject
to applicable laws, the warrants may be transferred at the option of the holders upon surrender of the warrants to us together
with the appropriate instruments of transfer.
Warrant Agent and
Exchange Listing.
The warrants are issued in registered form under an ADS Warrant Agent Agreement between The Bank of
New York Mellon, as warrant agent and us.
Fundamental Transaction
. If,
at any time while the warrants are outstanding, (1) we consolidate or merge with or into another corporation and we are not the
surviving corporation, (2) we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of
our assets, (3) any purchase offer, tender offer or exchange offer (whether by us or another individual or entity) is completed
pursuant to which holders of our shares of ordinary shares are permitted to sell, tender or exchange their shares of ordinary shares
for other securities, cash or property and has been accepted by the holders of 50% or more of our outstanding shares of ordinary
shares, (4) we effect any reclassification or recapitalization of our shares of ordinary shares or any compulsory share exchange
pursuant to which our ordinary shares are converted into or exchanged for other securities, cash or property, or (5) we consummate
a stock or share purchase agreement or other business combination with another person or entity whereby such other person or entity
acquires more than 50% of our outstanding ordinary shares, each, a “Fundamental Transaction”, then upon any subsequent
exercise of the warrants, the holders thereof will have the right to receive the same amount and kind of securities, cash or property
as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior
to such Fundamental Transaction, the holder of the number of warrant shares then issuable upon exercise of the warrant, and any
additional consideration payable as part of the Fundamental Transaction.
Rights as a Stockholder.
Except as otherwise provided in the warrant agreement or by virtue of such holder’s ownership of ADSs or ordinary
shares, the holder of warrants does not have rights or privileges of a holder of ADSs or ordinary shares, including any voting
rights, until the holder exercises the warrant.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
|
a.
|
BiondVax
Pharmaceuticals Ltd. (“the Company”) is focused on developing and ultimately,
commercializing immunomodulation therapies for infectious diseases. The Company was incorporated
on July 21, 2003 and started its activity on March 31, 2005.
|
|
b.
|
On
June 7, 2007, the Company issued ordinary shares and options on the TASE.
|
|
c.
|
On
May 15, 2015, the Company completed a public offering of securities in the United States.
|
|
d.
|
On
March 28, 2017, the Company 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 20,000
budget to be utilized towards the construction of a factory for the production of Phase
3 and commercial batches of the Company is product (“the Grant”). 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.
|
|
e.
|
On August 30, 2017, the Company announced that its Board of Directors has decided to voluntarily
delist from the Tel Aviv Stock Exchange (TASE), while remaining listed on NASDAQ. The Company announced that the delisting process
of BiondVax’s shares from trading on the TASE will take place by the end of 2017. On October 30, 2017, the Company announced the
delisting procedure and timeline. In addition, during the interim period, BiondVax’s shares will continue to be traded on the TASE.
|
|
f.
|
On March 13, 2018, the Company announced the appointment of a contract research organization (CRO)
to conduct the first pivotal phase 3 clinical trial of M-001, BiondVax’s universal flu vaccine candidate.
|
|
g.
|
On March 15, 2018, the Company and the CRO executed a master service agreement and work order.
According to the master service agreement, the Company undertakes to pay remuneration as well as to reimburse the CRO for costs
incurred as a result of the master service agreement and work orders. The master service agreement shall be in effect as of March
8, 2018 for a period of five years or later, if a work order remains in effect, and until such work order’s completion. The
first work order which governs the conduct of the Company’s clinical trial in Europe is scheduled for a total period of 32.5
months. The Company has a right to terminate the master service agreement or the work order by giving a 45 days’ notice or
in the event of a material breach.
|
|
h.
|
During year ended December 31, 2018, the Company incurred a loss of NIS 87,727 ($
23,407) and negative cash flows from operating activities of NIS 57,193 ($ 15,261) and it has an accumulated deficit
of NIS 211,144 ($ 56,335) as of that date.
|
To date the
Company has not generated any revenues yet and will need additional funds to finance its Phase 3 clinical trials in the future
(see also Note 19).
Furthermore,
the Company intends to continue to finance its operating activities by raising capital. There are no assurances that the Company
will be successful in obtaining an adequate level of financing needed for its long-term research and development activities.
If the Company
will not have the sufficient liquidity resources, the Company may not be able to continue the development of all its products or
may be required to implement a cost reduction and may be required to delay part of its development program. The Company’s
management and Board of Directors are in the opinion that its current financial resources will be sufficient to continue the development
of the Company’s products for at least the next twelve months.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES
|
The
following accounting policies have been applied consistently in the financial statements for all periods presented, unless otherwise
stated.
|
a.
|
Basis
of presentation of the financial statements:
|
These financial
statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”).
The Company’s
financial statements have been prepared on a cost basis, except for financial instruments which are measured at fair value through
profit or loss.
The Company
has elected to present profit or loss items using the “function of expense” method.
|
b.
|
Functional
currency, reporting currency and foreign currency:
|
|
1.
|
Functional
currency and reporting currency:
|
The
reporting currency of the financial statements is the NIS.
The
functional currency is the currency that best reflects the economic environment in which the Company operates and conducts
its transactions. Most of the Company costs are incurred in NIS. In addition, the Company financing activities are incurred
normally in NIS. The Company’s management believes that the functional currency of the Company is the NIS.
|
2.
|
Transactions,
assets and liabilities in foreign currency:
|
Transactions
denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After
initial recognition, monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting
period into the functional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
c.
|
Convenience
translation into U.S. dollars:
|
The
financial statements as of December 31, 2018 and for the year then ended have been translated into U.S. Dollars using the exchange
rate of the U.S. Dollar as of December 31, 2018 (U.S. $1.00 = NIS 3.748). The translation was made solely for convenience
purposes.
The
dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or
payable in Dollars or convertible into Dollars, unless otherwise indicated.
Cash equivalents are considered
as highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less
from the date of acquisition.
Restricted cash are bank deposits
with an original maturity of more than one year from the date of investment and which do not meet the definition of cash equivalents.
The deposits are presented according to their terms of deposit.
|
f.
|
Property
and equipment:
|
Property,
plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment
losses and excluding day-to-day servicing expenses.
Depreciation
is calculated on a straight-line basis over the useful life of the assets at annual rates as follows:
|
|
%
|
|
Laboratory equipment
|
|
|
15
|
|
Office furniture and equipment
|
|
|
6 - 33
|
|
Computers
|
|
|
33
|
|
Leasehold improvements
|
|
|
(*)
|
|
|
(*)
|
Leasehold
improvements are depreciated on a straight-line basis over the shorter of the lease term
(including the extension option held by the Company and intended to be exercised) and
the expected life of the improvement.
|
The
useful life, depreciation method and residual value of an asset are reviewed at least each year-end and any changes are accounted
for prospectively as a change in accounting estimate.
An
item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or
disposal.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
g.
|
Research
and development expenses, net of participations:
|
Research
and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project
or from the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of
completing the intangible asset so that it will be available for use or sale; the Company’s intention to complete the intangible
asset and use or sell it; the Company’s ability to use or sell the intangible asset; how the intangible asset will generate future
economic benefits; the availability of adequate technical, financial and other resources to complete the intangible asset; and
the Company’s ability to measure reliably the expenditure attributable to the intangible asset during its development. Since the
Company’s research and development projects are often subject to regulatory approval procedures and other uncertainties, the conditions
for the capitalization of costs incurred before receipt of approvals are not normally satisfied and, therefore, development expenditures
are recognized in profit or loss when incurred.
|
h.
|
Government
investment grants:
|
Government
grants are recognized when there is reasonable assurance that the grants will be received and the Company will comply with the
attendant conditions.
Research
and development grants received from the Israeli Innovation Authority (“IIA”) are recognized upon receipt as a liability
only if future economic benefits are expected from the project that will result in royalty-bearing sales. A liability for the
grant is first measured at fair value using a discount rate that reflects a market interest rate. The difference between the amount
of the grant received and the fair value of the liability is accounted for as a government grant and recognized as a reduction
of research and development expenses. After initial recognition, the liability is measured at amortized cost using the effective
interest method.
Future
Royalty payments will be treated as a reduction of the liability. In that event, the royalty obligation is treated as a contingent
liability in accordance with IAS 37, “
Provisions, Contingent Liabilities and Contingent Assets
” (“IAS 37”).
At
the end of each reporting period, the Company evaluates 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
the Company’s development projects are at the beginning of Phase 3 clinical trials, future economic benefits from the research
and development activity are currently expected. Therefore, a liability was recorded with respect to the IIA grants
,
against a corresponding increase in research and development expenses.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Research
and development grants received from the European Union are recorded against a corresponding reduction in research and development
expenses. Since they are non-refundable and do not depend on the generation of future sales.
|
i.
|
Impairment
of non-financial assets:
|
The
Company evaluates the need to record an impairment of the carrying amount of non-financial assets whenever events or changes in
circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their
recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount of an asset that does not generate
independent cash flows is determined for the cash-generating unit to which the asset belongs and is calculated based on the projected
cash flows that will be generated by the cash generated unit. Impairment losses are recognized in profit or loss.
An
impairment loss of an asset is reversed only if there have been changes in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the
lower of the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been
recognized for the asset in prior years, and its recoverable amount.
The
Company did not recognize any impairment of non-financial assets for any of the periods presented.
|
j.
|
Financial
instruments:
|
As
described in Note 2q regarding the initial adoption of
IFRS 9, “Financial Instruments” (“the Standard”),
the Company elected to adopt the provisions of the Standard retrospectively without restatement of comparative data.
The
accounting policy for financial instruments applied until December 31, 2017, is as follows:
Financial
assets within the scope of IAS 39, “
Financial Instruments: Recognition and Measurement
” (“IAS 39”)
are initially recognized at fair value plus directly attributable transaction costs, except for financial assets measured at fair
value through profit or loss in respect of which transaction costs are recorded in profit or loss.
After
initial recognition, the accounting treatment of financial assets is based on their classification as follows:
Financial
assets at fair value through profit or loss
This
category includes financial assets designated upon initial recognition as at fair value through profit or loss.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Loans
and receivables
The
Company has receivables that are financial assets with fixed or determinable payments that are not quoted in an active market.
|
2.
|
Financial
liabilities:
|
Financial
liabilities within the scope of IAS 39 are initially measured at fair value.
After
initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:
Financial
liabilities measured at amortized cost:
Loans
and other liabilities are measured at amortized cost using the effective interest method taking into account directly attributable
transaction costs.
Financial
liabilities at fair value through profit or loss:
Financial
liabilities at fair value through profit or loss include financial liabilities classified as held for trading and financial liabilities
designated upon initial recognition as at fair value through profit or loss.
|
3.
|
De-recognition
of financial instruments:
|
A
financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Company has
transferred its contractual rights to receive cash flows from the financial asset or assumes an obligation to pay the cash flows
in full without material delay to a third party and has transferred substantially all the risks and rewards of the asset, or has
neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
b)
|
Financial
liabilities:
|
A
financial liability is derecognized when it is extinguished, that is when the obligation is discharged or cancelled or expires.
A financial liability is extinguished when the debtor (the Company) discharges the liability by paying in cash, other financial
assets, goods or services; or is legally released from the liability.
|
4.
|
Issue
of a unit of securities:
|
The
issue of a unit of securities involves the allocation of the proceeds received (before issuance expenses) to the components
of the securities issued in the unit based on the following order: financial derivatives and other financial instruments
measured at fair value in each period. Then fair value is determined for financial liabilities and compound instruments that
are presented at amortized cost. The proceeds allocated to equity instruments are the residual amount. Issue costs are
allocated to each component pro rata to the amounts determined for each component in the unit.
The
accounting policy for financial instruments applied commencing from January 1, 2018, is as follows:
Financial
assets are measured upon initial recognition at fair value plus transaction costs that are directly attributable to the acquisition
of the financial assets, except for financial assets measured at fair value through profit or loss in respect of which transaction
costs are recorded in profit or loss.
The
Company classifies and measures debt instruments in the financial statements based on the following criteria:
|
-
|
The
Company’s business model for managing financial assets; and
|
|
-
|
The
contractual cash flow terms of the financial asset.
|
|
a.
|
Debt
instruments are measured at fair value through profit or loss when:
|
A
financial asset which is a debt instrument does not meet the criteria for measurement at amortized cost or at fair value through
other comprehensive income. After initial recognition, the financial asset is measured at fair value and gains or losses from
fair value adjustments are recognized in profit or loss.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
2.
|
Derecognition
of financial assets:
|
A
financial asset is derecognized only when:
|
-
|
The
contractual rights to the cash flows from the financial asset has expired; or
|
|
-
|
The
Company has transferred substantially all the risks and rewards deriving from the contractual
rights to receive cash flows from the financial asset or has neither transferred nor
retained substantially all the risks and rewards of the asset, but has transferred control
of the asset; or
|
|
-
|
The
Company has retained its contractual rights to receive cash flows from the financial
asset but has assumed a contractual obligation to pay the cash flows in full without
material delay to a third party.
|
|
3.
|
Financial
liabilities:
|
|
a)
|
Financial
liabilities measured at amortized cost:
|
Financial
liabilities are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial
liability.
After
initial recognition, the Company measures all financial liabilities at amortized cost using the effective interest rate method,
except for:
|
-
|
Financial
liabilities at fair value through profit or loss such as warrant liability
|
|
b)
|
Financial
liabilities measured at fair value through profit or loss:
|
At
initial recognition, the Company measures financial liabilities that are not measured at amortized cost at fair value. Transaction
costs are recognized in profit or loss.
After
initial recognition, changes in fair value are recognized in profit or loss.
|
4.
|
Derecognition
of financial liabilities:
|
A
financial liability is derecognized only when it is extinguished, that is when the obligation specified in the contract is discharged
or cancelled or expires. A financial liability is extinguished when the debtor discharges the liability by paying in cash, other
financial assets, goods or services; or is legally released from the liability.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
5.
|
Issue
of a unit of securities:
|
The
issue of a unit of securities involves the allocation of the proceeds received (before issue expenses) to the securities issued
in the unit based on the following order: financial derivatives and other financial instruments measured at fair value in each
period. Then fair value is determined for financial liabilities that are measured at amortized cost. The proceeds allocated to
equity instruments are determined to be the residual amount. Issue costs are allocated to each component pro rata to the amounts
determined for each component in the unit.
|
k
.
|
Fair
value measurement:
|
Fair
value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.
Fair
value measurement is based on the assumption that the transaction will take place in the asset’s or the liability’s principal
market, or in the absence of a principal market, in the most advantageous market.
The
fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset
or liability, assuming that market participants act in their economic best interest.
Fair
value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by
using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest
and best use.
The
Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure
fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All
assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair
value hierarchy based on the lowest level input that is significant to the entire fair value measurement:
|
Level
1
|
-
|
quoted
prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
|
|
|
Level
2
|
-
|
inputs
other than quoted prices included within Level 1 that are observable directly or indirectly.
|
|
|
|
|
|
Level
3
|
-
|
inputs
that are not based on observable market data (valuation techniques which use inputs that are not based on observable market
data).
|
A
provision in accordance with IAS 37 is recognized when the Company has a present obligation (legal or constructive) as a result
of a past event, it is expected to require the use of economic resources to settle the obligation and a reliable estimate can
be made of it.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Lease
agreements are classified as an operating lease if they do not transfer substantially all the risks and benefits incidental to
ownership of the leased asset. Operating lease payments are recognized as an expense in profit or loss on a straight-line basis
over the lease term.
|
n
.
|
Employee
benefit liabilities:
|
The
Group has several employee benefit plans:
|
1.
|
Short-term
employee benefits:
|
Short-term
employee benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognized
as expenses as the services are rendered.
|
2.
|
Post-employment
benefits:
|
Post-employment
benefit plans are normally financed by contributions to insurance companies and classified as defined contribution plans or as
defined benefit plans.
The
Company has defined contribution plans pursuant to Section 14 of the Severance Pay Law into which the Company pays fixed
contributions and has no legal or constructive obligation to pay further contributions on account of severance pay if the fund
does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.
Contributions
to the defined contribution plan in respect of severance or retirement pay are recognized as an expense when contributed concurrently
with performance of the employee’s services.
|
o
.
|
Share-based
payment transactions:
|
From
time to time, the Company grants to its employees and service providers remuneration in the form of equity-settled share-based
instruments, such as options to purchase ordinary shares.
Equity-settled
transactions:
The
cost of equity-settled transactions with employees is measured at the fair value of the equity instruments granted at grant date.
The fair value is determined using an acceptable option pricing model.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
With
respect to other service providers, the cost of the transactions is measured at the fair value of the goods or services received
as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equity
instruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.
The
cost of equity-settled transactions is recognized in profit or loss, together with a corresponding increase in equity, during
the period which the performance or service conditions are to be satisfied, ending on the date on which the relevant employees
become fully entitled to the award (the “Vesting Period”).
No
expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,
which are treated as vested irrespective of whether the market condition is satisfied, provided that all other vesting conditions
are satisfied.
Loss
per share is calculated by dividing the loss attributable to Company shareholders by the weighted number of outstanding ordinary
shares during the period. Potential Ordinary shares are only included in the computation of diluted loss per share when their
conversion increases loss per share or decreases income per share. Potential Ordinary shares that are converted during the period
are included in diluted loss per share only until the conversion date.
|
q
.
|
Changes
in accounting policies - initial adoption of new financial reporting and accounting standards
and amendments to existing financial reporting and accounting standards:
|
Initial
adoption of IFRS 9, “Financial Instruments”:
In
July 2014, the IASB issued the final and complete version of IFRS 9, “Financial Instruments” (“the new Standard”),
which replaces IAS 39, “Financial Instruments: Recognition and Measurement”. The new Standard mainly focuses on the
classification and measurement of financial assets and it applies to all assets within the scope of IAS 39.
The
new Standard has been applied for the first time in these financial statements retrospectively without restatement of comparative
data.
The
adoption of the new Standard did not have a material impact on the Company’s financial statements.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 3:-
|
SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUPMTIONS
USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS
|
The
preparation of the financial statements requires management to make estimates and assumptions that have an effect on the application
of the accounting policies and on the reported amounts of assets, liabilities and expenses.
Discussed
below are the key assumptions made in the financial statements concerning uncertainties at the end of the reporting period and
the critical estimates computed by the Company that may result in a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
|
●
|
Determining
the fair value of share based compensation to employees and directors:
|
The
fair value of share based compensation to employees and directors is determined using acceptable option pricing models.
The
assumptions used in the models include the expected volatility, expected life, expected dividend and risk-free interest rate.
|
●
|
Grants
from the Israel Innovation Authority (“the IIA”):
|
Government
grants received from the IIA are recognized as a liability if future economic benefits are expected from the research and development
activity that will result in royalty-bearing sales. There is certainty regarding the estimated future economic benefits, therefore
the liability was recorded with respect to the IIA grants.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 4:-
|
DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO
THEIR ADOPTION
|
In
January 2016, the IASB issued IFRS 16, “Leases” (“the new Lease Standard”). According to the new Lease
Standard, a lease is a contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange
for consideration.
The
effects of the adoption of the new Lease Standard are as follows:
|
●
|
According
to the new Lease Standard, lessees are required to recognize all leases in the statement of financial position (excluding
certain exceptions, see below). Lessees will recognize a liability for lease payments with a corresponding right-of-use asset,
similar to the accounting treatment for finance leases under the existing standard, IAS 17, “Leases”. Lessees
will also recognize interest expense and depreciation expense separately.
|
|
●
|
Variable
lease payments that are not dependent on changes in the Consumer Price Index (“CPI”) or interest rates, but are
based on performance or use are recognized as an expense by the lessees as incurred and recognized as income by the lessors
as earned.
|
|
●
|
In
the event of a change in variable lease payments that are CPI-linked, lessees are required to remeasure the lease liability
and record the effect of the remeasurement as an adjustment to the carrying amount of the right-of-use asset.
|
|
●
|
The
accounting treatment by lessors remains substantially unchanged from the existing standard, namely classification of a lease
as a finance lease or an operating lease.
|
|
●
|
The
new Lease Standard includes two exceptions which allow lessees to account for leases based on the existing accounting treatment
for operating leases - leases for which the underlying asset is of low financial value and short-term leases (up to one year).
|
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 4:-
|
DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO
THEIR ADOPTION (Cont.)
|
The
new Lease Standard is effective for annual periods beginning on or after January 1, 2019.
The
new Standard permits lessees to use one of the following approaches:
|
1.
|
Full
retrospective approach - according to this approach, a right-of-use asset and the corresponding
liability will be presented in the statement of financial position as if they had always
been measured according to the provisions of the new Standard. Accordingly, the effect
of the adoption of the new Standard at the beginning of the earliest period presented
will be recorded in equity. Also, the Company will restate the comparative data in its
financial statements. Under this approach, the balance of the liability as of the date
of initial application of the new Standard will be calculated using the interest rate
implicit in the lease, unless this rate cannot be easily determined in which case the
lessee’s incremental borrowing rate of interest on the commencement date of the lease
will be used.
|
|
2.
|
Modified
retrospective approach - this approach does not require restatement of comparative data.
The balance of the liability as of the date of initial application of the new Standard
will be calculated using the lessee’s incremental borrowing rate of interest on the date
of initial application of the new Standard. As for the measurement of the right-of-use
asset, the Company may choose, on a lease-by-lease basis, to apply one of the two following
alternatives:
|
|
●
|
Recognize
an asset in an amount equal to the lease liability, with certain adjustments.
|
|
|
|
|
●
|
Recognize
an asset as if the new Standard had always been applied.
|
Any
difference arising on the date of first-time recorded in equity.
The
Company believes that it will apply the modified retrospective approach upon the initial adoption of the new Lease Standard by
measuring the right-of-use asset at an amount equal to the lease liability, as measured on the transition date.
The
Company has a number of lease contracts, mainly leases of an office building and a production plant (see also Note 12). In assessing
the impact of the new Lease Standard on the financial statements, the Company evaluated the following matters:
|
●
|
Options
to extend the lease - according to the new Lease Standard, the non-cancellable period of a lease includes periods that are
covered by options to extend the lease if the lessee is reasonably certain to exercise the option.
|
|
●
|
Separation
of lease components - according to the new Lease Standard, all lease components within a contract should be accounted for
separately from non-lease components. A lessee is allowed a practical expedient according to which it can elect, by class
of underlying asset, not to separate non-lease components from lease components, and instead account for them as a single
lease component.
|
|
●
|
Incremental
interest rate - the Company estimates the incremental interest rate to be used for measuring the lease liability and right-of-use
asset on the date of initial adoption of the new Lease Standard, based on the lease term and nature of the leased asset.
|
The
Company estimated that the effect of the initial adoption of the new Lease Standard as of January 1, 2019, is expected to result
in an increase in the Company’s total assets and liabilities in the amount to NIS 7,282 ($1,943) and no impact on equity.
Moreover, the effect of
the initial adoption of the new Lease Standard in 2019 is expected to result in a decrease in the Company’s lease
expenses of NIS 1,113 ($ 297) and an increase in the Company’s depreciation and finance expenses of NIS 809 ($403) and
NIS 702 ($187) , respectively. The total effect of the initial adoption of the new Lease Standard in 2019 is expected to
result in a decrease of NIS 1,113 ($297) in operating loss and an increase of NIS 398 ($106) in loss before income
taxes.
In addition, as a result of
the adoption of the new Standard, in 2019, the Company’s cash flows from operating activities are expected to increase by approximately
NIS 1,113 ($297) and its cash flows from financing activities are expected to decrease by approximately NIS 1,113 ($297).
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 5:-
|
CASH AND CASH EQUIVALENTS
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
Translation
(Note 2c)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
Cash in NIS
|
|
|
32,665
|
|
|
|
15,558
|
|
|
|
4,151
|
|
Cash in USD
|
|
|
38,677
|
|
|
|
13,586
|
|
|
|
3,625
|
|
Cash in EURO
|
|
|
40
|
|
|
|
46,739
|
|
|
|
12,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,382
|
|
|
|
75,883
|
|
|
|
20,246
|
|
NOTE 6:-
|
OTHER RECEIVABLES
|
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
Translation
(Note 2c)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants receivable
|
|
|
1,043
|
|
|
|
-
|
|
|
|
-
|
|
Government authorities
|
|
|
945
|
|
|
|
383
|
|
|
|
102
|
|
Debt issuance costs
|
|
|
1,185
|
|
|
|
-
|
|
|
|
-
|
|
Prepaid expenses and other
|
|
|
750
|
|
|
|
582
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,923
|
|
|
|
965
|
|
|
|
258
|
|
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 7:-
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
Balance
as of December 31, 2018:
|
|
Laboratory equipment
|
|
|
Office furniture and equipment
|
|
|
Computers
|
|
|
Leasehold
Improvements
|
|
|
Factory Leasehold
|
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2018
|
|
|
3,428
|
|
|
|
293
|
|
|
|
356
|
|
|
|
2,652
|
|
|
|
4,453
|
|
|
|
11,182
|
|
Additions
|
|
|
98
|
|
|
|
8
|
|
|
|
83
|
|
|
|
-
|
|
|
|
23,542
|
|
|
|
23,731
|
|
Deductions
|
|
|
(300
|
)
|
|
|
(182
|
)
|
|
|
-
|
|
|
|
(2,652
|
)
|
|
|
-
|
|
|
|
(3,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018
|
|
|
3,226
|
|
|
|
119
|
|
|
|
439
|
|
|
|
-
|
|
|
|
27,995
|
|
|
|
31,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2018
|
|
|
3,296
|
|
|
|
177
|
|
|
|
310
|
|
|
|
1,889
|
|
|
|
-
|
|
|
|
5,672
|
|
Additions
|
|
|
57
|
|
|
|
12
|
|
|
|
50
|
|
|
|
141
|
|
|
|
-
|
|
|
|
260
|
|
Deductions
|
|
|
(276
|
)
|
|
|
(96
|
)
|
|
|
-
|
|
|
|
(2,030
|
)
|
|
|
-
|
|
|
|
(2,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018
|
|
|
3,077
|
|
|
|
93
|
|
|
|
360
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost as of December 31, 2018
|
|
|
149
|
|
|
|
26
|
|
|
|
79
|
|
|
|
-
|
|
|
|
27,995
|
|
|
|
28,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost as of December 31, 2018 (convenience translation into U.S. dollars) (Note 2c)
|
|
|
40
|
|
|
|
7
|
|
|
|
21
|
|
|
|
-
|
|
|
|
7,469
|
|
|
|
7,537
|
|
Balance
as of December 31, 2017:
|
|
Laboratory equipment
|
|
|
Office furniture and equipment
|
|
|
Computers
|
|
|
Leasehold
Improvements
|
|
|
Factory Leasehold
|
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2017
|
|
|
3,411
|
|
|
|
293
|
|
|
|
318
|
|
|
|
2,652
|
|
|
|
-
|
|
|
|
6,674
|
|
Additions
|
|
|
17
|
|
|
|
-
|
|
|
|
38
|
|
|
|
-
|
|
|
|
4,453
|
|
|
|
4,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
|
3,428
|
|
|
|
293
|
|
|
|
356
|
|
|
|
2,652
|
|
|
|
4,453
|
|
|
|
11,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2017
|
|
|
3,116
|
|
|
|
160
|
|
|
|
287
|
|
|
|
1,668
|
|
|
|
-
|
|
|
|
5,231
|
|
Additions
|
|
|
180
|
|
|
|
17
|
|
|
|
23
|
|
|
|
221
|
|
|
|
-
|
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
|
3,296
|
|
|
|
177
|
|
|
|
310
|
|
|
|
1,889
|
|
|
|
-
|
|
|
|
5,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost as of December 31, 2017
|
|
|
132
|
|
|
|
116
|
|
|
|
46
|
|
|
|
763
|
|
|
|
4,453
|
|
|
|
5,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost as of December 31, 2017 (convenience translation into U.S. dollars) (Note 2c)
|
|
|
35
|
|
|
|
31
|
|
|
|
12
|
|
|
|
204
|
|
|
|
1,188
|
|
|
|
1,470
|
|
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 8:-
|
OTHER LONG TERM ASSETS
|
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
Translation
(Note 2c)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
857
|
|
|
|
707
|
|
|
|
189
|
|
Leasing deposits
|
|
|
23
|
|
|
|
33
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
880
|
|
|
|
740
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
Translation
(Note 2c)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
Employees and payroll accruals
|
|
|
624
|
|
|
|
924
|
|
|
|
247
|
|
Accrued expenses
|
|
|
36
|
|
|
|
152
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
660
|
|
|
|
1,076
|
|
|
|
287
|
|
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 10:-
|
FINANCIAL INSTRUMENTS
|
|
a.
|
Classification of financial liabilities:
|
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
Translation
(Note 2c)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
Financial liabilities at amortized costs:
|
|
|
|
|
|
|
|
|
|
Liability in respect of government grants
|
|
|
10,300
|
|
|
|
14,643
|
|
|
|
3,907
|
|
Loan from others
|
|
|
-
|
|
|
|
94,360
|
|
|
|
25,176
|
|
|
|
|
10,300
|
|
|
|
109,003
|
|
|
|
29,083
|
|
Financial liabilities at fair value through profit and loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants measured at fair value
|
|
|
8,177
|
|
|
|
6,168
|
|
|
|
1,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non current
|
|
|
18,477
|
|
|
|
115,171
|
|
|
|
30,728
|
|
|
b.
|
Financial risk factors:
|
The Company’s
activities expose it to various market risks (foreign currency risk, Israeli CPI risk and interest rate risk) and credit risk.
The Company’s comprehensive risk management plan focuses on activities that reduce to a minimum any possible adverse effects on
the Company’s financial performance.
Risk management
is performed by the Company’s Board. The Board identifies, measures and manages financial risks in collaboration with the Company’s
operating units. The Board establishes documented objectives for the overall risk management activities as well as specific policies
with respect to certain exposures to risks such as exchange rate risk, interest rate risk, credit risk, the use of non-derivative
financial instruments and the investments of excess liquid positions.
Foreign
currency risk
The Company
has cash that is exposed to possible fluctuations in the U.S. dollar and Euro exchange rates. The currency exposure arising from
current accounts is partly managed in Dollars and in Euro. As of December 31, 2018, the carrying amounts of USD and EURO were
NIS 13,586 and NIS 46,739 respectively.
Credit
risk
The Company has no significant
concentrations of credit risk. All deposits are invested in financial institutions that are considered to be financially sound.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 10:-
|
FINANCIAL INSTRUMENTS (Cont.)
|
Regarding
the fair value of liability for warrants (see Note 10 (a) above). The carrying amount of cash and cash equivalents, other receivable,
other long term assets, trade payables and other payable approximates their fair value due to the short-term maturities of such
instruments.
|
d.
|
Fair value measurement:
|
As of December
31, 2018, warrants liability is measured at fair value and classified as Level 1 while loans from others and government grant are
classified as Level 2.
During 2018
there were no transfers in respect of fair value measurement of any financial instrument between Level 1 and Level 2, and there
were no transfers into or out of Level 3 fair value measurements of any financial instrument.
NOTE 11:-
|
EMPLOYEE BENEFIT LIABILITIES
|
|
a.
|
Post-employment benefits:
|
According
to the labor laws and Severance Pay Law in Israel, the Company is required to pay compensation to an employee upon dismissal or
retirement or to make current contributions in defined contribution plans pursuant to section 14 to the Severance Pay Law, as specified
below. The Company’s liability is accounted for as a post-employment benefit. The computation of the Company’s employee benefit
liability
is made according to the current employment contract based on the employee’s salary and employment term which
establish the entitlement to receive the compensation.
The post-employment employee
benefits are normally financed by contributions classified as defined benefit plan or as defined contribution plan, as detailed
below.
|
b.
|
Defined contribution plans:
|
Section 14
to the Severance Pay Law, 1963 applies to part of the compensation payments, pursuant to which the fixed contributions paid by
the Group into pension funds and/or policies of insurance companies release the Group from any additional liability to employees
for whom said contributions were made. These contributions and contributions for benefits represent defined contribution plans.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 11:-
|
EMPLOYEE BENEFIT LIABILITIES (Cont.)
|
|
|
|
|
|
|
|
|
|
|
|
Convenience translation
(Note 2c)
|
|
|
|
Year
ended December 31,
|
|
|
Year ended
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses-defined contribution plan
|
|
|
204
|
|
|
|
196
|
|
|
|
242
|
|
|
|
65
|
|
NOTE 12:-
|
CONTINGENT LIABILITIES AND COMMITMENTS
|
|
a.
|
On July 31, 2003,
the Company signed a license agreement with Yeda Research and
Development Company Ltd. (“Yeda”) according to which
the Company acquired an exclusive worldwide license for the development, manufacturing, use, 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”, developed on the basis of the research conducted by Professor
Ruth Arnon and her team at the Weizmann Institute. This agreement was amended in 2005. In exchange for the license grant, the Company
or its future sublicensees will be obligated to pay royalties equaling 3% of the total amount invoiced by the Company or by a sublicensee
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.
|
The Company
has the option to enter into a sublicense agreement provided that Yeda gives its consent in writing and, in such case, the royalties
to be paid by the Company to Yeda from the sublicense or from the option to sublicense will be (a) before the completion of Phase
1 clinical trials - 45% (b) after Phase 1 but before Phase 2 trials - 35% of amounts up to the first $ 20,000 receivable from
a sublicense or a sublicense option, or 25% of amounts exceeding such first $ 20,000 receivable from the sublicense or from
a sublicense option; (c) after the completion of Phase 2 clinical trials the royalties will be 20% of amounts up to the first $ 20,000
receivable from a sublicense or a sublicense option or 15% of amounts exceeding such first $ 20,000 receivable from a sublicense
or a sublicense option.
This agreement
terminates at the latest of (i) the expiration of the last patent licensed under the license agreement; or (ii) if only one product
is developed or is commercialized by utilizing the licensed intellectual property, 15 years after 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)if more than one product is being developed or is 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 no sales are made in the U.S. or Europe.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 12:-
|
CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
|
Yeda shall be entitled, at
its option and without the Company’s consent, to modify the license so that it is non-exclusive or to terminate the license with
30 days prior written notice to the Company, if any of the following occurs:
|
(1)
|
the Company fails to commence the commercial sale of at least one product based on the licenses
intellectual property, in at least one country, within six months following receipt of after 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 (except
as a result of force majeure or other factors beyond the Company’s control); or
|
|
(2)
|
the Company fails to sell any product based on the licenses 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 (except as a result
of force majeure or other factors beyond the Company’s control).
|
In addition, Yeda is permitted
to terminate the license agreement by written notice:
|
(a)
|
in the event the Company materially breaches any of its obligations under the license agreement,
provided that such material breach is un-curable or, if curable, is not cured by the Company within thirty days (or in the case
of failure by the Company 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 the Company or a resolution
is passed to voluntary wind up the Company, or if an order or act is granted for the winding up of the 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 the Company contests the validity of one of the patents registered by Yeda.
|
In the event that Yeda terminates
the license agreement due to any reason other than termination in accordance with (1), (2) or (a) through (c) in the preceding
two paragraphs above, the Company 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 the Company’s developments, up to the aggregate amount of research funds actually expended by the Company for development.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 12:-
|
CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
|
|
b.
|
The
Company obtained grants from the Government of Israel for the participation in research and development and, in return, undertook
to pay royalties amounting to 3%-5% on the revenues derived from sales of products or services developed in whole or in part using
these grants. The maximum aggregate royalties paid generally cannot exceed 100%
of the grants received by the Company,
plus annual interest generally equal to the 12-month LIBOR applicable to dollar deposits, as published on the first business
day of each calendar year. The maximum royalty amount payable by the Company as of December 31, 2018 is approximately
$5,490 (NIS 20,576), which represents the total gross amount of grants actually received by the Company from the IIA
including accrued interest. As of December 31, 2018, the Company had not paid any royalties to the IIA.
|
|
c.
|
In October 2013, the
Company signed an agreement for obtaining funding in an amount of € 536 ($ 642) out of a total grant of approximately €
6,000 ($ 7,187) from the European Union which was approved for the UNISEC consortium of which the Company is a member for a period
of three years. In October 2013, the Company received an advance of € 206 ($ 247) and in October 2015 received € 247
($ 296). The Company’s expenses in respect of this project in 2013-2018 totaled € 1,028 ($ 1,231) which supported by the less
than 75% or€ 771 ($ 923). On October 10, 2018 the company received the final part of the grant owed by UNISEC in the total
of € 55 ( $62). The grant is non-refundable providing the Company meets the conditions of the consortium and
are recorded
as a reduction of research and development expenses.
|
|
d.
|
On June 19, 2017, the Company entered into a Finance Contract with The European Investment bank
(EIB) for a total amount of € 20,000 (approximately $ 23,000) and up to 50% of the Company expected cost of developing and
marketing the Company’s product candidate, M-001. The EIB financing will be 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.
|
The EIB financing shall be
provided interest free and shall be repayable, per each tranche, in a single instalment, five years following the date of payment
for each tranche. 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 addition, and as consideration
to the EIB financing, EIB shall be entitled to 3% of any annual M-001 sales revenues.
On June 18, 2018, the Company
withdrew the first tranche of € 6,000 (approximately $ 7,000).
On August 13, 2018 the Company
withdrew the second tranche of € 6,000 (approximately $ 7,000).
On October 19, 2018 the Company
withdrew the third tranche of € 8,000 (approximately $ 9,200).
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 12:-
|
CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
|
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 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 to the EIB financing, EIB shall be entitled to 3% of any annual M-001 sales revenues.
The Company
performed a valuation of the financial liability for December 31, 2018 through an independent appraiser. According to the valuation,
which was based on WACC (Weighted Average Cost of capital) of 18% and CAPM (Capital Asset Pricing Model), the value of the financial
liability was estimated at NIS 94,360 ($ 25,176).
As a result
of the valuation, the Company incurred a financial expenses of NIS 9,202 ($ 2,455) for December 31, 2018.
On
April 22, 2019 the Finance Contract with (EIB) was extended by
€ 4,000
to a total of
€ 24,000
(approximately $ 27,600) (see also Note 18a).
Operating leases:
|
1.
|
The Company entered into operating lease agreements on commercial vehicles which end in May 2021.
The leases have an average life of three years with no renewal option included in the contract. Future minimum monthly lease payable
under the operating lease contracts as of December 31, 2018 amount to NIS 358 ($ 96).
|
|
2.
|
On July 10, 2017, the Company signed a 10 years lease agreement, starting in January 1, 2018, for
approximately 1,845 square meters (m2) in the Jerusalem BioPark, located in the Ein Karem Hadassah campus, next to Hadassah University
Hospitals and Hebrew University’s Medical School, with the intention of establishing a mid-size commercial facility to manufacture
M-001. The company have the right to terminate the leasing period at every year end, by providing an advance notice by June 30,
of every calendar year. According to the agreement terms, the company have a 10 month grace period regarding the first rent payment.
|
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE 12:-
|
CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
|
Future minimum
lease operating commitment agreements as of December 31, 2018 are as follows:
|
|
1 – 3 Years
|
|
|
4
– 5 Years
|
|
|
More than 5 Years
|
|
|
Total
|
|
Operating Lease Obligations in NIS
|
|
|
3,369
|
|
|
|
2,179
|
|
|
|
5,385
|
|
|
|
10,932
|
|
Operating Lease Obligations in USD
|
|
|
947
|
|
|
|
612
|
|
|
|
1,513
|
|
|
|
3,073
|
|
|
3.
|
On March 2, 2015, the
Company unilaterally announced a cancellation of a consultant agreement with one of the Company’s consultants (see Note 15c).
The cancellation notice provided that all options, rights and benefits previously granted to the consultant pursuant to the
Consulting Services Agreement are invalid. On September 9, 2015, the consultant brought a suit against the Company in the Israeli
magistrate court in Tel Aviv, claiming that the Company wrongfully terminated the Consulting Services Agreement and requesting
monetary compensation in the amount of approximately NIS 1,500 (approximately $ 380) and the reinstatement of the previously cancelled
options. On November 11, 2015, the Company filed defense with the court wherein contented that the Consulting Services Agreement
was lawfully cancelled and that the consultant’s suit has no legal basis.
|
The parties
submitted affidavits and legal expert opinions to the court. An additional pre-trial meeting was held on February 13, 2017 and
an additional hearing was scheduled for September 25, 2017.
On November 14, 2017, the parties
received the court’s final decision that the Company shall pay the consultant NIS 1,000 and additional VAT. The Company paid the
amount on November 26, 2017.
|
a.
|
Rights attached to shares:
|
An ordinary
share confers upon its holder(s) a right to vote at the general meeting, a right to participate in distribution of dividends, and
a right to participate in the distribution of surplus assets upon liquidation of the Company.
In February
2013, the Company issued 5,685,000 ordinary shares and 5,685,000 options (series 4) in consideration of NIS 4,836 ($ 1,239), which
were split into the option component in a total of NIS 902 ($ 231) and the share premium component in a total of NIS 3,934
($ 1,008) based on the fair market value on the TASE following the issuance.
The options
are exercisable until February 27, 2017 at an exercise price of NIS 1.5 ($ 0.38) per share. On February 28, 2017, the Company’s
options (series 4) expired.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
In October
2013, the Company issued 6,302,000 ordinary shares and 6,302,000 options (series 5) in consideration of NIS 4,413 ($ 1,131), which
were split into the option component in a total of NIS 625 ($ 160) and the share premium component in a total of NIS 3,788
($ 971) based on the fair market value on the TASE following the issuance.
The options
are exercisable at an exercise price of NIS 0.9 ($ 0.23) per share until July 31, 2014 or NIS 1.5 ($ 0.38) per share
from August 1, 2014 through October 29, 2017.
In October 2017, the Company’s options (series 5) expired.
|
d.
|
On May 15, 2015, the
Company completed a public offering of securities in the United States. The trading of the Company’s securities, ADS, and investor’s
warrants in the NASDAQ
began as of May 12, 2015. Each ADS represents 40 ordinary shares of the Company.
|
Accordingly,
on May 12, 2015, the Company allocated 76,400,000 ordinary shares of the Company to the U.S. public. The Company also allocated
2,038,000 tradable warrants in the U.S., which may be exercised into ADS for a five year period, until May 15, 2020, in return
for an exercise price of $ 6.25 for each warrant. The immediate gross consideration for the offering amounted to a total of NIS
36,607 ($ 9,382). The offering expenses amounted to a total of NIS 5,576. In addition, in accordance with the underwriting agreement,
the Company granted the underwriters 95,500 warrants, under the same terms and conditions for warrants offered to the public.
At
the time of the offering, the Company recorded an increase in equity in respect of shares, totaling NIS 26,417, net (after
deduction
of offering expenses totaling NIS 4,860) and liability related to the warrants at the amount of NIS 7,398
thousand (offering expenses for warrants totaling NIS 1,197 were recorded as financial expenses). The warrants are measured
at their fair value based on their quote price at the end of each reporting date.
On
June 24, 2015, the Company issued an additional 110,000 ADS to the underwriters in consideration of a total gross amount of NIS
2,069 ($ 530). Issuance expenses amounted to NIS 134
.
The
Company recorded financial income (expenses) at the amount NIS 2,951, d (7,969) and 2,009 in 2016, 2017 and 2018, respectively,
for revaluation of these warrants.
|
e.
|
In February 2017, the Company issued to a private investor (“the Investor”) 33,760,832
ordinary shares (equivalent to 844,000 NASDAQ listed ADSs) in consideration of NIS 10,905 (approximately $ 2,830). Following the
transaction, the Investor will hold 19.21% of all issued and outstanding share capital of the Company.
|
|
f.
|
On March 30, 2017, the Company issued 6,666,640 ordinary shares (equivalent to 166,666 NASDAQ listed
ADSs) in consideration of NIS 4,482 (approximately $ 1,229).
|
|
g.
|
During May and June 2017, 104,349 warrants were exercised into shares for a total consideration
of NIS 2,296 (approximately $ 653).
|
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
|
h.
|
During July 2017, the Company issued 8,000,000 ordinary shares (equivalent to 200,000 NASDAQ listed
ADSs) in consideration of NIS 7,065 (approximately $ 2,000).
|
|
i.
|
During July and August 2017, 170,644 warrants were exercised to 6,825,760 shares for a total consideration
of NIS 3,833 (approximately $ 1,067).
|
|
j.
|
On September 14, 2017, the Company completed public offering in NASDAQ and issued 66,666,680 ordinary
shares (equivalent to 1,666,666 NASDAQ listed ADSs) in consideration of NIS 33,621 (approximately $ 9,546). Issuance costs amounted
to NIS 250 (approximately $ 72).
|
NOTE 14:-
|
SHARE-BASED COMPENSATION
|
|
a.
|
Expense recognized in the financial statements:
|
The expense
that was recognized for services received from employees, directors and service providers is as follows:
|
|
|
|
|
|
|
|
|
|
|
Convenience translation
(Note 2c)
|
|
|
|
Year
ended December 31,
|
|
|
Year ended
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
903
|
|
|
|
388
|
|
|
|
119
|
|
|
|
32
|
|
Marketing, general and administrative
|
|
|
358
|
|
|
|
131
|
|
|
|
141
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation
|
|
|
1,261
|
|
|
|
519
|
|
|
|
260
|
|
|
|
70
|
|
|
b.
|
Share-based payment plan for employees and directors:
|
Options granted
under the Company’s 2005 Israeli Share Option Plan (“Plan”) are exercisable in accordance with the terms of the Plan,
within 10 years from the date of grant, against payment of an exercise price. The options generally vest over a period of
three or four years.
In March
2018, the Company’s Board of Directors approved the adoption of the Company’s 2018 Israeli Share Option Plan (“2018 Plan”)
for the grant of options to employees, directors and service providers. The options are exercisable in accordance with the terms
of 2018 Plan, within 10 years from the date of grant, against payment of an exercise price. The options generally vest over
a period of three or four years.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE
14:-
|
SHARE-BASED
COMPENSATION (Cont.)
|
Option
grants:
On
May 28, 2015, the Company’s Board of Directors approved an update of the terms and conditions of the Company’s CEO, so that the
monthly remuneration will be a total of NIS 80. In addition, it was decided to grant unregistered options to the CEO, in the scope
of 5% of the Company’s issued and paid up capital on a fully diluted basis, as of May 28, 2015, with an exercise price of 130%
beyond the average rate of the Company’s share price in the 30 days of trading that preceded the Company’s Board of Directors’
resolution regarding the said grant. Notwithstanding the above, following a discussion with the Company’s shareholders, it was
agreed that the CEO shall be granted options at a rate of 2.5% of the Company’s issued and paid up capital on a fully diluted
basis. The options are exercisable for ten years and vest over a period of three years from the date of grant. On July 27, 2015,
the Shareholders’ meeting approved the grant of options as previously mentioned, and on August 4, 2015, the CEO was grant 5,929,503
options.
The
fair value of each option is approximately NIS 0.28 and the total value of the options granted was NIS 1,671.
On
February 2016, the Company granted 350,000 options to 4 external advisors that vest over a period of three years at an exercise
price of NIS 0.746 ($ 0.19) per share. The fair value of the options as of the date of grant totaled approximately NIS 84 ($ 22).
On
March 10, 2016, the Company granted 100,000 fully vested options to an external advisor at an exercise price of NIS 0.746 ($ 0.19)
per share. The fair value of the options as of the date of grant totaled approximately NIS 22 ($ 6).
In
addition, the Company’s Board of Directors approved the grant of 3,780,000 unregistered options to the Company’s officers and
employees, which may be exercised into 3,780,000 ordinary shares of NIS 0.0000001 par value each, according to the Company’s option
plan. The options are exercisable for ten years and vest over a period of three years from the date of grant. The exercise price
shall be 130% of the average rate of the Company’s share price in the 30 days of trading that preceded the Company’s Board of
Directors’ resolution regarding the grant of options.
The
fair value of each option is approximately NIS 0.298 and the total value of the options granted was NIS 1,127.
On
June 25, 2018, the Company granted 130,710 options to a board member which vest over a period of four years at an exercise price
of $ 3.45 per ADS. The fair value of the options as of the date of grant totaled approximately NIS 1,627 ($ 450).
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE
14:-
|
SHARE-BASED
COMPENSATION (Cont.)
|
The
following table presents the number of share options, the weighted average exercise prices of share options and changes that were
made in the option plan to employees and directors:
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
|
Number of
options
|
|
|
Weighted
Average
Exercise
price
|
|
|
Number of
options
|
|
|
Weighted
Average
Exercise
price
|
|
|
Number of
options
|
|
|
Weighted
Average
Exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
11,806,503
|
|
|
|
0.75
|
|
|
|
12,156,503
|
|
|
|
0.75
|
|
|
|
11,759,503
|
|
|
|
0.75
|
|
Granted
|
|
|
450,000
|
|
|
|
0.75
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,710
|
|
|
|
0.05
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(37,000
|
)
|
|
|
0.49
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(100,000
|
)
|
|
|
0.75
|
|
|
|
(360,000
|
)
|
|
|
0.81
|
|
|
|
(340,000
|
)
|
|
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
12,156,503
|
|
|
|
0.75
|
|
|
|
11,759,503
|
|
|
|
0.75
|
|
|
|
11,550,213
|
|
|
|
0.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
5,793,501
|
|
|
|
0.75
|
|
|
|
8,653,010
|
|
|
|
0.74
|
|
|
|
10,979,503
|
|
|
|
0.78
|
|
The
weighted average remaining contractual life for the share options outstanding as of December 31, 2018 was 5.86 years (as
of December 31, 2017 – 6.86 years(.
|
c.
|
The
fair value of the Company’s share options granted to employees, directors and service
providers for the years ended December 31, 2016, 2017 and 2018 was estimated using
the binominal option pricing model using the following assumptions:
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield (%)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expected volatility of the share prices (%)
|
|
|
82
|
|
|
|
53
|
|
|
|
53
|
|
Risk-free interest rate (%)
|
|
|
2.1
|
|
|
|
1.5
|
|
|
|
2.9
|
|
Expected life of share options (years)
|
|
|
8.8
|
|
|
|
7.8
|
|
|
|
7.5
|
|
Share price (NIS)
|
|
|
0.32
|
|
|
|
0.45
|
|
|
|
23.6
|
*
|
The
expected life of the share options is based on the midpoints between the available exercise dates (the end of the vesting periods)
and the last available exercise date (the contracted expiry date), as adequate historical experience is still not available to
provide a reasonable estimate.
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE
15:-
|
SUPPLEMENTARY
INFORMATION TO THE STATEMENTS OF COMPREHENSIVE INCOME
|
|
a.
|
Research
and development expenses, net of participations:
|
|
|
|
|
|
|
|
|
|
|
|
Convenience
translation
(Note 2c)
|
|
|
|
Year ended December 31,
|
|
|
Year ended
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trial phase 3
|
|
|
-
|
|
|
|
-
|
|
|
|
53,678
|
|
|
|
14,321
|
|
Materials and subcontractors
|
|
|
3,145
|
|
|
|
3,797
|
|
|
|
12,287
|
|
|
|
3,279
|
|
Salaries and related expenses
|
|
|
3,808
|
|
|
|
3,695
|
|
|
|
4,214
|
|
|
|
1,124
|
|
Share-based payment
|
|
|
903
|
|
|
|
388
|
|
|
|
119
|
|
|
|
32
|
|
Patent registration fees
|
|
|
358
|
|
|
|
322
|
|
|
|
399
|
|
|
|
107
|
|
Rentals and maintenance of laboratory
|
|
|
610
|
|
|
|
610
|
|
|
|
1,028
|
|
|
|
274
|
|
Revaluation of the liability with respect to the IIA grants
|
|
|
-
|
|
|
|
10,300
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation
|
|
|
573
|
|
|
|
311
|
|
|
|
195
|
|
|
|
52
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
136
|
|
|
|
36
|
|
|
|
|
9,397
|
|
|
|
19,423
|
|
|
|
72,056
|
|
|
|
19,225
|
|
Participation by IIA and UNISEC
|
|
|
(1,603
|
)
|
|
|
(646
|
)
|
|
|
(143
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
7,794
|
|
|
|
18,777
|
|
|
|
71,913
|
|
|
|
19,187
|
|
|
b.
|
Marketing,
general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Convenience
translation
(Note 2c)
|
|
|
|
Year ended December 31,
|
|
|
Year ended
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related expenses
|
|
|
587
|
|
|
|
622
|
|
|
|
1,136
|
|
|
|
303
|
|
Share-based payment
|
|
|
358
|
|
|
|
131
|
|
|
|
141
|
|
|
|
38
|
|
Professional services
|
|
|
2,595
|
|
|
|
3,338
|
|
|
|
3,275
|
|
|
|
874
|
|
Rentals, office expenses and maintenance
|
|
|
201
|
|
|
|
203
|
|
|
|
343
|
|
|
|
91
|
|
Depreciation
|
|
|
48
|
|
|
|
130
|
|
|
|
65
|
|
|
|
17
|
|
Other
|
|
|
317
|
|
|
|
455
|
|
|
|
194
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,106
|
|
|
|
4,879
|
|
|
|
5,154
|
|
|
|
1,376
|
|
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE
15:-
|
SUPPLEMENTARY
INFORMATION TO THE STATEMENTS OF COMPREHENSIVE INCOME (Cont.)
|
|
c.
|
Financial
income and expense:
|
|
|
|
|
|
|
|
|
|
|
|
Convenience
translation
(Note 2c)
|
|
|
|
Year ended December 31,
|
|
|
Year ended
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
Financial income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on deposits
|
|
|
55
|
|
|
|
18
|
|
|
|
100
|
|
|
|
26
|
|
Exchange differences, net
|
|
|
-
|
|
|
|
-
|
|
|
|
827
|
|
|
|
221
|
|
Revaluation of warrants
|
|
|
2,951
|
|
|
|
-
|
|
|
|
2,009
|
|
|
|
536
|
|
Revaluation of marketable securities
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,019
|
|
|
|
18
|
|
|
|
2,936
|
|
|
|
783
|
|
Financial expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences, net
|
|
|
276
|
|
|
|
2,871
|
|
|
|
-
|
|
|
|
-
|
|
Revaluation of warrants
|
|
|
-
|
|
|
|
7,969
|
|
|
|
-
|
|
|
|
-
|
|
Finance expenses in respect of loan from others
|
|
|
-
|
|
|
|
-
|
|
|
|
9,202
|
|
|
|
2,455
|
|
Finance expenses in respect of government grants
|
|
|
-
|
|
|
|
|
|
|
|
4,343
|
|
|
|
1,159
|
|
Bank commissions and other financial expenses
|
|
|
27
|
|
|
|
73
|
|
|
|
51
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
303
|
|
|
|
10,913
|
|
|
|
13,596
|
|
|
|
3,628
|
|
NOTE
16:-
|
TAXES
ON INCOME
|
|
a.
|
Corporate
tax rates in Israel:
|
The
Israeli corporate tax rate in 2016 was 25%, 2017 was 24% and in 2018 was 23%.
In
December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy
for the 2017 and 2018 Budget Years), 2016 which further reduces the corporate income tax rate to 24% (instead of 25%) effective
from January 1, 2017 and to 23% effective from January 1, 2018.
|
b.
|
Final
tax assessments:
|
The
Company received final tax assessments through 2012.
|
c.
|
Net
operating carryforwards losses for tax purposes and other temporary differences:
|
as
of December 31, 2018, the Company had carryforwards losses and other temporary differences amounting to approximately NIS
126,700 ($ 33,800).
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE
16:-
|
TAXES
ON INCOME (Cont.)
|
The
Company did not recognize deferred tax assets for carryforwards losses and other temporary differences because their utilization
in the foreseeable future is not probable.
The
Company did not record any current taxes for the years ended December 31, 2016, 2017 and 2018 as it is still incurring losses
on an ongoing basis.
The
reconciliation between the tax expense, assuming that all the income and expenses, gains and losses in the statement of income
were taxed at the statutory tax rate and the taxes on income recorded in profit or loss (0%), relates to the creation of carryforward
tax losses and other temporary differences for which deferred tax assets were not recorded.
NOTE
17:-
|
BALANCES
AND TRANSACTIONS WITH RELATED PARTIES
|
|
a.
|
Related
parties consist of nine directors (including the CEO, who is also a shareholder) serving
on the Company’s board of directors and two key officers.
|
|
b.
|
Transactions
with related parties:
|
|
1.
|
In
February 2012, the Company’s audit committee and Board approved an amendment and extension
of the agreement with the Company’s CEO, dated April 2007. Pursuant to the amendment,
the monthly salary of the Company’s CEO will increase by 5% in each of the three years
of the extension of the engagement to NIS 52.5 a month starting January 2012. The
agreement was extended by an additional period through April 1, 2015. In April 2012,
the Company’s shareholders approved the agreement at a shareholders’ meeting. On January
18, 2015, the Company’s shareholders extended the agreement under the same terms for
an additional five years.
|
In
addition, if a material agreement is signed between the Company and a third party during the term of the engagement or during
a period of three years after the termination on the Company’s part of the engagement between the Company’s CEO and the Company,
the Company’s CEO will be entitled to receive a bonus amounting to 1.75% of the monetary compensation payable to the Company under
the material agreement.
On
May 28, 2015, the Company’s Board of Directors approved an update of the terms and conditions in office of the Company’s CEO,
so that the monthly remuneration will be a total of NIS 80, and to grant options at a rate of 2.5% of the Company’s issued and
paid up capital on a fully diluted basis (see Note 14b).
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE
17:-
|
BALANCES
AND TRANSACTIONS WITH RELATED PARTIES (Cont.)
|
|
2.
|
In
August 2014, the Company signed an employment agreement with the CFO for a period of
5 years, according to which the CFO shall be entitled to a monthly salary of NIS 10,
and accordingly updated the management agreement to fees at the amount of NIS 2.5 for
a period of five years. In addition, the CFO is entitled to receive a one-time cash payment
of NIS 192.5 for the services provided in connection with the preparation and submission
of the prospectus in the US, and, in the event that the Company should complete a successful
capital raise in the U.S. market, the CFO shall be entitled to receive a one-time payment
of NIS 87.5. Furthermore, from the consummation of the offering, the monthly compensation
under the services agreement will be increased to NIS 15,000. In addition, pursuant to
a separate employment agreement entered into between the Company and the CFO on August
31, 2014, as of such date, the CFO is also employed by the Company in a 60% employment
capacity, for which he is entitled to a monthly salary of NIS 10,000.
|
|
3.
|
In
August 2012, the Company approved the grant of future remuneration to four directors
in the Company. The remuneration will be granted provided that a material agreement is
signed between the Company and a third party during the director’s term with the Company
that will entitle each of the four directors to receive a bonus of 0.5% of the monetary
compensation that will be paid to the Company in the context of such material agreement.
The bonus is not limited in amount and is not restricted to one material agreement.
|
|
4.
|
On
April 10, 2016, the Audit Committee and the Board of Directors unanimously resolved to
approve the payment of NIS 200, to be increased by an additional amount of up to NIS
200 as needed, for the benefit of the Company’s CEO, for the purpose of placing the bond
required in connection with an investigation conducted by the Israeli Securities Authority
(“ISA”), regarding certain shareholders of the Company (not including among
them the Company’s CEO) alleged use of inside information.
|
|
c.
|
Balances
with related parties:
|
|
|
Payables
|
|
|
|
|
|
Key management personnel:
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
302
|
|
December 31, 2018
|
|
|
328
|
|
December 31,2018 (convenience translation to U.S. dollars) (Note 2c)
|
|
|
88
|
|
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE
17:-
|
BALANCES
AND TRANSACTIONS WITH RELATED PARTIES (Cont.)
|
|
d.
|
Transactions
with related parties:
|
|
|
Research and
development
|
|
|
Marketing,
general and
administrative
|
|
Key management personnel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
1,072
|
|
|
|
1,898
|
|
2017
|
|
|
1,575
|
|
|
|
1,098
|
|
2018
|
|
|
1,468
|
|
|
|
1,252
|
|
2018 (convenience translation to U.S. dollars) (Note 2c)
|
|
$
|
392
|
|
|
|
334
|
|
|
e.
|
Compensation
of key officers:
|
The
following amounts disclosed in the table are recognized as an expense during the reporting period related to key officers.
Key
officers employed by the Company:
|
|
|
|
|
|
|
|
|
|
|
Convenience
translation
(Note 2c)
|
|
|
|
Year ended December 31,
|
|
|
Year ended
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2018
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
Salaries
|
|
|
190
|
|
|
|
209
|
|
|
|
485
|
|
|
|
71
|
|
Short-term employee benefits
|
|
|
1,740
|
|
|
|
1,972
|
|
|
|
1,901
|
|
|
|
533
|
|
Other employees benefits
|
|
|
106
|
|
|
|
94
|
|
|
|
95
|
|
|
|
25
|
|
Share-based compensation
|
|
|
934
|
|
|
|
398
|
|
|
|
239
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,970
|
|
|
|
2,673
|
|
|
|
2,720
|
|
|
|
693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of key officers
|
|
|
11
|
|
|
|
8
|
|
|
|
9
|
|
|
|
|
|
BIONDVAX
PHARMACEUTICALS LTD.
NOTES
TO FINANCIAL STATEMENTS
In
thousands
,
except share and per share data
NOTE
18:
|
SUBSEQUENT
EVENTS
|
|
a.
|
On
April 22, 2019 the European Investment bank (EIB) announced a € 4,000 extension
to its 2017 financing agreement with the Company in support of the ongoing pivotal Phase
3 clinical trial of the Company M-001 Universal Influenza Vaccine candidate. The extension
will allow an increase of up to 8,000 participants, bringing the planned total size of
the trial to approximately 12,000 participants.
|
|
b.
|
On
March 25, 2019, the Company published a public offering in NASDAQ to issue NASDAQ listed
ADSs in consideration of maximum aggregate sum of NIS 72,960 ($ 20,000).
|
-
- - - -
F-41