We are an emerging
biotechnology company that has developed a novel technology platform known as ApoGraft that functionally selects stem cells in
order to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling
technology for the enrichment of the stem cell population for companies developing stem cell therapies, for physicians practicing
regenerative medicine and for researchers and academia engaged in stem cell research.
On July 29, 2016,
our American Depositary Shares, or ADSs, each representing twenty of our ordinary shares, and our listed warrants, commenced trading
on The Nasdaq Capital Market under the symbols “APOP” and “APOPW”, respectively. From 1990 to September
3, 2017, our shares were traded on the Tel Aviv Stock Exchange.
Unless otherwise indicated,
all references to the terms “we”, “us”, “our”, “Cellect”, “the Company”
and “our Company” refer to Cellect Biotechnology Ltd. and its wholly-owned subsidiaries. References to “ordinary
shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares, ADSs,
warrants and share capital, respectively, of Cellect.
References to “U.S.
dollars” and “$” are to currency of the United States of America, and references to “NIS” are to
New Israeli Shekels. References to “ordinary shares” are to our ordinary shares, no par value. We report financial
information under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board
and none of the financial statements were prepared in accordance with generally accepted accounting principles in the United States.
Unless otherwise indicated,
U.S. dollar translations of NIS amounts presented in this annual report on Form 20-F for the year ended on December 31, 2017 are
translated using the rate of NIS 3.467 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2017; U.S. dollar
translations of NIS amounts presented in this annual report on Form 20-F for the year ended on December 31, 2016 are translated
using the rate of NIS 3.845 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2016; and U.S. dollar translations
of NIS amounts presented in this annual report on Form 20-F for the year ended on December 31, 2015 are translated using the rate
of NIS 3.902 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2015.
Certain information
included or incorporated by reference in this annual report on Form 20-F may be deemed to be “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forward-looking statements
are often characterized by the use of forward-looking terminology such as “may,” “will,” “expect,”
“anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,”
“project” or other similar words, but are not the only way these statements are identified.
These forward-looking
statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain
projections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the
research, development, completion and use of our products, and all statements (other than statements of historical facts) that
address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.
Forward-looking statements
are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements
on assumptions and assessments made by our management in light of their experience and their perception of historical trends,
current conditions, expected future developments and other factors they believe to be appropriate.
Important factors
that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking
statements include, among other things:
Readers are urged
to carefully review and consider the various disclosures made throughout this annual report on Form 20-F which are designed to
advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and
prospects.
You should not put
undue reliance on any forward-looking statements. Any forward-looking statements in this annual report on Form 20-F are made as
of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise, except as required by law.
In addition, the section
of this annual report on Form 20-F entitled “Item 4. Information on the Company” contains information obtained from
independent industry sources and other sources that we have not independently verified.
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 selected consolidated
financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements
and notes thereto. The selected consolidated statements of comprehensive loss data for the years ended December 31, 2015, 2016
and 2017, and the selected consolidated balance sheet data at December 31, 2016, and 2017, have been derived from our audited
consolidated financial statements and notes thereto set forth elsewhere in this annual report on Form 20-F. The selected consolidated
statements of comprehensive loss data for the years ended December 31, 2013 and 2014, and the selected consolidated balance sheet
data as of December 31, 2013, 2014 and 2015, have been derived from our audited consolidated financial statements not included
in this annual report on Form 20-F. The selected financial data should be read in conjunction with our consolidated financial
statements, and are qualified entirely by reference to such consolidated financial statements.
Consolidated Statements of Comprehensive
Loss Data
|
|
|
|
|
Convenience
translation
|
|
|
|
Year
ended
December 31,
|
|
|
Year ended
December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
N
I S In thousands except shares and share data
|
|
|
U.S.
dollars in
thousands (2)
|
|
Research and development expenses, net
|
|
|
1,062
|
|
|
|
3,058
|
|
|
|
5,893
|
|
|
|
8,256
|
|
|
|
11,503
|
|
|
|
3,318
|
|
General and administrative expenses
|
|
|
2,425
|
|
|
|
2,491
|
|
|
|
4,204
|
|
|
|
7,968
|
|
|
|
12,930
|
|
|
|
3,729
|
|
Other Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(280
|
)
|
|
|
-
|
|
|
|
-
|
|
Total operating expenses
|
|
|
3,487
|
|
|
|
5,549
|
|
|
|
10,097
|
|
|
|
15,944
|
|
|
|
24,433
|
|
|
|
7,047
|
|
Operating loss
|
|
|
3,487
|
|
|
|
5,549
|
|
|
|
10,097
|
|
|
|
15,944
|
|
|
|
24,433
|
|
|
|
7,047
|
|
Financial income
|
|
|
(11
|
)
|
|
|
(37
|
)
|
|
|
(4
|
)
|
|
|
(660
|
)
|
|
|
(101
|
)
|
|
|
(29
|
)
|
Financial expenses
|
|
|
202
|
|
|
|
39
|
|
|
|
79
|
|
|
|
33
|
|
|
|
3,892
|
|
|
|
1,123
|
|
Net loss
|
|
|
3,678
|
|
|
|
5,551
|
|
|
|
10,172
|
|
|
|
15,317
|
|
|
|
28,224
|
|
|
|
8,141
|
|
Total Comprehensive loss
|
|
|
3,678
|
|
|
|
5,551
|
|
|
|
10,172
|
|
|
|
15,317
|
|
|
|
28,224
|
|
|
|
8,141
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share (1)
|
|
|
0.075
|
|
|
|
0.084
|
|
|
|
0.137
|
|
|
|
0.168
|
|
|
|
0.252
|
|
|
|
0.073
|
|
Basic and diluted loss per ADS
|
|
|
1.50
|
|
|
|
1.68
|
|
|
|
2.74
|
|
|
|
3.36
|
|
|
|
5.04
|
|
|
|
1.46
|
|
Weighted
average number of shares outstanding used to compute basic and diluted loss per share
|
|
|
49,152,886
|
|
|
|
65,968,768
|
|
|
|
74,475,109
|
|
|
|
91,128,516
|
|
|
|
111,968,663
|
|
|
|
111,968,663
|
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convenience
translation
(2)
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
N
I S In thousands
|
|
|
U.S.
dollars in
thousands
|
|
Cash and cash equivalents
|
|
|
4,044
|
|
|
|
2,122
|
|
|
|
3,913
|
|
|
|
6,279
|
|
|
|
13,734
|
|
|
|
3,961
|
|
Short term deposits
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,660
|
|
|
|
-
|
|
|
|
-
|
|
Marketable securities
|
|
|
-
|
|
|
|
11,257
|
|
|
|
7,829
|
|
|
|
4,997
|
|
|
|
13,999
|
|
|
|
4,038
|
|
Other receivables
|
|
|
188
|
|
|
|
161
|
|
|
|
412
|
|
|
|
1,461
|
|
|
|
818
|
|
|
|
236
|
|
Restricted cash
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
140
|
|
|
|
305
|
|
|
|
88
|
|
Other Long term receivables
|
|
|
77
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
173
|
|
|
|
50
|
|
Property, plant and equipment
|
|
|
29
|
|
|
|
234
|
|
|
|
1,187
|
|
|
|
1,373
|
|
|
|
1,344
|
|
|
|
388
|
|
Total assets
|
|
|
4,358
|
|
|
|
13,794
|
|
|
|
13,361
|
|
|
|
33,910
|
|
|
|
30,373
|
|
|
|
8,761
|
|
Trade payable
|
|
|
|
|
|
|
107
|
|
|
|
466
|
|
|
|
1,401
|
|
|
|
1,703
|
|
|
|
491
|
|
Other payables
|
|
|
|
|
|
|
728
|
|
|
|
2,394
|
|
|
|
2,084
|
|
|
|
2,396
|
|
|
|
691
|
|
Warrants to ADS
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,938
|
|
|
|
7,422
|
|
|
|
2,141
|
|
Total liabilities
|
|
|
600
|
|
|
|
835
|
|
|
|
2,860
|
|
|
|
5,423
|
|
|
|
11,521
|
|
|
|
3,323
|
|
Loan from controlling
shareholder
|
|
|
515
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’
equity
|
|
|
3,243
|
|
|
|
12,959
|
|
|
|
10,501
|
|
|
|
28,487
|
|
|
|
18,852
|
|
|
|
5,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Data on diluted loss per share were
not presented separately in the financial statements because the effect of the exercise
of the options and warrants is anti-dilutive.
|
|
(2)
|
Calculated using the exchange
rate reported by the Bank of Israel for December 31, 2017 at the rate of one U.S. dollar
to NIS 3.467.
|
The following table
sets forth information regarding the exchange rates of NIS per U.S. dollar for the periods indicated. Average rates are calculated
by using the daily representative rates as reported by the Bank of Israel on the last day of each month during the periods presented.
|
|
NIS
per U.S. dollars
|
|
Annual
|
|
High
|
|
|
Low
|
|
|
Average
|
|
|
Period
End
|
|
2017
|
|
|
3.860
|
|
|
|
3.467
|
|
|
|
3.600
|
|
|
|
3.467
|
|
2016
|
|
|
3.983
|
|
|
|
3.746
|
|
|
|
3.841
|
|
|
|
3.845
|
|
2015
|
|
|
4.053
|
|
|
|
3.761
|
|
|
|
3.884
|
|
|
|
3.902
|
|
2014
|
|
|
3.994
|
|
|
|
3.402
|
|
|
|
3.577
|
|
|
|
3.889
|
|
2013
|
|
|
3.791
|
|
|
|
3.471
|
|
|
|
3.609
|
|
|
|
3.471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2018 (through March 12, 2018)
|
|
|
3.469
|
|
|
|
3.440
|
|
|
|
3.457
|
|
|
|
3.440
|
|
February 2018
|
|
|
3.535
|
|
|
|
3.427
|
|
|
|
3.494
|
|
|
|
3.485
|
|
January 2018
|
|
|
3.460
|
|
|
|
3.388
|
|
|
|
3.423
|
|
|
|
3.405
|
|
December 2017
|
|
|
3.550
|
|
|
|
3.467
|
|
|
|
3.503
|
|
|
|
3.467
|
|
November 2017
|
|
|
3.544
|
|
|
|
3.499
|
|
|
|
3.517
|
|
|
|
3.499
|
|
October 2017
|
|
|
3.542
|
|
|
|
3.491
|
|
|
|
3.512
|
|
|
|
3.521
|
|
September 2017
|
|
|
3.584
|
|
|
|
3.504
|
|
|
|
3.537
|
|
|
|
3.529
|
|
On March 12, 2018, the
daily representative rate was $1.00 to NIS 3.440, as reported by the Bank of Israel.
B.
|
Capitalization
and Indebtedness
|
Not applicable.
C.
|
Reasons for the
Offer and Use of Proceeds
|
Not applicable.
You should carefully
consider the risks described below, together with all of the other information in this annual report on Form 20-F. The risks described
below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem
to be immaterial may also materially and adversely affect our business operations. If any of these risks actually occurs, our
business and financial condition could suffer and the price of our ADSs could decline.
Risks Related to Our Financial Position
and Capital Requirements
We are an early stage company with
a limited operating history.
Our wholly-owned subsidiary
commenced operations developing our functional stem cell selection ApoGraft technology in 2011. As such, we have a limited operating
history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise, including
a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at
any particular time. Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications
and delays frequently encountered in connection with the establishment of any company. If we fail to address any of these risks
or difficulties adequately, our business will likely suffer. Because of the numerous risks and uncertainties associated with developing
and commercializing our ApoGraft technology platform, we are unable to predict the extent of any future losses or when we will
become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities.
An investor in our securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted
development and commercialization of procedures and products in the medical, cell therapy, biotechnology and biopharmaceutical
industries. We may never successfully commercialize ApoGraft , and our business may fail.
We have a history of losses and
can provide no assurance of our future operating results.
Since 2011, we have
been focused on research and development activities with a view to developing our ApoGraft technology platform. We have financed
our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE
and also on the NASDAQ) and have incurred losses in each year since our inception. We have historically incurred substantial net
losses, including net losses of approximately NIS 28.2 million ($8.1 million) in 2017, NIS 15.3 million ($4.0 million) in 2016,
and NIS 10.2 million ($2.6 million) in 2015. As of December 31, 2017, we had an accumulated deficit of approximately NIS 63.9
million ($18.4 million). We do not know whether or when we will become profitable. To date, we have not commercialized our technology
or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Our losses have resulted
principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting
firm on our audited financial statements as of and for the year ended December 31, 2017 contains an explanatory paragraph regarding
substantial doubt about our ability to continue as a going concern. We expect to continue to incur losses for the foreseeable
future, and these losses will likely increase as we:
|
●
|
initiate and
manage preclinical development and clinical trials for our ApoGraft technology platform
and ApoTainer kits;
|
|
●
|
implement
internal systems and infrastructures;
|
|
●
|
seek to license
additional technologies to develop;
|
|
●
|
hire management
and other personnel; and
|
|
●
|
move towards
commercialization.
|
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,
2017, we had approximately NIS 27.7 million ($8.0 million) in cash and cash equivalents including marketable securities, a working
capital of NIS 24.5 million ($7.1 million) and an accumulated deficit of NIS 63.9 million ($18.4 million). As of December 31,
2017, we had sufficient cash and cash deposits to fund operations through the end of the first quarter of 2019. Since our inception,
most of our resources have been dedicated to the development of ApoGraft. In particular, we have expended and believe that we
will continue to expend significant operating and capital expenditures for the foreseeable future developing our ApoGraft technology
platform and our ApoTainer collection kits. These expenditures will include, but are not limited to, costs associated with
research and development, manufacturing, conducting preclinical experiments and clinical trials, contracting manufacturing organizations,
hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializing any products approved
for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States.
Because the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual
amounts necessary to successfully complete the development and commercialization of our ApoGraft technology platform, our ApoTainer collection
kits and any other future product. In addition, other unanticipated costs may arise. As a result of these and other factors currently
unknown to us, we require substantial, additional funds through public or private equity or debt financings 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 number and characteristics
of products we develop from our ApoGraft technology platform;
|
|
●
|
the scope, progress, results
and costs of researching and developing our ApoGraft technology platform and any future
products, and conducting preclinical and clinical trials;
|
|
●
|
the timing of, and the costs
involved in, obtaining regulatory approvals;
|
|
●
|
the cost of commercialization
activities if any products are approved for sale, including marketing, sales and distribution
costs;
|
|
●
|
the cost of manufacturing any
future product we successfully commercialize;
|
|
●
|
our ability to establish and
maintain strategic partnerships, licensing, supply 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 costs of in-licensing further
patents and technologies;
|
|
●
|
the cost of development of
in-licensed technologies;
|
|
●
|
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 our ApoGraft technology platform or delay, limit, reduce or terminate our establishment of sales
and marketing capabilities or other activities that may be necessary to commercialize our ApoGraft technology platform, our ApoTainer collection
kits or any future products.
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 and may cause the market price of our shares to decline. 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 and alliances
and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or any products,
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 products that we would otherwise prefer to develop and market ourselves.
Risks Related to Product Development
and Regulatory Approval
Our product development program
is based on a novel functional stem cell selection technology platform and is inherently risky.
We are subject to
the risks of failure inherent in the development of products based on new technologies. The novel nature of our ApoGraft technology
platform creates significant challenges in regard to product development and optimization, manufacturing, government regulation,
third-party reimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development
and subsequently obtaining regulatory approval. These challenges may prevent us from developing and commercializing products on
a timely or profitable basis or at all.
Our ApoGraft technology platform
is in an early stage of discovery and development, and we may fail to develop any commercially acceptable or profitable products.
We are concentrating
our efforts on developing our first line of products, our ApoTainer collection kits, which is based on our ApoGraft technology
platform, to improve the safety and efficacy of allogeneic HSCT. To date, we have only begun to conduct clinical trials. As such,
we have yet to develop any products that have been approved for marketing, and our future success depends on the successful proof
of concept of the ApoGraft technology platform and development of our ApoTainer selection kits for HSCT. There can be no
assurance that any development problems we experience in the future related to our technology platform will not cause significant
delays or unanticipated costs, or that such development problems can be solved. We may also experience delays in developing a
sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners, which may prevent
us from completing our clinical trials or commercializing the ApoGraft technology platform and our ApoTainer selection kits
on a timely or profitable basis, if at all. Our ApoTainer selection kits are not expected to be commercially available for
several years, if at all.
If the FDA classifies our ApoTainer selection
kits as a drug, biologic or a combination product subject to the primary jurisdiction of the Center for Drug Evaluation and Research
or Center for Biologics Evaluation and Research, we may not be able to obtain the necessary approval to market our ApoTainer selection
kits or other products based on our ApoGraft technology platform in a timely manner or at all. Even if we do obtain approval,
the cost and delay could materially adversely affect our financial condition, results of operations and cash flows.
We plan to bring our
ApoTainer selection kits to market for HSCT as a combination product subject to the primary jurisdiction of Center for Biologics
Evaluation and Research, or CBER. The classification of our ApoTainer selection kits by the FDA as a drug, a medical device
or a combination product depends upon, among other things, the regulatory definition of a drug and a device, their primary mode
of action and the indications for use or product claims. Based on informal discussions with the FDA concerning our regulatory
plans, we believe the FDA will classify our ApoTainer selection kits as a combination product subject to the primary jurisdiction
of the CBER. Accordingly, we expect the approval process of our ApoTainer selection kits to be more burdensome and lengthy
than if our ApoTainer selection kits were classified as a combination product subject to the primary jurisdiction of the Center
for Devices and Radiological Health. The cost and delay in the approval process could materially adversely affect our financial
condition and results of operations and cash flows.
Future
results released from our ongoing open-label Phase I/II clinical trial may differ materially from
interim
or
pre-
clinical
trial
results
.
Clinical
trials are inherently risky and may reveal that our ApoGraft platform technology is ineffective or has unanticipated interactions
that may significantly decrease trial success. Our pre-clinical trial results and our interim results of our ongoing Phase I/II
clinical trial of ApoGraft or any other interim results may differ materially from final results and do not necessarily predict
favorable final results.
We
may face numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent commercialization of
our ApoGraft platform technology and ApoTainer selection kits or any future product. These clinical trials could be affected by
negative or inconclusive trial results, unexpected delays, unanticipated patient drop-out rates or adverse side effects and future
actions by regulatory authorities or additional expenses.
Clinical trials necessary to demonstrate
proof of concept of the ApoGraft technology platform and support approval for our ApoTainer selection kits or any future
products are expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify
and recruit. Delays or failures in any necessary clinical trials could prevent us from commercializing our ApoGraft technology
platform and ApoTainer selection kits or any future product and could adversely affect our business, operating results and
prospects.
Initiating and completing
clinical trials necessary to demonstrate proof of concept of the ApoGraft technology platform and support approval for our ApoTainer selection
kits or any future products that we may develop, or additional safety and efficacy data that the FDA may require for any new specific
indications of our technology that we may seek, are time consuming and expensive with an uncertain outcome.
Conducting successful
clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify
and recruit. To date, we have experienced delays in our ongoing Phase I/II clinical study largely related to slower than expected
recruitment. Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors,
including the size of the patient population, the nature of the trial protocol, the attractiveness of, or the discomforts and
risks associated with, the treatments received by enrolled subjects, the availability of appropriate clinical trial investigators
and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria
for participation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in
our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess
the safety and effectiveness of our product candidates or if they determine that the treatments received under the trial protocols
are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials may die
before completion of the trial or suffer adverse medical events unrelated to our product candidates.
Development of sufficient
and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop such
protocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than
we originally anticipated and/or for a longer follow-up period or change the data collection requirements or data analysis applicable
to our clinical trials. Delays in patient enrollment or failure of patients to continue to participate in a clinical trial could
cause an increase in costs and delays in the approval and attempted commercialization of our product candidates or result in the
failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results
and prospects.
The results of our clinical trials
may not support our product candidate claims or any additional claims we may seek for our products and our clinical trials may
result in the discovery of adverse side effects.
Even if any clinical
trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate
claims or any new indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions
regarding the results of those trials. The clinical trial process may fail to demonstrate that our products or a product candidate
is safe and effective for the proposed indicated use, which could cause us to stop seeking additional clearances or approvals
for our ApoTainer selection kits, abandon our ApoGraft technology platform or delay development of other product candidates.
Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability
to commercialize a product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side
effects that are not currently part of the product candidate’s profile.
We might be unable to develop product
candidates that will achieve commercial success in a timely and cost-effective manner, or ever.
Even if regulatory
authorities approve our ApoTainer selection kits or any other product we develop, they may not be commercially successful.
Our ApoTainer selection kits or any other product we develop may not be commercially successful because government agencies
and other third-party payors may not cover the product or the coverage may be too limited to be commercially successful; physicians,
researchers and others may not use or recommend our products, even following regulatory approval. A product approval, assuming
one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of
the product. Our expenses could increase beyond expectations if we are required by the FDA, the European Medicines Agency, or
the EMA, or other regulatory agencies, domestic or foreign, to change our manufacturing processes or assays, or to perform clinical,
nonclinical, or other types of studies in addition to those that we currently anticipate. Third parties may develop superior products
or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our product candidates
will be expensive, if approved. Demand for any ApoTainer selection kits or any other product we develop for which we obtain
regulatory approval or license will depend largely on many factors, including but not limited to the extent, if any, of reimbursement
of costs by government agencies and other third-party payors, pricing, the effectiveness of our marketing and distribution efforts,
the safety and effectiveness of alternative products, and the prevalence and severity of side effects associated with our products.
If physicians, government agencies and other third-party payors do not accept our products, we will not be able to generate significant
revenue.
If we fail to obtain regulatory
approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.
We intend to seek
regulatory approval for our ApoTainer selection kits in a number of countries outside of the United States and expect that
these countries will be important markets for our products, if approved. Marketing our products in these countries will require
separate regulatory approvals in each market and compliance with numerous and varying regulatory requirements. The regulations
that apply to the conduct of clinical trials and approval procedures vary from country to country and may require additional testing.
Moreover, the time required to obtain approval may differ from that required to obtain FDA approval. Approval by the FDA does
not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority
does not ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process
may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely
basis, if at all. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize
our products in any foreign market.
If we fail to obtain or maintain
orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectual
property rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.
We may seek to obtain
an orphan designation for our Cellect lead product in the U.S. Under the Orphan Drug Act, the FDA may designate a product as an
orphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer
than 200,000 in the U.S.
In the U.S., the company
that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug
marketing exclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving
another application, including a full New Drug Application, or NDA, to market the same drug for the same orphan indication, except
in very limited circumstances. A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that
is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing rights in
the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer
is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
The EMA grants orphan
drug designation to promote the development of products that may offer therapeutic benefits for life-threatening or chronically
debilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides
ten years of marketing exclusivity following drug approval, subject to reduction to six years if the designation criteria are
no longer met.
Even if we obtain
orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different
drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same
drug for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to
patient care.
We may expend our limited resources
to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be
more profitable or for which there is a greater likelihood of success.
Although we believe
that our ApoGraft technology platform has broad application, because we have limited financial and managerial resources, we are
currently focused on development of our ApoTainer selection kits for HSCT in order to demonstrate commercial viability of
our technology platform. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other
indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize
on viable commercial products or profitable market opportunities. Our spending on current and future research and development
programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately
evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that
product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous
for us to retain sole development and commercialization rights to such product candidate.
We will need to outsource and rely
on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or any future
product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts
of these third parties.
We do not have the
required financial and human resources to carry out on our own all the preclinical and clinical development for our ApoTainer selection
kits or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture,
market or sell our ApoTainer selection kits or any future product candidates that we may develop. Our business model calls
for the partial or full outsourcing of the clinical and other development and manufacturing, sales and marketing of our product
candidates in order to reduce our capital and infrastructure costs as a means of potentially improving our financial position.
Our success will depend on the performance of these outsourced providers. If such providers fail to perform adequately, our development
of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse
effect on our business prospects.
If we or our contractors or service
providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which could
affect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop
and may harm our reputation.
If we or our manufacturers
or other third-party contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject
to regulatory actions, which could affect our ability to develop, market and sell our ApoTainer selection kits or any future product
candidates under development successfully and could harm our reputation and lead to reduced demand for or non-acceptance of our
proposed product candidates by the market. Even technical recommendations or evidence by the FDA through letters, site visits,
and overall recommendations to academia or biotechnology companies may make the manufacturing of a product extremely labor intensive
or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. The mode of administration
may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate
no longer commercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional
Review Board or Institutional Biosafety Committee, which may delay or make impossible clinical testing of a product candidate.
The Institutional Review Board for a clinical trial may stop a trial or deem a product candidate unsafe to continue testing. This
may have a material adverse effect on the value of the product candidate and our business prospects.
Disruptions in our supply chain
could delay any preclinical or clinical trials and the commercial launch of our product candidates.
Any significant disruption
in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotis inducing
signal, Fas ligand, or FasL, that we use, and we may rely on a limited number of suppliers for other raw material we use. We believe
that we have a sufficient supply of FasL for our ongoing Phase I/II trial however we will need to obtain an additional supply
of FaSL for future planned clinical trials. We have experienced delays in the supply of FasL for our planned second human ApoGraft
trial and are currently establishing a manufacturing process through a contract manufacturer to supply us with sufficient FasL for future
planned clinical trials. If our current supplier or any other supplier suffers a major natural or man-made
disaster at its manufacturing facility, or if they otherwise cease to supply to us, then this could result in further delays in
our clinical studies and may delay product testing and potential regulatory approval until a qualified alternative supplier is
identified. With respect to other raw materials for the ApoGraft technology platform, although alternative sources of supply exist,
it could be expensive and take a significant amount of time to arrange for alternative suppliers. If our manufacturers or we are
unable to purchase any key materials after regulatory approval has been obtained for our product candidates, the commercial launch
of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate
revenues from the sale of our product candidates.
Should our products be approved
for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability to market and
sell our products.
Healthcare costs have
risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and third-party
payors to decrease costs. Third-party payors are increasingly challenging the prices charged for medical products and services
and instituting cost containment measures to control or significantly influence the purchase of medical products and services.
For example, in the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010, or collectively, PPACA, among other things, reduced and/or limited Medicare reimbursement to certain
providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments to
providers by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect
their ability to purchase new technologies. Furthermore, the healthcare industry in the United States has experienced a trend
toward cost containment as government and private insurers seek to control healthcare costs by imposing lower payment rates and
negotiating reduced contract rates with service providers. Legislation could be adopted in the future that limits payments for
our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies
that limit reimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or
the procedures or patient care performed using our products will be reimbursed at a cost-effective level. We face similar risks
relating to adverse changes in reimbursement procedures and policies in other countries where we may market our products. Reimbursement
and healthcare payment systems vary significantly among international markets. Our inability to obtain international reimbursement
approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell
our products and have a material adverse effect on our business and financial condition.
Should our products be approved
for commercialization, our financial performance may be adversely affected by medical device tax provisions in the healthcare
reform laws.
PPACA currently imposes,
among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United
States. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry
may be $38 billion over the next decade. The Internal Revenue Service issued final regulations implementing the tax in December
2012, which requires, among other things, bi-monthly payments and quarterly reporting. Once we market products, we will be subject
to this or any future excise tax on our sales of certain medical devices in the United States. To the extent our products are
considered medical devices, we anticipate that primarily all of our sales, once commenced, of medical devices in the United States
will be subject to this 2.3% excise tax.
Public perception of ethical and
social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.
For social, ethical,
or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the
use of, stem cell technologies. Although our platform technology is designed to enrich the stem cell population as an enabling
technology rather than manufacture stem cells, claims that stem cell technologies are ineffective, unethical or pose a danger
to the environment may influence public attitudes. The subject of stem cell technologies in general has received negative publicity
and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem cell technology
could materially hurt the market acceptance of our technologies.
Our business and operations may be materially adversely
affected in the event of computer system failures or security breaches.
Despite the implementation
of security measures, our internal computer systems, and those of our CROs and other third parties on which we rely, are vulnerable
to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, fire, terrorism, war, and telecommunication
and electrical failures. If such an event were to occur and interrupt our operations, it could result in a material
disruption of our drug development programs. For example, the loss of clinical trial data from ongoing or planned clinical
trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce
the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications,
loss of trade secrets or inappropriate disclosure of confidential or proprietary information, including protected health information
or personal data of employees or former employees, access to our clinical data, or disruption of the manufacturing process, we
could incur liability and the further development of our drug candidates could be delayed. We may also be vulnerable
to cyber-attacks by hackers or other malfeasance. This type of breach of our cybersecurity may compromise our confidential
information and/or our financial information and adversely affect our business or result in legal proceedings. Further,
these cybersecurity breaches may inflict reputational harm upon us that may result in decreased market value and erode public
trust.
The members of our management team
and certain consultants are important to the efficient and effective operation of our business. Failure to retain our management
and consulting team could have a material adverse effect on our business, financial condition or results of operations.
Our senior
management and technical personnel, as well as certain consultants, are important to the efficient and effective operation of
our business, particularly Dr. Shai Yarkoni, our Chief Executive 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. As of the date of this annual report, we do not have key-man insurance on any of our officers or
consultants.
As such, our future
success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development,
maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or
attract additional qualified employees or consultants. The loss of personnel or the inability to hire and retain additional qualified
personnel in the future could have a material adverse effect on our business, financial condition and results of operation.
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.
The field of regenerative
medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cell-based therapies and/or devices
designed to isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased
competition from pharmaceutical, biopharmaceutical, medical device and biotechnology companies, as well as academic and research
institutions and governmental agencies in the United States and abroad. In addition, many of these competitors, either alone or
together with their collaborative partners, operate larger research and development programs than we do, and have substantially
greater financial resources than we do, as well as significantly greater experience in:
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developing
stem cell selection technology;
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undertaking
preclinical testing and human clinical trials;
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obtaining
FDA approvals and addressing various regulatory matters and obtaining other regulatory
approvals;
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manufacturing
medical devices; and
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launching,
marketing and selling medical devices.
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We are aware of two
companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi Biotec, or Miltenyi, which
dominates the stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete
mature hematopoietic cells such as T cells from the biological sample (negative selection by monoclonal activity against T-cell
receptor), resulting in the enrichment of stem and progenitor cells. The second is Cytori Therapeutics, or Cytori, which sells
a medical device known as the Celution® System that enables bedside access to adult adipose-derived stem and regenerative
cells, or ADRCs, by automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for
present and future clinical use. We believe that both technologies result in less than optimal cell population both in terms of
quantity and quality (purity) of the selected population of cells.
In addition, since
we are developing our ApoTainer selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with
companies developing treatments for GvHD, a life-threatening condition associated with allogeneic HSCT.
In the general area
of cell-based therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are
specialty medical products or biotechnology companies that provide a finished stem cell product that has already undergone stem
cell selection. We believe, however, that many of these companies have the potential to become customers in the future of our
ApoGraft technology platform in order to improve and enhance their in-house processes.
If our competitors
develop and commercialize products faster than we do, or develop and commercialize products that are superior to our ApoGraft
technology platform or ApoTainer selection kits, 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 field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors
also compete with us to:
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attract parties
for acquisitions, joint ventures or other collaboration;
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license proprietary technology
that is competitive with ApoGraft technology platform or ApoTainer selection kits;
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attract and
hire scientific talent and other qualified personnel.
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Product liability and other claims
against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we will need
to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage
on commercially reasonable terms, if at all.
A product liability
claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured
liabilities could have a material adverse effect on our business. Our business exposes us to potential liability risks that may
arise from any future clinical testing of our product candidates in human clinical trials and the manufacture and sale of any
approved products. Any clinical trial liability or product liability claim or series of claims or class actions brought against
us, with or without merit, could result in:
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liabilities that substantially
exceed any clinical trial liability or product liability insurance that we may obtain
in the future, which we would then be required to pay from other sources, if available;
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an increase in the premiums
we may pay for any clinical trial liability or product liability insurance we may obtain
in the future or the inability to renew or obtain clinical trial liability or product
liability insurance coverage in the future on acceptable terms, or at all;
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withdrawal of clinical trial
volunteers or patients;
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damage to our reputation and
the reputation of our products, including loss of any future market share;
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regulatory investigations that
could require costly recalls or product modifications;
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diversion of management’s
attention from managing our business.
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We do not currently
have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of
our product candidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we
will be able to maintain clinical trial or obtain and product liability insurance on commercially acceptable terms, if at all,
or that we will be able to maintain such insurance at a reasonable cost or in sufficient amounts to protect against potential
losses.
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
has adopted a Code of Ethics which became effective upon the listing of our ADSs on NASDAQ. 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, nonpublic 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 ApoGraft technology platform, our ApoTainer selection
kits or any future product candidate. 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 any future clinical trials of our ApoTainer selection
kits or any future product candidate. 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. Our planned insurance coverage 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 us.
Recent disruptions in the financial
markets and economic conditions could affect our ability to raise capital.
In recent years, the
United States 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
United States 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.
Our current management
team has a limited experience managing and operating a publicly traded U.S. company. 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.
Risks Related to Our Intellectual Property
We rely upon patents to protect
our technology.
The patent position
of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of
our current or future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated
or circumvented. Patents may not provide a competitive advantage or afford protection against competitors with similar technology.
Competitors or potential competitors may have filed applications for, or may have received patents and may obtain additional and
proprietary rights to compounds or processes used by or competitive with ours.
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 U.S. Patent and Trademark Office (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.
We may become involved in lawsuits
to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and ultimately unsuccessful.
Competitors may infringe
our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement
claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties
to assert counterclaims against us alleging that we infringe their intellectual property. In addition, in a patent infringement
proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s
claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover
the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being
invalidated or interpreted narrowly, which could adversely affect us.
Third parties may initiate legal
proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could
have a material adverse effect on the success of our business.
Our commercial success
depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights
of third parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries.
While no such litigation has been brought against us and we have not been held by any court to have infringed a third party’s
intellectual property rights, we cannot guarantee that our technology or use of our technology does not infringe third-party patents.
It is also possible that we have failed to identify relevant third-party patents or applications that may have been issued or
pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications
filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications
in the United States and elsewhere are published approximately 18 months after the earliest date which they are entitled to, which
is referred to as the priority date. Therefore, it cannot be ruled out that patent applications covering our technology were filed
by others in the last 18 months about which about which we cannot have any knowledge. Additionally, pending patent applications
which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.
We may become party
to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our
technology, including inter parties review, interference, or derivation proceedings before the USPTO and similar bodies in other
countries. Third parties may assert infringement claims against us based on existing intellectual property rights and intellectual
property rights that may be granted in the future.
If we are found to
infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to
continue developing and marketing our technology. However, we may not be able to obtain any required license on commercially reasonable
terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to
the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology.
In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found
to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force
us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the
confidential information or trade secrets of third parties could have a similar negative impact on our business.
We may not be able to protect our
intellectual property rights throughout the world.
Filing, prosecuting
and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual
property rights in some countries outside the United States and Israel can be less extensive than those in the United States and
Israel. In addition, the laws of some foreign countries do not protect intellectual property to the same extent as laws in the
United States and Israel. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries
outside the United States and Israel, or from selling or importing products made using our inventions in and into the United States
or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their
own products and further, may export otherwise infringing products to territories where we have patents, but enforcement is not
as strong as that in the United States and Israel.
Many companies have
encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems
of certain countries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade
secrets and other intellectual property, particularly those relating to medical devices and biopharmaceutical products, which
could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our
proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreign jurisdictions. Proceedings
to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from
other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications
at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we
initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. The requirements for patentability
may differ in certain countries, particularly developing countries. Certain countries in Europe and developing countries, including
China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties.
In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled
to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential
revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate
to obtain a significant commercial advantage from the intellectual property that we develop or license.
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 our Powered by Cellect technology platform, our ApoTainer selection kits or any future product candidate. If a dispute
arises, a court may determine that the right belongs to a third party. In addition, enforcement of our rights can be costly and
unpredictable. We also rely on trade secrets and proprietary know-how that we seek to protect in part by confidentiality agreements
with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ, we still face the
risk that:
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these agreements
may be breached;
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these agreements
may not provide adequate remedies for the applicable type of breach;
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our proprietary
know-how will otherwise become known; or
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our competitors
will independently develop similar technology or proprietary information.
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Intellectual property rights do
not necessarily address all potential threats to our competitive advantage.
The degree of future
protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and
may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
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others may be able to develop
technology that is similar to our Powered by Cellect technology platform, our ApoTainer
selection kits or any future product candidate, but that is not covered by the claims
of the patents that we own;
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we or any future strategic
partners might not have been the first to make the inventions covered by the issued patent
or pending patent application that we own or have exclusively licensed;
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we or any future strategic
partners might not have been the first to file patent applications covering certain of
our inventions;
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others may independently develop
similar or alternative technologies or duplicate any of our technologies without infringing
our intellectual property rights;
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it is possible
that our pending patent applications will not lead to issued patents;
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issued patents that we own
or have exclusively licensed may not provide us with any competitive advantages, or may
be held invalid or unenforceable, as a result of legal challenges by our competitors;
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our competitors might conduct
research and development activities in countries where we do not have patent rights and
then use the information learned from such activities to develop competitive products
for sale in our major commercial markets;
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we may not
develop additional proprietary technologies that are patentable; and
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the patents
of others may have an adverse effect on our business.
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We may be subject to claims challenging
the inventorship of our patents and other intellectual property.
We may be subject
to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property
as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants
or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other
claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose
valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an
outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation
could result in substantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court
ruled in 2012 that an employee who receives a patent or contributes to an invention during his employment may be allowed to seek
compensation for such contributions from his or her employer, even if the employee’s contract of employment specifically
states otherwise and the employee has transferred all intellectual property rights to the employer. The Israeli Supreme Court
ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right
of the employee to claim their right for royalties. As a result, it is unclear whether and, if so, to what extent our employees
may be able to claim compensation with respect to our future revenue. We may receive less revenue from future products if any
of our employees successfully claim for compensation for their work in developing our intellectual property, which in turn could
impact our future profitability.
Risks Related to Our Operations in Israel
Potential political, economic and
military instability in the State of Israel, where our senior management, our head executive office, and research and development
facilities are located, may adversely affect our results of operations.
Our head executive
office, our research and development facilities, as well as some of our planned clinical sites, are or will be 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 Kfar Saba, 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 (such as the recent escalation in July 2014) 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 any outside intervention 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 Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although
ISIL’s activities have not directly affected the political and economic conditions in Israel, ISIL’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.
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. 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.
In addition, Chapter
8 to the Israeli Patents Law, 5727-1967, or the Patents Law, deals with inventions made in the course of an employee’s service
and during his or her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the
Patents Law sets forth that if there is no agreement which explicitly determines whether the employee is entitled to compensation
for the service inventions and the extent and terms of such compensation, such determination will be made by the Compensation
and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012 that an employee
who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions
from his employer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned
all intellectual property rights to the employer. The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s
right for royalties and compensation in connection with service inventions does not rule out the right of the employee to claim
a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Court for further
discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research
and development employees may be able to claim compensation with respect to our future revenue. As a result, we may receive less
revenue from future products if such claims are successful, which in turn could impact our future profitability.
Your rights and responsibilities
as 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. See “Board Practices — Approval
of Related Party Transactions under Israeli Law.” 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).
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.
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.
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.
Risks Related to the Ownership of Our
ADSs or Warrants or Ordinary Shares
If we were to be characterized as
a PFIC for U.S. tax purposes, U.S. holders of our ordinary shares, ADSs or warrants could have adverse U.S. income tax consequences.
If we were to be characterized
as a PFIC under the U.S. Internal Revenue Code of 1986, as amended, or the Code, in any taxable year during which a U.S. Holder
(as defined below) owns ordinary shares, ADSs, or warrants, such U.S. Holder could be liable for additional taxes and interest
charges upon certain distributions by us and any gain recognized on a sale, exchange or other disposition, including a pledge,
of the ordinary shares, ADSs, or warrants whether or not we continue to be a PFIC. We believe that we were a PFIC for our 2017 taxable year. Because the PFIC determination is highly fact intensive, there can
be no assurance that we will not be a PFIC for 2018 or for any other taxable year. U.S. Holders who hold ordinary shares,
ADSs, or warrants during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject
to specified exceptions for U.S. Holders who made a “qualified electing fund” or “mark-to-market” election.
A U.S. Holder may be able to mitigate some of the adverse U.S. federal income tax consequences with respect to owning ordinary
shares, ADSs, or warrants, provided that such U.S. Holder is eligible to make, and successfully makes, a “mark-to-market”
election. U.S. Holders could also mitigate some of the adverse U.S. federal income tax consequences of us being classified as
a PFIC by making a “qualified electing fund” election. Upon request, we expect to provide the information necessary for U.S. Holders to make “qualified electing fund”
elections if we are classified as a PFIC. U.S. Holders are strongly urged to consult their tax advisors
about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making
a “qualified electing fund” or “mark-to-market” election with respect to our ordinary shares, ADSs, and
warrants in the event we that qualify as a PFIC. For more information see “Taxation — U.S. Federal Income
Tax Considerations.”
Failure to achieve and maintain
effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our
business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in
our financial reporting, which could have a material adverse effect on the price of the ADSs.
Effective internal
controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document
and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which
requires annual management assessments of the effectiveness of our internal control over financial reporting. In addition, if
we fail to maintain the adequacy of our internal control, 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 control, failing to remediate
these deficiencies or weaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment
may cause investors to lose confidence in our reported financial information, which could have a material adverse effect on the
price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed.
As an “emerging growth company”
under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, which could make
the ADSs or 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:
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an
exemption from the auditor attestation requirement in the assessment of our internal
control over financial reporting required by Section 404 of the Sarbanes-Oxley Act; and
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an
exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory
audit firm rotation or a supplement to the auditor’s report in which the auditor
would be required to provide additional information about our audit and our financial
statements.
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We will be an emerging
growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1.07
billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs
pursuant to an effective registration statement, (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 filer”
as defined in Regulation S-K under the Securities Act of 1933, as amended (the “Securities Act”).
We cannot predict
if investors will find the ADSs or warrants less attractive because we may rely on these exemptions. If some investors find the
ADSs or warrants less attractive as a result, there may be a less active trading market for the ADSs or warrants and the market
price of the ADSs 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 Securities and Exchange
Commission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we
will be 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 will not be required to issue quarterly reports or proxy statements that comply with the
requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulations
promulgated under the Israeli Companies Law, as amended, or 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 will 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 transactions and short-swing profit recovery required by Section 16 of the Exchange Act. Also,
as a “foreign private issuer,” we are 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 intend, to follow certain home country corporate governance practices instead of otherwise applicable SEC
and NASDAQ 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 to follow certain home country corporate governance practices instead of those otherwise
required under the listing rules of NASDAQ for domestic U.S. issuers. For instance, we follow home country practice in Israel
with regard to, among other things, board of directors independence requirements, director nomination procedures, compensation
committe matters. In addition, we will follow our home country law instead of the listing rules of NASDAQ 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
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 NASDAQ may provide less protection to you than what is accorded to investors under the listing rules of NASDAQ applicable to
domestic U.S. issuers. See Item 16.G. “Corporate Governance”
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 ADSs or warrants, or provide more favorable relative recommendations about our competitors, the price of the ADSs
or warrants 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 ADSs
or warrants or their trading volume.
The market price for the ADSs and
warrants may be volatile.
The market price for
the ADSs and warrants is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including
the following:
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our
failure to obtain the approvals necessary to commence clinical trials;
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results
of clinical and preclinical studies;
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announcements
of regulatory approval or the failure to obtain it, or changes or delays in the regulatory
review process;
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announcements
of technological innovations, new products or product enhancements by us or others;
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adverse
actions taken by regulatory agencies with respect to our clinical trials, manufacturing
supply chain or sales and marketing activities;
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changes
or developments in laws, regulations or decisions applicable to our product candidates
or patents;
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any
adverse changes to our relationship with manufacturers or suppliers;
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announcements
concerning our competitors or the regenerative medicine or healthcare industries in general;
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achievement
of expected product sales and profitability or our failure to meet expectations;
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our
commencement of or results of, or involvement in, litigation, including, but not limited
to, any product liability actions or intellectual property infringement actions;
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any
major changes in our board of directors, management or other key personnel;
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announcements
by us of significant strategic partnerships, out-licensing, in-licensing, joint ventures,
acquisitions or capital commitments;
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expiration
or terminations of licenses, research contracts or other collaboration agreements;
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public
concern as to the safety of our products that we, our licensees or others develop;
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success
of research and development projects;
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developments
concerning intellectual property rights or regulatory approvals;
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variations
in our and our competitors’ results of operations;
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changes
in earnings estimates or recommendations by securities analysts, if our ordinary shares
or the ADSs or the warrants are covered by analysts;
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future
issuances of ordinary shares, ADSs or warrants or other securities;
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general
market conditions, including the volatility of market prices for shares of healthcare
companies generally, and other factors, including factors unrelated to our operating
performance; and
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the
other factors described in this “Risk Factors” section.
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These factors and
any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and 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 ADSs and warrants.
Substantial future sales or perceived
potential sales of our ordinary shares or ADSs or warrants in the public market could cause the price of our ordinary shares or
the ADSs or warrants to decline.
Substantial sales
of our ordinary shares, ADSs or warrants, either on the TASE or on NASDAQ, as applicable, may cause the market price of our ordinary
shares, ADSs and warrants to decline. Almost all of our outstanding ordinary shares are registered and available for sale in Israel.
Sales by us or our security holders of substantial amounts of our ordinary shares, ADSs or warrants, or the perception that these
sales may occur in the future, could cause a reduction in the market price of our ordinary shares, ADSs or warrants. The issuance
of any additional ordinary shares or any additional ADSs or warrants, 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 or the ADSs or warrants
and will have a dilutive effect on our existing shareholders and holders of ADSs or 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 on our ordinary shares in
the foreseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends.
As a result, investors in the ADSs or ordinary shares, or investors who exercise the 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 in excess of 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, if
any, 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 are transferable
on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it
deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer
or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the
depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any
provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.
Your percentage ownership in us
may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholders vote.
Our board of directors
has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued
shares, including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares
would reduce your influence over matters on which our shareholders vote.
ITEM 4.
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INFORMATION ON THE COMPANY
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A.
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History
and Development of the Company
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Our legal and commercial name is Cellect
Biotechnology Ltd. We were established as a private company limited by shares under the laws of the State of Israel on August
4, 1986, under the name Montiger Ltd. Between 1986 and 2013, we underwent several name changes, most recently on August 28, 2013,
when we changed our name from T.R.F. Capital Ltd. to Cellect Biomed Ltd. On May 16, 2016, we obtained shareholder approval to
change our name to Cellect Biotechnology Ltd. We formally changed our name to Cellect Biotechnology Ltd. on July 21, 2016. On
July 29, 2016, our ADSs and warrants, commenced trading on The Nasdaq Capital Market under the symbols “APOP” and
“APOPW”, respectively. From 1990 to September 3, 2017, our shares were traded on the Tel Aviv Stock Exchange.
From October 25, 2012
until July 1, 2013, we did not have any business operations, excluding administrative management. On June 30, 2013, a general
meeting of our shareholders approved our merger by way of share exchange with Cellect Biotherapeutics. As a result of the merger,
which closed on July 1, 2013, Cellect Biotherapeutics became a fully owned subsidiary and we issued to shareholders of Cellect
Biotherapeutics 44,887,373 ordinary shares, options (Series 1) exercisable for 227,358 ordinary shares, and options (Series 2)
exercisable for 341,037 ordinary shares (all of such 341,037 options were subsequently exercised into ordinary shares), which
constituted approximately 85% of our then outstanding share capital and 85% of our then outstanding share capital on a fully diluted
basis.
Cellect Biotherapeutics
was established as a private company limited by shares under the State of Israel on June 9, 2011 for the purpose of developing
novel and unique technologies that allow the functional selection of stem cells through the substantial reduction of the complications
that exist today in acceptable selection methods and increasing the chances of success of stem cell therapies.
Our principal offices
are located at 23 HaTa’as St., Kfar Saba, Israel 44425, and our telephone number is +972-9-974-1444. Our primary internet
address is www.cellect.co. None of the information on our website is incorporated by reference herein. Vcorp Services, LLC is
our agent for service of process in the United States, and its address is 25 Robert Pitt Drive, Suite 204 Monsey, New York
10952.
We use our website
(http://www.cellect.co) as a channel of distribution of Company information. The information we post through this channel may
be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings
and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this
annual report.
We are an emerging
growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such, we are eligible
to, and intend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies
that are not emerging growth companies including but not limited to not being required to comply with the auditor attestation
requirements of the SEC rules under Section 404 of the Sarbanes-Oxley Act. 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 $1.07 billion or more, (ii) the last
day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration
statement, (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 filer” as defined in Regulation S-K under the Securities
Act, which means the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the prior June
30
th
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We are a foreign private
issuer as defined by the rules under the Securities Act and the Exchange Act. Our status as a foreign private issuer also exempts
us from compliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ Stock Market, including
the proxy rules, the short-swing profits recapture rules, and certain governance requirements such as independent director oversight
of the nomination of directors and executive compensation. In addition, we will not be required to file annual, quarterly and
current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies registered under
the Exchange Act.
Our capital
expenditures for December 31, 2017, 2016 and 2015 amounted to NIS 0.3 million (approximately $0.09 million), NIS 0.6 million
(approximately $0.15 million), and NIS 1.0 million (approximately $0.26 million), respectively. Our purchases of fixed assets
primarily include laboratory equipment used for the development of our clinical treatment. We financed these expenditures
primarily from cash on hand.
We are an emerging
biotechnology company that has developed a novel technology platform known as ApoGraft that functionally selects stem cells in
order to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling
technology for the enrichment of the stem cell population for companies developing stem cell therapies, for physicians practicing
regenerative medicine and for researchers and academia engaged in stem cell research.
We believe our innovative
technology platform represents a potential breakthrough in the field of regenerative medicine by using functional selection of
stem cells. Efficient selection enables retention of most of the stem cells from various starting bulk of cells while neutralizing
harmful mature cells from this bulk of raw material. Animal models suggest that this process results in dramatic decrease of toxicity
coupled with the enrichment of the stem cell population.
Our ApoGraft technology
platform takes advantage of a functional characteristic of stem cells relating to apoptosis. Apoptosis is the process of programmed
cell death and is a vital part of physiological development and homeostasis of all organisms. Stem cells flourish in an environment
where normal cells die because their major role is reconstitution of damaged tissue. Stem cells are attracted to areas of cell
death, areas typified by very high levels of apoptotic activity and apoptotic-inducing signals.
We are currently developing
our first product based on our ApoGraft technology platform, the ApoTainer selection kit. The ApoTainer selection kit
is an easy to use, cost effective, off the shelf stem cell selection kit. The ApoGraft technology platform is being tested for
clinical use in allogeneic (using stem cells from a donor) hematopoietic stem cell transplantation, or HSCT for the treatment
of hematological malignancies (blood cancers such as leukemia and lymphoma). HSCT, also known as bone marrow transplantation,
has for decades been curative for many patients with hematological malignancies. Clinical trials have shown that HSCT can also
be used for other non-malignant indications (such as autoimmune diseases), but is rarely used due to severe toxicity. Application
of allogeneic HSCT is limited by graft-versus-host-disease, or GvHD, a condition in which the transplanted immune cells (populating
the graft in much higher numbers then the stem cells) recognize the host cells and organs as foreign and attack them. GvHD does
not resolve by itself and is a major cause of transplant-related morbidity and mortality. Despite improvements in the outcome
of HSCT over recent years through improved supportive care, infection control and use of reduced intensity and reduced toxicity
conditioning regimens, HSCT is still associated with significant morbidity and mortality mainly due to GvHD, and as such HSCT
is restricted to patients with life threatening advanced diseases. Due to non-efficient selection of stem cells for HSCT, the
complex and expansive laboratory process performed using technologies currently available is able to reduce toxicity only at a
significant tradeoff — failure of engraftment, graft rejection, cancer reoccurrence and high costs of treatment.
We have chosen allogeneic
HSCT for the treatment of hematological malignancies as our first target indication for our ApoGraft technology platform in order
to clinically validate that our technology can efficiently select stem cells resulting in neutralizing harmful cells and their
associated medical complications. We believe that demonstrating the safety of our technology for this indication will validate
the use of our ApoGraft technology platform for the treatment of other indications (e.g., nonmalignant bone marrow failure, solid
organ transplantation and auto-immune diseases) and consequently for the adoption of our ApoGraft technology platform by stem
cell therapeutic companies, academia, researchers and others seeking to enrich their stem cell population. In that regard, we
believe that after the first reported results of our human trials, as discussed further below, we will achieve validation of our
product’s safety profile, which may result in expediting further development of our technology for multiple indications,
even before marketing approval is obtained. In addition, we believe such validation of our proof of concept will provide us with
the opportunity to license our ApoGraft technology platform in the near term.
We plan to bring our
ApoTainer selection kits to market for HSCT as a combination product subject to the primary jurisdiction of the Center for
Biologics Evaluation and Research, or CBER. The term “combination product”, when used to describe our ApoTainer selection
kits, refers to a product, regulated by the FDA, which is comprised of a consumable medical device (container) with a biological
activity.
In September 2017, we announced that the FDA granted orphan drug designation for ApoGraft for the prevention of acute
and chronic GvHD in transplant patients. We plan in the future to apply for fast track and breakthrough technology, which, if
received, would result in a reduced cost of development and expedited marketing approvals, however there is no assurance that
such designations will ever be obtained.
Our development efforts
to date have primarily culminated in two studies performed on human HSCT grafts. The first study was performed during 2015 - 2016.
In this study we used small portions received under ethical committee approval from human donors to validate and optimize the
process, and show robustness and repeatability of the process. More than 100 ApoGraft samples were analyzed for the different
effects on the various groups of cells (stem and mature immune) as well as their functional capabilities (such as migration, colony
formation and anti-cancer activity). The samples represented 5% of a graft used for transplantation into patients. The grafts
were processed in vitro and in vivo (mice) allowing stem cell production for transplantation using ApoGraft. The use of the ApoGraft
resulted in a significant increase in the death of certain mature immune cells, primarily unique subsets of T Lymphocytes, without
compromising the quantity and quality of stem cells.
The second
study, which was initiated in the first quarter of 2017, is a Phase I/II, dose escalating, 4-cohort, open label clinical trial
of up to twelve patients designed to evaluate the safety, tolerability and efficacy of functionally selected donor derived mobilized
peripheral blood cells that underwent our ApoGraft process and were transplanted into patients with hematological malignancies
in an allogeneic hematopoietic stem cell transplantation. The primary endpoint of the study is overall incidence, frequency and
severity of adverse events potentially related to ApoGraft at 180 days from transplantation. The first patient was recruited for
this trial in February, 2017, and in January 2018 we reported that after one month follow-up, the first three patients have demonstrated
complete acceptance of the stem cell transplant with no adverse events related to the study treatment, as determined by the clinical
investigator, and no reported serious adverse events or suspected unexpected serious adverse reactions.
Patients who complete
the Phase I/II study will be given the option to enroll in a non-interventional long-term follow-up study for up to two years
post-transplantation to assess incidence, grade and stage of acute GvHD and chronic GvHD, non-relapse related mortality, disease
relapse/recurrence and overall survival.
We aim to commence
a second human ApoGraft trial in the United States and/or Europe in the first half of 2019. In May 2017, we announced that the
FDA provided us with pre-Investigational New Drug (IND) meeting minutes supporting an IND submission for ApoGraft. We hope to
initiate a pivotal study for our ApoTainer selection kits in 2019.
We are also conducting
studies on mesenchymal stem cells derived from fat tissues. In October 2017, we announced positive results from a more than 20-patient
trial on the use of our selection platform technology on stem cells derived from fat tissues. The study comprised samples obtained
via liposuction from over 20 adult patients and was conducted in collaboration with the Plastic Surgery Department and Stem Cells
Laboratory of the Tel-Aviv Medical Center (Ichilov Hospital). Fat-derived stem cells were treated according to our protocols and
have shown that our selection platform technology led to both an expansion of cells and an improvement in their unique cell activity
and attributes. The ability of those cells to create colonies and differentiate into bone was enhanced significantly after only
a short incubation.
We aim to commence
a Phase I/II trial of ApoGraft on stem cells derived from fat tissues in 2019.
Our Strategy
We have developed
a novel technology platform, the ApoGraft technology platform, for the functional selection of adult stem cells. This technology
is expected to improve the safety and efficacy of regenerative medicine and stem cell therapies by a cost effective method of
achieving stem cells for any indication in quality, quantity and competitive price. We aim to become the standard enabling technology
for the enrichment of stem cells and manufacturing of any adult stem cells based products for companies developing stem cell therapies
and for researchers and academia engaged in adult stem cell research.
Key elements of our
strategy to accomplish this objective include the following:
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Achieve relatively quick
validation of the use of our ApoGraft technology platform in a clinical setting.
We have chosen allogeneic HSCT for the treatment of hematological malignancies as our
first target indication for our ApoGraft technology platform in order to clinically validate
that our technology can efficiently select stem cells while eliminating harmful cells
and consequently the medical complications such as GvHD. We believe hematopoietic cells
transplantation to patients undergoing allogeneic HSCT can be dramatically improved.
Based on our ApoGraft technology platform, we are currently developing the ApoTainer
selection kit, an off the shelf stem cell selection kit, which we believe may significantly
improve the therapeutic potential of allogeneic HSCT by addressing major complications
that currently contribute to the high morbidity and mortality of the procedure. We believe
that the concomitant reduction of toxicity of allogeneic HSCT will allow clinicians to
undertake HSCT earlier in the blood cancer treatment routine. Typically, combination
products are expected to obtain relatively quicker validation from the FDA and the EMA
when compared to pharmaceutical/ biological products. Based on our initial consultations
with our U.S. and European regulatory consultants, we believe that we might only need
to successfully complete a single pivotal study with a relatively small number of patients
to obtain marketing approval of our ApoTainer selection kit for allogeneic HSCT. We believe
such a study can be completed in approximately two to three years. However, there is
no guarantee that the proposed pathway will be approved by the FDA or EMA, or that validation
will occur as quickly as we hope, if at all. In addition, we believe that our product
may achieve “breakthrough” designation with the FDA, enabling a fast track
review and approval process by the FDA however there is no assurance that such designations
will ever be obtained. Typically, the validation process for regular clinical development
for standard cell therapy can take between eight and ten years. In comparison to the
typical validation process timeline, we believe our technology platform may complete
the validation process relatively quickly.
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Leverage our scientific,
clinical and regulatory expertise to build and advance our ApoGraft technology platform
beyond the allogeneic HSCT setting.
Based on the validation of our ApoTainer selection
kit for clinical use in the allogeneic HSCT setting, we intend to test the kit for other
indications such as nonmalignant failures of the bone marrow (i.e. aplastic anemia ),
solid organ transplantation and auto-immune system disorders (such as Type 1 diabetes,
Crohn’s disease, psoriasis and lupus). We also intend to develop our ApoGraft technology
platform for other sources of stem cells (e.g., cord blood and fat) and other types of
stem cells — most notably mesenchymal and neural. We believe that by expanding
the various applications, sources and types of stem cells that can be used with our technology,
we will establish broad use of our ApoGraft technology platform.
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Build a diversified product
portfolio
. Beginning with the development of our ApoTainer selection kit as a combination
product or medical device, which we believe will shorten the time to market, we intend
to expand our product development and build a diversified product portfolio of ApoGraft
based products for a broad spectrum of market segments, up to and including all production
and research processes for stem cell based products. The pipeline of products is designed
to address different markets beyond the clinical use such as products for research purposes
and tools for manufacturing facilities for cell therapies and especially adult stem cells.
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Selectively engage in strategic
partnerships that establish our ApoGraft technology platform as the standard enabling
technology for the enrichment of the stem cell population
. We ultimately seek to
collaborate with other companies engaged in developing stem cell therapies. By incorporating
our ApoGraft technology into their manufacturing process we will be able to significantly
reduce their cost of manufacturing while improving the end products. As we believe our
ApoGraft technology will significantly increase the yields of the first step of manufacturing
(harvesting the stem cells) from any source of stem cells (i.e. blood, bone marrow, fat)
and will result in a more purified bulk of stem cells, the next steps needed to reach
the final products will be shorter, more efficient, less costly and result in a better
product. During 2017, we partnered with a Boston-based life-science advisory firm to
seek strategic licensing deals and global pharma partnerships.
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In the short term,
we are currently focused on achieving the following critical milestones:
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Pathway to first-in-human
proof of concept
: We are currently enrolling patients to a Phase I/II study performed
on cancer patients undergoing matched related allogeneic HSCT. This Phase I/II trial
was approved by the Israeli Ministry of Health and is being conducted at the Rambam Medical
Center and Hadassah Medical Center.
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Pathway to product prototype
:
We are engaged in developing prototypes of our ApoTainer selection kit. We demonstrated
a proof of concept for the binding of the apoptotic protein to a polymer while preserving
the protein’s apoptotic activity. We tested a number of polymers and binding methods
and selected the one best suited for manufacturing the stem cell selection kits. We aim
to complete development of the first prototype ApoTainer selection kit by the first quarter
of 2018.
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Patent portfolio enhancement
:
We are currently expanding our patent coverage from our current seven patent families
by applying for additional patents for inventions created during the development. In
addition, we are seeking relevant patents available for in licensing.
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In the long term,
we are focused on leveraging our key assets, including our intellectual property, our development team and our facilities, to
advance our technologies and are pursuing strategic collaborations with members of academia and industry.
Regenerative Medicine and Cell Therapy
Our business focus
is the development of technologies for the functional selection of stem cells in the field of regenerative medicine. According
to Mason & Dunnill in Regenerative Medicine (2008, 3(1), 1-5), regenerative medicine is the process of replacing or regenerating
human cells, tissues or organs to restore or establish normal function. Cell therapy as applied to regenerative medicine holds
the promise of regenerating damaged tissues and organs in the body by rejuvenating damaged tissue and by stimulating the body’s
own repair mechanisms to heal previously irreparable tissues and organs.
Medical cell therapies
are classified into two types: allogeneic (cells from a donor) or autologous (cells from one’s own body), with
each offering its own distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to
disease or degeneration, are not as viable as those from a healthy donor. The use of healthy donors’ stem cells is severely
limited by the accompanied immune cells of the donor which may attack cells or organs of the transplanted patient. This rejection
is limited to adult cells with stem cells generally evading such rejection. Separation of the immune rejection causing cells from
the stem cells is therefore the bottle neck of all stem cell based therapies.
Regenerative medicine
can be categorized into major subfields as follows:
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Cell Therapy
. Cell therapy
involves the use of cells, whether derived from adults, children or embryos, healthy
donors or patients, from various parts of the body, for the treatment of diseases or
injuries. Therapeutic applications may include cancer vaccines, cell based immune-therapy,
arthritis, heart disease, diabetes, Parkinson’s and Alzheimer’s diseases,
vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfield
also includes the development of growth factors and sera and natural reagents that promote
and guide cell development.
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Tissue Engineering
.
This subfield involves using a combination of cells with biomaterials (also called “scaffolds”)
to generate partially or fully functional tissues and organs, or using a mixture of technology
in a bioprinting process. Some natural materials, like collagen, can be used as biomaterial,
but advances in materials science have resulted in a variety of synthetic polymers with
attributes that would make them uniquely attractive for certain applications. Therapeutic
applications may include heart patch, bone re-growth, wound repair, replacement neo-urinary
conduits, saphenous arterial grafts, inter-vertebral disc and spinal cord repair.
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Diagnostics and Lab Services
.
This subfield involves the production and derivation of cell lines that may be used for
the development of drugs and treatments for diseases or genetic defects. This sector
also includes companies developing devices that are designed and optimized for regenerative
medicine techniques, such as specialized catheters for the delivery of cells, tools for
the extraction of stem cells and cell-based diagnostic tools.
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All living complex
organisms start as a single cell that replicates, differentiates (into various tissues and organs) and perpetuates in an adult
through its lifetime. Cell therapy is aimed at tapping into the power of cells to treat disease, regenerate damaged or aged tissue
and provide functional as well as cosmetic applications. The most common type of cell therapy has been the replacement of mature,
functioning cells such as through blood and platelet transfusions. Since the 1970s, bone marrow and then blood and umbilical cord-derived
stem cells have been used to restore immune system cells mainly after chemotherapy and radiation used to treat many cancers. These
types of cell therapies have been approved for use world-wide and are typically reimbursed by insurance.
Over the past number
of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous
(self-derived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe
in clinical trials. Dendreon Corporation’s
Provenge
therapy for prostate cancer received FDA approval in
early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a form of replacement or regeneration
of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies
are also being evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory
bowel disease and bone diseases. While no assurances can be given regarding future medical developments, we believe that the field
of cell therapy is a subset of biotechnology that holds promise to improve human health, help eliminate disease and minimize or
ameliorate the pain and suffering from many common degenerative diseases relating to aging.
Market for Cell-Based Therapies
According to a 2015
report by Visiongain, the world stem cell technologies market is expected to grow from $7.2 billion in 2014 to $12 billion in
2018, achieving high revenue growth from 2015 to 2025.
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The global population is
aging
. According to the United Nations Department of Economic and Social Affairs,
2
b
illion people will be aged 60 and older by 2050, which means an increased prevalence
of age-related disease in general and chronic disease in particular. Heavily burdened
healthcare systems are looking to regenerative medicine to provide therapies that treat
the root causes of chronic diseases rather than just their symptoms.
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Expansion of stem cell therapies
.
Stem cell therapies are being extended to new and prevalent indications such as cardiovascular
diseases, neurodegenerative diseases, and autoimmune diseases. The number of cell therapy
companies that are currently in Phase II and Phase III trials has been gathering momentum,
and we anticipate that new cellular therapy products will appear on the market within
the next several years.
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Potential new source of
stem cells
. The last decade has witnessed the emergence of umbilical cord cryopreservation
for the storage of newborn blood for future medical use. This new market already affects
the field of transplantations with a growing share of cord blood transplantations at
the expense of autologous and allogeneic transplantations of hematopoietic cells. In
addition, another source of stem cells is fat used for treatment of bone, cartilage and
skeleton related diseases as well as for esthetic purposes.
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Increasing government, strategic
partner, and investor support for stem cell research and development
. According to
the Alliance for Regenerative Medicine, the stem cell and progenitor therapy market raised
$2.6 billion in public and private funds in 2014, while according to the National Institutes
of Health, or NIH, the level of annual support for stem cell research across the NIH
is estimated to grow from $1.273 billion in 2013 to $1.582 billion in 2017.
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Our Current Focus: Proof of Concept
of our ApoGraft technology platform through the treatment of Haematological Malignancies
Haematological malignancies
(blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignancies involves
the use of HSCT. According to the Worldwide Network for Blood & Marrow Transplantation, more than 50,000 HSCTs are performed
yearly worldwide, of which 53% are autologous (using stem cells from the patient) and 47% are allogeneic (using stem cells from
a donor). In the treatment of leukemia, an allogeneic procedure is usually preferred over autologous due to a higher risk of recurrence
of the underlying disease.
HSCT, also known as
bone marrow transplantation, relies on the ability of infused hematopoietic stem cells to engraft in the patient’s bone
marrow, multiply and differentiate into mature blood cells. However, the success of allogeneic HSCT strongly depends upon the
degree of immune compatibility between the donor and the host cells. In the majority of cases, the unavailability of fully matching
donors results in complications due to GvHD.
GvHD is a complication
that often develops after a bone marrow or stem cell transplant. GvHD happens when transplanted cells in the donated bone marrow
or stem cells (graft) regard the transplant patient's native cells (host) as foreign and attack and destroy them. Acute GvHD,
which usually occurs up to 100 days post transplantation, is associated with diarrhea, rash, liver damage and, in severe cases,
can be life-threatening. Chronic GvHD, which usually appears later than three months post transplantation, is associated with
skin damage, oral and/or vaginal mucositis, and liver damage. GvHD is treated by repressing the immune system using steroids and
chemotherapy. The treatment’s adverse effects include increased exposure to infections, recurrent hospital admissions, damage
to vital organs and, in some cases, secondary cancers. Both quality of life and life expectancy are significantly decreased in
these patients. Unfortunately, many patients are nonresponsive to steroids. The patients that do respond to steroids suffer from
frequent infections leading to recurrent antibiotic treatments and hospitalizations. These complications are associated with high
mortality and morbidity and are a meaningful limiting factor for what would otherwise be the most suitable therapy for cancer
and autoimmune diseases.
GvHD can be prevented
by depletion of the T-cell population from the donor graft prior to transplantation. Methods used to capture and purge T-cells
out of the donor graft include using anti-thymocyte globulin or alemtuzmab, suicide gene therapy, cytotoxic agents and fusion
proteins. However, T cells support HSCT engraftment and immune reconstitution and are potent initiators and mediators of graft
versus tumor, or GvT, reactions. As such, purging T-cells can result in increased risks of graft failure or delayed immune reconstitution
leading to life threatening infection and/or reduced GvT response, increasing the chances of cancer recurrence.
Due to these and other
complications and due to the extremely aggressive pre-treatment chemotherapy and irradiation conditioning regimens, allogeneic
HSCT is usually used only when the patient faces life-threatening danger. If allogeneic HSCT could be made safer, it could be
used far earlier and more frequently for even more effective treatment of blood cancers. There is widespread awareness of the
need for improved immune-system management technologies for HSCT — both to improve outcomes of transplantations that have
already taken place and to make transplantation safe enough to become appropriate for older patients and those with earlier-stage
diseases.
The use of HSCT has
been tested and found to be effective for autoimmune diseases such as juvenile diabetes, Crohn’s disease and lupus with
the inherent toxicity of HSCT being the major drawback from further use. A safer HSCT could be used for these indications as well
as creating immune tolerance for organ transplantation.
We have therefore
chosen allogeneic HSCT for the treatment of hematological malignancies as our first target indication for our ApoGraft technology
platform in order to clinically validate that our technology can efficiently select stem cells while eliminating harmful cells
and their associated medical complications caused by GvHD. However, while GvHD has a sizeable market share with an unmet clinical
need that we seek to address, we consider the validation of our technology as an important driver of a much broader utility of
our platform technology.
An Unmet Need: Efficient Stem Cell
Selection
Typically, there is
a very small number of stem cells in the source tissue and, once removed from the body, these cells have the propensity to differentiate
and lose their “stemness”. Generation of large quantities of stem cells is therefore very challenging. This scarcity
of stem cells within the biological donor samples is a serious obstacle to regenerative medicine and stem cell companies, both
in research and in production settings. In addition to stem cell scarcity, another critical problem is the presence in the donor
sample of mature cells that trigger immune response and create the major adverse effects associated with transplantation.
There are currently
two main methods for attaining a critical mass of stem cells:
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Morphological
stem cell selection
:
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Negative selection
approach
: Elimination of the cells including those that contribute to engraftment, usually T cells. It uses T cell-specific
antigens common to all T cells and therefore indiscriminately eliminates all T cells, including the ones responsible for engraftment
support and combating tumors. The clinical outcome is reduced engraftment and reoccurrence of the tumor.
Positive selection
approach
: Retains the stem cells in the graft using only one of the determinants found on stem cells and progenitor
cells and therefore a significant number of reconstituting capable cells are discarded. It has been clinically shown that the
loss of reconstituting capable cells significantly reduces engraftment.
Both of these approaches
have a poor efficacy/toxicity ratio.
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Stem cell
population expansion
:
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Most companies expand
stem cell numbers in a culture. However, expansion of the reconstituting capable cells while maintaining their level of differentiation
is a major challenge. A high number of cells is required initially, as well as a very long culturing time (weeks) during which
sterility must be maintained and differentiation avoided. The methodology is very expensive and requires specialized equipment
that is not widely available. Moreover, the regulatory demands related to long-term culturing create a significant challenge for
these companies.
In short, we believe
the prevailing methodologies for stem cell enrichment/expansion in the graft do not adequately meet the need to enrich and purify
the biological sample prior to transplantation. We believe our novel ApoGraft technology platform that quickly and effectively
enriches the stem cell population while eliminating the unwanted cells in a biological sample will contribute significantly to
the growth of the stem cell therapy market.
Our first target market
for our ApoGraft technology platform is allogeneic HSCT for hematological malignancies. According to the Center for International
Blood & Marrow Transplant Research, over 8,000 allogeneic HSCTs were performed in the United States in 2015. A 2013 survey
conducted by the European Group for Bone Marrow Transplantation in 48 countries (39 European and 9 affiliated) showed that over
10,500 allogeneic HSCTs were performed for leukemia and for lymphoma. We believe that beyond the value of proving and validating
our platform technology, these numbers represent a substantial market opportunity for us to prove the benefits of our ApoGraft
technology platform.
Our Proprietary Stem Cell Technology
Platform
We believe our innovative
ApoGraft technology platform represents a potential breakthrough in the field of regenerative medicine through the functional
selection of stem cells.
Our technology is
based on a decade of research in the field of stem cells in general and hematopoietic stem cells in particular conducted by Dr.
Nadir Askenasy, our former Chief Technology Officer. The concept of functional selection suggests that by using functional assays,
which are based on the physiological features of stem cells, one can achieve dual goals: (i) the elimination of non stem cells
that are responsible for the immune triggering and most of the clinical adverse effects, and (ii) the achievement of a larger
and better population of stem cells. We believe this dual effect will allow for safer and improved clinical outcome of transplantations
and enable the whole regenerative (transplantation) segment to achieve its full potential.
Stem cells flourish
in an environment where there are signals of apoptosis. Apoptosis is the process of programmed cell death and is a vital part
of physiological development and maintenance. Because of their major role in the reconstitution of damaged tissue, stem cells
are attracted to what are often characterized as disaster areas in which there are very high levels of apoptotic activity and
apoptotic-inducing agents. Our research has demonstrated that stem cells are resistant to apoptotic stimulation by the physiological
molecules that cause mature cells to self-destruct. We have chosen this
functional
characteristic of stem cells
to use apoptosis-inducing proteins to more efficiently select stem cells while eliminating harmful cells and their associated
medical complications.
Our preclinical studies
to date have shown that the differential sensitivity to the apoptosis signals allows functional selection of the stem cells while
at the same time eliminating apoptosis sensitive mature immune cells. We believe this will result in a reduction of GvHD, improved
graft acceptance and a reduction in treatment cost.
The ApoGraft Process
To achieve functional
selection of stem cells utilizing our ApoGraft technology platform, we have developed the ApoGraft process, which is intended
for the prevention of GvHD in patients with hematological malignancies receiving a transplant of allogeneic, mobilized peripheral
blood hematopoietic stem and progenitor cells. Following collection of the cells from a matched related donor, the donor graft
is incubated for 2 hours in the presence of FasL, washed twice and transplanted via intravenous administration. FasL, also known
as CD95L, is a type-II transmembrane protein that belongs to the tumor necrosis alpha family. The binding of FasL with its receptor
induces in mature cells apoptosis (programmed cell death) that plays an important role in the development, homeostasis, and function
of the immune system (and most cells of all multi-cellular organisms).
The apoptotic inducer
used in Cellect’s ApoGraft process is based on a FasL protein known by its commercial name Mega-FasL. Apo010 (the Mega-FasL
based clinical grade material) is a recombinant, soluble protein. This protein has been developed to mimic the natural occurring
FasL clustering that activates its receptor and leads to apoptosis in susceptible cell populations.
The ApoGraft process
is illustrated below:
ApoTainer Selection Kit
Our first product
that is currently being developed, the ApoTainer selection kit, is an easy to use, cost effective, off the shelf stem cell
selection kit for clinical laboratories designed to improve the results of human allogeneic HSCT.
The ApoTainer selection
kit is a specialized infusion bag. With internal apoptotic inducing capabilities, the ApoTainer selection kit is designed
to create a microenvironment intended to induce apoptosis by creating an ex-vivo microenvironment that resembles the normal physiological
conditions where stem cells can migrate to areas of destruction (where apoptotic triggering molecules are abundant) and, once
there, proliferate and differentiate into the needed tissue and organ.
Our preclinical research
has shown that FasL appears to be active when immobilized, as in the case of its binding to the film of the ApoTainer selection
kit. This immobilization to the kit also creates another advantage by eliminating the need to discard the FasL from the graft
before transplantation.
The ApoTainer selection
kit is currently being designed to be used for allogeneic HSCT procedures for patients suffering from hematological malignancies
in which the donor graft of cells is incubated in the infusion bag for a number of hours and expected to cause the mature GvHD-causing
cells expressing the Fas receptor to bind to the surface-bound FasL and undergo apoptosis while the hematopoietic stem cells remain
active. The ApoTainer selection kit thus is expected to harness the differential effect of the apoptotic microenvironment
on mature cell and stem cell populations, producing an enriched population of stem cells that are then transfused to the patient.
Preliminary studies
conducted by us have shown that selective polymers coated with specific materials in a specific process create an optimal container
enabling positive biological activity of FasL while tightly bound. We believe that this polymer-binder-FasL complex is the basis
not only for the ApoTainer selection kit as currently in development, but also for a line of containers with different designs
and sizes to be used for different applications.
Preclinical Studies
As part of our in-vitro
studies, and prior to animal studies, we performed experiments to determine which apoptotic molecules have the best differential
effect on stem and non-stem cells. We have conducted fifteen animal studies including murine to murine and human cells to murine
transplantation models measuring the relevant effects (GvHD, GvL, mortality and engraftment). We have also tested various sources
of human hematopoietic cells (mobilized peripheral blood, bone marrow and umbilical cord blood). Major preliminary findings include
the following:
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Resistance to receptor-mediated
apoptosis is an inherent characteristic of stem and progenitor cells;
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The ApoGraft
process preserves stem and progenitor cells;
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Preservation of successful
engraftment (95% engraftment in experiments performed by by a contract research organization);
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Demonstrated
preservation of anti-tumor activity;
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Apoptosis-insensitive progenitors
are privileged for engraftment through competitive advantage over the apoptosis-sensitive
differentiated cells;
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Using the most stringent conditions
for GvHD, there was a statistically significant reduction in mortality rate (20–100%
to <10%); and
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Significant
reduction of cells that attack the immune system.
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We believe these preliminary
findings support our product claim for:
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Selection of stem and progenitor
cells based on insensitivity to receptor-mediated apoptosis from all sources;
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Ex vivo selective
depletion of GvHD causing cells;
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Accelerated
engraftment by ex vivo treatment of umbilical cord blood; and
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Induction
of tolerance to grafts and suppression of autoimmunity.
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We also achieved an
important milestone in the development of our stem cell selection kits. In collaboration with our partner (Entegris) we screened
for many polymers based matrixes and looked at their ability to bind FasL in a way preserving the biological activity of the apoptotic
agent. In a few cases we were able to establish complex binding coupled with biological activity. This project is ongoing and
we hope to establish the specific conditions needed for such interactions on the relevant cells.
In June 2015, we entered
into a Joint Product Development Agreement with Entegris Inc., or Entegris (NASDAQ: ENTG), a provider of yield-enhancing materials
and solutions for advanced manufacturing processes, or the Entegris Agreement. Under the Entegris Agreement, the parties are collaborating
in the development of the polymer film that will be used for the manufacturing of the ApoTainer selection kit. The Entegris
Agreement contemplates that upon successful development of the polymer film, Entegris will supply the polymer film upon terms
to be agreed to between the parties at such time. The parties agree that if Entegris defaults in this obligation, we may find
an alternate party for manufacturing the polymer system, in which case Entegris would be entitled to 5% of final product sales
up to the amount paid by Entegris. Pursuant to the terms of the Entegris Agreement, Entegris shall bear all costs relating to
the development, design, engineering and manufacture of polymer systems relating to the development of the product and we will
bear the costs relating to the pre-clinical development of the product. In addition, the parties have agreed to complete one or
more statements of work, or a SOW, each of which may set forth the terms for the objectives, timelines and costs and time estimates
for each milestone. The Entegris Agreement has a term of five years, unless earlier terminated, and automatically renews for successive
one year terms. Either we or Entegris may terminate the Entegris Agreement for cause if either party materially breaches the agreement
or a SOW thereunder and the breaching party fails to cure within ten days notice of a breach, in the event of a monetary breach,
or thirty days from receipt of notice of a breach, in the event of a non-monetary breach. Additionally, either party may terminate
the Entegris Agreement or any SOW immediately upon written notice of the non-terminating party if a petition for bankruptcy is
filed, whether voluntarily or involuntarily, and such petition is not dismissed with prejudice within sixty days of its filing.
On June 14, 2016,
we were advised that we were eligible for an award consisting of a $0.9 million (approximately NIS 3.5 million) conditional grant
by the BIRD Foundation in support of our Joint Product Development Agreement with Entegris. The BIRD Foundation promotes collaboration
between U.S. and Israeli companies in various technological fields for the purpose of joint product development. Projects submitted
to the BIRD Foundation are reviewed by evaluators appointed by the National Institute of Standards and Technology (NIST) and by
the Israel Innovation Authority of the Israeli Ministry of Economy and Industry. The grant was dependent on the execution of a
Cooperation and Project Funding Agreement, or CPFA, by and among the BIRD Foundation, Entegris and us which we entered into during
2017. Pursuant to the terms of the CPFA, the BIRD Foundation will provide a grant to Entegris and us of up to $0.9 million. Pursuant
to the terms of the CPFA, we and Entegris will be required to repay the total sum of the grant, linked to the U.S. Consumer Price
Index from date of receipt of each payment, of 100%, 113%, 125%, 138% and 150% of the linked sum granted by the BIRD Foundation
if repaid within one year, two years, three years, four years and five or more years, respectively, of the project completion
date. The CPFA also requires that we and Entegris commence repayments at the rate of 5% of each dollar reported as revenue derived
from the product, or subsequent products, funded by the project. In addition, the CPFA includes a requirement that if the funded
product is licensed to a third party 30% of all payments received under the respective license agreement must be paid to the BIRD
Foundation in repayment of the grant. Finally, the CPFA includes a requirement that if any portion of the product funded by the
project is sold outright to a third party prior to full repayment of the grant to the BIRD Foundation, one-half of the sale proceeds
will be applied to the repayment of the grant.
In August 2015, we
initiated a full preclinical Good Laboratory Practice safety study designed to test safety and engraftment outcome in a murine
model ahead of our first planned clinical trial. Complete clinical, biochemical and histology evaluation was performed by a contract
research organization. In December 2015, we announced that results from this study showed that, while the control group had a
50% death rate, the group that was transplanted with bone marrow that underwent our ApoGraft process had no deaths. In addition,
with respect to additional parameters, such as clinical signs, weight and histological analysis, no toxicity was found.
Non-Interventional Clinical Studies
On February 21, 2017
we announced positive final results from a non-interventional clinical trial of ApoGraft™ in healthy donors. The study’s
primary objective was to validate the Company's propriety method of stem cell selection by going through the process of production
and characterization with ApoGraft™, and was conducted on samples obtained in collaboration with two medical centers in
Israel, The Schneider Children's Medical Center and the Rambam Medical Center. The study included samples from 104 healthy donors
of blood stem cells. The samples (collected under approval of Helsinki committees) represented 5% of a graft used for transplantation
into patients. The cells were exposed to the full process of preparing the ApoGraft. The grafts were processed allowing stem cell
production for transplantation with Cellect’s ApoGraft. The use of the ApoGraft resulted in a significant
increase in the death of mature immune cells, primarily T lymphocytes, without compromising the quantity and quality of stem cells.
The results have shown that the procedure is highly repetitive. The acceptance criteria and batch release criteria were all set
and met. Samples have shown sterility and viability of cells within specs. T cells have shown apoptotic effect while CD34 stem
cells were intact. Clonality was not compromised. The overall results were highly correlated with the safety studies performed
as part of the pre-clinical package and supports the Phase I/II HSCT in blood cancers patients.
We are also conducting
studies on mesenchymal stem cells derived from fat tissues. In October 2017, we announced positive results from a more than 20-patient
trial on the use of ApoGraft on stem cells derived from fat tissues. The study conducted with samples obtained via liposuction
from over 20 adult patients was conducted in collaboration with the Plastic Surgery Department and Stem Cells Laboratory of the
Tel-Aviv Medical Center (Ichilov Hospital). Fat-derived stem cells were treated according to our protocols and have shown that
ApoGraft led to both an expansion of cells and an improvement in their unique cell activity and attributes. The ability of those
cells to create colonies and differentiate into bone was enhanced significantly after only a short incubation. We aim to commence
a Phase I/II trial of ApoGraft on stem cells derived from fat tissues in 2019.
Phase I/II Clinical Study
On September 12, 2016,
we obtained the approval of the Israeli Ministry of Health to initiate a Phase I/II, dose escalating, 4-cohort, open label clinical
trial of up to twelve patients designed to evaluate the safety, tolerability and efficacy of functionally selected donor derived
mobilized peripheral blood cells that undergo our ApoGraft process in the prevention of acute GvHD in patients suffering from
hematological malignancies that are undergoing allogeneic HSCT. The primary endpoint of the study is overall incidence, frequency
and severity of adverse events potentially related to ApoGraft at 180 days from transplantation.
In the study, the
graft is taken from the donor through regularly used apheresis and then the cells are exposed to short incubation with FasL and
then undergo washing and centrifugation to remove the FasL. The resulting cells are then transfused to the patient according to
routine myeloablative procedures, or therapeutic modalities, including, but not limited to, chemotherapy, radiotherapy and immunotherapy.
The first patient was recruited for this
trial in February, 2017, and in January 2018 we reported that after one month follow-up, the first three patients have demonstrated
complete acceptance of the stem cell transplant with no adverse events related to the study treatment, as determined by the clinical
investigator, and no reported serious adverse events or suspected unexpected serious adverse reactions.
The study is conducted
in two tertiary bone marrow transplant centers in Israel. To that end we entered into agreements with the Rambam Medical Center
in Haifa, Israel and Hadassah Medical Center in Jerusalem, Israel for the purpose of conducting a clinical trial under approval
from the local Institutional Review Board and Israeli Ministry of Health at the medical centers.
Patients who complete
the Phase I/II study will be given the option to enroll in a non-interventional long-term follow-up study for up to two years
post-transplantation to assess incidence, grade and stage of acute GvHD and chronic GvHD, non-relapse related mortality, disease
relapse/recurrence and overall survival.
Future Studies
We intend to undertake
the following actions during the following twelve to eighteen months:
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Continue
conducting the ongoing Phase I/II ApoGraft clinical trial;
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Commence
a second human ApoGraft trial in the United States and/or Europe;
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Commence
a Phase I/II ApoGraft clinical trial on stem cells derived from fat tissues;
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Complete
the development of the first prototype of the ApoTainer selection kits;
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Develop sterilization
methods and ApoTainer selection kits shelf life;
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Produce initial
batches of the ApoTainer selection kits for clinical trials; and
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Meet FDA and/or European regulatory
authorities and submit a trial protocol for a clinical trial using the ApoTainer selection
kit.
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Regulatory Status
Our stem cell kits
are still under development. Based on the views of our scientific advisors and following informal discussions with U.S. and European
regulatory authorities, we intend to seek regulatory approval of our stem cell kits that we are developing in the United States,
Europe and other countries as a combined therapy or Class III “medical device”.
Future Applications
Beyond the use of
our ApoGraft technology platform in the allogeneic HSCT setting for the treatment of hematological malignancies as currently contemplated,
we believe that our technology platform has the potential for a much broader set of usages:
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Use of HSCT earlier in the
blood cancer treatment protocol
. By reducing HSCT toxicity and other complications
while increasing efficacy, we believe that our stem cell selection kits will allow clinicians
to undertake HSCT earlier in the blood cancer treatment protocol.
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Broadened use of HSCT to
non-life threatening autoimmune disorders
. We are considering initiating clinical
trials in autoimmune conditions where HSCT was proven to be beneficial but it was seldom
used because of the inherent toxicity. We believe that if we are able to demonstrate
significant reduction of inherent toxicity, this will help make HSCT eligible for treatment
of diseases such as diabetes (Type i), lupus, Crohn's disease and the like.
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Broadened use of HSCT
to organ transplants
. It has been known for some time that allogeneic HSCT taken
from the same donor enhances transplantation tolerance. This phenomenon has been observed
not only in numerous animal models, but in humans as well. For example, several clinical
trials have reported that kidney transplantation accompanied by a previous HSCT from
the same donor was tolerated by the recipient's immune system. We believe that our products
could become the major adjunct therapy in any solid organ transplantation to allow tolerance.
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Functional selection of
cord blood
. Stem cells from the cord blood of newborns can be collected immediately
after birth and preserved frozen. Currently, the main impediment of HSCT based on stem
cells from cord blood is that the amount of cord blood is very limited. In combination
with inefficient selection methods, the quantity of the collected stem cells is minimal.
Therefore, the treatment is usually limited to children having low body mass. Physicians
have tried using double cord blood and other methods which have resulted in new immune
related adverse effects. Under ethical review board approval, we examined more than 150
samples of cord blood and showed that we can achieve approximately 400 times more stem
and progenitor cells from any given samples. We believe this may open up the use of cord
blood for adult patients in the future.
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Stem cell expansion
.
We already have preliminary indications that our ApoGraft technology platform greatly
improves the efficiency of the stem cell expansion process by increasing the initial
number of cells that undergoes expansion. Therefore, we believe that companies that currently
use stem cell expansion will have a major advantage if our selection process is integrated
as the first step in their manufacturing process.
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Tissue and organ engineering
.
One of the objectives of regenerative medicine is to enable the use of stem cells as
a reservoir for organ and tissue engineering and, ultimately, transplantation. The goal
is that the patient will be able to accept organs or tissues engineered from foreign
stem cells. These emerging technologies rely on a sufficient number of stem cells from
the donor and the separation of those cells from the donor’s immune system in order
to avoid rejection. We believe that our functional stem cell selection process can be
the optimal solution for such needs.
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Mesenchymal stem cells.
Develop the use of Fat derived mesenchymal stem cells under FasL treatment for various
indications including immune tolerance, orthopedic and dermato-cosmetic indications.
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Research and Development
Our core technology
was originally derived from research conducted by the research group of Dr. Nadir Askenasy. Our research and development activities
have been focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of our
ApoGraft technology platform, and toxicology testing. Based on these preclinical programs we have began clinical testing of products
based on our ApoGraft technology platform in humans. During the years ended December 31, 2015, 2016 and 2017, we incurred approximately
$1.5 million, $2.1 million, $3.3 million respectively in expenses on company-sponsored research and development activities.
Raw Materials and Suppliers
Although most raw
materials for the ApoGraft technology platform is readily obtainable from multiple sources, we know of only two manufacturers
of FasL (the apoptotis inducing signal), Oncology Ventures A/S, or Oncology Ventures, and Adipogen International. We are currently
using FasL from Oncology Ventures and believe that we have a sufficient supply of FasL for our ongoing Phase I/II trial however
we will need to obtain an additional supply of FaSL for future planned clinical trials. We have experienced delays in the supply
of FasL for our planned second human ApoGraft trial and are currently establishing a manufacturing process through a contract
manufacturer to supply us with sufficient FasL for future planned clinical trials. If our current supplier of FasL or any other
supplier suffers a major natural or man-made disaster at its manufacturing facility, or if they otherwise cease to supply to us,
then this could result in further delays in our clinical studies and may delay product testing and potential regulatory approval
until a qualified alternative supplier is identified. With respect to other raw materials for the ApoGraft technology platform,
although multiple sources of supply exist, it could be expensive and take a significant amount of time to arrange for alternative
suppliers.
If our manufacturers
or we are unable to purchase any key materials after regulatory approval has been obtained for our product candidates, the commercial
launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate
revenues from the sale of our product candidates.
Manufacturing
We do not own or operate,
and currently have no current plans to establish, any manufacturing facilities. We rely on third-party outsourcing arrangements
for our ApoTainer selection kits that we are developing as well as other preclinical testing activities. For clinical testing
purposes, we intend to rely on third-party outsourcing arrangements as well. Upon completion of development, we may either continue
to rely on third-party outsourcing arrangements or build a manufacturing facility either on our own or together with a strategic
partner. We are currently working with Entegris to jointly develop the polymer film that will be used for the manufacturing of
the ApoTainer selection kit and may engage Entegris in the future to manufacture the ApoTainer selection kits for clinical
and/or commercial purposes.
Competition
The field of regenerative
medicine is expanding rapidly, in large part through the development of cell-based therapies and/or devices designed to isolate
cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical,
medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United
States and abroad. Most regenerative medicine efforts involve sourcing adult stem and regenerative cells from tissues such as
bone marrow, placental tissue, umbilical cord and peripheral blood. However, a growing number of companies are using adipose tissue
as a cell source.
With the growing number
of companies working in the cell therapy field, we, either now or in the future, will be forced to compete across several areas,
including equity and capital, clinical trial sites, enrollment of patients in clinical trials, corporate partnerships, skilled
and experienced personnel and commercial market share. Many of our competitors may have significantly greater financial resources
and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory
approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic
industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established
companies. We cannot with any accuracy forecast when or if these companies are likely to bring cell therapies to market for indications
such as bone marrow transplants which we are also pursuing.
There are currently
two companies that lead the stem cell selection market with whom we directly compete. The first is Miltenyi, which dominates the
hematopoietic stem cell selection market, using biomarkers to either enrich stem cells (positive selection by CD34) or deplete
mature hematopoietic cells such as T cells from the biological sample (negative selection by monoclonal activity against T-cell
receptor α&β), resulting in the enrichment of stem and progenitor cells. The second is Cytori, which sells a medical
device known as the Celution® System that enables bedside access to adult adipose derived regenerative cells, or ADRCs, by
automating and standardizing the extraction, washing, and concentration of a patient’s own ADRCs for present and future
clinical use. While Miltenyi is using morphological markers of stem cells to enrich the stem cell population, Cytori is using
the physical properties of cells (in general) through centrifugal force for separation. We believe that both technologies result
in less than optimal cell population both in terms of quantity and quality (purity) of the selected population of cells.
In addition, since
we are developing our ApoTainer selection kits to improve the safety and efficacy of allogeneic HSCT, we also compete with
companies developing treatments for GvHD. These companies include Athersys, Inc., or Athersys, Bellicum Pharmaceuticals Inc.,
Erytech Pharma SA, Fate Therapeutics Inc., Fortress Biotech Inc., (formerly Coronado Biosciences), Gamida Cell Ltd., or Gamida,
Kiadis Pharma N.V., or Kiadis, MEDIPOST Co., Ltd., Mesoblast Ltd., or Mesoblast, MolMed S.p.A., and Pluristem Therapeutics Inc.,
or Pluristem.
In the general area
of cell-based therapies, we may now or in the future compete on an indirect basis with a variety of companies, most of whom are
specialty medical products or biotechnology companies that provide a finished stem cell product that has already undergone stem
cell selection including, among others, Advanced Cell Technology, Inc., Arteriocyte Medical Systems Inc., Athersys, Baxter International
Inc., Bioheart Inc., Caladarius Biosciences Inc., Nuo Therapeutics, Inc., Fibrocell Science Inc., Gamida, Genzyme Corporation,
Harvest Technologies Corporation, In vivo Therapeutics Holdings Corp., Johnson & Johnson, Kiadis, Mesoblast, Neuralstem Inc.,
Ocata Therapeutics Inc., Osiris Therapeutics, Inc., Pluristem, Tigenix NV, and others. We believe, however, that many of these
companies have the potential to become customers in the future of our ApoGraft technology platform in order to improve and enhance
their in-house processes.
Intellectual Property
Our success depends
in large part on our ability to protect our proprietary technology and to operate without infringing on the proprietary rights
of third parties. We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements,
licensing agreements and other agreements, to establish and protect our proprietary rights. Our success also depends, in part,
on our ability to avoid infringing patents issued to others. If we were judicially determined to be infringing on any third-party
patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certain activities.
To protect our proprietary
functional cell selection technology platform and other scientific discoveries, we have a wide family of patents and patent applications.
These patents cover other stem cell related inventions but mainly our functional selection methodology, products and methods of
use. The full published domain is further described below:
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A patent entitled “Method
of Inducing Immune Tolerance via Blood/Lymph Flow-Restricted Bone Marrow Transplantation”
was granted in the United States. If the appropriate maintenance fees are paid, the patent
is expected to expire in April 2024 (including a 571 day patent term adjustment granted
by the USPTO).
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A patent entitled “Methods
of Selecting Stem Cells and Uses Thereof” was granted in the United States, Canada,
Israel, India and Europe (validated in Denmark, France, Germany, Ireland, Netherlands,
Switzerland and the United Kingdom). If the appropriate maintenance fees are paid, the
patent is expected to expire in May 2027 in Israel, India and Europe and in September
2029 in the United States (including an 829 day patent term adjustment granted by the
USPTO).
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A patent application entitled
“Regulatory Immune Cells with Enhanced Targeted Cell Death Effect” was filed
as a Patent Cooperation Treaty, or PCT, which entered national phase in the United States,
Europe and Israel. A patent was granted in the United States and Europe and was validated
in Denmark, France, Germany, Ireland, Netherlands, Switzerland and the United Kingdom.
The patent application in Israel is pending. If the appropriate maintenance fees are
paid, the issued patents and the patent to be issued on the application in Israel, if
issued, are expected to expire in July, 2031.
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A patent application entitled
“Devices and Methods for Selecting Apoptosis-Signaling Resistant Cells and Uses
Thereof” was filed as a PCT application and is now in national phase in Australia,
Brazil, Canada, China, Europe, India, Japan, Korea, Russia, USA and Israel. A patent
was granted in the United States and Russia. With respect to the European application,
the European Patent Office issued a Communication under Rule 71(3) EPC (intent to grant).
If the appropriate maintenance fees are paid, these issued patents and the patents to
be issued on the pending applications, if issued, are expected to expire in March, 2033.
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A patent application entitled
“Activation of Hematopoietic Progenitors by Pre-transplant Exposure to Death Ligands”
was filed as a PCT application and is now in national phase in Australia, Canada, China,
Europe, India, Israel, Japan, Korea, and USA. If patents are issued from these applications,
and if the appropriate maintenance fees are paid, these patents are currently expected
to expire in October 2034.
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A patent application entitled
“Selective Surface for, and Methods of, Selecting a Population of Stem and Progenitor
Cells, and Uses Thereof” was filed as a PCT application and is now in national
phase in Europe and USA. If patents are issued from these applications, and if the appropriate
maintenance fees are paid, these patents are currently expected to expire in 2036.
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A patent application entitled
“Methods for propagating mesenchymal stem cells (MSC) for use in transplantation”
was filed as a PCT application in September 2016. National phase applications are due
for filing in March and April of 2018. If such national phase applications are filed
and patents are issued from these applications, and if the appropriate maintenance fees
are paid, these patents are currently expected to expire in 2036.
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We cannot assure that
any of our pending patent applications will be issued, that we will develop additional proprietary products that are patentable,
that any patents issued to us will provide us with competitive advantages or will not be challenged by any third parties, or that
the patents of others will not prevent the commercialization of products incorporating our technology. Furthermore, we cannot
assure that others will not independently develop similar products, duplicate any of our products, or design around our patents.
U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone else of a patent on
a technology we are actively using.
There is a risk that
any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared
invalid or infringing of third-party claims. For many of our pending applications, patent interference proceedings may be instituted
with the USPTO when more than one person files a patent application covering the same technology, or if someone wishes to challenge
the validity of an issued patent. At the completion of the interference proceeding, the USPTO will determine which competing applicant
is entitled to the patent, or whether an issued patent is valid. Patent interference proceedings are complex and highly contested,
and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect to any
of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the
proceeding is unfavorable to us, the patent could be issued to a competitor rather than to us. Third parties can file post-grant
proceedings in the USPTO, seeking to have issued patent invalidated, within nine months of issuance. This means that patents undergoing
post-grant proceedings may be lost, or some or all claims may require amendment or cancellation, if the outcome of the proceedings
is unfavorable to us. Post-grant proceedings are complex and could result in a reduction or loss of patent rights.
There is uncertainty
in the patent laws within and outside the United States and Israel as these are undergoing constant review and revisions through
legislation and through court-made law. The laws of some countries may not sufficiently protect our proprietary rights. Third
parties may attempt to oppose the issuance of patents to us by initiating opposition proceedings or institute proceedings to revoke
the patents. Opposition or revocation proceedings against any of our patent application in one country could have an adverse effect
on our corresponding issued patents or pending application in another country, e.g. in the United States or Israel. It may be
necessary or useful for us to participate in proceedings intended to challenge and test the validity of our patents or our competitors’
patents that have been issued in the United States, Israel and in many other jurisdictions. This could result in substantial costs,
divert our efforts and attention from other aspects of our business, and could have a material adverse effect on our results of
operations and financial condition.
In addition to patent
protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will
not independently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and
proprietary technological expertise or disclose such trade secrets, or that we can ultimately protect our rights to such unpatented
trade secrets and proprietary technological expertise. We rely, in part, on confidentiality agreements with our marketing partners,
employees, advisors, vendors and consultants to protect our trade secrets and proprietary technological expertise. We cannot assure
you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade
secrets and proprietary technological expertise will not otherwise become known or be independently discovered by competitors.
Environmental Matters
We are 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. 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. 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 testing
facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities
are required to comply with new or more stringent environmental or health and safety laws, regulations or requirements.
Government Regulation
Any products we may
develop and our research and development activities are subject to stringent government regulation. In the United States, these
regulations include the Federal Food, Drug, and Cosmetic Act, or FDCA, and other federal and state statutes and regulations that
govern the clinical and preclinical testing, manufacture, safety, effectiveness, approval, labeling, distribution, sale, import,
export, storage, record-keeping, reporting, advertising, and promotion of our products. Product development and approval within
this regulatory framework, if successful, will take many years and involve the expenditure of substantial resources. Violations
of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health
authorities’ delay in approving or refusal to approve a product. Violations of regulatory requirements also may result in
enforcement actions.
We are currently in
the early clinical development stage and none of our products have been approved for sale in any market.
United States Regulatory Requirements
Regulation of Combination Products
The FDA has specified
a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated
components, e.g., drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise
combined or mixed and produced as a single entity; (2) two or more separate products packaged together in a single package or
as a unit and comprised of drug and device products, device and biological products, or biological and drug products; (3) a drug,
device, or biological product packaged separately that according to its investigational plan or proposed labeling is intended
for use only with an approved individually specified drug, device, or biological product where both are required to achieve the
intended use, indication, or effect and where upon approval of the proposed product the labeling of the approved product would
need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of administration, or significant
change in dose; or (4) any investigational drug, device, or biological product packaged separately that according to its proposed
labeling is for use only with another individually specified investigational drug, device, or biological product where both are
required to achieve the intended use, indication, or effect.
The FDA is divided
into various “Centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for
Biologics Evaluation and Research, or CBER, or the Center for Devices and Radiological Health, or CDRH. Different Centers review
drug, biologic, or device applications.
The FDA is charged
with assigning a Center with primary jurisdiction, or a lead Center, for review of a combination product. That determination is
based on the “primary mode of action,” or PMOA, of the combination product. Thus, if the PMOA of a device-biologic
combination product is attributable to the biologic product, CBER, which is responsible for premarket review of the biologic product,
would have primary jurisdiction for the combination product. If there are two independent modes of action, neither of which is
subordinate to the other, the FDA makes a determination as to which center to assign the product based on consistency with other
combination products raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating
the most significant safety and effectiveness questions raised by the combination product.
The FDA has also established
an Office of Combination Products to address issues surrounding combination products and provide more certainty to the regulatory
review process. That office serves as a focal point for combination product issues for agency reviewers and industry. It is also
responsible for developing guidance and regulations to clarify the regulation of combination products, and for assignment of the
FDA center that has primary jurisdiction for review of combination products where the jurisdiction is unclear or in dispute.
After formally establishing
the PMOA through an applicant’s Request for Designation, the Center that regulates that portion of the product that generates
the PMOA becomes the lead evaluator. When evaluating an application, a lead Center may consult other centers but still retain
complete reviewing authority, or it may collaborate with another Center, wherein the lead Center assigns concurrent review of
a specific section of the application to another Center, delegating its review authority for that section.
Typically, the FDA
requires a single marketing application submitted to the Center selected to be the lead evaluator, although the agency has the
discretion to require separate applications to more than one Center. One reason to submit multiple evaluations is if the applicant
wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product or
orphan drug exclusivity. If multiple applications are submitted, each may be evaluated by a different lead Center. When submitting
multiple applications, the applicant may be subject to the payment of two user fees, but a waiver of such fees may be obtained
under certain limited circumstances.
The FDA may subject
a combination product to two or more sets of legal authorities, e.g., drug/device, biologic/device, drug/biologic drug, but it
has the authority to deem one set of legal authorities sufficient. FDA’s standard of review for a combination products application
and the applicable legal authority or authorities will depend on a case-by-case basis evaluation of the scientific and technical
issues and risk profile relevant to a combination product and its constituent parts. Because of the breadth and complexity of
this analysis in each case, no single regulatory paradigm is appropriate for all combination products.
After receiving FDA
approval or clearance, an approved or cleared product must comply with postmarket safety reporting requirements applicable to
the product based on the application type under which it received marketing authorization. In the case of current good manufacturing
practices, or cGMP, the applicant may take one of two approaches: (1) complying with cGMP for each constituent part, or (2) a
streamlined approach specific to combination products, subject to certain limitations.
We believe the FDA
will classify our ApoTainer stem cell selection kits as a combination product subject to the primary jurisdiction of the
CBER and the secondary jurisdiction of CDRH. As such, we plan to bring our ApoTainer selection kits to market for HSCT as
a combination product subject to the primary jurisdiction of the CBER and will submit a single application to CBER. Accordingly,
we expect the approval process of our ApoTainer selection kits to be more burdensome and lengthy than if our ApoTainer selection
kits were classified as a combination product subject to the primary jurisdiction of the CDRH. Because we anticipate coordination
between CBER and CDRH in their review of our ApoTainer stem cell selection kit product application, and because the review
and approval process may draw in requirements from each regulatory paradigm, we discuss FDA’s general approval process as
well as specific requirements for biologics and devices approvals in the U.S., respectively, below.
FDA Approval Process
The FDA extensively
regulates, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging,
storage, record-keeping, promotion, advertising, distribution, marketing and import and export of medical products. The FDA governs
the following activities that we may perform or that may be performed on our behalf, to ensure that the medical products we may
in the future manufacture, promote and distribute domestically or export internationally are safe and effective for their intended
uses:
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product design,
preclinical and clinical development and manufacture;
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product premarket
clearance and approval;
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product safety,
testing, labeling and storage;
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recordkeeping
procedures;
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product marketing,
sales and distribution; and
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post-marketing
surveillance, complaint handling and adverse event reporting, including reporting of
deaths, serious injuries, malfunctions or other deviations; and
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recall of
products, including repairs or remediation.
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A new biologic must
be approved by the FDA through the biologics license application, or BLA, process before it may be legally marketed in the U.S.
The animal and other non-clinical data and the results of human clinical trials performed under an Investigational New Drug, or
IND, application and under similar foreign applications will become part of the BLA. A new medical device must be cleared or approved
by FDA through the premarket approval (PMA) or 510(k) clearance. For medical devices that require a PMA, clinical studies performed
under an Investigation Device Exemption, or IDE, will become part of a PMA for a medical device. A combination biologic/device
may be subject to standards of review for both CBER and CDRH. Therefore, we discuss the respective regulatory approval pathways
for both biologics and medical devices.
In the U.S., the FDA
regulates biologics under the Public Health Service Act, or PHSA, and implementing regulations and medical devices under the Federal
Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations, respectively. The process of obtaining regulatory approvals
and the subsequent compliance with applicable federal, state, local, and foreign statutes and regulations require the expenditure
of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product
development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These
sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning
letters, requesting product recalls, product seizures, total or partial suspension of production or distribution, injunctions,
fines, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties. Any agency or judicial enforcement
action could have a material adverse effect on us. The process required by the FDA before a biologic or medical device may be
marketed in the U.S. generally involves the following, though a more specific discussion of regulatory requirements for biologics
and medical devices follows:
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completion of preclinical
laboratory tests, animal studies and formulation studies according to Good Laboratory Practices, or GLP, or other applicable
regulations;
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submission to the
FDA of an IND or IDE which must become effective before human clinical trials may begin;
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Approval by an institutional
review board, or IRB, representing each clinical trial site before each clinical trial may be initiated;
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performance of adequate and well-controlled
human clinical trials according to Good Clinical Practices, or GCP, to establish the safety and efficacy of the proposed drug
or device for its intended use;
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preparation and
submission of a BLA or PMA to the FDA;
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satisfactory completion of an
FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current
good manufacturing practice, or cGMP, to assure that the facilities, methods and controls are adequate to preserve the
drug’s identity, strength, quality and purity; and
satisfactory completion of any
FDA audits of the clinical study sites to assure compliance with GCP, and the integrity of clinical data in support of
the BLA or PMA;
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FDA review and approval
of the BLA or PMA.
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Once a biologic product
candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations
of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical
tests, together with manufacturing information and analytical data, to the FDA as part of the IND. The sponsor will also include
a protocol detailing, among other things, the objectives of the first phase of the clinical trials, the parameters to be used
in monitoring safety, and the effectiveness criteria to be evaluated, if the first phase lends itself to an efficacy evaluation.
Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt
by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND
sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed
by the FDA at any time before or during studies due to safety concerns or non-compliance.
Once a medical device
product requiring a PMA is identified for development, it enters the feasibility study stage. For significant risk devices, including
devices that devices that are substantially important in diagnosing, curing, mitigating or treating disease or in preventing impairment
to human health, sponsors must submit an investigational plan to FDA as part of the IDE. The IDE automatically becomes effective
30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold.
An IDE sponsor typically must submit results of feasibility studies to FDA to receive approval to proceed with a pivotal study.
A pivotal study is generally intended as the primary clinical support for a marketing application.
All clinical trials
must be conducted under the supervision of one or more qualified investigators in accordance with GCP regulations. They must be
conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria and
the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND or IDE, and
progress reports detailing the results of the clinical trials must be submitted at least annually. In addition, timely safety
reports must be submitted to the FDA and the investigators for serious and unexpected adverse events. An institutional review
board, or IRB, responsible for the research conducted at each institution participating in the clinical trial must review and
approve each protocol before a clinical trial commences at that institution and must also approve the information regarding the
trial and the consent form that must be provided to each trial subject or his or her legal representative, monitor the study until
completed and otherwise comply with IRB regulations.
Human clinical trials
for biologics are typically conducted in three sequential phases that may overlap or be combined:
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Phase I:
The
product candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases, such as cancer,
especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing
may be conducted in patients.
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Phase II
:
This phase involves studies in a limited patient population to identify possible adverse effects and safety risks, to preliminarily
evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.
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Phase III
:
Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population
at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of
the product candidate and provide, if appropriate, an adequate basis for product labeling.
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Medical devices, however, typically rely
on one or a few pivotal studies rather than Phase I, II, and III clinical trials.
Clinical trials are
subject to extensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight
of an institutional review board, or IRB, for the relevant clinical trial sites and must comply with FDA regulations, including,
but not limited to, those relating to good clinical practices. To conduct a clinical trial, we also are required to obtain the
patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal privacy
and human subject protection regulations.
The FDA, the IRB,
or we could suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh
the anticipated benefits or a finding that the research subjects or patients are being exposed to an unacceptable health risk.
Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being
conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.
Phase I, Phase II, and Phase III testing may not be completed successfully within any specified period, if at all. Even if a trial
is completed, the results of clinical testing may not adequately demonstrate the safety and efficacy of the device or may otherwise
not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinical
study must be approved by a local ethics committee and in some cases, including studies with high-risk devices, by the ministry
of health in the applicable country.
During the development
of a new medical product, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to
submission of an IND or IDE, at the end of Phase II, and before a BLA or PMA is submitted. Meetings at other times may be requested.
These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to
provide advice, and for the sponsor and FDA to reach agreement on the next phase of development. Sponsors typically use the end
of Phase II meeting to discuss their Phase II clinical results and present their plans for the pivotal Phase III clinical trial
that they believe will support approval of the new biologic. Similarly, sponsors typically use the end of feasibility studies
to do the same for planning for their pivotal trial or trials for a medical device.
Clinical research
clinical research involving the transplantation of cells or test articles derived from human fetal tissue into human recipients
is subject to additional U.S. Department of Health and Human Services Office for Human Research Protections requirements. Because
our ApoTainer stem cell selection kit uses autologous stem cell treatments, stem cells that are extracted of the patient
and transplanted to the same patient, we believe these requirements do not apply to us.
Concurrent with clinical
trials, companies usually complete additional animal studies and must also develop additional information about the chemistry
and physical characteristics of a biologic and finalize a process for manufacturing the product in commercial quantities in accordance
with cGMP requirements. For biologics, the manufacturing process must be capable of consistently producing quality batches of
the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality
and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be
conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. Before approving
a BLA or PMA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve
an application unless it determines that the manufacturing processes and facilities are in full compliance with cGMP requirements
and adequate to assure consistent production of the product within required specifications. The PHSA in particular emphasizes
the importance of manufacturing control for products like biologics whose attributes cannot be precisely defined.
Manufacturers
and others involved in the manufacture and distribution of products must also register their establishments with the FDA and certain
state agencies. Both domestic and foreign manufacturing establishments must register and provide additional information to the
FDA upon their initial participation in the manufacturing process. Any product manufactured by or imported from a facility that
has not registered, whether foreign or domestic, is deemed misbranded under the FDCA.
Establishments
may be subject to periodic unannounced inspections by government authorities to ensure compliance with cGMP and other laws. Manufacturers
may have to provide, on request, electronic or physical records regarding their establishments. Delaying, denying, limiting, or
refusing inspection by the FDA may lead to a product being deemed to be adulterated.
There are also
specific approval requirements for both biologics and medical device products, respectively. Biologics and medical devices are
also eligible for different forms of exclusivities and priority review, and combination products may be eligible for both. We
discuss both regulatory paradigms below, as our ApoTainer stem cell selection kits product will implicate elements of each,
largely at CBER’s discretion to involve CDRH in the review and approval process.
U.S. Review and Approval of Biologics
In order to obtain
approval to market a biological product in the United States, a marketing application must be submitted to the FDA that provides
sufficient data establishing the safety, purity and potency of the proposed biological product for its intended indication. 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. Data can come from company-sponsored clinical trials intended to test the
safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators.
To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety, purity and
potency of the biological product to the satisfaction of the FDA.
The results of product
development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted
on the chemistry of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of a BLA requesting
approval to market the product. The submission of a BLA is subject to the payment of user fees; a waiver of such fees may be obtained
under certain limited circumstances. The FDA initially reviews all BLAs submitted to ensure that they are sufficiently complete
for substantive review before it accepts them for filing. The FDA generally completes this preliminary review within 60 calendar
days. The FDA may request additional information rather than accept a BLA for filing. In this event, the BLA must be resubmitted
with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once
the submission is accepted for filing, the FDA begins an in-depth substantive review. FDA may refer the BLA to an advisory committee
for review, evaluation and recommendation as to whether the application should be approved and under what conditions. The FDA
is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. The approval process
is lengthy and often difficult, and the FDA may refuse to approve a BLA if the applicable regulatory criteria are not satisfied
or may require additional clinical or other data and information. Even if such data and information are submitted, the FDA may
ultimately decide that the BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive
and the FDA may interpret data differently than we interpret the same data. FDA reviews a BLA to determine, among other things
whether the product is safe, pure and potent and the facility in which it is manufactured, processed, packed or held meets standards
designed to assure the product’s continued safety, purity and potency. Before approving a BLA, the FDA will inspect the
facility or facilities where the product is manufactured. The FDA may issue a complete response letter, which may require additional
clinical or other data or impose other conditions that must be met in order to secure final approval of the BLA, or an approval
letter following satisfactory completion of all aspects of the review process.
BLAs may receive either
standard or priority review. Under current FDA review goals, standard review of an original BLA will be 10 months from the date
that the BLA is filed. A biologic representing a significant improvement in treatment, prevention or diagnosis of disease may
receive a priority review of six months. Priority review does not change the standards for approval, but may expedite the approval
process.
If a product receives
regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may
otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require a sponsor to
conduct Phase IV testing which involves clinical trials designed to further assess a drug’s safety and effectiveness after
BLA approval, and may require testing and surveillance programs to monitor the safety of approved products which have been commercialized.
The Food and Drug
Administration Safety and Innovation Act, or FDASIA, which was enacted in 2012, made permanent the Pediatric Research Equity Act,
or PREA, which requires a sponsor to conduct pediatric studies for most biologics with a new active ingredient, new indication,
new dosage form, new dosing regimen or new route of administration. Under PREA, BLAs and supplements thereto, must contain a pediatric
assessment unless the sponsor has received a deferral or waiver. The required assessment must assess the safety and effectiveness
of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for
each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric
studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that
the biologic is ready for approval for use in adults before pediatric studies are complete or that additional safety or effectiveness
data needs to be collected before pediatric studies can begin. After April 2013, the FDA must send a non-compliance letter to
any sponsor that fails to submit a required pediatric assessment within specified deadlines or fails to submit a timely request
for approval of a pediatric formulation, if required.
Biologics Price Competition and Innovation
Act of 2009
The Biologics Price
Competition and Innovation Act of 2009, or BPCIA, amended the PHSA to create an abbreviated approval pathway for two types of
“generic” biologics — biosimilars and interchangeable biologic products, and provides for a twelve-year
exclusivity period for the first approved biological product, or reference product, against which a biosimilar or interchangeable
application is evaluated; however if pediatric studies are performed and accepted by the FDA, the twelve-year exclusivity period
will be extended for an additional six months. A biosimilar product is defined as one that is highly similar to a reference product
notwithstanding minor differences in clinically inactive components and for which there are no clinically meaningful differences
between the biological product and the reference product in terms of the safety, purity and potency of the product. An interchangeable
product is a biosimilar product that may be substituted for the reference product without the intervention of the health care
provider who prescribed the reference product.
The biosimilar applicant
must demonstrate that the product is biosimilar based on data from (1) analytical studies showing that the biosimilar product
is highly similar to the reference product; (2) animal studies (including toxicity); and (3) one or more clinical studies to demonstrate
safety, purity and potency in one or more appropriate conditions of use for which the reference product is approved. In addition,
the applicant must show that the biosimilar and reference products have the same mechanism of action for the conditions of use
on the label, route of administration, dosage and strength, and the production facility must meet standards designed to assure
product safety, purity and potency.
U.S. Review and Approval of Medical
Devices
Unless an exemption
applies, medical device commercially distributed in the United States require either premarket notification, or 510(k) clearance,
or approval of a premarket approval, or PMA, application from the FDA. While we anticipate CBER will be the lead Center in reviewing
our product application, CDRH’s review standards will likely apply to significant portions of the application.
The FDA classifies
medical devices into one of three classes. Class I devices, considered to have the lowest risk, are those for which safety and
effectiveness can be assured by adherence to the FDA’s general regulatory controls for medical devices, which include compliance
with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing,
reporting of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials
(General Controls). Class II devices are subject to the FDA’s General Controls, and any other special controls as deemed
necessary by the FDA to ensure the safety and effectiveness of the device (Special Controls). Manufacturers of most Class II and
some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA, requesting permission
to commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose
the greatest risks, such as life-sustaining, life-supporting or implantable devices, or devices that have a new intended use,
or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III,
requiring approval of a PMA. The submission of a 510(k) or PMA is subject to the payment of user fees; a waiver of such fees may
be obtained under certain limited circumstances.
510(k) Clearance Pathway for Medical
Devices
When a 510(k) clearance
is required, an applicant is required to submit a 510(k) application demonstrating that our proposed device is substantially equivalent
to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has
not yet called for the submission of PMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification
within 90 days of submission of the application. As a practical matter, clearance may take longer. The FDA may require further
information, including clinical data, to make a determination regarding substantial equivalence.
Once filed, the FDA
has 90 days in which to review the 510(k) application and respond. Typically, the FDA’s response after reviewing a 510(k)
application is a request for additional data or clarification. Depending on the complexity of the application and the amount of
data required, the process may be lengthened by several months or more. If additional data, including clinical data, are needed
to support our claims, the 510(k) application process may be significantly lengthened.
If the FDA issues
an order declaring the device to be Not Substantially Equivalent, or NSE, the device is placed into a Class III or PMA category.
At that time, a company can request a
de novo
classification of the product.
De novo
generally applies where there
is no predicate device and the FDA believes the device is sufficiently safe so that no PMA should be required. The request must
be in writing and sent within 30 days from the receipt of the NSE determination. The request should include a description of the
device, labeling for the device, reasons for the recommended classification and information to support the recommendation. The
de novo process has a 60-day review period. If the FDA classifies the device into Class II, a company will then receive an approval
order to market the device. This device type can then be used as a predicate device for future 510(k) submissions. However, if
the FDA subsequently determines that the device will remain in the Class III category, the device cannot be marketed until the
company has obtained an approved PMA.
Any modification to
a 510(k)-cleared device that would constitute a major change in its intended use, or any change that could significantly affect
the safety or effectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA
if the change raises complex or novel scientific issues or the product has a new intended use. The FDA requires every manufacturer
to make the determination regarding the need for a new 510(k) submission in the first instance, but the FDA may review any manufacturer’s
decision. If the FDA were to disagree with any of our determinations that changes did not require a new 510(k) submission, it
could require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval
is obtained. If the FDA requires us to seek 510(k) clearance or PMA approval for any modifications, we may be required to cease
marketing and/or recall the modified device, if already in distribution, until 510(k) clearance or PMA approval is obtained and
we could be subject to significant regulatory fines or penalties.
Premarket Approval (PMA) Pathway for
Medical Devices
While we believe that
the medical device component of our ApoTainer stem cell selection kits will be subject to the 510(k) clearance pathway, FDA
could evaluate our product under the PMA pathway if it believes the device component raises sufficiently complex or novel scientific
issues.
A PMA application
must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s
premarket clearance and approval requirements. A PMA application must generally be supported by extensive data, including, but
not limited to, technical, preclinical, clinical trial, manufacturing and labeling, to demonstrate to the FDA’s satisfaction
the safety and effectiveness of the device for its intended use. During the review period, the FDA will typically request additional
information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may
be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device.
The FDA may or may not accept the panel’s recommendation. In addition, the FDA will generally conduct a pre-approval inspection
of our or our third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with
the QSR. Once a PMA is approved, the FDA may require that certain conditions of approval be met, such as conducting a post-market
clinical trial.
New PMAs or PMA supplements
are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types of
modifications to the device’s indication for use, manufacturing process, labeling and design. PMA supplements often require
submission of the same type of information as a PMA, except that the supplement is limited to information needed to support any
changes from the device covered by the original PMA and may not require as extensive clinical data or the convening of an advisory
panel.
Clinical trials are
generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require
an application for an investigational device exemption, or IDE, which is approved in advance by the FDA for a specified number
of patients and study sites, unless the product is deemed a non-significant risk device eligible for more abbreviated IDE requirements.
A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and
either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, or
treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject.
Breakthrough Device Designation
The FDA grants Breakthrough
expedite development, assessment and review of medical devices that “provide for more effective treatment or diagnosis of
life-threatening or irreversibly debilitating human disease or conditions; and that represent breakthrough technologies; for which
no approved or cleared alternatives exist; that offer significant advantages over existing approved or cleared alternatives, or
the availability of which is in the best interest of patients.”
This status confers a number of benefits
on the development path of medical devices. These include:
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a
dedicated FDA team, including senior management engagement, to facilitate development
of the device
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a
defined process for resolving disputes that may arise between the sponsor and FDA
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a
commitment to interactive and timely communication between FDA and the sponsor
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increased
flexibility in clinical study design
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options
for data collection in the post-market setting, in place of a full clinical study prior
to approval
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priority
review status, meaning that a sponsor’s submissions will be placed at the top of
the relevant review queue and receive additional FDA resources as needed
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expedited
review and potential deferral of manufacturing and quality systems compliance audits
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advance
disclosure to the sponsor of the topics of any consultation between the FDA and external
experts or an advisory committee
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an
opportunity for the sponsor to recommend external experts for such consultations
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assignment
of FDA staff to address questions by institutional review committees concerning investigational
use of the medical device
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any
additional steps FDA deems appropriate to expedite the development and review of the
medical device.
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We plan to apply for
a Breakthrough Designation for the container component of our ApoTainer selection kit.
Patent Term Restoration and Marketing
Exclusivity
Depending upon the
timing, duration and specifics of FDA approval of our product, some of our U.S. patents may be eligible for limited patent term
extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments.
The Hatch-Waxman Amendments permit a patent restoration term of up to five years as partial compensation for effective patent
term lost due to time spent during product development and the FDA regulatory review process. However, patent term restoration
cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term
restoration period is generally one-half the time between the effective date of an IND, and the submission date of a BLA, plus
the time between the submission date of a BLA and the approval of that application, except that the period is reduced by any time
during which the applicant failed to exercise due diligence. Only one patent applicable to an approved drug may be extended, and
the extension must be applied for prior to expiration of the patent. The United States Patent and Trademark Office, in consultation
with the FDA, reviews and approves the application for any patent term extension or restoration.
Pediatric exclusivity
is another type of marketing exclusivity available in the U.S. FDASIA made permanent the Best Pharmaceuticals for Children Act,
or BPCA, which provides, under certain circumstances, for an additional six months of marketing exclusivity if a sponsor conducts
clinical trials in children in response to a written request from the FDA, or a Written Request. If the Written Request does not
include studies in neonates, the FDA is required to include its rationale for not requesting those studies. The FDA may request
studies on approved or unapproved indications in separate Written Requests. The issuance of a Written Request does not require
the sponsor to undertake the described studies.
Orphan Drug Designation
We have received Orphan
Drug Designation from FDA for our ApoGraft technology for the prevention of acute and chronic graft versus host disease (GvHD)
in transplant patients. Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare
disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the U.S., or more
than 200,000 individuals in the U.S. and for which there is no reasonable expectation that the cost of developing and making available
in the U.S. a drug for this type of disease or condition will be recovered from sales in the U.S. for that drug. Orphan drug designation
must be requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the identity of the therapeutic
agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not itself convey any advantage
in or shorten the duration of the regulatory review and approval process. If a product that has orphan drug designation subsequently
receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity,
which means that the FDA may not approve any other applications to market the same drug for the same indication, except in very
limited circumstances, for seven years. Orphan drug exclusivity, however, also could block the approval of one of our product
candidates for seven years if a competitor obtains approval of the same drug, for the same designated orphan indication or if
our product candidate is determined to be contained within the competitor’s product for the same indication or disease.
The FDA also administers
a clinical research grants program, whereby researchers may compete for funding to conduct clinical trials to support the approval
of drugs, biologics, medical devices, and medical foods for rare diseases and conditions. A product does not have to be designated
as an orphan drug to be eligible for the grant program. An application for an orphan grant should propose one discrete clinical
study to facilitate FDA approval of the product for a rare disease or condition. The study may address an unapproved new product
or an unapproved new use for a product already on the market.
Post-Approval Regulation of Biologics
and Medical Devices
After a product is
placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, adverse event
reporting regulations require that we report to the FDA any incident in which our product may have caused or contributed to a
death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute
to death or serious injury. Additional regulatory requirements include:
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product listing and establishment
registration, which helps facilitate FDA inspections and other regulatory action;
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cGMP or QSR, which requires
manufacturers, including third-party manufacturers, to follow stringent design, validation,
testing, control, documentation and other quality assurance procedures during all aspects
of the design and manufacturing process;
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labeling regulations and FDA
prohibitions against the promotion of products for uncleared, unapproved or off-label
use or indication;
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clearance of product modifications
that could significantly affect safety or effectiveness or that would constitute a major
change in intended use of one of our approved medical products;
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notice or approval of product
or manufacturing process modifications or deviations that affect the safety or effectiveness
of one of our approved medical products;
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post-approval restrictions
or conditions, including post-approval study commitments;
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post-market surveillance regulations,
which apply, when necessary, to protect the public health or to provide additional safety
and effectiveness data for the medical product;
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the FDA’s recall authority,
whereby it can ask, or under certain conditions order, device manufacturers to recall
from the market a product that is in violation of governing laws and regulations;
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regulations
pertaining to voluntary recalls; and
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notices of corrections or removals.
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A biologic product
may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of
the product before it is released for distribution. If the product is subject to official lot release, the manufacturer must submit
samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results
of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory
tests on lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related
to the safety, purity, potency and effectiveness of pharmaceutical products.
Advertising and promotion
of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC,
and by state regulatory and enforcement authorities. Promotional activities for FDA-regulated products of other companies have
been the subject of enforcement action brought under healthcare reimbursement laws and consumer protection statutes. Furthermore,
under the federal U.S. Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising
claims. In addition, we are required to meet regulatory requirements in countries outside the United States, which can change
rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of
an unapproved or uncleared use, it could request that we modify our training or promotional materials or subject us to regulatory
or enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if
they consider our promotional or training materials to constitute promotion of an unapproved use, which could result in significant
fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.
Failure by us or by
our third-party manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement action
by the FDA or other regulatory authorities, which may result in sanctions including, but not limited to:
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letters, warning letters, fines, injunctions, consent decrees and civil penalties;
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customer
notifications or repair, replacement, refunds, recall, detention or seizure of our products;
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operating
restrictions or partial suspension or total shutdown of production;
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refusing or delaying requests
for 510(k) clearance or PMA approvals of new products or modified products;
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withdrawing
510(k) clearances or PMA approvals that have already been granted;
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refusing
to grant export approval for our products; or
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Human Cells, Tissues, and Cellular
and Tissue-Based Products Regulation
Under Section 361
of the PHSA, the FDA issued specific regulations governing the use of human cells, tissues and cellular and tissue-based products,
or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established
a unified registration and listing system for establishments that manufacture and process HCT/Ps. The regulations also include
provisions pertaining to donor eligibility determinations; current good tissue practices covering all stages of production, including
harvesting, processing, manufacture, storage, labeling, packaging, and distribution; and other procedures to prevent the introduction,
transmission, and spread of communicable diseases.
The HCT/P regulations
strictly constrain the types of products that may be regulated solely under these regulations. Factors considered include the
degree of manipulation, whether the product is intended for a homologous function, whether the product has been combined with
noncellular or non-tissue components, and the product’s effect or dependence on the body’s metabolic function. In
those instances where cells, tissues, and cellular and tissue-based products have been only minimally manipulated, are intended
strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or have any
effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured
products, and adopt and implement procedures for the control of communicable diseases. If one or more of the above factors has
been exceeded, the product would be regulated as a drug, biological product, or medical device rather than an HCT/P.
Management believes
that Part 1271 requirements do not currently apply to us because we are not currently investigating, marketing or selling cellular
therapy products. If we were to change our business operations in the future, the FDA requirements that apply to us may also change
and we would we would potentially need to expend significant resources to comply with these requirements.
Federal
Regulation of Clinical Laboratories
The
Clinical Laboratory Improvement Amendments (“CLIA”) extends federal oversight to clinical laboratories that examine
or conduct testing on materials derived from the human body for the purpose of providing information for the diagnosis, prevention,
or treatment of disease or for the assessment of the health of human beings. CLIA requirements apply to those laboratories that
handle biological matter. CLIA requires that these laboratories be certified by the government, satisfy governmental quality and
personnel standards, undergo proficiency testing, be subject to biennial inspections, and remit fees. The sanctions for failure
to comply with CLIA include suspension, revocation, or limitation of a laboratory’s CLIA certificate necessary to conduct
business, fines, or criminal penalties. Additionally, CLIA certification may sometimes be needed when an entity desires to obtain
accreditation, certification, or license from non-government entities for cord blood collection, storage, and processing. However,
to the extent that any of our activities require CLIA certification, we intend to obtain and maintain such certification and/or
licensure.
Coverage, Pricing and Reimbursement
Significant uncertainty
exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. Sales of any of our
products, if approved, will depend, in part, on the extent to which the costs of the products will be covered by third-party payors,
including government health programs such as Medicare and Medicaid, commercial health insurers and managed care organizations.
The process for determining whether a payor will provide coverage for a medical product may be separate from the process for setting
the price or reimbursement rate that the payor will pay for the medical product once coverage is approved. Third-party payors
may limit coverage to medical drug products on an approved list, or formulary, which might not include all of the approved products
for a particular indication.
In order to secure
coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic
studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required
to obtain FDA or other comparable regulatory approvals. Our products may not be considered medically necessary or cost-effective.
A payor's decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved.
Third-party reimbursement may not be sufficient to enable us to maintain price levels high enough to realize an appropriate return
on our investment in product development.
The containment of
healthcare costs has become a priority of federal, state and foreign governments, and the prices of medical products have been
a focus in this effort. Third-party payors are increasingly challenging the prices charged for medical products and services and
examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy.
If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may
not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient
to allow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant
interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price controls,
restrictions on reimbursement and requirements for substitution of generic products for branded prescription medical products.
Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures,
could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our net
revenue and results.
Pricing and reimbursement
schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement
price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of
a particular product candidate to currently available therapies. For example, the European Union (EU) provides options for its
member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and
to control the prices of medicinal products for human use. EU Member States may approve a specific price for a drug product or
may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the
market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits.
The downward pressure on health care costs in general, particularly prescription medical products, has become very intense. As
a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border
imports from low-priced markets exert competitive pressure that may reduce pricing within a country. There can be no assurance
that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and
pricing arrangements for any of our products.
The marketability
of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors
fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States
has increased and we expect will continue to increase the pressure on drug pricing. Coverage policies, third-party reimbursement
rates and drug pricing regulation may change at any time. In particular, the Patient Protection and Affordable Care Act was enacted
in the United States in March 2010 and contains provisions that may reduce the profitability of medical products, including, for
example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans,
mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales
to federal health care programs. Even if favorable coverage and reimbursement status is attained for one or more products for
which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Anti-Kickback and False Claims Laws
In addition to FDA
restrictions on marketing of medical products, several other types of state and federal laws have been applied to restrict certain
marketing practices in the medical product industry in recent years. These laws include anti-kickback statutes and false claims
statutes. The federal Anti-Kickback Statute, or AKS, prohibits, among other things, knowingly and willfully offering, paying,
soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease
or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs.
This statute has been interpreted to apply to arrangements between medical product manufacturers on the one hand and prescribers,
purchasers and formulary managers on the other. Violations of the AKS are punishable by imprisonment, criminal fines, civil monetary
penalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions
and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions
and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations
may be subject to scrutiny if they do not qualify for an exemption or safe harbor.
The Federal False
Claims Act, or FCA, prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the
federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several
pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report
to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly
providing free products to customers with the expectation that the customers would bill federal programs for the product. In addition,
certain marketing practices, including off-label promotion, may also violate false claims laws. The majority of states also have
statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed
under Medicaid and other state programs, or, in several states, apply regardless of the payor.
Other Regulations
We may from time to
time become subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances,
including chemicals, micro-organisms and various radioactive compounds used in connection with our research and development activities.
These laws include, but are not limited to, the U.S. Occupational Safety and Health Act, the U.S. Toxic Test Substances Control
Act and the U.S. Resource Conservation and Recovery Act. Although we believe that our safety procedures for handling and disposing
of these materials comply with the standards prescribed by state and federal regulations, there can be no assurances that accidental
contamination or injury to employees and third parties from these materials will not occur.
Foreign Regulatory Requirements
International sales
of medical products are subject to foreign government regulations, which vary substantially from country to country. The time
required to obtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and
the requirements may differ.
In order to conduct
clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and
general manager of the institution in which the clinical studies are scheduled to be conducted, 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 require authorization by the institutional
ethics committee and general manager as well as from the Israeli Ministry of Health, except in certain circumstances, and in the
case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s
overseeing 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 in Israel, we are 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.
In the EU, the regulatory
environment depends on the regulatory status of product. At this point, it is likely that the ApoTainer selection kit would qualify
as a medical device in the EU. However, the substance used in the ApoTainer may qualify as a pharmaceutical product. The ApoTainer
selection kit would have to undergo a conformity assessment procedure as a medical devices and the substance would have to obtain
a marketing authorization as a drug. It is also possible that treatment using the ApoTainer will be subject to further regulatory
requirements. In particular, it is possible that the stem cell treatment itself may be considered the production of a drug and,
therefore, would require a manufacturing authorization according to Dir. 2001/83/EC. Furthermore, the use of the ApoTainer selection
kit may be subject to Member States’ laws on transplantation.
With regard to medical
devices, the current legal regime is based on the MDD and its implementation in the Member States as well as several guidance
documents and regulating the design, manufacture, clinical trials, labeling, and adverse event reporting for medical devices.
Each EU Member State has implemented legislation applying these directives and standards at a national level. Other countries
such as Switzerland have voluntarily adopted laws and regulations that mirror those of the EU with respect to medical devices.
Devices that comply with the requirements of the laws of the relevant Member State applying the applicable EU directive are entitled
to bear a CE mark and, accordingly, can be distributed throughout EU Member States as well as in other countries, e.g., Switzerland
and Israel, that have mutual recognition agreements with the EU or have adopted the EU’s regulatory standards.
The method of assessing
conformity with applicable regulatory requirements varies depending on the classification of the medical device, which may be
Class I, Class IIa, Class IIb or Class III. Normally, the method involves a combination of self-assessment by the manufacturer
of the safety and performance of the device, and a third-party assessment by a Notified Body, usually of the design of the device
and of the manufacturer’s quality system. A Notified Body is a private commercial entity that is designated by the national
government of a member state as being competent to make independent judgments about whether a device complies with applicable
regulatory requirements. An assessment by a Notified Body in one country with the EU is required in order for a manufacturer to
commercially distribute the device throughout the EU. In addition, compliance with ISO 13485, issued by the International Organization
for Standardization, among other standards establishes the presumption of conformity with the essential requirements for CE marking.
Certification to the ISO 13485 standard demonstrates the presence of a quality management system that can be used by a manufacturer
for design and development, production, installation and servicing of medical devices and the design, development and provision
of related services. In 2017, the new Regulation (EU) No. 745/2017 on medical devices (the Medical Device Regulation, or MDR)
has been published and will enter into force three years later, i.e., in 2020. The MDR will result in several medical devices
being classified in higher risk classes and therefore face elevated regulatory requirements. In addition, the MDR will generally
elevate regulatory requirements to medical devices. As a result, it is likely that it will become more difficult to market medical
devices and costs incurred for clinical evaluation, conformity assessment and post marketing surveillance will increase.
If one or more of
our current or future products would have the status of a drug under the law of the EU or one or more of its Member States, regulatory
requirements for such product(s) would be significantly higher. In particular, a drug can only be placed on the market if it has
been authorized by the competent regulatory authority either under the EU centralized procedure, the decentralized or mutual recognition
procedure or under a member State’s national procedure. Marketing authorizations for drugs under all of the different authorization
procedures are expensive and time consuming.
Even if the ApoGraft
platform and/or the ApoTainer is considered a medical device, it is possible that the actions performed by the products may be
considered manufacture of a drug. While HSCT is considered to be subject to regulatory requirements for medicinal products (drugs)
in the EU, it is possible HSCT is also considered to be an advanced therapy medicinal product (ATMP), subject to even stricter
regulations. With regard to the most basic version of HSCT, the European Medicines Agency, or EMA, has issued an opinion stating
that it regarded these treatments as exempt from drug and ATMP regulations. This basic HSCT involves the extraction of adipose
stem cells from a patient’s subcutaneous area and their transplantation in the subcutaneous area elsewhere in the body of
the same patient, if the treatment is performed in one doctor visit, the cells have the same function where they are extracted
as where they are transplanted, and they are not treated in any way between extraction and transplantation. This opinion does
not apply to stem cell treatments that deviate from this basic version in one or several aspects. Consequently, other HSCT may
qualify as drug treatments or as tissue preparations and a market authorization or manufacturing approval may be required. If
there is doubt as to whether a stem cell treatment is considered a drug or tissue preparation, it is possible to obtain a statement
with regard to the product status from the EMA Committee for Advanced Therapies (CAT). Whether EMA CAT would qualify a HSCT as
a drug and/or an ATMP depends on several aspects, including the question whether the use of the stem cells is homologous and whether
or not the stem cells have been substantially manipulated between their extraction and their transplantation. Furthermore, the
treatment may be subject to EU laws on human tissues including Dir. 2004/23/EC setting standards of quality and safety for
the donation, procurement, testing, processing, preservation, storage and distribution of human tissues and cells
and related legal framework on EU and/or Member State level.
However, even if EMA
CAT does not consider the treatment a drug and/or an ATMP treatment, it is possible that competent authorities in the Member States
nevertheless qualify the treatment as a drug and/or an ATMP and make its performance subject to a marketing authorization and/or
manufacturing authorization on their territory.
Sales and Marketing
During 2017, we launched
a business development campaign. We believe that interim results from our ongoing Phase I/II study will help validate our platform
technology and qualify our technology for out licensing to companies interested in improving their manufacturing process of adult
stem-cell based products. To address these plans we intend to open up business development offices and hire a vice president for
business development in United States. The recruitment of the team and the data from the clinical trials is expected to converge
and allow the initiation of series of licenses on a non- exclusive basis to various stem cells based companies.
Legal Proceedings
From time to time
we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently
not a party to any material legal or administrative proceedings and except as set forth below, are not aware of any pending or
threatened material legal or administrative proceedings against us.
|
C.
|
Organizational
Structure
|
We currently have one wholly owned subsidiary,
Cellect Biotherapeutics, which is incorporated in the State of Israel.
|
D.
|
Property,
Plant and Equipment
|
Our headquarters are
currently located in Kfar Saba, Israel and consist of approximately 4,360 square feet of leased office space under a lease until
October 14, 2018,
In addition, we hold
options to extend the lease until October 14, 2020 and until October 14, 2022 and 2024. On October 24, 2017, we leased another
258 square feet of office space under a lease until December 31, 2018, with options to extend the lease until October 14, 2022
and until October 14, 2024. We may require additional space and facilities as our business expands.
ITEM 4A.
|
UNRESOLVED STAFF COMMENTS
|
None.
ITEM 5.
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
The following discussion
and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report
on Form 20-F. This discussion and other parts of this annual report on Form 20-F contain forward-looking statements based upon
current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially
from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk
Factors” and elsewhere in this annual report in Form 20-F. We report financial information under IFRS as issued by the International
Accounting Standards Board and none of the financial statements were prepared in accordance with generally accepted accounting
principles in the United States.
To date, we have not
generated revenue from the sale of any product, and we do not expect to generate significant revenue within the next year at least.
As of December 31, 2017, we had an accumulated deficit of NIS 64 million (approximately $18 million). Our financing activities
are described below under “
Finance Expense and Income
.”
Operating Expenses
Our current operating
expenses consist of two components – research and development expenses, and general and administrative expenses.
Research and Development Expenses,
net
Our research and development
expenses consist primarily of salaries and related personnel expenses, subcontractor expenses, patent registration fees, materials,
share based payment and other related research and development expenses, net of grants.
The following table
discloses the breakdown of research and development expenses:
|
|
Year
ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
NIS
|
|
|
USD*
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll
|
|
|
2,739
|
|
|
|
3,711
|
|
|
|
5,486
|
|
|
|
1,582
|
|
Subcontractors
|
|
|
538
|
|
|
|
534
|
|
|
|
853
|
|
|
|
246
|
|
Patent registration
|
|
|
326
|
|
|
|
409
|
|
|
|
256
|
|
|
|
74
|
|
R&D related purchases
|
|
|
770
|
|
|
|
1,676
|
|
|
|
1,574
|
|
|
|
454
|
|
Share-based payment
|
|
|
523
|
|
|
|
253
|
|
|
|
1,940
|
|
|
|
560
|
|
Professional services
|
|
|
746
|
|
|
|
1,044
|
|
|
|
651
|
|
|
|
188
|
|
Other expenses
|
|
|
251
|
|
|
|
629
|
|
|
|
743
|
|
|
|
214
|
|
|
|
|
5,893
|
|
|
|
8,256
|
|
|
|
11,503
|
|
|
|
3,318
|
|
* USD presented as convenience translation
using December 31, 2017 NIS/USD exchange rate of NIS 3.467.
General and Administrative Expenses
General and administrative
expenses consist primarily of salaries, professional service fees, director fees, office expenses, taxes and fees, share based
payment and other general and administrative expenses.
The following table
discloses the breakdown of general and administrative expenses:
|
|
Year
ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
NIS
|
|
|
USD*
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll
|
|
|
1,024
|
|
|
|
2,994
|
|
|
|
3,076
|
|
|
|
887
|
|
Professional services
|
|
|
1,367
|
|
|
|
2,074
|
|
|
|
3,745
|
|
|
|
942
|
|
Director fees
|
|
|
358
|
|
|
|
318
|
|
|
|
354
|
|
|
|
102
|
|
Office expense
|
|
|
235
|
|
|
|
466
|
|
|
|
449
|
|
|
|
130
|
|
Share-based payment
|
|
|
795
|
|
|
|
1,299
|
|
|
|
3,444
|
|
|
|
993
|
|
Other expenses
|
|
|
425
|
|
|
|
817
|
|
|
|
1,862
|
|
|
|
675
|
|
Total
|
|
|
4,204
|
|
|
|
7,968
|
|
|
|
12,930
|
|
|
|
3,729
|
|
* USD presented as convenience translation
using December 31, 2017 NIS/USD exchange rate of NIS 3.467.
Comparison of the year ended December
31, 2017 to the year ended December 31, 2016 to the year ended December 31, 2015
Results of Operations
|
|
December
31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2015*
|
|
|
2016*
|
|
|
2017*
|
|
|
|
(in thousands of NIS)
|
|
|
(in thousands of USD)
|
|
Research and development expenses, net
|
|
|
5,893
|
|
|
|
8,256
|
|
|
|
11,503
|
|
|
|
1,510
|
|
|
|
2,147
|
|
|
|
3,318
|
|
General and administrative expenses
|
|
|
4,204
|
|
|
|
7,968
|
|
|
|
12,930
|
|
|
|
1,077
|
|
|
|
2,072
|
|
|
|
3,729
|
|
Other income
|
|
|
-
|
|
|
|
(280
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(73
|
)
|
|
|
-
|
|
Operating loss
|
|
|
10,097
|
|
|
|
15,944
|
|
|
|
24,433
|
|
|
|
2,587
|
|
|
|
4,146
|
|
|
|
7,047
|
|
Finance expense (income),
net
|
|
|
75
|
|
|
|
(627
|
)
|
|
|
3,791
|
|
|
|
19
|
|
|
|
(163
|
)
|
|
|
1,094
|
|
Total comprehensive loss
|
|
|
10,172
|
|
|
|
15,317
|
|
|
|
28,224
|
|
|
|
2,606
|
|
|
|
3,983
|
|
|
|
8,141
|
|
Loss
attributable to holders of Ordinary Shares
|
|
|
10,172
|
|
|
|
15,317
|
|
|
|
28,224
|
|
|
|
2,606
|
|
|
|
3,983
|
|
|
|
8,141
|
|
* USD presented as convenience translation
using year end 2017, 2016, 2015 NIS/USD exchange rate of: NIS 3.467, NIS 3.845 and NIS 3.902, respectively.
Research and Development Expenses,
net
Our research and development
expenses for the year ended December 31, 2017 amounted to NIS 11.5 million (approximately $3.3 million), representing an increase
of NIS 3.2 million (approximately $1.2 million), or 39%, compared to NIS 8.3 million (approximately $2.1 million) for the year
ended December 31, 2016. The increase was primarily attributable to an increase of NIS 1.7 million (approximately $0.5 million)
from share based payment and an increase of salaries and related personnel expenses in an amount of NIS 1.8 million (approximately
$0.5 million) reflecting the growth in our activities resulting from an increase in the number of employees engaged in research
and development related activities from thirteen to eighteen.
Our research and development
expenses for the year ended December 31, 2016 amounted to NIS 8.3 million (approximately $2.1 million), representing an increase
of NIS 2.4 million (approximately $0.6 million), or 40%, compared to NIS 5.9 million (approximately $1.5 million) for the year
ended December 31, 2015. The increase was primarily attributable to an increase of NIS 1.2 million (approximately $0.3 million)
from R&D related expenses as part of the preparation for the clinical trial and for the lab and an increase of salaries and
related personnel expenses in an amount of NIS 1.0 million (approximately $0.26 million) reflecting the growth in the our activities
resulting from an increase in the number of employees engaged in research and development related activities from nine to thirteen.
General and Administrative Expenses
Our general and administrative
expenses totaled NIS 12.9 million (approximately $3.7 million) for the year ended December 31, 2017, an increase of NIS 4.9 million
(approximately $1.7 million), or 61%, compared to NIS 8.0 million (approximately $2.0 million) for the year ended December 31,
2016. The increase resulted primarily from an increase of NIS 2.2 million (approximately $0.6 million) in share based payment,
an increase of NIS 1.2 million (approximately $0.3 million) in professional services due to increase in legal and investor and
public relations expenses as the company was a Nasdaq company for the all year and an increase of NIS 1.6 million (approximately
$0.5 million) from other expenses which mainly represent the company business development activities.
Our general and administrative
expenses totaled NIS 8.0 million (approximately $2.0 million) for the year ended December 31, 2016, an increase of NIS 3.7 million
(approximately $1.0 million), or 89%, compared to NIS 4.2 million (approximately $1.0 million) for the year ended December 31,
2015. The increase resulted primarily from an increase of NIS 2.5 million (approximately $0.65 million) in payroll and share based
payment reflecting the growth in the company activities resulting from an increase in the number of employees and an increase
of NIS 0.7 million (approximately $0.18) in professional services due to increase in legal and investor and public relations expenses
after our U.S. initial public offering, or IPO.
Operating Loss
As a result of the
foregoing, our operating loss for the year ended December 31, 2017 was NIS 24.4 million (approximately $7.0 million), as compared
to an operating loss of NIS 15.9 million (approximately $4.1 million) for the year ended December 31, 2016, an increase of NIS
8.5 million (approximately $2.9 million), or 53%.
As a result of the
foregoing, our operating loss for the year ended December 31, 2016 was NIS 15.9 million (approximately $4.1 million), as compared
to an operating loss of NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS
5.8 million (approximately $1.5 million), or 58%.
Finance Expense and Income
Finance expense and
income mainly consist of bank fees and other transactional costs, changes in the fair value of certain price adjustment mechanisms
in warrants that were issued to investors who participated in certain fund raising rounds, and exchange rate differences.
We recognized net
financial expenses of NIS 3.8 million (approximately $1.1 million) for the year ended December 31, 2017, compared to net financial
income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016. The change is primarily due to the
change in the fair value of the listed warrants granted in the IPO in 2016 and to the unregistered warrants granted in our registered
direct offering in 2017.
We recognized net
financial income of NIS 0.6 million (approximately $0.16 million) for the year ended December 31, 2016, compared to net financial
expense of NIS 0.075 million (approximately $0.02 million) for the year ended December 31, 2015. The increase is primarily due
to the change in the fair value of the listed warrant granted in the IPO.
Total Comprehensive Loss
As a result of the
foregoing, our comprehensive loss for the year ended December 31, 2017 was NIS 28.2 million (approximately $8.1 million), as compared
to NIS 15.3 million (approximately $4.0 million) for the year ended December 31, 2016, an increase of NIS 12.9 million (approximately
$4.1 million), or 84%.
As a result of the
foregoing, our comprehensive loss for the year ended December 31, 2016 was NIS 15.3 million (approximately $4.0 million), as compared
to NIS 10.1 million (approximately $2.6 million) for the year ended December 31, 2015, an increase of NIS 5.2 million (approximately
$1.3 million), or 51%.
Critical Accounting Policies and Estimate
Our management’s
discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have
prepared in accordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, as well as the reported expenses during the reporting periods. Actual results may differ
from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described
in Note 2 to our audited financial statements appearing elsewhere in this prospectus, we believe that the following accounting
policies are the most critical for fully understanding and evaluating our financial condition and results of operations.
Share-based payment transactions
From time to time
we grant to our employees and other service providers remuneration in the form of equity-settled share-based instruments, such
as options to purchase ordinary shares. 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. As for 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 in which the
performance or service conditions are satisfied, and ending on the date on which the relevant employees become fully entitled
to the award. 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 (service and/or performance) are satisfied. When we change the conditions of the award of equity-settled
instruments, an additional expense is recognized beyond the original expense, calculated in respect of a change that increases
the total fair value of the remuneration granted or benefits the other service provider according to the fair value on date of
change. Cancellation of the award of equity-settled instruments is accounted for as having vested at the cancellation date and
the expense not yet recognized in respect of the award is recognized immediately. However, if the cancelled grant is replaced
by a new grant, and is intended as an alternate grant at the date awarded, the cancelled and new awards will both be accounted
for as a change to the original award, as described above.
Option Valuations
The determination
of the grant date fair value of options using an option pricing model (we utilize the Black-Scholes model) is affected by estimates
and assumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our
share price over the expected term of the options, share option exercise and cancellation behaviors, risk-free interest rates
and expected dividends, which are estimated as follows:
|
●
|
Volatility.
The expected share price volatility is based on the historical volatility in the
trading price of our ordinary shares as well as comparable companies on the TASE and
on the NASDAQ and benchmarks of related companies.
|
|
●
|
Expected
Term.
The expected term of options granted is based upon the contractual life of
the options and represents the period of time that options granted are expected to be
outstanding.
|
|
●
|
Risk-Free
Rate.
The risk-free interest rate is based on the yield from Israeli government bonds
with a term equivalent to the contractual life of the options.
|
|
●
|
Expected
Dividend Yield.
We have never declared or paid any cash dividends and do not presently
plan to pay cash dividends in the foreseeable future. Consequently, we use an expected
dividend yield of zero.
|
Impairment of non-financial assets
We evaluate the need
to record an impairment 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 is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows
are discounted using a pre-tax discount rate that reflects the risks specific to the asset. 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. Impairment
losses are recognized in profit or loss.
An impairment loss
of an asset, other than goodwill, 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 reversal of impairment loss of an asset presented at cost
is recognized in profit or loss.
Government grants
Government grants
received from the Isreal-U.S. Binational Industrial Research and Development ("BIRD") Foundation are recognized upon
receipt as a reduction in research and development expenses, as we evaluated that there is reasonable assurance that we will not
be required to pay royalties, based on the best estimate of future sales using the original effective method.
IFRS 16, Leases
In January 2016, the
IASB issued IFRS 16, "Leases". According to IFRS 16, 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.
According to IFRS
16:
|
●
|
Lessees
are required to recognize an asset and a corresponding liability in the statement of
financial position in respect of all leases (except in certain cases) similar to the
accounting treatment of finance leases according to the existing IAS 17, "Leases".
|
|
●
|
Lessees
are required to initially recognize a lease liability for the obligation to make lease
payments and a corresponding right-of-use asset. Lessees will also recognize interest
and depreciation expenses 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 (such as a percentage of revenues)
are recognized as an expense by the lessees as incurred and recognized as income by the
lessors as earned.
|
|
●
|
In
the event of change in variable lease payments that are CPI-linked, lessees are required
to remeasure the lease liability and the effect of the remeasurement is an adjustment
to the carrying amount of the right-of-use asset.
|
|
●
|
IFRS
16 includes two exceptions according to which lessees are permitted to elect to apply
a method similar to the current accounting treatment for operating leases. These exceptions
are leases for which the underlying asset is of low value and leases with a term of up
to one year.
|
|
●
|
The
accounting treatment by lessors remains substantially unchanged, namely classification
of a lease as a finance lease or an operating lease.
|
For leases existing
at the date of transition, IFRS 16 permits lessees to use either a full retrospective approach, or a modified retrospective approach,
with certain transition relief whereby restatement of comparative data is not required.
We are currently evaluating
the impact of implementing this guidance on our consolidated financial statements. In 2018, we will continue to assess the potential
effect of IFRS 16 on our consolidated financial statements as well as its adoption methodology.
Financial Liabilities
Financial liabilities
within the scope of IAS 39 are initially measured at fair value. After initial recognition, other liabilities are measured
according to their terms at amortized cost using the effective interest method, taking into account directly attributable transaction
costs.
The warrants were
classified as a financial liability at fair value measured by quoted price and are marked to market through profit or
loss in accordance with IAS 39.
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.
B
|
Liquidity and
Capital Resources
|
Overview
During the year ended
December 31, 2017, we funded our operations principally with NIS 47.3 million (approximately $12.7 million) from the issuance
of ordinary shares and warrants in 2016 and 2017. As of December 31 2017, we had NIS 27.7 million (approximately $8.0 million)
in cash and cash equivalents and marketable securities.
The table below presents
our cash flows:
|
|
Year
ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2015*
|
|
|
2016*
|
|
|
2017*
|
|
|
|
(in thousands of NIS)
|
|
|
(in thousands of USD)
|
|
Net
cash used in operating activities
|
|
|
(7,710
|
)
|
|
|
(14,412
|
)
|
|
|
(17,770
|
)
|
|
|
(1,975
|
)
|
|
|
(3,748
|
)
|
|
|
(5,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) Investing activities
|
|
|
3,175
|
|
|
|
(18,012
|
)
|
|
|
10,091
|
|
|
|
814
|
|
|
|
(4,684
|
)
|
|
|
2,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by financing activities
|
|
|
6,396
|
|
|
|
34,924
|
|
|
|
15,813
|
|
|
|
1,639
|
|
|
|
9,083
|
|
|
|
4,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
in cash and cash equivalents
|
|
|
1,791
|
|
|
|
2,366
|
|
|
|
7,455
|
|
|
|
459
|
|
|
|
615
|
|
|
|
2,150
|
|
* USD presented as convenience translation
using year end 2017, 2016, 2015 NIS/USD exchange rate of: NIS 3.467, NIS 3.845 and NIS 3.902, respectively.
Operating Activities
Net cash used in operating
activities was NIS 17.7 million (approximately $5.1 million) for the year ended December 31, 2017, compared with net cash used
in operating activities of approximately NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016.
Net cash used in operating
activities was NIS 14.4 million (approximately $3.7 million) for the year ended December 31, 2016, compared with net cash used
in operating activities of approximately NIS 7.7 million (approximately $2.0 million) for the year ended December 31, 2015. The
increases in such periods are primarily due to increases in research and development expenses.
Investing Activities
Net cash provided
by investing activities of NIS 10.1 million (approximately $2.9 million) during 2017 primarily reflects net proceeds from short
term deposits and marketable securities.
Net cash used in investing
activities of NIS 18.0 million (approximately $4.7 million) during 2016 primarily reflects increase in short term deposits.
Net cash provided
by investing activities of NIS 3.1 million (approximately $0.8 million) during 2015 primarily reflects sales of marketable securities
measured at fair value through profit and loss.
Financing Activities
Net cash provided
by financing activities in the years ended December 31, 2017, 2016 and 2015 consisted of NIS 15.8 million (approximately $4.6
million), NIS 34.9 million (approximately $9.1 million) and NIS 6.4 million (approximately $1.6 million) respectively, of net
proceeds, mainly from the issuance of ordinary shares (including ordinary shares represented by ADSs) and warrants.
In March 2016, we
issued an aggregate of 5,783,437 ordinary shares pursuant to a private placement, at a price of NIS 1.39 (approximately $0.36)
per share. In addition, we issued warrants to purchase up to 1,927,801 ordinary shares, which had an exercise price of NIS 2.1
(approximately $0.54) per warrant. The warrants expired on March 7, 2018.
In August 2016,
we issued an aggregate of 1,292,308 ADSs and listed warrants to purchase 1,035,121 ADSs in our IPO, at a price of $6.50 per ADS
resulting in gross proceeds of approximately $8.4 million..
On September 11, 2017,
we sold to certain accredited investors an aggregate of 531,136 ADSs in a registered direct offering at $8.10 per ADS resulting
in gross proceeds of approximately $4.3 million. In addition, we issued to the investors unregistered warrants to purchase 265,568
ADSs in a private placement.
On January 31, 2018,
we sold to certain institutional investors an aggregate of 484,848 ADSs in a registered direct offering at $8.25 per ADS resulting
in gross proceeds of approximately $4.0 million. In addition, we issued to the investors unregistered warrants to purchase 266,667
ADSs in a private placement.
Current Outlook
We have financed
our operations to date primarily through proceeds from issuance of our ordinary shares and ordinary shares represented by
ADSs. We have incurred losses and generated negative cash flows from operations since July 2013. In addition, we have an
accumulated deficit of NIS 17.8 million (approximately $5.1 million) at December 31, 2017. We have never generated any
revenue from the sale or licensing of our products and we do not expect to generate significant revenue within the next year
at least.
We expect that our
existing cash and cash equivalents will be sufficient to fund our current operations until at least the end of the first quarter
of 2019. We have expended and believe that we will continue to expend significant operating and capital expenditures for the foreseeable
future developing our ApoGraft technology platform and our ApoTainer collection kits. These expenditures will include, but
are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinical
trials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals,
as well as commercializing any products approved for sale. Furthermore, we expect to incur additional costs associated with operating
as a public company in the United States. Because the outcome of our planned and anticipated clinical trials is highly uncertain,
we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our
ApoGraft technology platform, our ApoTainer collection kits and any other future product. In addition, other unanticipated
costs may arise. As a result of these and other factors currently unknown to us, we require substantial, additional funds through
public or private equity or debt financings 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 number and characteristics
of products we develop from our ApoGraft technology platform;
|
|
●
|
the scope, progress, results
and costs of researching and developing our ApoGraft technology platform and any future
products, and conducting preclinical and clinical trials;
|
|
●
|
the timing of, and the costs
involved in, obtaining regulatory approvals;
|
|
●
|
the cost of commercialization
activities if any products are approved for sale, including marketing, sales and distribution
costs;
|
|
●
|
the cost of manufacturing any
future product we successfully commercialize;
|
|
●
|
our ability to establish and
maintain strategic partnerships, licensing, supply 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 costs of in-licensing further
patents and technologies;
|
|
●
|
the cost of development of
in-licensed technologies;
|
|
●
|
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 our ApoGraft technology platform or delay, limit, reduce or terminate our establishment of sales
and marketing capabilities or other activities that may be necessary to commercialize our ApoGraft technology platform, our ApoTainer collection
kits or any future products. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our independent auditors,
in their report on our audited financial statements for the year ended December 31, 2017 expressed substantial doubt about
our ability to continue as a going concern. The financial statements do not include any adjustments to the carrying amounts
and classifications of assets and liabilities that would result if we were unable to continue as a going concern.
|
5.C
|
Research
and Development, Patents and Licenses
|
See above, under Item
5A – “Operating Results”.
We are a development
stage company and it is not possible for us to predict with any degree of accuracy the outcome of our research, development or
commercialization efforts. As such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties,
demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenues, income from
continuing operations, profitability, liquidity or capital resources, or that would cause financial information to not necessarily
be indicative of future operating results or financial condition. However, to the extent possible, certain trends, uncertainties,
demands, commitments and events are in this “Operating and Financial Review and Prospects.”
|
5.E
|
Off-Balance
Sheet Arrangements
|
We participated in
programs sponsored by the Israel-United States Binational Industrial Research and Development Foundation (BIRD) for the support
of research and development activities. We are obligated to pay royalties to BIRD, amounting to 5% of the gross sales of the products
and other related revenues developed from such activities, up to an amount of 150% from the grant received from BIRD by us indexed
to the U.S. consumer price index.
As of December 31,
2017, we received an aggregate grant of $120,000 from the BIRD Foundation in support of the development and commercialization
of our stem cell selection technology in collaboration with Entegris. Subject to the successful completion of different milestones,
we expect to receive additional grants in the future.
|
5.F
|
Contractual
Obligations
|
The following table
summarizes our significant contractual obligations at December 31, 2017:
|
|
Total
|
|
|
Less
than
1 year
|
|
|
1-3
years
|
|
|
4-5
years
|
|
|
More
than
5 years
|
|
|
|
(in thousands)
|
|
Operating Lease Obligations in
NIS
|
|
|
492
|
|
|
|
407
|
|
|
|
85
|
|
|
|
-
|
|
|
|
-
|
|
Operating Lease Obligations in $
|
|
|
142
|
|
|
|
117
|
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
The operating lease
obligations in the foregoing table include our commitments under the lease agreements for our facility in Kfar Saba. See “Item
4. Information on the Company — Property, Plant and Equipment.”
ITEM 6.
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
A.
|
Directors and Senior Management
|
Directors and Senior Management
We are managed
by a board of directors, which is currently comprised of eight members, and our senior management. Each of our members of senior
management is
appointed by our board of directors. The table below sets forth our directors and senior management. The business address for
each of our directors and senior management is c/o Cellect Biotechnology Ltd. 23 Hata’as Street, Kfar Saba, Israel
44425.
Name
|
|
Age
|
|
Position
|
Kasbian
Nuriel Chirich
|
|
59
|
|
Chairman
of the Board of Directors
|
Dr.
Shai Yarkoni
|
|
59
|
|
Chief
Executive Officer and Director
|
Eyal
Leibovitz
|
|
56
|
|
Chief
Financial Officer
|
Dr.
Ronit Bakimer-Kleiner
|
|
56
|
|
Chief
Development Officer
|
Abraham
Nahmias
(1)(2)(3)
|
|
62
|
|
Director
|
Dr.
Ruth Ben Yakar
|
|
48
|
|
Director
|
Yuval
Berman
(1)(2)(3)
|
|
51
|
|
External
Director
|
Michael
Berelowitz
(1)
|
|
73
|
|
Director
|
Ruhama
Avraham
(1)(2)(3)
|
|
54
|
|
External
Director
|
David
Braun
(1)
|
|
46
|
|
Director
|
|
(1)
|
Indicates independent
director under NASDAQ rules.
|
|
(2)
|
Member of our Audit
Committee.
|
|
(3)
|
Member of our Compensation
Committee.
|
Kasbian Nuriel
Chirich
co-founded our subsidiary, Cellect Biotherapeutics, in 2011 and has served as Chairman of our board of directors
since 2013 and of our subsidiary since inception. Mr. Chirich is an entrepreneur and businessman with extensive financial and
business expertise with innovative ventures throughout East Africa and Israel. Mr. Chirich is a real estate developer and was
previously the founder and general manager of Leadcom Kasbian, which is credited, among other thing, with establishing the national
television of Tanzania and building the infrastructure of two cellular networks in Tanzania. Mr. Chirich serves as the Honorary
Consul of Tanzania in Israel.
Dr. Shai Yarkoni
co-founded
our subsidiary, Cellect Biotherapeutics, in 2011, and has served as our Chief Executive Officer and a director since 2013 and
of our subsidiary since inception. Dr. Yarkoni has over 15 years of clinical and management experience in the biopharmaceutical
industry. Dr. Yarkoni is a founder of Sne, an Israeli technology transfer company established in 2013. Since 1999, Dr. Yarkoni
has also been the Chief Executive Officer and Chairman of GASR Biotechnology, a life sciences consulting and investing firm. From
2009 until 2013, Dr. Yarkoni served as Chief Executive Officer of BioNegev, an international innovation center for biotechnology
and life sciences in the Negev region. Prior to that he served as Chief Executive Officer of Target-In Ltd., a developer of therapeutic
recombinant proteins for cancer treatment and as Chief Technology Officer and Vice President R&D of Collgard Biopharmaceutical,
a tissue therapeutics company, and was an attending OB/GYN specialist practicing for approximately thirteen years. Dr. Yarkoni
holds an M.D and Ph.D from the Hadassah Medical School, Jerusalem
,
Israel, and is a board certified OB/GYN. Dr. Yarkoni
is the author of over 60 scientific papers and inventor of approximately 20 patents.
Eyal Leibovitz
has
served as our Chief Financial Officer since January 1, 2017. Mr. Leibovitz has over over 27 years of experience in senior management,
finance, investor relations, mergers and acquisitions business development in international pharma and biotech companies. From
September 2007 to October 2011, Mr. Leibovitz served as Chief Financial Officer of Kamada Ltd. (NASDAQ:KMDA), from November 2011
to December 2015 as the Chief Financial Officer of N-trig Ltd and as Chief Financial Officer of Evogene Ltd. (NYSE:EVGN) from
December 2015 to December 2016. Among his achievements, he led Kamada Ltd. to a successful large scale fund raising (including
PIPE round, public rights offering, venture lending and public convertible debt) and led the sale of N-trig Ltd to Microsoft.
Mr. Leibovitz hold a BBA degree from the City University of New York.
Dr. Ronit Bakimer-Kleiner
has served as our Chief Development Officer since November 2017. Prior to joining us, from 2008 to 2017, Dr. Bakimer-Kleiner
served as General Manager of Cognate Bioservices Israel, a contract bioservices organization focused on the regenerative medicine
and cell therapy market. Prior to that from 2006 to 2008, Dr. Bakimer-Kleiner was Laboratory Director at the International Center
for Cell Therapy & Cancer at Tel Aviv Sourasky Medical Center and from 1997 to 2006 held various positions at Proneuron Biotechnologies
including Director of Cell Therapy. Dr. Bakimer-Kleiner holds a B.Sc. in Life Sciences from Tel Aviv University and a M.Sc. and
Ph.D. in Immunology from Ben-Gurion University followed by 4 years post-doc at The Weizmann Institute of Science.
Abraham Nahmias
has
served as a member of our board of directors since July 2014. Since 1985, Mr. Nahmias has served as a founding partner of Nahmias-Grinberg
C.P.A., an accounting firm. Mr. Nahmias serves or has served as a member of the board of directors of several private and public
companies including Rotshtein Real Estate (TASE: ROTS), Orad Ltd., Allium Medical Ltd. (TASE: ALMD), Nano Dimension Ltd. (NASDAQ:
NNDM) and Eviation Aircraft Ltd. (OTC: EVTNF). Mr. Nahmias holds a B.A. degree in Economics and Accounting from Tel Aviv University,
and has had a C.P.A. license since 1982.
Dr. Ruth Ben Yakar
has
served as a member of our board of directors since July 2014. Dr. Ben Yakar has over 24 years of experience in the biomedical
field, including 17 years of management in the biotech industry, leading diverse corporate, business, operational, financial,
clinical development, and research activities. Since December 2014, Dr. Ben Yakar has served as the CEO and a director at BioSight
Ltd., a clinical-phase biotech company. Since September 2016, Dr. Ben-Yakar has served on the board of directors of Biondvax (NASDAQ:
BVXV) and she is also a business consultant to several biomed companies, and a guest lecturer at Lahav, the Recannati Business
School of Tel-Aviv University. From 2012 until 2014, Dr. Ben Yakar served as the CEO of Procognia, a biotech company traded on
the TASE and from November 2014 to April 2017 she was a director at SHL Medicine (SIX Swiss Exchange: SHLTN). Additionally, from
2012 until 2015, Dr. Ben Yakar was a director at Israel Advanced Technology Industries or IATI. Prior to that, Dr. Ben Yakar served
as the CEO of Thrombotech, where she led a multi-center phase II clinical trial and led the company to acquisition. She also served
as the Chief Business Officer of YEDA, the technology transfer company of the Weizmann Institute of Science, responsible for the
commercialization of the WIS technologies, and was Vice President in several Biotech companies where she led diverse product development
activities and clinical and pre-clinical R&D projects. Dr. Ben Yakar holds a PhD Cum Laude from the Weizmann Institute of
Science. Her research, in the field of oncology, yielded several prestigious publications and awards.
Yuval Berman
has
served as a member of our board of directors since 2009. Mr. Berman serves as one of our external directors and serves on our
audit committee, and compensation committee. Mr. Berman is the founder and managing director of U.V.B Business Initiatives Ltd.,
a business consultancy firm based in Tel Aviv established in 2002. Previously, Mr. Berman worked in the investment banking and
underwriting units of Poalim Capital Markets & Investments Ltd. and Omega Investments Ltd., a publicly traded financial services
group. Preceding this, Mr. Berman practiced corporate law for four years. Mr. Berman previously served on the board of directors
of Elbit Vision Systems Ltd. (Nasdaq: EVSNF), as well as several private companies. He holds an LL.B. and B.A. degrees in Law
and Economics from Tel Aviv University and an MBA from the Solvay Business School, Université Libre De Bruxelles. Mr. Berman
is a member of the Israeli bar.
Michael Berelowitz
has
served as a member of our board of directors since March 2017. Since 2011, Dr. Berelowtiz has been self-employed as a biopharmaceutical
consultant. From 2009 to 2011, Dr. Berelowitz served as Senior Vice President and Head of Clinical Development and Medical Affairs
in the Specialty Care Business Unit at Pfizer, Inc. From 1996 to 2009, he served in various other roles at Pfizer, Inc., beginning
as a Medical Director in the Diabetes Clinical Research team and then assuming positions of increasing responsibility. Prior to
1996, Dr. Berelowitz spent a number of years in academia. Dr. Berelowitz also serves on the board of directors of Recro Pharma
Inc. (NASDAQ: REPH), a clinical stage specialty pharmaceutical company, Kamada Ltd. (NASDAQ: KMDA), a plasma-derived protein therapeutics
company focused on orphan indications, and previously served as a director of Oramed Pharmaceuticals Inc. from June 2010 until
August 30, 2016. Among his public activities, Dr. Berelowitz has served on the board of directors of the American Diabetes Association,
the Clinical Initiatives Committee of the Endocrine Society, and has chaired the Task Force on Research of the New York State
Council on Diabetes. He has also served on several editorial boards, including the Journal of Clinical Endocrinology and Metabolism
and Endocrinology, Reviews in Endocrine and Metabolic Disorders and Clinical Diabetes. Dr. Berelowitz has authored and co-authored
more than 100 peer-reviewed journal articles and book chapters in the areas of pituitary growth hormone regulation, diabetes and
metabolic disorders. Dr. Berelowitz holds adjunct appointments as Professor of Medicine in the Divisions of Endocrinology and
Metabolism at SUNY - Stony Brook and Mt. Sinai School of Medicine in New York.
Ruhama Avraham
,
has served as a member of our board of directors since December 2017. Ms. Avraham is a former member of the Knesset with a distinguished
political career. Since 2013, Ms. Avraham has been providing strategic support and consulting to enterprises and organizations
such as Manufacturers Association of Israel, Bank Hapoalim, Giza Singer Even Ltd., Coca Cola and Skylock, Nefesh B’nefesh
and World ORT. Since 2017, Ms. Avraham serves as external director of Minrav Holdings Ltd. and Canada’s Sky Line and was
previously an external director of B. Yair Building Corp. Prior to that after her election to the Knesset, from 2003 to 2013,
Ms. Avraham served in various political and governmental roles in Israel including Minister of Tourism, Acting Minister of the
Interior, Deputy Knesset Speaker and Member of Knesset as the Opposition Chairwoman, Member of the Financial Committee and Member
of the Foreign Affairs and Defense Committee. She received her bachelor’s degree in social science from Bar-Ilan University,
and an MBA in Organizational Management and HR Management from the Peres Academic Center.
David Braun
has
served as a member of our board of directors since December 2017. Mr. Braun has nearly 20 years of experience spanning across
various roles in research and development, operations, business management, merger and acquisition integrations and organizational
transformation. Since 2015, Mr. Braun has been the Head of Medical Device Business at Merck KGaA Group. From 2011 to 2015, Mr.
Braun was Director of Global Research and Development and Operations at Newell Brands. Prior to that from 2007 to 2011, he was
the Vice President in Research and Development and Operations at Biosafe. Mr. Braun has also held various positions in project
management and system engineering. He received his Master of Science in applied physics and electro-optical engineering in 1997
at the National High School of Physics of Strasbourg, and has participated in Executive leadership and general management programs
at IMD and at the Harvard Business School.
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. Our Scientific Advisory Team members are entitled, according to their work and contribution to us,
to either hourly or monthly consulting fees.
Our Scientific Advisory
Team is comprised of the following members:
Professor Dov Zipori
is
the Director of the Helen and Martin Kimmel Institute for Stem Cell Research at the WIS. Pluristem’s technology is based
on Prof. Zipori’s scientific research.
Dr. Susan Alpert
has
served as the Director of Medical Device Assessment in the FDA, as well as senior VP Regulatory at Medtronic Inc. (NYSE:MDT) and
C. R. BARD Inc.
Professor Robert
Negrin
is the Medical Director of the Clinical Bone Marrow Transplantation Laboratory and the Division Chief of the Blood
and Marrow Transplant Program at Stanford University.
Professor John
F. DiPersio
is Chief of Oncology at the Washington University School of Medicine in St. Louis. He specializes in bone
marrow transplantations, leukemia, gene therapy and GvHD.
Professor Francesco
Dazzi
is a specialist in Regenerative and Haematological Medicine and is KHP Lead for Cellular Therapies at King's College
London. Professor Dazzi is also a member of editorial boards at leading scientific journals.
Professor Corey
Cutler
is a hematologist affiliated with the Dana-Farber Cancer Institute and the Brigham and Women’s Hospital. He is
also Associate Professor, Medicine at Harvard Medical School.
Family Relationships
There are no family relationships between
any members of our executive management and our directors.
Arrangements for Election of Directors and Members of Management
There are no arrangements
or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management or
our directors were selected.
The aggregate compensation
expensed, including share-based compensation and other compensation expensed by us and our subsidiaries to our directors and senior
management with respect to the year ended December 31, 2017 was approximately $2.5 million.
The table below sets
forth the compensation paid to our five most highly compensated senior office holders (as defined in the Companies Law) during
or with respect to the year ended December 31, 2017, in the disclosure format of Regulation 21 of the Israeli Securities Regulations
(Periodic and Immediate Reports), 1970. We refer to the five individuals for whom disclosure is provided herein as our “Covered
Executives.”
For purposes of the
table and the summary below, and in accordance with the above mentioned securities regulations, “compensation” includes
base salary, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, phone
and social benefits and any undertaking to provide such compensation.
Name and Principal Position
|
|
Base
Salary
(NIS in
thousands)
(including
social
allowance)
|
|
|
Variable
Compensation
(1)
(NIS
in
thousands)
|
|
|
Equity-Based
Compensation
(2)
(NIS
in
thousands)
|
|
|
Other
(NIS in
thousands)
|
|
|
Total
(3)
(NIS in
thousands)
|
|
|
Convenience
translation
into
USD in
thousands
(6)
|
|
Kasbian
Nuriel Chirich,
Chairman of the Board of Directors
|
|
|
551
|
|
|
|
126
|
|
|
|
995
|
|
|
|
12
|
|
|
|
1,684
|
|
|
|
486
|
|
Dr. Shai Yarkoni,
Chief Executive Officer & Director
|
|
|
1,138
|
|
|
|
378
|
|
|
|
2,111
|
|
|
|
7
|
|
|
|
3,634
|
|
|
|
1,048
|
|
Eyal Leibovitz,
Chief Financial Officer
|
|
|
922
|
|
|
|
278
|
(5)
|
|
|
884
|
|
|
|
10
|
|
|
|
2,094
|
|
|
|
604
|
|
Dr.
Yaron Pereg
Chief Development Officer
(4)
|
|
|
553
|
|
|
|
-
|
|
|
|
46
|
|
|
|
16
|
|
|
|
615
|
|
|
|
177
|
|
Dr. Amotz Nechushtan,
Vice President Research and Development
|
|
|
516
|
|
|
|
-
|
|
|
|
60
|
|
|
|
-
|
|
|
|
576
|
|
|
|
166
|
|
|
(1)
|
Amounts reported in this column refer
to variable compensation such as commission, incentive and bonus payments for the year
ended December 31, 2017 (including any cash bonuses paid in 2018). Cash bonuses
are intended to promote our work plan and business strategy by rewarding senior office
holders for achievement of business and financial goals through team work and collaboration.
Key performance indicators which are factored into cash bonus determinations are individual
specific and may include: (i) progress in our ongoing Phase I/II clinical trial, (ii)
completion of strategic and supplier transactions, (iv) raising funds, and (v) strengthening
of the board.
|
|
(2)
|
Amounts reported in this column represent
the expense recorded in the Company’s financial statements for the year ended December
31, 2017 with respect to equity-based compensation. Assumptions and key variables used
in the calculation of such amounts are discussed in note 12 to the consolidated financial
statements.
|
|
(3)
|
All amounts reported in the table
are in terms of cost to us.
|
|
(4)
|
Dr. Pereg ceased serving as our Chief
Development Officer on October 25, 2017.
|
|
(5)
|
Includes a one-time payment of NIS
42,000 for services performed for us prior to commencing employment.
|
|
(6)
|
Calculated using the exchange rate
reported by the Bank of Israel for December 31, 2017 at the rate of one U.S. dollar per
NIS 3.467.
|
Compensation
of Directors
As approved by our
shareholders at our 2016 annual meeting of shareholders, in connection with their services as directors of the Company, each of
our directors from time to time, including external directors, is entitled to an annual payment of NIS 25,000, plus value-added
tax, or VAT, if applicable, payable quarterly at the end of each quarter. In addition, in accordance with the companies regulations
(rules regarding compensation and expenses to external directors) - 2000, each of our directors are entitled to receive an average
payment of NIS 1,300 plus VAT, if applicable, per each board meeting or board committee meetings they have participated in.
For the outstanding
equity-based awards granted to our directors, see below under “Item 6. Directors, Senior Management and Employees—E.
Share Ownership—Certain Information Concerning Equity Awards to Office Holders.”
Compensation of External Directors
Each of our external
directors is entitled to an annual amount of NIS 25,000, plus VAT, if applicable, payable in quarterly installments at the end
of each quarter. In addition, in accordance with the companies regulations (rules regarding compensation and expenses to external
directors) - 2000, each of our external directors are entitled to receive an average payment of NIS 1,300 plus VAT, if applicable,
per each board meeting or board committee meetings they have participated in. The compensation of external directors is also subject
to the provisions of the Israeli regulations promulgated pursuant to the Companies Law governing the terms of compensation payable
to external directors, or the Compensation Regulations, which provide that such compensation will not be less than the Minimum
Amount (as such term is defined in the Compensation Regulations). See also “Item 6. Directors, Senior Management and Employees—C.
Board Practices—External Directors & Financial Experts” below.
Employment Agreements with Senior
Management
Our
senior management are 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 member of senior
management,
during which time such person will continue to receive base salary and benefits. These agreements also contain
customary provisions regarding non-competition, confidentiality of information and assignment of inventions. However, the
enforceability of the non-competition and assignment of inventions provisions may be limited under applicable law. See
“Risk Factors — Risks Related to Our Operations in Israel.”
For a description
of the terms of our options and option plans, see “Item 6. E. Share Ownership” below.
Chairman of the Board of Directors
Agreement with Kasbian Nuriel Chirich
On April 30, 2013,
we entered into a Chairman of the board of directors agreement with Kasbian Nuriel Chirich, employing him on a part-time basis
as Chairman of the board of directors. Mr. Chirich’s current monthly salary is NIS 35,000. Mr. Chirich is also entitled
to reimbursement for reasonable out-of-pocket expenses, including travel expenses. The agreement originally had a term of 36 months
and was renewable for additional terms of 36 months subject to any approvals that are required by law. The agreement is terminable
by either party upon 180 days prior written notice and is terminable immediately by Cellect Biotherapeutics for cause as such
term is defined in the employment agreement.
On July 24, 2016,
we entered into an amendment to the employment agreement with Mr. Chirich. As part of the amendment, we extended
the employment agreement for a further 36 months. Pursuant to the terms of the amendment, Mr. Chirich will continue to be
employed on a part-time basis, consisting of at least 75% of his time, as the Chairman of the board of directors of the
Company. The amendment provided for an increase in Mr. Chirich’s monthly salary to up to NIS 35,000 and an annual bonus
of up to NIS 100,000 for the year 2016 if certain objectives were met. In addition, Mr. Chirich will be entitled to an
allocation to a manager’s insurance policy, pension plan, study fund and disability insurance.
On August 26, 2015,
we granted options to purchase 72,000 ordinary shares to Mr. Chirich. The options are exercisable at NIS 1.90 per share and expire
on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.
On February 28, 2017,
we granted options to purchase 1,442,729 ordinary shares to Mr. Chirich. The options are exercisable at NIS 1.20 per share and
expire on February 27, 2027. The options vest over a period of 48 months, with one quarter vesting 12 months from the grant date
and the remaining three quarters vesting over the remaining 36 months on a quarterly basis beginning 12 months from the grant
date.
Employment Agreement with Shai Yarkoni
On April 30, 2013,
we entered into an employment agreement with Dr. Shai Yarkoni employing him on full-time basis as Chief Executive Officer. Dr.
Yarkoni’s current monthly salary is NIS 70,000. Dr. Yarkoni is entitled to an allocation to a manager’s insurance
policy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable out-of-pocket expenses, including travel expenses
and a company car and mobile phone. The agreement has a term of 36 months and is terminable by either party upon 180 days prior
written notice and terminable immediately by us for cause as such term is defined in the employment agreement.
On July 24, 2016,
we entered into an amendment to the employment agreement with Dr. Yarkoni. As part of the amendment, we extended
the employment agreement for a further 36 months. The amendment provided for an increase in Dr. Yarkoni’s
monthly salary to up to NIS 70,000 and an annual bonus of up to five monthly salaries for the year 2016 if certain objectives
were met.
On September 8, 2014,
we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni. The options are exercisable at a price of NIS 1.40 per
share. The options vested each quarter from the date of grant over three years in twelve equal installments and are fully vested.
The options expire on September 8, 2024.
On August 26, 2015,
we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni. The options are exercisable at NIS 1.90 per share and expire
on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.
On February
28, 2017, we granted options to purchase 3,024,040 ordinary shares to Dr. Yarkoni for his service on the board of directors. The
options are exercisable at NIS 1.20 per share and expire on February 27, 2027. The options vest over a period of 48 months, with
one quarter vesting 12 months from the grant date and the remaining three quarters vesting over the remaining 36 months on a quarterly
basis beginning 12 months from the grant date.
Employment Agreement with Eyal Leibovitz
On October 25, 2016,
we entered into an employment agreement with Eyal Leibovitz, employing him on full-time basis as Chief Financial Officer effective
December 31, 2016. Mr. Leibovitz’s current monthly salary is NIS 52,500. In addition, Mr. Leibovitz will be entitled to
an annual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the compensation
committee and the board of directors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s
insurance policy and study fund. Mr. Leibovitz is also entitled to reimbursement for reasonable out-of-pocket expenses, including
travel expenses, professional fees, director and officer insurance and a company car and mobile phone. The agreement is terminable
by either party upon 90 days prior written notice and terminable immediately by us for cause as such term is defined in the employment
agreement.
In addition, pursuant
to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of
NIS 0.819 per share. The options vest on a quarterly basis in equal installments over 36 months. In the case of termination of
the employment agreement not due to a material breach as defined therein, the vested options shall be exercisable for a period
of 12 months from the date of termination. In addition, the employment agreement provided that upon the earlier of one year from
the date of the option grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst
report, Mr. Leibovitz will be entitled to an additional option to purchase 107,584 ordinary shares. These options were granted
on January 1, 2018.
Services Agreement with Dr. Ruth Ben Yakar
In September 2014,
a special meeting of shareholders approved entering into a services agreement with Dr. Ruth Ben Yakar under which Dr. Ben Yakar
will provide up to 20 hours per month of assistance to our Chief Executive Officer in business development and raising money for
a monthly fee of NIS 6,000. In April 2015, our shareholders approved an increase to Dr. Ben Yakar’s monthly fee to up to
NIS 14,000, reflecting a maximum of 40 hours per month of services, effective November 15, 2014.
In addition, in September
2014, we granted to Dr. Ben Yakar options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share. The
options vested on a quarterly basis in equal installments over 36 months and are fully vested. The options expire on September
28, 2025.
On August 26, 2015,
we granted options to purchase 72,000 ordinary shares to Dr. Ben Yakar. The options are exercisable at NIS 1.90 per share and
expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.
On February 28, 2017,
we granted options to purchase 78,000 ordinary shares to Dr. Ben Yakar. The options are exercisable at NIS 1.20 per share and
expire on February 27, 2027. The options vest over a period of 48 months, with one quarter vesting 12 months from the grant date
and the remaining three quarters vesting over the remaining 36 months on a quarterly basis beginning 12 months from the
grant date.
Introduction
Board
of Directors
Under the Companies
Law and our articles of association, our board of directors directs our policy and supervises the performance of our 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.
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.
All of our directors
other than Dr. Shai Yarkoni, Kasbian Nuriel Chirich and Dr. Ruth Ben Yakar are independent under NASDAQ rules. The definition
of independent director under the NASDAQ rules and external director under the Companies Law overlap to a significant degree such
that we would generally expect the two directors serving as external directors to satisfy the requirements to be independent under
NASDAQ rules. The definition of external 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 external director to exercise independent
judgment. The definition of independent director specifies similar, if slightly less stringent, requirements in addition to the
requirement that the board of directors consider any factor which would impair the ability of the independent director to exercise
independent judgment. In addition, our external directors each serve for a period of three years. However, external directors
must be elected by a special majority of shareholders, while independent directors may be elected by an ordinary majority. See
“— External Directors” below for a description of the requirements under the Companies Law for a director
to serve as an external director.
Under our articles
of association, our board of directors must consist of at least five and not more than eight directors, including at least two
external directors required to be appointed under the Companies Law. Our board of directors currently consists of six members,
including our non-executive Chairman of the board of directors.
Under a founders agreement
among Kasbian Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy,
our former Chief Technology Officer, each founder holding at least 30% of our share capital shall be entitled to recommend the
appointment of one director (and remove any director so appointed). In addition, under a voting agreement among Kasbian Nuriel
Chirich and Dr. Shai Yarkoni, the parties agreed to coordinate their votes with respect to any vote taken of our shareholders.
See “Related Party Transactions” below. We are not a party to this founders agreement or voting agreement and are
not bound by it. Other than our two external directors, our directors are elected by an ordinary resolution at the annual and/or
special general meeting of our shareholders. Because our ordinary shares do not have cumulative voting rights in the election
of directors, the holders of a majority of the voting power represented at a shareholders meeting have the power to elect all
of our directors, subject to the special approval requirements for external directors. See “— External Directors”
below. We have held elections for each of our non-external directors at each annual meeting of our shareholders since our initial
public offering in Israel.
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 of association or any applicable law, subject to the maximum number of directors allowed under the articles
of association. External directors are elected for an initial term of three years and may be elected for up to two additional
three-year terms, provided that, for Israeli companies traded on NASDAQ and certain other international exchanges, such term may
be extended indefinitely in increments of additional three-year terms. External directors may be removed from office only under
the limited circumstances set forth in the Companies Law. See “— External Directors” below.
Under the Companies
Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.
See “— External Directors.” 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 Yuval Berman and Abraham Nahmias 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 of directors is appointed by the members of the board of directors and serves as Chairman
of the board of directors 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 consisting of a majority vote of the shares present and voting at a shareholders meeting, provided that either:
|
●
|
such
majority includes at least 2/3 of the shares held by all shareholders who are not controlling
shareholders and do not have a personal interest in such appointment, present and voting
at such meeting (not including abstaining shareholders); or
|
|
●
|
the
total number of shares of non-controlling shareholders and shareholders who do not have
a personal interest in such appointment voting against such appointment does not exceed
2% of the aggregate voting rights in the company.
|
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 of directors may not be vested with authorities that are granted to those subordinated to the Chief
Executive Officer; and the Chairman of the board of directors 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
Under the Companies
Law, an Israeli company whose shares have been offered to the public or whose shares are listed for trading on a stock exchange
in or outside of Israel is required to appoint at least two external directors to serve on its board of directors. External directors
must meet stringent standards of independence.
According to regulations
promulgated under the Companies law, at least one of the external directors is required to have “financial and accounting
expertise,” unless another member of the audit committee, who is an independent director under the NASDAQ Stock Market rules,
has “financial and accounting expertise,” and the other external director or directors are required to have “professional
expertise”. An external director may not be appointed to an additional term unless: (1) such director has “accounting
and financial expertise;” or (2) he or she has “professional expertise,” and on the date of appointment for
another term there is another external director who has “accounting and financial expertise” and the number of “accounting
and financial experts” on the board of directors is at least equal to the minimum number determined appropriate by the board
of directors.
A director has “professional
expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in certain senior
positions.
Ruhama Avraham and
Yuval Berman have served as our external directors since 2017 and 2009 respectively, and both have the requisite accounting and
financial expertise. Ruhama Avraham was elected to serve from December 13, 2017 to December 12, 2020. Yuval Berman was initially
elected to serve from August 27, 2009 to August 27, 2012, reelected to serve an additional term from August 27, 2012 and until
August 27, 2015 and reelected to serve a final term from August 27, 2015 until August 27, 2018
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 50% 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 50% of the voting rights in the company.
The initial term of
an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity
for up to two additional three-year terms, except as provided below, provided that either:
|
●
|
his
or her service for each such additional term is recommended by one or more shareholders
holding at least 1% of the company’s voting rights and is approved at a shareholders
meeting by a disinterested majority, where the total number of shares held by non-controlling,
disinterested shareholders voting for such reelection exceeds 2% of the aggregate voting
rights in the company. In such event, the external director so reappointed may not be
a Related or Competing Shareholder, as defined below, or a relative of such shareholder,
at the time of the appointment, and is not and has not had any affiliation with a Related
or Competing Shareholder, at such time or during the two years preceding such person’s
reappointment to serve an additional term as external director. The term “Related
or Competing Shareholder” means a shareholder proposing the reappointment or a
shareholder holding 5% or more of the outstanding shares or voting rights of the company,
provided, that at the time of the reappointment, such shareholder, the controlling shareholder
of such shareholder, or a company controlled by such shareholder, have a business relationship
with the company or are competitors of the company. Additionally, the Israeli Minister
of Justice, in consultation with the ISA, may determine matters that under certain conditions
will not constitute a business relationship or competition with the company; or
|
|
●
|
his
or her service for each such additional term is recommended by the board of directors
and is approved at a shareholders meeting by the same majority required for the initial
election of an external director (as described above).
|
The term of office
for external directors for Israeli companies traded on certain foreign stock exchanges, including NASDAQ, may be extended indefinitely
in increments of additional three-year terms, in each case provided that the audit committee and the board of directors of the
company confirm that, in light of the external director’s expertise and special contribution to the work of the board of
directors and its committees, the reelection for such additional period(s) is beneficial to the company, and provided that the
external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as described
above). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s
shareholders must be informed of the term previously served by him or her and of the reasons why the board of directors and audit
committee recommended the extension of his or her term.
External directors
may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such
dismissal by the same shareholder vote percentage required for their election, after receiving the board of directors arguments
for such removal, or by a court, in each case, only under limited circumstances, including ceasing to meet the statutory qualifications
for appointment, or violating their duty of loyalty to the company. If an external directorship becomes vacant and there are fewer
than two external directors on the board of directors at the time, then the board of directors is required under the Companies
Law to call a shareholders meeting as soon as practicable to appoint a replacement external director.
Each committee of
the board of directors that is authorized to exercise the powers of the board of directors must include at least one external
director, except that the audit committee and the compensation committee must include all external directors then serving on the
board of directors.
External directors
may be compensated only in accordance with regulations adopted under the Companies Law.
Committees of the Board of Directors
Our board of directors
has established three standing committees, the audit committee, the financial statement examination committee the compensation
committee.
Audit Committee
Our audit committee
consists of Abraham Nahmias along with our two external directors, Ruhama Avraham and Yuval Berman. Mr. Berman serves as Chairman
of the audit committee.
Under the Companies
Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including
all of the external directors, one of whom must serve as Chairman of the committee. Under the Companies Law, the audit committee
may not include the Chairman of the board of directors, a controlling shareholder of the company or a relative of a controlling
shareholder, a director employed by or providing services on a regular basis to the company, to a controlling shareholder or to
an entity controlled by a controlling shareholder or a director most of whose livelihood depends on a controlling shareholder.
In addition, under
the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general,
an “unaffiliated director” under the Companies Law is defined as either an external director or as a director who
meets the following criteria:
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he
or she meets the qualifications for being appointed as an external director, except for
the requirement that the director be an Israeli resident (which does not apply to companies
whose securities have been offered outside of Israel or are listed outside of Israel);
and
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he
or she has not served as a director of the company for a period exceeding nine consecutive
years, provided that, for this purpose, a break of less than two years in service shall
not be deemed to interrupt the continuation of the service.
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The Companies Law
further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit
committee’s meetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose
of presenting on a specific subject; provided, however, that an employee of the company who is not the controlling shareholder
or a relative of a controlling shareholder may attend the discussions of the committee, provided that any resolutions approved
at such meeting are voted on without his or her presence. A company’s legal advisor and company secretary who are not the
controlling shareholder or a relative of a controlling shareholder may attend the meeting and voting sessions, if required by
the committee.
The quorum required
for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the
members of the audit committee, provided such majority is comprised of a majority of independent directors, at least one of which
is an external director.
Under the NASDAQ 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
corporate governance rules. Our board of directors has determined that Yuval Berman and Abraham Nahmias are audit committee financial
experts as defined by the SEC rules, have the requisite financial sophistication as required by the NASDAQ corporate governance
rules.
Each of the members
of the audit committee is deemed “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act,
according to which an audit committee member is barred from accepting any consulting, advisory or other compensatory fee from
the company or any subsidiary thereof, other than in the member's capacity as a member of the board of directors, and may not
be an affiliated person of the company or any subsidiary of the company apart from his or her capacity as a member of the board
of directors and any committee of the board of directors.
Our board of directors
has adopted an audit committee charter which became effective upon the listing of our ADSs and warrants on NASDAQ that sets forth
the responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of NASDAQ, as well as the
requirements for such committee under the Companies Law, including the following:
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oversight
of our independent registered public accounting firm and recommending the engagement,
compensation or termination of engagement of our independent registered public accounting
firm to the board of directors in accordance with Israeli law;
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recommending
the engagement or termination of the person filling the office of our internal auditor;
and
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recommending
the terms of audit and non-audit services provided by the independent registered public
accounting firm for pre-approval by our board of directors.
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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.
Under the Companies
Law, our audit committee is responsible for:
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determining
whether there are deficiencies in the business management practices of our company, including
in consultation with our internal auditor or the independent auditor, and making recommendations
to the board of directors to improve such practices;
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determining
the approval process for transactions that are ‘non-negligible’ (i.e., transactions
with a controlling shareholder that are classified by the audit committee as non-negligible,
even though they are not deemed extraordinary transactions), as well as determining which
types of transactions would require the approval of the audit committee, optionally based
on criteria which may be determined annually in advance by the audit committee;
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determining
whether to approve certain related party transactions (including transactions in which
an office holder has a personal interest and whether such transaction is extraordinary
or material under Companies Law) (see “— Approval of Related Party Transactions
under Israeli Law”);
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where
the board of directors approves the working plan of the internal auditor, to examine
such working plan before its submission to our board of directors and proposing amendments
thereto;
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examining
our internal controls and internal auditor’s performance, including whether the
internal auditor has sufficient resources and tools to dispose of its responsibilities;
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examining
the scope of our auditor’s work and compensation and submitting a recommendation
with respect thereto to our board of directors or shareholders, depending on which of
them is considering the appointment of our auditor; and
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establishing
procedures for the handling of employees’ complaints as to the management of our
business and the protection to be provided to such employees.
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Our audit committee
may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli
Law” below), unless at the time of the approval a majority of the committee’s members are present, which majority
consists of unaffiliated directors including at least one external director.
Financial Statement Examination
Committee
Under the Israeli
Companies Law, the board of directors of a public company must appoint a financial statement examination committee, which consists
of members with accounting and financial expertise or the ability to read and understand financial statements, unless the board
of directors of such company opts for an exemption under relevant regulations promulgated under the Israeli Companies Law, as
our board of directors has done. Accordingly, in July 2016 our board of directors adopted a resolution that our audit committee
is assigned the responsibilities and duties of the financial statements examination committee. From time to time as necessary
and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings
of the entire board of directors regarding financial statement approval. The function of a financial statements examination committee
is to discuss and provide recommendations to its board of directors (including the report of any deficiency found) with respect
to the following issues: (1) estimations and assessments made in connection with the preparation of financial statements; (2)
internal controls related to the financial statements; (3) completeness and propriety of the disclosure in the financial statements;
(4) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (5) value evaluations,
including the assumptions and assessments on which evaluations are based and the supporting data in the financial statements.
Our independent auditors and our internal auditors are invited to attend all meetings of audit committee when it is acting in
the role of the financial statements examination committee.
Compensation Committee and Compensation
Policy
Our compensation committee
consists of Abraham Nahmias along with our two external directors, Ruhama Avraham and Yuval Berman. Mr. Berman serves as 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
committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority
of the members of the compensation committee, and one of the external directors must serve as Chairman of the committee. However,
subject to certain exceptions, Israeli companies whose securities are traded on stock exchanges such as NASDAQ, and who do not
have a controlling shareholder, do not have to meet this majority requirement; provided, however, that the compensation committee
meets other Companies Law composition requirements, as well as the requirements of the jurisdiction where the company’s
securities are traded. Each compensation committee member that is not an external director must be a director whose compensation
does not exceed an amount that may be paid to an external director. The compensation committee is subject to the same Companies
Law restrictions as the audit committee as to who may not be a member of the committee.
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 (1) 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 (2) 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.
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, 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
2017.
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:
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the
knowledge, skills, expertise and accomplishments of the relevant office holder;
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the
office holder’s roles and responsibilities and prior compensation agreements with
him or her;
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the
ratio between the cost of the terms of employment of an office holder and the cost of
the compensation of the other employees of the company, including those employed through
manpower companies, in particular the ratio between such cost and the average and median
compensation of the other employees of the company, as well as the impact such disparities
may have on the work relationships in the company;
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the
possibility of reducing variable compensation, if any, at the discretion of the board
of directors; and the possibility of setting a limit on the exercise value of non-cash
variable equity-based compensation; and
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as
to severance compensation, if any, the period of service of the office holder, the terms
of his or her compensation during such service period, the company’s performance
during that period of service, the person’s contribution towards the company’s
achievement of its goals and the maximization of its profits, and the circumstances under
which the person is leaving the company.
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The compensation policy must
also include:
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a
link between variable compensation and long-term performance and measurable criteria;
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the
relationship between variable and fixed compensation, and the ceiling for the value of
variable compensation;
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the
conditions under which an office holder would be required to repay compensation paid
to him or her if it was later shown that the data upon which such compensation was based
was inaccurate and was required to be restated in the company’s financial statements;
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the
minimum holding or vesting period for variable, equity-based compensation; and
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maximum
limits for severance compensation.
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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:
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recommending
whether a compensation policy should continue in effect, if the then-current policy has
a term of greater than three years (approval of either a new compensation policy or the
continuation of an existing compensation policy must in any case occur every three years);
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recommending
to the board of directors periodic updates to the compensation policy;
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assessing
implementation of the compensation policy; and
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determining
whether the compensation terms of the Chief Executive Officer of the company need not
be brought to approval of the shareholders.
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Our compensation committee's
responsibilities include:
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reviewing
and recommending overall compensation policies with respect to our Chief Executive Officer
and other executive officers;
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reviewing
and approving corporate goals and objectives relevant to the compensation of our Chief
Executive Officer and other executive officers including evaluating their performance
in light of such goals and objectives;
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reviewing
and approving the granting of options and other incentive awards; and
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reviewing,
evaluating and making recommendations regarding the compensation and benefits for our
non-employee directors.
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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:
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a
person (or a relative of a person) who holds more than 5% of the company’s outstanding
shares or voting rights;
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a
person (or a relative of a person) who has the power to appoint a director or the general
manager of the company;
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an
office holder (including a director) of the company (or a relative thereof); or
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a
member of the company’s independent accounting firm, or anyone on his or her behalf.
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The role of the internal
auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee
is required to oversee the activities and to assess the performance of the internal auditor as well as to review the internal
auditor’s work plan. On May 31, 2016, we appointed Sapir Guy as our internal auditor. Sapir Guy is a certified internal
auditor and a partner at Kesselman & Kesselman (PwC), a certified public accounting firm in Israel.
The Chairman of the
board of directors will be the direct supervisor of the internal auditor, unless the board of directors shall determine otherwise,
according to our articles of association and the Companies Law. The internal auditor is required to submit his or her findings
to the audit committee, unless specified otherwise by the board of directors.
Each director, except
external directors, will hold office until the annual general meeting of our shareholders for the year in which his or her term
expires, unless he or she is removed by a simple majority vote of our shareholders at a general meeting of our shareholders or
upon the occurrence of certain events, in accordance with the Companies Law and our amended and restated articles of association.
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 “Directors and
Senior Management” above 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:
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information
on the advisability of a given action brought for his or her approval or performed by
virtue of his or her position; and
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all
other important information pertaining to any such action.
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The duty of loyalty
includes a duty to:
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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;
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refrain
from any activity that is competitive with the company;
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refrain
from exploiting any business opportunity of the company to receive a personal gain for
himself or herself or others; and
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disclose
to the company any information or documents relating to the company’s affairs which
the office holder received as a result of his or her position as an office holder.
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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:
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a
transaction other than in the ordinary course of business;
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a
transaction that is not on market terms; or
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a
transaction that may have a material impact on a company’s profitability, assets
or liabilities.
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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, has 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
50% 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 to as a Transaction with a Controlling
Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:
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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
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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.
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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 and subject Company's Compensation Policy.
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:
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an
amendment to the company’s articles of association;
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an
increase of the company’s authorized share capital;
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the
approval of related party transactions and acts of office holders that require shareholder
approval.
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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, which ours do:
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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;
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reasonable
litigation expenses, including attorneys’ fees, incurred by the office holder (1)
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 (2) in connection with a monetary
sanction; and
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reasonable
litigation expenses, including attorneys’ fees, incurred by the office holder or
imposed by a court in proceedings instituted against him or her by the company, on its
behalf, or by a third party, or in connection with criminal proceedings in which the
office holder was acquitted, or as a result of a conviction for an offense that does
not require proof of criminal intent.
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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:
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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;
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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
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a
financial liability imposed on the office holder in favor of a third party.
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Under our articles
of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:
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a
breach of duty of care to the company or to a third party;
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any
other action against which we are permitted by law to insure an office holder;
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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, or the Efficiency
of Enforcement Procedures, and the Israeli Securities Law, which we refer to as an Administrative
Enforcement Procedure, and including reasonable litigation expenses and attorney fees;
and
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a
financial liability in favor or a victim of a felony pursuant to Section 52ND of the
Israeli Securities Law.
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Under the Companies
Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
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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;
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a
breach of duty of care committed intentionally or recklessly, excluding a breach arising
solely out of the negligent conduct of the office holder;
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an
act or omission committed with intent to derive illegal personal benefit; or
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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 will be 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 will be 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, 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.
As of December 31,
2017, we had twenty four full-time employees. These employees are comprised of eighteen in research and development and six employees
in management, finance and administration. From time to time, we also employ independent contractors to support our operations.
Our employees are not represented by any collective bargaining agreements and we have never experienced an organized work stoppage.
All our employees are located in Israel.
Stock Option Plans
Equity Compensation Plan
We maintain our 2014
Cellect Option Plan, which was originally adopted by our board of directors in February 2014 and is scheduled to expire in February
2024. The 2014 Cellect Option Plan provides for the grant of options to our directors, officers, employees, consultants, advisers
and service providers. As of December 31, 2017, options to purchase 10,638,969 ordinary shares were outstanding and up to 422,170
ordinary shares are available for issuance. Of such outstanding options, options to purchase 3,106,084 ordinary shares are exercisable
as of December 31, 2017, with a weighted average exercise price of NIS 1.34 per share, and will expire 10 years from the date
of grant, during the years 2024 – 2027.
The 2014 Cellect Option
Plan provides for options to be granted at the determination of our board of directors (which is entitled to delegate its powers
under the 2014 Cellect Option Plan to our compensation committee) in accordance with applicable laws. Upon termination of employment
for any reason, other than in the event of death or disability or for cause, all unvested options will expire and all vested options
at time of termination will generally be exercisable for 90 days following termination, subject to the terms of the 2014 Cellect
Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the 2014 Cellect Option Plan)
the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon
termination of employment due to death or disability, all the vested options at the time of termination will be exercisable for
12 months after date of termination, subject to the terms of the 2014 Cellect Option Plan and the governing option agreement.
Pursuant to the 2014
Cellect Option Plan, we may award options pursuant to Section 102 of the Israeli Income Tax Ordinance, or the Ordinance, and section
3(I) of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance.
Section 102 of the Ordinance provides to employees, directors and officers who are not controlling shareholders (i.e., such persons
are not deemed to hold 10% of our share capital, or to be entitled to 10% of our profits or to appoint a director to our board
of directors) and are Israeli residents, favorable tax treatment for compensation in the form of shares or options issued or granted,
as applicable, to a trustee under the “capital gains track” for the benefit of the applicable employee, director or
officer and are (or were) to be held by the trustee for at least two years after the date of grant or issuance. Options granted
under Section 102 of the Ordinance will be deposited with a trustee appointed by us in accordance with Section 102 of the Ordinance
and the relevant income tax regulations and guidelines, and will be granted in the employee income track or the capital gains
track.
Options granted under
the 2014 Cellect Option Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.
In the event that
options allocated under the 2014 Cellect Option Plan expire or otherwise terminate in accordance with the provisions of the 2014
Cellect Option Plan, such expired or terminated options will become available for future grant awards and allocations under the
2014 Cellect Option Plan. We have registered the ordinary shares available for issuance under the 2014 Cellect Option Plan pursuant
to a Registration Statement on Form S-8.
See also Item 7.A below.
ITEM 7.
|
MAJOR SHAREHOLDERS
AND RELATED PARTY TRANSACTIONS
|
The following table
sets forth certain information regarding the beneficial ownership of our ordinary shares as of March 12, 2018 by:
|
●
|
each of our directors and senior
management;
|
|
●
|
all of our
directors and senior management 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. Ordinary
shares issuable under share options, warrants or other conversion rights currently exercisable or that are exercisable within 60
days after March 12, 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. Percentage of shares beneficially owned before this offering is based on 130,192,799 ordinary shares outstanding
(which excludes 2,641,693 shares held in treasury) on March 12, 2018.
Except where otherwise
indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that the
beneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive
the economic benefit of ownership of, such shares. The shareholders listed below do not have any different voting rights from
any of our other shareholders. We know of no arrangements that would, at a subsequent date, result in a change of control of our
Company.
|
|
Number
of Shares Beneficially
|
|
|
Percentage
Ownership
|
|
Directors
and Senior Management
|
|
|
|
|
|
|
|
|
Kasbian
Nuriel Chirich (1)
|
|
|
33,525,972
|
|
|
|
25.6
|
%
|
Dr. Shai
Yarkoni (2)
|
|
|
33,525,972
|
|
|
|
25.6
|
%
|
Eyal Leibovitz
(3)
|
|
|
819,267
|
|
|
|
*
|
|
Dr. Ronit
Bakimer-Kleiner (4)
|
|
|
-
|
|
|
|
-
|
|
Abraham Nahmias
(5)
|
|
|
91,500
|
|
|
|
*
|
|
Ruth Ben
Yakar (6)
|
|
|
191,500
|
|
|
|
*
|
|
Yuval Berman
(7)
|
|
|
91,500
|
|
|
|
*
|
|
Michael Berelowitz
(8)
|
|
|
37,500
|
|
|
|
*
|
|
Ruhama Avraham
(9)
|
|
|
-
|
|
|
|
-
|
|
David Braun
(9)
|
|
|
-
|
|
|
|
-
|
|
Directors
and Senior Management as a group (10 persons)
|
|
|
34,757,239
|
|
|
|
26.4
|
%
|
More
than 5% Shareholders
|
|
|
|
|
|
|
|
|
Michael Ilan
Management and Investments Ltd. (10)(11)
|
|
|
14,962,470
|
|
|
|
11.4
|
%
|
Nadir Askenasy
(12)
|
|
|
6,858,585
|
|
|
|
5.3
|
%
|
Shlomit
Askenasy (12)
|
|
|
6,858,584
|
|
|
|
5.3
|
%
|
|
(1)
|
Represents (i) 16,425,600 ordinary
shares owned by Mr. Chirich, (ii) 12,420 ADS representing 248,400 ordinary shares issuable
upon exercise of warrants at an exercise price of $7.50 per ADS and expiring on July
29, 2021, (iii) options to purchase 72,000 ordinary shares at an exercise price of NIS
1.90 per share and expiring on August 25, 2025, (iv) options to purchase 360,682 ordinary
shares at an exercise price of NIS 1.20 per share and expiring on February 27, 2027,
and (v) 16,419,290 ordinary shares beneficially owned by Dr. Yarkoni over which
Mr. Chirich has shared voting power pursuant to a voting agreement. Excludes options
to purchase 1,082,047 ordinary shares that vest in more than 60 days from March 12, 2018.
|
|
(2)
|
Represents (i) 14,095,740 ordinary shares owned by Dr. Yarkoni, (ii) 14,777 ADS representing 295,540 ordinary shares issuable upon exercise of warrants at an exercise price of $7.50 per ADS and expiring on July 29, 2021, (iii) options to purchase 1,200,000 ordinary shares, at an exercise price of NIS 1.40 per share and expiring on September 8, 2024, (iv) options to purchase 72,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025, (v) options to purchase 756,010 ordinary shares at an exercise price of NIS 1.20 per share and expiring on February 27, 2027, and (vi) 17,106,682 ordinary shares beneficially owned by Mr. Chirich over which Dr. Yarkoni has shared voting power pursuant to a voting agreement. Excludes options to purchase 2,268,030 ordinary shares that vest in more than 60 days from March 12, 2018.
|
|
(3)
|
Represents (i) 7,500 ordinary shares owned by Mr. Leibovitz, and (ii) options to purchase 811,767 ordinary shares at an exercise price of NIS 0.819 per share and expiring on October 26, 2026 and November 20, 2027. Excludes options to purchase 1,232,320 ordinary shares that vest in more than 60 days from January March 12, 2018.
|
|
(4)
|
Excludes options to purchase 74,000 ordinary shares that vest in more than 60 days from March 12, 2018.
|
|
(5)
|
Represents (i) options to purchase 72,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025, and (ii) options to purchase 19,500 ordinary shares at an exercise price of NIS 1.20 per share and expiring on February 27, 2027. Excludes options to purchase 58,500 ordinary shares that vest in more than 60 days from March 12, 2018.
|
|
(6)
|
Represents (i) options to purchase 100,000 ordinary shares at an exercise price of NIS 1.40 per share and expiring on September 28, 2024, (ii) options to purchase 72,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025, (iii) options to purchase 19,500 ordinary shares at an exercise price of NIS 1.20 per share and expiring on February 27, 2027. Excludes options to purchase 58,500 ordinary shares that vest in more than 60 days from March 12, 2018.
|
|
(7)
|
Represents (i) options to purchase 72,000 ordinary shares at an exercise price of NIS 1.90 per share and expiring on August 26, 2025, (ii) options to purchase 19,500 ordinary shares at an exercise price of NIS 1.437 per share and expiring on December 12, 2027. Excludes options to purchase 58,500 ordinary shares that vest in more than 60 days from March 12, 2018.
|
|
(8)
|
Represents options to purchase 37,500 ordinary shares at an exercise price of NIS 1.20 per share and expiring on February 27, 2027. Excludes options to purchase 112,500 ordinary shares that vest in more than 60 days from March 12, 2018.
|
|
(9)
|
Excludes options to purchase 150,000 ordinary shares that vest in more than 60 days from March 12, 2018.
|
|
(10)
|
Based on information publically available from the Israeli Registrar of Companies, this entity is under control of, and affiliated with Mr. Michael Ilan and Pazit Ilan Berkowitz.
|
(11)
|
Represents (i) 14,385,540 ordinary shares owned by Michael Ilan Management and Investment Ltd., and (ii) 28,846 ADS representing 576,930 ordinary shares issuable upon exercise of warrants at an exercise price of $7.50 per ADS and expiring on August 3, 2021.
|
|
|
(12)
|
To our knowledge, Mr. Askenasy transferred half of his ordinary shares to Ms. Askenasy, his former spouse.
|
To our knowledge, from
the date immediately prior to our U.S. initial public offering on August 3, 2016 to March 12, 2018, the ownership percentage of
Kasbian Nuriel Chirich decreased by 7.2% from 20.3% to 13.1%, the ownership percentage of Shai Yarkoni decreased by 5.7% from 18.1%
to 12.4% during such period (in each case of Mr. Chirich and Dr. Yarkoni without giving effect to the voting agreement they are
party to), the ownership percentage of Michael Ilan Management and Investments Ltd. decreased by 9.4% from 20.9% to 11.5% and the
ownership percentage of Nadir Askenasy decreased by 11.6% from 16.9% to 5.3%.
Bank of New York Mellon,
or BNY, is the holder of record for our ADR program, pursuant to which each ADS represents 20 ordinary shares. As of March 12,
2018, BNY held 129,830,140 ordinary shares representing 99.8% of the outstanding share capital held at that date. Certain of these
ordinary shares were held by brokers or other nominees. As a result, the number of holders of record or registered holders in the
United States is not representative of the number of beneficial holders or of the residence of beneficial holders.
None of our shareholders
has different voting rights from other shareholders. To 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 us.
B.
|
Related Party
Transactions
|
The following is a
description of the transactions with related parties to which we are party 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 “Board Practices — Approval of Related Party Transactions under Israeli
Law.”
Founders Agreement and Voting Agreement
On June 1, 2011, Kasbian
Nuriel Chirich, our Chairman, Dr. Shai Yarkoni, our Chief Executive Officer and director, and Dr. Nadir Askenasy, our former Chief
Technology Officer entered into a founders agreement with respect to Cellect Biotherapeutics, our subsidiary. Subsequently, on
May 16, 2013, the parties to the founders agreement entered into an agreement pursuant to which it was agreed that the founders
agreement will apply to the parties with respect to us following the merger which closed on July 1, 2013.
Under the founders
agreement, each founder holding at least 30% of our share capital shall be entitled to recommend the appointment of one director
(and remove any director so appointed). The founders agreement also provides pre-emptive rights, rights of first refusal, co-sale
rights and bring along rights among the founders subject to certain permitted transfers.
Under a voting agreement
dated August 14, 2017, among Dr. Shai Yarkoni and Kasbian Nuriel, the parties agreed to coordinate their votes with respect to
any vote taken of our shareholders.
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. 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 this offering, to the extent such liabilities are not covered by insurance. See
“Management — Exculpation, Insurance and Indemnification of Directors and Officers.”
Employment and Service Agreements
We
have employment, service or related agreements with certain members of senior management and directors. See “Item
6.B. Compensation”.
Options
We have
granted options to purchase our ordinary shares to certain of our officers and directors. See “Item 6.B.
Compensation” and “Item 7.A. Major Shareholders”. We describe our option plans under “Item 6.E. Share
Ownership” and “Item 7.A. Major Shareholders”.
C.
|
Interests of
Experts and Counsel
|
Not applicable.
ITEM 8.
|
FINANCIAL INFORMATION.
|
A.
|
Consolidated
Statements and Other Financial Information.
|
See “Item 18. Financial Statements.”
Legal Proceedings
From time to time
we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently
not a party to any material legal or administrative proceedings and except as set forth below ,are not aware of any pending or
threatened material legal or administrative proceedings against us.
Dividends
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. See “Memorandum and Articles of Association — Dividends.” See “Taxation
— Israeli Tax Considerations and Government Programs.”
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. No dividends will accrue for any unexercised warrants.
Cash dividends on our ordinary shares, if any, will be paid to ADS holders in U.S. dollars.
No significant change,
other than as otherwise described in this annual report on Form 20-F, has occurred in our operations since the date of our consolidated
financial statements included in this annual report on Form 20-F.
ITEM 9.
|
THE OFFER AND
LISTING
|
A.
|
Offer and Listing
Details
|
On July 29, 2016,
our ADSs and warrants, commenced trading on The Nasdaq Capital Market under the symbols “APOP” and “APOPW”,
respectively. From 1990 to September 3, 2017, our shares were traded on the Tel Aviv Stock Exchange.
The following table
sets forth, for the periods indicated, the reported high and low closing sale prices of the ADSs on The Nasdaq Capital Market
in U.S. dollars.
|
|
U.S.$
|
|
|
|
Price
Per
ADS
|
|
|
|
High
|
|
|
Low
|
|
Annual:
|
|
|
|
|
|
|
2016 (from July 29, 2016)
|
|
|
5.300
|
|
|
|
2.660
|
|
Quarterly:
|
|
|
|
|
|
|
|
|
First Quarter 2018 (through March 12, 2018)
|
|
|
9.990
|
|
|
|
7.110
|
|
Fourth Quarter 2017
|
|
|
9.300
|
|
|
|
6.520
|
|
Third Quarter 2017
|
|
|
10.060
|
|
|
|
6.250
|
|
Second Quarter 2017
|
|
|
10.360
|
|
|
|
7.600
|
|
First Quarter 2017
|
|
|
10.900
|
|
|
|
3.068
|
|
Fourth Quarter 2016
|
|
|
4.630
|
|
|
|
2.660
|
|
Third Quarter 2016 (from July 29, 2016)
|
|
|
5.300
|
|
|
|
4.390
|
|
Most Recent Six Months:
|
|
|
|
|
|
|
|
|
March 2018 (through March 12, 2018)
|
|
|
7.600
|
|
|
|
7.110
|
|
February 2018
|
|
|
8.400
|
|
|
|
7.210
|
|
January 2018
|
|
|
9.990
|
|
|
|
7.120
|
|
December 2017
|
|
|
8.679
|
|
|
|
6.520
|
|
November 2017
|
|
|
8.679
|
|
|
|
7.130
|
|
October 2017
|
|
|
9.300
|
|
|
|
7.820
|
|
September 2017
|
|
|
10.060
|
|
|
|
7.800
|
|
On March 12, 2018, the
last reported sales price of the ADSs on The Nasdaq Capital Market was $7.50 per ADS.
The following table
sets forth, for the periods indicated, the reported high and low closing sale prices of our listed warrants on The Nasdaq Capital
Market in U.S. dollars.
|
|
U.S.$
|
|
|
|
|
|
|
Price Per
|
|
|
|
|
|
|
Warrant
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
Annual:
|
|
|
|
|
|
|
2016 (from July 29, 2016)
|
|
|
0.970
|
|
|
|
0.520
|
|
Quarterly:
|
|
|
|
|
|
|
|
|
First Quarter 2018 (through March 12, 2018)
|
|
|
2.850
|
|
|
|
2.000
|
|
Fourth Quarter 2017
|
|
|
3.140
|
|
|
|
1.854
|
|
Third Quarter 2017
|
|
|
3.000
|
|
|
|
1.470
|
|
Second Quarter 2017
|
|
|
3.290
|
|
|
|
1.750
|
|
First Quarter 2017
|
|
|
3.644
|
|
|
|
0.380
|
|
Fourth Quarter 2016
|
|
|
0.850
|
|
|
|
0.520
|
|
Third Quarter 2016 (from July 29, 2016)
|
|
|
0.970
|
|
|
|
0.525
|
|
Most Recent Six Months:
|
|
|
2.850
|
|
|
|
1.900
|
|
March 2018 (through March 12, 2018)
|
|
|
2.120
|
|
|
|
2.000
|
|
February 2018
|
|
|
|
|
|
|
|
|
January 2018
|
|
|
2.850
|
|
|
|
1.900
|
|
December 2017
|
|
|
3.140
|
|
|
|
1.990
|
|
November 2017
|
|
|
2.700
|
|
|
|
1.990
|
|
October 2017
|
|
|
2.800
|
|
|
|
1.854
|
|
September 2017
|
|
|
3.000
|
|
|
|
2.230
|
|
August 2017
|
|
|
2.530
|
|
|
|
1.470
|
|
On March 12, 2018, the
last reported sales price of the listed warrants on The Nasdaq Capital Market was $2.00 per warrant.
Not applicable.
Our ADSs and warrants are listed on The
Nasdaq Capital Market.
Not applicable.
Not applicable.
Not applicable.
ITEM 10.
|
ADDITIONAL INFORMATION
|
Not applicable.
B.
|
Memorandum and
Articles of Association
|
Our registration number with the Israeli
Registrar of Companies is 520036484.
Articles of Association
The following are
summaries of material provisions of our articles of association and the Companies Law insofar as they relate to the material terms
of our ordinary shares.
Purposes and Objects of the Company
Our purpose is set
forth in Section 2 of our articles of association and includes every lawful purpose.
Registration Number
Our number with the
Israeli Registrar of Companies is 520036484.
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 shareholders meeting.
Shareholders may vote at shareholders 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 shareholders 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 a simple majority 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. See
“Shares Eligible for Future Sale” with respect to the applicable U.S. law. 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
directs our policy and supervises the performance of our 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.
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, 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 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.
Shareholders 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 (1) any two of our directors or one
quarter of the directors then in office; or (2) 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 and in accordance with the Companies Law and
its Regulations. Furthermore, the Companies Law and our articles of association require that resolutions regarding the following
matters must be passed at a general meeting of our shareholders:
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amendments to
our articles of association;
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appointment or termination of our auditors;
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appointment and dismissal of directors and external
directors;
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approval of acts and transactions requiring
general meeting approval pursuant to the Companies Law;
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director compensation, indemnification and change
of the principal executive officer;
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increases or reductions of our authorized share
capital;
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the exercise of
our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and
the exercise of any of its powers is required for our proper management; and
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authorizing the
Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such
authority; or authorize the company’s Chief Executive Officer or his relative to act as the Chairman of the board of
directors or act with such authority
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The Companies Law
requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting. In the
event the agenda of the meeting includes the manners specified under bullets 3, 4, 5, 7 and 9 above, or the approval of transactions
with office holders or interested or related parties, a 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 two or more shareholders present in person, by proxy or by other voting instrument
in accordance with the Companies Law and our articles of association who hold or represent, in the aggregate, at least 33 1/3%
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, and within half an hour from the appointed time, 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.
Israeli law provides
that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the
shareholder indicates how he or she votes on resolutions relating to the following matters:
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an appointment or
removal of directors;
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an approval of transactions
with office holders or interested or related parties, that require shareholder approval;
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an approval of a
merger;
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authorizing the
Chairman of the board of directors or his relative to act as the company’s Chief Executive Officer or act with such
authority; or authorize the company’s Chief Executive Officer or his relative to act as the Chairman of the board of
directors or act with such authority;
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any other matter
that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do
not stipulate any additional matters; and
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other matters which
may be prescribed by Israel’s Minister of Justice.
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The provision allowing
the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the
vote.
The Companies Law
provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its
other shareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when
voting at general meetings on matters such as changes to the articles of association, increasing the company’s registered
capital, mergers and approval of certain interested or related party transactions. A shareholder also has a general duty to refrain
from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, any shareholder
who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles
of association, can appoint or prevent the appointment of an office holder or other power towards the company, is required to
act with fairness towards the company. The Companies Law does not describe the substance of this duty except that the remedies
generally available upon a breach of contract will also apply to a breach of the duty to act with fairness, and, to the best of
our knowledge, there is no binding case law that addresses this subject directly.
Under the Companies
Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval
by a simple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the
resolution. Generally, a resolution for the voluntary winding up of the company requires the approval of holders of 75% of the
voting rights represented at the meeting, in person, by proxy or by written ballot and voting on the resolution.
In the event of our
liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares
in proportion to their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential
dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Access to Corporate Records
Under the Companies
Law, all shareholders of a company generally have the right to review minutes of the company’s general meetings, its shareholders
register and principal shareholders register, articles of association, financial statements and any document it is required by
law to file publicly with the Israeli Companies Registrar and the ISA. Any of our shareholders may request to review any document
in our possession that relates to any action or transaction with a related party, interested party or office holder that requires
shareholder approval under the Companies Law. We may deny a request to review a document if we determine that the request was
not made in good faith, that the document contains a commercial secret or a patent or that the document’s disclosure may
otherwise prejudice our interests.
Acquisitions under Israeli Law
Full Tender Offer
A person wishing to
acquire shares of a public Israeli company and who would as a result hold over 90% of the target company’s issued and outstanding
share capital is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase
of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and
who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make
a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding
shares of the same class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share
capital of the company or of the applicable class, all of the shares that the acquirer offered to purchase will be transferred
to the acquirer by operation of law (provided that a majority of the offerees that do not have a personal interest in such tender
offer shall have approved the tender offer except that if the total votes to reject the tender offer represent less than 2% of
the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not
have a personal interest in such tender offer is not required to complete the tender offer). However, a shareholder that had its
shares so transferred may petition the court within six months from the date of acceptance of the full tender offer, whether or
not such shareholder agreed to the tender or not, to determine whether the tender offer was for less than fair value and whether
the fair value should be paid as determined by the court unless the acquirer stipulated in the tender offer that a shareholder
that accepts the offer may not seek appraisal rights, so long as prior to the acceptance of the full tender offer, the acquirer
and the company disclosed the information required by law in connection with the full tender offer. If the shareholders who did
not accept the tender offer hold 5% or more of the issued and outstanding share capital of the company or of the applicable class,
the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued
and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
Special Tender Offer
The Companies Law
provides that an acquisition of shares of a public Israeli company must be made by means of a special tender offer if as a result
of the acquisition the purchaser would become a holder of 25% or more of the voting rights in the company, unless one of the exemptions
in the Companies Law is met. This rule does not apply if there is already another holder of at least 25% of the voting rights
in the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means
of a tender offer if as a result of the acquisition the purchaser would become a holder of 45% or more of the voting rights in
the company, if there is no other shareholder of the company who holds 45% or more of the voting rights in the company, unless
one of the exemptions in the Companies Law is met.
A special tender offer
must be extended to all shareholders of a company, but the offeror is not required to purchase shares representing more than 5%
of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered by shareholders.
A special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s outstanding
shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose
holders objected to the offer.
If a special tender
offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such
controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not
enter into a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such
person or entity undertook to effect such an offer or merger in the initial special tender offer.
Under regulations
enacted pursuant to the Companies Law, the above special tender offer requirements may not apply to companies whose shares are
listed for trading on a foreign stock exchange if, among other things, the relevant foreign laws or the rules of the stock exchange,
include provisions limiting the percentage of control which may be acquired or that the purchaser is required to make a tender
offer to the public. However, the ISA’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 NASDAQ, 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 prospectus,
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 a majority of our shares at a general meeting. Shareholders voting in such meeting
will be subject to the restrictions provided in the Companies Law as described above.
Except as set forth below, we have not
entered into any material contract within the two years prior to the date of this annual report on Form 20-F, other than contracts
entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A. History and Development
of the Company” above, “Item 4.B. Business Overview” above, and “Item 7A. Major Shareholders”
or Item 7B. “Related Party Transactions” above.
U.S. IPO
On July 29, 2016,
we entered into an underwriting agreement with H.C. Wainwright & Co., LLC, or Wainwright, as the representative of the underwriters
named therein and book-running manager with respect to the public offering of our ADSs and warrants that were offered under a
registration statement (Registration No. 333-212432). On August 3, 2016, we sold an aggregate of 1,292,308 ADSs and warrants to
purchase 969,231 ADSs to the underwriters in the public offering. Additionally, the underwriters’ over-allotment option
was partially exercised by the underwriters for the purchase of warrants to purchase 65,890 ADSs. The net proceeds to the Company
were approximately $7.6 million (after deducting underwriters’ fees).
September 2017 Financing
On September 7, 2017,
we entered into Securities Purchase Agreements, or the 2017 Purchase Agreements, with certain accredited investors providing for
the issuance of an aggregate of 531,136 ADSs in a registered direct offering at a purchase price of $8.10 per ADS for aggregate
gross proceeds of approximately $4.3 million. The offering closed on September 11, 2017.
In addition, under
the 2017 Purchase Agreements, the investors receives unregistered warrants to purchase an aggregate of 265,568 ADSs. The warrants
may be exercised immediately for a period of twelve months from the date of issuance at an exercise price of $12.07 per ADS, subject
to adjustment as set forth therein. The warrants may be exercised on a cashless basis if there is no effective registration statement
registering the ADSs underlying the warrants.
The 2017 Purchase
Agreements also contains representations, warranties, indemnification and other provisions customary for transactions of this
nature.
We also entered into
a letter agreement with Wainwright dated September 6, 2017, pursuant to which Wainwright agreed to serve as the placement agent
for the Company in connection with the offering. We paid Wainwright a cash placement fee equal to 7% of the aggregate purchase
price for the ADSs placed by the placement agent, plus a non-accountable expense allowance of $15,000 and up to $30,000 for certain
expenses. Wainwright also received compensation warrants on substantially the same terms as the investors in the offering,
except the exercise price shall be $10.125 per ADS, in an amount equal to 5% of the aggregate number of ADSs sold in the offering
that were placed by the placement agent.
January 2018 Financing
On January 29, 2018,
we entered into Securities Purchase Agreements, or the 2018 Purchase Agreements, with certain institutional investors providing
for the issuance of an aggregate of 484,848 ADSs in a registered direct offering at a purchase price of $8.25 per ADS for aggregate
gross proceeds of approximately $4.0 million. The offering closed on January 31, 2018.
In addition, under
the 2018 Purchase Agreements, the investors received unregistered warrants to purchase an aggregate of 266,667 ADSs. The warrants
may be exercised immediately for a period of twelve months from the earlier of (i) the effectiveness date of a registration statement
registering the shares underlying the warrants, and (ii) 6 months from the issuance date of the warrants, subject to adjustment
as set forth therein. The warrants may be exercised on a cashless basis if there is no effective registration statement registering
the ADSs underlying the warrants.
Under the 2018 Purchase
Agreements, we agreed to use best efforts to file, as soon as practicable (and in any case by February 28, 2018), a registration
statement with the SEC registering the resale of the ordinary shares underlying the ADSs issuable upon exercise of the warrants
and to use best efforts to cause such registration statement to be declared effective within 60 days following the closing
date and to keep such registration statement effective at all times until no purchaser owns any underlying ordinary shares issuable
upon exercise of the warrants. If such registration statement is not declared effective within 60 days of the closing date, we
agreed to pay monthly registration delay payments of 1.5% of the purchase price paid by the investors up to an aggregate of 8%
until such time that the registration statement is declared effective by the SEC.
Further, under the
2018 Purchase Agreements, we agreed not to enter into any agreement to issue or announce the issuance or proposed issuance of
any ADSs, ordinary shares or ordinary share equivalents for a period of 45 days following the closing of the offering, subject
to certain customary exceptions. In addition, the 2018 Purchase Agreements provide that for a period of one year following the
closing of the offering, we will not effect or enter into an agreement to effect a “variable rate transaction” as
defined in the 2018 Purchase Agreements.
The 2018 Purchase
Agreements also contains representations, warranties, indemnification and other provisions customary for transactions of this
nature.
We also entered into
a letter agreement, or the 2018 Placement Agent Agreement, with Wainwright dated January 15, 2018, pursuant to which Wainwright
agreed to serve as the placement agent for us in connection with the offering. Under the letter agreement, we paid the Placement
Agent a cash placement fee equal to 7% of the aggregate purchase price for the ADSs placed by the placement agent, plus a non-accountable
expense allowance of $25,000. Wainwright also received compensation warrants on substantially the same terms as the investors
in the offering, except the exercise price shall be $10.31 per ADS, in an amount equal to 5% of the aggregate number of ADSs sold
in the offering that were placed by the placement agent.
There are currently
no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or
the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel
regarding certain transactions. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative
action at any time.
The ownership or voting
of our ordinary shares by non-residents of Israel, except with respect to citizens of countries that are in a state of war with
Israel, is not restricted in any way by our memorandum of association or amended and restated articles of association or by the
laws of the State of Israel.
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 or warrants (all 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
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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 annual report and does not take into account possible future
amendments which may be under consideration.
General corporate tax structure
in Israel
Israeli resident companies,
such as us, are generally subject to corporate tax at the rate of 25% as of January 1, 2016. In 2017 and 2018 the corporate tax
rate will be 24% and 23% accordingly.
Capital gains derived
by an Israeli resident company are 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.
Law for the Encouragement of Industry
(Taxes), 5729-1969
The Law for the Encouragement
of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for “Industrial
Companies.” Cellect Biotherapeutics is currently qualified as an Industrial Company within the meaning of the Industry Encouragement
Law.
The Industry Encouragement
Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax
year, other than income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial
Enterprise” is defined as an enterprise whose principal activity in a given tax year is industrial production.
The following corporate
tax benefits, among others, are available to Industrial Companies:
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amortization over an eight-year
period of the cost of purchased know-how and patents and rights to use a patent and know-how
which are used for the development or advancement of the company; and
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under limited conditions, an
election to file consolidated tax returns with related Israeli Industrial Companies.
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Eligibility for benefits
under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.
There can be no assurance
that Cellect Biotherapeutics will continue to qualify as an Industrial Company or that the benefits described above will be available
in the future.
Law for the Encouragement of Capital
Investments, 5719-1959
The Law for the Encouragement
of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives for capital investments
in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).
The Investment Law
was significantly amended effective amended as of January 1, 2011, or the 2011 Amendment.
The 2011 Amendment
introduced benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as
such terms are defined in the Investment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled
to a reduced corporate tax rate of 16% with respect to its income derived by its Preferred Enterprise unless the Preferred Enterprise
is located in a specified development zone (Cellect Biotherapeutics is not), in which case the rate will be 9%. Under the 2011
Amendment, the corporate tax rate is 16% and 9% in 2014 and thereafter.
Tax benefits are available
under the 2011 Amendment to production facilities (or other eligible facilities), which are generally required to derive more
than 25% of their business income from export and meet additional criteria stipulate in the amendment.
Dividends paid out
of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 20% or such lower rate
as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required
to be withheld (however, if afterward distributed to individuals or a non-Israeli company a withholding of 20%, or such lower
rate as may be provided in an applicable tax treaty, will apply).
From time to time,
the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or
substantial reduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.
Currently, Cellect
Biotherapeutics is in a loss position for tax purposes and therefore does not implement the tax benefits according to the Investment
Law. However, we believe that once Cellect Biotherapeutics will have taxable income, it will be eligible for a reduced corporate
tax rate according to the Investment Law.
Taxation of our Israeli individual
shareholders on receipt of dividends
Israeli residents
who are individuals are generally subject to Israeli income tax for dividends paid on our Shares (other than bonus shares or share
dividends) at a rate of 25%, or 30% if the recipient of such dividend is a “substantial shareholder” (as defined below)
at the time of distribution or at any time during the preceding 12-month period.
As of January 1, 2013,
an additional income tax at a rate of 2% is imposed on high earners whose annual income or gain exceeds NIS 810,720. As of January,
2017 the tax rate will be 3% on high earners whose annual income or gain exceeds NIS 640,000.
A “substantial
shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him
on a regular basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation.
“Means of control” generally include the right to vote, receive profits, nominate a director or an officer, receive
assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or she is
to exercise such right(s), and all regardless of the source of such right.
The term “Israeli
resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of life
is in Israel. The Ordinance provides that in order to determine the center of life of an individual, account will be taken of
the individual’s family, economic and social connections, including: (a) place of permanent home; (b) place of residential
dwelling of the individual and the individual’s immediate family; (c) place of the individual’s regular or permanent
occupation or the place of his permanent employment; (d) place of the individual’s active and substantial economic interests;
(e) place of the individual’s activities in organizations, associations and other institutions. The center of life of an
individual will be presumed to be in Israel if: (a) the individual was present in Israel for 183 days or more in the tax year;
or (b) the individual was present in Israel for 30 days or more in the tax year, and the total period of the individual’s
presence in Israel in that tax year and the two previous tax years is 425 days or more. The presumption in this paragraph may
be rebutted either by the individual or by the assessing officer
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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.
Capital Gains Taxes Applicable to
Israeli Resident Shareholders
The income tax rate
applicable to real capital gain (capital gain less the effect of inflation) derived by an Israeli individual from the sale of
shares which had been purchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder
is considered a “Substantial Shareholder” (as defined above) at the time of sale or at any time during the preceding
12-month period, such gain will be taxed at the rate of 30%. As of January 1, 2013, an additional tax at a rate of 2% is imposed
on high earners whose annual income or gains exceed NIS 810,720. As of January, 2017 the tax rate will be 3% on high earners whose
annual income or gain exceeds NIS 640,000.
Moreover, capital
gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary
business income, are taxed in Israel at ordinary income rates (25% as of 2016 for corporations and up to 48% for individuals).
Taxation of Non-Israeli Shareholders
on Receipt of Dividends
Non-Israeli residents
are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% or 30% if such recipient
is a “substantial shareholder” at the time receiving the dividend or on any date in the 12 months preceding such date.
If the Shares are held by a nominee company, the nominee company or the financial institution will withhold at the source a tax
of 25% whether the recipient is a substantial shareholder or not. Otherwise, the withholding at the source will be 25% or 30%
in accordance with the above, unless a lower tax rate is provided in a tax treaty between Israel and the shareholder’s country
of residence.
A non-Israeli resident
who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such
income; provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other
taxable sources of income in Israel.
For example, under
the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income,
as amended, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%,
or 15% in the case of dividends paid out of the profits of a “Approved Enterprise”, subject to certain conditions.
Where the recipient is a U.S. corporation owning 10% or more of the voting shares of the paying corporation during the part of
the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its prior
taxable year (if any) and the dividend is not paid from the profits of a Approved Enterprise, and not more than 25% of the gross
income of the paying corporation consists of interest or dividends (other than interest derived from the conduct of banking, insurance,
or financing business or interest received from subsidiary corporations, 50% or more of the outstanding shares of the voting stock
of which is owned by the paying corporation at the time such dividends or interest is received) the Israeli tax withheld may not
exceed 12.5%, subject to certain conditions.
Capital gains income taxes applicable
to non-Israeli shareholders.
Non-Israeli resident
shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of
our Shares, provided that such gains were not derived from a permanent establishment or business activity of such shareholders
in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemptions if Israeli residents (1) jointly
have a controlling interest of more than 25% in such non-Israeli corporation or (2) 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.
Regardless of whether
shareholders may be liable for Israeli income tax on the sale of our Shares, the payment of the consideration may be subject to
withholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax
on their capital gains in order to avoid withholding at source at the time of sale.
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 Considerations
THE FOLLOWING SUMMARY
IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSIDERED TO BE, LEGAL OR TAX ADVICE.
EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES AND AMERICAN DEPOSITORY SHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL,
FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
Subject to the limitations
described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S.
Holder” arising from the purchase, ownership and sale of the ordinary shares, ADSs and warrants. For this purpose, a “U.S.
Holder” is a beneficial owner of ordinary shares or ADSs or warrants that is: (1) an individual citizen or resident of the
United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial
presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporation for U.S. federal
income tax purposes) created or organized under the laws of the United States, any state therein, or the District of Columbia;
(3) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of source; (4)
a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one
or more U.S. persons have authority to control all substantial decisions of the trust; and (5) a trust that has a valid election
in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.
This summary
is for general information purposes only and does not purport to be a comprehensive description of all of the U.S.
federal income tax considerations that may be relevant to a decision to purchase our ordinary shares or ADSs or warrants.
This summary generally considers only U.S. Holders that will own our ordinary shares or ADSs or warrants as capital assets
(generally, property held for investment). Except to the limited extent discussed below, this summary does not consider
the U.S. federal tax consequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to
determine a taxpayer’s status as a U.S. Holder. This summary is based on the provisions of the Code, final, temporary
and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof, and the
U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a
retroactive basis, and all of which are open to differing interpretations. We will not seek a ruling from the IRS with regard
to the U.S. federal income tax treatment of an investment in our ordinary shares or ADSs or warrants by U.S. Holders and,
therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.
This discussion does
not address all of the tax considerations that may be relevant to a particular U.S. Holder based on such holder’s particular
circumstances, or to U.S. Holders that are subject to special treatment under U.S. federal income tax law, including: (1) banks,
life insurance companies, regulated investment companies, or other financial institutions or “financial services entities”;
(2) brokers or dealers in securities or foreign currency; (3) persons who acquired our ordinary shares or ADSs or warrants in
connection with employment or other performance of services; (4) U.S. Holders that are subject to the U.S. alternative minimum
tax; (5) U.S. Holders that hold our ordinary shares or ADSs or warrants as a hedge or as part of a hedging, straddle, conversion
or constructive sale transaction or other risk-reduction transaction for U.S. federal income tax purposes; (6) tax-exempt entities;
(7) real estate investment trusts; (8) U.S. Holders that expatriate out of the United States or former long-term residents of
the United States; or (9) U.S. Holders having a functional currency other than the U.S. dollar. This discussion does not address
the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, ordinary shares or
ADSs or warrants representing 10% or more of our voting power or value. This discussion also does not address any U.S. state or
local or non-U.S. tax considerations, any U.S. federal estate, gift, generation-skipping, transfer, or alternative minimum tax
considerations, or any U.S. federal tax consequences other than U.S. federal income tax consequences.
If an entity or arrangement
treated as a partnership for U.S. federal income tax purposes holds our ordinary shares or ADSs or warrants, the tax treatment
of such entity or arrangement treated as a partnership and each person treated as a partner thereof generally will depend upon
the status and activities of the entity and such person. A holder that is treated as a partnership for U.S. federal income tax
purposes should consult its own tax advisor regarding the U.S. federal income tax considerations applicable to it and its partners
of the purchase, ownership and disposition of our ordinary shares or ADSs or warrants.
Each prospective investor
is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or
disposing of our ordinary shares or ADSs or warrants, including the effects of applicable state, local, foreign or other tax laws
and possible changes in the tax laws.
Taxation of Dividends Paid on ordinary
shares or ADSs
We do not intend to
pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading
“Passive Foreign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary
income the amount of any distribution paid on ordinary shares or ADSs (including the amount of any Israeli tax withheld on the
date of the distribution), to the extent that such distribution does not exceed our current or accumulated earnings and profits,
as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our current and accumulated earnings
and profits will be treated first as a non-taxable return of capital, reducing the U.S. Holder’s tax basis for the ordinary
shares or ADSs to the extent thereof, and then as capital gain. Corporate holders generally will not be allowed a deduction for
dividends received.
In general, preferential
tax rates for “qualified dividend income” and long-term capital gains are applicable for U.S. Holders that are individuals,
estates or trusts. For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified
foreign corporation.” A “qualified foreign corporation” is a corporation that is entitled to the benefits of
a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS has stated that the
Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.
In addition, our dividends
will be qualified dividend income if our ordinary shares or ADSs are readily tradable on NASDAQ or another established securities
market in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend
is paid or in the prior year, as a PFIC, as described below under “Passive Foreign Investment Companies”. A U.S. Holder
will not be entitled to the preferential rate: (1) if the U.S. Holder has not held our ordinary shares or ADSs for at least 61
days of the 121 day period beginning on the date which is 60 days before the ex-dividend date, or (2) to the extent the U.S. Holder
is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished
its risk of loss on our ordinary shares or ADSs are not counted towards meeting the 61-day holding period. Finally, U.S. Holders
who elect to treat the dividend income as “investment income” pursuant to Code section 163(d)(4) will not be eligible
for the preferential rate of taxation.
The amount of a distribution
with respect to our ordinary shares or ADSs will be measured by the amount of the fair market value of any property distributed,
and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in
NIS will be included in the income of U.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the
date the dividend is includible in the income of the U.S. Holder, and U.S. Holders will have a tax basis in such NIS for U.S.
federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS into U.S. dollars
or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be
U.S. source ordinary exchange gain or loss.
Distributions paid
by us will generally be foreign source income for U.S. foreign tax credit purposes and will generally be considered passive category
income for such purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit
against their U.S. federal income tax liability for Israeli income tax withheld from distributions received in respect of the
ordinary shares or ADSs. The rules relating to the determination of the U.S. foreign tax credit are complex, and U.S. Holders
should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders
that do not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such
U.S. Holders itemize their deductions.
Taxation of the Disposition of Ordinary
Shares or ADSs or Warrants
Subject to
the discussion under the heading “Passive Foreign Investment Companies” below, upon the sale, exchange or other
taxable disposition of our ordinary shares or ADSs or warrants, a U.S. Holder generally will recognize capital gain or loss
in an amount equal to the difference between such U.S. Holder’s tax basis for the ordinary shares or ADSs or warrants
in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined by
reference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign
currency). The gain or loss realized on the sale, exchange or other disposition of ordinary shares or ADSs or warrants will
be long-term capital gain or loss if the U.S. Holder has a holding period of more than one year at the time of the
disposition. U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax consequences of
receiving currency other than U.S. dollars upon the disposition of their ordinary shares.
Gain realized by a
U.S. Holder on a sale, exchange or other disposition of ordinary shares or ADSs or warrants will generally be treated as U.S.
source income for U.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition
of ordinary shares or ADSs or warrants is generally allocated to U.S. source income. The deductibility of a loss realized on the
sale, exchange or other disposition of ordinary shares or ADSs or warrants is subject to limitations.
Passive Foreign Investment Companies
Special U.S. federal
income tax laws apply to U.S. taxpayers who owns shares of a corporation that is a PFIC. We will be treated as a PFIC for U.S.
federal income tax purposes for any taxable year that either:
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75% or more of our gross income
(including our pro rata share of gross income for any company in which we are considered
to own 25% or more of the shares by value) is passive; or
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at least 50% of our assets,
averaged quarterly over the year (including our pro rata share of the assets of any company
in which we are considered to own 25% or more of the shares by value) and generally determined
based upon value (provided we were not considered a “controlled foreign corporation”
prior to the public offering) are held for the production of, or produce, passive income.
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For this purpose,
passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions
and from notional principal contracts. Cash is treated as generating passive income.
A foreign
corporation’s PFIC status is an annual determination that is based on tests that are factual in nature, and our status
for any year will depend on our income, assets, and activities for such year. We believe that we were a PFIC for our 2017
taxable year. Because the PFIC determination is highly fact intensive, there can be no assurance that we will not be a PFIC
for 2018 or for any other taxable year. U.S. Holders who hold ordinary shares or ADSs or warrants during a period when we are
a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S.
Holders who made a “qualified electing fund” or “QEF”, or “mark-to-market” election. Upon
request, we expect to provide the information necessary for U.S. Holders to make QEF elections if we are classified as a
PFIC.
If we currently are
or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”,
or who has not elected to mark the shares to market (as discussed below), will be subject to special rules with respect to (i)
any “excess distribution” (generally, the portion of any distributions received by the non-electing U.S. Holder on
the ordinary shares or ADSs or warrants in a taxable year in excess of 125% of the average annual distributions received by the
non-electing U.S. Holder in the three preceding taxable years, or, if shorter, the non-electing U.S. Holder’s holding period
for the ordinary shares or ADSs or warrants), and (ii) any gain realized on the sale or other disposition of such ordinary shares
or ADSs or warrants. Under these rules:
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the excess distribution or
gain would be allocated ratably over the non-electing U.S. Holder’s holding period
for such ordinary shares or ADSs or warrants;
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the amount allocated to the
current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary
income; and
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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.
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In addition, when
shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not
receive a step-up to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s
basis if lower, unless all gain were recognized by the decedent. Indirect investments in a PFIC may also be subject to these special
U.S. federal income tax rules.
The PFIC rules described
above would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the ordinary
shares or ADSs or warrants while we were a PFIC, provided that we comply with specified reporting requirements. Instead, each
U.S. Holder who has made such a QEF election is required for each taxable year that we are a PFIC to include in income such U.S.
Holder’s pro rata share of our ordinary earnings as ordinary income and such U.S. Holder’s pro rata share of our net
capital gains as long-term capital gain, regardless of whether we make any distributions of such earnings or gain. In general,
a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholder-by-shareholder
basis and generally may be revoked only with the consent of the IRS.
In addition, the PFIC
rules described above would not apply if we were a PFIC and a U.S. Holder made a mark-to-market election. A U.S. Holder of our
ordinary shares or ADSs or warrants which are regularly traded on a qualifying exchange, including Nasdaq, can elect to mark the
ordinary shares or ADSs or warrants to market annually, recognizing as ordinary income or loss each year an amount equal to the
difference as of the close of the taxable year between the fair market value of the ordinary shares or ADSs or warrants and the
U.S. Holder’s adjusted tax basis in the ordinary shares or ADSs or warrants. Losses are allowed only to the extent of net
mark-to-market gain previously included income by the U.S. Holder under the election for prior taxable years. Thus, a U.S. Holder
may recognize taxable income without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s
tax basis in our ordinary shares or ADSs or warrants would be adjusted to reflect any such income or loss amount. Gain realized
on the sale, exchange or other disposition of our ordinary shares or ADSs or warrants would be treated as ordinary income, and
any loss realized on the sale, exchange or other disposition of our ordinary shares or ADSs or warrants would be treated as ordinary
loss to the extent that such loss does not exceed the net mark-to-market gains previously included in income by the U.S. Holder,
and any loss in excess of such amount will be treated as capital loss. Amounts treated as ordinary income will not be eligible
for the favorable tax rates applicable to qualified dividend income or long-term capital gains.
U.S. Holders who do
not make a timely QEF election or a mark-to-market election, and who hold our ordinary shares or ADSs or warrants during a period
when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC. U.S. Holders are strongly urged to consult
their tax advisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences
to them of making a QEF or mark-to-market election with respect to our ordinary shares or ADSs or warrants in the event that we
are a PFIC.
Tax on Investment Income
U.S. Holders who are
individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including
dividends on and gains from the sale or other disposition of our ordinary shares and ADSs or warrants), or in the case of estates
and trusts on their net investment income that is not distributed. In each case, the 3.8% Medicare tax applies only to the extent
the U.S. Holder’s total adjusted income exceeds applicable thresholds.
Tax Consequences for Non-U.S. Holders
of Ordinary Shares or ADSs or Warrants
Except as provided
below, an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a non-U.S. Holder, generally
will not be subject to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition
of, our ordinary shares or ADSs or warrants.
A non-U.S. Holder
may be subject to U.S. federal income tax on a dividend paid on our ordinary shares or ADSs or warrants or gain from the disposition
of our ordinary shares or ADSs or warrants if: (1) such item is effectively connected with the conduct by the non-U.S. Holder
of a trade or business in the United States, or, if required by an applicable income tax treaty is attributable to a permanent
establishment or fixed place of business in the United States; or (2) in the case of a disposition of our ordinary shares or ADSs
or warrants, the individual non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the disposition
and other specified conditions are met.
In general, non-U.S.
Holders will not be subject to backup withholding with respect to the payment of dividends on our ordinary shares or ADSs or warrants
if payment is made through a paying agent or office of a foreign broker outside the United States. However, if payment is made
in the United States or by a U.S. related person, non-U.S. Holders may be subject to backup withholding, unless the non-U.S. Holder
provides an applicable IRS Form W-8 (or a substantially similar form) certifying its foreign status, or otherwise establishes
an exemption.
The amount of any
backup withholding from a payment to a non-U.S. Holder will be allowed as a credit against such holder’s U.S. federal income
tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
Information Reporting and Withholding
A U.S. Holder may
be subject to backup withholding at a rate of 24% with respect to dividends and proceeds from a disposition of ordinary shares
or ADSs or warrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification
procedures. Backup withholding will not apply with respect to payments made to designated exempt recipients, such as corporations
and tax-exempt organizations. Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal
income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.
A U.S. Holder with
interests in “specified foreign financial assets” (including, among other assets, our ordinary shares or ADSs or warrants,
unless such ordinary shares or ADSs or warrants are held on such U.S. Holder’s behalf through a financial institution) may
be required to file an information report with the IRS if the aggregate value of all such assets exceeds $50,000 on the last day
of the taxable year or $75,000 at any time during the taxable year (or such higher dollar amount as may be prescribed by applicable
IRS guidance). U.S. Holders should consult their tax advisors as to the possible obligation to file such information reports in
light of their particular circumstances.
F.
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Dividends and
Paying Agents
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Not applicable.
Not applicable.
We are subject to
certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements
will file reports with the SEC. You may read and copy the annual report on Form 20-F, including the related exhibits and
schedules, and any document we file with the SEC without charge at the SEC's public reference room at 100 F Street, N.E.,
Room 1580, Washington, DC 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., Room 1580, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330
for further information on the public reference room. The SEC also maintains an Internet website that contains reports and other
information regarding issuers that file electronically with the SEC. Our filings with the SEC will also available to the public
through the SEC's website at www.sec.gov.
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. In addition, we are not required under the Exchange Act to file annual, quarterly and current
reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered
under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable
time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered
public accounting firm, and may submit to the SEC, on a Form 6-K, unaudited quarterly financial information.
We maintain a corporate website www.cellectbio.com.
Information contained on, or that can be accessed through, our website and the other websites referenced above do not constitute
a part of this annual report on Form 20-F. We have included these website addresses in this annual report on Form 20-F solely
as inactive textual references.
I.
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Subsidiary Information.
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Not applicable.
ITEM 11.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
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In the ordinary course
of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates.
Quantitative and Qualitative Disclosure
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. Although the NIS is currently our functional currency, a small portion of our expenses are denominated
in U.S. dollars. Our U.S. dollar 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 our
expenses in U.S. dollar will increase in the future. If the NIS fluctuates significantly against the U.S. dollar, 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.
To date, we have not
engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial
exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately
protect us from the material adverse effects of such fluctuations.
ITEM 12.
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DESCRIPTION OF
SECURITIES OTHER THAN EQUITY SECURITIES
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Not applicable.
Not applicable.
Not applicable.
D.
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American Depositary
Shares
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Fees and Expenses
Persons
depositing or withdrawing ordinary shares or ADS holders must pay:
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For:
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$5.00
(or less) per 100 ADSs (or portion of 100 ADSs)
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Issuance
of ADSs, including issuances resulting from a distribution of ordinary shares or rights or other property
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Cancellation
of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
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$.05
(or less) per ADS
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Any
cash distribution to ADS holders
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A
fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary
shares had been deposited for issuance of ADSs
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Distribution
of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to
ADS holders
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$.05
(or less) per ADS per calendar year
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Depositary
services
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Registration
or transfer fees
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Transfer
and registration of ordinary shares on our share register to or from the name of the depositary or its agent when you deposit
or withdraw ordinary shares
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Expenses
of the depositary
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Cable,
telex and facsimile transmissions (when expressly provided in the deposit agreement); converting foreign currency to U.S.
dollars
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Taxes
and other governmental charges the depositary or the custodian has to pay on any ADSs or ordinary shares underlying ADSs,
such as stock transfer taxes, stamp duty or withholding taxes
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As
necessary
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Any
charges incurred by the depositary or its agents for servicing the deposited securities
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As
necessary
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The depositary collects
its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose
of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting
those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may
collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging
the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any
cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated
to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are
paid.
From time to time,
the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance
of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected
from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency
dealers or other service providers that are owned by or affiliated with the depositary and that may earn or share fees, spreads
or commissions.
The depositary may
convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as
agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction
spreads, that it will retain for its own account. The revenue is based on, among other things, the difference between the exchange
rate assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives
when buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used
or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the
time or that the method by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s
obligations under the deposit agreement. The methodology used to determine exchange rates used in currency conversions is available
upon request.
The accompanying
notes are an integral part of the consolidated financial statements.
The accompanying
notes are an integral part of the consolidated financial statements.
The accompanying
notes are an integral part of the consolidated financial statements.
The accompanying
notes are an integral part of the consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 1:- GENERAL
|
a.
|
Cellect Biotechnology Ltd. (formerly
Cellect Biomed Ltd.) (the "Company" or "Cellect") is incorporated
in Israel. Cellect and its subsidiary, Cellect Biotherapeutics Ltd. (the "Subsidiary")
are engaged in the development of an innovative, unique technology that enables the biological
filtering and commercialization of stem cells. Cellect’s American Depository Shares
(“ADSs”) and certain warrants to purchase ADSs are listed for trading on
the NASDAQ Capital Market. Each ADS represents 20 ordinary shares.
|
On May 29, 2017,
the Company announced that it received approval of the Israeli court to voluntarily delist the Company's ordinary shares from
the Tel-Aviv Stock Exchange (TASE) in accordance with Section 350 to the Israeli Companies Law. The court approval followed the
approval of the Company's shareholders on May 9, 2017. On June 7, 2017, the TASE announced that the last trading day in Tel Aviv
will be on September 3, 2017, and that the de-listing date will be on September 5, 2017. As a result, on September 5, 2017, the
Company's ordinary shares were voluntarily delisted from TASE. The ordinary shares of the Company continue to be listed on the
NASDAQ Capital Market in the form of ADSs.
The accompanying
financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), assuming that the
Company will continue to operate as a going concern. During the year ended December 31, 2017, the Company incurred a net loss
of NIS 28,224 ($8,141) and had negative cash flows from operating activities of NIS 17,770 ($5,126). In addition, the Company
had an accumulated deficit of NIS 63,943 ($18,444) at December 31, 2017. The Company's management plans to seek additional equity
financing. The Company believes its current capital resources are sufficient to support its operations through the end of the
first quarter of 2019.
The Company’s
activities since inception have consisted of raising capital and performing research and development activities. As of December
31, 2017, principal commercial operations have not commenced. Successful completion of the Company’s development programs
and, ultimately, the attainment of profitable operations, if any, are dependent on future events, including, among other things,
its ability to obtain marketing approval from regulatory authorities and access potential markets, secure financing, develop a
customer base, attract, retain and motivate qualified personnel and develop strategic alliances. Although management believes
that the Company will be able to successfully fund its operations, there can be no assurance that the Company will be able to
do so or that the Company will ever operate profitably.
The Company expects
to continue to incur substantial losses over the next several years during its development phase. To fully execute its business
plan, the Company will need, among other things, to complete its research and development efforts and clinical and regulatory
activities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable
future. There can be no assurance that these activities will be successful. If the Company is not successful in these activities
it could delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities.
To fund its capital needs, the Company plans to raise funds through equity or debt financings or other sources, such as strategic
partnerships and alliance and licensing arrangements, and in the long term, from the proceeds from sales. Additional funds may
not be available when the Company needs them, on terms that are acceptable to it, or at all. These matters raise substantial doubt
about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to the
carrying amounts and classifications of assets and liabilities that would result if the Company was unable to continue as a going
concern. In addition, please refer to note 16.
|
c.
|
The
Company currently relies on a single source supplier
for
one of the components used in R&D process.
If the current supplier suffers a major
natural or man-made disaster at its manufacturing facility, or if they otherwise cease
to supply to the Company, then this could result in further delays in the clinical studies and
may delay product testing and potential regulatory approval until a qualified alternative
supplier is identified.
|
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 2:- SIGNIFICANT
ACCOUNTING POLICIES
The following accounting
policies have been applied consistently in the consolidated 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 IFRS as issued by the International Accounting Standards Board ("IASB").
The Company's financial
statements have been prepared on a cost basis, except for marketable securities and liability related to warrants that 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. The Company's operating cycle is one year.
|
b.
|
Consolidated
financial statements:
|
The consolidated
financial statements include the financial statements of companies that the Company controls (subsidiaries). Control exists when
the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity. The consolidation
of the financial statements commences on the date on which control is obtained and ends when such control ceases.
The financial statements
of the Company and its subsidiaries (the "Group") are prepared as of the same dates and periods. The consolidated financial
statements are prepared using uniform accounting policies by all companies in the Group. Significant intercompany balances and
transactions and gains or losses resulting from intragroup transactions are eliminated in full in the consolidated financial statements.
|
c.
|
Functional
currency, reporting currency and foreign currency:
|
|
1.
|
Functional currency and reporting
currency:
|
The
reporting and the functional currency of the Company is the New Israeli Shekel (“NIS”).
The
Company determines the functional currency of each company in the Group. The functional currency is used to measure the
financial condition and results of operations of each company separately
.
|
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 on each reporting date into the functional currency
at the exchange rate at that date. Exchange rate differences are recognized in profit or loss.
|
d.
|
Convenience
translation into U.S. dollars:
|
The financial statements
as of December 31, 2017 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, 2017 (U.S. $1.00 = NIS 3.467). The translation was made solely for convenience purposes.
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 2:- SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
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
is primarily invested to secure credit card payments and is used as security for the Company's lease commitment.
Tax results with
respect to current or deferred taxes are recognized in profit or loss, unless they relate to items recognized in other comprehensive
income or equity.
The liability for
current taxes is determined using the tax rates and tax laws that were enacted, or essentially enacted, by the reporting date,
as well as adjustments required in connection with the taxes payable in respect of prior years.
Deferred taxes are
computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed
for tax purposes.
Deferred taxes are
measured at the tax rate that is expected to apply when the asset is realized or the liability is settled, based on tax laws that
have been enacted or substantively enacted by the reporting date.
Deferred tax assets
are reviewed at each reporting date and reduced to the extent that it is not probable that they will be utilized. Deductible carryforward
losses and temporary differences for which deferred tax assets had not been recognized are reviewed at each reporting date and
a respective deferred tax asset is recognized to the extent that their utilization is probable.
Taxes that would
apply in the event of the disposal of investments in investees have not been taken into account in computing deferred taxes, as
long as the disposal of the investments in investees is not probable in the foreseeable future. Also, deferred taxes that would
apply in the event of distribution of earnings by investees as dividends have not been taken into account in computing deferred
taxes, since the distribution of dividends does not involve an additional tax liability or since it is the Company's policy not
to initiate distribution of dividends from a subsidiary that would trigger an additional tax liability.
Taxes on income
that relate to distributions of an equity instrument and to transaction costs of an equity transaction are accounted for pursuant
to IAS 12.
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
Deferred taxes are
offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred
taxes relate to the same taxpayer and the same taxation authority.
Deferred taxes are
offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred
taxes relate to the same taxpayer and the same taxation authority.
|
h.
|
Property,
plant and equipment:
|
Property, plant
and equipment are measured at cost, including directly attributable costs, less accumulated depreciation.
Depreciation is
calculated on a straight-line basis over the useful life of the assets at annual rates as follows:
|
|
|
%
|
|
|
Computers and Electronic Equipment
|
|
33
|
|
|
Laboratory and clinical experiments equipment
|
|
15
|
|
|
Leasehold improvements
|
|
(*
|
|
|
Office furniture and equipment
|
|
7 - 15
|
|
(*
Leasehold improvements are depreciated on a straight-line basis over the earlier of the lease term or the estimated useful
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.
Depreciation of
an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.
An asset is derecognized upon disposal or when no further economic benefits are expected from its use.
|
i.
|
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.
Government grants
received from the Israel-U.S. Binational Industrial Research and Development ("BIRD") Foundation are recognized upon
receipt as a reduction in research and development expenses, as the Company evaluated that there is reasonable assurance that
the Company will not be required to pay royalties, based on the best estimate of future sales using the original effective method.
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
|
k.
|
Impairment
of non-financial assets:
|
The Company evaluates
the need to record an impairment 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 is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows
are discounted using a pre-tax discount rate that reflects the risks specific to the asset. 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. Impairment
losses are recognized in profit or loss.
An impairment loss
of an asset, other than goodwill, 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 reversal of impairment loss of an asset presented at cost
is recognized in profit or loss.
Financial
assets within the scope of
International Accounting Standard (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 at fair value through profit or loss.
Loans and receivables
Loans and receivables
are investments with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans
are measured based on their terms at amortized cost plus directly attributable transaction costs using the effective interest
method and less any impairment losses. Short-term borrowings are measured based on their terms, normally at face value.
Financial liabilities:
Financial liabilities within the scope of IAS 39 are initially measured at fair value. After initial recognition, other
liabilities are measured according to their terms at amortized cost using the effective interest method, taking into account directly
attributable transaction costs. The warrants were classified as a financial liability at fair value measured by quoted
price and are marked to market through profit or loss in accordance with IAS 39.
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
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.
|
n.
|
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).
|
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
The Company's shares
held by the Company are measured at their acquisition cost and are presented as an offset against the Company's equity. Any gain
or loss deriving from the purchase, sale, issuance or cancellation of treasury shares is recognized directly in equity.
|
p.
|
Employee
benefit liabilities:
|
The Group has several
employee benefit plans:
|
1.
|
Short-term
employment benefits:
|
Short-term employee
benefits are expected to be settled in full less than 12 months after the end of the annual reporting period in which the employees
render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation and social security
contributions and are recognized as expenses as the
services are
rendered. The liability for a cash bonus or profit-participating plan is recognized when the Company has a legal or constructive
obligation to pay the said amount in respect of past services rendered by the employee and the amount may be reliably estimated.
|
2.
|
Post-employment
benefits:
|
Post-
employment benefit plans are normally funded by contributions to insurance companies and are classified as defined contribution
plans.
The Company has
defined contribution plans pursuant to Section 14 of the Israeli 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, even 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.
|
q.
|
Share-based
payment transactions:
|
From time to time
the Company grants to its employees and other 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.
As for 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.
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 2:- SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
The cost of equity-settled
transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period in which the
performance or service conditions are satisfied, and 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 (service and/or
performance) are satisfied.
When the Company
changes the conditions of the award of equity-settled instruments, an additional expense is recognized beyond the original expense,
calculated in respect of a change that increases the total fair value of the remuneration granted or benefits the other service
provider according to the fair value on date of change.
Cancellation of
the award of equity-settled instruments is accounted for as having vested at the cancellation date and the expense not yet recognized
in respect of the award is recognized immediately. However, if the cancelled grant is replaced by a new grant, and is intended
as an alternate grant at the date awarded, the cancelled and new awards will both be accounted for as a change to the original
award, as described above.
Loss per share is
calculated by dividing the net 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 and from that date in basic loss per share.
NOTE 3:- SIGNIFICANT
ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN PREPARATION OF THE FINANCIAL STATEMENTS
Estimates
and assumptions:
The
preparation of the Group's financial statements requires management to make estimates and assumptions that have an effect on application
of the accounting policies and on the reported amounts of assets, liabilities and expenses. Changes in accounting estimates are
reported in the period of the change in estimate.
The
key assumptions made in the financial statements concerning uncertainties at the
reporting date 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 are discussed below.
|
●
|
Determining
the fair value of share-based transactions
|
The fair value of
share based transactions is determined upon initial recognition using acceptable option pricing models. The model is based on
per-share price data and the exercise price and assumptions regarding expected volatility, expected life, expected dividend and
risk-free interest rate.
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 4:- DISCLOSURE
OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION
|
a.
|
IFRS 15, "Revenue from Contracts
with Customers":
|
IFRS 15 was issued
by the IASB in May 2014.
IFRS 15 replaces
IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC
15, "Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC-31,
"Revenue - Barter Transactions Involving Advertising Services".
IFRS 15 introduces
a five-step model that will apply to revenue earned from contracts with customers:
Step 1:
Identify
the contract with a customer
, including reference to contract combination and accounting for contract modifications.
Step 2:
Identify
the separate performance obligations in the contract
Step 3:
Determine
the transaction price
, including reference to variable consideration, financing components that are significant to the contract,
non-cash consideration and any consideration payable to the customer.
Step 4:
Allocate
the transaction price to the separate performance obligations
on a relative stand-alone selling price basis using observable
information, if it is available, or using estimates and assessments.
Step 5:
Recognize
revenue when a performance obligation is satisfied,
either at a point in time or over time.
|
b.
|
IFRS 9, "Financial Instruments":
|
In July 2014, the
IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS
39, "Financial Instruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement
of financial assets and it applies to all assets in the scope of IAS 39.
According to IFRS
9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments are measured
at amortized cost only if both of the following conditions are met:
|
-
|
The
asset is held within a business model whose objective is to hold assets in order to collect
the contractual cash flows.
|
|
-
|
the contractual terms of the financial
asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
|
IFRS 9 also includes
a new model for measurement of impairment of financial assets.
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 4:- DISCLOSURE
OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)
Subsequent measurement
of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction between debt instruments
to be measured at fair value through profit or loss and debt instruments to be measured at fair value through other comprehensive
income.
Financial assets
that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit or loss
or in other comprehensive income (loss), in accordance with the election by the Company on an instrument-by-instrument basis.
If equity instruments are held for trading, they should be measured at fair value through profit or loss.
According to IFRS
9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value option
has not been elected.
According
to
IFRS 9, changes in the fair value of financial liabilities which are attributable to the change in credit risk should
be presented in other comprehensive income. All other changes in fair value should be presented in profit or loss.
IFRS
9
also prescribes new hedge accounting requirements.
The Company will
adopt the new standard effective January 1, 2018. The Company does not expect the adoption IFRS 9 to have material impact on its
financial statements.
In January 2016,
the IASB issued IFRS 16, "Leases". According to IFRS 16, 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.
According to IFRS
16:
|
●
|
Lessees
are required to recognize an asset and a corresponding liability in the statement of
financial position in respect of all leases (except in certain cases) similar to the
accounting treatment of finance leases according to the existing IAS 17, "Leases".
|
|
●
|
Lessees are required to initially
recognize a lease liability for the obligation to make lease payments and a corresponding
right-of-use asset. Lessees will also recognize interest and depreciation expenses 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 (such as a percentage of revenues) are recognized
as an expense by the lessees as incurred and recognized as income by the lessors as earned.
|
|
●
|
In the event of change in
variable lease payments that are CPI-linked, lessees are required to remeasure the lease
liability and the effect of the remeasurement is an adjustment to the carrying amount
of the right-of-use asset.
|
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 4:- DISCLOSURE
OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)
|
●
|
IFRS 16 includes two exceptions
according to which lessees are permitted to elect to apply a method similar to the current
accounting treatment for operating leases. These exceptions are leases for which the
underlying asset is of low value and leases with a term of up to one year.
|
|
●
|
The accounting treatment
by lessors remains substantially unchanged, namely classification of a lease as a finance
lease or an operating lease.
|
For
leases existing at the date of transition, IFRS 16
permits lessees to use either a full retrospective approach, or a modified
retrospective approach, with certain transition relief whereby restatement of comparative data is not required.
The Company is currently
evaluating the impact of implementing this guidance on its consolidated financial statements. In 2018, the Company will continue
to assess the potential effect of IFRS 16 on its consolidated financial statements as well as its adoption methodology.
NOTE 5:- MERGER
WITH CELLECT BIOTHERAPEUTICS LTD. (formerly "Cellect Biotechnology Ltd")
The merger
between the Company and the Subsidiary, a private company engaged in development of innovative, unique technology, enabling
selection of biologically filtered stem cells and commercialization, closed on July 1, 2013. Under the terms of the
agreement, 44,887,373 ordinary shares, NIS 1.00 par value each, of the Company, constituting 85% of its equity, were issued
to shareholders of the Subsidiary, as well as an aggregate of 568,395 options (not listed for trading), each exercisable for
one ordinary share of the Company, NIS 1.00 par value each, in consideration for the entire share capital of the Subsidiary
including all of the existing options in the Subsidiary, such that following the merger, the Subsidiary became a wholly-owned
subsidiary of the Company.
Out of the options
granted, an amount of 113,698 Series 1 unlisted options are exercisable until April 30, 2018, at an exercise price of NIS 1.00
per option.
NOTE 6:- MARKETABLE
SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS
Marketable
securities are measured at fair value through profit and loss. As of December 31, 2017 and 2016, the marketable securities are
comprised of NIS mutual funds that follow changes in short term Bank of Israel interest.
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE
7:- OTHER RECEIVABLES
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
translation
(Note 2d)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
51
|
|
|
|
60
|
|
|
|
17
|
|
Government authorities
|
|
|
611
|
|
|
|
185
|
|
|
|
54
|
|
Prepaid expenses
|
|
|
799
|
|
|
|
573
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,461
|
|
|
|
818
|
|
|
|
236
|
|
NOTE
8:- PROPERTY, PLANT AND EQUIPMENT, NET
Balance as of December 31,
2017:
|
|
Laboratory equipment
|
|
|
Leasehold improvements
|
|
|
Office furniture and equipment
|
|
|
Computers
|
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2017
|
|
|
1,006
|
|
|
|
372
|
|
|
|
147
|
|
|
|
232
|
|
|
|
1,757
|
|
Additions during the year
|
|
|
244
|
|
|
|
12
|
|
|
|
24
|
|
|
|
65
|
|
|
|
345
|
|
Deductions during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2017
|
|
|
1,250
|
|
|
|
384
|
|
|
|
171
|
|
|
|
295
|
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2017
|
|
|
140
|
|
|
|
116
|
|
|
|
18
|
|
|
|
110
|
|
|
|
384
|
|
Additions during the year:
|
|
|
162
|
|
|
|
125
|
|
|
|
13
|
|
|
|
72
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2017
|
|
|
302
|
|
|
|
241
|
|
|
|
31
|
|
|
|
182
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost as of December 31,
2017
|
|
|
948
|
|
|
|
143
|
|
|
|
140
|
|
|
|
113
|
|
|
|
1,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost as of December 31,
2017 (convenience translation into U.S. dollars (Note 2d))
|
|
|
274
|
|
|
|
41
|
|
|
|
40
|
|
|
|
33
|
|
|
|
388
|
|
CELLECT BIOTECHNOLOGY
LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE
8:- PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)
Balance
as of December 31, 2016:
|
|
Laboratory equipment
|
|
|
Leasehold improvements
|
|
|
Vehicles
|
|
|
Office furniture and equipment
|
|
|
Computers
|
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2016
|
|
|
687
|
|
|
|
244
|
|
|
|
176
|
|
|
|
36
|
|
|
|
149
|
|
|
|
1,292
|
|
Additions during the year:
|
|
|
319
|
|
|
|
128
|
|
|
|
-
|
|
|
|
111
|
|
|
|
83
|
|
|
|
641
|
|
Deductions during the year:
|
|
|
-
|
|
|
|
-
|
|
|
|
(176
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2016
|
|
|
1,006
|
|
|
|
372
|
|
|
|
-
|
|
|
|
147
|
|
|
|
232
|
|
|
|
1,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2016
|
|
|
12
|
|
|
|
-
|
|
|
|
37
|
|
|
|
8
|
|
|
|
48
|
|
|
|
105
|
|
Additions during the year:
|
|
|
128
|
|
|
|
116
|
|
|
|
25
|
|
|
|
10
|
|
|
|
62
|
|
|
|
341
|
|
Deductions during the year:
|
|
|
-
|
|
|
|
-
|
|
|
|
(62
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2016
|
|
|
140
|
|
|
|
116
|
|
|
|
-
|
|
|
|
18
|
|
|
|
110
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost as of December 31,
2016
|
|
|
866
|
|
|
|
256
|
|
|
|
-
|
|
|
|
129
|
|
|
|
122
|
|
|
|
1,373
|
|
NOTE
9:- TRADE PAYABLES
|
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
|
translation
(Note 2d)
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service providers
|
|
|
1,343
|
|
|
|
1,703
|
|
|
|
491
|
|
|
Notes payable
|
|
|
58
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,401
|
|
|
|
1,703
|
|
|
|
491
|
|
CELLECT BIOTECHNOLOGY
LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE
10:- OTHER PAYABLES
|
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
|
translation
(Note 2d)
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees and payroll accruals *)
|
|
|
1,677
|
|
|
|
1,954
|
|
|
|
564
|
|
|
Accrued expenses
|
|
|
393
|
|
|
|
430
|
|
|
|
124
|
|
|
Other
|
|
|
14
|
|
|
|
12
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,084
|
|
|
|
2,396
|
|
|
|
691
|
|
|
*)
|
Balance includes related parties
(The Company's CEO and the Chairman of the Board of Directors).
|
NOTE
11:- EQUITY
|
a.
|
Changes in share capital:
|
|
|
|
Number of
|
|
|
|
|
Shares
(issued and outstanding)
|
|
|
|
|
|
|
|
Balance as of January 1, 2016
|
|
|
*) 75,994,888
|
|
|
|
|
|
|
|
|
Issuance of shares in private placement
|
|
|
5,783,437
|
|
|
Exercise of share options
|
|
|
4,000
|
|
|
Issuance of shares in an IPO
|
|
|
25,846,160
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
*) 107,628,485
|
|
|
|
|
|
|
|
|
Issuance of shares in baby shelf offering
|
|
|
10,622,720
|
|
|
Exercise of share options
|
|
|
1,484,154
|
|
|
ADS granted (see Note 12c)
|
|
|
450,300
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
|
*)
120,185,659
|
|
|
*)
|
Net of 2,641,693 treasury shares
of the Company, held by the Company.
|
|
1.
|
On
April 20, 2015, the Company published an offering under the shelf registration statement
and prospectus dated November 25, 2014, pursuant to which the public was offered up to
4,500,000 shares and up to 4,500,000 options (Series 1), exercisable into 4,500,000 ordinary
shares of the Company. The Company exercised its right for an over-allotment not to exceed
15% of the total securities offered through the offering, such that in total, the Company
issued 4,523,500 ordinary shares and 4,523,500 options (Series 1) of the Company. The
total gross proceeds received by the Company in respect of the securities offered to
the public according to the shelf offering totaled NIS 6,604 (proceeds net of issuance
costs amounted to NIS 6,292).
|
CELLECT
BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE
11:- EQUITY (Cont.)
|
2.
|
During
June 2015, 341,073 unlisted options were exercised for 341,073 shares of the Company,
in consideration for a total of NIS 104.
|
|
3.
|
In
February 2016, the Company completed a private placement of shares and warrants for a
total of approximately NIS 8,000 and issued 5,783,437 ordinary shares as well as 1,927,801
unlisted warrants exercisable for a period of 12 months, at an exercise price of NIS
2.1 per warrant. Participants in the private placement also included related parties
and an officer of the Company. On May 16, 2016 the Company’s shareholders, at a
general meeting approved the participation of the controlling shareholder and Chairman
of the Board, Nuriel Kasbian Chirich, in the private placement, and accordingly he was
allotted 287,769 shares and 95,923 unlisted warrants of the Company on the same terms
as the rest of the offerees. On January 9, 2017, the Company’s shareholders, at
general meeting of the Company's shareholders approved the extension of the exercise
period of the warrants until March 7, 2018.
|
|
4.
|
On
July 28, 2016 the Company completed a US initial public offering (the “IPO”)
of 1,292,308 ADSs and listed warrants to purchase 969,231 ADSs (the “Listed Warrants”)
at a combined price to the public of $6.50 resulting in
gross proceeds of
NIS 32,107, (NIS 25,820 net of all issuance costs, including share-based awards granted).
An amount of NIS 23,269 out of the consideration was related to the ADS and classified
as equity component, while an amount of NIS 3,173 was related to the fair value of the
Listed Warrants to ADS and was classified as a liability. Issuance costs amounting to
NIS 622 associated with the issuance of the Listed Warrants and have been recognized
as finance expenses.
|
Each Listed
Warrants is exercisable into one ADS, for a period of five years at an exercise price of US$ 7.50 per warrant. Since the
warrant exercise price is in US dollars, which is not the Company's functional currency, the Listed Warrants were classified
as a financial liability at fair value and are marked to market through profit or loss in accordance with IAS
39.
The Company granted
the underwriters a 45-day over-allotment to purchase up to 193,846 additional ADSs at a price of US$ 6.038 per ADS and/or an additional
Listed Warrants to purchase 145,385 ADSs, on the same terms as the warrants issued to the public, at a price of US$ 0.007 per
warrant. The underwriters partially exercised the over-allotment option resulting in the issuance of 65,890 Listed Warrants. The
option to the Underwriters was recognized as a share based payment transaction in accordance with IFRS 2, and was netted off the
total consideration as issuance cost.
Furthermore,
the Company issued to the underwriters unlisted warrants to purchase 77,538 ADSs at an exercise price of $8.80 per warrant convertible
at a 1:1 ratio and exercisable for a period of four years. The underwriters' unlisted warrants were classified as a share based
payment transaction in accordance with IFRS 2 and netted off the total consideration as issuance cost
. On April 4, 2017,
underwriters’ warrants to purchase 61,487 ADSs were exercised.
CELLECT
BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 11:- EQUITY (Cont.)
|
5.
|
On
May 9, 2017, the Company's shareholders, at a general shareholders' meeting
approved
the following changes in the terms of the options (Series 1): (i) extension of the expiration
date options (Series 1) to a date that is 80 days from court approval for such
of the exercise period of the options (Series 1) (i.e. August 17, 2017, following court
approval), and (ii) reduction in the exercise price of the options (Series 1) from NIS
1.85 per option to NIS 1.20 per option, in accordance with
Section
350 of the Israeli Companies Law. On May 29, 2017, the court approved the changes to
the options (Series 1).
On August 17, 2017 the options (Series 1) expired.
|
|
6.
|
Between
July 1, 2017, and August 16, 2017, an aggregate of 516,574 options (Series 1) were exercised.
Each option (Series 1) was exercised into one ordinary share at an exercise price of
NIS 1.20 per option.
|
|
7.
|
On
September 7, 2017, the Company sold to certain accredited investors an aggregate of 531,136
ADSs and 265,568 unregistered warrants to purchase 265,568 ADSs in a registered direct
offering at $8.10 per ADS in which it raised gross proceeds of NIS 15,214, (NIS 13,970
net of all issuance costs, including share-based awards granted). An amount of NIS 11,695
out of the consideration related to the ADSs and classified as equity component, while
an amount of NIS 2,481 related to the fair value of the warrants to purchase ADSs and
was classified as a liability. Issuance costs amounting to NIS 204 associated with the
issuance of the warrants, have been recognized as finance expenses. The investor warrants
may be exercised for one year from issuance and have an exercise price of $12.07 per
ADS, subject to adjustment as set forth therein. The investor warrants may be exercised
on a cashless basis if there is no effective registration statement registering the ADSs
underlying the warrants. The Company paid approximately $140 in placement agent fees
and expenses and issued unregistered placement agent warrants to purchase 7,492 ADSs
on the same general terms as the investor warrants except they have an exercise price
of $10.125 per ADS.
|
Since the warrant
exercise price is in US dollars, which is not the Company's functional currency, the unregistered warrants to purchase ADS were
classified as a financial liability at fair value and are marked to market through profit or loss in accordance
with IAS 39.
The placement agent
warrants were classified as a share based payment transaction in accordance with IFRS 2 and netted off the total consideration
as issuance cost.
|
b.
|
Rights related to ordinary shares
|
All ordinary shares
shall have equal rights and each ordinary share shall entitle the holder the following rights:
|
1.
|
The
right to receive notices of any general meeting of shareholders, to participate in meetings
and vote on any matter raised in the meeting. Each ordinary share entitles its holder
to one vote.
|
CELLECT
BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE 11:- EQUITY (Cont.)
|
2.
|
The right to participate in any
distribution by the Company to its shareholders and receive dividends and / or bonus
shares, if distributed in accordance with the Company articles of association.
|
|
3.
|
The right to participate at the
time of liquidation of the Company, in the distribution of the Company's assets permitted
to be distributed in proportion to the number of shares allocated and the degree of repayment
by the shareholders, if not fully paid, and subject to the provisions of the articles
of association of the Company and without prejudice to existing rights of shareholders
of any kind.
|
NOTE
12:- SHARE-BASED COMPENSATION
|
a.
|
In
February 2014, the Company's board of directors adopted an Employee Shares Incentive
Plan (the "2014 Plan"). Under the 2014 Plan, options may be granted to employees,
officers, directors, consultants, advisers and service providers of the Company.
|
On February 28,
2017, the board of directors approved an increase to the Company’s option pool of 4,207,971 options. As a result, the Company
has a total of 12,707,971 options in the pool.
|
b.
|
On
November 23, 2015, the Company's shareholders, at a general meeting of shareholders approved
the former Deputy CEO and CFO terms of service, including a grant of options, which is
an exception from the Company's compensation policy, as further described below. The
terms of service included among others, a grant of 2,658,246 options, exercisable for
2,658,246 ordinary shares, no par value, of the Company at an exercise price of NIS 1.286
per share. The total benefit in respect of the grant calculated at the grant date was
NIS 3,033.
|
On March 28, 2017,
500,000 options were exercised into 500,000 ordinary shares by the Company’s former Deputy CEO and CFO.
During January,
2018, 310,180 options were exercised into 310,180 ordinary shares by the Company’s former Deputy CEO and CFO. The remaining
297,420 options expired on February 28, 2018.
|
c.
|
Details on share-based payment for
service providers:
|
|
1.
|
On
February 28, 2017, the board of directors approved the issuance to a consultant of 15,000
ADSs. The issuance was made in three equal tranches, of 5,000 ADSs each. The first tranche
was issued in May 2017, the second tranche was issued in July 2017 and the third tranche
was issued in November 2017.
|
|
2.
|
On July 23, 2017, the Company issued 7,515 ADSs to a consultant.
On June 28, 2017, the board of directors approved the issuance of ADSs.
|
CELLECT
BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE
12:- SHARE-BASED COMPENSATION (Cont.)
|
d.
|
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
2d)
|
|
|
|
|
Year
ended
December
31,
|
|
|
Year
ended
December 31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
|
N I S
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
523
|
|
|
|
253
|
|
|
|
1,940
|
|
|
|
560
|
|
|
General and administrative
|
|
|
795
|
|
|
|
1,299
|
|
|
|
3,444
|
|
|
|
993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation
|
|
|
1,318
|
|
|
|
1,552
|
|
|
|
5,384
|
|
|
|
1,553
|
|
|
e.
|
Activity during the year:
|
The table below
includes the number of share options, and the weighted average of their exercise prices:
|
|
|
2016
|
|
|
2017
|
|
|
|
|
Number
of options
|
|
|
Weighted
Average Exercise price
|
|
|
Number
of options
|
|
|
Weighted
Average Exercise price
|
|
|
|
|
|
|
|
NIS
|
|
|
|
|
|
NIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
5,764,866
|
|
|
|
1.37
|
|
|
|
5,979,973
|
|
|
|
1.25
|
|
|
Options exercised for shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(696,980
|
)
|
|
|
1.16
|
|
|
Options forfeited
|
|
|
(2,054,396
|
)
|
|
|
1.43
|
|
|
|
(166,667
|
)
|
|
|
0.63
|
|
|
Option Expired
|
|
|
(337,000
|
)
|
|
|
1.42
|
|
|
|
(726,512
|
)
|
|
|
1.69
|
|
|
Granted
|
|
|
2,606,503
|
|
|
|
1.14
|
|
|
|
6,362,854
|
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
5,979,973
|
|
|
|
1.25
|
|
|
|
10,752,668
|
|
|
|
1.18
|
|
CELLECT
BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE
12:- SHARE-BASED COMPENSATION (Cont.)
|
f.
|
The following table summarizes information
about the Company's outstanding and exercisable options granted to employees and consultants
as of December 31, 2017:
|
|
Exercise
price
(Range)
|
|
Options
outstanding as of
December 31,
2017
|
|
|
Weighted
average remaining
contractual
term (years)
|
|
|
Options
exercisable as of December 31,
2017
|
|
|
Weighted
average remaining
contractual
term (years)
|
|
|
0.001 - 1.35
|
|
|
8,310,168
|
|
|
|
8.3
|
|
|
|
1,452,782
|
|
|
|
4.3
|
|
|
1.35 - 1.8
|
|
|
2,010,500
|
|
|
|
7.7
|
|
|
|
1,335,000
|
|
|
|
6.7
|
|
|
1.8 - 2.1
|
|
|
432,000
|
|
|
|
7.6
|
|
|
|
432,000
|
|
|
|
7.6
|
|
|
|
|
|
10,752,668
|
|
|
|
8.2
|
|
|
|
3,219,782
|
|
|
|
5.8
|
|
|
g.
|
Measuring the fair value of share
options settled by equity instruments:
|
The Company shares
data which is useful for measuring the fair value of the options under the Black-Scholes model, for the years ended December 31,
2016 and 2017, is as follows:
|
|
|
2016
|
|
2017
|
|
|
|
|
|
|
|
Dividend yield (%)
|
|
0
|
|
0
|
|
Expected volatility of the share prices (%)
|
|
84.05%-91.6%
|
|
81.56%-85.61%
|
|
Risk-free interest rate (%)
|
|
1.04%-2.10%
|
|
1.94%-2.52%
|
|
Expected life of share options (years)
|
|
4-10
|
|
10
|
According to the
data above, the fair value of options granted in the years 2016-2017 was set to NIS 10, 252 at the grant date.
|
h.
|
The determination of the grant date
fair value of options using an option pricing model (the Company utilizes the Black-Scholes
model) is affected by estimates and assumptions regarding a number of complex and subjective
variables. These variables include the expected volatility of the Company's share price
over the expected term of the options, share option exercise and cancellation behaviors,
risk-free interest rates and expected dividends, which are estimated as follows:
|
|
1.
|
The expected share price volatility
is based on the historical volatility in the trading price of the Company's ordinary
shares as well as comparable companies on the TASE and on the NASDAQ and benchmarks of
related companies.
|
|
2.
|
The expected term of options granted
is based upon the contractual life of the options and represents the period of time that
options granted are expected to be outstanding.
|
|
3.
|
The
risk-free interest rate is based on the yield from Israeli government bonds with a term
equivalent to the contractual life of the options.
|
|
4.
|
The
Company has never declared or paid any cash dividends and do not presently plan to pay
cash dividends in the foreseeable future. Consequently, the Company uses an expected
dividend yield of zero.
|
NOTE 13:- TAXES
ON INCOME
|
a.
|
Corporate tax rates in Israel:
|
The Israeli corporate
income tax rate was 24% in 2017, 25% in 2016 and 26.5% in 2015.
In January 2016,
the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, which includes a
reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016.
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 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 and
its subsidiary received final tax assessments through tax years 2012.
CELLECT
BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE
13:- TAXES ON INCOME (Cont.)
|
c.
|
Net operating carry forwards
losses for tax purposes and other temporary differences:
|
As of December 31,
2017, the Company had carry forward operating losses amounting to approximately NIS 35,085.
The Company did
not recognize deferred tax assets for carry forward operating and capital losses and other temporary differences because their
utilization in the foreseeable future is not probable.
NOTE
14:- CONTINGENT LIABILITIES AND COMMITMENTS
|
1.
|
On September 1, 2015, the Company signed a new lease agreement
for new offices. The aforementioned lease agreement is for a minimum period of 3 years from the date of signing the agreement.
Under this agreement, the Company will pay a monthly rental fee plus an administration fee of NIS 34.
|
The Company has
entered into operating lease agreements for vehicles. These leases have an average life of three years with no option to extend
the contract. The Company has the right to terminate the agreement before the end of the three years and will be required to pay
an early termination penalty of between one to three months of the lease. The future lease payments as of December 31, 2017 are
approximately NIS 183.
|
2.
|
The Company participated in programs
sponsored by the Israel-United States Binational Industrial Research and Development
Foundation (BIRD) for the support of research and development activities. The Company
is obligated to pay royalties to BIRD, amounting to 5% of the gross sales of the products
and other related revenues developed from such activities, up to an amount of 150% from
the grant received from BIRD by the Company indexed to the U.S. consumer price index.
|
As of December 31,
2017, the Company received an aggregate grant of $120 from the BIRD Foundation in support of the development and commercialization
of the Company's stem cell selection technology in collaboration with Entegris. Subject to the successful completion of different
milestones, the Company expects to receive additional grants in the future.
The Company provided
a NIS 185 restricted bank deposit to secure credit card payments.
The Company provided
a NIS 120 restricted bank deposit to secure the rent payment.
NOTE
15: - BALANCES AND TRANSACTIONS WITH RELATED PARTIES
|
a.
|
Related
party balances
|
|
|
|
|
|
|
Convenience
translation
(Note
2d)
|
|
|
|
|
December 31
|
|
|
Year
ended
December
31,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
|
Key management personnel
|
|
|
Other related parties
|
|
|
Key management personnel
|
|
|
Other related parties
|
|
|
Key management personnel
|
|
|
Other related parties
|
|
|
|
|
NIS
|
|
|
U.S. Dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables
|
|
|
318
|
|
|
|
805
|
|
|
|
425
|
|
|
|
827
|
|
|
|
123
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
318
|
|
|
|
805
|
|
|
|
425
|
|
|
|
827
|
|
|
|
123
|
|
|
|
238
|
|
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE
15: - BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)
|
b.
|
The
directors and senior managers of the Company are entitled, in addition to salary, to
non-cash benefits (such as a car, medical insurance, etc.).
|
Benefits for employment
of key management personnel (including directors) employed in the Company:
|
|
|
|
|
|
Convenience
translation
(Note
2d)
|
|
|
|
|
Year ended December 31,
|
|
|
Year
ended
December 31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
|
No.
of
people
|
|
|
Amount
NIS
|
|
|
No.
of
people
|
|
|
Amount
NIS
|
|
|
No.
of
people
|
|
|
Amount
NIS
|
|
|
Amount
U.S.
dollars
|
|
|
Short-term employee benefits (includes
Company's CEO in 2015, 2016 and 2017)
|
|
|
5
|
|
|
|
3,423
|
|
|
|
7
|
|
|
|
6,040
|
|
|
|
5
|
|
|
|
7,816
|
|
|
|
2,254
|
|
|
c.
|
Benefits
for employment of key management personnel (including directors) that are not employed
in the Company:
|
|
|
|
|
|
|
Convenience
translation
(Note
2d)
|
|
|
|
|
Year ended December 31,
|
|
|
Year
ended
December 31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
|
No.
of
people
|
|
|
Amount
NIS
|
|
|
No.
of
people
|
|
|
Amount
NIS
|
|
|
No.
of
people
|
|
|
Amount
NIS
|
|
|
Amount
U.S.
dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key management personnel and related parties
|
|
|
2
|
|
|
|
444
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Directors' fees
|
|
|
5
|
|
|
|
477
|
|
|
|
5
|
|
|
|
513
|
|
|
|
8
|
|
|
|
682
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
921
|
|
|
|
5
|
|
|
|
513
|
|
|
|
8
|
|
|
|
682
|
|
|
|
197
|
|
CELLECT BIOTECHNOLOGY LTD. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
thousands
,
except number of shares data
NOTE
15: - BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)
|
d.
|
Transactions with related parties:
|
|
|
|
|
|
|
Convenience
translation
(Note
2d)
|
|
|
|
|
Year ended December 31,
|
|
|
Year
ended
December
31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
|
Key management personnel
|
|
|
Related parties
|
|
|
Key management personnel
|
|
|
Related parties
|
|
|
Key management personnel
|
|
|
Related parties
|
|
|
Key management personnel
|
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
713
|
|
|
|
1,422
|
|
|
|
1,063
|
|
|
|
1,544
|
|
|
|
634
|
|
|
|
2,661
|
|
|
|
183
|
|
|
|
767
|
|
|
General and administrative expenses
|
|
|
921
|
|
|
|
811
|
|
|
|
2,317
|
|
|
|
1,116
|
|
|
|
2,014
|
|
|
|
2,507
|
|
|
|
581
|
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,634
|
|
|
|
2,233
|
|
|
|
3,380
|
|
|
|
2,660
|
|
|
|
2,648
|
|
|
|
5,168
|
|
|
|
764
|
|
|
|
1,491
|
|
NOTE
16: SUBSEQUENT EVENTS
On January 29, 2018,
the Company sold to certain accredited investors an aggregate of 484,848 ADSs in a registered direct offering at $8.25 per ADS
resulting in proceeds of approximately NIS 12,500 ($3,600) net of issuance costs. In addition, the Company issued to the investors
unregistered warrants to purchase 266,667 ADSs in a private placement. The investor warrants may be exercised until February 7,
2019 and have an exercise price of $12.00 per ADS, subject to adjustment as set forth therein. The investor warrants may be exercised
on a cashless basis if there is no effective registration statement registering the ADSs underlying the warrants. The Company
paid approximately $305 in placement agent fees and expenses and issued unregistered placement agent warrants to purchase 24,242
ADS on the same general terms as the investor warrants except they have an exercise price of $10.31 per ADS.
F-29