Elbit Imaging Ltd. was incorporated in 1996 under the laws of the State of Israel. Our shares were listed on the NASDAQ Global Select Market (ticker symbol: EMITF) until February 11, 2019 and are currently quoted on the OTC Markets and listed on the Tel Aviv Stock Exchange (“ TASE ”). Our executive offices are located at 3 Shimshon Street, Petach Tikva 4952801, Israel. You may reach us by telephone at (972-3) 608-6000 or by fax at (972-3) 608-6050.

For a summary of our recent acquisitions, dispositions and other activities and of our capital expenditures and divestitures during the years 2016, 2017 and 2018, and that are currently in progress, see “Item 5 – Operating and Financial Review and Prospects – Overview.”

Recent Events

InSightec’s Medical Updates

See “Item 4B – Business Overview – Medical Companies – Insightec – Clinical and Regulatory Development in InSightec’s Products”.

Gamida Medical Updates

See “Item 4B – Business Overview – Medical Companies- Gamida – Clinical and Regulatory Development”.

The Company sold 63,847,954 Elbit Medical shares under two share purchase agreements with Exigent

Second SPA with Exigent Capital Group

On February 2019 we signed a second Share Purchase Agreement (the “ Second SPA ”) with an SPV related to Exigent Capital Group for the sale of between 3,760,417 ordinary shares of Elbit Medical (1.6% of its outstanding share capital) and 57,968,760 ordinary shares of Elbit Medical (25% of its outstanding share capital).

As of May 13, 2019 (under the Second SPA), Exigent Capital Group purchased a total of 3,760,417 shares of Elbit Medical, constituting approximately 1.6% of Elbit Medical’s issued and outstanding share capital, at a price per share of NIS 0.96 and a total consideration of approximately NIS 3.6 million (approximately US$ 1 million), and waived the option it had to purchase additional shares of Elbit Medical.

The Company currently holds (as of May 13, 2019) approximately 62% of Elbit Medical’s issued and outstanding share capital.

First SPA with Exigent Capital Group

On August 2018 we signed a Share Purchase Agreement (the “ First SPA ”) with an SPV related to Exigent Capital Group (“ SPV ”) for the sale of between 11,574,146 ordinary shares of Elbit Medical (5% of its outstanding share capital) and 115,741,467 ordinary shares of Elbit Medical (50% of its outstanding share capital) for a price per share of NIS 0.96.

During August through November (under the First SPA) 2018 we sold to the SPV a total of 60,087,537 Elbit Medical shares, constituting approximately 26% of Elbit Medical’s issued and outstanding share capital, at a price per share of NIS 0.96, and total consideration of approximately US$ 15,548,275.

The parties also entered into a three-year voting agreement regarding the appointment of directors in Elbit Medical.

Gamida Cell has raised USD50 Million in an IPO in the United States

On October 26, 2018, we announced that Gamida completed the pricing for initial public offering of its ordinary shares in the United States and application to list 6.65 million of its ordinary shares on NASDAQ. The price set in the pricing procedure was eight (8) dollars per share, a price that reflect a post-money valuation of Gamida of approximately 215 million dollars.

The consideration for Gamida in the IPO was approximately 53 million dollars (including the consideration received from the exercise of the option to the underwriters but not including underwriters’ fees and other expenses in connection with the IPO). Gamida’s shares started trading on the NASDAQ in October 26, 2018 (Nasdaq: GMDA).

Delisting from the NASDAQ

On December 27, 2018, the Company received a letter from the Listing Qualifications Department of The NASDAQ (the “Staff”) indicating that the Company did not meet the Staff’s December 24, 2018 deadline to regain compliance with NASDAQ Listing Rule 5450(b)(3)(C) due to the Company’s failure to maintain a minimum market value of its publicly held shares of $15,000,000 for 30 consecutive business days. As a result, the Company would be subject to delisting on January 4, 2019 unless it requests a hearing before a Nasdaq Hearings Panel (the “ Panel ”).

On January 3, 2019, the Company announced that The NASDAQ granted the Company’s request for a hearing before the Panel at which time the Company will present its plan to regain compliance with NASDAQ Listing Rule 5450(b)(3)(C), under which the Company must maintain a minimum market value of its publicly held shares of $15,000,000 for 30 consecutive business days, and request a further extension of time to comply.

On February 7, 2019, the Company announced that NASDAQ had informed the Company that the Hearings Panel has determined to delist the Company’s ordinary shares. Nasdaq subsequently suspended Company shares from trading on Nasdaq effective at the open of business on February 11, 2019 and filed a Form 25 (Notification of Removal from Listing) with the SEC after applicable appeal periods lapsed to notify the SEC of the delisting of the Company’s ordinary shares, effective at the opening of the trading session on May 13, 2019.

The Company’s ordinary shares continue to be listed on the Tel Aviv Stock Exchange, and its ordinary shares are currently quoted on the OTC Markets. 

Change in Status as Controlling Shareholder of Plaza Centers N.V.

On December 19, 2018 we announced that we signed a trust agreement according to which the Company will deposit its shares of PC with a trustee. In accordance with the trust agreement, we redeem the voting rights and retains the ownership rights of PC’s shares, other than the voting rights which are irrevocably vested with the trustee for all matters and purposes effective from December 18, 2018. We may instruct the trustee, from time to time, to sell all or any portion of the Shares. The trust agreement shall terminate upon the earlier of: (i) a sale of all of the shares to a third party; and (ii) the date on which actions have been taken for realization of any of the liens we granted in favor of the holders of the Series I Notes issued by the Company. As a result, we no longer consider ourselves to be the controlling shareholder of PC. In light of PC’s current financial situation, the Company estimates that the loss of control therein is not material to the Company. Accordingly, PC’s financial statement are no longer consolidated with the Company’s financial statement and the review of the development of the Company’s business in 2018 does not relate to PC.

Settlements with Israeli Tax Authorities

On July 2, 2018 we announced that an Israeli court issued a decision in a lawsuit brought by us against the Israeli Tax Authority relating to VAT assessments issued to us and relating to the period from April 2006 to June 2011. In the decision, the court accepted in part the Israeli Tax Authority’s position and ruled that we should have deducted input tax at rates lower than those actually deducted by us. Accordingly, the court rules that we are required to pay the Israeli Tax Authority a payment of approximately NIS 16.5 million (excluding interest and linkage differentials) for the relevant period.

On November 19, 2018 we announced that we reached a settlement agreement with the Israeli Tax Authority pursuant to which we will pay approximately NIS 5.7 million in connection with VAT assessments for the years 2013 through 2018.

Sale of Holdings in Olive Software Inc.

On June 11, 2018 we announced that Olive Software Inc. (an affiliate in which the Company indirectly holds 16% of the outstanding share capital) was merged into another corporation in a cash transaction. In consideration for our holdings in Olive, the Company received approximately $1.8 million gross.

Full redemption of Series H Notes.

On May 31, 2018 the Company repaid its Series H Notes in full and as of the date of this report, there remains a financial debt for the Series I Notes only, as detailed below in this report.

Agreement to sell a Plot in Bangalore, India

In March, 2008 EPI entered into a share subscription and framework agreement (the “ Agreement ”), with a third party local developer (the “ Purchaser ”), and a wholly owned Indian subsidiary of EPI which was designated for this purpose (“ SPV ”), to acquire together with the Purchaser, through the SPV, up to 440 acres of land in Bangalore, India (the “ Project ”) in certain phases as set forth in the Agreement. As of December 31, 2018, the Partner has surrendered sale deeds to the SPV for approximately 54 acres (the “Plot”). In addition, under the Agreement the Partner has also been granted with 10% undivided interest in the Plot and have also signed a Joint Development Agreement with the SPV in respect of the Plot.

On December 2, 2015 EPI has signed an agreement to sell 100% of its interest in the SPV to the Purchaser (the “ Sale Agreement ”). The total consideration upon completion of the transaction was INR 3,210 million (approximately EUR 42 million) which should have been paid no later than September 30, 2016 (“ Long Stop Date ”). On November 15, 2016, the Purchaser informed EPI that it will not be able to execute the advance payments.

As a result of the foregoing, the Company has received from the escrow agent the sale deeds in respect of additional 8.7 acres (the “ Additional Property ”) which has been mortgaged by the Purchaser in favor of the SPV in order to secure the completion of the transaction on the Long Stop Date. The Additional Property has not yet been registered in favor of the SPV.

As a result of the failure of the Purchaser to complete the transaction under the Sale Agreement and in accordance with the provisions thereto, the Purchaser lost its right to receive the 50% shareholding.

New payment structure for sale of Project in Bangalore, India

On June 19, 2017 we announced that EPI signed a revised agreement in relation to the sale of a 100% interest in a special purpose vehicle which holds a site in Bangalore, India to the Purchaser. The Purchaser and EPI agreed that the purchase price will be amended to INR 338 Crores (approximately €42.4 million and approximately $48.5 million) instead of the INR 321 Crores (approximately €40 million and approximately $46 million) agreed to in the previous agreement signed in December 2015. As part of the revised agreement, INR 110 Crores (approximately €14 million and approximately $16 million) will be paid by the Purchaser in installments until September 1, 2018, when the final installment of INR 228 Crores (approximately Euro 30 million and approximately $34 million) will be paid to EPI. If the Purchaser defaults prior to such date, EPI will be entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreement, signed in December 2015, will remain in place until the final closing.

In January 2018, the Purchaser has notified EPI that due to a proposed zoning change (initiated by the Indian authorities) which could potentially impact the development of the land, all remaining payments under the Agreement will be stopped until a mutually acceptable solution is reached on this matter. EPI has rejected the Purchaser’s claims, having no relevance to the existing Agreement, and started to evaluate its legal options. INR 46 Crores (approximately EUR 6.06 million) were paid till March 2018

In March 2018, we signed an amended revised agreement as follows: The Purchaser and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately EUR 44.5 million) The Final Closing will take place on 31 August 2019 when the final installment of circa INR 212 Crores (approximately EUR 26.9 million) will be paid to EPI against the transfer of the outstanding share capital of the SPV.

On February 4, 2019, we announced that the Purchaser defaulted on payments and EPI is considering all legal measures available to it to protect its interest.

During March 2019, the Company announced that the Purchaser has further paid INR 9.25 Crores (approximately €1.15 million).

During April 2019 EPI has reached an understanding with the purchaser according to which: (i) the closing date for the transaction will be extended to November 2019 (instead of August 2019) (the “ Closing Date ”); and (ii) the consideration will be increased to approximately €45.64 (INR 356 crores) (instead of INR 350 crores) (the “ Consideration ”). The Closing Date can be further extended to August 2020, subject to mutually agreed payment terms.

On May 13, 2019, the Company announced that the Purchaser defaulted on payments of INR 10 crores (approximately €1.27 million) according to the new understandings signed on April 2019. EPI has initiated legal process to protect its interest while it continues to negotiate with the Purchaser for payment of the amount due.

As of the date of this report, the Purchaser paid in total INR 80 crores (approximately EUR 10.26 million) as against INR 90 crores (approximately EUR 11.5 million) that was supposed to be paid by end of April 2019 according to mutual understating.

EPI is entitled to forfeit the amounts paid by the Purchaser until this date (approximately €10.26 million) as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreements will remain in place until the final closing.

Environmental update on Bangalore project – India

On May 4, 2016, the National Green Tribunal (“ NGT ”), an Indian governmental tribunal established for dealing with cases relating to the environment, passed general directions with respect to areas that should be treated as “no construction zones” due to its proximity to water reservoirs and water drains (“ Order ”). The restrictions in respect of the “no construction zone” are applicable to all construction projects.

The government of Karnataka had been directed to incorporate the above conditions in respect of all construction projects in the city of Bangalore including the Company’s project which is adjacent to the Varthur Lake and have several stormwater crossing it.

An appeal was filed before the Supreme Court of India against the Order. The Supreme Court has set aside the Order thereby restoring the position as it existed before the Order was passed by NGT.

Joint Development Agreement and Term Sheet with respect to our Plot in Chennai, India

In December 2007 EPI established a special purpose vehicle (“ SPV ”) which acquired 74.73 acres of land situated in the Sipcot Hi-Tech Park in Siruseri District in Chennai.

On August 2, 2016, we announced that the SPV signed a Joint Development Agreement (“ JDA ”) relating to the plot in Chennai, India project, owned 100% by EPI. Under the terms of the JDA, the SPV will confer the property development rights to a reputable local developer (the “ Developer ”) who will carry full responsibility for all of the project costs and liabilities, as well as for the marketing of the scheme. The JDA also stipulates specific project milestones, timelines and minimum sale prices. Development will commence subject to the obtainment of the required governmental/municipal approvals and permits, and it is intended that 67% of the land will be allocated for the sale of plotted developments (whereby a plot is sold with the infrastructure in place for the development of a residential unit by the end purchaser), while the remainder will comprise residential units fully constructed for sale. The SPV will receive 73% of the total revenues from the plotted development and 40% of the total revenues from the sale of the fully constructed residential units. In order to secure its obligation, the Developer will pay a total refundable deposit of INR 35.5 Crores (approximately €4.5 million), with INR 10 Crores (approximately €1.3 million) paid following the signing and registration of the JDA, INR 17 Crores (approximately €2million) payable when planning permission for the first phase of the development project is obtained (the “ Project Commencement Date ”), and the remaining INR 8.5 Crores (approximately €1 million) payable six months after the Project Commencement Date.

On July 5, 2018 we announced that EPI signed a term sheet with the Developer in respect to the sale of the SPV. Under the terms of the Term Sheet, the Developer was provided with period of 60 (sixty) days to undertake a due diligence process solely with respect to the SPV, following which definitive agreements for the sale of the SPV, in consideration for INR 110 Crores (approximately €13.8 million, subject to adjustment with respect to the previous amount deposited and the existing cash in the SPV), shall be signed and closing shall take place on the same day.

On October 18, 2018 we announced that the closing date of the transaction was extended to November 10, 2018. It was further agreed that the consideration will be reduced to 106 Crores (approximately €13.2million) instead of 110 Crores (approximately €13.8 million).

On January 14, 2019, we announced that EPI has granted the Developer until mid-February 2019, to complete the transaction. However, On February 11, 2019, we announced that the Developer has defaulted to complete the transaction and EPI has terminated the JDA and the Term Sheet with the Developer.

On March 4, 2019, we announced that the SPV (a subsidiary of EPI) holding the plot in Chennai has initiated an arbitration proceeding against the Developer in accordance with the Arbitration Rules of the Singapore International Arbitration Center (as required by the agreement between the parties). The reliefs sought in the framework of the arbitration are as follows: (a) a declaration that the JDA stands terminated validly; and (b) to instruct the Developer to compensate for damages caused due to the breach of the Joint Development Agreement by the Developer.

Agreement to sell a land located in Kochi, India

The Company has rights under certain share subscription agreement to hold 50% shareholding in Indian SPV (“ Project SPV ”). The Project SPV has entered into an agreement for the purchase of a land located in Kochi, India according to which it has acquired 13 acres (“ Property A ”) for a total consideration of INR 1,495 million ($21 million) payable subject to fulfillment of certain obligations and conditions by the seller. Up to the balance sheet date the Project SPV has paid INR 718 million ($ 10 million) to the seller in consideration for the transfer of title in Property A to the Project SPV Our share in such acquisition is approximately $ 6 million.

On January 14, 2016, the Company signed an agreement to waive any of its rights and interest in the Project SPV, subject to receipt of INR 10 Crores (approximately €1.2 million and approximately $1.4 million) (the “ Consideration ”), which will be paid to the Company upon the closing of the transaction.

On December 12, 2018, after several delays by the Purchaser in making the payments, we announced that it was agreed that the Consideration will be paid in two installments as follows: 50% until December 31, 2018 and the remaining 50% until April 30, 2019.

On January 8, 2019, we announced that the amount that was supposed to be paid to the Company until December 31, 2018 (50% of the Consideration) was not received yet.

On April 1, 2019, following a revised agreement between the parties, we announced that the Company has sold 50% of its stake in the Project SPV and received $0.72 million, i.e., 50% out of the Consideration. The remaining 50% will be paid to the Company in Q1 of 2020.

Since the issuance of the Series H Notes (in February 2014) until the date of this annual report, the Company has published 5 programs for the repurchase of up to NIS 237.6 million of Series H notes. As of the date of this report the Company has purchased par value NIS 155 million Series H notes for a total cash consideration of NIS 148 million. On May 31, 2018 the Company repaid its Series H Notes in full.

Since the issuance of the Series I notes (in February 2014) and as of the date of this report, the Company has published 3 programs for the repurchase of up to NIS 200 of Series I notes. As of the date of this report the Company has purchased par value NIS 115.6 Series I notes for a total cash consideration of NIS 144 million

Approval of an offer of Settlement with the SEC in the matter of Alleged Violations of FCPA

On March 12, 2018, we announced that the SEC approved an offer of settlement that was submitted to it by the Company regarding concerns of a violations of the books and records and internal accounting controls provisions of the FCPA, as follows:

In March 2016, PC announced that its board of directors became aware of certain issues with respect to certain agreements that were executed in the past by PC in connection with the Casa Radio Project in Romania that may indicate potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA.

In addition, in April 2017, the Company’s board of directors and PC’s board of directors became aware of certain issues with respect to an agency and commission agreement from 2011 regarding the sale in 2012 of property in the U.S. jointly owned by PC and the Company. The characteristics of the said agreements could raise red flags that this agreements may be a potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA.

Upon the discovery of each of the cases described above, the Company appointed an internal committees to examine these events and at the same time updated the SEC.

The internal committees have concluded their examination of these matters and submitted their recommendations to the Company’s board of directors. The Company’s board of directors fully adopted the committee’s recommendations and is working to implement them. Following discussions with the SEC regarding the potential violation of the requirements of the FCPA, the Company submitted an Offer of Settlement (“ Offer ”).

Solely for the purpose of the proceedings brought by or on behalf of the SEC and without admitting or denying the findings in the Offer (except as to the SEC’s jurisdiction over it and the subject matter of these proceedings, which are admitted) the Company consented to the entry of an order containing the SEC’s findings.

The SEC has determined to accept the Offer and ordered that:

In determining to accept the Offer, the SEC considered remedial acts that the Company promptly undertook, its self-reporting, and its cooperation afforded to the SEC staff, including having conducted a thorough internal investigation, voluntarily providing detailed reports to the staff, fully responding to the staff’s requests for additional information in a timely manner, and providing translations of certain documents.

On March 2018, a Shareholder of the Company (the “ Plaintiff ”) has filed a motion with the Financial Department of the District Court in Tel-Aviv to reveal and review internal documents of the Company and of PC., with respect to the events surrounding that certain agreements that were signed in connection with the Casa Radio Project in Romania and the sale of the U.S. portfolio (the “ Motion ”).

On July 2018, the Company has filed its response to the Motion together with a motion to dismiss the Motion.

On January 13, 2019, a Court hearing was held following which the judge decided that the board of directors of each of the two companies will examine the relevant facts and the allegations raised by the Plaintiff in connection with the said events and decide whether or not they should file a law suit against any of its officers. The two companies are required to submit their conclusion to both the court and the plaintiff (not later than May 12, 2019) and afterwards the Plaintiff will notify the court weather or not he wishes to continue with the Motion.

Issuance of a New Series of Notes by Elbit Medical and Payment of Debt from Elbit Medical to the Company

On February 19, 2018, the Company announced that Elbit Medical completed a public offering of notes convertible into ordinary shares of Elbit Medical and secured by a pledge on a portion of Elbit Medical’s holdings in InSightec and Gamida .

The main terms of the Notes are: (i) the total amount raised was NIS 180 million; (ii) the maturity date is March 1, 2022; (iii) the notes bear annual interest of 5% in the first two years and 10% in the remaining period, payable twice a year - in March and September; (iv) each NIS1.47 par value in notes are convertible into one Elbit Medical ordinary share; (v) the trust agreement of the notes includes certain limitations, including on the ability of Elbit Medical to distribute dividends and raise additional debt; and (vi) the Notes are secured by a pledge on a portion of Elbit Medical’s holdings in InSightec and Gamida in a “value to loan” ratio of 200%.

The use of proceeds from the Notes were as follows: (a) payment of all expenses in connection with the issuance of the notes (approximately NIS6 (approximately US$ 1.7 million)); (b) NIS18 million (approximately $ 5 million) to be deposited with the trustee and used for interest payments due on the notes for the first two years; (c) NIS 4 million (approximately $ 1 million) for ongoing operational expenses; and (d) the remaining proceeds will be used to repay Elbit Medical’s intercompany debt to the Company in the amount of approximately NIS 153 million (approximately $ 43 million). The balance of Elbit Medical’s debt to the Company, in the total amount of approximately NIS2 million (approximately USD 580 thousand) will be converted to approximately NIS2 million par value Notes. The Notes were not registered under the U.S. Securities Act of 1933.

On March 9, 2018 the Company announced that following the completion of the offering of Elbit Medical Notes, Elbit Medical had transferred approximately NIS 151 million (approximately $ 43.7 million) to the Company as an early repayment on account of its debt to the Company. The balance of Elbit Medical’s debt to the Company, in the total amount of approximately NIS 2 million (approximately $ 580 thousand) was be converted into approximately NIS 2 million of par value notes that were issued to the Company in a private offering that took place on March 2018.

InSightec Equity Round

See “Item 4B – Business Overview – Medical Companies – Insightec –Preferred stock investment round E”.

Gadish Settlement

On September 27, 2017, we announced that the district court in Israel approved in principle a settlement with the plaintiffs in a November 1999 claim initiated against us and certain other third parties, including former directors of the Company and Elscint Ltd. (our former subsidiary), in connection with the change of control in our Company and in Elscint and the acquisition of the hotel businesses and the Arena Commercial Center in Israel by Elscint in September 1999 from Europe Israel (our former controlling shareholder) (Gadish et al v. Elscint et al). This lawsuit was later certified in part as a class action.

According to the settlement, the plaintiffs will receive compensation in the total amount of NIS 50 million (approximately $14 million). The Company is expected to pay NIS 4.65 million (approximately $ 1.3 million) of the said amount.

On January 17, 2018 the Company announced that the court has given its final approval of the settlement. However, one of the plaintiffs initiated a motion for leave to appeal against the settlement. In August 2018 the Supreme Court decided to reject the appeal and the settlement became final.

Sale of our holdings in the Radisson complex in Bucharest, Romania

In December 2017, we signed an amendment to the trust deed of (Series H) and (Series I) note according to which the collateral relating to Elscint Holding and Investment NV (“ EH ”) was canceled, and in return the Company undertook to use 75% of the net proceeds from the future sale of the Radisson Hotel Complex in Bucharest, Romania for an early repayment of Series H notes. In addition, the Company undertook to pledge the repayment of the vendor loan (which will be given to the purchaser) in favor of (Series H) and (Series I) bondholders.

On December 19, 2017, we announced that we completed the sale of our holdings in a SPV that held the Radisson Hotel Complex in Bucharest, Romania based on a property value of Euro 169.2 million so that the net proceeds received by the SPV was approximately Euro 81 million.

The following amounts were deducted from the net proceeds (as a result of which the SPV received total cash of approximately Euro 61.4 million): (i) the repayment of our outstanding loan to Bank Hapoalim Ltd. in the amount of approximately Euro 11.6 million (the “ Loan ”); (ii) €8 million used to finance a vendor loan which has been provided by the SPV to the purchaser for a period of three years, bearing interest at a rate of 5% per annum.

In accordance with the provisions of the Amended Trust Deed of our Series H and Series I notes, we used 75% of the net proceeds from the sale thereof for an early repayment of our Series H notes on January 5, 2018 in the total amount of NIS 240 million.

On April 2, 2018 we announced that we received a notice from the purchaser claiming that it is entitled to indemnification in the amount of approximately €3 million, due to the alleged breach of certain warranties made by the Subsidiary in the Agreement (the “ Notice ”). In the Notice the purchaser has informed the Company that it has submitted claims under the policies of Warranty & Indemnity Insurance and Title Insurance taken out in terms of the agreement, which provides that where loss arising from a warranty claim may reasonably be anticipated to be covered by such insurance policies, the purchaser will firstly attempt to recover such loss out of the proceeds paid out under such policies. The Company is currently examining the Notice with its legal advisors. After a preliminary review of the Notice, the Company believes that the warranty claims are without merit and intends to vigorously contest same.

Investment in Gamida

On July 10, 2017, we announced that an approximately $40 million private financing investment round in Gamida has been completed (the “ Investment ”). The investment was led by Shavit Capital Fund joined by the pharmaceutical company Novartis and additional investors, including VMS Investment Group, Israel Biotech Fund, IHCV and Clal Biotechnology Industries (the “ Investors ”). Following the Investment, preferred shares were allotted to the Investors, based on $120 million pre-money valuation to Gamida (the “ Allotted Shares ”). In addition, the investors received options to preferred shares in the amount of 60% of the Allotted Shares. The exercise price of the options is 120% of the shares price which have been paid on the Investment closing date. The options will expire 5 years after the Investment closing date. Elbit Medical didn’t take part in the Investment. Following the closing of the Investment, Elbit Medical holds approximately 17.87% of the share capital in Gamida (13.63% on a fully diluted basis). As of the date herein, there is no certainty that the Investors will exercise their options. Gamida informed the Company that the Investment proceeds will be used to (i) complete Nicord©’s Phase III clinical trial; (ii) to prepare for product commercialization by expanding its in-house manufacturing capacity; (iii) expanding Gamida’s presence in the US; (iv) continuing to develop additional pipeline products.

Non-Exclusive Cooperation Agreement with Siemens

See “Item 4B – Business Overview – Medical Companies – Insightec – Cooperation agreement with Siemens”.

Termination of lease agreement - plot in Tiberius, Israel.

On August 1, 2016, we announced that we received from the Israeli Land Administration (“ ILA ”) an amount of approximately NIS 7 million (approximately $1.8 million) (in addition to the amount of approximately NIS 13 million, which related to the release of bank guarantees discussed below) following the termination of our lease agreement with respect to a plot near Tiberius, Israel (the “ Plot ”). The lease agreement was signed on July 2007, with the ILA, according to which, we leased a plot of approximately 44,600 square meters near Tiberius, Israel for a term of 49 years (through 2056). Following the termination of the lease agreement, the ILA released two bank guarantees in the aggregated amount of approximately NIS 13 million, (approximately $3 million) which have been provided to the ILA in order to secure our undertakings under the lease agreement. In addition, on December 1, 2016 we announced that the LA reimbursed to us a gross amount of approximately NIS 27 million (approximately $7 million) with respect to development fees paid by us on account of the plot.

Filing a Lawsuit against the Municipality of Tiberias

On May 5, 2019, we announced that we filed a lawsuit against the Municipality of Tiberias (the “ Defendant ”) regarding the Plot. the Company is suing to obtain a refund of approximately NIS 7 million (including interest and linkage) that was deposited in the Defendant’s bank account and designated for development charges and fees related to the Plot. The Defendant made no such use of the deposit and hence the Company’s lawsuit.

Reverse Share Split

On June 28, 2016, our shareholders authorized a reverse share split at a ratio of one-to-three in order to increase the per share trading price of our ordinary shares to satisfy NASDAQ’s Listing Rule 5450(a)(1) which requires that listed stocks maintain a closing bid price in excess of $1.00 per share for continued listing on the NASDAQ.

Addendum to Loan Agreement with Bank Hapoalim

On March 22, 2016, we announced that we had signed an addendum to the loan agreement with Bank Hapoalim B.M. (the “ Bank ” and “ Loan Agreement ”), that will cancel and replace the previous loan agreement (the “ Addendum ” and the “ Loan ”). Under the Addendum, subject to the prepayment of €15.0 million (approximately $16 million) to the Bank by March 31, 2016, the following new terms will apply to the loan: (i) the repayment schedule of the Loan will be as follows: €7 million (approximately $8 million) will be repaid on November 30, 2016 and the balance will be repaid on November 30, 2017 instead of one single payment in February 20, 2017 in the existing Loan Agreement; (ii) we will not have prepayment obligations for the planned Notes repurchase program which will be executed by us during 2016 for an amount up to NIS 50 million (approximately $13 million); and (iii) any net cash flow that will be received by us from the refinancing of the Radisson Blu hotel in Bucharest Romania in an amount up to €97 million shall not have repayment obligations, and shall be used by us at our sole discretion.

The loan was repaid in full through the sale of our holdings in the Radisson complex in Bucharest, Romania. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of our holdings in the Radisson complex in Bucharest, Romania”

Refinance of Hotel in Bucharest

On March 10, 2016, we announced that our subsidiary Bucaresti Turism SA (Romania) (“ BUTU ”) entered into a definitive credit facility agreement with Raiffeisen Bank International A.G and Raiffeisen Bank S.A., leading international European banks, as lenders, (“ Lenders ”) to amend the facilities agreement between the parties entered into on September 16, 2011, as amended. According to the definitive facility agreement, the lenders will increase the loan under the facilities agreement up to €97 million (approximately $102 million). The new facility can be drawn down in two Tranches, with the first Tranche in the amount of up €85 million, (approximately $89 million) and the second Tranche in the amount of up to €12 million (approximately $13 million). The proceeds of the new facility shall be used, inter alia, to prolong the outstanding facility under the existing facility agreement in the amount of approximately €60 million (approximately $63 million). The surplus of the new facility will be used for the repayment of all existing shareholder loans granted to BUTU by Elbit Group. On March 24, 2016, the first draw down in an amount of €85 million (approximately $93 million) was closed. The net cash received by us was approximately € 24.4 million (approximately $27 million). On November 21, 2016, we announced BUTU reached the effective date for the drawdown of the second tranche of the loan in the amount of €12 million (approximately $13 million).

To date we operate primarily in the following fields of business:

On December 19, 2018 we announced that we no longer consider ourselves to be the controlling shareholder of PC. Accordingly, PC’s financial statement are no longer consolidated with the Company’s financial statement and the review of the development of the Company’s business does not relate to PC.

Following our sale of the Radisson Hotel Complex in Bucharest, Romania, during 2017, the Company is no longer involved in the hotel industry. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of our holdings in the Radisson complex in Bucharest, Romania”.

Medical Companies

Our medical portfolio is held by Elbit Medical Technologies Ltd. (an Israeli company traded on the TASE (“ Elbit Medica l”). Elbit Medical holds shares in two medical companies: InSightec and Gamida. 

On November 29, 2018 we completed the sale of an aggregate total of 60,087,537 Elbit Medical shares held by us, constituting approximately 26% of Elbit Medical’s issued and outstanding share capital, at a price per share of NIS 0.96, and total consideration of US$ 15,548,275, to an affiliate of Exigent Capital Group pursuant to the August 8, 2018 Share Purchase Agreement between the parties.

On February 8, 2019 we signed a second share purchase agreement with Exigent Capital Group for the sale of up to 57,968,760 additional shares of Elbit Medical. As of May 13, 2019, Exigent Capital Group purchased (under the second share purchase agreement) 3,760,417 shares of Elbit Medical at a price per share of NIS 0.96 and a total consideration of approximately NIS 3.6 million, and waived the option it had to purchase additional shares of Elbit Medical.

As of the date of this annual report, we hold approximately 62% of Elbit Medical’s share capital (approximately 40% on a fully diluted basis).

In addition to our holding in the shares of Elbit Medical, we provided throughout the years credit lines and services to Elbit Medical. As of December 31, 2017, Elbit Medical has a total of NIS 153 million (approximately $43 million) outstanding loans and current accounts due to us. However, on February 2018, Elbit Medical raised a total of NIS180 million through a public offering of a new series of notes convertible into shares of Elbit Medical and used the proceeds to repay its debt to the Company.

For more information regarding the new convertible notes of Elbit Medical see “Item 4 – Information on the Company – History and Development of the Company – Recent Events – Payment of Issuance of a New Series of Notes by Elbit Medical and Payment of Debt from Elbit Medical to the Company”.

InSightec

Holdings in InSightec’s shares

As of the date of the report’s publication, we hold, indirectly through Elbit Medical, approximately 22.0% of InSightec’s issued capital (approximately 18% at full dilution.), as listed below:

In addition, the Company holds directly (and not through Elbit Medical) 450,000 Ordinary Shares of InSightec.

The following is a summary of certain provisions in the articles of association of InSightec:

Dividends

The Articles of Association provides that Insightec’s holders of Series E, Series D and Series C Preferred Shares, in that order, have dividend preference based on the original issue price for their shares plus 8% per annum.

Liquidation Preference

Upon the occurrence of an exit event (including, among others, (i) the sale, lease, exchange, grant of a perpetual exclusive license or other transfer or disposition of all or substantially all of the property, assets or business of InSightec, (ii) liquidation, dissolution nor winding up of InSightec, (iii) any consolidation or merger or any other business combination of InSightec with or into another corporation or other business organization in which the majority of the shareholders of InSightec do not beneficially own the majority of the equity interest of the surviving company after such transaction; (iv) any sale of shares or other transaction or series of transactions which results in any person or group of persons, other than the holders of Ordinary Shares and Preferred Shares beneficially owning securities of the company representing 50% or more of the voting securities of the company then outstanding and (v) purchase of all remaining shares by a shareholder or an affiliate:

(a) The holders of the Series E Preferred Shares shall be entitled to receive, prior to and in preference to any distribution of any of the assets or surplus funds of InSightec to the other shareholders, an amount per Series E Preferred Share equal to ($2.68 plus any declared but unpaid dividends thereon.

(b) Thereafter, the holders of the Series D Preferred Shares shall receive an amount per Series D Preferred Share equal to $1.7845 plus any declared but unpaid dividends thereon.

(c) Thereafter, the holders of the Series C Preferred Shares shall receive an amount per Series C Preferred Share equal to U.S. $1.12 plus any declared but unpaid dividends thereon, subject to various adjustments.

(d) Thereafter, the holders of the Series B Preferred Shares and the Series B-1 Preferred Shares shall receive an amount per Series B Preferred Share and Series B-1 Preferred Share equal to U.S. $6.00 (in the case of Series B Preferred Shares) and U.S. $1.446 (in the case of Series B-1 Preferred Shares) plus any declared but unpaid dividends thereon.

(e) After the aforesaid preferences entire remaining assets and surplus funds of InSightec legally available for distribution, if any, shall be distributed ratably to all holders of Series E Preferred Shares, Series D Preferred Shares, Series C Preferred Shares and Ordinary Shares in proportion to the number of Ordinary Shares then held by each such holder of such class of shares on an as converted basis.

Notwithstanding the preferences stated in (d) and (e) above, if after distribution of the preferences pursuant to (a) - (c) above, the total value of the assets and funds to be distributed between all of the shares of InSightec on a pro rata, as converted, basis (without distribution of any preferences to the holders of Series B Preferred Shares or Series B-1 Preferred Shares) would result in the holders of each Series B Preferred Share and Series B-1 Preferred Share receiving an amount per Series B Preferred Share and Series B-1 Preferred Share equal to or greater than U.S. $6.00 (in the case of Series B Preferred Shares) and U.S. $1.446 (in the case of Series B Preferred Shares), then the provisions of (d) and (e) above shall not apply and the entire assets and surplus funds of InSightec legally available for distribution to the shareholders after distribution of the respective preference amounts for Series E Preferred Shares, Series D Preferred Shares and Series C Preferred Shares shall be distributed to all holders of shares of InSightec on a pro rata, as converted, basis, and in such case no preference amount shall be payable on the Series B Preferred Shares and the Series B-1 Preferred Shares.

Conversion

At any time, the holders of B Preferred Shares and Series B-1 Preferred Shares may convert all or any portion of their shares into the number of Ordinary Shares computed by dividing U.S. $6.00 (per Series B Preferred Share) and U.S. $1.446 (per Series B-1 Preferred Share) by the applicable conversion price which, subject to adjustments, shall originally be U.S. $6.00 (per Series B Preferred Share) and U.S. $1.446 (per Series B-1 Preferred Share). In addition, there are additional conversion rights with respect to other Preferred Shares that Elbit does not hold.

All preferred shares shall automatically convert upon a Qualified IPO.

Subject to adjustments, each Series B Preferred Share shall be converted into Ordinary Shares upon the consent of holders of 66% of the outstanding Series B Preferred Shares, and each Series B-1 Preferred Share shall be converted into Ordinary Shares upon the consent of the holders of 66% of the outstanding Series B-1 Preferred Shares.

The Series E Preferred Shares, the Series D Preferred Shares and the Series C Preferred Shares have broad based weighted average protection.

Other Restriction of Transferability of Shares in InSightec

The shares in InSightec (with certain standard exceptions) are subject to right of first refusal, co-sale and (if approved by 85% of the Preferred Shares voting together as a single class) drag-along rights.

Board of Directors

The number of directors in InSightec shall be not more than nine. Elbit Medical is entitled to appoint one member to the board so long as it holds in the aggregate 5% or more of the outstanding share capital of InSightec on an as-converted basis.

The Elbit Medical board member together with the board members appointed by KDT Medical Investments Corporation and York Global Finance II S.À R.L. are entitled to unanimously appoint four board members.

The CEO of InSightec will act as a director.

Special Consents/Veto Rights

Certain actions require the approval of the holders of at least 85% of the Preferred Shares voting together as a single class on an as converted basis, including the following: (a) the payment of dividends; (b) issuing shares which are equal to or senior to the Preferred Shares; (c) amending the terms of the Preferred Shares; (d) making any loans, advances to or guarantees, for the benefit of, or investments in third parties (subject to exceptions); (e) merging or consolidating with a third party (other than a wholly-owned subsidiary); (f) selling, leasing or otherwise disposing of all or substantially all of InSightec’s assets or intellectual property; (g) liquidating, dissolving or effecting a recapitalization or reorganization; (h) acquiring any interest in any company or entering into any joint venture with consideration to be paid in excess of $15,000,000; (i) making any material changes to its lines of business; (j) entering into any new leases or other rental agreements with consideration to be paid on an annual basis in excess of $4,000,000; (k) issuing or selling any shares of its capital stock or rights to acquire shares of its capital stock; (l) initiating an initial public offering other than a qualified IPO that will result in the Ordinary Shares being listed either on the New York Stock Exchange or NASDAQ; (m) establishing or adopting, or make any modification to, any stock ownership, stock option, stock bonus, stock purchase, restricted stock or other equity-based plan; (n) altering, increasing, decreasing or otherwise impacting or changing in any way, InSightec’s authorized share capital; (o) consummating an exit event; and (p) any amendment to InSightec’s Articles of Association.

In addition, various actions require the approval of the holders of at least 66% of the Series E Preferred Shares, including the following: (a) creating or authorizing the creation of, or issuing or obligating InSightec to issue shares or other securities (or any securities convertible into or exchangeable for securities ranking equal or senior to the Series E Preferred Shares), unless the same ranks junior to the Series E Preferred Shares in all respects; (b) any amendment of the employment terms or arrangements governing the engagement of InSightec’s Chief Executive Officer, including hiring and termination (constructive or otherwise) of the employment of the Chief Executive Officer; (c) prior to December 27, 2021, consummating or consenting to or obligating InSightec to consummate at any time in the future any exit event, resulting in receipt of a price per share of Series E Preferred Shares of less than $4.02; and (d) prior to December 27, 2021, initiating an initial public offering of capital stock of InSightec pursuant to an effective registration statement under the Securities Act, or pursuant to similar laws in any other jurisdiction other than a Qualified IPO.

Right to participate in fundraising

Each of the stakeholders has a right to participate in assignment of additional securities carried out by InSightec in order to protect his holdings from dilution.

Business Concept

InSightec develops and markets Exablate, the first FDA approved magnetic resonance imaging guided focused ultrasound treatment platform (“ MRgFUS ”) for a variety of neurosurgery, oncology and gynecology indications. Treatments are non-invasive and are performed in an ambulatory setting.

InSightec’s objective is to transform the surgical environment for the treatment of a limited number of forms of benign and malignant tumors by replacing invasive and minimally invasive surgical procedures with an incision-less surgical treatment solution. The system is designed to deliver safe and effective non-invasive treatments while reducing the risk of disease, potential complications, as well as the direct and indirect costs associated with surgery.

InSightec’s MRgFUS technology integrates the therapeutic effects of focused ultrasound energy with the precision guidance and treatment outcome monitoring provided by MRI systems. Ultrasound is a form of energy that can pass harmlessly through skin, muscle, fat and other soft tissue, and is widely used in diagnostic applications. The ExAblate uses a phased-array transducer that generates a high intensity, focused beam of ultrasound energy, or a sonication, aimed at a small volume of targeted tissue. The focused ultrasound energy provides an incision-less therapeutic effect by raising the temperature of the targeted tissue mass high enough to ablate, or destroy it, while minimizing the risk of damage to overlaying and surrounding tissue.

InSightec believes that by combining the non-invasive therapeutic effects of focused ultrasound energy and the precise “real-time” data provided by the MRI system, it has developed an effective, non-invasive treatment solution for its approved applications.

InSightec also believes that its MRgFUS technology can be applied to the treatment of other medical conditions, providing similar advantages by presenting both physicians and patients with a safe and effective incision-less surgical treatment option for several medical conditions, including a number of indications for which there are currently few effective treatment options. 

Investments in InSightec capital

Below are details regarding investments in InSightec capital in the last two years:

Preferred stock investment round E

On January 31, 2018, we announced that InSightec completed the second (and final) closing of its Series E investment round in a total amount of $150 million (approximately $90 million, in the first closing and approximately $60 million in the second closing) in return for the issuance of 55,970,149 preferred Insightec stock from a new Series E (with a price of 2.68 dollars per share). The lead investor in the round was KDT Medical Investments Corporation (a subsidiary of Koch Industries, Inc.) which invested in total $ 100 million in InSightec (York participated in this round as well in the total investment of $ 6 million). Immediately following the closing, the Series E Preferred Shares of InSightec issued in the first and second closings represented approximately 29.1% (24.7% on a fully diluted basis) of InSightec’s share capital. Following the completion of the second closing, Elbit Medical holds (directly and indirectly through its subsidiary Elbit Medical) approximately 22% (18% on a fully diluted basis) of InSightec’s share capital.

As part of the investment agreement, it was agreed that holders of the preferred stock E will have privileges in cases of dividend distribution and material events. Furthermore, an amendment to the shareholders agreement was signed between the Investor and other major shareholders in InSightec and an amendment to InSightec’s bylaws was approved.

Clinical and regulatory Development in InSightec’s Products

ExAblate Neuro ( “Brain System” or “Neuro system” )

The brain system is based on the MRgFUS technology, which relies on MRI imaging to plan, guide execution, and receive real-time response during treatment, adopted for use on the brain. The patient interface in this system consists of a helmet-like acoustic projection system with the patient’s head held within the helmet. The projector allows electronic shaping of the acoustic beam, as required for intracranial treatment. The brain system has been given approval for commercial use in the USA, Europe, Japan, Korea, Canada, Taiwan, and Israel for treatment of functioning disorders (essential tremors, and/or tremors resulting from Parkinson’s disease, and/or neuropathic pain). So far, more than 1000 patients have received treatment on a commercial basis. The system is also undergoing clinical evaluation for the treatment of advanced Parkinson’s disease, epilepsy, OCD, depression, neuropathic pain as well as drug-based and treatment by means of temporary and transient opening of the blood-brain barrier for treatment of brain tumors and Alzheimer’s Disease. The system is compatible with several MRI systems from both GE and Siemens.

As of the date of the publication of this report, 45 brain systems are operational in leading hospitals around the world and 17 are in the process of installation.

The following items describe the significant clinical and regulatory events regarding the ExAblate Neuro:

ExAblate for Body Platform ( the “ Body System ”)

The body system, like the brain system, based on the MRgFUS technology, which relies on MRI imaging for treatment planning and guidance, and for real-time feedback. As of the date of the report, the body system is adapted for use with MRI machines made by GE Healthcare only. The body system constitutes a multi-application treatment platform. The system is being sold to customers interested in treating various body applications, requiring the use of any of body transducers (a component converting a physical signal into an electric one). The system has been planned for treatment of fibroids, organ-confined, prostate cancer, bone tumors and in various configurations, and in the future potentially for liver, pancreas and renal tumors. Some of the indications have received regulatory approval in various parts of the world, and some are still in the research and development stage.

The body system is a therapeutic device incorporating an MRI table converted to contain a robotic system broadcasting a focused, high-energy ultrasound beam targeted towards the tissue intended to be ablated (tumor) is located. The focused ultrasound beam transmitted from the transducer heats the targeted tissue and ablates it in an incisionless manner, and without damaging beam trajectory, thus, essentially, destroying the targeted benign or malignant tumor.

MRI imaging is included in all steps of development: at the first step, before treatment is carried out, the treating physician uses MRI imaging for precise identification of the affected tissue. Based on the imaging, the treating physician plans the treatment and marks the boundaries of the tissue requiring treatment. At the second stage, during the treatment itself, the treating physician uses thermal imaging (a temperature map) received from the MRI machine in real time, measuring the heat at the target and in its environs. Based on this information, treatment parameters can be adapted to the characteristics of the tissue being treated, and the efficacy of the treatment can be verified in real-time. At the third stage, MRI imaging enables the treating physician to identify the changes that have taken place in the tissues as a result of the thermal treatment. For this purpose, the tissue is scanned by the MRI machine and evaluated in comparison to the images taken at the beginning of the treatment. This enables the physician to verify that the treatment was in fact carried out in a satisfactory fashion (receiving a real-time response). The MRI machine used for treatment by Insightec products can be used also for additional diagnostic testing and is not limited to exclusive use with the product as part of a system. Connection of Insightec products to the diagnostic system for treatment takes only a few minutes.

To the best of Insightec’s knowledge, as of this date, the body system is in use with 84 active sites (in commercial, research, and combined commercial and research use).

The following items describe the significant clinical and regulatory events regarding the Exablate for Body Platform:

Regulatory approvals

Below is a table listing the approvals received by InSightec products from the Ministry of Health in Israel:

Below is a table listing the approvals received by InSightec products from the FDA ²⁰ :

Below is a table listing the approvals received by InSightec products from the CE:

Below is a table listing the approvals received by InSightec products in Japan, China, Korea, Taiwan, Canada, Australia and Thailand:

Insurance coverage

As to InSightec’s best knowledge, as of the date of the report, insurance coverage is available for (a) Treatment of uterine myomas, by a number of health insurers in the USA and in Europe and by the HMOs in Israel (included in the medicine basket); (b) treatment by pain caused by cancer metastases in bones by the body system, by a number of health insurers in the USA and in Europe and by the HMOs in Israel (included in the medicine basket); (c) Insurance coverage for treatment of essential tremor by the brain system , by a number of health insurers in the USA and in Europe and by the HMOs in Israel (included in the medicine basket);

In 2018 a range of American insurance companies ²¹ providing insurance coverage for about 99.8 million members have published updates in their policies regarding treatment with the MRgFUS technology so as to include coverage for MRI-guided focused ultrasound treatment for pain caused by bone cancer. InSightec estimates that the aforementioned updates will enable access of these insurance coverage for treatments for this indication with InSightec’s ExAblate, as a treatment option approved by the FDA.

In November 2016, the American Medical Association (AMA) assigned a specific Current Procedural Technology (CPT) code for the treatment of essential tremor using Insightec’s brain system (hereinafter: “the treatment” ), leading to the CMS to assign a payment level of $9,751 USD for the brain system. In this manner, the status of the treatment was changed from a non-entitled Medicare approved treatment to a treatment eligible for Medicare reimbursement.

Later, the CMS decided that starting on 01/01/2018 the primary code for movement disorders (essential tremors) will be assigned to a new technology level enabling an insurance compensation of 17,500 dollars t for those insured for whom the aforementioned treatment is appropriate.

In November 2018, the CMS decided that, commencing on 01/01/2019 the primary code for movement disorders (essential tremors) will be reassigned to a new technology level enabling an insurance compensation of 12,500 dollars for those insured for whom the aforementioned treatment is appropriate. MRgFUS in the treatment of pain palliation of bone metastases will be reimbursed at USD $10,936.00.

The CMS reimbursement level decision is only one of the necessary conditions necessary to receive an insurance compensation for the treatment. Pursuant to the CMS payment level assignment, coverage decisions from the regional Medicare Contractors in the USA is required in order to receive insurance compensation for patients for the treatment. As of this date, an approval from five of the seven Local Medicare Contractors have been received (National Government Services (NGS), Palmetto GBA, CGS Medicare, Wisconsin Physician Services (WPS) and Noridian Medicare), representing 38 States. Insightec is acting to receive the remaining CMS MAC approvals, but cannot estimate when these approvals will be received.

InSightec is acting to expand the number of health insurance providing insurance coverage as described above, as well as the geographical area where the aforementioned health insurance will be provided to insured patients. For this purpose, InSightec is acting in a range of avenues, as follows: (1) Working with hospitals in the USA and Europe and supporting them in the process of applying to local insurance companies in order to receive insurance coverage (2) Forming a call center for support for patients whose applications for coverage from the insurance companies that are insuring them; (3) Direct activity with insuring entities, as well as entities setting policy in the matters of insurance coverage. In addition, in this context InSightec is also evaluating the possibility to make use of existing insurance codes, to receive insurance coverage as described for oncological applications. Expenses for this InSightec activity are included in InSightec sales and marketing expenses, as described in the financial reports.

InSightec believes that third-party payors will not provide reimbursement on a national basis for treatments using the ExAblate, unless InSightec can generate a sufficient amount of data through long-term patient studies to demonstrate that such treatments produce favorable results in a cost-effective manner relative to other treatments. Furthermore, InSightec could be adversely affected by changes in reimbursement policies of private healthcare or governmental payors to the extent any such changes affect reimbursement for treatment procedures using the ExAblate.

Distribution and Marketing

InSightec has two main distributing channels; the first one is InSightec’s independent business department and the second one is by distributors and local agencies among them is GE healthcare representatives (usually without exclusivity) and other distribution agreements with third parties. Distribution agreements are generally for a term of between one and five years, with an option to extend the agreement based on the performance of the distributor.

Accumulated orders

As of 31/12/2018, InSightec has accumulated orders resulting from obligating orders (Which can be canceled pursuant to the conditions of the contract with the distributor/client) for its products (in millions of dollars) ²² :

Material agreements

InSightec is a party to a number of substantial agreements that are outside of the normal scope of business and were valid in the period described in this report, or affected its activities in this period:

Shareholders agreement

The Company, KDT, GE, MediTech Advisors LLC, York, Shanghai GEOC Hengtong Investment Limited Partnership, Mr. Ferré, Focused Holdings LP, InSightec, and a number of additional shareholders are a party to a shareholder agreement, as amended from time to time, establishing the relationship between the parties and their rights.

The cooperation agreement with GE Healthcare

On December 5, 2012 an agreement for cooperation between InSightec and GE was signed, and subsequently amended. This agreement provides the following as of the date of the report.

InSightec appointed GE as a non-exclusive distributor of its products, for the period ending at the end of 2020. The Agreement sets prices for InSightec products and the rates of the sales commission, refunds, and supports development of ties to radiologists using its products.

It shall be noted that, until the agreement was first amended (in June 2014), the cooperation agreement included, among other provisions, a commitment of InSightec to grant GE exclusivity, so that InSightec’s products would only be compatible with MRI machines made by GE. This exclusivity has been subsequently been terminated with the parties consent, and InSightec even entered into, in August 2016, a non-exclusive cooperation agreement with Siemens, an international company that is a leading manufacturer and developer of MRI imaging machines, for the purpose of adapting InSightec’s systems for work with the MRI imaging machines made by Siemens, in order to expand the market of products that InSightec systems are compatible with.

It has been established in the agreement that InSightec carries the sole liability for defects in the manufacturing, planning, and initial assembly of the products. Moreover, InSightec is obligated to compensate GE Healthcare, its employees and representatives, for any damage, costs, or obligations resulting from a third-party suit resulting from the contract between the parties. GE Healthcare, on the other hand, is obligated to compensate InSightec, its employees and representatives, for damages caused by GE Healthcare products and/or changes made to these products without InSightec’s authorization. For the implementation of the provisions of this agreements, the parties have obligates themselves to purchase (each) an insurance policy to the extent of at least 5,000,000 dollars.

Moreover, the agreement originally established that InSightec will serve as a non-exclusive distributor of GE MR scanners, in order to enable InSightec to sell the scanners as part of its combined treatment system. This section was terminated with the consent of both parties in December 2017. The agreement establishes the price per unit and technological compatibility with InSightec products, to which GE is obligated

Cooperation agreement with Siemens

On August 15, 2016, we announced that InSightec Ltd. signed a non-exclusive cooperation agreement with Siemens, a leading manufacturer and developer of diagnostic imaging equipment in general and Magnetic Resonance scanners specifically, to develop compatibility between InSightec’s MRgFUS and Siemens’ MRI scanners (the “ Systems ”) with the intention to expand the MRgFUS market globally. According to the co-operation agreement, the Parties will cooperate regarding the performance of R&D, integration, testing and approving the compatibility of the systems of the parties. Each party shall be solely responsible, at its own cost, to obtain the regulatory approval for its systems, and InSightec shall be solely responsible, at its sole cost, to obtain the regulatory approval for the combined system. Each party shall bear all of its internal and external costs relating to its performance under the co-operation agreement, except that InSightec shall reimburse Siemens an amount agreed upon in the co-operation agreement, for its R&D costs. The co-operation agreement also provides that each party shall act independently in the marketing and sales of its component portion of the Combined System, and determines the amount InSightec shall pay Siemens for sales of the Combined Systems and in case of sales for installed MR base.

The term of the co-operation agreement is five (5) years from the first commercial sale of the combined system and shall automatically renew for additional 1-year periods, unless either Party has provided a notice for its non-renewal or of its termination, in accordance with the terms of the co-operation agreement.

Business Strategy

Insightec’s vision is global leadership in the field of non-invasive treatment using magnetic resonance guided focused ultrasound technology (MRgFUS), made available for broad use for the benefit and welfare of the patients.

Insightec’s strategy is focused on development of two product lines, a product line in the field of body systems (oncology and gynecology) and a line of products in the field of brain treatment systems (neurological disorders and tumors).

In the field of brain systems, Insightec intends to develop applications that will make use of advanced mechanisms of interactions between tissues and acoustic fields (for example, Targeted Drug Delivery), neuromodulation, and more. The brain applications currently supported by Insightec’s current systems and those planned in the future are based on thermal ablation. Insightec utilizes the technology used in this system in non-invasive brain treatments. To the best of Insightec’s knowledge, this field was a research field only in the first years of Insightec’s activity. As technology allowing brain treatment without trepanation became possible, this field became central for Insightec.

In order to realize its vision, Insightec intends to continue developing the MRgFUS technology and the systems based thereon, which will allow the replacement of surgical procedures, minimally-invasive procedures, and radiation treatment. Moreover, Insightec intends to continue searching for strategic partners acting in the markets relevant for its products in order to cooperate with them on entering the markets in an efficient, low-cost, broad entry of its technology into the target markets. In addition, Insightec is also working to raise funding from existing shareholders or from new sources of funding, which will support the acceleration of business and other activities.

Insightec intends to develop a future surgical system that will replace the invasive operating room currently in use. The system will allow treatment in a variety of clinical applications, all of this while generating more value for its products and Insightec itself. Moreover, Insightec is evaluating the use of MRgFUS technology as an additional tool for Radiation Oncology departments, which will enable treatment of patients for whom radiation treatments are not currently providing a satisfactory response, or for whom a combination of MRgFUS treatment and radiation treatments will serve as a preferable treatment solution.

Insightec aspires to expand the marketing of its systems in additional countries in America, Europe, Asia and Oceania. For this purpose, Insightec intends to expand its distribution network, as well as evaluating various possibilities for marketing the product in the USA – by means of distribution agreements, direct marketing, or partnership with a strategic partner. Beyond that, Insightec intends to expand the volume of its activities in China and Japan, for which purpose Insightec has set up a fully owned subsidiary company in China and in Japan, and recruited a number of local employees.

Insightec aspires to complete the development of additional applications for its products, so that every product purchase can serve for the treatment of a great number of disorders, which will significantly increase the profitability of purchasing it.

Insightec goals for the current year’s (2019) activities:

Gamida Cell Ltd.

Holdings in Gamida’s shares

Starting from October 26, 2018, Gamida’s shares are traded on the NASDAQ (Nasdaq: GMDA) and as of the date of the report’s publication, we indirectly hold, through Elbit Medical, approximately 11% of the outstanding share capital (8% on a fully diluted basis).

Gamida’s Business Overview

Gamida is a clinical-stage biopharmaceutical company committed to developing advanced cell therapies with the potential to cure cancer and rare, serious hematologic diseases. While cell therapies have the potential to address a variety of diseases, they are limited by availability of donor cells, matching a donor to the patient, and the decline in donor cell functionality when expanding the cells to achieve a therapeutic dose. Gamida have leveraged our nicotinamide-based, or NAM-based, cell expansion technology to develop a pipeline of products designed to address the limitations of cell therapies. Gamida’s proprietary technology is designed to allow for the proliferation of donor cells while maintaining the cells’ functional therapeutic characteristics, which, if approved, will provide a treatment alternative for patients.

Gamida’s most advanced product candidate, NiCord, is an investigational advanced cell therapy based on NAM-expanded cord blood designed to enhance and expand the life-saving benefits of hematopoietic stem cell (bone marrow) transplant, or HSCT. Gamida is currently enrolling patients in a pivotal Phase 3 clinical trial in approximately 120 patients with various hematologic malignancies, including high risk leukemias such as acute myeloid leukemia, or AML, acute lymphocytic leukemia, or ALL, chronic myeloid leukemia, or CML, myelodysplastic syndrome, or MDS and lymphomas. Gamida anticipate reporting top-line data from this trial in the first half of 2020. In Gamida’s Phase 1/2 clinical trials, patients who were transplanted with NiCord achieved rapid engraftment and immune reconstitution, which are key indicators of clinical benefits. Data from the Phase 1/2 clinical study were published in the Journal of Clinical Oncology in December 2018. Based on the results of Gamida’s Phase 1/2 clinical trials, Gamida received Breakthrough Therapy Designation for NiCord in the United States from the U.S. Food and Drug Administration, or the FDA. Furthermore, Gamida received orphan drug designation from both the FDA and the European Medicines Agency, or the EMA.

Gamida also developing NiCord for the treatment of other rare, life-threatening hematologic diseases, including severe aplastic anemia, a bone marrow failure disease, which is currently being investigated in a Phase 1/2 trial sponsored by the National Institutes of Health, or NIH. In addition, Gamida applied its NAM-based cell expansion technology to natural killer, or NK, cells, to develop Gamida’s product candidate, NAM-NK, an innate immunotherapy for the treatment of hematologic and solid tumors, now being evaluated in a Phase 1 investigator-sponsored trial for the treatment of relapsed or refractory non-Hodgkin lymphoma, or NHL, and multiple myeloma, or MM.

Cell therapies involve the delivery of human cells to replace or repair damaged tissue or cells in order to treat a variety of cancers and other diseases. Hematopoietic stem cell transplantation with donor cells, or allogeneic HSCT, also called bone marrow transplantation, is the most frequently used cell therapy and is used to treat a variety of hematologic malignancies and other serious conditions. HSCT involves reconstituting a patient’s bone marrow from a seed population of stem cells obtained from a donor whose blood-forming and immune-system-forming cells are both cancer-free and effective at carrying out their functions.

There are multiple sources of donor cells. The best source for donor cells is a sibling who is a matched related donor, or MRD, but the chances of having a sibling match in the United States are only 25% to 30%. The majority of patients rely on alternate sources of donor cells, including matched unrelated donor, or MUD, haploidentical, or “half-matched” donors, and umbilical cord blood. However, due to disease progression and other complications during the time needed to find a suitable donor, more than 40% of all patients who are candidates for HSCT do not receive a transplant.

Notwithstanding the various potential sources of donor cells, HSCT is subject to a number of significant limitations, including: (i) delays in finding a suitable match, during which disease progression may make patients ineligible for transplant; (ii) an insufficient number or delayed engraftment of donor cells, leaving patients without a functioning immune system and leading to potentially life-threatening immune deficiency following transplant; and (iii) a lack of long-term compatibility between the donor cells and the patient’s own cells, resulting in potentially fatal graft versus host disease, or GvHD.

Umbilical cord blood offers promise as a readily available source of stem cells for patients who need HSCT and do not have a MRD source. It is easier to find a match when using stem cells derived from cord blood, since a full match is not required for a successful transplant using cord blood. This broadens the pool of potential donors and shortens the process of finding a suitable match. However, on average, a typical cord blood graft contains approximately one-tenth the number of stem and progenitor cells compared to stem cell grafts from adult bone marrow or peripheral blood donors. This lower number of cells may delay engraftment of the donor cells and reconstitution of the immune system. This, in turn, increases both time in the hospital and the likelihood that a patient might contract a life-threatening infection.

NiCord, Gamida’s lead product candidate, is designed to address the limitations of HSCT and cord blood as a source of donor cells. NiCord is composed of cord blood that has been manufactured using Gamida’s proprietary NAM-based cell expansion technology, which increases engraftment efficiency in HSCT and enables rapid engraftment and immune system reconstitution. This reduces the risk of infections and other complications after transplant. In addition, the donor T cells in cord blood are naïve, meaning that they have not matured and may more readily adapt to the recipient. This results in greater immunologic compatibility, or the matching of the donor cells with the recipient’s cells, reducing the frequency and severity of GvHD, a medical complication following the receipt of transplanted tissue from a genetically different person, when compared to HSCT with a MUD. In light of these advantages, NiCord, if approved, may serve as a universal, readily-available, reliable and effective alternative to existing sources of donor cells for HSCT.

NiCord has the potential to be a universal stem cell graft in two broad patient groups: (i) patients with high-risk leukemias and lymphomas who require HSCTs but who lack access to genetically matched donors; and (ii) patients with severe hematologic disorders such as severe aplastic anemia. In the first patient population, Gamida is currently enrolling an international, multicenter, randomized, pivotal Phase 3 clinical trial with top-line data expected in the first half of 2020. In Gamida’s company-sponsored, Phase 1/2 clinical trial in hematologic malignancies, NiCord was observed to help patients achieve rapid neutrophil and platelet engraftment. Neutrophil engraftment is defined as achieving a minimum neutrophil count of at least 0.5 x 109 per liter on three consecutive measurements on different days. Platelet engraftment is defined as achieving a platelet count of at least 20 x 109 per liter on three consecutive measurements on different days, with no platelet transfusion in the preceding seven days. Based on these promising clinical results, believe NiCord has curative potential for hematologic malignancies initially, and eventually other rare hematologic conditions such as severe aplastic anemia. In the second patient population, Gamida is currently conducting a Phase 1/2 clinical trial of NiCord sponsored by the NIH, under an Investigational New Drug, or IND, application for CordIn. In February 2019, Gamida reported preliminary data from three patients at the Transplantation and Cellular Therapy Meeting, or TCT Meeting. All three patients were successfully transplanted and engrafted. These data enable the initiation of the second cohort evaluating NiCord as a stand-alone graft in patients with severe aplastic anemia. Patient enrollment in Cohort 2 is expected to begin in the first half of 2019.

Gamida also applying its technology to develop NAM-NK for innate immunotherapy of expanded natural killer, or NK, cells for application in additional cancer indications when combined with standard-of-care antibody therapies. NK cells are highly potent cytotoxic lymphoid cells that can kill tumor cells in the absence of prior sensitization by other components of the immune system. By expanding NK cells with Gamida’s NAM technology, Gamida has the potential to increase the number and functionality of therapeutic NK cells targeting tumors. When NAM-NK is combined with targeted antibodies, Gamida has shown that there is enhanced antibody-dependent cellular toxicity, or ADCC. NAM-NK is currently being evaluated in an ongoing investigator-sponsored Phase 1 clinical trial projected to enroll 24 patients with NHL and MM in combination with rituximab or elotuzumab, respectively. In February 2019, Gamida reported preliminary data at the TCT Meeting. The data from the first 14 patients demonstrated that NAM-NK was clinically active and generally well tolerated. Among the 12 patients evaluable for activity, six NHL patients, three patients achieved a complete response, one patient achieved a partial response, and two patients experienced progressive disease. Two of the patients who achieved a complete response subsequently received a bone marrow transplant. Among the six MM patients evaluable for activity, one patient achieved a complete response, two patients experienced stable disease, and three patients experienced progressive disease. Activity was observed at all three dose levels evaluated.

In addition, on February 12, 2019, Gamida Cell and Editas Medicine entered into a collaboration agreement to evaluate the potential use of Editas Medicine’s CRISPR technology to edit NAM-NK cells. The two companies will engage in joint research to evaluate unnamed targets by combining Gamida’s proprietary NAM-based cell expansion technology with Editas Medicine’s CRISPR technology. The research initiative is focused on exploring the potential to edit NAM-NK cells to further optimize their tumor-killing properties.

Investments in Gamida’s capital

Below are details regarding investments in Gamida’s capital in the last two years:

Gamida’s Products and Clinical development

NAM-Based Cell Expansion Technology

While cell-based therapies have the potential to address a variety of medical conditions, one of the key technical challenges for developing treatments with this approach is the expansion of therapeutically functional cells. In order for cell therapies to be clinically effective, there must be a sufficient quantity of therapeutically active cells for treatment, which requires the donor cells to be expanded in artificial culture conditions. While this may increase the number of cells, the functionality of those cells often diverges from the therapeutic functionality of the original donor cells. This shortcoming in the cells used for treatment can result in suboptimal clinical outcomes.

Gamida’s NAM-based epigenetic technology for expanded cell products addresses this challenge by leveraging the biochemical properties of the small molecule nicotinamide in our manufacturing process. Gamida expand the number of donor cells while maintaining their functional therapeutic characteristics through the proprietary combination of NAM, intended to maintain silencing of cell differentiation and preservation of gene expression, and particular cytokines which promote cell growth. Gamida’s optimized manufacturing process results in robust and replicable batch production, enabling the generation of standardized donor-derived cell products, potentially resulting in better clinical outcomes.

The first application of the NAM-based technology is in umbilical cord blood cells. Gamida’s lead product candidate, NiCord, contains standard umbilical cord blood-derived stem cells that are expanded to obtain a critical number of effective cells for HSCT. A typical umbilical cord sample has a relatively low number of stem and progenitor cells, which currently limits the use of cord blood in HSCT, and hence, would ideally be increased for more successful treatment purposes.

A key component of Gamida’s cell expanded product candidates is NAM, which is a naturally occurring substance that regulates multiple processes including cellular stress, cellular energy, mitochondrial functions and gene expression. Gamida had successfully demonstrated the effectiveness of NAM-based technology in cord blood expansion cultures. Gamida incubated two cultures of cord blood cells, one treated with NAM and one untreated, for three weeks with cytokines known to induce numerical expansion of cord blood cells. The NAM-treated umbilical cord blood cell cultures had 30 times more stem cells than NAM-untreated umbilical cell cultures, as measured by the abundance of stem-cell-related surface markers. Furthermore, when examining the gene expression pattern of NAM-treated proliferating cord blood stem cells, Gamida observed a high degree of resemblance with the gene expression pattern of original stem cell populations inoculated in expansion cultures. In contrast, the gene expression pattern of cells incubated for three weeks without NAM was very different than that of the original stem cells. This confirms that NAM has the ability to preserve the characteristics of the original stem cell population.

Gene expression of cord blood CD34+ cells before culturing or after three weeks of culture with or without NAM. The levels of expression of clusters of thousands of genes are represented by the density of vertical bars. Three independent samples are shown as individual rows for each condition.

In line with demonstrating the ability of Gamida’s proprietary cell expansion technology to increase the quantity while maintaining the quality of the therapeutic cells, Gamida had also been able to demonstrate that this could translate to clinical benefit. In pre-clinical models, NAM-treated cord blood cells demonstrated a 7.6-fold improved ability to establish stable grafts versus cord blood cells expanded without NAM. This resulted in a nine-fold increase in the number of engraftable cells over a cord blood unit before expansion. While test subjects receiving the same number of stem cells cultured without NAM had a low number of engrafted cells, NAM-treated stem cells exhibited a significant increase in the level of engraftment. Thus, not only do NAM-treated stem cells appear to be more stem-like, but they also retain stem cell-like functions and improve the ability to establish stable grafts.

Cord blood cells cultured with NAM result in a significantly higher number of engrafted cells in a preclinical model.

*A result is considered to be statistically significant when the probability of the result occurring by random chance, rather than from the efficacy of the treatment, is sufficiently low. The conventional method for measuring the statistical significance of a result is known as the “p-value,” which represents the probability that random chance caused the result (e.g., a p-value = 0.001 means that there is a 0.1% or less probability that the difference between the control group and the treatment group is purely due to random chance). Generally, a p-value less than 0.05 is considered statistically significant, and may be supportive of a finding of efficacy by regulatory authorities. However, regulatory authorities, including the FDA and EMA, do not rely on strict statistical significance thresholds as criteria for marketing approval and maintain the flexibility to evaluate the overall risks and benefits of a treatment.

Based on the preclinical results, Gamida advanced NiCord into the clinic. Gamida had also applied NAM-based technology for Gamida’s second product candidate, NAM-NK, and plan to explore this technology for other cells with therapeutic potential.

Allogeneic HSCT

Allogeneic hematopoietic stem cell transplantation, or HSCT, is the transplantation of hematopoietic stem cells, derived from a donor’s bone marrow, peripheral blood or standard umbilical cord blood. HSCT involves reconstituting a person’s entire blood and bone marrow from a seed population of cells. In some clinical settings, autologous HSCT may be performed, in which cells are derived from the patient and reinfused at a later date. In leukemia and other hematologic malignancies, it is more appropriate to use allogeneic HSCT obtained from a donor, which ensures that the graft does not contain the patient’s malignant cells and leverages the ability of donor cells to fight against a patient’s cancer, which is known as the “graft versus leukemia” effect.

In an HSCT procedure, a patient is treated with chemotherapy and/or radiation to destroy the residual cancerous or defective cells that reside in the bone marrow. This procedure, called myeloablation, also destroys the hematopoietic stem cells that are responsible for forming red blood cells, platelets and white blood cells. Stem cells from a donor are then infused into a patient who is now in remission, migrate and home to the bone marrow and begin to proliferate and differentiate into various types of blood cells, eventually leading to a full reconstitution of the bone marrow and immune system.

Dosing patients with stem cell graft

The intent of HSCT is to cure patients of their hematologic malignancies. As of 2016, more than 500,000 allogeneic HSCT procedures have been performed worldwide over the past 50 years with over 30,000 being performed per year, of which 8,500 are in the United States. Approximately half of such patients are cured of their hematologic malignancies. From 2006 to 2016, the number of patients receiving an allogeneic HSCT procedure increased by approximately 5% per year in the United States due to multiple factors, including an aging population and new transplant modalities. Approximately 90% of HSCT procedures performed in the United States are for patients with various hematologic malignancies.

Although the number of allogeneic HSCT procedures performed is growing and there are new modalities for the procedure, HSCT continues to have a number of limitations. There are two major areas of unmet need. First, of those who receive a transplant, there is concomitant morbidity and mortality associated with the treatment. Second, a significant number of patients who are candidates for transplant do not receive one in a timely fashion. Gamida believe that NiCord can address significant limitations.

Current Sources of Donor Cells for Allogeneic HSCT

There are multiple potential sources of donor cells for transplants. For each donor, there are various baseline requirements including age and overall health. In general, younger donors produce more and better cells for HSCT than older donors. The optimal source of donor cells is a sibling who is a MRD, but the chances of having a sibling match are only 25% to 30%. An alternate source of donor cells is a MUD, but only 30% of patients requiring a transplant have a good to intermediate probability of finding a MUD. Furthermore, it takes approximately four months on average to identify an appropriate MUD who is medically suitable and willing to donate. During this lengthy time period, there is a risk of disease recurrence. Over time, the patient may also become ineligible due to other health complications. Moreover, prolonged donor searches heighten anxiety for patients and their families. The ability to find a match through this process is particularly challenging for individuals of ethnic backgrounds that are not well represented in donor databases.

Donor matching is determined by human leukocyte antigens, or HLA, which are proteins present on most cells and inherited genetically. HLA are recognized by the immune system, and “foreign” or nonmatching HLA may be rejected. Therefore, matching of HLA between bone marrow donor and recipient is needed for a successful transplant outcome. There are rules for the minimum, or lowest, HLA match needed between a donor and recipient. In general, patients have better transplant outcomes with a closely matched donor. Research has found that a donor must match a minimum of six HLA markers. In some centers, eight markers are tested. In transplantation with a matched related donor or matched unrelated donor, there must be a six of six or eight of eight HLA match with the recipient.

If a matched donor cell source is not identified, there are two alternatives for transplant candidates: haploidentical donors and umbilical cord donors. Haploidentical, or “half-matched” donors, are only partially compatible with the recipient. Because of the immune incompatibility in a haploidentical transplant, there is a high risk of GvHD, infection and other complications. There are two types of GvHD. Acute GvHD primarily affects the skin, the liver and the gastrointestinal tract (stomach, intestines and colon). Chronic GvHD begins later after transplant and lasts longer. It can be associated with damage to the liver, joints, skin and lungs. An approach to reduce these complications is to reduce the number of immune cells by giving cyclophosphamide after the transplant. However, this treatment modality may be associated with a decreased graft versus leukemia effect resulting in a higher rate of relapse, delayed time to engraftment associated with increased risk of infections and other complications.

Alternatively, donor cells can be obtained from umbilical cord blood. There are over a million publicly available cord blood units, making this a readily available source of cells. In contrast to matched unrelated donor transplants, which require a greater degree of matching, cord blood transplantation can be performed successfully with a match of four of six, five of six, or six of six HLA. Because cord blood requires a less stringent degree of genetic matching than other graft sources, it is suitable in approximately 95% of all patients. This obviates the need to go through a prolonged search process with uncertain outcomes in order to find a donor and arrange for the collection of donor cells. Because the donor T cells in cord blood are naïve, meaning that they have not matured, they readily adapt to the recipient and are associated with a low risk of a patient developing GvHD, in particular chronic GvHD. Furthermore, transplantation with cord blood reduces the risk of potential transmission of infections from the donor.

Limitations of Allogeneic HSCT

There are three critical limitations to successful HSCT:

NiCord is Designed to Address the Limitations of HSCT

NiCord is an investigational advanced cell therapy designed to enhance and expand the life-saving benefits of hematopoietic stem cell (bone marrow) transplant. NiCord utilizes the NAM-based cell expansion technology, to expand the number of donor cord blood stem cells while maintaining the cells’ functional therapeutic characteristics.

NiCord consists of two fractions of a unit of cord blood separated based on the expression of a marker on the surface of individual cells known as CD133. A cell’s CD133 status reflects its “stem cell” properties. Those cells that express CD133 represent a pool of stem or progenitor cells, cells that are capable of generating blood cells that can differentiate into a variety of cell subtypes. The CD133-positive stem or progenitor cells are also capable of reproducing themselves. Once Gamida had isolated cells bearing this marker, we then culture them using Gamida’s proprietary technology to expand their number while maintaining their regenerative properties. After approximately three weeks, Gamida harvest and cryopreserve these cultured cells.

Those cells that do not express CD133 represent other types of more mature, differentiated cells, including essential components of the immune system such as T cells. These mature cells cannot engraft but can provide immunological support until T cells derived from the stem cell graft recover. Gamida cryopreserve the CD133-negative cells at the outset of manufacturing and retain them for use as the second component of NiCord.

The NiCord production process

The cryopreserved NiCord product is shipped cryogenically to transplant centers where both components are thawed and infused to patients on the day of transplantation. The thawing process occurs in a closed system and can also be performed at the patient’s bedside for ease of administration. Gamida’s cryopreserved product resulted in engraftment results similar to those obtained with non-cryopreserved product in the pilot study at Duke University.

NiCord is designed to address the limitations of the current standard of care for HSCT. The NAM-expanded portion is designed to provide a therapeutically effective dose of stem cells to drive rapid engraftment, reconstitution of the entire immune system and long-term graft survival while the CD133-negative portion provides an immediate immune system benefit by supplying T cells.

Given these characteristics, NiCord may serve as a reliable alternative to existing sources of donor cells as well as expand the transplant market for those who are unable to find a match.

NiCord for HSCT and Hematologic Malignancies

NiCord is in an international, multicenter, randomized, pivotal Phase 3 clinical trial in 120 patients for the treatment of hematologic malignancies. Gamida anticipate reporting top-line data from this trial in the first half of 2020. In Gamida’s completed Phase 1/2 clinical trials, patients who were transplanted with NiCord achieved rapid engraftment and immune reconstitution, which are key indicators of clinical benefits. Based on these results, Gamida received Breakthrough Therapy Designation from the FDA for NiCord. In addition, Gamida received orphan drug designation from both the FDA and the EMA.

Hematologic Malignancies

Hematologic malignancies are characterized by an abnormal and excessive proliferation of malignant blood cells that replace normal blood cells in the bone marrow and the circulation. In some patients, these cancerous cells proliferate rapidly, requiring urgent treatment. Patients are initially treated with chemotherapy in order to destroy the malignant cells in a rapid manner. However, in most patients, remission is temporary and the disease will return after initial treatment. One of the most effective treatment options for these patients is HSCT, where the blood forming cells in the patient are destroyed using chemotherapy, radiation or a combination of both. These patients then receive new bone marrow stem cells from a healthy donor.

NiCord: Phase 1/2 Clinical Trial Results

After an initial safety evaluation of NiCord in a pilot study at Duke University, an international, multi-center open-label study was conducted. The results of this single-arm Phase 1/2 trial of NiCord were published in the Journal of Clinical Oncology on December 4, 2018. The study enrolled 36 adolescent and adult patients with hematologic malignancies who did not have a suitably matched donor. All patients in the trial had been previously treated for various hematologic malignancies, including ALL, AML, MDS, CML and lymphoma. These patients were deemed to be in remission and at high risk of subsequent relapse.

The main objective of the study was to evaluate the safety and efficacy of NiCord treatment in patients with hematologic malignancies following myeloablative conditioning therapy. Myeloablative conditioning therapy is a combination of chemotherapy agents, and in some cases radiotherapy, that is expected to produce low blood counts and is administered in order to reduce the tumor burden, suppress the patient’s immune system, and allow engraftment of donor stem cells. The study compared outcomes against a group of historic controls that were identified from data collected by the Center for International Blood and Marrow Transplant Research, or CIBMTR, which tracks all allogeneic transplants conducted in the United States. From the CIBMTR database, we identified 146 age and disease matched patients who received standard cord blood transplants and served as historic controls.

In this study, NiCord was administered via central venous catheter after thawing and reconstitution of the two infusion bags, the first containing the NiCord-cultured fraction and the second the noncultured fraction. The NiCord-cultured fraction contains at least 8.0 x 108 total nucleated cells, or TNC, while the noncultured fraction contains at least 4.0 x 108 TNC. The final volume of the NiCord-cultured fraction is 100 milliliters and the final volume of the noncultured fraction is 50 milliliters.

The study’s primary endpoint was time to neutrophil engraftment and was met based on recovery of neutrophils. Patients treated with NiCord recovered their neutrophils (500 cells per microliter) with a median recovery of 11.5 days after transplantation, which is significantly shorter than the 21 days observed in the historic controls (p<0.001). Platelet counts recovered within a median time period of 34 days in the NiCord treated patients, compared to 46 days in the historic controls (p<0.001). For both neutrophils and platelets, the percentage of patients who achieved engraftment was higher than in the historic controls. The age-adjusted cumulative incidence of neutrophil engraftment at 42 days following transplantation was 94% for NiCord recipients and 85% for the CIBMTR comparator cohort.

Neutrophils are infection-fighting white blood cells circulating in healthy individuals. A minimum neutrophil count, or ANC, of 0.5 x 109 cells per liter is necessary to prevent life-threatening infections. In all NiCord clinical trials, neutrophil engraftment is defined as achieving an ANC > 0.5 x 109 per liter on three consecutive measurements on different days. The day of neutrophil engraftment is designated as the first of the three consecutive measurements and must occur on or before 42 days post-transplant.

Platelets are required for normal blood clotting. Low platelet counts are associated with life-threatening hemorrhage. Platelet counts of >20 x 109 per liter are the minimum needed for the prevention of serious bleeding. Patients who have platelet counts lower than 20 x 109 per liter are usually given platelet transfusions in order to maintain their blood clotting function. In all NiCord clinical trials, platelet engraftment is defined as achieving a platelet count >20 x 109 per liter on three consecutive measurements on different days, with no platelet transfusions in the preceding seven days. The first day of the three measurements is designated the day of platelet engraftment.

Additional endpoints included rates of acute GvHD, chronic GvHD, infections, hospitalization and overall survival. In the Phase 1/2 trial of NiCord, rates of high grade acute GvHD were 11% in patients treated with NiCord and 27% in the CIBMTR cohort (p=0.09 by Fine-Gray analysis). For chronic GVHD, the cumulative incidence of all grades (including mild, moderate, and severe) was 40% for NiCord recipients and 30% for the CIBMTR comparator cohort (p = 0.1 by Fine-Gray analysis). Rates of the most clinically serious grades of chronic GVHD, moderate and severe, were 10% in both the NiCord and CIBMTR groups. The two-year estimates of disease-free survival, or DFS, were 43% in the NiCord group and 45% in the CIBMTR group, while overall survival rates, or OS, were 48% and 51%, respectively; neither DFS or OS were significantly different between the two groups. Other serious adverse events attributed to NiCord were hypertension (3%), infusion reaction (3%), thrombocytopenia, or low platelets (3%), and transaminitis, or elevated liver enzymes (3%). Of the 16 patients who died, eight deaths (50%) were attributed to relapsed disease, five (31%) to infection, two (13%) to GvHD, and one (6%) to organ failure.

The clinical impact associated with rapid engraftment was assessed in 18 patients treated with NiCord at Duke University. The patients who received NiCord had a decreased frequency of infections compared to 86 patients who received a standard cord blood transplant at the same institution. In particular, serious, Grade 2 and Grade 3 infections were significantly reduced (p<0.01).

NiCord treated patients have significantly lower rates of serious infections than standard cord blood controls.

The speed and robustness of the immune system reconstitution also likely contributed to an observed reduction of 20 days in the number of days, post-transplant, that patients were hospitalized when compared to the length of hospital stays for similar patients treated with standard cord blood also at Duke University.

Patients with hematologic malignancies treated with NiCord had significantly fewer days of hospitalization than comparable patients receiving standard umbilical cord blood.

NiCord: Ongoing Phase 3 Clinical Trial for Hematologic Malignancies

Based on the results of Gamida’s Phase 1/2 trials, Gamida received Breakthrough Therapy Designation from the FDA for NiCord; and currently enrolling an international, multicenter, randomized, pivotal Phase 3 clinical trial of transplantation of NiCord versus transplantation of one or two standard cord blood units in approximately 120 patients with ALL, AML, MDS, CML or lymphoma. Gamida is conducting the Phase 3 clinical trial with the same eligibility criteria and endpoints as our Phase 1/2 trials to confirm the superiority of using NiCord in HSCT over standard cord blood. All patients enrolled in this trial are candidates for allogeneic HSCT who do not have a suitable matched donor. The primary endpoint of this trial is time to neutrophil engraftment. Gamida anticipate completing patient enrollment by the end of 2019, and reporting topline data from this trial in the first half of 2020. Additional endpoints include platelet engraftment, and rates of acute and chronic GvHD, infections, hospitalization and overall survival.

Ongoing Phase 3 trial of NiCord for HSCT in patients with hematologic malignancies.

NiCord: Health Economic Implications

The potential clinical advantages of NiCord could lead to societal benefits such as enabling patients to return to work, spend time with loved ones and enjoy improved quality of life. NiCord may also reduce the costs to the healthcare system versus standard cord HSCT due to potentially shortened isolation and intensive care hospital stays, reduced re-admission rates and decreased severity and rates of infections and GvHD. In the ongoing Phase 3 clinical trial, Gamida is collecting data to assess these endpoints. In parallel, Gamida is conducting a “real world” outcomes data study that is a prospective observational study designed to capture clinical and economic endpoints for haploidentical, mismatched unrelated, and matched unrelated transplant. The data Gamida collect from these efforts will inform a Health Economics Outcomes Research study that will be used to inform pricing and reimbursement.

Gamida expect private payers to cover NiCord, and plan to apply for an add-on reimbursement code for NiCord in HSCT under private insurance. Gamida also plan to pursue reimbursement for NiCord under the NTAP program. NTAP provides Medicare and Medicaid beneficiaries timely access to breakthrough therapies that, absent any additional payments, would be inadequately covered under the existing Diagnosis Related Group payment system. Notably, two companies who are commercializing advanced cell therapy products for the treatment of hematologic malignancies – Gilead (Yescarta) and Novartis (Kymriah) – recently received NTAP status.

NiCord for the Treatment of Other Hematologic Disorders

In addition to hematologic malignancies, Gamida is pursuing the development of NiCord for the treatment of bone marrow failure disorders. The goal in treating these diseases is to replace defective bone marrow cells with cells derived from cord blood donors. NiCord is currently being evaluated in a Phase 1/2 NIH-sponsored clinical trial for the same investigational development candidate as NiCord, under an IND for the brand name CordIn. In this trial, NiCord is administered in combination with a reduced conditioning preparative protocol, which is designed to minimize toxicity, in up to 62 patients with severe aplastic anemia or hypoplastic myelodysplastic syndrome, another bone marrow failure disease. This research protocol is designed to evaluate the safety and effectiveness of transplantation with CordIn to overcome the high incidence of graft rejection associated with standard cord blood HSCT in severe aplastic anemia patients, where graft rejection occurs in up to 50% of subjects. In February 2019, Gamida reported preliminary data from the first cohort of patients. In this initial cohort of three patients, all successfully underwent a stem cell transplant consisting of NiCord plus a haploidentical stem cell graft. The rapid engraftment, sustained hematopoiesis and accelerated immune recovery observed in these patients enable the initiation of a second cohort of patients to be treated with NiCord as a stand-alone graft. Additionally, these data suggest that NiCord could potentially overcome some of the limitations of umbilical cord blood transplantation for severe aplastic anemia.

Overview of Severe Aplastic Anemia

Severe aplastic anemia is a rare disease, with an estimated incidence in the United States of 600-900 patients per year. Underlying causes include autoimmune disease, certain medications or toxic substances, and inherited conditions. However, the cause is unknown in approximately half of all cases of severe aplastic anemia. The disease is characterized by stem cells in the bone marrow that are damaged and unable to produce enough new blood cells. This leads to extremely low blood cell counts and platelet levels, and often requires patients to be immediately hospitalized for treatment.

Allogeneic HSCT is the treatment of choice for patients with severe aplastic anemia who have an available matched sibling donor. Among the 2,471 patients with severe aplastic anemia receiving HSCT with a matched sibling donor between 2005 and 2015, the three-year probability of survival was 91% for those younger than 18 years, and 78% for patients 18 years of age or older. Among the 1,751 recipients of HSCT with a MUD during the same period, the probabilities of survival were 78% and 68% for severe aplastic anemia patients under 18 years and greater than or equal to18 years, respectively. Unfortunately, because of the severity of the disease, some patients cannot wait to find an ideal match and use haploidentical matches that have a lower survival rate. Among those who are able to find a matched donor in a timely manner, the survival rates are very good. We believe NiCord may be able to provide a treatment option for those patients who are unable to locate such a donor in time.

NAM-NK: Our Immuno-Oncology Product Candidate

NAM-NK is our cell therapy product candidate generated by the expansion of NK cells using the NAM-based technology platform. NAM-NK addresses a key limitation in the therapeutic potential of NK cells by increasing the cytotoxicity and in vivo retention and proliferation in the bone marrow and lymphoid organs of NK cells expanded in culture conditions. NAM-NK is currently in an investigator-sponsored Phase 1 trial for the treatment of MM and NHL. Gamida believe that NAM-NK may have broad potential in both hematologic and solid tumors.

Limitations of Therapeutic Antibodies in Cancer Treatment

NHL is the most common malignancy of B cells. An estimated 74,680 new cases of NHL were diagnosed in the United States in 2018. The five-year survival rate for those with NHL is approximately 70%. The combination of an antibody such as rituximab and chemotherapy is the standard of care for patients with NHL. However, many patients develop resistance to rituximab, and when used as monotherapy, only 15% of patients respond. One mechanism that contributes to this resistance is the inability of patient or autologous NK cells to locate and kill tumor cells that rituximab has bound to. Treatment with donor-derived NK cells may overcome this resistance.

MM is a hematologic malignancy characterized by the proliferation of monoclonal plasma cells in the bone marrow. It is more common in elderly patients, with a median age at diagnosis of 65 to 74 years. The National Cancer Institute estimated that there were approximately 30,770 new cases of myeloma diagnosed in the United States in 2018. The preferred treatment for myeloma is an autologous stem cell transplant, but due to other pre-existing conditions, not all patients are eligible for this. These, and the majority of patients who relapse following initial treatment, are then treated with various chemotherapy and antibody-based therapies that have significant anti-cancer activity when used in combination. However, there is still a large unmet clinical need as the five-year survival rate for patients with myeloma is approximately 50%.

NK Cells: Broad Anti-Cancer Potential

Extensive research efforts are ongoing to generate cellular products for the treatment of cancer patients. There is much interest in the field in the potential of NK cells because they have potent anti-tumor properties. In contrast to other immune cell therapies, NK cells can be used independently from genetic matching, potentially enabling NK cells to serve as a universal donor-based therapy when combined with certain antibodies.

NK cells’ tumor killing activity is greatly enhanced by antibodies that recognize tumor cells, which trigger antibody-dependent cellular toxicity, or ADCC. In ADCC, the binding of an antibody to a cell marks it for destruction by NK cells. A number of antibody products have been approved by the FDA as therapeutics in oncology, each of which has limited efficacy as monotherapy. The effectiveness of these antibodies can potentially be enhanced through co-administration with NK cells. A key limitation in the application of NK cells in cell therapy has been the traditionally challenging task of generating sufficient numbers of highly functional NK cells in culture.

Gamida’s Solution: NAM-NK

Gamida has developed NAM-NK, a cell therapy product candidate generated by expansion of NK cells using our NAM-based technology. Gamida believe that NAM-NK has potential application in boosting the innate immune response to cancer. Functional studies have shown that Gamida’s NAM-NK cells expanded in culture with our NAM technology and the cytokine IL-15 display increased tumor killing activity over NK cells expanded with IL-15 but without NAM. Gamida’s pre-clinical studies have demonstrated the potential of NAM-NK product to eradicate tumor cells to increase survival rates.

Further, Gamida has demonstrated that NAM-NK cells can kill B cell lymphoma in culture. The efficacy of this killing is further enhanced by the addition of rituximab, which drives ADCC. In a cell lysis experiment, NAM-NK cell-dependent killing of B cells was enhanced by rituximab. No killing was obtained in the groups treated with rituximab and without NK cells.

Rituximab enhanced lysis of lymphoma by NAM-NK

An investigator-sponsored Phase 1 trial of NAM-NK cells in up to 24 patients with NHL or MM was initiated in 2017 at the University of Minnesota. These patients have relapsed or refractory NHL or MM, meaning that their disease has come back after standard therapy and/or they are not responding to standard therapy for their disease. In combination with NAM-NK cells, these patients also receive therapeutic antibodies, which, in the case of NHL, includes rituximab and in the case of MM, includes elotuzumab. In February 2019, Gamida reported preliminary data at the TCT Meeting. The data reported from the first 14 patients demonstrated that NAM-NK was highly active and generally well tolerated. Among the six NHL patients evaluable for activity, three patients achieved a complete response, one patient achieved a partial response, and two patients experienced progressive disease. Two of the patients who achieved a complete response subsequently received a bone marrow transplant. Among the six MM patients evaluable for activity, one patient achieved a complete response, two patients experienced stable disease, and three patients experienced progressive disease. Activity was observed at all three dose levels evaluated. All 14 patients were evaluable for safety, and data from these patients showed that NAM-NK was generally well tolerated, with no GvHD, no tumor lysis syndrome and no neurotoxicity syndrome observed. Grade 3 (n = 3) and Grade 4 (n = 1) hematologic adverse events were observed. Non-hematologic adverse events were mostly Grade 1 and Grade 2. There was one case of Grade 3 cytokine release syndrome and one death due to sepsis. Based on these data, the Gamida expects to initiate a multicenter Phase 1/2 clinical trial of NAM-NK in 2020.

Phase 1 trial of NAM-NK in patients with MM or NHL

The results of this study will also provide the basis for potential exploration in solid tumors.

NiCord for the Treatment of Non-Malignant Disorders

NiCord has also been tested in patients with sickle cell disease, or SCD, for which HSCT is currently the only clinically established cure. In Phase 1/2 clinical trials, 14 patients with SCD were treated with a standard unit of cord blood followed by NiCord, administered via central venous catheter after thawing and reconstitution of the infusion bags. The standard cord blood unit was infused first, with the dose consisting of the entire unit, or one infusion bag. The NiCord infusion consisted of two infusion bags, the first containing the NiCord cultured fraction and the second, the non-cultured fraction. The NiCord-cultured fraction contained at least 8.0 x 10 8  TNC, while the non-cultured fraction contained at least 4.0 x 10 8  TNC. The final volume of the NiCord-cultured fraction was 100 milliliters and the final volume of the non-cultured fraction was 50 milliliters. All patients initially engrafted at a median of seven days. Twelve patients had long-term engraftment and were disease free after 22 months. Two of the patients died, one due to chronic GvHD and the other due to secondary graft failure. There were no other serious adverse events attributed to NiCord in patients with SCD. These results are favorable when compared to those from a study of 29 patients with SCD who underwent HSCT with cells from an MUD donor. In that study, 27 of the patients had neutrophil engraftment, and the median time to engraftment was 12 days. There were eight deaths, seven due to GvHD and one due to graft rejection; 19 of 29 were disease-free at two years. The SCD trial is currently closed to further enrollment, and data will be analyzed when patient follow-up is completed in the second half of 2019.

Gamida believe that NiCord has potential to replace other allogeneic HSCT procedures in other hematologic diseases and some metabolic disorders. The following table illustrates the annual incidence of certain non-malignant diseases in the United States, according to the U.S. National Marrow Donor Program.

Material agreements

The Lonza Agreement

Gamida’s product candidates are currently manufactured at Gamida’s Jerusalem, Israel facility and in the United States by Lonza Walkersville, Inc., or Lonza US, using a scalable self-assembly process with well-defined unit operations. This highly specialized and precisely controlled manufacturing process enables Gamida and Lonza to manufacture product candidates reproducibly and efficiently for clinical and commercial applications. Gamida currently rely on Lonza US, to conduct a material portion of Gamida’s product manufacturing for NiCord and CordIn and intend to do so at Lonza US or a Lonza affiliate, at least until Gamida’s manufacturing facility is expected to be completed.

In February 2016, and as amended, Gamida entered into a Manufacturing Services Agreement, or the Manufacturing Agreement, with Lonza US for the production of products containing human cells intended for therapeutic use in humans. Under the terms of the Manufacturing Agreement, Lonza US manufactures, packages, ships, and handles quality assurance and control products, based on statements of work, which Gamida submit with respect to each development of a process or product and as may be further be amended by change orders. Each statement of work describes the activities to be performed by the parties and is subject to the terms of the Manufacturing Agreement unless the parties have agreed otherwise. In February 2016, Gamida signed a statement of work for technology transfer and clinical manufacturing of Nicord and CordIn for a period ended December 2018. In February 2019, the SOW was extended and is effective until November 30, 2019.

The term of the Manufacturing Agreement is five years, unless terminated earlier pursuant to its terms. The Manufacturing Agreement may be terminated in the event of an uncured material breach by one of the parties. In addition, the Manufacturing Agreement or any statement of work thereunder may be terminated by Gamida by providing six months prior written notice or by Lonza US by providing 12 months prior written notice. In addition, the Manufacturing Agreement may be terminated if either NiCord or Cordin, which are being produced thereunder, has been or will be suspended or terminated by the FDA due to the failure of the product candidate, by providing two months prior written notice. Further, the Manufacturing Agreement may be terminated by either party upon notice in the event of dissolution, termination of existence, liquidation or business failure of the other party, the uncured appointment of a custodian or receiver to the other party or un-dismissed institution of insolvency, reorganization or bankruptcy proceedings.

As of the date of December 31, 2018, Gamida have paid Lonza an aggregate of approximately $11.7 million pursuant to the Manufacturing Agreement.

The Kiryat Gat Premises Lease Agreement

In December 2017, Gamida entered into a lease agreement for an approximately 52,000 square foot facility in Kiryat Gat, Israel, where Gamida intend to build a commercial-grade cGMP manufacturing. The lease agreement is for a 10 year period and includes an option to extend it for an additional 5 years.

The Jerusalem Lease Agreement

Gamida’s principal executive offices are located at 5 Nahum Heftsadie Street, Givaat Shaul, Jerusalem 91340, Israel, where Gamida lease an approximately 1,300 square foot facility. This facility houses Gamida’s administrative headquarters, research and development laboratories and pilot manufacturing facility.

Gamida’s strategy

Gamida’s goal is to deliver curative cell therapies to patients with serious and life-threatening medical conditions. The key strategies to achieve Gamida’s goal are the following: