Securities registered or to be registered
pursuant to Section 12(b) of the Act.
Securities registered or to be registered
pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act. None
Indicate the number of outstanding shares
of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition
report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large
accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Emerging growth company ☐
If an emerging growth company that prepares
its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards† provided pursuant to
Section 13(a) of the Exchange Act. ☐
† The term “new or revised
financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting
Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☒
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
If “Other” has been checked
in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
PART I
Item 1. Identity of Directors, Senior
Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected
Timetable
Not applicable.
Item 3. Key Information
A. Selected Financial Data
The following table
summarizes our consolidated financial data. We have derived the summary consolidated statements of operations data for the years
ended December 31, 2020, 2019 and 2018 and the consolidated balance sheets data as of December 31, 2020 and 2019 from our audited
consolidated financial statements included elsewhere in this Annual Report. We have derived the summary consolidated statements
of operations data for the years ended December 31, 2017 and 2016 and the summary consolidated balance sheet data as of December
31, 2018, 2017 and 2016 from our audited consolidated financial statements not included in this Annual Report.
We have included,
in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation
of the financial information set forth in those summary consolidated statements. Our historical results are not necessarily indicative
of the results that should be expected in the future, and our interim results are not necessarily indicative of the results that
should be expected for the full year.
The summary of our
consolidated financial data set forth below should be read together with our consolidated financial statements and the related
notes, as well as the section entitled “Item 5. Operating and Financial Review and Prospects,” included elsewhere
in this Annual Report.
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(U.S. Dollars in thousands, except per share data)
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from Proprietary Products
|
|
$
|
100,916
|
|
|
$
|
97,696
|
|
|
$
|
90,784
|
|
|
$
|
79,559
|
|
|
$
|
55,958
|
|
Revenues from Distribution
|
|
|
32,330
|
|
|
|
29,491
|
|
|
|
23,685
|
|
|
|
23,266
|
|
|
|
21,536
|
|
Total revenues
|
|
|
133,246
|
|
|
|
127,187
|
|
|
|
114,469
|
|
|
|
102,825
|
|
|
|
77,494
|
|
Cost of revenues from Proprietary Products
|
|
|
57,750
|
|
|
|
52,425
|
|
|
|
52,796
|
|
|
|
51,335
|
|
|
|
37,723
|
|
Cost of revenues from Distribution
|
|
|
27,944
|
|
|
|
25,025
|
|
|
|
20,201
|
|
|
|
19,402
|
|
|
|
18,411
|
|
Total cost of revenues
|
|
|
85,694
|
|
|
|
77,450
|
|
|
|
72,997
|
|
|
|
70,737
|
|
|
|
56,134
|
|
Gross profit
|
|
|
47,552
|
|
|
|
49,737
|
|
|
|
41,472
|
|
|
|
32,088
|
|
|
|
21,360
|
|
Research and development expenses
|
|
|
13,609
|
|
|
|
13,059
|
|
|
|
9,747
|
|
|
|
11,973
|
|
|
|
16,245
|
|
Selling and marketing expenses
|
|
|
4,518
|
|
|
|
4,370
|
|
|
|
3,630
|
|
|
|
4,398
|
|
|
|
3,243
|
|
General and administrative expenses
|
|
|
10,139
|
|
|
|
9,194
|
|
|
|
8,525
|
|
|
|
8,273
|
|
|
|
7,353
|
|
Other expense
|
|
|
49
|
|
|
|
330
|
|
|
|
311
|
|
|
|
-
|
|
|
|
-
|
|
Operating income (loss)
|
|
|
19,237
|
|
|
|
22,784
|
|
|
|
19,259
|
|
|
|
7,444
|
|
|
|
(5,481
|
)
|
Financial income
|
|
|
1,027
|
|
|
|
1,146
|
|
|
|
830
|
|
|
|
500
|
|
|
|
470
|
|
Income (expense) in respect of securities measured at fair value, net
|
|
|
102
|
|
|
|
(5
|
)
|
|
|
(178
|
)
|
|
|
(80
|
)
|
|
|
(13
|
)
|
Income (expense) in respect of currency exchange and translation differences and derivatives instruments, net
|
|
|
(1,535
|
)
|
|
|
(651
|
)
|
|
|
602
|
|
|
|
(612
|
)
|
|
|
127
|
|
Financial expense
|
|
|
(266
|
)
|
|
|
(293
|
)
|
|
|
(172
|
)
|
|
|
(82
|
)
|
|
|
(114
|
)
|
Income (loss) before taxes on income
|
|
|
18,565
|
|
|
|
22,981
|
|
|
|
20,341
|
|
|
|
7,170
|
|
|
|
(5,011
|
)
|
Taxes on income
|
|
|
1,425
|
|
|
|
730
|
|
|
|
(1,955
|
)
|
|
|
269
|
|
|
|
1,722
|
|
Net income (loss)
|
|
|
17,140
|
|
|
|
22,251
|
|
|
|
22,296
|
|
|
|
6,901
|
|
|
|
(6,733
|
)
|
Income (loss) attributable to equity holders
|
|
|
17,140
|
|
|
|
22,251
|
|
|
|
22,296
|
|
|
|
6,901
|
|
|
|
(6,733
|
)
|
Income (loss) per share attributable to equity holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.39
|
|
|
$
|
0.55
|
|
|
$
|
0.55
|
|
|
$
|
0.18
|
|
|
$
|
(0.18
|
)
|
Diluted
|
|
$
|
0.38
|
|
|
$
|
0.55
|
|
|
$
|
0.55
|
|
|
$
|
0.18
|
|
|
$
|
(0.18
|
)
|
Weighted-average number of ordinary shares used to compute income (loss) per share attributable to equity holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,140,771
|
|
|
|
40,320,888
|
|
|
|
40,275,374
|
|
|
|
37,970,697
|
|
|
|
36,418,833
|
|
Diluted
|
|
|
44,589,878
|
|
|
|
40,581,627
|
|
|
|
40,445,417
|
|
|
|
38,045,097
|
|
|
|
36,418,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
$
|
19,105
|
|
|
$
|
27,571
|
|
|
$
|
10,546
|
|
|
$
|
3,608
|
|
|
$
|
1,897
|
|
Cash flows from investing activities
|
|
|
(13,127
|
)
|
|
|
(564
|
)
|
|
|
(5,176
|
)
|
|
|
(15,608
|
)
|
|
|
1,637
|
|
Cash flows from financing activities
|
|
|
23,364
|
|
|
|
(1,530
|
)
|
|
|
(587
|
)
|
|
|
15,320
|
|
|
|
1,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, restricted cash and short-term investments
|
|
$
|
100,266
|
|
|
$
|
73,907
|
|
|
$
|
50,592
|
|
|
$
|
43,019
|
|
|
$
|
28,632
|
|
Trade receivables
|
|
|
22,108
|
|
|
|
23,210
|
|
|
|
27,674
|
|
|
|
30,662
|
|
|
|
19,788
|
|
Working capital (1)
|
|
|
152,947
|
|
|
|
110,823
|
|
|
|
87,321
|
|
|
|
67,486
|
|
|
|
49,871
|
|
Total assets
|
|
|
210,665
|
|
|
|
173,797
|
|
|
|
138,116
|
|
|
|
122,110
|
|
|
|
99,696
|
|
Total liabilities
|
|
|
32,027
|
|
|
|
38,478
|
|
|
|
25,740
|
|
|
|
32,618
|
|
|
|
32,953
|
|
Total shareholders’ equity
|
|
|
178,638
|
|
|
|
135,319
|
|
|
|
112,376
|
|
|
|
89,492
|
|
|
|
66,743
|
|
Number of outstanding ordinary shares
|
|
|
44,742,963
|
|
|
|
40,353,101
|
|
|
|
40,295,078
|
|
|
|
40,262,819
|
|
|
|
36,447,175
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income (loss)(2) (3)
|
|
$
|
18,117
|
|
|
$
|
23,414
|
|
|
$
|
23,244
|
|
|
$
|
7,384
|
|
|
$
|
(5,663
|
)
|
Adjusted EBITDA(2)
|
|
$
|
25,111
|
|
|
$
|
28,466
|
|
|
$
|
23,910
|
|
|
$
|
11,450
|
|
|
$
|
(909
|
)
|
(1)
|
Working capital
is defined as total current assets minus total current liabilities.
|
(2)
|
We present adjusted net income
(loss) and adjusted EBITDA because we use these non-IFRS financial measures to assess our operational performance, for
financial and operational decision-making, and as a means to evaluate period-to-period comparisons on a consistent basis.
Management believes these non-IFRS financial measures are useful to investors because: (1) they allow for greater transparency
with respect to key metrics used by management in its financial and operational decision-making; and (2) they exclude
the impact of non-cash items that are not directly attributable to our core operating performance and that may obscure
trends in the core operating performance of the business.
Non-IFRS financial measures have
limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, our IFRS results.
We expect to continue reporting non-IFRS financial measures, adjusting for the items described below, and we expect to
continue to incur expenses similar to certain of the non-cash, non-IFRS adjustments described below. Accordingly, unless
otherwise stated, the exclusion of these and other similar items in the presentation of non-IFRS financial measures should
not be construed as an inference that these items are unusual, infrequent or non-recurring. Adjusted net income (loss)
and adjusted EBITDA are not recognized terms under IFRS and do not purport to be an alternative to IFRS net income (loss)
as an indicator of operating performance or any other IFRS measure. Moreover, because not all companies use identical
measures and calculations, the presentation of adjusted net income (loss) or adjusted EBITDA may not be comparable to
other similarly titled measures of other companies.
Adjusted net income (loss) is
defined as net income (loss), plus non-cash share-based compensation expenses. Our management believes that excluding
non-cash charges related to share-based compensation provides useful information to investors because of its non-cash
nature, varying available valuation methodologies among companies and the subjectivity of the assumptions and the variety
of award types that a company can use under the relevant accounting guidance, which may obscure trends in our core operating
performance.
|
(3)
|
Adjusted EBITDA
is defined as net income (loss), plus income tax expense, plus or minus financial income or expenses, net, plus or minus income
or expense in respect of securities measured at fair value, net, plus or minus income or expenses in respect of currency exchange
differences and derivatives instruments, net, plus depreciation and amortization expense, plus non-cash share-based compensation
expenses. Management believes that adjusted EBITDA provides useful information to investors for the same reasons discussed
above for adjusted net income (loss).
|
The following tables
set forth adjusted net income (loss) and adjusted EBITDA and also reconcile these figures to the IFRS measure net income (loss):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(U.S. Dollars in thousands)
|
|
Net income (loss)
|
|
$
|
17,140
|
|
|
$
|
22,251
|
|
|
$
|
22,296
|
|
|
$
|
6,901
|
|
|
$
|
(6,733
|
)
|
Non-cash share-based compensation expenses
|
|
|
977
|
|
|
|
1,163
|
|
|
|
948
|
|
|
|
483
|
|
|
|
1,071
|
|
Adjusted net income (loss)
|
|
$
|
18,117
|
|
|
$
|
23,414
|
|
|
$
|
23,244
|
|
|
$
|
7,384
|
|
|
$
|
(5,663
|
)
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(U.S. Dollars in thousands)
|
|
Net income (loss)
|
|
$
|
17,140
|
|
|
$
|
22,251
|
|
|
$
|
22,296
|
|
|
$
|
6,901
|
|
|
$
|
(6,733
|
)
|
Income tax expense
|
|
|
1,425
|
|
|
|
730
|
|
|
|
(1,955
|
)
|
|
|
269
|
|
|
|
1,722
|
|
Financial expense, net
|
|
|
672
|
|
|
|
(197
|
)
|
|
|
(1,082
|
)
|
|
|
274
|
|
|
|
(470
|
)
|
Depreciation and amortization expense
|
|
|
4,897
|
|
|
|
4,519
|
|
|
|
3,703
|
|
|
|
3,523
|
|
|
|
3,501
|
|
Non-cash share-based compensation expenses
|
|
|
977
|
|
|
|
1,163
|
|
|
|
948
|
|
|
|
483
|
|
|
|
1,071
|
|
Adjusted EBITDA
|
|
$
|
25,111
|
|
|
$
|
28,466
|
|
|
$
|
23,910
|
|
|
$
|
11,450
|
|
|
$
|
(909
|
)
|
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of
Proceeds
Not applicable.
D. Risk Factors
You should consider
carefully the risks and uncertainties described below, together with all of the other information in this Annual Report, including
the consolidated financial statements and the related notes included elsewhere in this Annual Report. The risks and uncertainties
described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently
believe are not material, may also become important factors that adversely affect our business. If any of the following risks
actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely
affected.
Risks Related to Our Business
Our business is currently highly
concentrated on our two leading products, GLASSIA and KEDRAB, and in our largest geographic region, the United States. Any adverse
market event with respect to such products or the United States would have a material adverse effect on our business (see next
risk factor for the effect of transition of GLASSIA manufacturing to Takeda in 2021).
We rely heavily upon
the sales of GLASSIA, our AAT intravenous product, and KEDRAB, the post-exposure prophylactic treatment of rabies. Revenue from
these products comprised approximately 53%, 58% and 60% and 14%, 13% and 10%, respectively, of our total revenues for the years
ended December 31, 2020, 2019 and 2018, respectively.
With respect to a
reduction in sales of GLASSIA due to the transfer of GLASSIA manufacturing to Takeda see “—With the cessation of
production of GLASSIA for Takeda in 2021, our revenues and profitability will decrease.” If KEDRAB were to lose significant
sales, or were to be substantially or completely displaced in the market, we would lose a significant and material source of our
total revenues. Similarly, if these products were to become the subject of litigation and/or an adverse governmental ruling requiring
us to cease the manufacturing, export or sales of these products, our business would be adversely affected.
We also rely heavily
on sales in the United States, which comprised approximately 63%, 66% and 66% of our total revenues for the years ended December
31, 2020, 2019 and 2018, respectively. If our U.S. sales were significantly impacted by material changes to government or private
payor reimbursement, other regulatory developments, competition or other factors, then our business would be adversely affected.
With the cessation of production
of GLASSIA for Takeda in 2021, our revenues and profitability will decrease.
We have a partnership
arrangement with Takeda, pursuant to which Takeda is the sole distributor of GLASSIA in the United States, Canada, Australia and
New Zealand. The partnership agreement was originally executed in 2010 with Baxter International Inc. (“Baxter”).
During 2015, Baxter assigned all its rights under the partnership agreement to Baxalta U.S. Inc. (“Baxalta”), an independent
public company which spun-off from Baxter. In 2016, Shire plc (“Shire”) completed its acquisition of Baxalta, and
as a result, all of Baxalta’s rights under the partnership agreement were assigned to Shire. In January 2019, Takeda completed
its acquisition of Shire.
In 2021, Takeda will
complete the technology transfer of GLASSIA, and pending FDA approval, will initiate its own production of GLASSIA for the U.S.
market. After this transition, Takeda has no obligation to purchase any amount of GLASSIA from us. Based on our agreement with
Takeda, we anticipate that sales of GLASSIA to Takeda during 2021 will be reduced to approximately $25 million, as compared to
$64.9 million during 2020, which is Takeda’s minimum commitment for 2021 pursuant to our existing agreement. Based on the
agreement between the companies, upon initiation of sales of GLASSIA manufactured by Takeda, it will pay royalties to us at a
rate of 12% on net sales through August 2025, and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually,
for each of the years from 2022 to 2040. Based on current GLASSIA sales in the United States and forecasted future growth, we
project receiving royalties from Takeda in the range of $10 million to $20 million per year from 2022 to 2040. The transition
of GLASSIA manufacturing to Takeda and the transition of the agreement to its royalties phase will result in a significant reduction
of our revenue and profitability.
We may have excess manufacturing
plant capacity in our manufacturing facility, which may result in significant reduction in operating profits.
Our revenues will
decrease and our operating results may be materially and adversely impacted if we are unable to continue operating our manufacturing
facility at its current capacity and/or level of profitability, or otherwise to reduce direct and indirect costs relating to our
manufacturing facility in line with any reduction in demand or manufacturing level.
Following the transition
of GLASSIA manufacturing to Takeda, we may be affected by reduced efficiency of our manufacturing facility, which may cause us
to incur increased manufacturing costs per vial, reduced gross profitability and potential operating losses. We plan to utilize
the excess manufacturing capacity in our manufacturing plant to support the growth of our other existing proprietary products.
While we are capable of manufacturing more of these products, there is no assurance that there will be increased market demand
for these products in the currently existing markets in which we distribute our products or other markets. The manufacturing of
excess quantities of products, which may not be sold due to lower demands, may result in the need to write-down the value of inventories
which may result in significant operating losses.
The reduced plant
utilization as well as the expected change in product sales mix driven by the expected reduction in sales of GLASSIA to Takeda,
is anticipated to result in a continued decrease in the Propriety Products segment’s full-year gross margins.
We believe the risk
of not adequately adjusting to lower plant utilization could result in inefficiencies, reduced profitability or operating losses.
In addition, these changes may require significant layoffs, which may be expensive and may lead to labor issues and strikes, which
could affect our ability to continue to manufacture products and may lead to increase costs, reduced profitability and operating
losses. For labor related risk see “—We have entered into a collective bargaining agreement with the employees’
committee and the Histadrut (General Federation of Labor in Israel), and we have incurred and could in the future incur labor
costs or experience work stoppages or labor strikes as a result of any disputes in connection with such agreement.”
Manufacturing of new plasma-derived
products in our manufacturing facility requires a lengthy and challenging development project and/or technology transfer project
as well as regulatory approvals, all of which may not materialize.
We are exploring opportunities
to manufacture in our manufacturing plant other new plasma-derived products that we have not previously manufactured.
The manufacturing
of other marketed or investigational plasma-derived products in our plant, including, our Anti-SARS-CoV-2 IgG investigational
product as a potential treatment for COVID-19 and the hyper-immune globulin product for which we executed a 12-year contract manufacturing
agreement with an undisclosed partner, requires a lengthy and challenging development project and/or technology transfer project
through which we transfer the know-how and capabilities to manufacture the new product. Such projects are usually complex and
involve investment of significant time (approximately two to four years) and resources. There is no assurance that such development
and/or technology transfer projects will be successful and will allow us to manufacture the new product according to its required
specifications.
Such development and/or
technology transfer projects require regulatory approval by the FDA and/or EMA or other relevant regulatory agencies. Obtaining
such regulatory approval may require activities such as the manufacturing of comparable batches and/or performing comparability
non-clinical and/or clinical studies between the product manufactures by its existing manufacturer and the product manufactured
at our manufacturing facility. There is no assurance that we will be able to provide supporting comparability results that meet
all regulatory requirements needed to obtain the regulatory approval required to be able to commence commercial manufacturing
of new plasma-derived products in our manufacturing plant.
If we are unable to
adequately complete the required development and/or technology transfer projects or subsequently obtain the required regulatory
approvals, we will not be able to utilize the excess capacity of our manufacturing plant and may suffer reduced profitability
or operating losses.
We may not realize the anticipated
benefits of our recent agreement for the acquisition of the plasma collection operations of B&PR, the purpose of which is
to become less dependent on plasma supply from third parties and reduce costs associated with source plasma procurement.
As recently announced, in January 2021 we entered into an agreement
for the acquisition, subject to customary closing conditions, of the plasma collection center of B&PR in Beaumont, Texas, which
specializes in the collection of hyper-immune plasma used in the manufacture of Anti-D immunoglobulin products (“Anti-D products”).
B&PR’s plasma collection center is one of the few FDA-licensed centers in the U.S. producing the raw materials required
for these products. The acquisition of B&PR’s plasma collection center shall represent our entry into the U.S. plasma
collection market and further our strategic goal of becoming a fully integrated specialty plasma company. We plan to significantly
expand our hyperimmune plasma collection capacity by investing in B&PR’s plasma collection center at Beaumont, Texas
and leveraging its FDA license to open additional centers in the U.S. However, given our limited prior experience in managing plasma
collection operations as well as the operational, technical and regulatory challenges in maintaining plasma collection operations,
we may not be able to realize the anticipated benefits of the acquisition. We may not be able to adequately collect all sufficient
quantities of plasma through our plasma collection operations and there can be no assurance that we will be able to reduce the
cost of plasma through our collection operations, as compared to costs associated with acquisition of plasma from third parties.
See also “—We
would become supply-constrained and our financial performance would suffer if we were unable to obtain adequate quantities of
source plasma or plasma derivatives or specialty ancillary products approved by the FDA, the EMA or the regulatory authorities
in Israel, or if our suppliers were to fail to modify their operations to meet regulatory requirements or if prices of the source
plasma or plasma derivatives were to raise significantly”; and “—We may engage in strategic transactions
to acquire assets, businesses, or rights to products, product candidates or technologies or form collaborations or make investments
in other companies or technologies that could negatively affect our operating results, dilute our stockholders’ ownership,
increase our debt, or cause us to incur significant expense.”
Our two leading product development
candidates are Inhaled AAT for AATD and Anti-SARS-CoV-2 IgG as a potential therapy for COVID-19; and in addition, we have several
other early stage development projects. There can be no assurance that the development activities associated with these products
will materialize and result in the FDA, EMA or any other relevant agencies granting us marketing authorization for any of these
products.
Our two leading product
development candidates are Inhaled AAT for AATD and Anti-SARS-CoV-2 IgG as a potential therapy for COVID-19; and in addition,
we have several other early stage development projects.
During December 2019, the first patient was randomized in Europe
into our pivotal Phase 3 InnovAATe clinical trial evaluating the safety and efficacy of our proprietary inhaled AAT therapy for
the treatment of AATD. The study was initiated following extensive discussions with both the FDA and EMA regarding the trial’s
design as well a thorough analysis of a prior pivotal Phase 2/3 clinical trial for Inhaled AAT for AATD conducted in Europe, which
did not meet its primary or other pre-defined efficacy endpoints. In addition to the pivotal study and based on feedback received
from the FDA regarding anti-drug antibodies (“ADA”) to Inhaled AAT, we intend to concurrently conduct a sub-study in
North America in which approximately 30 patients will be evaluated for the effect of ADA on AAT levels in plasma with Inhaled AAT
and IV AAT treatments. There can be no assurance that we will be able to complete this study successfully or that the study results
will be sufficient for obtaining FDA and EMA approval. See also “As a result of the COVID-19 pandemic we have encountered
delays in patient recruitment into our pivotal Phase 3 InnovAAT clinical study conducted at a first study site in Europe and it
has impacted and may continue to impact our ability to open additional study sites in the United States and Europe.”
In response to the
recent COVID-19 outbreak, in early 2020 we initiated the development of our Anti-SARS-CoV-2 IgG product as a potential treatment
for COVID-19. In August 2020, we initiated a Phase 1/2 open-label, single-arm, multi-center clinical trial in Israel of our product;
and in September 2020, we announced initial interim results for the Phase 1/2 clinical trial. We subsequently submitted a pre-Investigational
New Drug (“IND”) information package to the FDA with our proposed U.S. clinical development plan. Following recent
response from the FDA to our information package, we continue to evaluate the best suitable plan for the U.S. and/or EU Anti-SARS-CoV-2
IgG clinical program, and will advance the development of the product upon the conclusion of this review. There can be no assurance
that we will be able to successfully complete the additional requirement for submission of an IND and thereafter initiate a clinical
development program required as a basis for a potential approval of the product.
In addition, we are
currently engaged in the development of other product candidates, including a recombinant AAT product candidate as well as testing
our intravenous AAT product for other indications such as organ preservation, and there can be no assurance that such development
activities will progress and obtain the required regulatory approvals.
See also: “Research
and development efforts invested in our pipeline of specialty and other products may not achieve expected results” and
“—If we are unable to successfully introduce new products and indications or fail to keep pace with advances in
technology, our business, financial condition and results of operations may be adversely affected.”
We may engage in strategic transactions
to acquire assets, businesses, or rights to products, product candidates or technologies or form collaborations or make investments
in other companies or technologies that could negatively affect our operating results, dilute our stockholders’ ownership,
increase our debt, or cause us to incur significant expense.
As part of our business development strategy, we may engage
in strategic transactions to expand and diversify our product portfolio, including through the acquisition of assets, businesses,
or rights to products, product candidates or technologies or through strategic alliances or collaborations, such as the recent
B&PR transaction. We may not identify suitable strategic transactions, or complete such transactions in a timely manner, on
a cost-effective basis, or at all. Moreover, we may devote resources to potential opportunities that are never completed, or we
may incorrectly judge the value or worth of such opportunities. Even if we successfully execute a strategic transaction, we may
not be able to realize the anticipated benefits of such transaction, may incur additional debt or assume unknown or contingent
liabilities in connection therewith, and may experience losses related to our investments in such transactions. Integration of
an acquired company or assets into our existing business may not be successful and may disrupt ongoing operations, require the
hiring of additional personnel and the implementation of additional internal systems and infrastructure, and require management
resources that would otherwise focus on developing our existing business. Even if we are able to achieve the long-term benefits
of a strategic transaction, our expenses and short-term costs may increase materially and adversely affect our liquidity. Any of
the foregoing could have a material effect on our business, results of operations and financial condition.
In addition, strategic transactions, such as the recent B&PR
transaction, may entail numerous operational, financial and legal risks, including:
|
●
|
incurrence of substantial
debt, dilutive issuances of securities or depletion of cash to pay for acquisitions;
|
|
|
|
|
●
|
exposure to known and unknown liabilities, including
possible intellectual property infringement claims, violations of laws, tax liabilities and commercial disputes;
|
|
|
|
|
●
|
higher than expected acquisition and integration
costs;
|
|
|
|
|
●
|
difficulty in integrating operations and personnel
of any acquired business;
|
|
|
|
|
●
|
increased amortization expenses or, in the event
that we write-down the value of acquired assets, impairment losses;
|
|
|
|
|
●
|
impairment of relationships with key suppliers
or customers of any acquired business due to changes in management and ownership;
|
|
|
|
|
●
|
inability to retain personnel, customers, distributors,
vendors and other business partners integral to an in-licensed or acquired product, product candidate or technology;
|
|
|
|
|
●
|
potential failure of the due diligence processes
to identify significant problems, liabilities or other shortcomings or challenges;
|
|
●
|
entry into indications or markets in which we
have no or limited direct prior development or commercial experience and where competitors in such markets have stronger market
positions; and
|
|
|
|
|
●
|
other challenges associated with managing an
increasingly diversified business.
|
If we are unable
to successfully manage any strategic transaction in which we may engage, our ability to develop new products and continue to expand
and diversify our product pipeline, increase our sales and profitability may be limited.
The COVID-19 pandemic may adversely
impact our business, operating results and financial condition.
The novel coronavirus
identified in late 2019, SARS-CoV-2, which causes the disease known as COVID-19, is an ongoing global pandemic that has resulted
in public and governmental efforts to contain or slow the spread of the disease, including widespread shelter-in-place orders,
social distancing interventions, quarantines, travel restrictions and various forms of operational shutdowns. The COVID-19 pandemic
and the resulting measures implemented in response to the pandemic are adversely affecting, and is expected to continue to adversely
affect, a number of our business activities (including our research and development, clinical trials, operations, supply chains,
distribution systems, product development and sales activities) as well as those of our suppliers, customers, third-party payers
and patients. Due to the impact of the pandemic and these measures, we have experienced, and expect to continue to experience,
unpredictable reductions in demand for certain of our products, and in some cases, have experienced, and could continue to experience,
unpredictable increases in demand for certain of our products. The outbreak and preventative or protective actions that governments,
corporations, individuals or we have taken or may take in the future to contain the spread of COVID-19 may result in a period
of reduced operations, reduced product demand or limit the ability of customers to perform their obligations to us, delays in
clinical trials or other research and development efforts, business disruption for us and our suppliers, customers and other third
parties with which we do business and potential delays or disruptions related to regulatory approvals.
While COVID-19 related
disruption had various effects on our business activities, commercial operation, revenues and operational expenses, as a result
of the actions we have taken to date, our overall results of operations for the year ended December 31, 2020 were not materially
affected. However, a number of factors, including but not limited to, continued effect of the factors mentioned above as well
as, continued demand for our products, including GLASSIA and KEDRAB in the U.S. market and our distributed products in Israel,
financial conditions of our customers, distributors, suppliers and services providers, our ability to manage operating expenses,
additional competition in the markets that we compete, delays in clinical trials or other research and development efforts, regulatory
delays, professional and operational costs increase (including insurance costs), prevailing market conditions and the impact of
general economic, industry or political conditions in the U.S., Israel or otherwise, may have an effect on our future financial
position and results of operations.
The financial impact
of these factors cannot be reasonably estimated at this time but may materially affect our business, financial condition and results
of operations, and the trading prices of our ordinary shares were impacted by volatility in the financial markets resulting from
the pandemic. The full extent to which the pandemic impacts our business, results or the trading price of our ordinary shares
will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge
concerning the severity and duration of the pandemic and actions to contain its spread or treat its impact, among others.
The COVID-19 pandemic
and the volatile global economic conditions stemming from it may precipitate or amplify the other risks described in this “Risk
Factors” section of this Annual Report, which could materially adversely affect our business, operations and financial conditions
and results from operations.
Risks Related to Our Proprietary Products Segment
In our Proprietary Products segment,
we rely on Kedrion for the sales of our KEDRAB product in the United States and the development and expected sales of our investigational
Anti-SARS-CoV-2 IgG product as a potential treatment for COVID-19 in the United States, Europe and additional countries, and any
disruption to our relationships with Kedrion would have an adverse effect on our future results of operations and profitability.
Pursuant to the strategic
distribution and supply agreement with Kedrion for the clinical development and marketing in the United States of KEDRAB, Kedrion
is the sole distributor of KEDRAB in the United States. Sales to Kedrion accounted for approximately 14%, 13% and 10% of our total
revenues in the years ended December 31, 2020, 2019 and 2018, respectively. We are dependent on Kedrion for its marketing and
sales of KEDRAB in the United States.
We also primarily
depend upon KedPlasma, a subsidiary of Kedrion, for the supply of the hyper-immune plasma which is used for the production of
KEDRAB to be sold in the United States and of KAMRAB to be sold in other markets. See “—We would become supply-constrained
and our financial performance would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives
or specialty ancillary products approved by the FDA, the EMA or the regulatory authorities in Israel, or if our suppliers were
to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives were
to raise significantly.”
In addition, pursuant
to the global collaboration engagement that we entered into with Kedrion for the development, manufacturing and distribution of
our investigational Anti-SARS-CoV-2 IgG product as a potential treatment for COVID-19, we are dependent on Kedrion for the supply
of plasma, collected at its KedPlasma centers, from donors who have recovered from the virus, which shall be used as starting
material for such product and, upon future receipt, based on the development plan, of regulatory approvals, Kedrion shall be the
sole distributor of the product in the U.S., Europe, Australia, South Korea, United Kingdom, Switzerland and Norway.
If we fail to maintain
our relationship with Kedrion, we could face significant costs in finding a replacement distributor for the sales of KEDRAB in
the United States and a replacement supplier of the hyper-immune plasma which is used for the production of KEDRAB, as well as
a replacement supplier of plasma for the development and manufacturing of our Anti-SARS-CoV-2 IgG product. Delays in establishing
a relationship with a new distributor and supplier could lead to a decrease in our KEDRAB sales and a deterioration in our market
share when compared with one or more of our competitors, or delays in the development, manufacturing and sales of our investigational
Anti-SARS-CoV-2 IgG product. Any of the foregoing developments could have an adverse effect upon our sales, margins and profitability.
In our Proprietary Products segment,
we currently rely on Takeda for sales of GLASSIA in the U.S. market, and any reduction in sales of GLASSIA by Takeda would have
an adverse effect on our future expected royalty income, results of operations and profitability.
Based on our manufacturing,
supply and distribution agreement with Takeda, following the transition of manufacturing to Takeda, upon initiation of sales of
GLASSIA manufactured by Takeda, Takeda will pay royalties to us at a rate of 12% on net sales through August 2025, and at a rate
of 6% thereafter until 2040, with a minimum of $5 million annually, for each of the years from 2022 to 2040. Based on current
GLASSIA sales in the United States and forecasted future growth, we project receiving royalties from Takeda in the range of $10
million to $20 million per year for 2022 to 2040. However, any reduction in sales of GLASSIA by Takeda or should Takeda reduce
its manufacturing and marketing of GLASSIA for any reason (including but not limited to inability to adequately or sufficiently
manufacture GLASSIA, regulatory limitations, difficulties in marketing, reduction in market size, or changes in corporate focus),
our future expected royalty income from Takeda’s sales of GLASSIA would be adversely impacted, which would have an adverse
effect on our results of operations and profitability.
Certain of our sales in our Proprietary
Products segment rely on our ability to win tender bids based on the price and availability of our products in public tender processes.
Certain of our sales
in our Proprietary Products segment rely on our ability to win tender bids in certain markets, including those of the World Health
Organization (WHO) and other similar health organizations. Our ability to win bids may be materially adversely affected by competitive
conditions in such bid process. Our existing and new competitors may also have significantly greater financial resources than
us, which they could use to promote their products and business. Greater financial resources would also enable our competitors
to substantially reduce the price of their products or services. If our competitors are able to offer prices lower than us, our
ability to win tender bids during the tender process will be materially affected and could reduce our total revenues or decrease
our profit margins.
In our Proprietary Products segment,
we rely on third party distributors for the distribution and sales of our products in ex-U.S. markets (other than the Israeli
market), and any disruption to our relationships with these third party distributers would have an adverse effect on our future
results of operations and profitability.
We engage third party
distributors in ex-U.S. markets to distribute and sell our Proprietary Products. Sales through distributors in ex-U.S. markets
(other than the Israeli market) accounted for approximately 10%, 8% and 10% of our total revenues in the years ended December
31, 2020, 2019 and 2018, respectively. We are dependent of these third parties for marketing, distribution and sales of our products
in these markets.
In addition to distribution
and sales, these third party distributors are, in most cases, responsible for the regulatory registration of our products in the
local markets in which they operate, as well as responsible for participation in tenders for sale of our products. Failure of
the third party distributors to obtain and maintain such regulatory approvals and/or win tenders or provide competitive prices
to our products may adversely affect our ability to sell our Proprietary Products in these markets, which in turn will negatively
affect our revenues and profitability. In addition, our inability to sell our Proprietary Products in these markets may reduce
our manufacturing plant utilization and effectiveness, and may lead to additional reduction of profitability.
Our Proprietary Products segment
operates in a highly competitive market.
We compete with well-established
drug companies, including two to four large competitors for each of our products in the Proprietary Products segment. These large
competitors include CSL Behring Ltd. (“CSL”), Takeda, and Grifols S.A. (“Grifols”), which acquired a competitor,
Talecris Biotherapeutics, Inc. (“Talecris”) in 2011, and Kedrion. We compete against these companies for, among other
things, licenses, expertise, clinical trial patients and investigators, consultants and third-party strategic partners. We also
compete with these companies for market share for certain products in the Proprietary Products segment. Our large competitors
have advantages in the market because of their size, financial resources, markets and the duration of their activities and experience
in the relevant market, especially in the United States and countries of the European Union. As a result, they may be able to
devote more funds to research and development and new production technologies, as well as to the promotion of their products and
business. These competitors may also be able to sustain for longer periods a deliberate substantial reduction in the price of
their products or services. These competitors also have an additional advantage regarding the availability of raw materials, as
they own companies that collect plasma and/or plants which fractionate plasma.
Our products generally
do not benefit from patent protection and compete against similar products produced by other providers. Additionally, the development
by a competitor of a similar or superior product or increased pricing competition may result in a reduction in our net sales or
a decrease in our profit margins. For example, we believe that our two main competitors in the AAT market are Grifols and CSL.
We estimate that Grifols’ AAT by infusion product for the treatment of AATD, Prolastin A1PI, accounts for at least 50% market
share in the United States and more than 70% of sales in the worldwide market for the treatment of AATD, which also includes sales
of Prolastin in different European countries. Apart from its sales through Talecris’ historical business, Grifols is also
a local producer of the product in the Spanish market and operates in Brazil. CSL’s intravenous AAT product is mainly sold
in the United States. In 2015, CSL’s intravenous AAT product was granted centralized marketing authorization in Europe and
CSL has launched the product in a few European countries since 2016. There is another, smaller local producer in the French market,
LFB S.A. In addition, we estimate that each of Grifols and CSL owns approximately 200-250 operating plasma collection centers
located across the United States.
Similarly, if a new
AAT formulation or a new route of administration with significantly improved characteristics is adopted (including, for example,
aerosol inhalation), the market share of our current AAT product, GLASSIA, could be negatively impacted. While we are in the process
of developing Inhaled AAT for AATD, our competitors may also be attempting to develop similar products. For example, several of
our competitors may have completed early stage clinical trials for the development of an inhaled formulation of AAT for different
indications. While these products are in the early stages of development, they may eventually be successfully developed and launched.
Furthermore, even if we are able to commercialize Inhaled AAT for AATD prior to the development of comparable products by our
competitors, sales of Inhaled AAT for AATD, subject to approval of such product by the applicable regulatory authorities, could
adversely impact our revenue and growth of sales of GLASSIA or GLASSIA -related royalties.
In addition, our plasma-derived
protein therapeutics face, or may face in the future, competition from existing or newly developed non-plasma products and other
courses of treatments. New treatments, such as gene therapy, small molecules, correctors, monoclonal or recombinant products,
may also be developed for indications for which our products are now used. Our competitors are attempting to develop similar products
or products that could be a substitute for AAT product. For example, several of our competitors are conducting preclinical and
clinical trials for the development of gene therapy or correctors for AATD. While these products are in the early stages of development,
they may eventually be successfully developed and launched, and could adversely impact our revenue and growth of sales of GLASSIA
or GLASSIA -related royalties as well as affect our ability to launch our Inhaled AAT product, if approved.
We believe that there
are two main competitors for KamRAB/KEDRAB, our anti-rabies products, worldwide: Grifols, whose product we estimate comprises
approximately 70%-80% of the anti-rabies market in the United States, and CSL, which sells its anti-rabies product in Europe and
elsewhere. In addition, Sanofi Pasteur, the vaccines division of Sanofi S.A., has a product registered for the United States market,
but the product is primarily sold in Europe and not currently sold in significant quantities in the United States. There are a
number of local producers in other countries that make similar anti-rabies products, most of which are based on equine serum.
Over the past several years, several companies have made attempts, and some are still in the process of developing monoclonal
antibodies for an anti-rabies treatment. These products, if approved, may be as effective as the currently available plasma derived
anti-rabies vaccine and may potentially be significantly cheaper, and as such may result in loss of market share of KamRAB/KEDRAB.
While Kedrion is our
strategic partner for KEDRAB, it is also one of our competitors for KamRho(D). In addition to its sales in the United States,
Kedrion also markets a competing product in several EU countries as well as other countries world-wide. We believe there are three
additional main suppliers of competitive products in this market: Grifols, CSL and Saol Therapeutics. There are also local producers
in other countries that make similar products mostly intended for local markets.
In the wake of the
COVID-19 pandemic we, together with our partner Kedrion, initiated the development of our investigational Anti-SARS-CoV-2 IgG
product as a potential therapy for COVID-19. In parallel, the CoVIg-19 Plasma Alliance partnership was formed of the world’s
leading plasma companies, spanning plasma collection, development, production, and distribution with the goal to accelerate the
development of a potential treatment and increase supply of the potential treatment. In addition to Biotest, BPL, CSL Behring,
LFB, Octapharma, and Takeda which formed the Alliance, the following additional industry members are reported to have joined the
Alliance: ADMA Biologics, BioPharma Plasma, GC Pharma, Liminal BioSciences, and Sanquin. The Alliance is developing a plasma derived
hyperimmune therapy for COVID-19 which is based on plasma collected from convalescent COVID-19 patients, which is similar to our
investigational product. In addition, the Alliance announced the initiation of the Inpatient Treatment with Anti-Coronavirus Immunoglobulin
(the “ITAC”) Phase 3 clinical trial sponsored by the National Institute of Allergy and Infectious Diseases (“NIAID”),
part of the National Institutes of Health (the “NIH”), which will evaluate the safety, tolerability and efficacy of
an investigational anti-coronavirus hyperimmune intravenous immunoglobulin (H-Ig) medicine for treating hospitalized adults at
risk for serious complications of COVID-19 disease. If successful, the Alliance’s product may become one of the treatment
options for hospitalized COVID-19 patients. This product, if approved, may affect our ability to launch and/or market our Anti-SARS-CoV-2
investigational IgG product, if approved.
In addition, a number
of companies are in the process of advanced development of monoclonal antibodies for an Anti-SARS-CoV-2 treatment, such as Regeneron’s
casirivimab and imdevimab which form a novel monoclonal antibody cocktail being studied for its potential both to treat appropriate
patients with COVID-19 and to prevent SARS-CoV-2 infection, and Eli Lilly’s investigational neutralizing antibody bamlanivimab
(LY-CoV555) 700 mg. Bamlanivimab which received emergency use authorization from the FDA for the treatment of mild to moderate
COVID-19 in adults and pediatric patients 12 years and older with a positive COVID-19 test, who are at high risk for progressing
to severe COVID-19 and/or hospitalization. Moreover, the FDA issued an Emergency Use Authorization for convalescent plasma as
a potential treatment for COVID–19. Convalescent plasma has played an important role in the immediate and intermediate response
to the disease. These products, and similar others may be as effective as our plasma derived IgG product, may obtain approval
from the FDA, EMA or other regulatory agencies sooner than our product and may potentially be significantly cheaper, and as such
may affect our ability to launch and/or gain sufficient market share with our Anti-SARS-CoV-2 investigational IgG product, if
approved.
Our products involve biological
intermediates that are susceptible to contamination and the handling of such intermediates and our final products throughout the
supply chain and manufacturing process requires clod-chain handling, all of which could adversely affect our operating results.
Plasma and its derivatives,
such as fraction IV, are raw materials that are susceptible to damage and contamination and may contain microorganisms that cause
diseases in humans, commonly known as human pathogens, any of which would render such materials unsuitable as raw material for
further manufacturing. Almost immediately after collection from a donor, plasma and plasma derivatives must be stored and transported
at temperatures that are at least -20 degrees Celsius (-4 degrees Fahrenheit). Improper storage or transportation of plasma or
plasma derivatives by us or third-party suppliers may require us to destroy some of our raw material. In addition, plasma and
plasma derivatives are also suitable for use only for certain periods of time once removed from storage. If unsuitable plasma
or plasma derivatives are not identified and discarded prior to release to our manufacturing processes, it may be necessary to
discard intermediate or finished products made from such plasma or plasma derivatives, or to recall any finished product released
to the market, resulting in a charge to cost of goods sold and harm to our brand and reputation. Furthermore, if we distribute
plasma-derived protein therapeutics that are produced from unsuitable plasma because we have not detected contaminants or impurities,
we could be subject to product liability claims and our reputation would be adversely affected.
Despite overlapping
safeguards, including the screening of donors and other steps to remove or inactivate viruses and other infectious disease-causing
agents, the risk of transmissible disease through plasma-derived protein therapeutics cannot be entirely eliminated. If a new
infectious disease was to emerge in the human population, the regulatory and public health authorities could impose precautions
to limit the transmission of the disease that would impair our ability to manufacture our products. Such precautionary measures
could be taken before there is conclusive medical or scientific evidence that a disease poses a risk for plasma-derived protein
therapeutics. In recent years, new testing and viral inactivation methods have been developed that more effectively detect and
inactivate infectious viruses in collected plasma. There can be no assurance, however, that such new testing and inactivation
methods will adequately screen for, and inactivate, infectious agents in the plasma or plasma derivatives used in the production
of our plasma-derived protein therapeutics. Additionally, this could trigger the need for changes in our existing inactivation
and production methods, including the administration of new detection tests, which could result in delays in production until
the new methods are in place, as well as increased costs that may not be readily passed on to our customers.
Plasma and plasma
derivatives can also become contaminated through the manufacturing process itself, such as through our failure to identify and
purify contaminants through our manufacturing process or failure to maintain a high level of sterility within our manufacturing
facilities.
Once we have manufactured
our plasma-derived protein therapeutics, they must be handled carefully and kept at appropriate temperatures. Our failure, or
the failure of third parties that supply, ship, store or distribute our products, to properly care for our plasma-derived products,
may result in the requirement that such products be destroyed.
While we expect small
amounts of work-in-process inventories scraps in the ordinary course of business because of the complex nature of plasma and plasma
derivatives, our processes and our plasma-derived protein therapeutics, unanticipated events may lead to write-offs and other
costs materially in excess of our expectations. We have, in the past, experienced situations that have caused us to write-off
the value of our products. Such write-offs and other costs could materially adversely affect our operating results. Furthermore,
contamination of our plasma-derived protein therapeutics could cause consumers or other third parties with whom we conduct business
to lose confidence in the reliability of our manufacturing procedures, which could materially adversely affect our sales and operating
results.
Our ability to continue manufacturing
and distributing our plasma-derived protein therapeutics depends on our continued adherence to current Good Manufacturing Practice
regulations.
The manufacturing
processes for our products are governed by detailed written procedures and regulations that set forth current Good Manufacturing
Practice standards (“cGMP”) requirements for blood products, including plasma and plasma derivative products. Failure
to adhere to established procedures or regulations, or to meet a specification set forth in cGMP requirements, could require that
a product or material be rejected and destroyed. There are relatively few opportunities for us to rework, reprocess or salvage
nonconforming materials or products. Any failure in cGMP inspection will affect marketing in other territories, including the
U.S. and Israel.
Our adherence to cGMP
regulations and the effectiveness of our quality control systems are periodically assessed through inspections of our manufacturing
facility in Beit Kama, Israel by the FDA, the IMOH and regulatory authorities of other countries. Such inspections could result
in deficiency citations, which would require us to take action to correct those deficiencies to the satisfaction of the applicable
regulatory authorities. If serious deficiencies are noted or if we are unable to prevent recurrences, we may have to recall products
or suspend operations until appropriate measures can be implemented. The FDA could also stop the import of products into the United
States if there are potential deficiencies. Such deficiencies may also affect our ability to obtain government contracts in the
future. We are required to report certain deviations from procedures to the FDA. Even if we determine that the deviations were
not material, the FDA could require us to take certain measures to address the deviations. Since cGMP reflects ever-evolving standards,
we regularly need to update our manufacturing processes and procedures to comply with cGMP. These changes may cause us to incur
additional costs and may adversely impact our profitability. For example, more sensitive testing assays (if and when they become
available) may be required or existing procedures or processes may require revalidation, all of which may be costly and time-consuming
and could delay or prevent the manufacturing of a product or launch of a new product.
We may face manufacturing stoppages and other challenges
associated with audits or inspections by regulatory bodies.
The regulatory authorities
may, at any time and from time to time, following approval of a product for sale, audit the facilities in which the product is
manufactured. If any such inspection or audit of our facilities identifies a failure to comply with applicable regulations or
if a violation of our product specifications or applicable regulations occurs independently of such an inspection or audit, the
relevant regulatory authority may require remedial measures that may be costly or time consuming for us to implement and that
may include the temporary or permanent suspension of commercial sales or the temporary or permanent closure of a facility. Any
such remedial measures imposed upon us with whom we contract could materially harm our business.
The biologic properties of plasma
and plasma derivatives are variable, which may impact our ability to consistently manufacture our products in accordance with
the approved specifications.
While our manufacturing
processes were developed to meet certain product specifications, variations in the biologic properties of the plasma or plasma
derivatives as well as the manufacturing processes themselves may result in out of specification results during the manufacturing
of our products. While we expect certain work-in-process inventories scraps in the ordinary course of business because of the
complex nature of plasma and plasma derivatives, our processes and our plasma-derived protein therapeutics, unanticipated events
may lead to write-offs and other costs materially in excess of our expectations. We have, in the past, experienced situations
that have caused us to write-off the value of our products. Such write-offs and other costs could materially adversely affect
our operating results.
The biologic properties of plasma
and plasma derivatives are variable, which may adversely impact our levels of product yield from our plasma or plasma derivative
supply.
Due to the nature
of plasma, there will be variations in the biologic properties of the plasma or plasma derivatives we purchase that may result
in fluctuations in the obtainable yield of desired fractions, even if cGMP is followed. Lower yields may limit production of our
plasma-derived protein therapeutics because of capacity constraints. If these batches of plasma with lower yields impact production
for extended periods, we may not be able to fulfill orders on a timely basis and the total capacity of product that we are able
to market could decline and our cost of goods sold could increase, thus reducing our profitability.
Usage of our products may lead to
serious and unexpected side effects, which could materially adversely affect our business and may, among other factors, lead to
our products being recalled and our reputation being harmed, resulting in an adverse effect on our operating results.
The use of our plasma-derived
protein therapeutics may produce undesirable side effects or adverse reactions or events. For the most part, these side effects
are known, are expected to occur at some frequency and are described in the products’ labeling. Known side effects of a
number of our plasma-derived protein therapeutics include headache, nausea and additional common protein infusion related events,
such as flu-like symptoms, dizziness and hypertension. The occurrence of known side effects on a large scale could adversely affect
our reputation and public image, and hence also our operating results.
In addition, the use
of our plasma-derived protein therapeutics may be associated with serious and unexpected side effects, or with less serious reactions
at a greater than expected frequency. This may be especially true when our products are used in critically ill patient populations.
When these unexpected events are reported to us, we typically make a thorough investigation to determine causality and implications
for product safety. These events must also be specifically reported to the applicable regulatory authorities, and in some cases,
also to the public by media channels. If our evaluation concludes, or regulatory authorities perceive, that there is an unreasonable
risk associated with one of our products, we would be obligated to withdraw the impacted lot or lots of that product or, in certain
cases, to withdraw the product entirely. Furthermore, it is possible that an unexpected side effect caused by a product could
be recognized only after extensive use of the product, which could expose us to product liability risks, enforcement action by
regulatory authorities and damage to our reputation.
We are subject to a number of existing
laws and regulations in multiple jurisdictions, non-compliance with which could adversely affect our business, financial condition
and results of operations, and we are susceptible to a changing regulatory environment, which could increase our compliance costs
or reduce profit margins.
Any new product must
undergo lengthy and rigorous testing and other extensive, costly and time-consuming procedures mandated by the FDA and similar
authorities in other jurisdictions, including the EMA and the regulatory authorities in Israel. Our facilities must be approved
and licensed prior to production and remain subject to inspection from time to time thereafter. Failure to comply with the requirements
of the FDA or similar authorities in other jurisdictions, including a failed inspection or a failure in our reporting system for
adverse effects of our products experienced by the users of our products, or any other non-compliance, could result in warning
letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution of products, civil
or criminal sanctions, import or export restrictions, refusal or delay of a regulatory authority to grant approvals or licenses,
restrictions on operations or withdrawal of existing approvals and licenses. Furthermore, we may experience delays or additional
costs in obtaining new approvals or licenses, or extensions of existing approvals and licenses, from a regulatory authority due
to reasons that are beyond our control such as changes in regulations or a shutdown of the U.S. federal government, including
the FDA, or similar governing bodies or authorities in other jurisdictions. In addition, we rely on Takeda, Kedrion and additional
plasma suppliers, for plasma collection required for the manufacturing of GLASSIA, KEDRAB and other Proprietary products, and
in the case of Takeda and Kedrion for the distribution of these products in the United States (and in the case of Takeda, also
potentially in Canada, Australia and New Zealand). In performing such services to us, Takeda, Kedrion and additional plasma suppliers
are required to comply with certain regulatory requirements. Any failure by Takeda and/or Kedrion and/or additional plasma suppliers
to properly advise us regarding, or properly perform tasks related to, regulatory compliance requirements, could adversely affect
us. Any of these actions could cause direct liabilities, a loss in our ability to market GLASSIA and/or KEDRAB and/or other Proprietary
products, or a loss of customer confidence in us or in GLASSIA and/or KEDRAB and/or other Proprietary products, which could materially
adversely affect our sales, future revenues, reputation, and results of operations. Similarly, we rely on other third-party vendors,
for example, in the testing, handling, and distributions of our products. If any of these companies incur enforcement action from
regulatory authorities due to noncompliance, this could negatively affect product sales, our reputation and results of operations.
In addition, we rely on other distributors of our other proprietary products, for purposes of our distribution related regulatory
compliance for the products they distribute in the territories in which they operate. Any failure by such distributors to properly
advise us regarding, or properly perform tasks related to, regulatory compliance requirements, could adversely affect our sales,
future revenues, reputation and results of operations.
Any changes in our
production processes for our products must be approved by the FDA and/or similar authorities in other jurisdictions. Failure to
comply with any requirements as to production process changes dictated by the FDA or similar authorities in other jurisdictions
could also result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and
distribution of products, civil or criminal sanctions, refusal or delay of a regulatory authority to grant approvals or licenses,
restrictions on operations or withdrawal of existing approvals and licenses.
In addition, changes
in the regulation of our activities, such as increased regulation affecting safety requirements or new regulations such as limitations
on the prices charged to customers in the United States, Israel or other jurisdictions in which we operate, could materially adversely
affect our business. In addition, the requirements of different jurisdictions in which we operate may become less uniform, creating
a greater administrative burden and generating additional compliance costs, which would have a material adverse effect on our
profit margins.
We would become supply-constrained
and our financial performance would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives
or specialty ancillary products approved by the FDA, the EMA or the regulatory authorities in Israel, or if our suppliers were
to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives were
to raise significantly.
Our proprietary products
depend on our access to U.S., European or other territories’ hyper-immune plasma or plasma derivatives, such as fraction
IV. We purchase these plasma products from third-party licensed suppliers, including Takeda and Kedrion, some of which are also
responsible for the plasma fractionation process, pursuant to multiple purchase agreements. We have entered into a number of plasma
supply agreements with various third parties in the United States and Europe and with the IMOH in Israel (for the supply of plasma
from convalescents COVID-19 patients required for our Anti-SARS-CoV-2 IgG product as a potential treatment for COVID-19) some
of which are also strategic partners in the distribution of our proprietary products. These agreements contain various termination
provisions, including upon a material breach of either party, force majeure and, with respect to supply agreements with strategic
partners, the failure or delay on the part of either party to obtain the applicable regulatory approvals or the termination of
the principal strategic relationship. If we are unable to obtain adequate quantities of source plasma or fraction IV plasma approved
by the FDA, the EMA or the regulatory authorities in Israel from these providers, we may be unable to find an alternative cost-effective
source.
In order for plasma
and fraction IV plasma to be used in the manufacturing of our plasma-derived protein therapeutics, the individual centers at which
the plasma is collected must be licensed and approved by the relevant regulatory authorities, such as the FDA, the EMA or the
IMOH (for Anti SARS CoV2). When a new plasma collection center is opened, and on an ongoing basis after its licensure, it must
be inspected by the FDA, the EMA or the regulatory authorities in Israel for compliance with cGMP and other regulatory requirements.
An unsatisfactory inspection could prevent a new center from being licensed or lead to the suspension or revocation of an existing
license. If relevant regulatory authorities determine that a plasma collection center did not comply with cGMP in collecting plasma,
we may be unable to use and may ultimately destroy plasma collected from that center, which may impact on our ability to timely
meet our manufacturing and supply obligations. Additionally, if noncompliance in the plasma collection process is identified after
the impacted plasma has been pooled with compliant plasma from other sources, entire plasma pools, in-process intermediate materials
and final products could be impacted, such as through product destruction or rework. Consequently, we could experience significant
inventory impairment provisions and write-offs, which could adversely affect our business and financial results.
In addition, the plasma
supplier’s fractionation process must also meet standards of the FDA, the EMA or the regulatory authorities in Israel. If
a plasma supplier is unable to meet such standards, we will not be able to use the plasma derivatives provided by such supplier,
which may impact on our ability to timely meet our manufacturing and supply obligations.
If we were unable
to obtain adequate quantities of source plasma or plasma derivatives approved by the FDA, the EMA or the regulatory authorities
in Israel, we would be limited in our ability to maintain or increase current manufacturing levels of our plasma derivative products,
as well as in our ability to conduct the research required to maintain our product pipeline. As a result, we could experience
a substantial decrease in total revenues or profit margins, a potential breach of distribution agreements, a loss of customers,
a negative effect on our reputation as a reliable supplier of plasma derivative products or a substantial delay in our production
and strategic growth plans.
The ability to increase
plasma collections may be limited, our supply of plasma and plasma derivatives could be disrupted or the cost of plasma and plasma
derivatives could increase substantially, as a result of numerous factors, including a reduction in the donor pool, increased
regulatory requirements, decreased number of plasma supply sources due to consolidation and new indications for plasma-derived
protein therapeutics, which could increase demand for plasma and plasma derivatives and lead to shortages.
Plasma collection
process is dependent on donors arriving in plasma collection centers and agreeing to donate plasma. During major healthcare events,
such as the recent COVID-19 pandemic, the number of donors attending plasma collection centers reduces, which may adversely affect
the availability of plasma and its derivatives. A significant shortage in plasma supply may adversely affect our ability to continue
manufacturing our products, may result in shortages in our products in the market, and may result in reduced sales and profitability.
We are also dependent
on a number of suppliers who supply specialty ancillary products used in the production process, such as specific gels and filters.
Each of these specialty ancillary products is provided by a single, exclusive supplier. If these suppliers were unable to provide
us with these specialty ancillary products, if our relationships with these suppliers deteriorate, or these suppliers’ operations
are negatively affected by regulatory enforcement due to noncompliance, the manufacture and distribution of our products would
be materially adversely affected, which would adversely affect our sales and results of operations. See “—If we
experience equipment difficulties or if the suppliers of our equipment or disposable goods fail to deliver key product components
or supplies in a timely manner, our manufacturing ability would be impaired and our product sales could suffer.”
Some of our required
specialty ancillary products and other materials used in the manufacturing process are commonly used in the healthcare industry
world-wide. If the global demand for these products increases due to healthcare issues, epidemics or pandemics, such as the recent
coronavirus (COVID-19) pandemic, our ability to secure adequate supply at reasonable cost of such products may be negatively affected,
which would materially adversely affect our ability to manufacture and distribute our products, which would adversely affect our
sales and results of operations.
In addition, regulatory
requirements, including cGMP regulations, continually evolve. Failure of our plasma suppliers to adjust their operations to conform
to new standards as established and interpreted by applicable regulatory authorities would create a compliance risk that could
impair our ability to sustain normal operations.
In addition, if the
purchase prices of the source plasma or plasma derivatives that we use to manufacture our proprietary products were to raise significantly,
we may not be able to pass along these increased plasma and plasma-derivative prices to our customers. Prices in many of our principal
markets are subject to local regulation and certain pharmaceutical products, such as plasma-derived protein therapeutics, are subject
to price controls. Any inability to pass costs on to our customers due to these factors or others would reduce our profit margins.
In addition, most of our competitors have the ability to collect their own source plasma or produce their own plasma derivatives,
and therefore their products’ prices would not be impacted by such a price raise, and as a result any pricing changes by
us in order to pass higher costs on to our customers could render our products noncompetitive in certain territories.
We have been required to conduct
post-approval clinical trials of GLASSIA and KEDRAB as a commitment to continuing marketing such products in the United States,
and we may be required to conduct post-approval clinical trials as a condition to licensing or distributing other products.
When a new product
is approved, the FDA or other regulatory authorities may require post-approval clinical trials, sometimes called Phase 4 clinical
trials. For example, the FDA has required that we conduct Phase 4 clinical trials of GLASSIA, which began in 2015, and for KEDRAB,
which began in 2017 and was completed in 2020 and its results were submitted for review by the FDA. Such Phase 4 clinical trials
are aimed at collecting additional safety data, such as the immune response in the body of a human or animal, commonly referred
to as immunogenicity, viral transmission, levels of the protein in the lung, or epithelial lining fluid, and certain efficacy endpoints
requested by the FDA. If the results of such trials are unfavorable and demonstrate a previously undetected risk or provide new
information that puts patients at risk, or if we fail to complete such trials as instructed by the FDA, this could result in receiving
a warning letter from the FDA and the loss of the approval to market the product in the United States and other countries, or the
imposition of restrictions, such as additional labeling, with a resulting loss of sales. Furthermore, there can be no assurance
that the FDA will accept the results of any post-marketing commitment study, such as the results of the KEDRAB study, and under
certain circumstances the FDA require a subsequent study. Other products we develop may face similar requirements, which would
require additional resources and which may not be successful. We may also receive approval, which is conditional on successful
additional data or clinical development, and failure in such further development may require similar changes to our product label
or result in revocation of our marketing authorization.
The nature of producing and developing
plasma-derived protein therapeutics may prevent us from responding in a timely manner to market forces and effectively managing
our production capacity.
The production of plasma-derived
protein therapeutics is a lengthy and complex process. Our ability to match our production of plasma-derived protein therapeutics
to market demand is imprecise and may result in a failure to meet the market demand for our plasma-derived protein therapeutics
or potentially in an oversupply of inventory. Failure to meet market demand for our plasma-derived protein therapeutics may result
in customers transitioning to available competitive products, resulting in a loss of segment share or distributor or customer confidence.
In the event of an oversupply in the market, we may be forced to lower the prices we charge for some of our plasma-derived protein
therapeutics, record asset impairment charges or take other action which may adversely affect our business, financial condition
and results of operations.
Risks Related to Our Distribution Segment
Our Distribution segment is dependent
on a few suppliers, and any disruption to our relationship with these suppliers, or their inability to supply us with the products
we sell, in a timely manner, in adequate quantities and/or at a reasonable cost, would have a material adverse effect on our business,
financial condition and results of operations.
Sales of products
supplied by Bio Products Laboratories Ltd. (“BPL”) and Biotest A.G., which are sold in our Distribution segment, together
represented approximately 22%, 19% and 17% of our total revenues for the years ended December 31, 2020, 2019 and 2018, respectively.
While we have distribution agreements with each of our suppliers, these agreements do not obligate these suppliers to provide
us with minimum amounts of our Distribution segment products. Purchases of our Distribution segment products from our suppliers
are typically on a purchase order basis. We work closely with our suppliers to develop annual forecasts, but these forecasts are
not obligations or commitments. However, if we fail to submit purchase orders that meet our annual forecasts or if we fail to
meet our minimum purchase obligations, we could lose exclusivity or, in certain cases, the distribution agreement could be terminated.
These suppliers may
experience capacity constraints that result in their being unable to supply us with products in a timely manner, in adequate quantities
and/or at a reasonable cost. Contributing factors to supplier capacity constraints may include, among other things, industry or
customer demands in excess of machine capacity, labor shortages, changes in raw material flows or shortages in raw materials which
may result from different market conditions including, but not limited to, shortages resulting from increased global demand for
these raw materials due to global healthcare issues, epidemics and pandemics, such as the coronavirus (COVID-19) pandemic. These
suppliers may also choose not to supply us with products at their discretion or raise prices to a level that would render our products
noncompetitive. Any significant interruption in the supply of these products could result in us being unable to meet the demands
of our customers, which would have a material adverse effect on our business, financial condition and results of operations as
a result of being required to pay of fines or penalties, be subject to claims of reach of contract, loss of reputation or even
termination of agreement.
If our relationship
with either distributor deteriorated, our distribution sales could be adversely affected. If we fail to maintain our existing relationships
with these suppliers, we could face significant costs in finding a replacement supplier, and delays in establishing a relationship
with a new supplier could lead to a decrease in our sales and a deterioration in our market share when compared with one or more
of our competitors.
Additionally, our future
growth in the Distribution segment is dependent on our ability to successfully engage other manufacturers for distribution in Israel
of other products. Failure to engage new suppliers may have an adverse effect on our revenue growth and profitability.
Certain of our sales in our Distribution
segment rely on our ability to win tender bids based on the price and availability of our products in annual public tender processes.
Certain of our sales
in our Distribution segment rely on our ability to win tender bids during the annual tender process in Israel, as well as on sales
made to health maintenance organizations (HMOs), hospitals and to the IMOH. Our ability to win bids may be materially adversely
affected by competitive conditions in such bid process. Our existing and new competitors may also have significantly greater financial
resources than us, which they could use to promote their products and business. Greater financial resources would also enable our
competitors to substantially reduce the price of their products or services. If our competitors are able to offer prices lower
than us, our ability to win tender bids during the annual tender process will be materially affected, and could reduce our total
revenues or decrease our profit margins.
Certain of our products
in both segments have historically been subject to price fluctuations as a result of changes in the production capacity available
in the industry, the availability and pricing of plasma, development of competing products and the availability of alternative
therapies. Higher prices for plasma-derived protein therapeutics have traditionally spurred increases in plasma production and
collection capacity, resulting over time in increased product supply and lower prices. As demand continues to grow, if plasma supply
and manufacturing capacity do not commensurately expand, prices tend to increase. Additionally, consolidation in plasma companies
has led to a decrease in the number of plasma suppliers in the world, as either manufacturers of plasma-based pharmaceuticals purchase
plasma suppliers or plasma suppliers are shut down in response to the number of manufacturers of plasma-based pharmaceuticals decreasing,
which may lead to increased prices. We may not be able to pass along these increased plasma and plasma-derivative prices to our
customers, which would reduce our profit margins.
Sales of our Distribution
segment products are made through public tenders of Israeli hospitals and HMOs on an annual basis or in the private market based
on detailing activity made by our medical representatives. The prices we can offer, as well as the availability of products, are
key factors in the tender process. If our suppliers in the Distribution segment cannot sell us products at a competitive price
or cannot guarantee sufficient quantities of products, we may lose the tenders.
Our Distribution segment is dependent
on a few customers, and any disruption to our relationship with these customers, or our inability to supply, in a timely manner,
in adequate quantities and/or at a reasonable cost, would have a material adverse effect on our business, financial condition and
results of operations.
The Israeli market for drug products includes a relatively small
number of HMOs and several hospitals. Sales to Clalit Health Services, an Israeli HMO, accounted for approximately 41%, 47% and
45% of our Distribution Segment revenues in the years ended December 31, 2020, 2019 and 2018, respectively.
If our relationship
with any of our Israeli customers deteriorated, our distribution sales could be adversely affected. Failure to maintain our existing
relationships with these customers could lead to a decrease in our revenues and profitability.
Before we may sell products in the
Distribution segment, we must register the products with the IMOH and there can be no assurance that such registration will be
obtained.
Before we may sell
products in the Distribution segment in Israel, we must register the products, at our own expense, with the IMOH. We cannot predict
how long the registration process of the IMOH may take or whether any such registration ultimately will be obtained. The IMOH has
substantial discretion in the registration process and we can provide no assurance of success of registration. Our business, financial
condition or results of operations could be materially adversely affected if we fail to receive IMOH registration for the products
in the Distribution segment.
Our Distribution segment is a low-margin
business and our profit margins may be sensitive to various factors, some of which are outside of our control.
Our Distribution segment
is characterized by high volume sales with relatively low profit margins. Volatility in our pricing may have a direct impact on
our profitability. Prolonged periods of product cost inflation may have a negative impact on our profit margins and results of
operations to the extent we are unable to pass on all or a portion of such product cost increases to our customers. In addition,
if our product mix changes, we may face increased risks of compression of our margins, as we may be unable to achieve the same
level of profit margins as we are able to capture on our existing products. Our inability to effectively price our products or
to reduce our expenses due to volatility in pricing could have a material adverse impact on our business, financial condition or
results of operations.
We may be subject to milestone payments
in connection with our Distribution segment products irrespective of whether the commercialization is successful.
Certain of our agreements
in the Distribution segment, including agreements for distribution of biosimilar product candidates, require us to make milestone
payments in advance of product launch. In some cases we may not be able to obtain reimbursement for such payments. To the extent
that we are not ultimately able to recoup these payments, our business, financial position and results of operations may be adversely
affected.
We may face competition in our Distribution
segment.
In the Distribution
segment, we face competition for our distribution products that are marketed in Israel and compete for market share. We believe
that there are a number of companies active in the Israeli market distributing the products of several manufacturers whose comparable
products compete with our products in the Distribution segment. In the plasma area, these manufacturers include Grifols, Takeda,
CSL, Omrix Biopharmaceuticals Ltd. (a Johnson & Johnson company), while in other specialties we may be competing against products
produced by some of the largest pharmaceutical manufacturers in the world, such as, Novartis AG, AstraZeneca AB, Sanofi UK and
GlaxoSmithKline. Each of these competitors sells its products through a local subsidiary or a local representative in Israel. Our
existing and new competitors may have significantly greater financial resources than us, which they could use to promote their
products and business or reduce the price of their products or services. If we are unable to maintain or increase our market share,
we may need to reduce prices and may suffer reduced profitability or operating losses, which could have a material adverse impact
on our business, financial condition or results of operations.
We recently entered into agreements
for future distribution in Israel of several biosimilar product candidates, and the successful future distribution of these products
is dependent upon several factors some of which are beyond our control.
We recently entered
into agreements with respect to planned distribution in Israel of certain biosimilar product candidates. Biosimilar products are
highly similar to biological products already licensed for distribution by the FDA, EMA or any other relevant regulatory agency,
notwithstanding minor differences in clinically inactive components, and that they have no clinically meaningful differences, as
compared to the marketed biological products in terms of the safety, purity and potency of the products. The similar nature of
a biosimilar and a reference product is demonstrated by comprehensive comparability studies covering quality, biological activity,
safety and efficacy.
In order to launch
biosimilar products in Israel we would need to obtain IMOH marketing authorization, which will be subject to prior authorization
by the FDA or the EMA that should be obtained by the manufacturer of the biosimilar product candidate. Even if an FDA or EMA authorization
is provided, there can be no assurance that the IMOH will accept such authorization as a reference and will grant us the authorization
to distribute such biosimilar products in the Israeli market. In the event we will not be able to obtain the necessary marking
authorization to launch the products, we may not generate the expected sale and profitability from these products which could have
a material adverse impact on our business, financial condition or results of operations.
Innovative pharmaceutical
products are generally protected for a defined period by various patents (including those covering drug substance, drug product,
approved indications, methods of administration, methods of manufacturing, formulations and dosages) and/or regulatory exclusivity,
which are intended to provide their holders with exclusive rights to market the products for the life of the patent or duration
of the regulatory data protection period. Biosimilar products are intended to replace such innovative pharmaceutical upon the expiration
or termination of their exclusivity period or in such markets whereby such exclusivity does not exist. The launch of a biosimilar
product may potentially result in the infringement of certain IP rights and exclusivity and be subject to potential legal proceedings
and restraining orders effecting its potential launch. Such intellectual property threats may preclude commercialization of such
biosimilar product candidates, may result in incurring significant legal expenses and liabilities and we may not generate the expected
sale and profitability from these products, which could have a material adverse impact on our business, financial condition or
results of operations.
In addition, the commercialization
of biosimilars includes the potential for steeper than anticipated price erosion due to increased competitive intensity, and lower
uptake for biosimilars due to various factors that may vary for different biosimilars (e.g., anti-competitive practices, physician
reluctance to prescribe biosimilars for existing patients taking the originator product, or misaligned financial incentives), all
of which may affect our potential sales and profitability from these products which could have a material adverse impact on our
business, financial condition or results of operations.
Risk Related to Development, Regulatory Approval and Commercialization
of Product Candidates
Drug product development including
preclinical and clinical trials is a lengthy and expensive process and may not result in receipt of regulatory approval.
Before obtaining regulatory
approval for the sale of our product candidates, including Inhaled AAT for AATD and our Anti-SARS-CoV-2 IgG product, or for the
marketing of existing products for new indications, we must conduct, at our own expense, extensive preclinical tests to demonstrate
the safety of our product candidates in animals and clinical trials to demonstrate the safety and efficacy of our product candidates
in humans. We cannot predict how long the approval processes of the FDA, the EMA, the regulatory authorities in Israel or any other
applicable regulatory authority or agency for any of our product candidates will take or whether any such approvals ultimately
will be granted. The FDA, the EMA, the regulatory authorities in Israel and other regulatory agencies have substantial discretion
in the relevant drug approval process over which they have authority, and positive results in preclinical testing or early phases
of clinical studies offer no assurance of success in later phases of the approval process. The approval process varies from country
to country and the requirements governing the conduct of clinical trials, product manufacturing, product licensing, pricing and
reimbursement vary greatly from country to country.
Preclinical and clinical
testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure
of one or more of our clinical trials can occur at any stage of testing. For example, the Phase 2/3 clinical trial in Europe for
Inhaled AAT for AATD did not meet its primary or secondary endpoints and we subsequently withdrew the MAA in Europe for our Inhaled
AAT for AATD.
While we have initiated
the development of our investigational Anti-SARS-CoV-2 IgG product in the wake of the COVID-19 pandemic, due to the lengthy development
and required regulatory process as well as the dependency on continued collection and supply of plasma from COVID-19 convalescent
patients, we may not be able to supply our product prior to the potential wind-down of the pandemic.
As a result of the COVID-19 pandemic
we have encountered delays in patient recruitment into our pivotal Phase 3 InnovAAT clinical study conducted at a first study site
in Europe and it has impacted and may continue to impact our ability to open additional study sites in the United States and Europe.
During December 2019,
we announced that the first patient was randomized in Europe into our pivotal Phase 3 InnovAATe clinical trial, a randomized, double-blind,
placebo-controlled, pivotal Phase 3 trial designed to assess the efficacy and safety of Inhaled AAT in patients with AATD and moderate
lung disease. Under the study design, up to 250 patients will be randomized 1:1 to receive either Inhaled AAT at a dose of 80mg
once daily, or placebo, over two years of treatment. Enrolment into the trial continued through February 2020, however, thereafter
was temporarily halted due to the impact of COVID-19 pandemic on healthcare systems. Although we recently resumed recruitment to
the study, the COVID-19 pandemic has slowed down the rate of recruitment and the current pandemic situation mainly across Europe
affects our ability to currently open new study sites. While we are exploring several alternative approaches to address the expected
continuation of the pandemic and its effect on the study, there can be no assurance that we will be able to open additional site
and significantly increase the rate of patient recruitment. This situation may cause a material delay in completing this study,
or otherwise may require us to halt the study completely or reduce the overall size of the study which might not be acceptable
by the FDA and/or EMA. These circumstances may affect our ability to complete the study successfully or may prevent us from having
sufficient information to file for and obtain regulatory approval for this product by the FDA, EMA or any other relevant regulatory
agency.
We may encounter unforeseen events
that delay or prevent us from receiving regulatory approval for our product candidates.
We have experienced
other unforeseen events that have delayed our ability to receive regulatory approval for certain of our product candidates, and
may in the future experience similar or other unforeseen events during, or as a result of, preclinical testing or the clinical
trial process that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including
that:
|
●
|
delays may occur in obtaining our clinical materials;
|
|
●
|
our preclinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical testing or clinical trials or to abandon strategic projects;
|
|
●
|
the number of patients required for our clinical trials may be larger than we anticipate, enrollment in our clinical trials may be slower or more difficult than we anticipate (due to various reasons including challenges that may be imposed as a result of events outside our control, such as the recent COVID-19 pandemic which resulted in a significant slow-down in patient recruitment to our on-going Inhaled AAT Phase 3 study), or participants may withdraw from our clinical trials at higher rates than we anticipate;
|
|
●
|
delays may occur in reaching agreement on acceptable clinical trial agreement terms with prospective sites or obtaining institutional review board approval;
|
|
●
|
our strategic partners may not achieve their clinical development goals and/or comply with their relevant regulatory requirements, which could affect our ability to conduct our clinical trials or obtain marketing authorization;
|
|
●
|
we may be forced to suspend or terminate our clinical trials if the participants are being exposed to unacceptable health risks or if any participant experiences an unexpected serious adverse event;
|
|
●
|
regulators or institutional review boards may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;
|
|
●
|
regulators may not authorize us to commence or conduct a clinical trial within a country or at a prospective trial site, or according to the clinical trial outline we propose;
|
|
●
|
undetected or concealed fraudulent activity by a clinical researcher, if discovered, could preclude the submission of clinical data prepared by that researcher, lead to the suspension or substantive scientific review of one or more of our marketing applications by regulatory agencies, and result in the recall of any approved product distributed pursuant to data determined to be fraudulent;
|
|
●
|
the cost of our clinical and preclinical trials may be greater than we anticipate;
|
|
●
|
an audit of preclinical tests or clinical studies by the FDA, the EMA, the regulatory authorities in Israel or other regulatory authorities may reveal noncompliance with applicable regulations, which could lead to disqualification of the results of such studies and the need to perform additional tests and studies; and
|
|
●
|
our product candidates may not achieve the desired clinical benefits, or may cause undesirable side effects, or the product candidates may have other unexpected characteristics.
|
If we are required
to conduct additional clinical trials or other testing of our product candidates beyond those that we contemplate, if we are unable
to successfully complete our clinical trials or other testing, if the results of these trials or tests are not positive or are
only modestly positive or if safety concerns arise, we may:
|
●
|
be delayed in obtaining regulatory or marketing approval for our product candidates;
|
|
●
|
be unable to obtain regulatory and marketing approval;
|
|
●
|
decide to halt the clinical trial or other testing;
|
|
●
|
be required to conduct additional trials under a conditional approval;
|
|
●
|
be unable to obtain reimbursement for our products in all or some countries;
|
|
●
|
only obtain approval for indications that are not as broad as we initially intend;
|
|
●
|
have the product removed from the market after obtaining marketing approval from the FDA, the EMA, the regulatory authorities in Israel or other regulatory authorities; and
|
|
●
|
be delayed in, or prevented from, the receipt of clinical milestone payments from our strategic partners.
|
Our ability to enroll
patients in our clinical trials in sufficient numbers and on a timely basis is subject to a number of factors, including the size
of the patient population, the time of year during which the clinical trial is commenced, the hesitance of certain patients to
leave their current standard of care for a new treatment, and the number of other ongoing clinical trials competing for patients
in the same indication and eligibility criteria for the clinical trial. During 2020, we encountered challenges to recruit patients
to our ongoing pivotal Phase 3 InnovAAT clinical study as a result of the COVID-19 pandemic, resulting in significant delays in
recruitment. In addition, patients may drop out of our clinical trials at any point, which could impair the validity or statistical
significance of the trials. Delays in patient enrollment or unexpected drop-out rates may result in longer development times.
Our product development
costs will also increase if we experience delays in testing or approvals. There can be no assurance that any preclinical test or
clinical trial will begin as planned, not need to be restructured or be completed on schedule, if at all. Because we generally
apply for patent protection for our product candidates during the development stage, significant preclinical or clinical trial
delays also could lead to a shorter patent protection period during which we may have the exclusive right to commercialize our
product candidates, if approved, or could allow our competitors to bring products to market before we do, impairing our ability
to commercialize our products or product candidates. For example, in the past, we have experienced delays in the commencement of
clinical trials, such as a delay in patient enrollment (including as a result of the COVID-19 pandemic) for our clinical trials
in Europe and the United States for Inhaled AAT for AATD.
Pre-clinical studies,
including studies of our product candidates in animal models of disease, may not accurately predict the result of human clinical
trials of those product candidates. In addition, product candidates studied in Phase 1 and 2 clinical trials may be found not to
be safe and/or efficacious when studied further in Phase 3 trials. To satisfy FDA or other applicable regulatory approval standards
for the commercial sale of our product candidates, we must demonstrate in adequate and controlled clinical trials that our product
candidates are safe and effective. Success in early clinical trials, including Phase 1 and 2 trials, does not ensure that later
clinical trials will be successful. Initial results from Phase 1 and 2 clinical trials also may not be confirmed by later analysis
or subsequent larger clinical trials. A number of companies in the pharmaceutical industry, including us, have suffered significant
setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.
We may not be able to commercialize
our product candidates in development for numerous reasons.
Even if preclinical
and clinical trials are successful, we still may be unable to commercialize a product because of difficulties in obtaining regulatory
approval for its production process or problems in scaling that process to commercial production. In addition, the regulatory requirements
for product approval may not be explicit, may evolve over time and may diverge among jurisdictions and our third-party contractors,
such as contract research organizations, may fail to comply with regulatory requirements or meet their contractual obligations
to us.
Even if we are successful
in our development and regulatory strategies, we cannot provide assurance that any product candidates we may seek to develop
or are currently developing, such as Inhaled AAT for AATD and our Anti-SARS-CoV-2 IgG product, will ever be successfully commercialized.
We may not be able to successfully address patient needs, persuade physicians and payors of the benefit of our product, and lead
to usage and reimbursement. If such products are not eventually commercialized, the significant expense and lack of associated
revenue could materially adversely affect our business.
We may not be able
to successfully build and implement a commercial organization or commercialization program, with or without collaborating partners.
The scale-up from research and development to commercialization requires significant time, resources, and expertise, which will
rely, to a large extent, on third parties for assistance to help us in our efforts. Such assistance includes, but is not limited
to, persuading physicians and payors of the benefit of our product to lead to utilization and reimbursement, developing a healthcare
compliance program, and complying with post-marketing regulatory requirements.
We have initiated the development
of a recombinant AAT product candidate, however, we may not be able to successfully complete its development or commercialize such
product candidates for numerous reasons.
We have begun developing
recombinant version of AAT, through external services of a Contract Development and Manufacturing Organization (“CDMO”),
but we cannot be certain that such product will ever be approved or commercialized. See “Item 4. Information on the Company
— Our Product Pipeline and Development Program — Recombinant AAT.” The main advantage of recombinant AAT is its
potentially wider availability, and ease of large-scale manufacturing. As a result, our product offerings may remain plasma-derived,
even if our competitors offer competing recombinant or other non-plasma products or treatments.
If we are unable to successfully
introduce new products and indications or fail to keep pace with advances in technology, our business, financial condition, and
results of operations may be adversely affected.
Our continued growth
depends, to a certain extent, on our ability to develop and obtain regulatory approvals of new products, new enhancements and/or
new indications for our products and product candidates. Obtaining regulatory approval in any jurisdiction, including from the
FDA, EMA or any other relevant regulatory agencies involves significant uncertainty and may be time consuming and require significant
expenditures. See “—Research and development efforts invested in our pipeline of specialty and other products may not
achieve expected results.”
The development of
innovative products and technologies that improve efficacy, safety, patients’ and clinicians’ ease of use and cost-effectiveness,
involve significant technical and business risks. The success of new product offerings will depend on many factors, including our
ability to properly anticipate and satisfy customer needs, adapt to new technologies, obtain regulatory approvals on a timely basis,
demonstrate satisfactory clinical results, manufacture products in an economic and timely manner, engage qualified distributors
for different territories and establish our sales force to sell our products, and differentiate our products from those of our
competitors. If we cannot successfully introduce new products, adapt to changing technologies or anticipate changes in our current
and potential customers’ requirements, our products may become obsolete and our business could suffer.
Research and development efforts
invested in our pipeline of specialty and other products may not achieve expected results.
We must invest increasingly
significant resources to develop specialty products through our own efforts and through collaborations with third parties in the
form of partnerships or otherwise. The development of specialty pharmaceutical products involves high-level processes and expertise
and carries a significant risk of failure. For example, the average time from the pre-clinical phase to the commercial launch of
a specialty pharmaceutical product can be 15 years or longer, and involves multiple stages: not only intensive preclinical, clinical
and post clinical testing, but also highly complex, lengthy and expensive regulatory approval processes as well as reimbursement
proceedings, which can vary from country to country. The longer it takes to develop a pharmaceutical product, the longer it may
take for us to recover our development costs and generate profits, and, depending on various factors, we may not be able to ever
recover such costs or generate profits.
During each stage of
development, we may encounter obstacles that delay the development process and increase expenses, leading to significant risks
that we will not achieve our goals and may be forced to abandon a potential product in which we have invested substantial amounts
of time and money. These obstacles may include the following: preclinical-study failures; difficulty in enrolling patients in clinical
trials; delays in completing formulation and other work needed to support an application for approval; adverse reactions or other
safety concerns arising during clinical testing; insufficient clinical trial data to support the safety or efficacy of a product
candidate; other failures to obtain, or delays in obtaining, the required regulatory approvals for a product candidate or the facilities
in which a product candidate is manufactured; regulatory restrictions which may delay or block market penetration and the failure
to obtain sufficient intellectual property rights for our products.
Accordingly, there
can be no assurance that the continued development of our Inhaled AAT, Anti-SARS-CoV-2 IgG product and any other product candidate
will be successful and will result in an FDA and/or EMA approvable indication.
Because of the amount
of time and expense required to be invested in augmenting our pipeline of specialty and other products, including the unique know-how
which may be required for such purpose, we may seek partnerships or joint ventures with third parties from time to time, and consequently
face the risk that some or all of these third parties may fail to perform their obligations, or that the resulting arrangement
may fail to produce the levels of success that we are relying on to meet our revenue and profit goals.
We rely on third parties to conduct
our preclinical and clinical trials. The failure of these third parties to successfully carry out their contractual duties or meet
expected deadlines could substantially harm our business because we may not obtain regulatory approval for, or commercialize, our
product candidates in a timely manner or at all.
We rely upon third-party
contractors, such as university researchers, study sites, physicians and contract research organizations (“CROs”),
to conduct, monitor and manage data for our current and future preclinical and clinical programs. We expect to continue to rely
on these parties for execution of our preclinical and clinical trials, and we control only certain aspects of their activities.
Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol
and legal, regulatory and scientific standards, and our reliance on such third-party contractors does not relieve us of our regulatory
responsibilities. With respect to clinical trials, we and our CROs are required to comply with current Good Clinical Practices
(“GCP”), which are regulations and guidelines enforced by the FDA, the EMA and comparable foreign regulatory authorities
for all of our products in clinical development. Regulatory authorities enforce these GCP through periodic inspections of trial
sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCP, the clinical data
generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require
us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection
by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements.
These third-party contractors
are not our employees, we cannot effectively control whether or not they devote sufficient time and resources to our ongoing clinical,
nonclinical and preclinical programs, and except for remedies available to us under our agreements with such third-party contractors,
we may be unable to recover losses that result from any inadequate work on such programs. If such third-party contractors do not
successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the
data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons,
our development efforts and clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory
approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects
for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. To
the extent we are unable to successfully identify and manage the performance of such third-party contractors in the future, our
business may be adversely affected.
We may not obtain orphan drug status
for our products, or we may lose orphan drug designations, which would have a material adverse effect on our business.
One of the incentives
provided by an orphan drug designation is market exclusivity for seven years in the United States and ten years in the European
Union for the first product in a class approved for the treatment of a rare disease. Although several of our products and product
candidates, including Inhaled AAT for AATD, have been granted the designation of an orphan drug, we may not be the first product
licensed for the treatment of particular rare diseases in the future or our approved indication may vary from that subject to the
orphan designation. In such cases we would not be able to take advantage of market exclusivity and instead another sponsor would
receive such exclusivity.
Additionally, although
the marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of the same drug compound for
the same indication, such exclusivity would not apply in the case that a subsequent sponsor could demonstrate clinical superiority
or a market shortage occurs and would not prevent other sponsors from obtaining approval of the same compound for other indications
or the use of other types of drugs for the same use as the orphan drug. In the event we are unable to fill demand for any orphan
drug, it is possible that the FDA or the EMA may view such unmet demand as a market shortage, which could impact our market exclusivity.
The FDA and the EMA
may also, in the future, revisit any orphan drug designation that they have respectively conferred upon a drug and retain the ability
to withdraw the relevant designation at any time. Additionally, the U.S. Congress has considered, and may consider in the future,
legislation that would restrict the duration or scope of the market exclusivity of an orphan drug, and, thus, we cannot be sure
that the benefits to us of the existing statute in the United States will remain in effect. Furthermore, some court decisions have
raised questions about FDA’s interpretation of the orphan drug exclusivity provisions, which could potentially affect our
ability to secure orphan drug exclusivity.
If we lose our orphan
drug designations or fail to obtain such designations for our new products and product candidates, our ability to successfully
market our products could be significantly affected, resulting in a material adverse effect on our business and results of operations.
The commercial success of the products
that we may develop, if any, will depend upon the degree of market acceptance by physicians, patients, healthcare payors, opinion
leaders, patients’ organizations and others in the medical community that any such product obtains.
Any products that we
bring to the market may not gain market acceptance by physicians, patients, healthcare payors, opinion leaders, patients’
organizations and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not
generate material product revenue and we may not sustain profitability. The degree of market acceptance of our product candidates,
if approved for commercial sale, will depend on a number of factors, some of which are beyond our control, including:
|
●
|
the prevalence and severity of any side effects;
|
|
●
|
the efficacy, potential advantages and timing of introduction to the market of alternative treatments;
|
|
●
|
our ability to offer our product candidates for sale at competitive prices;
|
|
●
|
relative convenience and ease of administration of our products;
|
|
●
|
the willingness of physicians to prescribe our products;
|
|
●
|
the willingness of patients to use our products;
|
|
●
|
the strength of marketing and distribution support; and
|
|
●
|
third-party coverage or reimbursement.
|
If we are not successful
in achieving market acceptance for any new products that we have developed and that have been approved for commercial sale, we
may be unable to recover the large investment we will have made and have committed ourselves to making in research and development
efforts and our growth strategy will be adversely affected.
Each inhaled formulation of AAT,
including Inhaled AAT for AATD, is being developed with a specific nebulizer produced by PARI, and the occurrence of an adverse
market event or PARI’s non-compliance with its obligations would have a material adverse effect on the commercialization
of any inhaled formulation of AAT.
We are dependent upon
PARI GmbH (“PARI”) for the development and commercialization of any inhaled formulation of AAT, including our Inhaled
AAT for AATD. We have an agreement with PARI, pursuant to which it is required to obtain the appropriate clearance to market PARI’s
proprietary eFlow® device, which is a device required for the administration of inhaled formulation of AAT, from the EMA and
FDA for use with Inhaled AAT for AATD. See “Item 4. Information on the Company — Strategic Partnerships — PARI.”
Failure of PARI to achieve these authorizations will have a material adverse effect on the commercialization of any inhaled formulation
of AAT, including Inhaled AAT for AATD, which would harm our growth strategy.
Additionally, pursuant
to the agreement, PARI is obligated to manufacture and supply all of the market demand for the eFlow device for use in conjunction
with any inhaled formulation of AAT and we are required to purchase all of our volume requirements from PARI. Any event that permanently,
or for an extended period, prevents PARI from supplying the required quantity of devices would have an adverse effect on the commercialization
of any inhaled formulation of AAT, including Inhaled AAT for AATD.
Risks Related to Our Operations and Industry
Product liability claims or product
recalls involving our products, or products we distribute, could have a material adverse effect on our business.
Our business exposes
us to the risk of product liability claims that are inherent in the manufacturing, distribution and sale of our Proprietary and
Distribution products and other drug products. We face an inherent risk of product liability exposure related to the testing of
our product candidates in human clinical trials and an even greater risk when we commercially sell any products, including those
manufactured by others that we distribute in Israel. If we cannot successfully defend ourselves against claims that our product
candidates or products caused injuries, or if the indemnities we have negotiated do not adequately cover losses, we could incur
substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
|
●
|
decreased demand for our Proprietary and Distribution products and any product candidates that we may develop;
|
|
●
|
injury to our reputation;
|
|
●
|
difficulties in recruitment of new participants to our future clinical trials and withdrawal of current clinical trial participants;
|
|
●
|
costs to defend the related litigation;
|
|
●
|
substantial monetary awards to trial participants or patients;
|
|
●
|
difficulties in finding distributors for our products;
|
|
●
|
difficulties in entering into strategic partnerships with third parties;
|
|
●
|
diversion of management’s attention;
|
|
●
|
the inability to commercialize any products that we may develop; and
|
|
●
|
higher insurance premiums.
|
Plasma is biological
matter that is capable of transmitting viruses, infections and pathogens, whether known or unknown. Therefore, plasma derivative
products, if not properly tested, inactivated, processed, manufactured, stored and transported, could cause serious disease and
possibly death to the patient. Further, even when such steps are properly affected, viral and other infections may escape detection
using current testing methods and may not be susceptible to inactivation methods. Any transmission of disease through the use of
one of our products or third-party products sold by us could result in claims against us by or on behalf of persons allegedly infected
by such products.
In addition, we sell
and distribute third-party products in Israel, and the laws of Israel could also expose us to product liability claims for those
products. Furthermore, the presence of a defect (or a suspicion of a defect) in a product could require us to carry out a recall
of such product. A product liability claim or a product recall could result in substantial financial losses, negative reputational
repercussions, loss of business and an inability to retain customers. Although we maintain insurance for certain types of losses,
claims made against our insurance policies could exceed our limits of coverage or be outside our scope of coverage. Additionally,
as product liability insurance is expensive and can be difficult to obtain, a product liability claim could increase our required
premiums or otherwise decrease our access to product liability insurance on acceptable terms. In turn, we may not be able to maintain
insurance coverage at a reasonable cost and may not be able to obtain insurance coverage that will be adequate to satisfy liabilities
that may arise.
Regulatory approval for our products
is limited by the FDA, EMA the IMOH and similar authorities in other jurisdictions to those specific indications and conditions
for which clinical safety and efficacy have been demonstrated, and the prescription or promotion of off-label uses could adversely
affect our business.
Any regulatory approval
of our Proprietary and Distribution products is limited to those specific diseases and indications for which our products have
been deemed safe and effective by the FDA, EMA, the IMOH or similar authorities in other jurisdictions. In addition to the regulatory
approval required for new formulations, any new indication for an approved product also requires regulatory approval. Once we produce
a plasma-derived protein therapeutic, we rely on physicians to prescribe and administer it as the product label directs and for
the indications described on the labeling. To the extent any off-label (i.e., unapproved) uses and departures from the approved
administration directions become pervasive and produce results such as reduced efficacy or other adverse effects, the reputation
of our products in the marketplace may suffer. In addition, off-label uses may cause a decline in our revenues or potential revenues,
to the extent that there is a difference between the prices of our product for different indications.
Furthermore, while
physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ
from those approved by regulatory authorities, our ability to promote the products is limited to those indications that are specifically
approved by the FDA, EMA, the IMOH or other regulators. Although regulatory authorities generally do not regulate the behavior
of physicians, they do restrict communications by companies on the subject of off-label use. If our promotional activities fail
to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities.
In addition, failure to follow FDA, EMA, the IMOH or similar authorities in other jurisdictions rules and guidelines relating to
promotion and advertising can lead to other negative consequences that could hurt us, such as the suspension or withdrawal of an
approved product from the market, enforcement letters, and corrective actions. Other regulatory authorities may impose separately
penalties including, but not limited to, fines, disgorgement of money, operating restrictions, or criminal prosecution.
Regulatory inspections or audits
conducted by regulatory bodies and our partners may lead to monetary losses and inability to adequately manufacture or sell our
products.
The regulatory authorities,
including the FDA, EMA, the IMOH, as well as our partners may, at any time and from time to time, audit or inspect our facilities.
Such audits or inspections may lead to disruption of work, and if we fail to pass such audits or inspections, the relevant regulatory
authority or partner may require remedial measures that may be costly or time consuming for us to implement, and may result in
the temporary or permanent suspension of the manufacture, sale and distribution of our products.
The loss of one or more of our key
employees could harm our business.
We depend on the continued
service and performance of our key employees, including Amir London, our Chief Executive Officer and our other senior management
staff. We have entered into employment agreements with all of our senior management, including Mr. London, and other key employees.
Either party, however, can terminate these agreements for any reason. The loss of key members of our executive management team
could disrupt our operations, commercial and business development activities, or product development and have an adverse effect
on our ability to meet our targets and grow our business.
Our ability to attract, recruit,
retain and develop qualified employees is critical to our success and growth.
We compete in a market
that involves rapidly changing technological and regulatory developments that require a wide-ranging set of expertise and intellectual
capital. In order for us to successfully compete and grow, we must attract, recruit, retain and develop the necessary personnel
who can provide the needed expertise across the entire spectrum of our intellectual capital needs. While we have a number of our
key personnel who have substantial experience with our operations, we must also develop and exercise our personnel to provide succession
plans capable of maintaining continuity in the midst of the inevitable unpredictability of human capital. However, the market for
qualified personnel is competitive, and we may not succeed in recruiting additional experienced or professional personnel, retaining
current personnel or effectively replacing current personnel who depart with qualified or effective successors. Many of the companies
with which we compete for experienced personnel have greater resources than us.
Our effort to retain
and develop personnel may also result in significant additional expenses, which could adversely affect our profitability. There
can be no assurance that qualified employees will continue to be employed or that we will be able to attract and retain qualified
personnel in the future. Failure to retain or attract qualified personnel could have a material adverse effect on our business,
financial condition and results of operations.
We are subject to risks associated
with doing business globally.
Our operations are
subject to risks inherent to conducting business globally and under the laws, regulations and customs of various jurisdictions
and geographies. These risks include fluctuations in currency exchange rates, changes in exchange controls, loss of business in
government and public tenders that are held annually in many cases, nationalization, expropriation and other governmental actions,
availability of raw materials, changes in taxation, importation limitations, export control restrictions, changes in or violations
of applicable laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act of 2010, pricing
restrictions, economic and political instability, disputes between countries, diminished or insufficient protection of intellectual
property, and disruption or destruction of operations in a significant geographic region regardless of cause, including war, terrorism,
riot, civil insurrection or social unrest. Failure to comply with, or material changes to, the laws and regulations that affect
our global operations could have an adverse effect on our business, financial condition or results of operations.
Laws and regulations governing the
conduct of international operations may negatively impact our development, manufacture and sale of products outside of the
United States and require us to develop and implement costly compliance programs.
We must comply with
numerous laws and regulations in Israel and in each of the other jurisdictions in which we operate or plan to operate. The creation
and implementation of any required compliance programs is costly, and the programs are often difficult to enforce, particularly
where we must rely on third parties.
For example, the FCPA
prohibits any U.S. individual or business from paying, offering, authorizing payment or offering anything of value, directly or
indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign
entity in order to assist the individual or business in obtaining or retaining business. The FCPA also requires companies whose
securities are listed in the United States to comply with certain accounting provisions. For example, such companies must maintain
books and records that accurately and fairly reflect all transactions of the company, including international subsidiaries, and
devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions
of the FCPA are enforced primarily by the U.S. Department of Justice, and the SEC is involved with enforcement of the books and
records provisions of the FCPA.
Compliance with the
FCPA and similar laws is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition,
the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the
government, and doctors and other hospital employees are considered as foreign officials. Additionally, pharmaceutical products
are usually marketed by the local distributors through government tenders, and the majority of pharmaceutical companies’
clients are HMOs which are foreign government officials under the FCPA. Certain payments to hospitals in connection with clinical
trials and other work, and certain payments to HMOs have been deemed to be improper payments to government officials and have led
to FCPA enforcement actions.
The failure to comply
with laws governing international business practices may result in substantial penalties, including suspension or debarment from
government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the
FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction
of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government
contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business
practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. Additionally,
the SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting
provisions.
We are subject to foreign currency
exchange risk.
We receive payment
for our sales and make payments for resources in a number of different currencies. While our sales and expenses are primarily denominated
in U.S. dollars, our financial results may be adversely affected by fluctuations in currency exchange rates as a portion of our
sales and expenses are denominated in other currencies, including the NIS and the Euro. Market volatility and currency fluctuations
may limit our ability to cost-effectively hedge against our foreign currency exposure and, in addition, our ability to hedge our
exposure to currency fluctuations in certain emerging markets may be limited. Hedging strategies may not eliminate our exposure
to foreign exchange rate fluctuations and may involve costs and risks of their own, such as devotion of management time, external
costs to implement the strategies and potential accounting implications. Foreign currency fluctuations, independent of the performance
of our underlying business, could lead to materially adverse results or could lead to positive results that are not repeated in
future periods.
Events in global credit markets may
impact our ability to obtain financing or increase the cost of future financing, including interest rate fluctuations based on
macroeconomic conditions that are beyond our control.
During periods of volatility
and disruption in the U.S., European, Israeli or global credit markets, obtaining additional or replacement financing may be more
difficult and the cost of issuing new debt could be higher than the costs we incur under our current debt. The higher cost of new
debt may limit our ability to have cash on hand for working capital, capital expenditures and acquisitions on terms that are acceptable
to us.
Developments in the economy may adversely
impact our business.
Our operating and financial
performance may be adversely affected by a variety of factors that influence the general economy in the United States, Europe,
Israel, Russia, Latin America, Asia and other territories worldwide, including global and local economic slowdowns, challenges
faced banks and the health of markets for the sovereign debt. Many of our largest markets, including the United States, Latin America
and states that are members of the Commonwealth of Independent States previously experienced dramatic declines in the housing market,
high levels of unemployment and underemployment, and reduced earnings, or, in some cases, losses, for businesses across many industries,
with reduced investments in growth.
A recessionary economic
environment may adversely affect demand for our plasma-derived protein therapeutics. As a result of job losses, patients in the
U.S. and other markets may lose medical insurance and be unable to purchase needed medical products or may be unable to pay their
share of deductibles or co-payments. Hospitals may steer patients adversely affected by the economy to less costly therapies, resulting
in a reduction in demand, or demand may shift to public health hospitals, which purchase our products at a lower government price.
A recessionary economic environment may also lead to price pressure for reimbursement of new drugs, which may adversely affect
the demand for our future plasma-derived protein therapeutics.
If our manufacturing facility in
Beit Kama, Israel were to suffer a serious accident, contamination, force majeure event (including, but not limited to, a war,
terrorist attack, earthquake, major fire or explosion etc.) materially affecting our ability to operate and produce saleable plasma-derived
protein therapeutics, all of our manufacturing capacity could be shut down for an extended period.
We rely on a single
manufacturing facility in Beit Kama, which is located in southern Israel, approximately 20 miles east of the Gaza Strip. All of
our revenues in our Proprietary Products segment as well as future revenues from contract manufacturing services to be performed
by us for any third party partner, are derived from products manufactured at this facility and some of the products that are imported
by us under our Distribution segment, are packed and stored in this manufacturing facility. If this facility were to suffer an
accident or a force majeure event such as war, terrorist attack, earthquake, major fire or explosion, major equipment failure or
power failure lasting beyond the capabilities of our backup generators or similar event, or contamination, our revenues would be
materially adversely affected. In this situation, our manufacturing capacity could be shut down for an extended period, we could
experience a loss of raw materials, work in process or finished goods and imported products inventory and our ability to operate
our business would be harmed. In addition, in any such event, the reconstruction of our manufacturing facility and storage facilities,
and the regulatory approval of the new facilities could be time-consuming. During this period, we would be unable to manufacture
our plasma-derived protein therapeutics.
Our insurance against
property damage and business interruption insurance may be insufficient to mitigate the losses from any such accident or force
majeure event. We may also be unable to recover the value of the lost plasma or work-in-process inventories, as well as the sales
opportunities from the products we would be unable to produce or distribute, or the loss of customers during such period.
Failure to adequately or timely adapt
our manufacturing capacity to match changes in demand for our manufactured products and/or continued manufacturing at or close
to our plant’s maximum capacity may have a material adverse effect on our business.
Failure to adequately
or timely adapt our manufacturing volume as needed or continued manufacturing at or close to our plant’s maximum capacity
levels may lead to an inability to supply products, may have an adverse effect on our business and could cause substantial harm
to our business reputation and result in breach of our sales agreements and the loss of future customers and orders.
If we experience equipment difficulties
or if the suppliers of our equipment or disposable goods fail to deliver key product components or supplies in a timely manner,
our manufacturing ability would be impaired and our product sales could suffer.
For certain equipment
and supplies, we depend on a limited number of companies that supply and maintain our equipment and provide supplies such as chromatography
resins, filter media, glass bottles and stoppers used in the manufacture of our plasma-derived protein therapeutics. If our equipment
were to malfunction, or if our suppliers stop manufacturing or supplying such machinery, equipment or any key component parts,
the repair or replacement of the machinery may require substantial time and cost, and could disrupt our production and other operations.
Alternative sources for key component parts or disposable goods may not be immediately available. In addition, any new equipment
or change in supplied materials may require revalidation by us or review and approval by the FDA, the EMA, the IMOH or other regulatory
authorities, which may be time-consuming and require additional capital and other resources. We may not be able to find an adequate
alternative supplier in a reasonable time period, or on commercially acceptable terms, if at all. As a result, shipments of affected
products may be limited or delayed. Our inability to obtain our key source supplies for the manufacture of products may require
us to delay shipments of products, harm customer relationships and force us to curtail operations.
If our shipping or distribution channels
were to become inaccessible due to an accident, act of terrorism, strike, epidemic or pandemic (such as the COVID-19 pandemic)
or any other force majeure event, our supply, production and distribution processes could be disrupted.
Most of our Proprietary
and Distribution products as well as most of the raw materials we utilize, including plasma and plasma derivatives, must be transported
under controlled temperature conditions, including temperature of -20 degrees Celsius (-4 degrees Fahrenheit), to ensure the preservation
of their proteins. Not all shipping or distribution channels are equipped to transport products or materials at these temperatures.
If any of our shipping or distribution channels become inaccessible because of a serious accident, act of terrorism, strike, epidemic
or pandemic (such as the COVID-19 pandemic) or any other force majeure event, we may experience disruptions in continued availability
of plasma and other raw materials, delays in our production process or a reduction in our ability to distribute our Proprietary
and Distribution products to our customers in the markets in which we operate.
A breakdown in our information technology
(IT) systems could result in a significant disruption to our business.
Our operations are
highly dependent on our information technology (IT) systems. If we were to suffer a breakdown in our systems, storage, distribution
or tracing, we could experience significant disruptions affecting all our areas of activity, including our manufacturing, research,
accounting and billing processes and potentially cause disruptions to our manufacturing process for products currently in production.
We may also suffer from partial loss of information and data due to such disruption.
Our business and operations would
suffer in the event of computer system failures, cyber-attacks on our systems or deficiency in our cyber security measures.
Despite the implementation
of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from
computer viruses, unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures,
cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access
to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion,
including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and
sophistication of attempted attacks and intrusions from around the world have increased. To the extent that any disruption or security
breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information
and personal information, we could incur liability due to lost revenues resulting from the unauthorized use or theft of sensitive
business information, remediation costs, and litigation risks including potential regulatory action by governmental authorities.
In addition, any such disruption, security breach or other incident could delay the further development of our future product candidates
due to theft or corruption of our proprietary data or other loss of information. Our business and operations could also be harmed
by any reputational damage with customers, investors or third parties with whom we work, and our competitive position could be
adversely impacted.
Failure to maintain the security
of patient-related information or compliance with security requirements could damage our reputation with customers, cause us to
incur substantial additional costs and become subject to litigation.
Pursuant to applicable
privacy laws, we must comply with comprehensive privacy and security standards with respect to the use and disclosure of protected
health information. If we do not comply with existing or new laws and regulations related to protecting privacy and security of
personal or health information, we could be subject to monetary fines, civil penalties, or criminal sanctions. We may be required
to comply with the data privacy and security laws of other countries in which we operate or from which we receive data transfers.
For example, the General Data Protection Regulation (“GDPR”) which took effect May 25, 2018, has broad application
and enhanced penalties for noncompliance. The GDPR, which is wide-ranging in scope, governs the collection and use of personal
data in the European Union and imposes operational requirements for companies that receive or process personal data of residents
of the European Union. The GDPR may apply to our clinical development operations. In addition, the Israeli Privacy Protection Regulations
(Information Security), 2017, which apply to our operations in Israel, require us to take certain security measures to secure the
processing of personal data. We rely upon our CROs, third party contractors and distributors to process personal information on
our behalf, and we control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that their activities
are conducted in accordance with privacy regulations and our reliance on such CROs, third-party contractors and distributors does
not relieve us of our regulatory responsibilities. While we take reasonable and prudent steps to protect personal information and
use such information in accordance with applicable privacy laws, a compromise in our security systems that results in personal
information being obtained by unauthorized persons or our failure to comply with security requirements for financial transactions
could adversely affect our reputation with our clients and result in litigation against us or the imposition of penalties, all
of which may adversely impact our results of operations, financial condition and liquidity. In addition, given that the privacy
laws and regulations in the jurisdictions in which we operate are new and subject to further judicial review and interpretation,
it may be determined at a future time that although we take prudent measures to comply with such laws and regulations, such measures
will not be sufficient to meet future elaborations or interpretations of such laws and regulations.
Uncertainty surrounding and future
changes to healthcare law in the United States and other United States Government related mandates may adversely affect our business.
The healthcare regulatory
environment in the U.S. is currently subject to significant uncertainty and the industry may in the future continue to experience
fundamental change as a result of regulatory reform. In March 2010, President Obama signed into law the Patient Protection and
Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “healthcare
reform law”), a sweeping measure intended to expand healthcare coverage within the United States, primarily through the imposition
of health insurance mandates on employers and individuals and expansion of the Medicaid program. The healthcare reform law, among
other things: (i) addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are
calculated for drugs that are inhaled, infused, instilled, implanted or injected; (ii) increased the minimum Medicaid rebates
owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid
managed care organizations; (iii) established annual fees and taxes on manufacturers of certain branded prescription drugs; (iv)
expanded the availability of lower pricing under the 340B drug pricing program by adding new entities to the program; and (v) established
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off
negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the
manufacturer’s outpatient drugs to be covered under Medicare Part D. On April 1, 2016, final regulations issued by the Centers
for Medicare and Medicaid Services to implement the changes to the Medicaid Drug Rebate Program under the healthcare reform law
became effective. In addition, the new law established an abbreviated licensure pathway for products that are drugs made by a living
organism or derived from a living organism, commonly referred to as biosimilars, to become FDA-approved biological products, with
provisions covering exclusivity periods and a specific reimbursement methodology for biosimilars.
However, some
provisions of the healthcare reform law have yet to be fully implemented, and former President Donald Trump vowed to
repeal the healthcare reform law. On January 20, 2017, President Trump signed an executive order stating that the
administration intended to seek prompt repeal of the healthcare reform law, and, pending repeal, directed the U.S. Department
of Health and Human Services and other executive departments and agencies to take all steps necessary to limit any fiscal or
regulatory burdens of the healthcare reform law. On October 12, 2017, President Trump signed another executive order
directing certain federal agencies to propose regulations or guidelines to permit small businesses to form association health
plans, expand the availability of short-term, limited duration insurance, and expand the use of health reimbursement
arrangements, which may circumvent some of the requirements for health insurance mandated by the healthcare reform law. The
U.S. Congress has also made several attempts to repeal or modify the healthcare reform law. In addition, there is ongoing
litigation regarding the implementation and constitutionality of the healthcare reform law. While the law is still in effect
pending the ultimate resolution of the litigation, the outcome of the litigation is unknown, and cannot be predicted. There
is no guarantee whether the healthcare reform law will remain in effect or be repealed or replaced. In the coming years,
additional changes could be made to U.S. governmental healthcare programs and U.S. healthcare laws that could significantly
impact the success of our products. We cannot predict what other legislation relating to our business or to the health care
industry may be enacted, or what effect such legislation may have on our business, prospects, operating results and financial
condition.
In addition,
federal, state and foreign governmental authorities are likely to continue efforts to control the price of drugs and reduce
overall healthcare costs. For example, CMS issued an interim final rule on November 27, 2020 designed to test whether a
Most-Favored-Nation model will help control growth in spending for Medicare Part B drugs without adversely affecting quality
of care. This followed an Executive Order issued in September 2020 that directed the Secretary of DHHS to implement new
payment models under the Medicare Part B and Part D programs to curb “unfair” and high drug prices in the United
States. Implementation of this interim final rule has been blocked by a temporary restraining order and preliminary
injunctions through various court actions. These efforts could have an adverse impact on our ability to market products and
generate revenues in the United States and foreign countries.
On August 6, 2020,
the former President of the United States Donald Trump issued the Executive Order on Ensuring Essential Medicines, Medical Countermeasures,
and Critical Inputs Are Made in the United States (Executive Order 13944), which required the U.S. government to purchase “essential”
medicines and medical supplies produced domestically, rather than abroad. Subsequently, on October 30, 2020 the FDA published
a list of essential medicines, medical countermeasures, and critical inputs as required by Executive Order. The FDA has identified
around 227 drugs and 96 devices, along with their respective critical inputs or active ingredients, that the FDA believes “are
medically necessary to have available at all times” for the public health. Agencies across the federal government are expected
to implement the “Buy American” priorities of the Executive Order through initiation of procurement strategies to
help strengthen U.S. manufacturing capabilities and focus their efforts and attention on mobilizing domestic production of these
specific items. This includes the FDA accelerating approval and clearance of domestically produced medicines and countermeasures,
and it may also include contract awards to specific vendors to speed up domestic production. Rabies immune globulin, such as KEDRAB,
is included in the list, and given that KEDRAB is manufactured outside the United States, implementation of the “Buy American”
priorities of the Executive Order may affect our ability to continue selling the product to governmental agencies in the U.S.
market or otherwise require us to invest in acquiring manufacturing capabilities for the product in the U.S., either directly
or through contract manufacturing arrangements. The full effect of the implementation of the Executive Order on our commercial
operations and results of operations cannot be currently estimated. On January 25, 2021, President Joe Biden signed a similar
Executive Order to maximize the use of goods, products, materials produced in, and services offered in the United States. The
Executive Order may affect FDA-related products.
We expect that there will continue to be a number of U.S. federal
and state proposals to implement governmental pricing controls and limit the growth of healthcare costs, including the cost of
prescription drugs.
Certain of our business practices
could become subject to scrutiny by regulatory authorities, as well as to lawsuits brought by private citizens under federal and
state laws. Failure to comply with applicable law or an adverse decision in lawsuits may result in adverse consequences to us.
The laws governing
our conduct in the United States are enforceable by criminal, civil and administrative penalties. Violations of laws such as the
Federal Food, Drug and Cosmetic Act (the “FDCA”), the Federal False Claims Act (the “FCA”), the Public
Health Service Act (the “PHS Act”), the Physician Payments Sunshine Act or a provision of the U.S. Social Security
Act known as the “Anti-Kickback Law,” or any regulations promulgated under their authority may result in jail sentences,
fines or exclusion from federal and state health care programs, as may be determined by the Department of Health and Human Services,
the Department of Defense, other federal and state regulatory authorities and the federal and state courts. There can be no assurance
that our activities will not come under the scrutiny of regulators and other government authorities or that our practices will
not be found to violate applicable laws, rules and regulations or prompt lawsuits by private citizen “relators” under
federal or state false claims laws.
For example, under
the Anti-Kickback Law, and similar state laws and regulations, even common business arrangements, such as discounted terms and
volume incentives for customers in a position to recommend or choose drugs and devices for patients, such as physicians and hospitals,
can result in substantial legal penalties, including, among others, exclusion from Medicare and Medicaid programs, if those business
arrangements are not appropriately structured; therefore, our arrangements with referral sources must be structured with care to
comply with applicable requirements. Also, certain business practices, such as payment of consulting fees to healthcare providers,
sponsorship of educational or research grants, charitable donations, interactions with healthcare providers that prescribe products
for uses not approved by the FDA and financial support for continuing medical education programs, must be conducted within narrowly
prescribed and controlled limits and reported in accordance with the Physician Payments Sunshine Act to avoid any possibility of
wrongfully influencing healthcare providers to prescribe or purchase particular products or as a reward for past prescribing. Significant
enforcement activity has been the result of actions brought by relators, who file complaints in the name of the United States (and
if applicable, particular states) under federal and state False Claims Act statutes and can be entitled to receive a significant
portion (often as great as 30%) of total recoveries. Also, violations of the False Claims Act can result in treble damages, and
each false claim submitted can be subject to a penalty of up to $$23,331 per claim. Through the Physician Payments Sunshine Act,
the healthcare reform law imposes reporting and disclosure requirements for pharmaceutical and medical device manufacturers with
regard to a broad range of payments, ownership interests, and other transfers of value made to certain physicians, physician assistants,
nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, certified nurse-midwives and certain
teaching hospitals. A number of states have similar laws in place and often require reporting for other categories of healthcare
professionals, such as nurses. Additional and stricter prohibitions could be implemented by federal and state authorities. Where
practices have been found to involve improper incentives to use products, government investigations and assessments of penalties
against manufacturers have resulted in substantial damages and fines. Many manufacturers have been required to enter into consent
decrees, corporate integrity agreements, or orders that prescribe allowable corporate conduct. Failure to satisfy requirements
under the FDCA can also result in penalties, as well as requirements to enter into consent decrees or orders that prescribe allowable
corporate conduct.
To market and sell
our products outside the United States, we must obtain and maintain regulatory approvals and comply with regulatory requirements
in such jurisdictions. The approval procedures vary among countries in complexity and timing. We may not obtain approvals from
regulatory authorities outside the United States on a timely basis, if at all, and in such case, we would be precluded from commercializing
products in those markets. In addition, some countries, particularly the countries of the European Union, regulate the pricing
of prescription pharmaceuticals. In these countries, pricing discussions with governmental authorities can take considerable time
after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be
required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies.
Such trials may be time-consuming and expensive and may not show an advantage in cost-efficacy for our products. If reimbursement
of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, in either the United
States or the European Union, we could be adversely affected. Also, under the FCPA, the United States has regulated conduct by
U.S. businesses occurring outside of the United States, generally prohibiting remuneration to foreign officials for the purpose
of obtaining or retaining business.
To enhance compliance
with applicable health care laws, and mitigate potential liability in the event of noncompliance, regulatory authorities, such
as the Department of Health and Human Services’ Office of Inspector General (“OIG”), have recommended the adoption
and implementation of a comprehensive health care compliance program that generally contains the elements of an effective compliance
and ethics program described in Section 8B2.1 of the U.S. Sentencing Commission Guidelines Manual. Increasing numbers of U.S.-based
pharmaceutical companies have such programs. We have not adopted U.S. healthcare compliance and ethics programs that generally
incorporate the HHS OIG’s recommendations. Even if we do, having such a program can be no assurance that we will avoid any
compliance issues.
We could be adversely affected if
other government or private third-party payors decrease or otherwise limit the amount, price, scope or other eligibility requirements
for reimbursement for the purchasers of our products.
Prices in many of our
principal markets are subject to local regulation and certain pharmaceutical products, such as our Proprietary and Distribution
products, are subject to price controls. In the United States, where pricing levels for our products are substantially established
by third-party payors, a reduction in the payors’ amount of reimbursement for a product may cause groups or individuals dispensing
the product to discontinue administration of the product, to administer lower doses, to substitute lower cost products or to seek
additional price-related concessions. These actions could have a negative effect on our financial results, particularly in cases
where our products command a premium price in the marketplace or where changes in reimbursement rates induce a shift in the site
of treatment. The existence of direct and indirect price controls and pressures over our products has affected, and may continue
to materially adversely affect, our ability to maintain or increase gross margins.
Also, the intended
use of a drug product by a physician can affect pricing. Physicians frequently prescribe legally available therapies for uses that
are not described in the product’s labeling and that differ from those tested in clinical studies and approved by the FDA
or similar regulatory authorities in other countries. These off-label uses are common across medical specialties, and physicians
may believe such off-label uses constitute the preferred treatment or treatment of last resort for many patients in varied circumstances.
Reimbursement for such off-label uses is often not allowed by government payors. If reimbursement for off-label uses of products
is not allowed by Medicare or other third-party payors, including those in the United States or the European Union, we could be
adversely affected. For example, CMS could initiate an administrative procedure known as a National Coverage Determination (“NCD”),
by which the agency determines which uses of a therapeutic product would be reimbursable under Medicare and which uses would not.
This determination process can be lengthy, thereby creating a long period during which the future reimbursement for a particular
product may be uncertain.
Current and future accounting pronouncements
and other financial reporting standards, especially but not only concerning revenue recognition, might negatively impact our financial
results.
We regularly monitor
our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant
to us. As a result of new standards, changes to existing standards, including but not limited to IFRS 15 on revenue from contracts
with customers that we adopted in 2018 and IFRS 16 on leases that we adopted in 2019 and changes in their interpretation, we might
be required to change our accounting policies, particularly concerning revenue recognition, to alter our operational policies so
that they reflect new or amended financial reporting standards, or to restate our published financial statements. Such changes
might have an adverse effect on our reputation, business, financial position, and profit, or cause an adverse deviation from our
revenue and operating profit target.
We are subject to extensive environmental,
health and safety, and other laws and regulations.
Our business involves
the controlled use of hazardous materials, various biological compounds and chemicals. The risk of accidental contamination or
injury from these materials cannot be eliminated. If an accident, spill or release of any regulated chemicals or substances occurs,
we could be held liable for resulting damages, including for investigation, remediation and monitoring of the contamination, including
natural resource damages, the costs of which could be substantial. In addition, some of the license and permits granted to us may
be suspended or revoked, resulting in our inability to conduct our regular business activity, manufacture and/or distribute our
products for an extended period of time or until we take remedial actions. We are also subject to numerous environmental, health
and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and
the handling of biohazardous materials and chemicals. Although we maintain workers’ compensation insurance to cover the costs
and expenses that may be incurred because of injuries to our employees resulting from the use of these materials, this insurance
may not provide adequate coverage against potential liabilities. Additional or more stringent federal, state, local or foreign
laws and regulations affecting our operations may be adopted in the future. We may incur substantial capital costs and operating
expenses and may be required to obtain consents to comply with any of these or certain other laws or regulations and the terms
and conditions of any permits required pursuant to such laws and regulations, including costs to install new or updated pollution
control equipment, modify our operations or perform other corrective actions at our respective facilities. In addition, fines and
penalties may be imposed for noncompliance with environmental, health and safety and other laws and regulations or for the failure
to have, or comply with the terms and conditions of, required environmental or other permits or consents. We are subject to future
audits by the Environmental Health Department of the Regional Health Bureau of the IMOH and the Ministry of Environmental Protection
of Israel and may be required to perform certain actions from time to time in order to comply with these guidelines and their requirements.
We do not expect the costs of complying with these guidelines to be material to our business. See “Item 4. Information on
the Company — Environmental.”
Under the Israeli Economic
Competition Law, 5758-1988, as amended (the “Competition Law”), a company that supplies or acquires more than 50% of
any product or service in Israel in a relevant market may be deemed to be a monopoly. In addition, any company that has “significant
market power” (within the meaning of the Competition Law), even if it does not hold market share that is greater than 50%,
shall be deemed to be a monopolist under the Competition Law. A monopolist is prohibited from participating in certain business
practices, including unreasonably refusing to sell products or provide services over which a monopoly exists, charging unfair prices
for such products or services, and abusing its position in the market in a manner that might reduce business competition or harm
the public. In addition, the General Director of the Israeli Competition Authority may determine that a company is a monopoly and
has the right to order such company to change its conduct in matters that may adversely affect business competition or the public,
including by imposing restrictions on its conduct. Depending on the analysis and the definition of the different products we distribute
in the markets in which we operate, we may be deemed to be a “monopoly” under the Competition Law with respect to certain
of our products. Furthermore, following an amendment to the Competition Law that became effective in August 2015, which repealed
the statutory exemption that existed under the Competition Law for restrictive arrangements that were mutually exclusive arrangements,
we may face difficulties in certain cases negotiating distribution agreements with foreign pharmaceutical manufacturers.
We have entered into a collective
bargaining agreement with the employees’ committee and the Histadrut (General Federation of Labor in Israel), and we have
incurred and could in the future incur labor costs or experience work stoppages or labor strikes as a result of any disputes in
connection with such agreement.
In December 2013,
we signed a collective bargaining agreement with the employees’ committee established by our employees at our Beit Kama
production facility in Israel and the Histadrut (General Federation of Labor in Israel) (“Histadrut”), which expired
in December 2017. In November 2018, we signed a new collective bargaining agreement with the employees’ committee and the
Histadrut, which will expire in December 2021. We have experienced labor disputes and work stoppages in the past and in July 2018,
during the course of our negotiations with the Histadrut and the employees’ committee on the extension of the initial collective
bargaining agreement beyond the December 2017 expiration, the employee’s committee commenced a labor strike, which continued
for approximately one month. As a result of the labor strike, in the year ended December 31, 2018, we had a $1.8 million write-off
of indirect manufacturing costs and $0.8 million of process materials scraps. In December 2020, during the course of our negotiations
with the Histadrut and the employees’ committee on severance remuneration for employees who may be laid-off as part of the
workforce down-sizing planned for 2021 as a result of the transfer of GLASSIA manufacturing to Takeda, the employee’s committee
declared a labor dispute, which was subsequently concluded during February 2021 following the execution of a special collective
bargaining agreement governing such severance terms. Any future disputes with the employees’ committee and the Histadrut
over the implementation or the interpretation or the renewal of the collective bargaining agreement may lead to additional labor
costs and/or work stoppages, which could adversely affect our business operations, including through a loss of revenue and strained
relationships with customers.
Tax legislation in the United States
may impact our business.
Changes to the Internal
Revenue Code, the issuance of administrative rulings or court decisions could impact our business. On December 22, 2017, federal
tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”) was signed into law. The TCJA provides
for significant and wide-ranging changes to the U.S. Internal Revenue Code. Although significant guidance has been issued under
the TCJA, many aspects of such legislation that could affect our business remain subject to considerable uncertainty. Further,
it is impossible to predict the occurrence or timing of any additional tax legislation or other changes in tax law that materially
affect our business or investors. For example, U.S. President Biden has put forth a tax plan that, if passed, could have a significant
impact on tax rates and the availability of deductions applicable to trades or businesses. While, at this point, we cannot predict
the likelihood of U.S. tax reform in 2021 or beyond, or the specific changes that may be enacted, if U.S. tax reform legislation
moves forward, there may be an adverse impact to our business and investors.
Risks Related to Intellectual Property
Our success depends in part on our
ability to obtain and maintain protection in the United States and other countries for the intellectual property relating to or
incorporated into our technology and products, including the patents protecting our manufacturing process.
Our success depends
in large part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property
covering or incorporated into our technology and products, especially intellectual property related to our manufacturing processes.
At present, we consider our patents relating to our manufacturing process to be material to the operation of our business as a
whole.
However, the patent
landscape in the biotechnology and pharmaceutical fields is highly complicated and uncertain and involves complex legal, factual
and scientific questions. Changes in either patent laws or in the interpretation of patent laws in the United States and other
countries may diminish the value and strength of our intellectual property or narrow the scope of our patent protection. In addition,
we may fail to apply for or be unable to obtain patents necessary to protect our technology or products or enforce our patents
due to lack of information about the exact use of our processes by third parties. Even if patents are issued to us or to our licensors,
they may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit our ability to prevent
competitors from using similar technology or marketing similar products, or limit the length of time our technologies and products
have patent protection. Additionally, many of our patents relate to the processes we use to produce our products, not to the products
themselves. In many cases, the plasma-derived products we produce or intend to develop in the future will not, in and of themselves,
be patentable. Since many of our patents relate to processes or uses of the products obtained therefrom, if a competitor is able
to utilize a process that does not rely on our protected intellectual property, that competitor could sell a plasma-derived product
similar to one we have developed or sell it without infringing these patents.
Patent rights are territorial;
thus, any patent protections we have will only be enforceable in those countries in which we have issued patents. In addition,
the laws of certain countries do not protect our intellectual property rights to the same extent as do the laws of the U.S. and
the European Union. Competitors may successfully challenge our patents, produce similar drugs or products that do not infringe
our patents, or produce drugs in countries where we have not applied for patent protection or that do not recognize or provide
enforcement mechanisms for our patents. Furthermore, it is not possible to know the scope of claims that will be allowed in pending
applications or which claims of granted patents, if any, will be deemed enforceable in a court of law.
Due to the extensive
time needed to develop, test and obtain regulatory approval for our therapeutic candidates or any product we may sell or market,
any patents that protect our therapeutic candidates or any product we may sell or market may expire early during commercialization.
This may reduce or eliminate any market advantages that such patents may give us. Following patent expiration, we may face increased
competition through the entry of recombinant or generic products into the market and a subsequent decline in market share and profits.
In some cases we may
rely on our licensors or partners to conduct patent prosecution, patent maintenance or patent defense on our behalf. Therefore,
our ability to ensure that these patents are properly prosecuted, maintained, or defended may be limited, which may adversely affect
our rights in our therapeutic candidates and potential approved for marketing products. Any failure by our licensors or development
or commercialization partners to properly conduct patent prosecution, maintenance, enforcement, or defense could materially harm
our ability to obtain suitable patent protection covering our therapeutic candidates or products or ensure freedom to commercialize
the products in view of third-party patent rights, thereby materially reducing our potential profits.
Our patents also may
not afford us protection against competitors or other third parties with similar technology. Because patent applications worldwide
are typically not published until 18 months after their filing, and because publications of discoveries in scientific literature
often lag behind actual discoveries, neither we nor our licensors can be certain that we or they were the first to file for protection
of the inventions set forth in such patent applications. As a result, the patents we own and license may be invalidated in the
future, and the patent applications we own and license may not be granted. Moreover, in the US, during 2012, the Leahy-Smith America
Invents Act (“AIA”) created a new legal proceeding, the inter partes review petition, that allows third parties
to challenge the validity of patents before the Patent Trials and Appeals Board.
The costs of these
proceedings could be substantial and our efforts in them could be unsuccessful, resulting in a loss of our anticipated patent position.
In addition, if a third party prevails in such a proceeding and obtains an issued patent, we may be prevented from practicing technology
or marketing products covered by that patent. Additionally, patents and patent applications owned by third parties may prevent
us from pursuing certain opportunities such as entering into specific markets or developing or commercializing certain products
or reducing the cost effectiveness of the relevant business as a result of needing to make royalty payments or other business conciliations.
Finally, we may choose to enter into markets where certain competitors have patents or patent protection over technology that may
impede our ability to compete effectively.
Our patents are due
to expire at various dates between 2024 and 2040. However, because of the extensive time required for development, testing and
regulatory review of a potential product, it is possible that, before any of our products can be commercialized, any related patent
may expire or remain in force for only a short period following commercialization, thereby limiting advantages of the patent. Our
pending and future patent applications may not lead to the issuance of patents or, if issued, the patents may not be issued in
a form that will provide us with any competitive advantage. We also cannot guarantee that: any of our present or future patents
or patent claims or other intellectual property rights will not lapse or be invalidated, circumvented, challenged or abandoned;
our intellectual property rights will provide competitive advantages or prevent competitors from making or selling competing products;
our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will
not be limited by our agreements with third parties; any of our pending or future patent applications will be issued or have the
coverage originally sought; our intellectual property rights will be enforced in jurisdictions where competition may be intense
or where legal protection may be weak; or we will not lose the ability to assert our intellectual property rights against, or to
license our technology to, others and collect royalties or other payments. In addition, our competitors or others may design around
our patents or protected technologies. Effective protection of our intellectual property rights may also be unavailable, limited
or not applied in some countries, and even if available, we may fail to pursue or obtain necessary intellectual property protection
in such countries. In addition, the legal systems of certain countries do not favor the aggressive enforcement of patents and other
intellectual property rights, and the laws of foreign countries may not protect our rights to the same extent as the laws of the
United States. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing
products similar or identical to ours. In order to preserve and enforce our patent and other intellectual property rights, we may
need to make claims, apply certain patent or other regulatory procedures or file lawsuits against third parties. Such proceedings
could entail significant costs to us and divert our management’s attention from developing and commercializing our products.
Lawsuits may ultimately be unsuccessful, and may also subject us to counterclaims and cause our intellectual property rights to
be challenged, narrowed, invalidated or held to be unenforceable.
Additionally, unauthorized
use of our intellectual property may have occurred or may occur in the future, including, for example, in the production of counterfeit
versions of our products. Counterfeit products may use different and possibly contaminated sources of plasma and other raw materials,
and the purification process involved in the manufacture of counterfeit products may raise additional safety concerns, over which
we have no control. Although we have taken steps to minimize the risk of unauthorized uses of our intellectual property, including
for the production of counterfeit products, any failure to identify unauthorized use of, and otherwise adequately protect, our
intellectual property could adversely affect our business, including reducing the demand for our products. Additionally, any reported
adverse events involving counterfeit products that purported to be our products could harm our reputation and the sale of our products
in particular and consumer willingness to use plasma-derived therapeutics in general. Moreover, if we are required to commence
litigation related to unauthorized use, whether as a plaintiff or defendant, such litigation would be time-consuming, force us
to incur significant costs and divert our attention and the efforts of our management and other employees, which could, in turn,
result in lower revenue and higher expenses.
In addition to patented technology,
we rely on our unpatented proprietary technology, trade secrets, processes and know-how.
We rely on proprietary
information (such as trade secrets, know-how and confidential information) to protect intellectual property that may not be patentable,
or that we believe is best protected by means that do not require public disclosure. We generally seek to protect this proprietary
information by entering into confidentiality agreements, or consulting, services, material transfer agreements or employment agreements
that contain non-disclosure and non-use provisions, as well as ownership provisions, with our employees, consultants, service providers,
contractors, scientific advisors and third parties. However, we may fail to enter into the necessary agreements, and even if entered
into, these agreements may be breached or otherwise fail to prevent disclosure, third-party infringement or misappropriation of
our proprietary information, may be limited as to their term and may not provide an adequate remedy in the event of unauthorized
disclosure or use of proprietary information. We have limited control over the protection of trade secrets used by our third-party
manufacturers, suppliers, other third parties which are granted with license to use our know-how and former employees and could
lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, our proprietary information
may otherwise become known or be independently developed by our competitors or other third parties. To the extent that our employees,
consultants, service providers, contractors, scientific advisors and other third parties use intellectual property owned by others
in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and time-consuming
litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection
for our proprietary information could adversely affect our competitive business position. Furthermore, laws regarding trade secret
rights in certain markets where we operate may afford little or no protection to our trade secrets.
We also rely on physical
and electronic security measures to protect our proprietary information, but we cannot provide assurance that these security measures
will not be breached or provide adequate protection for our property. There is a risk that third parties may obtain and improperly
utilize our proprietary information to our competitive disadvantage. We may not be able to detect or prevent the unauthorized use
of such information or take appropriate and timely steps to enforce our intellectual property rights. See “—Our
business and operations would suffer in the event of computer system failures, cyber-attacks on our systems or deficiency in our
cyber security measures.”
Changes in either U.S. or foreign
patent law or in the interpretation of such laws could diminish the value of patents in general, thereby impairing our ability
to protect our products.
Our success, like
the success of many other biotechnology companies, is heavily dependent on intellectual property and on patents in particular.
The procurement and enforcement of patents in the biotechnology industry is complex from a technological and legal standpoint,
and the process is therefore costly, time-consuming and inherently uncertain. In addition, on September 16, 2011, the AIA
was signed into law. The AIA included a number of significant changes to U.S. patent law, including provisions that affect the
way patent applications are prosecuted. An important change introduced by the AIA is that, as of March 16, 2013, the United
States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more
patent applications are filed by different parties claiming the same invention. A third party that files a patent application
with the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had
made the invention before it was made by the third party. As a result of this change of law, if we do not promptly file a patent
application at the time of a new product’s invention, and if a third party subsequently invented and patented such product,
we would lose our right to patent such invention.
The AIA also introduced
new limitations on where a patentee may file a patent infringement suit and new opportunities for third parties to challenge any
issued patent in the USPTO. Such changes apply to all of our U.S. patents, even those issued before March 16, 2013. Because
of a lower evidentiary standard necessary to invalidate a patent claim in USPTO proceedings compared to the evidentiary standard
in U.S. federal court, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold
a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court
action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have
been invalidated if first challenged by the third party as a defendant in a district court action.
Depending on decisions
by the U.S. Congress, federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing
patents could change in unpredictable ways that would weaken our ability to obtain new patents and enforce our existing and future
patents.
If we are unable to protect our trademarks
from infringement, our business prospects may be harmed.
We own trademarks that
identify certain of our products, our business name and our logo, and have registered these trademarks in certain key markets.
Although we take steps to monitor the possible infringement or misuse of our trademarks, it is possible that third parties may
infringe, dilute or otherwise violate our trademark rights. Any unauthorized use of our trademarks could harm our reputation or
commercial interests. In addition, our enforcement against third-party infringers or violators may be unduly expensive and time-consuming,
and the outcome may be an inadequate remedy. Even if trademarks are issued to us or to our licensors, they may be challenged, narrowed,
cancelled, held to be unenforceable or circumvented.
We may be subject to claims that
we infringe, misappropriate or otherwise violate the intellectual property rights of third parties.
The conduct of our
business, our Proprietary and/or Distribution products or product candidates may infringe or be accused of infringing one or more
claims of an issued patent or may fall within the scope of one or more claims in a published patent application that may be subsequently
issued and to which we do not hold a license or other rights. For example, certain of our competitors and other third parties own
patents and patent applications in areas relating to critical aspects of our business and technology, including the separation
and purification of plasma proteins, the composition of AAT, the use of AAT for different indications, and the distribution or
use of recombinant or biosimilar pharmaceutical products, and these competitors may in the future allege that we are infringing
on their patent rights. We may also be subject to claims that we are infringing, misappropriating or otherwise violating other
intellectual property rights, such as trademarks, copyrights or trade secrets. Third parties could therefore bring claims against
us or our strategic partners that would cause us to incur substantial expenses and, if successful against us, could cause us to
pay substantial damages. Further, if such a claim were brought against us, our strategic partners or our manufacturer suppliers
for Distribution products, we or they could be forced to permanently or temporarily stop or delay manufacturing, exportation or
sales of such product or product candidate that is the subject of the dispute or suit.
In addition, we are
a party to certain license agreements that may impose various obligations upon us as a licensee, including the obligation to bear
the cost of maintaining the patents subject to the license and to make milestone and royalty payments. If we fail to comply with
these obligations, the licensor may terminate the license, in which event we might not be able to market any product that is covered
by the licensed intellectual property.
If we are found to
be infringing, misappropriating or otherwise violating the patent or other intellectual property rights of a third party, or in
order to avoid or settle claims, we or our strategic partners may choose or be required to seek a license, execute cross-licenses
or enter into a covenant not to sue agreement from a third party and be required to pay license fees or royalties or both, which
could be substantial. These licenses may not be available on acceptable terms, or at all. Even if we or our strategic partners
were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same
intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our
business operations, if, as a result of actual or threatened claims, we or our strategic partners are unable to enter into licenses
on acceptable terms.
There have been substantial
litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology
industries. In addition, to the extent that we gain greater visibility and market exposure as a public company in the United States,
we face a greater risk of being involved in such litigation. In addition to infringement claims against us, we may become a party
to other patent litigation and other proceedings, including interference, opposition, cancellation, re-examination and similar
proceedings before the USPTO and its foreign counterparts and other regulatory authorities, regarding intellectual property rights
with respect to our products. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could
be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than
we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation
of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace or
to conduct our business in accordance with our plans and budget, and patent litigation and other proceedings may also absorb significant
management time.
Some of our employees,
consultants and service providers, were previously employed or hired at universities, medical institutes, or other biotechnology
or pharmaceutical companies, including our competitors or potential competitors. While we take steps to prevent them from using
the proprietary information or know-how of others in their work for us, we may be subject to claims that we or they have inadvertently
or otherwise used or disclosed intellectual property, trade secrets or other proprietary information of any such employee’s
former employer or former ordering service or that they have breached certain non-compete obligations to their former employers.
Litigation may be necessary to defend against these claims and, even if we are successful in defending ourselves, could result
in substantial costs to us or be distracting to our management. If we fail to defend any such claims successfully, in addition
to paying monetary damages, we may lose valuable intellectual property rights or personnel.
Risks Related to Our Financial Position and Capital Resources
We have incurred significant losses
since our inception and while we were profitable in the four years ended December 31, 2020, we may incur losses in the future and
thus may never achieve sustained profitability.
As of December 31,
2020, our cash and cash equivalents and short-term investments were $109.3 million. Since inception, we have incurred significant
operating losses. While our net profit was $17.1 million, $22.3 million and $22.3 million for the years ended December 31, 2020,
2019 and 2018, respectively, as of December 31, 2020, we had an accumulated deficit of $43.9 million. While we intend to take actions
to address the expected reduction in sales and profitability as a result of the transition of GLASSIA manufacturing to Takeda,
there can be no assurance that such actions will be successful and we may not be able to continue to generate profitability in
future years.
Our business requires substantial
capital, including potential investments in large capital projects, to operate and grow and to achieve our strategy of realizing
increased operating leverage.
In order to obtain FDA, EMA and other regulatory approvals for
product candidates and new indications for existing products, we may be required to enhance the facilities and processes by which
we manufacture existing products, to develop new product delivery mechanisms for existing products, to develop innovative product
additions and to conduct clinical trials. We face a number of obstacles that we will need to overcome in order to achieve our operating
goals, including but not limited to the successful development of experimental products for use in clinical trials, the design
of clinical study protocols acceptable to the FDA, the EMA and other regulatory authorities, the successful outcome of clinical
trials, scaling our manufacturing processes to produce commercial quantities or successfully transition technology, obtaining FDA,
EMA and other regulatory approvals of the resulting products or processes and successfully marketing an approved or new product
with applicable new processes. To finance these various activities, we may need to incur future debt or issue additional equity.
We may not be able to structure our debt obligations on favorable economic terms and any offering of additional equity would result
in a dilution of the equity interests of our current shareholders. A failure to fund these activities may harm our growth strategy,
competitive position, quality compliance and financial condition.
In addition, our manufacturing
facility requires continued investment and upgrades. Moreover, any enhancements to our manufacturing facilities necessary to obtain
FDA or EMA approval for product candidates or new indications for existing products could require large capital projects. We may
also undertake such capital projects in order to maintain compliance with cGMP or expand capacity. Capital projects of this magnitude
involve technology and project management risks. Technologies that have worked well in a laboratory or in a pilot plant may cost
more or not perform as well, or at all, in full scale operations. Projects may run over budget or be delayed. We cannot be certain
that any such project will be completed in a timely manner or that we will maintain our compliance with cGMP, and we may need to
spend additional amounts to achieve compliance. Additionally, by the time multi-year projects are completed, market conditions
may differ significantly from our initial assumptions regarding competitors, customer demand, alternative therapies, reimbursement
and public policy, and as a result capital returns may not be realized. In addition, to fund large capital projects, we may similarly
need to incur future debt or issue additional dilutive equity. A failure to fund these activities may harm our growth strategy,
competitive position, quality compliance and financial condition.
Our current working capital may not
be sufficient to complete our research and development with respect to any or all of our pipeline products or to commercialize
our products.
As of December 31,
2020, we had cash and short-term investments of $109.3 million. We plan to fund our future operations through continued sale and
distribution of our proprietary and distribution products, commercialization and or out-licensing of our pipeline product candidates,
and as requires raising additional capital through the sale of equity or debt. These amounts may not be sufficient to complete
the research and development of all of our candidates, and there can be no assurances of the financial success of our commercialization
activities or our ability to access the equity and debt capital markets on terms acceptable to us, if at all. To the extent we
are unable to fund our research and development, our future product development activities could be materially adversely affected.
Raising additional capital would
cause dilution to our existing shareholders, and raising debt or funds through collaborations or strategic alliances and licensing
arrangements may restrict our operations or require us to relinquish rights.
To the extent that
we raise additional funds to fund our activities through the sale of equity or securities that are convertible into or exchangeable
for, or that represent the right to receive, ordinary shares or substantially similar securities, your ownership interest will
be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt
financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants
limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring
dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties,
we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses
on terms that are not favorable to us.
Risks Related to Our Ordinary Shares
The requirements of being a public
company in the United States, as well as in Israel, may strain our resources and distract our management, which could make it difficult
to manage our business and could have a negative effect on our results of operations and financial condition.
As a public company
whose shares are being traded on Nasdaq and the Tel Aviv Stock Exchange (the “TASE”), we are required to comply with
various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and regulatory
requirements is time consuming, and may result in increased costs to us and could have a negative effect on our business, results
of operations and financial condition. As a public company in the United States, we are subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the requirements of the Sarbanes-Oxley Act
of 2002 (“SOX”). These requirements may place a strain on our systems and resources. The Exchange Act requires that
we file annual and current reports, and file or make public certain additional information, with respect to our business and financial
condition. SOX requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting.
To maintain and improve the effectiveness of our disclosure controls and procedures, we may need to commit significant resources,
hire additional staff and provide additional management oversight. These activities may divert management’s attention from
other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, as our business changes and if we expand either through acquisitions or by means of organic growth, our internal controls
may become more complex and we will require significantly more resources to ensure our internal controls remain effective. Failure
to implement required new or improved controls, or difficulties encountered in their implementation, could adversely affect our
operating results or cause us to fail to meet our reporting obligations. If we identify material weaknesses, the disclosure of
that fact, even if quickly remediated, could reduce the market’s confidence in our financial statements and negatively affect
our share price.
Additionally, as of
December 31, 2018, we were no longer an “emerging growth company,” as defined in the JOBS Act, and are now required
to comply with additional disclosure and reporting requirements, including, but not limited to, being required to comply with the
auditor attestation requirements of Section 404 of SOX (and the rules and regulations of the SEC thereunder). These additional
reporting requirements may increase our legal and financial compliance costs and cause management and other personnel to divert
attention from operational and other business matters to devote substantial time to these public company requirements.
Our share price may be volatile.
The market price of
our ordinary shares is highly volatile and could be subject to wide fluctuations in price as a result of various factors, some
of which are beyond our control. These factors include:
|
●
|
actual
or anticipated fluctuations in our financial condition and operating results;
|
|
●
|
overall conditions in the specialty pharmaceuticals market;
|
|
●
|
loss of significant customers or changes to agreements with our strategic partners;
|
|
●
|
changes in laws or regulations applicable to our products;
|
|
●
|
actual or anticipated changes in our growth rate relative to our competitors’;
|
|
●
|
announcements of clinical trial results, technological innovations, significant acquisitions, strategic alliances, joint ventures or capital commitments by us or our competitors;
|
|
●
|
changes in key personnel;
|
|
●
|
fluctuations in the valuation of companies perceived by investors to be comparable to us;
|
|
●
|
the issuance of new or updated research reports by securities analysts;
|
|
●
|
disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain intellectual property protection for our technologies;
|
|
●
|
announcement of, or expectation of, additional financing efforts;
|
|
●
|
sales of our ordinary shares by us or our shareholders;
|
|
●
|
share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
|
|
●
|
recalls and/or adverse events associated with our products;
|
|
●
|
the expiration of contractual lock-up agreements with our executive officers and directors; and
|
|
●
|
general political, economic and market conditions.
|
Furthermore, the stock
markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market price of equity
securities of many companies. Broad market and industry fluctuations, as well as general economic, political and market conditions,
may negatively impact the market price of our ordinary shares. For example, during the year ended December 31, 2020, in the wake
of the COVID-19 pandemic, the stock market in general, including in the biotechnology/pharmaceutical sector, experienced extreme
price and volume fluctuations. Specifically, our share’s trading volume and price were extremely volatile, fluctuating more
than twice their levels prior to the COVID-19 pandemic. Such volatility can be attributed to many factors, including our announcements
of the development and progress of our Anti-SARS-CoV-2 IgG product as a potential treatment for COVID-19, our financial results
and conditions and general market trends affected by the pandemic. Increases in price and volume may not be sustainable for a
long period of time.
In the past, companies
that have experienced volatility in the market price of their shares have been subject to securities class action litigation or
derivative actions. We, as well as our directors and officers, may also be the target of these types of litigation and actions
in the future. Securities litigation against us could result in substantial costs and divert our management’s attention
from other business concerns, which could seriously harm our business.
If securities or industry analysts
do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their
recommendations or publish negative reports regarding our business or our shares, our share price and trading volume could be
negatively impacted.
The trading market
for our ordinary shares may be influenced by the research and reports that industry or securities analysts may publish about us,
our business, our market or our competitors. We do not have any control over these analysts, and we cannot provide any assurance
that analysts will cover us or, if they do, provide favorable coverage. If any of the analysts who may cover us adversely change
their recommendation regarding our shares, or provide more favorable relative recommendations about our competitors, our share
price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which in turn could negatively impact our share price or trading
volume.
Future sales of our ordinary shares
in the public market could cause our share price to fall.
Sales by us or the
shareholders of a substantial number of our ordinary shares in the public market, either on the TASE or Nasdaq, or the perception
that these sales might occur, could depress the market price of our ordinary shares and could impair our ability to raise capital
through the sale of additional equity securities. As of December 31, 2020, we had 44,742,963 ordinary shares outstanding.
Furthermore, except for shares held by our affiliates as contemplated
by Rule 144 under the U.S. Securities Act of 1933, as amended (the “Securities Act”), all of the ordinary shares that
are outstanding as of December 31, 2020, as well as the 1,660,958 ordinary shares issuable upon exercise of outstanding options
and vesting of 104,519 restricted share units granted to certain officers and employees, are freely tradable in the United States
without restrictions or further registration under the Securities Act. As of February 24, 2021, approximately 36% of our outstanding
ordinary shares are beneficially owned by affiliates. These entities could resell the shares into the public markets in the United
States in the future in accordance with the requirements of Rule 144, which include certain limitations on volume.
In addition, the FIMI
Opportunity Funds own 9,452,708 of our outstanding ordinary shares (representing an ownership percentage of 21% of the outstanding
shares and 20% on a fully diluted basis). Pursuant to a registration rights agreement we entered into with FIMI Opportunity Funds
on January 20, 2020, they have “demand” and “piggyback” registration rights covering the ordinary shares
of our company held by them. All shares of FIMI Opportunity Funds sold pursuant to an offering covered by a registration statement
would be freely transferable. Sales of a substantial number of shares of our ordinary shares, or the perception that the FIMI
Opportunity Funds may exercise their registration rights, could put downward pressure on the market price of our ordinary shares
and could impair our future ability to raise capital through an offering of our equity securities.
The significant share ownership
positions and board representation of the FIMI Opportunity Funds, Leon Recanati and Jonathan Hahn may limit our shareholders’
ability to influence corporate matters.
The FIMI Opportunity
Funds (three of whose partners are members of our board of directors, one of which serves as our Chairman), Leon Recanati and
Jonathan Hahn, members of our board of directors, beneficially owned, directly and indirectly, approximately 21%, 8% and 4% of
our outstanding ordinary shares, respectively, as of February 24, 2021. For additional information, see “Item 6. Directors,
Senior Management and Employees — Share Ownership” and “Item 7. Major Shareholders and Related Party Transactions
— Major Shareholders.” Accordingly, the FIMI Opportunity Funds, Leon Recanati, and the Hahn family through their equity
ownership and board representation, individually and collectively, have significant influence over the outcome of matters required
to be submitted to our shareholders for approval, including decisions relating to the election of our board of directors and the
outcome of any proposed acquisition, merger or consolidation of our company. Their interests may not be consistent with those
of our other shareholders. In addition, these parties’ significant interest in us may discourage third parties from seeking
to acquire control of us, which may adversely affect the market price of our shares. On March 6, 2013, a shareholders agreement
was entered into, effective March 4, 2013, pursuant to which Mr. Recanati and any company controlled by him (collectively, the
“Recanati Group”), on the one hand, and Damar Chemicals Inc. (“Damar”), TUTEUR S.A.C.I.F.I.A (“Tuteur”)
(companies controlled by the Hahn family) and their affiliates (collectively, the “Damar Group”), on the other hand,
have each agreed to vote the ordinary shares beneficially owned by them in favor of the election of director nominees designated
by the other group as follows: (i) three director nominees, so long as the other group beneficially owns at least 7.5% of our
outstanding share capital, (ii) two director nominees, so long as the other group beneficially owns at least 5.0% (but less than
7.5%) of our outstanding share capital, and (iii) one director nominee, so long as the other group beneficially owns at least
2.5% (but less than 5.0%) of our outstanding share capital. In addition, to the extent that after the designation of the foregoing
director nominees there are additional director vacancies, each of the Recanati Group and Damar Group have agreed to vote the
ordinary shares beneficially owned by them in favor of such additional director nominees designated by the party who beneficially
owns the larger voting rights in our company. We are not party to such agreement or bound by its terms. As a result of such voting
agreement, the Recanati Group and the Damar Group and their affiliates together have significant influence over the election of
directors of the company.
Our ordinary shares are traded on
more than one market and this may result in price variations.
Our ordinary shares
have been traded on the TASE since August 2005, and on Nasdaq since May 2013. Trading in our ordinary shares on these markets
takes place in different currencies (U.S. dollars on Nasdaq and NIS on the TASE), and at different times (as a result of different
time zones, trading days and public holidays in the United States and Israel). The trading prices of our ordinary shares on these
two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on the TASE could cause
a decrease in the trading price of our ordinary shares on Nasdaq, and a decrease in the price of our ordinary shares on Nasdaq
could likewise cause a decrease in the trading price of our ordinary shares on the TASE.
Our U.S. shareholders may suffer
adverse tax consequences if we are characterized as a passive foreign investment company.
Generally, if, for
any taxable year, at least 75% of our gross income is passive income, or at least 50% of the value of our assets is attributable
to assets that produce passive income or are held for the production of passive income, we would be characterized as a passive
foreign investment company (“PFIC”) for U.S. federal income tax purposes. If we are characterized as a PFIC, our U.S.
shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as
ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on our ordinary
shares, and having interest charges apply to distributions by us and the proceeds of share sales. See “Item 10. Additional
Information — E. Taxation — United States Federal Income Taxation.”
We are a “foreign private
issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies. As a result,
we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times,
which may make it more difficult for you to evaluate our performance and prospects.
We are a foreign private
issuer and, as a result, are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we are subject
to reporting obligations that, in certain respects, are less detailed and/or less frequent than those of U.S. domestic reporting
companies. For example, we are not required to issue quarterly reports, proxy statements that comply with the requirements applicable
to U.S. domestic reporting companies, or individual executive compensation information that is as detailed as that required of
U.S. domestic reporting companies. We also have four months after the end of each fiscal year to file our annual reports with
the SEC and are not required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore,
our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will
not be subject to the insider short-swing profit disclosure and recovery regime.
As a foreign private
issuer, we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that
select groups of investors are not privy to specific information about an issuer before other investors. However, we are still
subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the
disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies,
you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic
reporting companies.
As we are a “foreign private
issuer” and follow certain home country corporate governance practices instead of otherwise applicable SEC and Nasdaq corporate
governance requirements, our shareholders may not have the same protections afforded to shareholders of domestic U.S. issuers
that are subject to all SEC and Nasdaq corporate governance requirements.
As a foreign private
issuer, we have the option to, and we do, follow Israeli corporate governance practices rather than certain corporate governance
requirements of Nasdaq, except to the extent that such laws would be contrary to U.S. securities laws, and provided that we disclose
the requirements we are not following and describe the home country practices we follow instead. We have relied on this “foreign
private issuer exemption” with respect to all the items listed under the heading “Item 16G. Corporate Governance,”
including with respect to shareholder approval requirements in respect of equity issuances and equity-based compensation plans,
the requirement to have independent oversight on our director nominations process and to adopt a formal written charter or board
resolution addressing the nominations process, the quorum requirement for meetings of our shareholders and the Nasdaq requirement
to have a formal charter for the compensation committee. We may in the future elect to follow home country practices in Israel
with regard to other matters. As a result, our shareholders may not have the same protections afforded to shareholders of companies
that are subject to all Nasdaq corporate governance requirements. See “Item 16G. Corporate Governance.”
We have never paid cash dividends
on our ordinary shares and we do not anticipate paying any dividends in the foreseeable future. Consequently, any gains from an
investment in our ordinary shares will likely depend on whether the price of our ordinary shares increases, which may not occur.
We have never declared
or paid any cash dividends on our ordinary shares and do not intend to pay any cash dividends. Any agreements that we may enter
into in the future may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our ordinary
shares. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding
taxes. We anticipate that we will retain all of our future earnings for use in the development of our business and for general
corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly,
investors must rely on sales of their ordinary shares after price appreciation, which may never occur, as the only way to realize
any future gains on their investments.
Risks Relating to Our Incorporation and Location in Israel
Conditions in Israel could adversely
affect our business.
We are incorporated
under Israeli law and our principal offices and manufacturing facilities are located in Israel. Accordingly, political, economic
and military conditions in Israel directly affect our business. Since the State of Israel was established in 1948, a number of
armed conflicts have occurred between Israel and its Arab neighbors. Although Israel has entered into various agreements with
Egypt, Jordan and the Palestinian Authority, there has been terrorist activity with varying levels of severity over the years.
During July and August 2014, Israel engaged in an armed conflict with Hamas in the Gaza Strip, resulting in thousands of rockets
being fired from the Gaza Strip and missile strikes against civilian targets in various parts of Israel, which disrupted most
day-to-day civilian activity, particularly in southern Israel, the location of our manufacturing facility. In the event that our
facilities are damaged as a result of hostile action or hostilities otherwise disrupt the ongoing operation of our facilities
or the airports and seaports on which we depend to import and export our supplies and products, our ability to manufacture and
deliver products to customers could be materially adversely affected. Additionally, the operations of our Israeli suppliers and
contractors may be disrupted as a result of hostile action or hostilities, in which event our ability to deliver products to customers
may be materially adversely affected.
Several countries,
principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose
restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region
continues or increases. These restrictions may limit materially our ability to obtain raw materials from these countries or sell
our products to companies in these countries. Any hostilities involving Israel or the interruption or curtailment of trade between
Israel and its present trading partners, or significant downturn in the economic or financial condition of Israel, could adversely
affect our operations and product development, cause our sales to decrease and adversely affect the share price of publicly traded
companies having operations in Israel, such as us.
Further, on Israel’s
domestic front there is currently a level of unprecedented political instability. The Israeli government has been in a transitionary
phase since December of 2018, when the Israeli Parliament, or the Knesset, first resolved to dissolve itself and call for new
general elections. In 2019, Israel held general elections twice – in April and September – and a third general election
was held on March 2, 2020. The Knesset, for reasons related to this extended political transition, has failed to pass a budget
for the year 2020, and certain government ministries are left without necessary resources and may not receive sufficient funding
moving forward. During December 2020, the government was unable to pass a budget by the applicable deadline, triggering a snap
election expected to take place during March 2021. Actual or perceived political instability in Israel or any negative changes
in the political environment, may individually or in the aggregate adversely affect the Israeli economy and, in turn, our business,
financial condition, results of operations, and prospects.
Our operations may be disrupted
by the obligations of personnel to perform military service.
As of December 31,
2020, we had 408 employees, all of whom were based in Israel. Certain of our employees may be called upon to perform up to 36
days (and in some cases more) of annual military reserve duty until they reach the age of 40 (and in some cases, up to 45 or older)
and, in emergency circumstances, could be called to active duty. In response to increased tension and hostilities, there have
been occasional call-ups of military reservists, and it is possible that there will be additional call-ups in the future. Our
operations could be disrupted by the absence of a significant number of our employees related to their, or their spouse’s,
military service or the absence for extended periods of one or more of our key employees for military service. Such disruption
could materially adversely affect our business and results of operations. Additionally, the absence of a significant number of
the employees of our Israeli suppliers and contractors related to military service or the absence for extended periods of one
or more of their key employees for military service may disrupt their operations, in which event our ability to deliver products
to customers may be materially adversely affected.
The tax benefits under Israel tax
legislation that are available to us require us to continue to meet various conditions and may be terminated or reduced in the
future, which could increase our costs and taxes.
One of our Israeli
facilities was granted “Approved Enterprise” status by the Investment Center of the Ministry of Economy and Industry
(formerly named the Ministry of Industry, Trade and Labor) of the State of Israel (the “Investment Center”), under
the Israeli Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”), which made us eligible
for a grant and certain tax benefits under that law for a certain investment program. The investment program provided us with
a grant in the amount of 24% of our approved investments, in addition to certain tax benefits, which applied to the turnover resulting
from the operation of such investment program, for a period of up to ten consecutive years from the first year in which we generated
taxable income. The tax benefits under the Approved Enterprise status expired at the end of 2017.
Additionally, we have
obtained a tax ruling from the Israel Tax Authority according to which, among other things, our activity has been qualified as
an “industrial activity,” as defined in the Investment Law, and is also eligible for tax benefits as a “Privileged
Enterprise,” which apply to the turnover attributed to such enterprise, for a period of up to ten years from the first year
in which we generated taxable income. The tax benefits under the Privileged Enterprise status are scheduled to expire at the end
of 2023.
In order to remain
eligible for the tax benefits of a Privileged Enterprise, we must continue to meet certain conditions stipulated in the Investment
Law and its regulations, as amended, and must also comply with the conditions set forth in the tax ruling. These conditions include,
among other things, that the production, directly or through subcontractors, of all our products should be performed within certain
regions of Israel. If we do not meet these requirements, the tax benefits would be reduced or canceled and we could be required
to refund any tax benefits that we received in the past, in whole or in part, linked to the Israeli consumer price index, together
with interest. Further, these tax benefits may be reduced or discontinued in the future. For example, while we do not expect that
the transfer of manufacturing of GLASSIA to Takeda, or the grant to Takeda of the right to use our technology for such manufacturing,
would result in the reduction or loss of these tax benefits, according to the tax ruling that we obtained, we may lose those benefits
if it is determined that we do not comply with the conditions set forth in the tax ruling. If these tax benefits are canceled,
our Israeli taxable income would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli
companies was 25% in 2016, it decreased to 24% in 2017 and further decreased to 23% in 2018 and thereafter. For more information
about applicable Israeli tax regulations, see “Item 10. Additional Information — E. Taxation — Israeli Tax Considerations
and Government Programs.”
In the future, we
may not be eligible to receive additional tax benefits under the Investment Law if we increase certain of our activities outside
of Israel. Additionally, in the event of a distribution of a dividend from the abovementioned tax exempt income, in addition to
withholding tax at a rate of 20% (or a reduced rate under an applicable double tax treaty), we will be subject to tax on the otherwise
exempt income (grossed-up to reflect the pre-tax income that we would have had to earn in order to distribute the dividend) at
the corporate tax rate applicable to our Approved/Privileged Enterprise’s income, which would have been applied had we not
enjoyed the exemption. Similarly, in the event of our liquidation or a share buyback, we will be subject to tax on the grossed
up amount distributed or paid at the corporate tax rate which would have been applied to our Privileged Enterprise’s income
had we not enjoyed the exemption. For more information about applicable Israeli tax regulations, see “Item 10. Additional
Information — E. Taxation — Israeli Tax Considerations and Government Programs.”
Tax matters, including changes in
tax laws, adverse determinations by taxing authorities and imposition of new taxes could adversely affect our results of operations
and financial condition. Furthermore, we may not be able to fully utilize our net operating loss carryforwards.
We are subject to
the tax laws and regulations of the State of Israel and numerous other jurisdictions in which we do business. Many judgments are
required in determining our provision for income taxes and other tax liabilities, and the applicable tax authorities may not agree
with our tax positions. In addition, our tax liabilities are subject to other significant risks and uncertainties, including those
arising from potential changes in laws and/or regulations in the State of Israel and the other countries in which we do business,
the possibility of adverse determinations with respect to the application of existing laws, changes in our business or structure
and changes in the valuation of our deferred tax assets and liabilities. As of December 31, 2020, we had net operating loss carryforwards
(“NOLs”) for tax purposes of approximately $27.3 million. If we are unable to fully utilize our NOLs to offset taxable
income generated in the future, our future cash taxes could be materially and negatively impacted. For further detail regarding
our NOLs, see Note 21 in our consolidated financial statements included in this Annual Report.
It may be difficult to enforce a
U.S. judgment against us and our officers and directors in Israel or the United States, or to assert U.S. securities laws claims
in Israel or serve process on our officers and directors.
We are incorporated
in Israel. All of our directors and executive officers and the Israeli experts named in this Annual Report reside outside the
United States. The majority of our assets and the assets of these persons are located outside the United States. Therefore, it
may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability
provisions of the U.S. federal securities laws against us or any of these persons in a U.S. or Israeli court, or to effect service
of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or
entity, to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim
based on an alleged violation of U.S. securities laws on the grounds that Israel is not the most appropriate forum in which to
bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable
to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact by expert witnesses,
which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is
little binding case law in Israel addressing the matters described above.
Moreover, an Israeli
court will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement of judgments
of Israeli courts (subject to exceptional cases), if its enforcement is likely to prejudice the sovereignty or security of the
State of Israel, if it was obtained by fraud or in the absence of due process, if it is at variance with another valid judgment
that was given in the same matter between the same parties, or if a suit in the same matter between the same parties was pending
before a court or tribunal in Israel at the time the foreign action was brought.
Your rights and responsibilities
as our shareholder are governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders
of U.S. corporations.
Since we are incorporated
under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli
law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.-based
corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in
exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its
power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such
as an amendment to the company’s articles of association, an increase of the company’s authorized share capital, a
merger of the company and approval of related party transactions that require shareholder approval. A shareholder also has a general
duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows
that it possesses the power to determine the outcome of a shareholders vote, or who has the power to appoint or prevent the appointment
of an office holder in the company or has other powers towards the company, has a duty to act in fairness towards the company.
However, Israeli law does not define the substance of this duty of fairness. See “Item 6. Directors, Senior Management and
Employees — Fiduciary Duties and Approval of Specified Related Party Transactions under Israeli Law — Duties of Shareholders.”
There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions.
These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically
imposed on shareholders of U.S. corporations.
Provisions of Israeli law and our
articles of association may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or
assets.
Certain provisions
of Israeli law and our articles of association could have the effect of delaying or preventing a change in control and may make
it more difficult for a third party to acquire us or for our shareholders to elect different individuals to our board of directors,
even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the
future for our ordinary shares. For example, Israeli corporate law regulates mergers and requires that a tender offer be effected
when more than a specified percentage of shares in a public company are purchased. Under our articles of association, a merger
shall require the approval of two-thirds of the voting rights represented at a meeting of our shareholders and voting on the matter,
in person or by proxy, and any amendment to such provision shall require the approval of 60% of the voting rights represented
at a meeting of our shareholders and voting on the matter, in person or by proxy. Further, Israeli tax considerations may make
potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty
with Israel granting tax relief to such shareholders from Israeli tax. With respect to certain mergers, while Israeli tax law
permits tax deferral, the deferral is contingent on certain restrictions on future transactions, including with respect to dispositions
of shares received as consideration, for a period of two years from the date of the merger. See Exhibit 2.1, “Description
of Securities —Acquisitions Under Israeli Law,” incorporated herein by reference.
Item 4. Information on the Company
Corporate Information
We were incorporated
under the laws of the State of Israel on December 13, 1990 under the name Kamada Ltd. In August 2005, we successfully completed
an initial public offering on the TASE. In June 2013, we successfully completed an initial public offering in the United States
on Nasdaq. The address of our principal executive office is 2 Holzman St., Science Park, P.O. Box 4081, Rehovot 7670402, Israel,
and our telephone number is +972 8 9406472. Our website address is www.kamada.com. The reference to our website is intended to
be an inactive textual reference and the information on, or accessible through, our website is not intended to be part of this
Annual Report. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information
regarding registrants like us that file electronically with the SEC. You can also inspect the Annual Report on that website.
We have irrevocably
appointed Puglisi & Associates as our agent to receive service of process in any action against us in any United States federal
or state court. The address of Puglisi & Associates is 850 Library Avenue, Suite 204, P.O. Box 885, Newark, Delaware 19715.
Capital Expenditures
For a discussion of
our capital expenditures, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
Business Overview
We are a global specialty
plasma-derived biopharmaceutical company with a diverse portfolio of marketed products, a robust development pipeline and industry-leading
manufacturing capabilities. Our strategy is focused on driving profitable growth from our current commercial activities and our
plasma-derived product development and manufacturing expertise. We operate in two segments: the Proprietary Products segment,
in which we use our proprietary platform technology and know-how for the extraction and purification of proteins from human plasma
to manufacture, in our cGMP compliant, FDA-approved production facility located in Beit Kama, Israel, six plasma-derived biopharmaceutical
products that we market in more than 20 countries, including our two leading products GLASSIA and KEDRAB; and the Distribution
segment, in which we leverage our expertise and presence in the Israeli market by distributing more than 20 pharmaceutical products
manufactured by third-parties for use in Israel.
Our core focus is
on driving profitable growth from our current commercial activities and manufacturing expertise. We intend to expand our
Proprietary plasma-derived products business by maximizing the market potential of our existing Proprietary products
portfolio, broadening our Distribution products portfolio, enhancing our current manufacturing capabilities, and evolving
into a vertically integrated plasma-derived company. We also continue to develop our pipeline, primarily focusing on the
pivotal Phase 3 InnovAATe clinical trial of Inhaled AAT for the treatment of AATD and the development of our
Anti-SARS-CoV-2 IgG product, and on exploring new strategic business development opportunities. Additionally, in a
post-COVID-19 era, in order to address unmet medical needs in potential future emerging healthcare pandemic/epidemic crises,
we also intend to leverage our expertise in plasma-derived protein therapeutics to establish a holistic IgG readiness
offering and identify additional opportunities in complementary pandemic-related treatment solutions.
GLASSIA, was the first
liquid, ready-to-use, intravenous plasma-derived AAT product approved by the FDA (GLASSIA is also approved for self-administration).
GLASSIA is an intravenous AAT product that is indicated for chronic augmentation and maintenance therapy in adults with emphysema
due to AATD. We market GLASSIA through a strategic partnership with Takeda in the United States. Our 2020 revenues from the sale
of GLASSIA to Takeda totaled $64.9 million, as compared to $68.1 million and $63.3 million during 2019 and 2018, respectively.
Based on our exclusive manufacturing, supply and distribution agreement with Takeda, we project that total revenues from sales
of GLASSIA to Takeda during 2021 will be approximately $25 million, which is Takeda’s minimum commitment for 2021 pursuant
to our existing supply agreement. Based on the licensing and technology transfer agreement between the parties, Takeda is planning
to complete the technology transfer of GLASSIA, and pending FDA approval, will initiate its own production of GLASSIA for the
U.S. market in 2021. Accordingly, based on the agreement between the companies, upon initiation of sales of GLASSIA manufactured
by Takeda, it will pay royalties to us at a rate of 12% on net sales through August 2025, and at a rate of 6% thereafter until
2040, with a minimum of $5 million annually for each of the years from 2022 to 2040. While the transition to royalties phase will
result in a reduction of our revenue from Takeda, we expect, based on current GLASSIA sales in the U.S. and forecasted future
growth, to receive royalties from Takeda in the range of $10 million to $20 million per year for 2022 to 2040.
We also market GLASSIA
in other counties through local distributors. Total revenues derived from sales of GLASSIA in all other countries during 2020
was $5.5 million, as compared to $5.5 million and $5.0 million during 2019 and 2018, respectively.
KamRAB, a hyper-immune plasma-derived therapeutic for prophylactic
treatment against rabies infection administered to patients after exposure to a suspected rabid animal, is manufactured by us from
plasma that contains high levels of antibodies from donors that have been previously vaccinated by an active rabies vaccine. KamRAB
has been sold by us in various markets outside the United States through local distributors since 2003. In July 2011, we signed
a strategic distribution and supply agreement with Kedrion for the clinical development and marketing in the United States of KamRAB,
and in August 2017 we received FDA approval for anti-rabies immunoglobulin as a post-exposure prophylaxis against rabies infection.
In April 2018, we launched KamRAB in the United States, under the trademark “KEDRAB.” Our overall revenues from sales
of KEDRAB to Kedrion during 2020, 2019 and 2018 were $18.3 million, $16.4 million and $11.8 million, respectively. Sales of KEDRAB
by Kedrion in the United States during the year 2020, 2019 and 2018 totaled $23.7 million, $31.4 million and $15.5 million, respectively.
Based on information provided by Kedrion, these sales represent approximately 23%, 20% and 10% share of the relevant U.S. market
in each of these years, respectively. The decrease in sales of KEDRAB by Kedrion during 2020 is attributable to the COVID-19 pandemic
effect and resulted in higher than planned inventory levels at Kedrion as of December 31, 2020.
In addition to GLASSIA
and KEDRAB (and KamRAB), we manufacture two variations of a plasma-derived Anti-D product (intramuscular (“IM”) for
prophylaxis of hemolytic disease of newborns and intravenous for the treatment of immune thermobocytopunic purpura), which are
marketed through distributors in more than 15 countries, including Israel, Russia, Brazil, India and other countries in Latin
America and Asia, as well as two types of anti-snake venom derived from equine plasma, which are sold to the IMOH.
We intend to leverage
our experience and available manufacturing capacity at our FDA-approved manufacturing facility to attempt to initiate the production
of additional plasma-derived products following the transition of GLASSIA manufacturing to Takeda during 2021 through acquisitions
or provision of CMO services. In line with this strategy, in December 2019, we entered into a binding term sheet for a 12-year
contract manufacturing agreement with an undisclosed partner to manufacture an FDA-approved and commercialized specialty hyper-immune
globulin product.
Following the completion
of currently on-going technology transfer process from the current manufacturer, and pending receipt of all required FDA approvals,
we expect to commence commercial manufacturing of the product in early 2023. Based on the current market sales volume of this
specialty hyper-immune globulin product, we estimate that its manufacturing opportunity will add approximately $8 million to $10
million to our annual revenues, with estimated gross margin level similar to the average gross margins of our Proprietary Products
segment.
During January 2021, we entered into an agreement for the acquisition,
subject to customary closing conditions, of the plasma collection center of the privately-held B&PR based in Beaumont, Texas,
which specializes in the collection of hyper-immune plasma used in the manufacture of Anti-D products. Plasma-derived Anti-D products
is being used for prophylaxis of hemolytic disease of newborns, and for the treatment of immune thermobocytopunic purpura. B&PR’s
plasma collection center is one of the few FDA-licensed centers in the U.S. producing the raw materials required for these products.
The acquisition of B&PR’s plasma collection center shall represent our entry into the U.S. plasma collection market and
further our strategic goal of becoming a fully integrated specialty plasma company. We plan to significantly expand our hyperimmune
plasma collection capacity by investing in this plasma collection center in Beaumont, Texas, and leveraging its FDA license to
open additional centers in the United States. We are committed to growing our hyperimmune IgG portfolio, and believe this acquisition
is a significant strategic step in that direction.
Our Distribution segment
is comprised of sales in Israel of pharmaceutical products manufactured by third parties. Most of the revenues generated in our
Distribution segment are from plasma-derived products manufactured by European companies, and its sales represented approximately
22%, 19% and 17% of our total revenues for the years ended December 31, 2020, 2019 and 2018, respectively. Over the past several
years we continued to extend our Distribution segment products portfolio to non-plasma derived products, including recently entering
into agreement with Alvotech and two additional entities for the distribution in Israel of nine different biosimilar products
which, subject to EMA and subsequently IMOH approvals, are expected to be launched in Israel between the years 2022 and 2025.
We estimate the potential aggregate maximum revenues, achievable within several years of launch, generated by the distribution
of all nine biosimilar products to be in the range of $25 million to $35 million annually.
The COVID-19 pandemic
and the resulting measures implemented in response to the pandemic are adversely affecting, and is expected to continue to adversely
affect, a number of our business activities (including our research and development, clinical trials, operations, supply chains,
distribution systems, product development and sales activities) as well as those of our suppliers, customers, third-party payers
and patients. Due to the impact of the pandemic and these measures, we have experienced, and expect to continue to experience,
unpredictable reductions in demand for certain of our products. As a consequence, we have taken several actions to ensure our
manufacturing plant remains operational with limited disruption to business continuity. We have increased inventory levels of
raw materials through our suppliers and service providers, have taken measures to ensure international deliveries and shipments
and have taken action to reduce certain costs and activities throughout our business operations. We are complying with the State
of Israel mandates and recommendations with respect to our work-force management and currently maintain the work-force levels
required to support our ongoing commercial operations. We have taken a number of precautionary health and safety measures to safeguard
our employees and continue to monitor and assess orders issued by the State of Israel and other applicable governments to ensure
compliance with evolving COVID-19 guidelines. While we initiated the development program of our Anti-SARS-CoV-2 IgG therapy for
COVID-19, the COVID-19 pandemic affected some of our other research and development programs, resulting in certain delays. The
outbreak and preventative or protective actions that governments, corporations, individuals or we have taken or may take in the
future to contain the spread of COVID-19 may result in a period of reduced operations, reduced product demand or limit the ability
of customers to perform their obligations to us, delays in clinical trials or other research and development efforts, business
disruption for us and our suppliers, customers and other third parties with which we do business and potential delays or disruptions
related to regulatory approvals.
A number of factors,
including but not limited to, continued effect of the factors mentioned above as well as, continued demand for our products, including
GLASSIA and KEDRAB in the U.S. market and our distributed products in Israel, financial conditions of our customers, suppliers
and services providers, our ability to manage operating expenses, additional competition in the markets that we compete, regulatory
delays, prevailing market conditions and the impact of general economic, industry or political conditions in the U.S., Israel
or otherwise, may have an effect on our future financial position and results of operations.
The financial impact
of these factors cannot be reasonably estimated at this time but may materially affect our business, financial condition, and
results of operation. The full extent to which the pandemic impacts our business, and financial results will depend on future
developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity
and duration of the pandemic and actions to contain its spread or treat its impact, among others.
The expected reduction
in our GLASSIA sales to Takeda during 2021 (as mentioned above), and the higher levels of inventory of our commercial products
at our distributers (including that of KEDRAB with Kedrion) as well as our Israeli customers, and the continued effect of change
in product sales mix during 2021, as well as reduced plant utilization, are anticipated to result in a reduction in revenues and
profitability in 2021.
In addition to our commercial operation, we invest in research
and development of new product candidates and new indication for existing products activities. Our two leading investigational
product candidates are Anti-SARS-CoV-2 IgG as a potential treatment for COVID-19 and Inhaled AAT for AATD. For our Anti-SARS-CoV-2
IgG, we previously reported the completion of enrollment and positive interim results from our Phase 1/2 open-label, single-arm,
multi-center clinical trial. We are currently assembling the final study report and plan to publish final results before the end
of the first quarter of 2021. In addition, we executed an agreement with the IMOH to supply the product for the treatment of COVID-19
patients in Israel, and recently initiated the supply of the product. The initial order is sufficient to treat approximately 500
hospitalized patients and is expected to generate approximately $3.4 million in revenue in 2021. The IMOH has initiated a multi-center
clinical study through which our product is being administered. In April 2020, we entered into a binding term sheet with Kedrion
for the co-development, manufacturing and distribution of our human plasma-derived Anti-SARS-CoV-2 IgG product as a potential treatment
for coronavirus patients. For Inhaled AAT for AATD, we are currently conducting the InnovAATe clinical trial, a randomized, double-blind,
placebo-controlled, pivotal Phase 3 trial.
We have also initiated
development of recombinant human Alpha 1 Antitrypsin (“rhAAT”). We engaged Cellca (CDMO located in Germany, part of
Sartorius Stedim BioTech Group) to pursue the cell line development of rhAAT in Chinese Hamsters Ovaries with high productivity
and adequate product quality.
Our Commercial Product Portfolio
Our products include
plasma-derived protein therapeutics produced in our Proprietary Products segment or licensed products, some of which are plasma-derived
marketed and sold in our Distribution segment in Israel.
Proprietary Products Segment
Our products in the
Proprietary Products segment consist of plasma-derived protein therapeutics derived from human serum, that are administered by
injection or infusion. We also manufacture anti-snake venom products from equine based serum.
Our Proprietary Products
sales accounted for approximately 76%, 77% and 79% of our total revenues for the years ended December 31, 2020, 2019 and 2018.
Our leading product in the Proprietary Products segment is GLASSIA, sales of which (worldwide, including to Takeda), for the years
ended December 31, 2020, 2019 and 2018, accounted for approximately 53%, 58% and 60% of our total revenues, respectively. Sales
of GLASSIA to Takeda for further distribution in the U.S. market comprised approximately 49%, 54% and 56% of our total revenues
for the years ended December 31, 2020, 2019 and 2018, respectively. Revenues from sales of KEDRAB to Kedrion for further distribution
in the U.S. market for the years ended December 31, 2020, 2019 and 2018, accounted for approximately 14%, 13% and 10% of our total
revenues, respectively. Sales of KamRAB and KamRho (D) for the years ended December 31, 2020, 2019 and 2018 accounted for the
substantial balance of total revenues in the Proprietary Products segment.
The following tables lists our Proprietary Products:
Product
|
|
Indication
|
|
Active Ingredient
|
|
Geography
|
GLASSIA (or Ventia/Respikam in certain countries)
|
|
Intravenous AATD
|
|
Alpha-1 Antitrypsin (Human)
|
|
United States, Israel, Russia, Brazil, Argentina, Uruguay**, South Africa, Colombia**, Albania**, Kazakhstan**, Costa Rica**
|
KamRAB/KEDRAB
|
|
Prophylaxis of rabies disease
|
|
Anti-rabies immunoglobulin (Human)
|
|
United States, Israel, India, Thailand, El Salvador*, South Africa*, Bosnia, Russia, Mexico*, Georgia*, Sri Lanka*, Ukraine, Turkey*, South Korea, Canada, Australia and Brazil.
|
KamRho (D) IM
|
|
Prophylaxis of hemolytic disease of newborns
|
|
Rho(D) immunoglobulin (Human)
|
|
Israel, Brazil, India, Argentina, Paraguay, Chile, Russia, Nigeria*, Sri Lanka*, Thailand*, Costa Rica** and the Palestinian Authority
|
KamRho (D) IV
|
|
Treatment of immune thermobocytopunic purpura
|
|
Rho(D) immunoglobulin (Human)
|
|
Israel, India* and Argentina*
|
Snake bite antiserum
|
|
Treatment of snake bites by the Vipera palaestinae and the Echis coloratus
|
|
Anti-snake venom
|
|
Israel
|
|
*
|
We
have regulatory approval, but did not market the product in this country in 2020.
|
|
**
|
Product
was registered, but we have not yet started sales.
|
GLASSIA
GLASSIA is an intravenous
AAT product produced from fraction IV plasma that is indicated by the FDA for chronic augmentation and maintenance therapy in
adults with emphysema due to congenital AATD. AAT is a naturally occurring protein found in a derivative of plasma known as fraction
IV. AAT regulates the activity of certain white blood cells known as neutrophils and reduces cell inflammation. Patients with
genetic AATD suffer from a chronic inflammatory state, lung tissue damage and a decrease in lung function. While GLASSIA does
not cure AATD, it supplements the patient’s insufficient physiological levels of AAT and is administered as a chronic treatment.
As such, the patient must take GLASSIA indefinitely over the course of his or her life in order to maintain the benefits provided
by it. GLASSIA is administered through single weekly intravenous infusions
In the United States
and Europe, we believe that AATD is currently significantly under-diagnosed and under-treated. Based on information published
by the Alpha-1 Foundation, there are approximately 100,000 people with AATD in the United States and about the same number in
Europe, and we estimate, based on medical literature, that only approximately 10% of all potential cases of AATD are treated.
According to the Centers for Medicare and Medicaid Services published payment allowance limits for Medicare part B, the average
sale price, as of January 2021, of 10 mg of GLASSIA is $4.877, resulting in an annual cost of between $80,000 and $120,000 per
AATD patient. In the United States, in some of the European countries and in Israel, we believe that the majority of the cost
of treatment is covered by medical insurance programs.
We estimate that the
potential world market for AAT products is significantly larger than current consumption indicates. We believe that the primary
reasons for this are the non-availability of AAT products in many countries, under diagnosis of patients suffering from AATD, expensive
and protracted registration processes required to commence sales of AAT products in new markets and the absence of insurance reimbursement
in various countries. As AATD can be diagnosed with a simple blood test, we expect diagnosis of AATD to continue to increase going
forward as awareness of AAT increases. Based on a recent market analysis report, the estimated annual rate of increase of the market
size in the U.S. and the five largest European countries of currently approved AATD therapies is approximately 6-8%.
GLASSIA was the first
approved liquid AAT, which is ready for infusion and does not require reconstitution and mixing before injection, as is required
from most other competing products. Additionally, in June 2016, the FDA approved an expanded label of GLASSIA for self-infusion
at home after appropriate training. GLASSIA has a number of advantages over other intravenous AAT products, including the reduction
of the risk of contamination during the preparation and infection during the infusion, reduced potential for allergic reactions
due to the absence of stabilizing agents, simple and easy use by the patient or nurse, and the possible reduction of the nurse’s
time during home visits, in the clinic or in the hospital and the ability to self- infusion at home.
Currently, GLASSIA
has been registered in ten countries, and is sold in five of those countries and also is sold in one additional country on a non-registered
named-patient basis. The majority of sales of GLASSIA are in the United States, where GLASSIA was approved by the FDA in July
2010 and sales began in September 2010. As part of the approval, the FDA requested that we conduct post-approval Phase 4 clinical
trials, as is common in the pharmaceutical industry, aimed at collecting additional safety and efficacy data for GLASSIA. Pursuant
to our agreement with Takeda (See “— Strategic Partnerships — Takeda.”), the Phase 4 clinical trials are
financed and managed by Takeda, provided that if the cost of such Phase 4 clinical trials exceeds a pre-defined amount, we will
participate in financing such trial up to a certain amount by offsetting such amounts from future milestones, sales of GLASSIA
or royalties from Takeda. The first Phase 4 safety study completed enrollment of a total of 30 subject in the U.S. and Canada
during 2020 and its results are currently being analyzed. The second Phase 4 efficacy study was initiated during 2016 and was
terminated two years after initiation based on DSMB’s recommendation due to very low recruitment rates. During 2019, Takeda
submitted a revised Phase 4 protocol to the FDA, which is currently still under review and discussion with the agency. There have
subsequently been several interactions with the FDA with respect to the Phase 4 efficacy study requirement, and Takeda is currently
evaluating how to proceed in view of the FDA requirements and cumulative clinical data collected to date on AATD augmentation
treatment.
We market GLASSIA
in the United States through our partnership with Takeda. We market GLASSIA in Israel by ourselves and in other countries through
local distributors. Sales to Takeda accounted for approximately 49%, 54% and 56% of our total revenues in the years ended December
31, 2020, 2019 and 2018, respectively. We submitted and plan to submit GLASSIA for marketing approval in additional countries.
Our revenues from sales of GLASSIA worldwide have grown from approximately $0.6 million in 2009 to $70.3 million in 2020, representing
49% compound annual growth rate.
Based on our exclusive
manufacturing, supply and distribution agreement with Takeda, we project that total revenues from sales of GLASSIA to Takeda during
2021 will be approximately $25 million, as compared to $64.9 during 2020. Based on the licensing and technology transfer agreement
between the parties, Takeda is planning to complete the technology transfer of GLASSIA, and pending FDA approval, will initiate
its own production of GLASSIA for the U.S. market in 2021. Accordingly, based on the agreement between the companies, upon initiation
of sales of GLASSIA manufactured by Takeda, it will pay royalties to us at a rate of 12% on net sales through August 2025, and
at a rate of 6% thereafter until 2040, with a minimum of $5 million annually for each of the years from 2022 to 2040. While the
transition to royalties phase will result in a reduction of our revenue from Takeda, we project, based on current GLASSIA sales
in the U.S. and forecasted future growth, to receive royalties from Takeda in the range of $10 million to $20 million per year
for 2022 to 2040.
KamRAB/KEDRAB
KamRAB is a prophylactic
treatment against rabies infection that is administered to patients after exposure to an animal suspected of being infected with
rabies. KamRAB is a protein therapeutic derived from hyper-immune plasma, which is plasma that contains high levels of antibodies
from donors that have been previously vaccinated by an active rabies vaccine. KamRAB is administered by a one-time injection,
and the precise dosage is a function of the patient’s weight.
According to the World
Health Organization, each year, more than 10 million people worldwide are exposed to potential rabies infection. We believe that
there are market opportunities for KamRAB in developing countries, as well as other countries including Canada and Australia.
In many developing countries, patients do not receive treatment for suspected rabies due to the lack of availability of healthcare
resources.
We began selling KamRAB
in certain countries in Asia and Latin America in 2003, and currently sell KamRAB in 11 countries.
In July 2011, we signed
a strategic distribution and supply agreement with Kedrion for the clinical development and marketing in the United States of
KamRAB, pursuant to which Kedrion agreed to bear all the costs required for the Phase 2/3 clinical trials. See “—
Strategic Partnerships — Kedrion.” The results of a Phase 2/3 study demonstrated that KamRAB was non-inferior to the
comparator HRIG product in achieving Rabies Virus Neutralizing Antibody (RVNA) levels of ≥0.5 IU/mL on day 14, when each was
co-administered with a rabies vaccine. In addition, KamRAB was found to be well-tolerated with a safety profile similar to that
of the comparator HRIG product. Based on these results, in August 2017, we received FDA approval for the marketing of KamRAB in
the United States (under the trademark “KEDRAB”) for post-exposure prophylaxis (PEP) against rabies infection, and
in April 2018 KEDRAB was launched in the United States.
In addition, we recently
completed an FDA-required post-marketing trial in the U.S. with the primary objective of confirming the safety of KEDRAB in children
aged 0 to 17 years. The KEDRAB U.S. pediatric trial was conducted at two sites, one in Arkansas and another in Rhode Island. The
study included 30 pediatric patients (ages 0-17 years old), each of whom received KEDRAB as part of PEP treatment following exposure
or suspected exposure to an animal suspected or confirmed to be rabid, and safety follow-up was conducted for up to 84 days. The
primary objective of the study was to confirm the safety of KEDRAB in the pediatric population. Secondary objectives included
the evaluation of antibody levels and the effectiveness of KEDRAB in the prevention of rabies disease when administered with a
rabies vaccine according to the PEP recommended guidelines. No serious adverse events were observed during the study. No incidence
of rabies disease or deaths were recorded throughout the 84-day study period. The results have been submitted to the FDA for review
and inclusion as pediatric data in the KEDRAB full prescribing information.
We believe that FDA
approval for marketing the product will assist us in our efforts to register and market KamRAB in additional countries, which
we believe would lead to additional sales worldwide. In November 2018, we received marketing approval for KamRAB in Canada and
following winning a recent supply tender, we started selling the product in Canada during 2020. We were also recently approved
to supply KamRAB through the PAHO, the specialized international health agency for the Americas. We initiated sales of KamRAB
through PAHO during 2019.
KamRho (D)
KamRho (D) is indicated
for (i) the prevention of hemolytic disease of the newborn (“HDN”), which is a blood disease that occurs where the
blood type of the mother is incompatible with the blood type of the fetus; and (ii) a second line treatment of immune thrombocytopenic
purpura (“ITP”), which is thought to be an autoimmune blood disease in which the immune system destroys the blood’s
platelets, which are necessary for normal blood clotting. KamRho (D) is produced from hyper-immune plasma and is administered
through intra-muscular injection (KamRho (D) IM) or through intravenous infusion (KamRho (D) IV).
According to academic
research, approximately 15% of Caucasian women are Rh-negative and, if left untreated, HDN would affect one percent of all newborns
and would be responsible for the death of one baby out of every 2,200 births. In addition, academic research estimates that ITP
affects approximately five out of every 100,000 children per year, and two of every 100,000 adults per year worldwide, although
some will recover without treatment. We have completed the registration process for Kam Rho (D) in several countries and sell
it in eight countries, including Israel, Latin America, Asia, Africa and Eastern Europe.
Snake Bite Antiserum
Our snake bite antiserum
product is used for the treatment of humans that have been bitten by the most common Israeli viper (Vipera palaestinae)
and by the Israeli Echis (Echis coloratus). The venom of these snakes is poisonous and causes, among other symptoms, severe
immediate pain with rapid swelling. These snake bites can lead to death if left untreated. Our snake bite antiserum is produced
from hyper-immune serum that has been derived from horses that were immunized against Israeli viper and Israeli Echis venom. This
product is the only treatment on the market for Vipera palaestinae and Echis coloratus snake bites in Israel.
We manufacture the
snake bite antiserum pursuant to an agreement with the IMOH entered into in March 2009. We completed construction of the production
facilities and laboratories for the product, and successfully passed the IMOH inspections. We began production of our snake bite
antiserum in August 2011 and commenced sales to the IMOH in 2012. The agreement with the IMOH expired on December 31, 2020 and
we are in the process of negotiating a renewal to the agreement.
Distribution Segment
Our Distribution segment
is comprised of sales in Israel of pharmaceutical products manufactured by third parties. We engage third party manufacturers,
register their products with the IMOH, import the products to Israel and distribute them to local HMOs, hospitals and pharmacists.
Our Distribution segment sales accounted for approximately 24%, 23% and 21% of our total revenues for the years ended December
31, 2020, 2019 and 2018, respectively. Our primary products in the Distribution segment include pharmaceuticals for critical use
delivered by injection, infusion or inhalation. Currently, most of the revenues generated in our Distribution segment are from
products produced from plasma or plasma-derivatives, and are manufactured by European companies. IVIG is our primary product in
the Distribution segment, comprising approximately 76%, 62% and 58% of total revenues in the Distribution segment for the years
ended December 31, 2020, 2019 and 2018, respectively. Sales of IVIG accounted for approximately 19%, 14% and 12% of our total
revenues for the years ended December 31, 2020, 2019 and 2018, respectively.
Over the past several
years we continued to extend our Distribution segment products portfolio to non-plasma derived products and in December 2019,
we entered into an agreement with Alvotech, a global biopharmaceutical company, to commercialize Alvotech’s portfolio of
six biosimilar product candidates in Israel, upon receipt of regulatory approval from the IMOH. Alvotech’s pipeline includes
biosimilar product candidates aimed at treating autoimmunity, oncology and inflammatory conditions. Subject to approval by the
IMOH, we expect to launch the first of these products, Bonsity, in Israel during 2022. Bonsity is a biosimilar candidate to teriparatide,
an FDA approved product marketed by Eli Lilly and Company under the brand name Forteo®/Forsteo® for the treatment of osteoporosis
in patients with a high risk of fracture. Bonsity recently received FDA approval. Following receipt of EMA marketing approval
by Alvotech, the remaining five products included in the agreement are, subject to approval by the IMOH, expected to be launched
in Israel during the years 2023-2025. The Israeli market for the approved reference products to which Alvotech’s six biosimilar
products are targeted is estimated to be in the range of $125 million to $150 million for 2018. Based on the projected list price
reduction due to increased competition as a result of the launch of these six biosimilar products, and anticipated market penetration
potential, we estimate the potential aggregate maximum revenues from the sale of all six products, achievable within several years
of launch, generated by the distribution of all six biosimilar products to be in the range of $20 million to $30 million annually.
In addition, in January
2021, we announced the entering into agreements with two undisclosed international pharmaceutical companies to commercialize three
biosimilar product candidates in Israel. Subject to approval by the EMA and subsequently by the IMOH, the three products are expected
to be launched in Israel between 2022 and 2024. The two pharmaceutical companies will maintain development, manufacturing and
supply responsibilities for these three products. The Israeli market for the referenced innovative products to which these three
biosimilar products are targeted was between approximately $20 million to $25 million in 2019, and we estimate the potential collective
maximum sales generated by the distribution of these three products, achievable following regulatory approval and within several
years of launch, to be in the range of $5 million to $7 million annually.
The following table
sets forth our primary products in our Distribution segment.
Product
|
|
Indication
|
|
Active
Ingredient
|
Respiratory
|
|
|
|
|
|
|
|
|
|
Bramitob
|
|
Management of chronic pulmonary infection due
to pseudomonas aeruginosa in patients six years and older with cystic fibrosis
|
|
Tobramycin
|
|
|
|
|
|
FOSTER
|
|
Regular treatment of asthma where use of a combination
product (inhaled corticosteroid and long-acting beta2-agonist) is appropriate
|
|
Beclomethasone dipropionate, Formoterol fumarate
|
|
|
|
|
|
PROVOCHOLINE
|
|
Diagnosis of bronchial airway hyperactivity
in subjects who do not have clinically apparent asthma
|
|
Methacholine Chloride
|
|
|
|
|
|
AeroBika
|
|
OPEP device
|
|
None
|
|
|
|
|
|
Immunoglobulins
|
|
|
|
|
|
|
|
|
|
IVIG 5%
|
|
Treatment of various immunodeficiency-related
conditions
|
|
Gamma globulins (IgG) (human)
|
|
|
|
|
|
Varitect
|
|
Preventive treatment after exposure to the virus
that causes chicken pox and zoster herpes
|
|
Varicella zoster immunoglobulin (human)
|
|
|
|
|
|
Zutectra
|
|
Prevention of hepatitis B virus (HBV) re-infection
in HBV-DNA negative patients 6 months after liver transplantation for hepatitis B induced liver failure
|
|
Human hepatitis B immunoglobulin
|
|
|
|
|
|
Hepatect CP
|
|
Prevent contraction of Hepatitis B by adults
and children older than two years
|
|
Hepatitis B immunoglobulin (human)
|
|
|
|
|
|
Megalotect
|
|
Contains antibodies that neutralize cytomegalovirus
viruses and prevent their spread in immunologically impaired patients
|
|
CMV immunoglobulin (human)
|
|
|
|
|
|
RUCONEST
|
|
Treatment of acute angioedema attacks in adults
with hereditary angioedema (HAE) due to C1 esterase inhibitor deficiency
|
|
Conestat Alfa
|
|
|
|
|
|
Critical Care
|
|
|
|
|
|
|
|
|
|
Heparin sodium injection
|
|
Treatment of thrombo-embolic disorders such
as deep vein thrombosis, acute arterial embolism or thrombosis, thrombophlebitis, pulmonary embolism, fat embolism. Prophylaxis
of deep vein thrombosis and thromboembolic events
|
|
Heparin sodium
|
|
|
|
|
|
Albumin and Albumin
4%
|
|
Maintains a proper level in the patient’s
blood plasma
|
|
Human serum Albumin
|
|
|
|
|
|
Coagulation Factors
|
|
|
|
|
|
|
|
|
|
Factor VIII
|
|
Treatment of Hemophilia Type A diseases
|
|
Coagulation Factor VIII (human)
|
|
|
|
|
|
Factor IX
|
|
Treatment of Hemophilia Type B disease
|
|
Coagulation Factor IX (human)
|
|
|
|
|
|
Vaccinations
|
|
|
|
|
|
|
|
|
|
IXIARO
|
|
Active immunization against Japanese encephalitis
in adults, adolescents, children and infants aged 2 months and older
|
|
Japanese encephalitis purified inactivated vaccine
|
|
|
|
|
|
Metabolic
Disease
|
|
|
|
|
|
|
|
|
|
Procysbi
|
|
nephropathic cystinosis in adults and children
1 year of age and older
|
|
Cysteamine Biartrate
|
Contract Manufacturing Services
In preparation for
the transition of GLASSIA manufacturing to Takeda, expected by 2021, and in accordance with our business development strategy
focused on creating new growth opportunities through identification of new product opportunities for our manufacturing plant,
we are proactively exploring opportunities to leverage our experience and manufacturing capacity to initiate the production of
new plasma-derived products. As such, in December 2019, we entered into a binding term sheet for a 12-year contract manufacturing
agreement with an undisclosed partner to manufacture an FDA-approved and commercialized specialty hyper-immune globulin product.
Following the execution of the required technology transfer from the current manufacturer, and pending receipt of all required
FDA approvals, we expect to commence commercial manufacturing of the product in early 2023. Based on the current market sales
volume of this specialty hyper-immune globulin product, we estimate that its manufacturing will add approximately $8 million to
$10 million to our annual revenues, with estimated gross margin level similar to the average gross margins of our Proprietary
Products segment.
Our Development Product Pipeline
Our research and development
activities include conducting pre-clinical and clinical trials and other development activities for our pipeline products, improving
existing products and processes, development work at the request of regulatory authorities and strategic partners, as well as
communication with regulatory authorities related to our commercial products as well as clinical programs. We incurred approximately
$13.6 million, $13.1 million, and $9.7 million in research and development expenses in the years ended December 31, 2020, 2019
and 2018, respectively.
We are in various
stages of pre-clinical and clinical development of new product candidates for our Proprietary Products segment. The following
table sets forth our primary product pipeline in our Proprietary Products segment and each such product’s stage of development:
Anti-SARS-CoV-2 IgG Product as a
Potential Treatment for COVID-19
In response to the
recent COVID-19 outbreak, in early 2020 we initiated the development of a human plasma-derived Anti-SARS-CoV-2 polyclonal immunoglobulin
(IgG) product using our proprietary plasma derived IgG platform technology as a potential treatment for COVID-19. The development
of our investigational Anti-SARS-CoV-2 IgG product is done with full cooperation with IMOH. The product is developed in line with
the requirement of Ph Eur for IV Ig product and based on our established technology platform for IgG, as approved in the United
States, Israel and other international markets.
During April 2020,
we announced a global collaboration with Kedrion for the development, manufacturing and distribution of our Anti-SARS-CoV-2 IgG
product as a potential treatment for COVID-19 patients. Pursuant to the agreed terms, Kedrion will provide plasma, collected at
its KEDPLASMA centers, from donors who have recovered from the virus and, upon receipt of regulatory approvals, will be responsible
for commercialization of the product in the U.S., Europe, Australia, and South Korea, United Kingdom, Switzerland and Norway.
We are responsible for product development, manufacturing, clinical development, with Kedrion’s support, and regulatory
submissions. We will also assume distribution responsibility in all territories outside of those Kedrion is responsible for. Marketing
rights for the product in China will be shared by the parties. Kedrion is currently collecting COVID-19 convalescent plasma from
U.S. recovered patients that will be used by us to manufacture batches of the product. Kedrion is collecting the plasma, through
its plasma business unit, KEDPLASMA, at 26 FDA-approved centers across the United States.
In June 2020, our
Anti-SARS-CoV-2 IgG product became available for compassionate use treatment in Israel, and In August 2020, we initiated a Phase
1/2 open-label, single-arm, multi-center clinical trial in Israel of our Anti-SARS-CoV-2 IgG product. We completed enrollment
in September 2020 and announced initial interim results for the Phase 1/2 clinical trial. A total of 12 eligible patients (age
34-69) were enrolled in the trial and received our product at a single dose of 4 grams IgG within five to 10 days of initial symptoms.
Patient follow-up occurs for 84 days. To date, symptoms improvement was observed in 11 of the 12 patients within 24 to 48 hours
from treatment. All 11 patients were subsequently discharged from the hospital within a median hospital stay of 4.5 days from
treatment. The medical condition of one patient, continue to deteriorate and after few weeks on mechanical ventilation he died.
One patient had a serious adverse event four days after treatment, which was categorized by the investigator as unrelated to our
IgG product that the patient received in the trial. All 11 patients completed the 84 days follow-up with no relapse or additional
SAEs. We expect the final trial results to be available during the first quarter of 2021.
In August 2020, the
FDA issued an Emergency Use Authorization for convalescent plasma as a potential treatment for COVID–19. Convalescent plasma
plays an important role in the immediate and intermediate response to the disease. Plasma-derived IgG product, as developed by
us, is considered to have multiple advantages over convalescent plasma transfusion, such as standardized antibody levels, higher
potency, extensive viral inactivation processing, the absence of a blood-type matching requirement, smaller infusion volumes,
the ability to be produced in large quantities, and preferred storage conditions.
To potentially expand
our COVID-19 clinical development program to the U.S., we, with the support of Kedrion, submitted a pre-Investigational New Drug
(“IND”) information package to the FDA with our proposed U.S. clinical development plan. Following the FDA’s
response to our pre-IND information package, we, together with Kedrion, continue to evaluate the best suitable plan for the U.S.
and/or EU COVID-19 IgG clinical program, and will advance our development upon the conclusion of this review.
In October 2020,
we signed an agreement with the IMOH to supply our investigational Anti-SARS-CoV-2 IgG product for the treatment of COVID-19
patients in Israel. We manufacture the product, to be supplied to the IMOH, from convalescent plasma collected and supplied
by the Israeli National Blood Services, a division of Magen David Adom (MADA), as well as plasma collected by Kedrion. The
initial order, planned to be supplied during the first few months of 2021, is sufficient to treat approximately 500
hospitalized patients. This initial supply is expected to generate approximately $3.4 million in revenue in 2021. The IMOH has
initiated a multi-center clinical study through which our product is being administered.
From a supply perspective,
we are ramping up our COVID-19 IgG manufacturing capacity, and we intend to increase our supply capabilities during 2021 to support
potential additional demand from the Israeli MOH, and possibly other international markets.
Inhaled Formulations of AAT for
AATD
We are in the process
of development of inhaled formulations of AAT administered through the use of a nebulizer. The nebulizer was developed by PARI.
Inhaled AAT for AATD has been designated as an orphan drug for the treatment of AATD in the United States and Europe.
We have been
able to leverage our expertise gained from the production of GLASSIA to develop a stable, high-purity Inhaled AAT for AATD, an
inhaled AAT product candidate for the treatment of AATD. Existing treatment for AATD require weekly intravenous infusions of AAT
therapeutics. We believe that Inhaled AAT for AATD, if approved, will significantly improve the patient’s disease condition
and the quality of life of the patients versus current invasive weekly treatment that requires uncomfortable infusion, consumption
of time and administration by a medical professional. If approved, Inhaled AAT for AATD is estimated to be the first AAT product
that is not required to be delivered intravenously and instead is administered by a user-friendly, lightweight and silent nebulizer
in up to two short daily sessions. We believe that Inhaled AAT for AATD, if approved, will increase patient convenience and reduce
or replace the need for patients to use intravenous infusions of AAT products, decreasing the need for clinic visits or nurse
home visits and reducing medical costs. Because of the smaller amount of AAT product used in Inhaled AAT for AATD (since it is
applied directly to the site of action rather than administered systematically) we believe that this product, if approved, will
enable us to treat significantly more patients from the same amount of plasma and production capacity and may be more cost effective
for patients and payors and may increase our profitability.
The current standard
care for AATD in the United States and in certain European countries is a weekly intravenous infusion of an AAT therapeutic. We
estimate that only 2% of the AAT dose reaches the lung when administered intravenously. We have conducted a U.S. Phase 2 clinical
study demonstrating that administration of inhaled formulations of AAT through inhalation results in greater dispersion of AAT
to the target lung tissue, including the lower lobes and lung periphery. Accordingly, we believe that an inhaled formulation of
AAT would require a significantly lower therapeutic dose and would be more effective in reducing inflammation of the lung tissue
and inhibiting the uncontrolled neutrophil elastase that causes the breakdown of the lung tissue and the emphysema.
We conducted a double
blind placebo controlled and randomized Phase 2/3 pivotal trial, under EMA guidance, which was completed at the end of 2013. A
total of 168 patients participated in the trial in seven countries in Europe and Canada. Subjects in this trial were administered
with a daily dose of Inhaled AAT or equivalent dose of placebo for 50 consecutive weeks. The primary endpoint for the trial was
the time from randomization to the first event-based exacerbation with a severity of moderate or severe. Other endpoints, which
were secondary and tertiary, included other exacerbation measures, lung function, CT scan and quality of life. The trial was 80%
powered based on the number of exacerbation events collected in the study, in order to detect a difference between the two groups
one year later. A 20% difference between the two groups was required to prove efficacy and was considered clinically meaningful
and would allow the decision to prescribe treatment. An open label extension of an additional 50 weeks on active drug was offered
to study participants in most sites once they completed the initial 50-week period. Treatment in the open label extension of the
trial was completed in November 2014.
This study did not
meet its primary and secondary endpoints. However, lung function parameters, including Forced Expiratory Volume in One Second
(“FEV1”) % of Slow Vital Capacity (“SVC”) and FEV1 % predicted, FEV1 (liters) collected to support safety
endpoints, showed concordance of a potential treatment effect in the reduction of the inflammatory injury to the lung that is
known to be associated with a reduced loss of respiratory function.
In accordance with
guidance received following the meeting with the European rapporteur and co-rapporteur, we performed several post hoc analyses.
Results of the post hoc analyses indicate that after one year of daily inhalation of our Inhaled AAT, clinically and statistically
significant improvements were seen in spirometric measures of lung function, particularly in bronchial airflow measurements FEV1
(L), FEV1% predicted and FEV1/SVC. These favorable results were even more evident when analyzing the overall treatment effect
throughout the full year.
For lung function,
overall one year effect:
|
●
|
FEV1
(L) rose significantly in AAT treated patients and decreased in placebo treated patients (+15ml for AAT vs. -27ml for placebo,
a 42 ml difference, p=0.0268)
|
|
●
|
There
was a trend towards better FEV1% predicted (0.54% for AAT vs. -0.62% for placebo, a 1.16% difference, p=0.065)
|
|
●
|
FEV1/SVC%
rose significantly in AAT treated patients and decreased in placebo treated patients (0.62% for AAT vs. -0.87% for placebo, a
1.49% difference, p=0.0074)
|
For lung function
change at week 50 vs. baseline:
|
●
|
There
was a trend towards reduced FEV1 (L)decline (-12ml for AAT vs. -62ml for placebo, a 50 ml difference, p=0.0956)
|
|
●
|
There
was a trend towards a reduced decline in FEV1% predicted (-0.1323% for AAT vs. -1.6205% for placebo, a 1.4882% difference, p=0.1032)
|
|
●
|
FEV1/SVC%
rose significantly in AAT treated patients and decreased in placebo treated patients (0.61% for AAT vs. -1.07% for placebo, a
1.68% difference, p=0.013)
|
During March 2014,
we initiated Phase 2 trials in the United States. The trial was completed in May 2016. This trial was intended to serve as a supplementary
trial to the European Phase 2/3 trial and was designed to incorporate parameters required by the FDA. This Phase 2, double-blind,
placebo-controlled study explored the ELF and plasma concentration as well as safety of Inhaled AAT in AATD subjects. The subjects
received one of two doses of Inhaled AAT or placebo. The study involved the inhalation of 80 mg or 160 mg of human AAT or placebo
twice daily via the eFlow device for 12 weeks. Following the 12 week double blind period, the subjects were offered to participate
in an additional 12 weeks open label period during which they receive only Inhaled AAT therapy. In December 2015, we completed
the enrollment of patients for the U.S. Phase 2 clinical trial, and in August 2016, we reported positive top-line results, according
to which we met the primary endpoint.
AATD patients treated
with our Inhaled AAT product in such U.S. Phase 2 clinical trial, demonstrated a significant increase in endothelial lining fluid
(“ELF”) AAT antigenic level compared to the placebo group [median increase 4551 nM, p-value<0.0005 (80 mg/day,
n=12), and 13454 nM, p-value<0.002 (160mg/day, n=12)]. These results are more than twice the increase of ELF antigenic AAT
level (+2600 nM) observed in our previously completed intravenous AAT pivotal study (60mg/kg/week). Antigenic AAT represents the
total amount of AAT in the lung, both active and inactive. The study results also showed that our Inhaled AAT is more efficient
than IV to restore ELF AAT level within the lung. In addition, ELF Anti-Neutrophil Elastase inhibitory (“ANEC”) level
also increased significantly [median increase 2766 nM, p-value<0.0005 (80mg/day) and 3557 nM., p-value<0.004 (160 mg/day)].
The increase in ELF ANEC level was also more than twice that demonstrated in our previously completed IV AAT pivotal study. The
ANEC level represents the active AAT that can counterbalance further damage by neutrophil elastase.
The updated data included
in our poster presentation of May 2017 demonstrated that ELF-AAT, neutrophil elastase (NE)-AAT and ANEC complexes concentration
significantly increased in subjects receiving the 80 mg and 160 mg doses, (median increase of 38.7 neutrophil migration (nM),
p-value<0.0005 (80 mg/day, n=12), and median increase of 46.2 nM, p-value<0.002 (160 mg/day, n=10)). This is a specific
measure of the anti-proteolytic effect in the ELF and represents the amount of NE that was broken down by AAT. The increase in
levels of functional AAT was six times higher (160 mg per day) than is achievable with intravenous (IV) AAT. In addition, ELF
NE decreased significantly. Also, the 80 mg data demonstrated a significant reduction in the percentage of neutrophils. Finally,
aerosolized M-specific AAT was detected in the plasma of all subjects receiving Inhaled AAT, consistent with what was seen in
the Phase 2/3 clinical trial of our Inhaled AAT conducted in the EU.
We filed the MAA for
our Inhaled AAT for AATD during the first quarter of 2016 and in June 2017 we withdrew the MAA, as following extensive discussions
with the EMA, we concluded that the EMA did not view the data submitted as sufficient, in terms of safety and efficacy, for approval
of the MAA, and that the supplementary data needed for approval required an additional clinical trial. While the post-hoc data
provided by us from the European clinical trial showed a statistically significant and clinically meaningful improvement in lung
function, the EMA was of the opinion that an overall positive conclusion on the effect of Inhaled AAT for AATD could not be reached
based on that post-hoc analysis, and that the treatment of AATD patients with our Inhaled AAT product should be further evaluated
in the clinic in order to obtain comprehensive long-term efficacy and safety data. The EMA was of the opinion that the study failed
to show beneficial effects in the population studied. In addition, there were concerns about the tolerability and safety profile
of the AAT, mainly in patients with severe lung disease. In addition, the EMA raised concerns about the high rate of patients
with antibodies (ADA) responding to AAT, which might reduce its effects or make patients more prone to allergic reactions, despite
evidence that none of the patients with such ADA response had allergic reaction nor a lower level of AAT in the serum.
When we presented
the data from the European Phase 2/3 study to the FDA, the agency expressed concerns and questions about that data, primarily
related to the safety and efficacy of Inhaled AAT for the treatment of AATD and the risk/benefit balance to patients based on
that data and product characteristics. Following several discussions with the FDA and EMA, through which we provided both agencies
additional data and information in response to their concerns and questions and addressed both agencies’ guidance with respect
to our proposed subsequent phase 3 pivotal study protocol, we received positive scientific advice from the CHMP of the EMA related
to the development plan for our proposed pivotal Phase 3 pivotal study for Inhaled AAT for AATD, and in April 2019, we received
a letter from the FDA stating that we had satisfactorily addressed the concerns and questions with respect to the proposed Phase
3 clinical trial.
During December 2019,
we announced that the first patient was randomized in Europe into our pivotal Phase 3 InnovAATe clinical trial evaluating the
safety and efficacy of our proprietary inhaled AAT therapy for the treatment of AATD. The study is being led by Jan Stolk, M.D.,
Department of Pulmonology, Member of European Reference Network LUNG, Leiden University Medical Center, The Netherlands. InnovAATe
is a randomized, double-blind, placebo-controlled, pivotal Phase 3 trial designed to assess the efficacy and safety of Inhaled
AAT in patients with AATD and moderate lung disease. Up to 250 patients will be randomized 1:1 to receive either Inhaled AAT at
a dose of 80mg once daily, or placebo, over two years of treatment. The primary endpoint of the InnovAATe trial is lung function
measured by FEV1. Secondary endpoints include lung density changes as measured by CT densitometry, as well as other parameters
of disease severity, such as additional pulmonary functions, exacerbation rate and six-minute walk test. The safety profile will
be monitored continuously by a Data Monitoring Committee with predefined rules to be applied after the first 60 subjects have
completed six months of treatment.
Enrolment in the pivotal
Phase 3 InnovAATe clinical trial, which continued through February 2020, was temporarily halted due to the impact of COVID-19
pandemic on healthcare systems. Patients already recruited to the study continued treatment as planned. Enrollment into the study
was resumed in the third quarter of 2020, per appropriate conditions at clinical trial sites. Although we recently resumed recruitment
to the study, the COVID-19 pandemic has slowed down the rate of recruitment and the current pandemic situation mainly across Europe
affects our ability to currently open new study sites.
Prior to the initiation
of the pivotal Phase 3 InnovAATe clinical trial we completed a Human Factor Study (HFS) to support the combination product, consisting
of our Inhaled AAT and the investigational eFlow nebulizer system of PARI Pharma GmbH. Based on feedback received from the FDA,
we are initiating a subsequent HFS to support improved use regimen of the product.
In addition to the
pivotal study and based on feedback received from the FDA regarding anti-drug antibodies (ADA) to Inhaled AAT, we intend to concurrently
conduct a sub-study in North America in which approximately 30 patients will be evaluated for the effect of ADA on AAT levels
in plasma with Inhaled AAT and IV AAT treatments. We already obtained FDA acceptance of the protocol design for the study; however,
initiation of this sub-study has been delayed due to the effect of the COVID-19 pandemic.
From a strategic standpoint,
we continue to evaluate partnering opportunities for the development and commercialization of this important pipeline product.
Liquid AAT for Organ Preservation
Prior to Transplantation
AAT has been found
to have anti-inflammatory, tissue-protective, immune-modulatory and anti-apoptotic properties. These characteristics may decrease
tissue injury by lowering levels of pro-inflammatory cytokines and proteases associated with organ injury during harvest and transplantation,
the prevalent causes of organ transplant rejection. Organ preservation methods pre-transplantation are continuously improving
due to advanced technologies, such as ex-vivo perfusion systems.
We collaborated with
Massachusetts General Hospital (“MGH”) in an investigator initiated, proof-of-concept study evaluating the potential
benefit of AAT on liver preservation and transplant rejection prevention led by James F. Markmann, M.D., Ph.D., Chief, Division
of Transplant Surgery, MGH, who is the Claude E. Welch Professor of Surgery at Harvard Medical School. The purpose of the study
was to assess the effect of AAT on liver graft quality and viability and to evaluate the liver graft for markers of Ischemia-Reperfusion
Injury (IRI) and tissue damage. In the first cohort of the study, organ viability parameters (e.g., liver function tests and hemodynamics,
which represent risks for failure or dysfunction after transplantation), inflammatory pathway analysis and histology, were all
measured and yielded positive trends. The second cohort of the study aimed to assess the effect of AAT with a different dosing.
The study evaluated the effect of AAT on a liver graft once administered into an ex-vivo perfusion system.
In addition, we are
currently investigating the effect of Alpha-1 antitrypsin delivered via different preservation methods on ischemia-reperfusion
injury in pig kidneys. This preclinical work is being performed in collaboration with the University of Oxford at the laboratory
of Prof. Ploeg, Professor of Transplant Biology; Director of Clinical and Translational Research of University of Oxford.
Recombinant AAT
We have initiated
development recombinant human Alpha 1 Antitrypsin (“rhAAT”). To ensure the success of this project, we have previously
developed analytical tools (physicochemical, biochemical, in-vitro, and in-vivo) that will support the selection and characterization
of functional rhAAT. In addition, we have established a significant understanding on several expression systems and finally selected
Cellca (CDMO located in Germany, part of Sartorius Stedim BioTech Group) to pursue the cell line development of the rhAAT in Chinese
Hamsters Ovaries with high productivity and adequate product quality.
With respect to the development of our rhAAT and organ preservation,
our continued investment would be subject, among other things, to attracting strategic partner(s) to collaborate in the further
development of those programs.
Other Prior Research Activities
We previously tested
our liquid, intravenous plasma-derived AAT product for other indications utilizing AATs known therapeutic roles given its immunomodulatory,
anti-inflammatory, tissue-protective and antimicrobial properties:
|
●
|
Acute Graft versus
Host Disease (aGvHD) - In November 2016, we initiated a Phase 2/3 clinical trial for the treatment of aGvHD in collaboration
with Shire (now part of Takeda) in the United States. In June 2017, Shire informed us of its decision not to continue with
the study. As the result of this decision, the study was halted. In January 2018, we announced a collaboration with a consortium
of prominent hospitals led by Mount Sinai Hospital and initiated an investigator initiated Phase 2 clinical study to evaluate
our AAT product for preemption of steroid refractory aGvHD (SR-aGvHD) utilizing a novel blood biomarker developed algorithm
that may identify patients at high risk of developing SR-aGvHD and non-relapse mortality. The study included 30 patients and
the primary endpoint was the incidence of steroid-refractory GVHD by day 100 after transplantation. The results of the study
show that treatment with IV-AAT was well-tolerated by the patients and six cases of steroid-refractory GVHD were observed.
This rate of disease incidence was within the pre-determined range, defined by the investigators, that if achieved, would
warrant further clinical evaluation of the treatment.
|
|
●
|
Lung Transplantation
Rejection - We have also initiated a Phase 2 clinical study with our intravenous AAT product to prevent lung transplantation
rejection. In January 2018, we announced interim results from this study, which showed that our intravenous AAT demonstrated
favorable safety and tolerability profile in 10 patients during first six months of treatment, consistent with previously
observed results in other indications. In February 2019, we announced additional interim results from such study suggesting
improvement in multiple key clinical outcomes and overall demonstrated a trend towards improvement in multiple clinical outcomes.
|
While we are encouraged
with the results of our IV AAT in both the GvHD and lung transplantation studies, we do not intend to further advance these programs
at this time, mainly as a result of the limited overall potential benefit to us specifically due to our commercial arrangement
with Takeda and them taking over GLASSIA manufacturing in 2021.
Strategic Partnerships
We currently have
strategic partnerships with a number of different companies regarding the distribution and/or development of our products portfolio.
Certain of the strategic partnerships relating to our Proprietary Products segment are discussed below.
Takeda (GLASSIA)
We have a partnership
arrangement with Takeda. The partnership agreement was originally executed on August 23, 2010 with Baxter. During 2015, Baxter
assigned all its rights under the partnership agreement to Baxalta, an independent public company which spun-off from Baxter.
In 2016, Shire completed the acquisition of Baxalta, and as a result, all of Baxalta’s rights under the partnership agreement
were assigned to Shire. In January 2019, Takeda completed its acquisition of Shire.
The partnership arrangement
with Takeda includes three main agreements: (1) an exclusive manufacturing, supply and distribution agreement, pursuant to which
we manufacture GLASSIA for sale to Takeda for further distribution in the United States, Canada, Australia and New Zealand; (2)
a technology license agreement, which grants Takeda licenses to use our knowledge and patents to produce, develop and sell GLASSIA;
and (3) a fraction IV-I paste supply agreement, pursuant to which Takeda will supply us with fraction IV plasma, a plasma derivative,
produced by Takeda, as discussed under “— Manufacturing and Supply — Raw Materials — Fraction IV plasma
for GLASSIA.” As between us and Takeda, other than with respect to plasma-derived AAT administration by IV, we retain all
rights, including distribution rights, to any form of AAT administration, including Inhaled AAT for AATD.”
Sales to Takeda accounted
for approximately 49%, 54% and 56% of our total revenues for the years ended December 31, 2020, 2019 and 2018, respectively.
Exclusive Manufacturing, Supply and
Distribution Agreement
Pursuant to the exclusive
manufacturing, supply and distribution agreement, we received an upfront and milestone payments of $25 million in total related
to distribution rights. Additionally, Takeda is obligated to purchase a minimum amount of GLASSIA per year. Under the agreement,
Takeda is also obligated to fund required Phase 4 clinical trials related to GLASSIA up to a specified amount. If the costs of
such clinical trials are in excess of this amount, we have agreed to fund a portion of the additional costs. Under the agreement,
we undertook to reimburse Takeda for its GLASSIA marketing efforts up to a limited amount during the years 2017-2020. During the
years since the initial execution of the agreement, the parties agreed to several amendments to the agreement, mainly related
to supply quantities of GLASSIA by us to Takeda and transfer pricing. On August 30, 2019, we signed the sixth amendment to the
exclusive manufacturing, supply and distribution agreement with Takeda to extend the period of minimum purchases by Takeda of
GLASSIA until the end of 2021 and increase the minimum purchases under the distribution agreement. Our 2020 revenues from the
sale of GLASSIA to Takeda totaled $64.9 million and we project that total revenues from sales of GLASSIA to Takeda for 2021 will
be approximately $25 million, which is Takeda’s minimum commitment for 2021 pursuant to the agreement with Takeda. According
to the terms of the agreement, following its compliance with its purchasing obligations until the end of 2021, Takeda will have
no further obligation to purchase a minimum amount of GLASSIA.
Pursuant to the technology
license agreement described below, Takeda is planning to complete the technology transfer of GLASSIA manufacturing, and pending
FDA approval, will initiate its own production of GLASSIA for the U.S. market in 2021, following which we do not anticipate to
continue to manufacture and supply GLASSIA to Takeda under the exclusive manufacturing, supply and distribution agreement.
The distribution agreement
expires in 2040. In addition to customary termination provisions, either party may terminate the agreement, subject to certain
exceptions, in whole or solely with respect to one or more countries covered by the distribution agreement, if regulatory approval
in one or more countries covered by the distribution agreement is withdrawn or rejected and not reversed. Takeda has the right
to terminate the agreement, upon prior written notice and after a period of time, in the event that GLASSIA is determined to materially
infringe upon a third party’s intellectual property rights. In addition to the minimum purchase termination right discussed
above, we have the right to terminate the agreement upon prior written notice if Takeda infringes upon our intellectual property.
See “Item 3.
Key Information — D. Risk Factors — With the cessation of production of GLASSIA for Takeda in 2021, our revenues
and profitability will decrease.”
Technology License Agreement
The technology license
agreement provides an exclusive license to Takeda, with the right to sub-license to certain manufacturing parties, of our intellectual
property and know-how regarding the manufacture and additional development of GLASSIA for use in Takeda’s production and
sale of GLASSIA in the United States, Canada, Australia and New Zealand. Pursuant to the technology license agreement, we are
entitled to receive payments for the achievement of certain milestones for an aggregate of up to $20.0 million, of which $15.0
million are development-based milestones related to the transfer of technology to Takeda and $5.0 million are sales-based milestones.
To date, we have received $15 million of the total aggregate milestone payments under the agreement.
Takeda will complete
the technology transfer of GLASSIA manufacturing, and pending FDA approval, will initiate its own production of GLASSIA for the
U.S. market in 2021. Accordingly, based on the technology license agreement between the companies, and in addition to the above
mentioned milestone payments, upon initiation of commercial sales of GLASSIA manufactured by Takeda, Takeda will pay royalties
to us at a rate of 12% on net sales through August 2025, and at a rate of 6% thereafter until 2040, with a minimum of $5 million
annually, for each of the years from 2022 to 2040.
The intellectual property
rights for any improvements on the manufacturing process or formulations that we disclose to Takeda belong to the party that develops
the improvements, with each party agreeing to cross-license the developed improvements to the other party. We retain an option
to license any intellectual property developed by Takeda under the agreement that is not considered an improvement on the licensed
technology. Additionally, Takeda owns any intellectual property it develops using the licensed technology for new indications
for the intravenous AAT product, for which we retain an option to license at rates to be negotiated. Any technology related to
new indications for the intravenous AAT product developed by us during the royalty payments period will be part of the licensed
technology covered by the technology license agreement.
The technology license
agreement expires in 2040. Either party may terminate the agreement, in whole or solely with respect to one or more countries
covered by the distribution agreement, pursuant to customary termination provisions. Takeda also has the right to terminate the
agreement, upon prior written notice, in the event that: (i) our manufacturing process technology for GLASSIA is determined to
materially infringe upon a third party’s intellectual property rights, and we have not obtained a license to such third
party’s intellectual property or provided an alternative non-infringing manufacturing process; (ii) there are certain decreases
in GLASSIA sales in the United States unless such decreases are due to transfers to Inhaled AAT for AATD; or (iii) the regulatory
approval process in the United States has been withdrawn or rejected as a result of our inaction or lack of diligent effort, provided
such withdrawal or rejection was not primarily caused by the breach by Takeda of its obligations. We have the right to terminate
the agreement, upon prior written notice: (i) if Takeda contests or infringes upon our intellectual property; (ii) if regulatory
approval in one or more countries covered by the technology license agreement is withdrawn or rejected and not reversed, provided
it was not primarily caused by the breach by us of our obligations; (iii) in the event that GLASSIA produced by Takeda, other
than as a result of our manufacturing process technology, is determined to materially infringe upon a third party’s intellectual
property rights, provided that the termination right is limited only to the country in which such judgment is binding; or (iv)
if the first sale of GLASSIA produced by Takeda did not occur by June 15, 2017 and Takeda has not used commercially reasonable
efforts to sell by that date. Following any termination, other than expiration of the agreement, all licensed rights will revert
to us. Upon expiration of the agreement, we are obligated to grant to Takeda a non-exclusive, perpetual, royalty free license.
Kedrion (KEDRAB and Anti-SARS-CoV-2)
On July 18, 2011,
we signed an agreement with Kedrion, an international pharmaceutical company engaged in the manufacture of life-saving drugs based
on human plasma which complement our products, and which are marketed in Europe, the United States and approximately 40 other
countries worldwide. The agreement provides for exclusive cooperation on completing the clinical development, and marketing and
distribution of our anti-rabies pharmaceutical, KamRAB, in the United States under the name KEDRAB, if the product is approved.
Pursuant to the agreement, Kedrion bore all the costs of the Phase 2/3 clinical trials in the United States of our product for
rabies. Costs related to any Phase 4 clinical trials, if required, and the FDA Prescription Drug User fee that is required for
all FDA new drug approvals, will be divided equally between us and Kedrion. An addendum to the agreement was executed dated as
of October 15, 2016, with respect to the performance of a safety clinical trial for the treatment of pediatric patients in the
United States. According to such addendum, Kedrion and us agreed to equally share the cost of such trial. A second addendum to
the agreement was executed dated as of October 11, 2018, with respect to the purchase prices of KEDRAB under the agreement.
The agreement provides
exclusive rights to Kedrion to market and sell KEDRAB in the United States. We retain intellectual property rights to KEDRAB.
Kedrion is obligated to purchase a minimum amount of KEDRAB per year during the term of the agreement.
In 2014, the Phase 2/3 study was completed and successfully
met the trial’s primary endpoint of non-inferiority when measured against an IgG reference product, and in September 2016,
the BLA was submitted to the FDA. In August 2017, we received FDA approval of anti-rabies immunoglobulin as a post-exposure prophylaxis
against rabies infection. In April 2018, we launched KEDRAB in the United States. See “Item 4. Information on the Company
— Proprietary Products Segment — KamRAB/KEDRAB”. Our overall revenues from the sales of KEDRAB
to Kedrion during 2020, 2019 and 2018 were $18.3 million, $16.4 million and $11.8 million, respectively. Sales of KEDRAB by Kedrion
in the United States during the years 2020, 2019 and 2018 totaled $23.7 million, $31.4 million and $15.5 million, respectively.
Based on information provided by Kedrion, these sales represent approximately 23%, 20% and 10% share of the relevant U.S. market
in each of these years, respectively. The decrease in sales of KEDRAB by Kedrion during 2020 is attributable to the impact of the
COVID-19 pandemic.
The term of the agreement
is for six years following the receipt of FDA approval, subject to Kedrion’s option to extend the agreement by two years.
In addition to customary termination provisions, either party can terminate the agreement for any reason prior to the commencement
of clinical trials for FDA approval. Kedrion also has the right to terminate the agreement, upon prior written notice, (i) for
any reason after receipt of FDA approval, (ii) in the event that the FDA Biologics License Application is suspended or revoked
and cannot be reinstated within a certain period of time, or (iii) a major regulatory change occurs that materially and adversely
increases the clinical trial costs. We have the right to terminate the agreement in the event that (i) a major regulatory change
occurs that materially and adversely increases the manufacturing costs of KEDRAB, (ii) a major regulatory change occurs that poses
considerable difficulties on submission of an application for FDA approval or (iii) clinical trials are not initiated within a
certain time after either receipt by Kedrion of enough product or FDA approval to begin clinical trials.
In April 2020, we
entered into a binding term sheet for the co-development, manufacturing and distribution of a human plasma-derived Anti-SARS-CoV-2
polyclonal immunoglobulin (IgG) product as a potential treatment for COVID-19 patients. The plasma-derived Anti-SARS-CoV-2 IgG
product will be developed and manufactured utilizing our proprietary IgG platform technology. Pursuant to the agreed terms, Kedrion
will provide plasma, collected at its KEDPLASMA centers, from donors who have recovered from the virus and, upon receipt of regulatory
approvals, will be responsible for commercialization of the product in the U.S., Europe, Australia, South Korea, United Kingdom,
Switzerland and Norway. We are responsible for product development, manufacturing, clinical development, with Kedrion’s
support, and regulatory submissions. We will also assume distribution responsibility in all territories outside of those Kedrion
is responsible for. Marketing rights for the product in China will be shared by the parties. The binding term sheet shall remain
in full force and effect until the definitive agreements are executed by the parties, or at the latest until June 30, 2021, unless
early terminated by mutual agreement of the parties.
PARI
On November 16, 2006,
we entered into a license agreement with PARI (the “Original PARI Agreement”) regarding the clinical development of
an inhaled formulation of AAT, including Inhaled AAT for AATD, using PARI’s “eFlow” nebulizer. Under the Original
PARI Agreement, we received an exclusive worldwide license, subject to certain preexisting rights, including the right to grant
sub-licenses, to use the “eFlow” nebulizer, including the associated technology and intellectual property, for the
clinical development, registration and commercialization of inhaled formulations of AAT to treat AATD and respiratory deterioration,
and to commercialize the device for use with such inhaled formulations. The agreement also provided for PARI’s cooperation
with us during the pre-clinical phase and Phase 1 clinical trials of Inhaled AAT, where each of the parties was responsible for
developing and adapting its own product and bore the costs involved.
Pursuant to the Original
PARI Agreement, we agreed to pay PARI royalties from sales of Inhaled AAT, after certain deductions, at the rates specified in
the agreement. We have agreed to pay PARI tiered royalties ranging from the low single digits up to the high single digits based
on the annual net sales of inhaled formulations of AAT for the applicable indications. The royalties will be paid for each country
separately, until the later of (1) the expiration of the last of certain specified patents covering the “eFlow” nebulizer,
or (2) 15 years following the first commercial sale of an inhaled formulation of AAT in that country (the “PARI royalties
period”). During the PARI royalties period, PARI is obligated to pay us specified percentages of its annual sales of the
“eFlow” nebulizer for use with Inhaled AAT above a certain threshold defined in the agreement and after certain deductions.
On February 21, 2008, we entered into an addendum to the Original PARI Agreement (together with the Original PARI Agreement, the
“PARI Agreement”), which extended the exclusive global license granted to us to use the “eFlow” nebulizer,
including the associated technology and intellectual property, for the clinical development, registration and commercialization
of Inhaled AAT for two additional indications of lung disease, namely cystic fibrosis and bronchiectasis. At present, the development
of cystic fibrosis and bronchiectasis products is suspended as we prioritize other products. Pursuant to the addendum, each party
will be responsible for developing and adapting its own product for the additional indications and will bear the costs involved.
Additionally, we and PARI will supply, each at its own expense, Inhaled AAT and the “eFlow” nebulizers, respectively,
and in the quantities required for all phases of clinical studies worldwide. In addition, PARI will provide to us, at its expense,
technical and regulatory support regarding the “eFlow” nebulizer. Sales of the inhaled formulation of AAT for the
additional indications will be added to sales of the first two indications covered by the original agreement as the basis for
calculating the royalties to be paid by us to PARI.
The PARI Agreement
expires when the PARI royalties period ends. Either party can terminate the PARI Agreement upon customary termination provisions.
Additionally, upon the occurrence of any one of the following events, PARI has the right to negotiate with us in good faith about
whether to continue our collaboration: (i) PARI’s costs of the required clinical trials exceed a certain amount, unless
we or a third party incurs such expenses on behalf of PARI; (ii) an inhaled formulation of AAT is not successfully registered
with any regulatory authorities by 2016; (iii) there are no commercial sales of inhaled formulations of AAT within a certain period
after successful registration with any regulatory authority; or (iv) we cease development of inhaled formulations of AAT for a
certain period of time. If, within 180 days of PARI’s request to negotiate, we do not agree to continue the collaboration,
PARI has the option either to render the license they grant to us non-exclusive or to terminate the agreement. We have the right
to terminate the agreement, upon prior written notice, (i) in the event that the “eFlow” nebulizer is determined to
infringe upon a third party’s intellectual property rights, (ii) an injunction barring the use of the “eFlow”
nebulizer has been in place for a certain period of time, (iii) a clinical trial for inhaled formulations of AAT fails as a result
of, after a cure period, the “eFlow” nebulizer not conforming to specifications or PARI’s inability to supply
the “eFlow” nebulizer; or (iv) failure by PARI to register the “eFlow” nebulizer within a certain period
of time after receiving Phase 3 results for Inhaled AAT for AATD. Following any termination, all licensed rights will revert to
PARI, unless we terminate the agreement as a result of PARI’s bankruptcy, payment failure or material breach, in which case
we retain the license rights to the “eFlow” nebulizer as long as we continue making royalty payments.
In addition, in May
2019, we signed a Clinical Study Supply Agreement (“CSSA”) with PARI for the supply of the required quantities of
PARI’s “eTrack” controller kits and the “PARItrack” web portal associated with PARI’s “eFlow”
nebulizer required for our pivotal Phase 3 InnovAATe clinical trial and for the FDA required HFS. The CSSA is a supplement agreement
to the Original PARI Agreement and will expire upon the expiration or termination of the Original PARI Agreement.
On February 21, 2008,
we signed a commercialization and supply agreement with PARI that provides for the commercial supply of the “eFlow”
nebulizer and its spare parts to patients who are treated with the inhaled formulation of AAT, following its approval, either
through its own distributors, our distributors or independent distributors in countries where PARI does not have a distributor.
The commercialization and supply agreement expires upon the earlier of (1) the end of four years from (x) the end of the last
PARI royalties period, or (y) the termination of the PARI Agreement by one party due to the other party declaring bankruptcy,
failing to make a payment after a 30-day cure period or breach of a material provision after a 30-day cure period, or (2) the
termination of the PARI Agreement pursuant to its terms, other than for reasons as previously described, in which case the commercialization
and supply agreement terminates simultaneously with the PARI Agreement provided that PARI ensures availability of the “eFlow”
nebulizer and its associated spare parts and service to anyone being treated with the inhaled formulation of AAT at the time of
such termination, for the warranty period of the device or for a longer period, if required by the applicable law or the relevant
regulatory authority.
Manufacturing and Supply
We have a production
plant located in Beit Kama, Israel. We manufacture all of our proprietary plasma-derived products in this facility. We operate
the main production facility on a campaign-basis so that at any time the facility is assigned to produce only one product. The
division of facility time among the various products is determined based on orders received, sales forecasts and development needs.
During 2014, we completed the build out of a new logistic facility in our plant in Beit Kama that supports our logistic needs.
During each year we have routine maintenance shutdowns of our plant, which may last up to a few weeks.
Our production plant
passed various health authorities’ inspections. The plant was initially inspected by the U.S. FDA during 2010, and in March
2017 the FDA completed an inspection of our facility in connection with our GLASSIA and KEDRAB products with no critical observations.
The Israeli MOH conducted a GMP inspections in each of 2011, July 2013, February 2016 and November 2018, with no critical observations.
In July 2018, Health Canada (the department of the government of Canada with responsibility for national public health) completed
an audit in connection with the KamRAB product, with no critical observations. In February 2019, the Croatian health agency completed
a GMP inspection of our facility in connection with GLASSIA and our Inhaled AAT for AATD product, with no critical observations.
In March 2019, the Mexican heath agency completed a GMP inspection of our facility in connection with our KamRAB product, which
concluded with no critical observations and with a dispute on required corrective actions. The Kazakhstan health agency also completed
a GMP inspection in April 2019, with no critical observations. In December 2020, the Israeli MOH completed a GMP inspection with
no critical observations.
Any changes in our
production processes for our products must be approved by the FDA and/or similar authorities in other jurisdictions. From time
to time we make certain required modifications to our manufacturing process and are required to make certain filings to report
such changes to the FDA and/or other similar authorities.
Raw Materials
The main raw materials
in our Proprietary Products segment are hyper-immune plasma and fraction IV. We also use other raw materials, including both natural
and synthetic materials. We purchase raw materials from suppliers who are regulated by the FDA, EMA and other regulatory authorities.
Our suppliers are approved in their countries of origin and by the IMOH. The raw materials must comply with strict regulatory
requirements. We require our raw materials suppliers to comply with the cGMP rules, and we audit our suppliers from time to time.
We are dependent on the regular supply and availability of raw materials in our Proprietary Products segment.
We maintain relationships
with several suppliers in order to ensure availability and reduce reliance on specific suppliers. We are dependent, however, on
a number of suppliers who supply specialty ancillary products prepared for the production process, such as specific gels and filters.
See “Item 3. Key Information — D. Risk Factors — We would become supply-constrained and our financial performance
would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products
approved by the FDA, the EMA or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations
to meet regulatory requirements or if prices of the source plasma or plasma derivatives were to raise significantly.”
In the years ended
December 31, 2020, 2019 and 2018, we incurred $22.9 million, $31.5 million and $25.5 million of expenses for the purchase of raw
materials, respectively.
Plasma derived Fraction IV paste for
GLASSIA manufacturing
On August 23, 2010,
in conjunction with the partnership arrangement with Takeda, we signed a fraction IV paste supply agreement with Takeda for the
supply of fraction IV for use in the production of GLASSIA to be sold in the United States. Under this agreement, Takeda also
supplies us with fraction IV to continue the development, pre-clinical and clinical studies of GLASSIA and other AAT derived products
and for the production, sale and distribution of GLASSIA in jurisdictions other than those which are covered under the exclusive
manufacturing, supply and distribution agreement with Takeda as well as for other AAT derived products (e.g., Inhaled AAT). Takeda
receives no payment for the supply of fraction IV plasma to be used by us for the manufacture of GLASSIA to be sold to Takeda.
If we require fraction IV for other purposes, we are entitled to purchase it from Takeda at a predetermined price.
The supply agreement
terminates on August 23, 2040, subject to an option for earlier termination in the event of a material breach.
We have an additional
fraction IV plasma supplier, approved for production of GLASSIA marketed in non-U.S. countries. We are in the process of exploring
the entry into a long-term supply agreements for fraction IV plasma with additional suppliers.
Hyper-immune Plasma
We have a number of
suppliers in the United States for hyper-immune plasma with which we have long-term supply agreements. Hyper-immune plasma is
used for the production of KamRAB/KEDRAB and KamRho(D), as well as our Anti-SARS-CoV-2 IgG product currently under development.
In addition to long-term supply agreements, we work to secure availability of hyper-immune plasma on an annual basis by providing
forecasts to our suppliers based on our customers’ actual and forecasted orders. We continue to seek to enter into long-term
supply agreements for hyper-immune plasma with additional plasma-collection companies.
In January 2012, we
entered into a plasma purchase agreement with KedPlasma, a subsidiary of Kedrion, for the supply of anti-rabies hyper-immune plasma
required for the manufacturing of KamRAB (including for manufacturing of KEDRAB for sale to Kedrion for further distribution in
the U.S. market). The agreement provides for a commitment to supply certain minimum annual quantities at predetermined prices.
We are currently negotiating a renewal of the agreement terms.
Pursuant to the global
collaboration engagement with Kedrion for the co-development, manufacturing and distribution of our Anti-SARS-CoV-2 IgG product
as a potential treatment for COVID-19 patients, Kedrion through its subsidiary, KEDPLASMA, is supplying us plasma from U.S. donors
who have recovered from COVID-19 to be used for the development and manufacturing of the Anti-SARS-CoV-2 IgG product. In addition,
per our Anti-SAR-CoV-2 supply agreement with the IMOH, we will receive convalescent plasma collected and supplied by the Israeli
National Blood Services, a division of Magen David Adom (MADA).
In line with our strategy to become vertically integrated plasma-derived
company through the development and/or acquisition of plasma collection, during January 2021, we entered into an agreement for
the acquisition, subject to customary closing conditions, of the assets, licenses and business of B&PR, an FDA-licensed plasma
collection center located in Beaumont, TX. We plan to invest in growing the site’s collection volume and to leverage its
FDA license to open additional collection centers, significantly growing our overall hyperimmune plasma collection capacity.
Marketing and Distribution
In the Proprietary
Products segment, we receive orders for our products and, other than for GLASSIA and KEDRAB sales in the U.S. market, we received
requests for participation in tenders for the supply of plasma-derived protein therapeutics from potential distributors and from
existing distributors. We sell GLASSIA to Takeda for further distribution in the U.S. market (however, given the transition of
GLASSIA manufacturing to Takeda, we do not expect to continue to sell GLASSIA to Takeda after 2021), and sell to other distributors
in additional non-U.S. countries. We sell KEDRAB to Kedrion for distribution in the U.S. market and sell KamRAB and KamRho to
other distributers in additional non-U.S. countries. Pursuant to an agreement with the IMOH, we expect to supply certain quantities
of our investigational Anti-SARS-CoV-2 IgG product to the IMOH during 2021.
For our products,
we market, in most cases, by means of agreements with local distributors in each country through a tender process and/or the private
market. The tender process is conducted on a regular basis by the distributors, sometimes on an annual basis. For existing customers,
our existing relationship does not guarantee additional orders from the same customers in these tenders. The decisive parameter
is generally the price proposed in the tender. The distributor purchases plasma-derived protein therapeutics from us and sells
them to its customers (either directly or by means of sub-distributors). In most cases, we do not sign agreements with the end
users, and as such, we do not fix the price to the end user or its terms of payment and are not exposed to credit risks of the
end users. In the vast majority of cases, our agreements with the local distributors award the various distributors exclusivity
in the distribution of our plasma-derived protein therapeutics in the relevant country. The distribution agreements are, usually
made for a specific initial period and are subsequently renewed for certain agreed periods, where the parties have the right to
cancel or renew the agreements with prior notice of a number of months. In these markets, we do not actively participate in the
marketing to the end users, except for supplying marketing assistance where the cost is negligible or in some cases, reimburse
the local distributor for an agreed amount of its actual marketing expenses. In Israel, we market our plasma-derived protein therapeutics
independently to the healthcare providers and medical centers, or through a logistic partner company that specializes in the supply
of equipment and pharmaceuticals to healthcare providers.
Most of our sales outside
of Israel are made against open credit and some in documentary credit or advance payment. Most of our sales inside Israel are made
against open credit or cash. The credit given to some of our customers abroad (except for sales in documentary credit or advanced
payment) is mostly secured by means of a credit insurance policy and in certain cases with bank guarantees.
In the Distribution
segment, we market our products in Israel to HMOs and hospitals on our own or through third party logistic associates. We sell
certain of our Distribution segment products through offers to participate in public tenders that occur on an annual basis or through
direct orders. The public tender process involves HMOs and hospitals soliciting bids from several potential suppliers, including
us, and selecting the winning bid based on several attributes, the primary attributes are generally price and availability. The
annual public tender process is also used by our existing customers to determine their suppliers. As a result, our existing relationships
with customers in our Distribution segment do not guarantee additional orders from such customers year to year.
We have supply and
distribution agreements with our suppliers in our Distribution segment, including with each of our two largest suppliers to be
their exclusive distributor in Israel for a number of their manufactured products; however, we purchase our Distribution segment
products from those suppliers on a purchase order basis. We work closely with those suppliers to develop annual forecasts, but
these forecasts do not obligate our suppliers to provide us with their products.
Customers
For the year ended
December 31, 2020, sales to our three largest customers, Takeda, Kedrion and Clalit Health Services, an Israeli HMO, accounted
for 49%, 14% and 10%, respectively, of our total revenues. For the year ended December 31, 2019, sales to Takeda, Kedrion and Clalit
Health Services, an Israeli HMO, accounted for 54%, 13% and 11%, respectively, of our total revenues. For the year ended December
31, 2018, sales to Takeda and Kedrion accounted for 56% and 10%, respectively, of our total revenues.
Takeda and Kedrion
are currently our major customers in the Proprietary Products segment. Our other customers in the Proprietary Products segment
are our distributors in Argentina, Russia, Thailand, India and Brazil as well as HMOs and medical centers in Israel. In other geographies,
most of the sales of our products are conducted through local distributors. These arrangements are further described above under
“— Marketing and Distribution.”
Our primary customers
in the Distribution segment are HMOs and hospitals in Israel, including Clalit Health Services and Maccabi Healthcare Services.
Competition
The worldwide market
for pharmaceuticals in general, and biopharmaceutical and plasma products in particular, has in recent years undergone a process
of mergers and acquisitions among companies active in such markets. This trend has led to a reduction in the number of competitors
in the market and the strengthening of the remaining competitors, mainly for specific immunoglobulin products.
Proprietary Products Segment
We believe that there
are several competitors for each of our products in the Proprietary Products segment. These competitors include CSL Behring Ltd.,
Grifols S.A., which acquired a previous competitor, Talecris Biotherapeutics, Inc. in 2011, Octapharma and Kedrion (other than
for KEDRAB). These competitors are multi-national companies that specialize in plasma derived protein therapeutics and are distributing
their plasma derived pharmaceutical products worldwide. We have not seen significant changes in the activities of our competitors
in recent years. Additionally, our strategic alliance with Takeda and Kedrion in the United States has strengthened our GLASSIA
and KEDRAB competitive positioning in the market.
Our competitors have
advantages in the market because of their size, financial resources, markets and the duration of their activities and experience
in the relevant market, especially in the United States and countries of the European Union. Most of them have an additional advantage
regarding the availability of raw materials, as they fractionate plasma internally and own plasma collection centers and/or companies
that collect or produce raw materials such as plasma.
The following describes
details known to us about our most significant competitors for each of our main Proprietary Products segment products.
GLASSIA. GLASSIA
has several competitors, including plasma derived companies such as Grifols, CSL and Takeda, all of which have competing plasma
derived AAT products approved for AATD and are marketed in the U.S. as well in some countries in the EU. We estimate that: Grifols’
AAT by infusion product for the treatment of AATD, Prolastin, accounts for at least 50% market share in the United States and more
than 70% of sales worldwide. In September 2017, Grifols announced that the FDA approved a liquid formulation of its AAT product.
Apart from its sales of the past Talecris product, Grifols is also a local producer of an additional AAT product, Trypsone, which
is marketed in Spain and in some Latin American countries, including Brazil. CSL’s AAT by IV product, Zemaira, is mainly
sold in the United States, and during 2015 received centralized marketing authorization approval in the European Union. CSL launched
the product in few selected EU markets during 2016 under the brand name Respreeza. Takeda is our strategic partner for sales of
GLASSIA and it also serves existing patients in the United States with its own proprietary product, Aralast. As far as we know,
Takeda is proactively marketing both products in the United States, and currently maintaining existing patients on Aralast. In
addition, we are aware of a local producer of AAT in the French market, Laboratoire Français du Fractionnement et des Biotechnologies,
S.A. (LFB). We do not believe any new suppliers are expected to enter the United States market for plasma derived AAT by infusion
in the near future.
In addition, we have
several other competitors such as Vertex Pharmaceuticals, Inhibrx, ApicBio and Mereo, all of which have development stage programs
for new medications for treatment of AATD. Based on available public information, Vertex, a Boston, MA headquartered company, is
in early-stage clinical development of VX-864, a small molecule utilizing a correction approach to prevent protein misfolding in
the liver of AATD patients, which can otherwise aggregate and ultimately be pro-inflammatory in the liver. Vertex believes small
molecule correctors for protein misfolding could address both liver and lung disease manifestations, possibly avoiding the need
for conventional augmentation therapy, further differentiating its product candidates as a novel therapeutic approach. Inhibrx,
a California based company, is in early clinical development of INBRX-101 a recombinantly produced AAT replacement protein specifically
designed to address some limitations of plasma derived AAT replacement therapy. The modifications introduced into INBRX-101 aim
to improve the pharmacokinetic profile (PK) and obliterate inactivation through oxidation. This could offer superior clinical activity
to the current commercial plasma derived AAT by providing sustained enhanced serum concentration with a less frequent, monthly
dosing regimen. Apic Bio, a Boston, MA based company is in pre-clinical stage development of APB-101
a “liver-sparing” gene therapy designed for treatment of Alpha-1 patients. In pre-clinical studies, APB-101 demonstrated
the ability to reduce levels of the mutant Alpha-1 protein (Z-AAT) and at the same time program liver cells to produce the correct
Alpha-1 protein (M-AAT). Mereo, a UK based company, is in clinical stage of development of MPH-966 as an oral neutrophil elastase
inhibitor being explored for the potential treatment of AATD. These product candidates, if approved, may have an adverse effect
on the AATD market and reduce or eliminate the need for the currently approved plasma derived AAT augmentation therapy, and thus
may affect our ability to continue and generate revenues and earnings from our GLASSIA. In addition, these product candidates,
if approved, may have a negative effect on our ability to continue the development of our Inhaled AAT, and if approved, to market
Inhaled AAT and obtain a meaningful market share.
KamRAB/KEDRAB.
We believe that there are two main competitors for this anti-rabies product worldwide: Grifols, whose product we estimate comprises
of approximately 70%-80% of the anti-rabies market in the United States, and CSL, which sells its anti-rabies product in Europe
and elsewhere. Sanofi Pasteur, the vaccines division of Sanofi S.A., has a product registered for the United States market, but
the product is primarily sold in Europe and not currently sold in significant quantities in the United States. There are a number
of local producers in other countries that make similar anti-rabies products. Most of these products are based on equine serum,
which we believe results in inferior products, as compared to products made from human plasma. Over the past several years, a number
of companies have made attempts, and some are still in the process of developing monoclonal antibodies for an anti-rabies treatment.
The first monoclonal antibody product was approved and is available in India. These products may be as effective as the currently
available plasma derived anti-rabies vaccine and may potentially be significantly cheaper, and as such may result in loss of market
share of KamRAB/KEDRAB.
KamRho(D). While
Kedrion is our strategic partners for KEDRAB, it is also one of our competitors for KamRho(D). In addition to its sales in the
United States, Kedrion also markets a competing product in several EU countries as well as other countries world-wide. We believe
there are three additional main suppliers of competitive products in this market: Grifols, CSL and Saol Therapeutics.
There are also local producers in other countries that make similar products mostly intended for local markets.
Anti-SARS-CoV-2
IgG for COVID-19. In the wake of the COVID-19 pandemic, the CoVIg-19 Plasma Alliance partnership (the Alliance”) was
formed of the world’s leading plasma companies, spanning plasma collection, development, production and distribution with
the goal to accelerate the development of a potential treatment, and increase supply of the potential treatment. In addition to
Biotest, BPL, CSL Behring, LFB, Octapharma and Takeda all of which formed the Alliance, the following additional industry members
have reportedly joined the Alliance: ADMA Biologics, BioPharma Plasma, GC Pharma, Liminal BioSciences and Sanquin. The Alliance
is developing a plasma derived hyperimmune therapy for COVID-19 that is based on plasma collected from convalescent COVID-19 patients,
which is similar to our Anti-SARS-CoV-2 investigational IgG product. In addition, the Alliance recently announced the initiation
of the ITAC Phase 3 clinical trial sponsored by the NIAID, part of the NIH, which will evaluate the safety, tolerability and efficacy
of an investigational anti-coronavirus hyperimmune intravenous immunoglobulin (H-Ig) medicine for treating hospitalized adults
at risk for serious complications of COVID-19 disease. If successful, the Alliance’s product may become one of the earliest
treatment options for hospitalized COVID-19 patients. This product, if approved, may affect our ability to launch and/or market
our Anti-SARS-CoV-2 investigational IgG product, if approved.
In addition, a number
of companies are in the process of advanced development of monoclonal antibodies for an Anti-SARS-CoV-2 treatment, such as Regeneron’s
casirivimab and imdevimab which form a novel monoclonal antibody cocktail being studied for its potential both to treat appropriate
patients with COVID-19 and to prevent SARS-CoV-2 infection, and Eli Lilly’s investigational neutralizing antibody bamlanivimab
(LY-CoV555) 700 mg. Bamlanivimab which received emergency use authorization from the FDA for the treatment of mild to moderate
COVID-19 in adults and pediatric patients 12 years and older with a positive COVID-19 test, who are at high risk for progressing
to severe COVID-19 and/or hospitalization. Moreover, the FDA recently issued an Emergency Use Authorization for convalescent plasma
as a potential treatment for COVID–19. Convalescent plasma plays an important role in the immediate and intermediate response
to the disease. These products and other similar products may be as effective as our plasma derived IgG product, may obtain approval
for the FDA, EMA or other regulatory agencies sooner than our product, may be significantly cheaper, and as such may affect our
ability to launch and/or gain sufficient market share with our Anti-SARS-CoV-2 investigational IgG product, if approved.
Distribution Segment
We believe that there
are a number of companies active in the Israeli market distributing the products of several manufacturers whose comparable products
compete with our products in the Distribution segment. In the plasma area, these manufacturers include Grifols, Takeda, CSL, Omrix
Biopharmaceuticals Ltd. (a Johnson & Johnson company), while in other specialties and biosimilar products we may be competing
against products produced by some of largest pharmaceutical manufacturers in the world, such as, Novartis AG, AstraZeneca AB, Sanofi
UK and GlaxoSmithKline. These competing manufacturers have advantages of size, financial resources, market share, broad product
selection and extensive experience in the market, although we believe that we have established expertise in the Israeli market.
Each of these competitors sells its products through a local subsidiary or a local representative in Israel.
Government Regulation
Government authorities
in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the
research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion,
advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we
sell and are developing. Except for compassionate use or non-registered named-patient cases, any pharmaceutical candidate that
we develop must be approved by the FDA before it may be legally marketed in the United States and by the appropriate regulatory
agencies of other countries before it may be legally marketed in such other countries. In addition, any changes or modifications
to a product that has received regulatory clearance or approval that could significantly affect its safety or effectiveness, or
would constitute a major change in its intended use, may require the submission of a new application in the United States and/or
in other countries for pre-market approval. The process of obtaining such approvals can be expensive, time consuming and uncertain.
U.S. Drug Development Process
In the United States,
pharmaceutical products are regulated by the FDA under the Federal Food, Drug, and Cosmetic Act and other laws, including, in the
case of biologics, the Public Health Service Act. All of our products for human use and product candidates in the United States,
including GLASSIA, are regulated by the FDA as biologics. Biologics require the submission of a BLA and approval or license by
the FDA prior to being marketed in the United States. Manufacturers of biologics may also be subject to state regulation. Failure
to comply with regulatory requirements, both before and after product approval, may subject us and/or our partners, contract manufacturers
and suppliers to administrative or judicial sanctions, including FDA delay or refusal to approve applications, warning letters,
product recalls, product seizures, import restrictions, total or partial suspension of production or distribution, fines and/or
criminal prosecution.
The steps required
before a biologic drug may be approved for marketing for an indication in the United States generally include:
|
1.
|
preclinical laboratory tests and animal tests;
|
|
2.
|
submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical trials may commence;
|
|
3.
|
adequate and well-controlled human clinical trials to establish the safety and efficacy of the product;
|
|
4.
|
submission to the FDA of a BLA or supplemental BLA;
|
|
5.
|
FDA pre-approval inspection of product manufacturers; and
|
|
6.
|
FDA review and approval of the BLA or supplemental BLA.
|
Preclinical studies
include laboratory evaluation, as well as animal studies to assess the potential safety and efficacy of the product candidate.
Preclinical safety tests must be conducted in compliance with FDA regulations regarding good laboratory practices. The results
of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND
which must become effective before human clinical trials may be commenced. The IND will automatically become effective 30 days
after receipt by the FDA, unless the FDA before that time raises concerns about the drug candidate or the conduct of the trials
as outlined in the IND. The IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. There
can be no assurance that submission of an IND will result in FDA authorization to commence clinical trials or that, once commenced,
other concerns will not arise that could lead to a delay or a hold on the clinical trials.
Clinical trials involve
the administration of the investigational product to healthy volunteers or to patients, under the supervision of qualified principal
investigators. Each clinical study at each clinical site must be reviewed and approved by an independent institutional review board,
prior to the recruitment of subjects. Numerous requirements apply including, but not limited to, good clinical practice regulations,
privacy regulations, and requirements related to the protection of human subjects, such as informed consent.
Clinical trials are
typically conducted in three sequential phases, but the phases may overlap and different trials may be initiated with the same
drug candidate within the same phase of development in similar or differing patient populations.
|
●
|
Phase 1 studies may be conducted in a limited number of patients, but are usually conducted in healthy volunteer subjects. The drug is usually tested for safety and, as appropriate, for absorption, metabolism, distribution, excretion, pharmacodynamics and pharmacokinetics.
|
|
●
|
Phase 2 usually involves studies in a larger, but still limited, patient population to evaluate preliminarily the efficacy of the drug candidate for specific, targeted indications; to determine dosage tolerance and optimal dosage; and to identify possible short-term adverse effects and safety risks.
|
|
●
|
Phase 3 trials are undertaken to further evaluate clinical efficacy of a specific endpoint and to test further for safety within an expanded patient population at geographically dispersed clinical study sites.
|
Phase 1, Phase 2 or
Phase 3 testing may not be completed successfully within any specific time period, if at all, with respect to any of our product
candidates. Results from one trial are not necessarily predictive of results from later trials, the FDA may require additional
testing or a larger pool of subjects beyond what we proposed as the clinical development process proceeds, thereby requiring more
time and resources to complete the trials. Furthermore, the FDA may suspend clinical trials at any time on various grounds, including
a finding that the subjects or patients are being exposed to an unacceptable health risk, or may not allow the importation of the
clinical trial materials if there is non-compliance with applicable laws.
The results of the
preclinical studies and clinical trials, together with other detailed information, including information on the manufacture and
composition of the product, are submitted to the FDA as part of a BLA requesting approval to market the product candidate for a
proposed indication. Under the Prescription Drug User Fee Act, as amended, the fees payable to the FDA for reviewing a BLA, as
well as annual fees for commercial manufacturing establishments and for approved products, can be substantial. The BLA review fee
alone can exceed $2,800,000, subject to certain limited deferrals, waivers and reductions that may be available. Each BLA submitted
to the FDA for approval is typically reviewed for administrative completeness and reviewability within 45 to 60 days following
submission of the application. If found complete, the FDA will “file” the BLA, thus triggering a full review of the
application. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission.
The FDA’s established goals are to review and act on 90% of priority BLA applications and priority original efficacy supplements
within six months of the 60-day filing date and receipt date, respectively. The FDA’s goals are to review and act on 90%
of standard BLA applications and standard original efficacy supplements within 10 months of the 60-day filing date and receipt
date, respectively. The FDA, however, may not be able to approve a drug within these established goals, and its review goals are
subject to change from time to time. Further, the outcome of the review, even if generally favorable, may not be an actual approval
but an “action letter” that describes additional work that must be done before the application can be approved. Before
approving a BLA, the FDA may inspect the facilities at which the product is manufactured or facilities that are significantly involved
in the product development and distribution process, and will not approve the product unless cGMP compliance is satisfactory. The
FDA may deny approval of a BLA if applicable statutory or regulatory criteria are not satisfied, or may require additional testing
or information, which can delay the approval process. FDA approval of any application may include many delays or never be granted.
If a product is approved, the approval will impose limitations on the indicated uses for which the product may be marketed, will
require that warning statements be included in the product labeling, may impose additional warnings to be specifically highlighted
in the labeling (e.g., a Black Box Warning), which can significantly affect promotion and sales of the product, may require
that additional studies be conducted following approval as a condition of the approval, may impose restrictions and conditions
on product distribution, prescribing or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval.
To market a product for other uses, or to make certain manufacturing or other changes requires prior FDA review and approval of
a BLA Supplement or new BLA. Further post-marketing testing and surveillance to monitor the safety or efficacy of a product is
required. Also, product approvals may be withdrawn if compliance with regulatory standards is not maintained or if safety or manufacturing
problems occur following initial marketing. In addition, new government requirements may be established that could delay or prevent
regulatory approval of our product candidates under development.
As part of the Patient
Protection and Affordable Care Act (the “healthcare reform law”), Public Law No. 111-148, under the subtitle of Biologics
Price Competition and Innovation Act of 2009 (“BPCIA”), a statutory pathway has been created for licensure, or approval,
of biological products that are biosimilar to, and possibly interchangeable with, earlier biological products approved by the FDA
for sale in the United States. Also under the BPCIA, innovator manufacturers of original reference biological products are granted
12 years of exclusive use before biosimilars can be approved for marketing in the United States. There have been proposals to shorten
this period from 12 years to seven years. The objectives of the BPCI are conceptually similar to those of the Drug Price Competition
and Patent Term Restoration Act of 1984, commonly referred to as the “Hatch-Waxman Act,” which established abbreviated
pathways for the approval of drug products. A biosimilar is defined in the statute as a biological product that is highly similar
to an already approved biological product, notwithstanding minor differences in clinically inactive components, and for which there
are no clinically meaningful differences between the biosimilar and the approved biological product in terms of the safety, purity,
and potency. Under this approval pathway, biological products can be approved based on demonstrating they are biosimilar to, or
interchangeable with, a biological product that is already approved by the FDA, which is called a reference product. If we obtain
approval of a BLA, the approval of a biologic product biosimilar to one of our products could have a significant impact on our
business. The biosimilar product may be significantly less costly to bring to market and may be priced significantly lower than
our products.
Both before and after
the FDA approves a product, the manufacturer and the holder or holders of the BLA for the product are subject to comprehensive
regulatory oversight. For example, quality control and manufacturing procedures must conform, on an ongoing basis, to cGMP requirements,
and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, manufacturers must continue
to spend time, money and effort to maintain cGMP compliance. In addition, a BLA holder must comply with post-marketing requirements,
such as reporting of certain adverse events. Such reports can present liability exposure, as well as increase regulatory scrutiny
that could lead to additional inspections, labeling restrictions, or other corrective action to minimize further patient risk.
Special Development and Review Programs
Orphan Drug Designation
The FDA may grant orphan
drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United
States, or if it affects more than 200,000 individuals in the United States and there is no reasonable expectation that the cost
of developing and making the drug for this type of disease or condition will be recovered from sales in the United States. In the
United States, orphan drug designation must be requested before submitting a BLA or supplemental BLA.
In the European Union,
the Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended
for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than
five in 10,000 persons in the European Union community. Additionally, this designation is granted for products intended for the
diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without
incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment
in developing the drug or biological product.
We received an orphan
drug designation in the United States and Europe for multiple indications. Inhaled AAT for AATD has received an orphan drug designation
in the United States and Europe. The inhaled formulation of AAT for the treatment of cystic fibrosis has received an orphan drug
designation in the United States and Europe. The inhaled formulation of AAT for the treatment of bronchiectasis has received an
orphan drug designation in the United States. The additional indication for GLASSIA for the treatment of newly diagnosed cases
of Type-1 Diabetes has received an orphan drug designation in the United States. In addition, the indication for AAT for the treatment
of Graft versus Host Disease has received an orphan drug designation in the United States and Europe, and the indication for AAT
for the treatment of Prophylactic Graft versus Host Disease has received an orphan drug designation in the United States.
In the United States,
orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial
costs, tax advantages and user-fee waivers. In addition, if a product and its active ingredients receive the first FDA approval
for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA
may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited
circumstances, such as a showing of clinical superiority over the product with orphan exclusivity. Orphan drug designation does
not convey any advantage in, or shorten the duration of, the regulatory review and approval process. In addition, the FDA may rescind
orphan drug designation and, even with designation, may decide not to grant orphan drug exclusivity even if a marketing application
is approved. Furthermore, the FDA may approve a competitor product intended for a non-orphan indication, and physicians may prescribe
the drug product for off-label uses, which can undermine exclusivity and hurt orphan drug sales. There has also been litigation
that has challenged the FDA’s interpretation of the orphan drug exclusivity regulatory provisions, which could potentially
affect our ability to obtain exclusivity in the future.
In the European Union,
orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of
market exclusivity is granted following drug or biological product approval. This period may be reduced to six years if the orphan
drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify
maintenance of market exclusivity or a safer, more effective or otherwise clinically superior product is available.
In the European Union,
an application for marketing authorization can be submitted after the application for orphan drug designation has been submitted,
while the designation is still pending, but should be submitted prior to the designation application in order to obtain a fee reduction.
Orphan drug designation does not convey any advantage in except eligibility to conditional approval process, or shorten the duration
of, the regulatory review and approval process.
Post-Approval Requirements
Any drug products for
which we receive FDA approvals are subject to continuing regulation by the FDA. Certain requirements include, among other things,
record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy
information on an annual basis or more frequently for specific events, product sampling and distribution requirements, complying
with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements. These
promotion and advertising requirements include, among others, standards for direct-to-consumer advertising, prohibitions against
promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling (known as “off-label
use”), and other promotional activities. Failure to comply with FDA requirements can have negative consequences, including
the immediate discontinuation of noncomplying materials, adverse publicity, warning letters from or other enforcement by the FDA,
mandated corrective advertising or communications with doctors, and civil or criminal penalties. Such enforcement may also lead
to scrutiny and enforcement by other government and regulatory bodies. Although physicians may prescribe legally available drugs
for off-label uses, manufacturers may not encourage, market or promote such off-label uses.
The manufacturing of
our product candidates is required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations.
Our product candidates are either manufactured at our production plant in Beit Kama, Israel, or, for products where we have entered
into a strategic partnership with a third party to cooperate on the development of a product candidate, at a third-party manufacturing
facility. These regulations require, among other things, quality control and quality assurance, as well as the corresponding maintenance
of comprehensive records and documentation. Drug manufacturers and other entities involved in the manufacture and distribution
of approved drugs are also required to register their establishments and list any products they make with the FDA and to comply
with related requirements in certain states. These entities are further subject to periodic unannounced inspections by the FDA
and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money
and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after
approval may result in serious and extensive restrictions on a product, manufacturer or holder of an approved BLA, as well as lead
to potential market disruptions. These restrictions may include suspension of a product until the FDA is assured that quality standards
can be met, continuing oversight of manufacturing by the FDA under a “consent decree,” which frequently includes the
imposition of costs and continuing inspections over a period of many years, as well as possible withdrawal of the product from
the market. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented. Other
types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further
FDA review and approval, including possible user fees.
The FDA also may require
a Boxed Warning (e.g., a specific warning in the label to address a specific risk, sometimes referred to as a “Black Box
Warning”), which has marketing restrictions, and post-marketing testing, or Phase 4 testing, as well as a Risk Evaluation
and Minimization Strategy (REMS) plans and surveillance to monitor the effects of an approved product or place conditions on an
approval that could otherwise restrict the distribution or use of the product.
Other U.S. Healthcare Laws and Compliance
Requirements
In the United States,
our activities are potentially subject to regulation and enforcement by various federal, state and local authorities in addition
to the FDA, including the Centers for Medicare and Medicaid Services other divisions of the United States Department of Health
and Human Services (e.g., the Office of Inspector General), the U.S. Federal Trade Commission, the U.S. Department of Justice and
individual United States Attorney’s offices within the Department of Justice, state attorneys general and state and local
governments. To the extent applicable, we must comply with the fraud and abuse provisions of the Social Security Act, the federal
False Claims Act, the privacy and security provisions of the Health Insurance Portability and Accountability Act, and similar state
laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation
Act of 1990 and the Veterans Health Care Act of 1992, each as amended, as well as the “Anti-Kickback Law” provisions
of the Social Security Act. If products are made available to authorized users of the Federal Supply Schedule of the General Services
Administration, additional laws and requirements apply. Under the Veterans Health Care Act (“VHCA”), drug companies
are required to offer certain pharmaceutical products at a reduced price to a number of federal agencies, including the United
States Department of Veterans Affairs and United States Department of Defense, the Public Health Service and certain private Public
Health Service-designated entities in order to participate in other federal funding programs including Medicare and Medicaid. Legislative
changes have purported to require that discounted prices be offered for certain United States Department of Defense purchases for
its TRICARE program via a rebate system. Participation under the VHCA requires submission of pricing data and calculation of discounts
and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the
Federal Acquisition Regulations. Furthermore, the FCPA prohibits any U.S. individual or business from paying, offering, authorizing
payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the
purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or
retaining business. The FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals
are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to
hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and
have led to FCPA enforcement actions. The failure to comply with laws governing international business practices may result in
substantial penalties, including civil and criminal penalties.
In order to distribute
products commercially, we must comply with federal and state laws and regulations that require the registration of manufacturers
and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors
which ship products into the state even if such manufacturers or distributors have no place of business within the state. Federal
and some state laws also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain
of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing
product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical companies
to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing,
pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and
other healthcare entities from providing certain physician prescribing data to pharmaceutical companies for use in sales and marketing,
and to prohibit certain other sales and marketing practices. Additionally, the federal Physician Payments Sunshine Act and implementing
regulations promulgated pursuant to Section 6002 of the healthcare reform law requires the tracking and reporting of certain transfers
of value made to U.S. physicians and/or certain teaching hospitals as well as ownership by a physician or a physician’s family
member in a pharmaceutical manufacturer. Finally, all of our activities are potentially subject to federal and state consumer protection
and unfair competition laws. These laws may affect our sales, marketing, and other promotional activities by imposing administrative
and compliance burdens on us. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting
actions could be subject to the penalty provisions of the pertinent state, and federal authorities.
On August 6, 2020,
the President of the United States issued the Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical
Inputs Are Made in the United States (Executive Order 13944), which required the U.S. government to purchase “essential”
medicines and medical supplies produced domestically, rather than abroad. Subsequently, on October 30, 2020 the FDA published a
list of essential medicines, medical countermeasures, and critical inputs as required by Executive Order. The FDA has identified
around 227 drugs and 96 devices, along with their respective critical inputs or active ingredients, that the FDA believes “are
medically necessary to have available at all times” for the public health. Agencies across the federal government are expected
to implement the “Buy American” priorities of the Executive Order through initiation of procurement strategies to help
strengthen U.S. manufacturing capabilities and focus their efforts and attention on mobilizing domestic production of these specific
items. This includes the FDA accelerating approval and clearance of domestically produced medicines and countermeasures, and it
may also include contract awards to specific vendors to speed up domestic production. Rabies immune globulin, such as KEDRAB, is
included in the list, and given that KEDRAB is manufactured outside the United States, implementation of the “Buy American”
priorities of the Executive Order may affect our ability to continue selling the product to governmental agencies in the U.S. market
or otherwise require us to invest in acquiring manufacturing capabilities for the product in the U.S., either directly or through
contract manufacturing arrangements. The full effect of the implementation of the Executive Order on our commercial operations
and results of operations cannot be currently estimated.
Europe/Rest of World Government Regulation
In addition to regulations
in the United States, we are subject to a variety of regulations in other jurisdictions governing, among other things, clinical
trials and any commercial sales and distribution of our products.
Whether or not we obtain
FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries
before we can commence clinical trials or marketing of the product in those countries. For example, in the European Union, a clinical
trial application (“CTA”) must be submitted to each member state’s national health authority and an independent
ethics committee. The CTA must be approved by both the national health authority and the independent ethics committee prior to
the commencement of a clinical trial in the member state. The approval process varies from country to country and the time may
be longer or shorter than that required for FDA approval. In addition, the requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement vary greatly from country to country. In all cases, clinical trials are conducted
in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration
of Helsinki.
To obtain marketing
approval of a drug under European Union regulatory systems, we may submit marketing authorization applications either under a centralized,
decentralized or national procedure. The centralized procedure provides for the grant of a single marketing authorization that
is valid for all European Union member states. The centralized procedure is compulsory for medicines produced by certain biotechnological
processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment
of certain diseases, and optional for those products that are highly innovative or for which a centralized process is in the interest
of patients. For our products and product candidates that have received or will receive orphan designation in the European Union,
they will qualify for this centralized procedure, under which each product’s marketing authorization application will be
submitted to the EMA. Under the centralized procedure in the European Union, the maximum time frame for the evaluation of a marketing
authorization application is 210 days (excluding clock stops, when additional written or oral information is to be provided by
the applicant in response to questions asked by the Scientific Advice Working Party of the Committee of Medicinal Products for
Human Use (“CHMP”)). Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product
is expected to be of a major public health interest, defined by three cumulative criteria: the seriousness of the disease, such
as heavy disabling or life-threatening diseases, to be treated; the absence or insufficiency of an appropriate alternative therapeutic
approach; and anticipation of high therapeutic benefit. In this circumstance, the EMA ensures that the opinion of the CHMP is given
within 150 days.
The decentralized procedure
provides possibility for approval by one or more other, or concerned, member states of an assessment of an application performed
by one member state, known as the reference member state. Under this procedure, an applicant submits an application, or dossier,
and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference
member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials
within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment
report, each concerned member state must decide whether to approve the assessment report and related materials. If a member state
cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed
points may eventually be referred to the European Commission, whose decision is binding on all member states.
For other countries
outside of the European Union, such as countries in Eastern Europe, Latin America, Asia and Israel, the requirements governing
the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again,
the clinical trials are conducted in accordance with GCPs and the applicable regulatory requirements and the ethical principles
that have their origin in the Declaration of Helsinki.
If we fail to comply
with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory
approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Pharmaceutical Coverage, Pricing
and Reimbursement
Significant uncertainty
exists as to the coverage and reimbursement status of product candidates for which we obtain regulatory approval. In the United
States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will
depend, in part, on the coverage and reimbursement decisions made by payors. In the United States, third-party payors include government
health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining
whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement
rate that the payor will pay for the drug product. Payors may limit coverage to specific drug products on an approved list, or
formulary, which might not include all of the FDA-approved drug products for a particular indication. Third-party payors are increasingly
challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition
to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity
and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our product candidates may
not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not
imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us
to maintain price levels sufficient to realize an appropriate return on our investment in product development.
Several significant
laws have been enacted in the United States which affect the pharmaceutical industry and additional federal and state laws have
been proposed in recent years. For example, as a result of the Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (“MMA”), a Medicare prescription drug benefit (Medicare Part D) became effective at the beginning of 2006. Medicare
is the federal health insurance program for people who are 65 or older, certain younger people with disabilities, and people with
End-Stage Renal Disease. Medicare coverage and reimbursement for some of the costs of prescription drugs may increase demand for
any products for which we receive FDA approval. However, we would be required to sell products to Medicare beneficiaries through
entities called “prescription drug plans,” which will likely seek to negotiate discounted prices for our products.
Federal, state and
local governments in the United States continue to consider legislation to limit the growth of healthcare costs, including the
cost of prescription drugs. Future legislation and regulation could further limit payments for pharmaceuticals such as the product
candidates that we are developing. In addition, court decisions have the potential to affect coverage and reimbursement for prescription
drugs. It is unclear whether future legislation, regulations or court decisions will affect the demand for our product candidates
once commercialized.
As another example,
in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Healthcare and Education
Reconciliation Act of 2010 (collectively referred to as the “health care reform law”). The health care reform law made
significant changes to the United States healthcare system, such as imposing new requirements on health insurers, expanding the
number of individuals covered by health insurance, modifying healthcare reimbursement and delivery systems, and establishing new
requirements designed to prevent fraud and abuse. In addition, provisions in the health care reform law promote the development
of new payment and healthcare delivery systems, such as the Medicare Shared Savings Program, bundled payment initiatives and the
Medicare pay for performance initiatives.
The health care reform
law and the related regulations, guidance and court decisions have had, and will continue to have, a significant impact on the
pharmaceutical industry. In addition to the general reforms briefly described above, provisions of the health care reform law directly
address drugs. For example, the health care reform law:
|
●
|
increases the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1%;
|
|
●
|
requires Medicaid rebates for covered outpatient drugs to be extended to Medicaid managed care organizations;
|
|
●
|
requires manufacturers of drugs covered under Medicare Part D to participate in a coverage gap discount program, under which they must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible Medicare beneficiaries during their coverage gap period; and
|
|
●
|
imposes a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” to specified federal government programs.
|
On April 1, 2016, final
regulations issued by the Centers for Medicare and Medicaid Services to implement the changes to the Medicaid Drug Rebate Program
under the healthcare reform law became effective.
Some provisions of
the healthcare reform law have yet to be fully implemented, and President Donald Trump has vowed to repeal the healthcare reform
law. On January 20, 2017, President Donald Trump signed an executive order stating that the administration intended to seek prompt
repeal of the healthcare reform law, and, pending repeal, directed by the U.S. Department of Health and Human Services and other
executive departments and agencies to take all steps necessary to limit any fiscal or regulatory burdens of the healthcare reform
law. On October 12, 2017, President Trump signed another Executive Order directing certain federal agencies to propose regulations
or guidelines to permit small businesses to form association health plans, expand the availability of short-term, limited duration
insurance, and expand the use of health reimbursement arrangements, which may circumvent some of the requirements for health insurance
mandated by the healthcare reform law. The U.S. Congress has also made several attempts to repeal or modify the healthcare reform
law. In addition, there is ongoing litigation regarding the implementation and constitutionality of the healthcare reform law.
While the law is still in effect pending the ultimate resolution of the litigation, the outcome of the litigation is unknown and
cannot be predicted. It is uncertain whether new legislation will be enacted to replace the healthcare reform law and whether any
such legislation would affect coverage and reimbursement for prescription drugs or otherwise include provisions intended to limit
the growth of healthcare costs.
Different pricing and
reimbursement schemes exist in other countries. In the European Community, governments influence the price of pharmaceutical products
through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of
those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed
once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the
completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies.
Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward
pressure of healthcare costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high
barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets
exert a commercial pressure on pricing within a country.
The marketability of
any drug candidates for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors
fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and
we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates
may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive
regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Intellectual Property
Our success depends,
at least in part, on our ability to protect our proprietary technology and intellectual property, and to operate without infringing
or violating the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright laws,
know-how, intellectual property licenses and other contractual rights (including confidentiality and invention assignment agreements)
to protect our intellectual property rights.
Patents
As of December 31,
2020, we owned for use within our field of business eleven families of patents and patent applications, all of which are granted
or pending, respectively, in the United States, most were also filed in Europe, Canada and Israel and some were additionally filed
in Russia, Turkey, certain Latin American countries, Australia and other countries, two pending PCT applications and four US provisional
applications. At present, one patent family protecting our manufacturing process of GLASSIA is considered to be material to the
operation of our business as a whole. Such patent has been issued in a variety of jurisdictions, including Australia, Austria,
Belgium, Canada, Denmark, Estonia, Israel, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Slovenia, Poland, Spain,
Portugal, Sweden, Switzerland, Turkey, the United Kingdom and the United States, and is due to expire in 2024. Furthermore, we
own a patent family filed in 2018, protecting our manufacturing process of immunoglobulins. This patent family includes pending
applications in the U.S., Canada, Europe and Israel.
Our patents generally
relate to the separation and purification of proteins and their respective pharmaceutical compositions. Our patents and patent
applications further relate to the use of our products for a variety of clinical indications, and their delivery methods. Our patents
and patent applications are expected to expire at various dates between 2024 and 2040. We also rely on trade secrets to protect
certain aspects of our separation and purification technology.
The patent positions
of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify
our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims
once granted. We do not know whether any of our patent applications or any patent applications that we license will result in the
issuance of any patents and there is no guarantee that patent applications that were filed with the patent offices, which are still
pending, will be eventually granted and will be registered. Additionally, our issued patents and those that may be issued in the
future may be challenged, opposed, narrowed, circumvented or found to be invalid or unenforceable, which could limit our ability
to stop competitors from marketing related products or the length of term of patent protection that we may have for our products.
We cannot be certain that we were the first to file the inventions claimed in our owned patents or patent applications. In addition,
our competitors or other third parties may independently develop similar technologies that do not fall within the scope of the
technology protected under our patents, or duplicate any technology developed by us, and the rights granted under any issued patents
may not provide us with any meaningful competitive advantages against these competitors. Furthermore, because of the extensive
time required for research and development, testing and regulatory review of a potential product until authorization for marketing,
it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only
a short period following commercialization, thereby reducing any advantage of the patent.
Trademarks
We rely on trade names,
trademarks and service marks to protect our name brands. Our registered trademarks in several countries, such as United States
and the European Union, Israel, and certain Latin American countries, include the trademarks GLASSIA, RESPIKAM, KAMRAB, KEDRAB, KAMADA RESPIRA, KamRHO-D, KamRHO, KAMADA and Rebinolin.
Trade Secrets and Confidential Information
We rely on, among other
things, confidentiality and invention assignment agreements to protect our proprietary know-how and other intellectual property
that may not be patentable, or that we believe is best protected by means that do not require public disclosure. For example, we
require our employees, consultants and service providers to execute confidentiality agreements in connection with their engagement
with us. Under such agreement, they are required, during the term of the commercial relationship with us and thereafter, to disclose
and assign to us inventions conceived in connection with their services to us. However, there can be no assurance that these agreements
will be fulfilled or shall be enforceable, or that these agreements will provide us with adequate protection. See “Item 3.
Key Information — D. Risk Factors — In addition to patented technology, we rely on our unpatented proprietary technology,
trade secrets, processes and know-how.”
We may be unable to
obtain, maintain and protect the intellectual property rights necessary to conduct our business, and may be subject to claims that
we infringe or otherwise violate the intellectual property rights of others, which could materially harm our business. For a more
comprehensive summary of the risks related to our intellectual property, see “Item 3. Key Information — D. Risk Factors.”
Property
Our production plant
was built on land that Kamada Assets (2001) Ltd. (“Kamada Assets”), our 74%-owned subsidiary, leases from the Israel
Land Administration pursuant to a capitalized long-term lease. Kamada Assets subleases the property to us. The property covers
an area of approximately 16,880 square meters. The initial sublease expires in 2058 and we have an option to extend the sublease
for an additional term of 49 years. The production plant includes our manufacturing facility, manufacturing support systems, packaging,
warehousing and logistics areas, laboratory facilities and an area for the manufacture of snake bite anti-serum, as well as office
buildings.
Since January 2017,
we have leased approximately 2,200 square meters of a building located in the Kiryat Weizmann Science Park in Rehovot, Israel,
which replaced our former Ness Ziona premises. This property houses our head office, our research and development laboratory and
additional departments such as our research and development, clinical, medical, regulatory and business development departments.
We sublease approximately 500 square meters of such premises to a third-party renter.
Environmental
We believe that our
operations comply in material respects with applicable laws and regulations concerning the environment. While it is impossible
to predict accurately the future costs associated with environmental compliance and potential remediation activities, compliance
with environmental laws is not expected to require significant capital expenditures and has not had, and is not expected to have,
a material adverse effect on our earnings or competitive position.
Organizational Structure
Our significant subsidiaries
are set forth below. All subsidiaries are either 100 percent owned by us or controlled by us. All companies are incorporated and
registered in the country in which they operate as listed below:
Legal Name
|
|
Jurisdiction
|
Kamada Biopharma Limited
|
|
England and Wales
|
Kamada Inc.
|
|
Delaware
|
Kamada Plasma LLC
|
|
Delaware (wholly owned by Kamada Inc)
|
Kamada Assets (2001) Ltd.
|
|
Israel
|
Kamada Ireland Limited
|
|
Ireland
|
Legal Proceedings
We are subject to various
claims and legal actions during the ordinary course of our business. We believe that there are currently no claims or legal actions
that would have a material adverse effect on our financial position, operations or potential performance.
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review
and Prospects
The following discussion
of our financial condition and results of operations should be read in conjunction with “Item 3. Key Information—A.
Selected Financial Data” and our consolidated financial statements and the related notes to those statements included elsewhere
in this Annual Report. In addition to historical consolidated financial information, the following discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events
may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed
under “Item 3. Key Information—D. Risk Factors” and elsewhere in this Annual Report.
The audited consolidated
financial statements for the years ended December 31, 2020, 2019 and 2018 in this Annual Report have been prepared in accordance
with IFRS as issued by the IASB. None of the financial information in this Annual Report has been prepared in accordance with
U.S. GAAP.
Overview
We are a global specialty
plasma-derived biopharmaceutical company with a diverse portfolio of marketed products, a robust development pipeline and industry-leading
manufacturing capabilities. Our strategy is focused on driving profitable growth from our current commercial activities and our
plasma-derived product development and manufacturing expertise. We operate in two segments: the Proprietary Products segment, in
which we use our proprietary platform technology and know-how for the extraction and purification of proteins from human plasma
to manufacture, in our cGMP compliant, FDA-approved production facility located in Beit Kama, Israel, six plasma-derived biopharmaceutical
products that we market in more than 20 countries, including our two leading products GLASSIA and KEDRAB; and the Distribution
segment, in which we leverage our expertise and presence in the Israeli market by distributing more than 20 pharmaceutical products
manufactured by third-parties for use in Israel.
Our Products and Commercial Activities
GLASSIA was the first
liquid, ready-to-use, intravenous plasma-derived AAT product approved by the FDA. GLASSIA is an intravenous AAT product that is
indicated for chronic augmentation and maintenance therapy in adults with emphysema due to AATD, and is also approved for self-administration.
We market GLASSIA through a strategic partnership with Takeda in the United States. Our 2020 revenues from the sale of GLASSIA
to Takeda totaled $64.9 million, as compared to $68.1 million and $63.3 million during 2019 and 2018, respectively. Based on our
exclusive manufacturing, supply and distribution agreement with Takeda, we project that total revenues from sales of GLASSIA to
Takeda during 2021 will be approximately $25 million, which is Takeda’s minimum commitment for 2021 pursuant to our existing
supply agreement. Based on the licensing and technology transfer agreement between the parties, Takeda is planning to complete
the technology transfer of GLASSIA, and pending FDA approval, will initiate its own production of GLASSIA for the U.S. market in
2021. Accordingly, based on the agreement between the companies, upon initiation of sales of GLASSIA manufactured by Takeda, it
will pay royalties to us at a rate of 12% on net sales through August 2025, and at a rate of 6% thereafter until 2040, with a minimum
of $5 million annually for each of the years from 2022 to 2040. While the transition to royalties phase will result in a reduction
of our revenue from Takeda, we project, based on current GLASSIA sales in the U.S. and forecasted future growth, to receive royalties
from Takeda in the range of $10 million to $20 million per year for 2022 to 2040.
We also market GLASSIA
in other counties through local distributors. Total revenues derived from sales of GLASSIA in all other countries during 2020 was
$5.5 million, as compared to $5.5 million and $5.0 million during 2019 and 2018, respectively.
KamRAB, a hyper-immune plasma-derived therapeutic for prophylactic
treatment against rabies infection administered to patients after exposure to a suspected rabid animal, is manufactured by us from
plasma that contains high levels of antibodies from donors that have been previously vaccinated by an active rabies vaccine. KamRAB
has been sold by us in various markets outside the United States through local distributors since 2003. In July 2011, we signed
a strategic distribution and supply agreement with Kedrion for the clinical development and marketing in the United States of KamRAB,
and in August 2017 we received FDA approval for anti-rabies immunoglobulin as a post-exposure prophylaxis against rabies infection.
In April 2018, we launched KamRAB in the United States, under the trademark “KEDRAB.” Our overall revenues from sales
of KEDRAB to Kedrion during 2020, 2019 and 2018 were $18.3 million, $16.4 million and $11.8 million, respectively. Sales of KEDRAB
by Kedrion in the United States during the year 2020, 2019 and 2018 totaled $23.7 million, $31.4 million and $15.5 million, respectively.
Based on information provided by Kedrion, these sales represent approximately 23%, 20% and 10% share of the relevant U.S. market
in each of these years, respectively. The decrease in sales of KEDRAB by Kedrion during 2020 is attributable to the impact of the
COVID-19 pandemic and resulted in higher than planned inventory levels at Kedrion as of December 31, 2020.
In addition to GLASSIA
and KEDRAB (and KamRAB), we manufacture two variations of a plasma-derived Anti-D product (IM for prophylaxis of hemolytic disease
of newborns and IV for the treatment of immune thermobocytopunic purpura), which are marketed through distributors in more than
15 countries, including Israel, Russia, Brazil, India and other countries in Latin America and Asia, as well as two types of anti-snake
venom derived from equine plasma, which are sold to the IMOH.
We intend to leverage
our experience and available manufacturing capacity at our FDA-approved manufacturing facility to initiate the production of additional
plasma-derived products following the transition of GLASSIA manufacturing to Takeda during 2021, through acquisitions or provision
of CMO services. In line with this strategy, in December 2019, we entered into a binding term sheet for a 12-year contract manufacturing
agreement with an undisclosed partner to manufacture an FDA-approved and commercialized specialty hyper-immune globulin product.
Following the completion of currently on-going technology transfer process from the current manufacturer, and pending receipt of
all required FDA approvals, we expect to commence commercial manufacturing of the product in early 2023. Based on the current market
sales volume of this specialty hyper-immune globulin product, we estimate that its manufacturing opportunity will add approximately
$8 million to $10 million to our annual revenues, with estimated gross margin level similar to the average gross margins of our
Proprietary Products segment.
Our Distribution segment
is comprised of sales in Israel of pharmaceutical products manufactured by third parties. Most of the revenues generated in our
Distribution segment are from products produced from plasma or plasma-derivatives, and are manufactured by European companies,
and its sales represented approximately 19%, 14% and 12% of our total revenues for the years ended December 31, 2020, 2019 and
2018, respectively. Over the past several years we continued to extend our Distribution segment products portfolio to non-plasma
derived products, including recently entering into agreement with Alvotech and two additional entities for the distribution in
Israel of nine different biosimilar products which, subject to EMA and subsequently IMOH approvals, are expected to be launched
in Israel between the years 2022 and 2025. We estimate the potential aggregate maximum revenues, achievable within several years
of launch, generated by the distribution of all nine biosimilar products to be in the range of $25 million to $35 million annually.
Segment performance
is evaluated based on revenues and gross profit (loss). Items that are not allocated to our segments consist mainly of research
and development costs, sales and marketing expenses, general and administrative costs, financial expenses, net and tax on income,
each of which are managed on a group basis. For the year ended December 31, 2020, we derived $100.9 million of revenues from our
Proprietary Products segment, or 76% of total revenues, and $32.3 million of revenues from our Distribution segment, or 24% of
total revenues. For the year ended December 31, 2019, we derived $97.7 million of revenues from our Proprietary Products segment,
or 77% of total revenues, and $29.5 million of revenues from our Distribution segment, or 23% of total revenues. For the year ended
December 31, 2018, we derived $90.8 million of revenues from our Proprietary Products segment, or 79% of total revenues, and $23.7
million of revenues from our Distribution segment, or 21% of total revenues.
The transition of Glassia
manufacturing to Takeda during 2021 (as discussed above) and the continued uncertainty in the operating environment created by
the ongoing global COVID-19 pandemic (as described below under “COVID-19 Pandemic Effects”), as well as the continued
change in product sales mix during 2021 and reduced plant utilization are anticipated to result in reduced revenues and profitability
in 2021.
In addition to
our commercial operations, we invest in research and development of new product candidates and new indication for existing
products activities. Our two leading investigational product candidates are Anti-SARS-CoV-2 IgG as a potential treatment for
COVID-19 and Inhaled AAT for AATD. For our Anti-SARS-CoV-2 IgG, we previously reported the completion of enrollment and
positive interim results from our Phase 1/2 open-label, single-arm, multi-center clinical trial. We are currently assembling
the final study report and plan to publish final results before the end of the first quarter of 2021. In addition, we
executed an agreement with the IMOH to supply the product for the treatment of COVID-19 patients in Israel, and recently
initiated the supply of the product. The initial order is sufficient to treat approximately 500 hospitalized patients and is
expected to generate approximately $3.4 million in revenue in 2021. The IMOH has initiated a multi-center clinical study through
which our product is being administered. In April 2020, we entered into a binding term sheet with Kedrion for the
co-development, manufacturing and distribution of our human plasma-derived Anti-SARS-CoV-2 IgG product as a potential
treatment for coronavirus patients. For Inhaled AAT for AATD, we are currently conducting the InnovAATe clinical trial, a
randomized, double-blind, placebo-controlled, pivotal Phase 3 trial.
COVID-19 Pandemic Effects
The COVID-19 pandemic
and the resulting measures implemented in response to the pandemic are adversely affecting, and is expected to continue to adversely
affect, a number of our business activities (including our research and development, clinical trials, operations, supply chains,
distribution systems, product development and sales activities) as well as those of our suppliers, customers, third-party payers
and patients. Due to the impact of the pandemic and these measures, we have experienced, and expect to continue to experience,
unpredictable reductions in demand for certain of our products. As a consequence, we have taken several actions to ensure our manufacturing
plant remains operational with limited disruption to business continuity. We have increased inventory levels of raw materials through
our suppliers and service providers, have taken measures to ensure international deliveries and shipments and have taken action
to reduce certain costs and activities throughout our business operations. We are complying with the State of Israel mandates and
recommendations with respect to our work-force management and currently maintain the work-force levels required to support our
ongoing commercial operations. We have taken a number of precautionary health and safety measures to safeguard our employees and
continue to monitor and assess orders issued by the State of Israel and other applicable governments to ensure compliance with
evolving COVID-19 guidelines. While we initiated the development program of our Anti-SARS-CoV-2 IgG therapy for COVID-19, the COVID-19
pandemic affected some of our other research and development programs, including patient recruitment rate into our pivotal Phase
3 InnovAAT clinical trial, resulting in certain delays. The outbreak and preventative or protective actions that governments, corporations,
individuals or we have taken or may take in the future to contain the spread of COVID-19 may result in a period of reduced operations,
reduced product demand or limit the ability of customers to perform their obligations to us, delays in clinical trials or other
research and development efforts, business disruption for us and our suppliers, customers and other third parties with which we
do business and potential delays or disruptions related to regulatory approvals.
While COVID-19 related
disruption had various effects on our business activities, commercial operation, revenues and operational expenses, as a result
of the actions we have taken to date, our overall results of operations for the year ended December 31, 2020 were not materially
affected; however, a number of factors, including but not limited to, continued effect of the factors mentioned above as well as,
continued demand for our products, including GLASSIA and KEDRAB, in the U.S. market and our distributed products in Israel, financial
conditions of our customers, suppliers and services providers, our ability to manage operating expenses, additional competition
in the markets that we compete, regulatory delays, prevailing market conditions and the impact of general economic, industry or
political conditions in the U.S., Israel or otherwise, may have an effect on our future financial position and results of operations.
The financial impact
of these factors cannot be reasonably estimated at this time but may materially affect our business, financial condition, and results
of operation. The full extent to which the pandemic impacts our business, and financial results will depend on future developments,
which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity and duration
of the pandemic and actions to contain its spread or treat its impact, among others.
Key Components of Our Results of Operations
Revenues
In our Proprietary
Products segment, we generate revenues from the sale of products to strategic partners and distributors, as well as from the licensing
of our technology. Revenues from our Proprietary Products segments also include a recognized portion of prior upfront and milestone
payments from strategic partners. Revenues are presented net of any discounts and/or marketing contribution payments extended to
our partners and distributors.
We derived a significant
portion of our total revenues from sales of GLASSIA to Takeda. Sales to Takeda accounted for approximately 49%, 54% and 56% of
our total revenues in the years ended December 31, 2020, 2019 and 2018, respectively. Revenue from all sales of GLASSIA comprised
approximately 53%, 58% and 60% of our total revenues for the years ended December 31, 2020, 2019 and 2018, respectively. Sales
of KEDRAB to Kedrion during the years ended December 31, 2020, 2019 and 2018 accounted for approximately 14%, 13% and 10% of our
total revenues, respectively.
In our Distribution
segment, we generate revenues from the sale in Israel of imported products produced by third parties. Sales of IVIG accounted for
approximately 19%, 14% and 12% of our total revenues for the years ended December 31, 2020, 2019 and 2018, respectively.
We derived approximately
64%, 66% and 66% of our total revenues in the years ended December 31, 2020, 2019 and 2018, respectively, from sales in the United
States, approximately 27%, 25% and 25% of our total revenues in the years ended December 31, 2020, 2019 and 2018, respectively,
from sales in Israel (including both sales for our Proprietary Products segment and the Distribution segment), approximately 3%,
4% and 3% of our total revenues in the years ended December 31, 2020, 2019 and 2018, respectively, from sales in Europe, approximately
1%, 2% and 3% of our total revenues in the years ended December 31, 2020, 2019 and 2018, respectively, from sales in Asia (excluding
Israel), and approximately 5%, 3% and 3% of our total revenues in the years ended December 31, 2020, 2019 and 2018, respectively,
from sales in Latin America.
Cost of Revenues
Cost of revenues in
our Proprietary Products segment includes expenses related to the manufacturing of products such as raw materials, payroll, utilities,
laboratory costs and depreciation. Cost of revenues also includes provisions for the costs associated with manufacturing scraps
and inventory write-offs.
A significant portion of our manufacturing costs are for raw
materials consisting of plasma or fraction IV of plasma. In order to ensure the availability of plasma and fraction IV, we have
secured the supply of plasma and fraction IV from multiple suppliers, including from Takeda for the manufacturing of GLASSIA and
from Kedrion for the manufacturing of KEDRAB and our Anti-SARS-CoV-2 IgG product. In addition, during January 2021 we entered into
an agreement for the acquisition, subject to customary closing conditions, of the plasma collection center of B&PR based in
Beaumont, Texas, which specializes in the collection of hyper-immune plasma used in the manufacture of Anti-D products. The acquisition
of B&PR’s plasma collection center shall represent our entry into the U.S. plasma collection market and further our strategic
goal of becoming a fully integrated specialty plasma company. We plan to significantly expand our hyperimmune plasma collection
capacity by investing in this plasma collection center in Beaumont, Texas, and leveraging its FDA license to open additional centers
in the United States. We are committed to growing our hyperimmune IgG portfolio, and believe this acquisition is a significant
strategic step in that direction.
Costs of revenues in
our Distribution segment consists of costs of products acquired, packaging and labeling for sales by us in Israel.
Gross Profit
Gross profit is the difference between total revenues and the
cost of revenues. Gross profit is mainly affected by volume and mix of sales, as well as manufacturing efficiencies, cost of raw
materials and plant maintenance and overhead costs.
Our gross margins are
generally higher in our Proprietary Products segment (43%, 46% and 42% for the years ended December 31, 2020, 2019 and 2018, respectively)
than in our Distribution segment (14%, 15% and 15% for the years ended December 31, 2020, 2019 and 2018, respectively).
The reduction in gross
profitability during 2020, in the Propriety Products segment was as a result of changes in product sales mix, as well as reduced
plant utilization. The reduction in gross profitability in our Distribution segment during 2020 was a result of a change in product
sales mix which was driven by demand changes driven by the effects of the COVID-19 pandemic.
Research and Development Expenses
The development of
pharmaceutical products, including plasma-derived protein therapeutics, is characterized by significant up-front product development
costs. Research and development expenses are incurred for the development of new products and newly revised processes for existing
products and includes expenses for pre-clinical and clinical trials, development activities in the different fields, the advanced
understanding of the mechanism of action of our products, improving existing products and processes, development work at the request
of regulatory authorities and strategic partners, as well as communication with regulatory authorities related to our commercial
products and clinical programs. In addition, such expenses include development materials, payroll for research and development
personnel, including scientists and professionals for product registration and approval, external advisors and the allotted cost
of our manufacturing facility for research and development purposes. While research and development expenses are unallocated on
a segment basis, the activities generally relate to our existing or in development proprietary products.
Product development
costs may fluctuate from period to period, as our product candidates proceed through various stages of development. We expect to
continue to incur research and development expenses related to clinical trials, as well as other ongoing, planned or future clinical
trials with regard to our product pipeline. See “Item 4. Information on the Company — Our Product Pipeline and Development
Program.”
In order to reduce
costs related to the development and regulatory approval of new protein therapeutics, in some cases we seek to share development
costs with strategic partners, such as Takeda for the required post marketing clinical trials for GLASSIA in the United States,
Kedrion for the clinical trials for KEDRAB in the United States required for product approval and post marketing commitments and
for the development for our Anti-SARS-CoV-2 IgG product. See “Item 4. Information on the Company — Strategic Partnerships.”
In addition, we seek grants from dedicated governmental funds for partial funding for development projects.
Selling and Marketing Expenses
Selling and marketing
expenses principally consist of compensation for employees in sales and marketing related positions, expenditures incurred for
sales incentive, advertising, marketing or promotional activities, shipping and handling costs, product liability insurance and
business development activities, as well as marketing authorization fees to regulatory agencies.
General and Administrative Expenses
General and administrative
expenses consist of compensation for employees in executive and administrative functions (including payroll, bonus, equity compensation
and other benefits), office expenses, professional consulting services, public company related costs, directors’ and officer’s
liability insurance and other insurance costs, legal and audit fees as well as employee welfare costs.
Financial Income
Financial income is
comprised of interest income on amounts invested in bank deposits and short-term investments.
Income (expense) in respect of securities
measured at fair value, net
Income (expense) in
respect of securities measured at fair value, net comprised the changes in the fair value of financial assets measured at fair
value through other comprehensive income.
Income (expense) in respect of currency
exchange differences and derivatives instruments, net
Income (expense) in
respect of currency exchange differences and derivatives instruments, net is comprised of changes on balances in currencies other
than our functional currency. Changes in the fair value of derivatives instruments not designated as hedging instruments are reported
to profit or loss.
Financial Expenses
Financial expenses
are comprised of bank charges, changes in the time value of provisions, the portion of changes in the fair value of financial assets
or liabilities at fair value through other comprehensive income and interest and amortization of bank loans and leases.
Taxes on Income
Since our inception
we accrued significant net operating loss carryforwards for tax purposes and as result, have not been required to pay income taxes
other than tax withheld in a foreign jurisdiction in 2012 and 2016 and a $1.3 million payment to the Israel Tax Authority in 2016
as a settlement agreement for the tax years 2004-2006. In 2018, we initially recognized a deferred tax asset for a portion of our
carryforward losses and during the years ended December 31, 2020 and 2019, we recognized a tax expense for the entire deferred
tax asset on account of earnings that were offset against the carryforward losses.
As of December 31,
2020, we have net operating loss carryforwards for tax purposes of approximately $27.2 million. The net operating loss carryforwards
have no expiration date. Following the full utilization of our net operating loss carryforwards, we expect that our effective income
tax rate in Israel will reflect the tax benefits discussed below.
Our Israeli based manufacturing
facility has Approved Enterprise status granted by the Israel Investment Center under the Investment Law, which made us eligible
for a grant and certain tax benefits under that law for a certain investment program. The investment program provided us with a
grant in the amount of 24% of our approved investments, in addition to certain tax benefits, which applied to the turnover resulting
from the operation of such investment program, for a period of up to ten consecutive years from the first year in which we generated
taxable income. The tax benefits under the Approved Enterprise status expired at the end of 2017. Additionally, we have obtained
a tax ruling from the Israel Tax Authority according to which, among other things, our activity has been qualified as an “industrial
activity,” as defined in the Investment Law, and is also eligible for tax benefits as a Privileged Enterprise, which apply
to the turnover attributed to such enterprise, for a period of up to ten years from the first year in which we generated taxable
income. The tax benefits under the Privileged Enterprise status are scheduled to expire at the end of 2023. As of the date of this
Annual Report, we have not utilized any tax benefits under the Investment Law, other than the receipt of grants attributable to
our Approved Enterprise status.
We may be subject to
withholding taxes for payments we receive from foreign countries. If certain conditions are met, these taxes may be credited against
future tax liabilities under tax treaties and Israeli tax laws. However, due to our net operating loss carryforward, it is uncertain
whether we will be able to receive such credit and therefore, we may incur tax expenses.
As we further expand
our sales into other countries, we could become subject to taxation based on such country’s statutory rates and our effective
tax rate could fluctuate accordingly.
Results of Operations
The following table sets forth certain statement
of operations data:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(U.S. Dollars in thousands)
|
|
Revenues from Proprietary Products segment
|
|
$
|
100,916
|
|
|
$
|
97,696
|
|
|
$
|
90,784
|
|
Revenues from Distribution segment
|
|
|
32,330
|
|
|
|
29,491
|
|
|
|
23,685
|
|
Total revenues
|
|
|
133,246
|
|
|
|
127,187
|
|
|
|
114,469
|
|
Cost of revenues from Proprietary Products segment
|
|
|
57,750
|
|
|
|
52,425
|
|
|
|
52,796
|
|
Cost of revenues from Distribution segment
|
|
|
27,944
|
|
|
|
25,025
|
|
|
|
20,201
|
|
Total cost of revenues
|
|
|
85,694
|
|
|
|
77,450
|
|
|
|
72,997
|
|
Gross profit
|
|
|
47,552
|
|
|
|
49,737
|
|
|
|
41,472
|
|
Research and development expenses
|
|
|
13,609
|
|
|
|
13,059
|
|
|
|
9,747
|
|
Selling and marketing expenses
|
|
|
4,518
|
|
|
|
4,370
|
|
|
|
3,630
|
|
General and administrative expenses
|
|
|
10,139
|
|
|
|
9,194
|
|
|
|
8,525
|
|
Other expense
|
|
|
49
|
|
|
|
330
|
|
|
|
311
|
|
Operating income (loss)
|
|
|
19,237
|
|
|
|
22,784
|
|
|
|
19,259
|
|
Financial income
|
|
|
1,027
|
|
|
|
1,146
|
|
|
|
830
|
|
Income (expense) in respect of securities measured at fair value, net
|
|
|
102
|
|
|
|
(5
|
)
|
|
|
(178
|
)
|
Income (expense) in respect of currency exchange differences and derivatives instruments, net
|
|
|
(1,535
|
)
|
|
|
(651
|
)
|
|
|
602
|
|
Financial expense
|
|
|
(266
|
)
|
|
|
(293
|
)
|
|
|
(172
|
)
|
Income (loss) before taxes on income
|
|
|
18,565
|
|
|
|
22,981
|
|
|
|
20,341
|
|
Taxes on income
|
|
|
1,425
|
|
|
|
730
|
|
|
|
(1,955
|
)
|
Net income (loss)
|
|
$
|
17,140
|
|
|
$
|
22,251
|
|
|
$
|
22,296
|
|
Year Ended December 31, 2020 Compared
to Year Ended December 31, 2019
Segment Results
|
|
Change
|
|
|
|
2020 vs. 2019
|
|
|
|
2020
|
|
|
2019
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(U.S. Dollars in thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary Products
|
|
$
|
100,916
|
|
|
$
|
97,696
|
|
|
$
|
3,220
|
|
|
|
3
|
%
|
Distribution
|
|
|
32,330
|
|
|
|
29,491
|
|
|
|
2,839
|
|
|
|
10
|
%
|
Total
|
|
|
133,246
|
|
|
|
127,187
|
|
|
|
6,059
|
|
|
|
5
|
%
|
Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary Products
|
|
|
57,750
|
|
|
|
52,425
|
|
|
|
5,325
|
|
|
|
10
|
%
|
Distribution
|
|
|
27,944
|
|
|
|
25,025
|
|
|
|
2,919
|
|
|
|
12
|
%
|
Total
|
|
|
85,694
|
|
|
|
77,450
|
|
|
|
8,244
|
|
|
|
11
|
%
|
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary Products
|
|
$
|
43,166
|
|
|
$
|
45,271
|
|
|
$
|
(2,105
|
)
|
|
|
(5
|
)%
|
Distribution
|
|
|
4,386
|
|
|
|
4,466
|
|
|
|
(80
|
)
|
|
|
(2
|
)%
|
Total
|
|
$
|
47,552
|
|
|
$
|
49,737
|
|
|
$
|
(2,185
|
)
|
|
|
(4
|
)%
|
Revenues
In the year ended
December 31, 2020, we generated $133.2 million of total revenues, as compared to $127.2 million in the year ended December 31,
2019, an increase of $6.0 million, or approximately 5%. This increase was primarily due to a $3.2 million increase in the Proprietary
Products segment, comprised of a $4.1 million increase in sales of KamRab and other Proprietary products in ex-U.S. markets, mainly
Israel, Latin America and Asia, and a $1.9 million increase in sales of KEDRAB to Kedrion, which was offset in part by a $3.2
decrease in GLASSIA sales to Takeda, and a $2.8 million increase in our Distribution segment attributed to increased sales of
IVIG product.
Cost of Revenues
In the year ended December
31, 2020, we incurred $85.7 million of cost of revenues, as compared to $77.5 million in the year ended December 31, 2019, an increase
of $8.2 million, or approximately 11%. The increase is mainly attributable to the increase in volume of sales and changes in sales
mix.
Gross profit
Gross profit and gross
margins in our Proprietary Products segment for the year ended December 31, 2020 were $43.2 and 42.8%, respectively, as compared
to $45.3 and 46.3% for the year ended December 31, 2019, respectively, representing a decrease of $2.1 million and 4.7%, respectively.
Such decrease is primarily attributed to the change in product sales mix and specifically the increase in sales of KamRab and other
proprietary products in ex-U.S. markets, mainly Israel, Latin America and Asia, which carries relatively lower gross margins, as
well as the decrease in sales of GLASSIA to Takeda. In addition, such decrease was attributable to reduced plant utilization which
resulted in increase in the cost per vial sold.
Gross profit and gross
margins in our Distribution segment for the year ended December 31, 2020 were $4.4 and 13.6%, respectively, as compared to $4.5
and 15.1% for the year ended December 31, 2019, respectively, representing a decrease of $0.1 million and 1.8%, respectively. Such
decrease is primarily related to the increase in IVIG sales which carries relatively lower gross margins as well as other changes
in product sales mix which were associated with demand changes driven by the effects of the COVID-19 pandemic.
Research and Development
Expenses
In the year ended
December 31, 2020, we incurred $13.6 million of research and development expenses, as compared to $13.1 million in the year
ended December 31, 2019, an increase of $0.5 million, or approximately 3.8%. As a result of the impact of the COVID-19
pandemic on our pivotal Phase 3 InnovAATe clinical trial, we incurred a lower than projected increase in research and
development expenses in the year ended December 31, 2020, as compared to the year ended December 31, 2019. Research and
development expenses for the year ended December 31, 2020 includes a total of $1.1 million associated with the development of
our Anti-SARS-CoV-2 IgG product as a potential therapy for COVID-19 patients. Such costs are net of $0.7 million receivables
from the Israel Innovation Authority and Kedrion. Research and development expenses accounted for approximately 10.2% and
10.3% of total revenues for the years ended December 31, 2020 and 2019, respectively.
Set forth below are
the research and development expenses associated with our major development programs in the years ended December 31, 2020 and 2019:
|
|
Year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(U.S. Dollars in thousands)
|
|
Inhaled AAT
|
|
$
|
3,266
|
|
|
$
|
3,192
|
|
Anti-SARS-CoV-2
|
|
|
1,110
|
|
|
|
-
|
|
Recombinant AAT
|
|
|
426
|
|
|
|
352
|
|
Anti-Rabies
|
|
|
126
|
|
|
|
272
|
|
AAT IV for treatment of GvHD
|
|
|
-
|
|
|
|
666
|
|
AAT IV for lung transplantation rejection
|
|
|
-
|
|
|
|
34
|
|
Unallocated salary
|
|
|
6,045
|
|
|
|
5,816
|
|
Unallocated facility cost allocated to research and development
|
|
|
2,064
|
|
|
|
2,146
|
|
Unallocated other expenses
|
|
|
572
|
|
|
|
581
|
|
Total research and development expenses
|
|
$
|
13,609
|
|
|
$
|
13,059
|
|
Unallocated expenses are expenses that are not managed by project
and are allocated between various tasks that are not always related to a major project. In the years ended December 31, 2020 and
2019, we incurred $6.0 million and $5.8 million, respectively, of unallocated salary expenses which represent all research and
development salary expenses, $2.1 million and $2.1 million, respectively, of facility costs allocated to research and development
and $0.6 million and $0.6 million, respectively, of unallocated other expenses.
Our current intentions
with respect to our major development programs are described in “Business — Our Product Pipeline and Development Program”.
We cannot determine with full certainty the duration and completion costs of the current or future clinical trials of our major
development programs or if, when, or to what extent we will generate revenues from the commercialization and sale of any product
candidates. We or our strategic partners may never succeed in achieving marketing approval for any product candidates. The duration,
costs and timing of clinical trials and our major development programs will depend on a variety of factors, including the uncertainties
of future clinical and preclinical studies, uncertainties in clinical trial enrollment rates and significant and changing government
regulation and whether our current or future strategic partners are committed to and make progress in programs licensed to them,
if any. In addition, the probability of success for each product candidate will depend on numerous factors, including competition,
manufacturing capability and commercial viability. See “Item 3. Key Information — D. Risk Factors — Risk Related
to Development, Regulatory Approval and Commercialization of Product Candidates.”
We will determine
which programs to pursue and how much to fund each program in response to the scientific, pre-clinical and clinical outcome and
results of each product candidate, as well as an assessment of each product candidate’s commercial potential. We cannot
forecast with any degree of certainty which of our product candidates, if any, will be subject to future collaborations or how
such arrangements would affect our development plans or capital requirements.
Selling and Marketing
Expenses
In the year ended December
31, 2020, we incurred $4.5 million of selling and marketing expenses, as compared to $4.4 million in the year ended December 31,
2019, an increase of $0.1 million, or approximately 3.4%. This increase was primarily due to the significant increase in shipping
and freight costs in the wake of the COVID-19 pandemic. Selling and marketing expenses accounted for approximately 3.4% and 3.4%
of total revenues for the years ended December 31, 2020 and 2019, respectively.
General and Administrative
Expenses
In the year ended December
31, 2020, we incurred $10.1 million of general and administrative expenses, as compared to $9.2 million in the year ended December
31, 2019, an increase of $0.9 million, or approximately 10.3%. This increase was primarily due to an increase of $0.6 million in
insurance costs, specifically directors’ and officers’ liability insurance costs which dramatically increased in recent
years. General and administrative expenses accounted for approximately 7.6% and 7.2% of total revenues for the years ended December
31, 2020 and 2019, respectively.
Other expenses
In the years ended
December 31, 2020 and 2019, we incurred $0.1 million and $0.3 million of other expenses, respectively, related to an ongoing technology
transfer project performed with an external service provider, which was expected to be completed during 2020, however, due to several
factors including the effect of the COVID-19 pandemic, the project was delayed.
Financial Income
In the years ended
December 31, 2020 and 2019, we generated $1.0 million and $1.1 million of financial income, respectively. Financial income is primarily
comprised of interest income on bank deposits and to a limited extent short-term investments.
Income (expense)
in respect of securities measured at fair value, net
In the year ended December 31, 2020, we incurred $0.1 million
of income in respect of securities measured at fair value, net, as compared to $5,000 of expenses in the year ended December
31, 2019. During 2020 we liquidated our securities portfolio.
Income (expense)
in respect of currency exchange differences and derivatives instruments, net
In the year ended December
31, 2020, we incurred $1.5 million of expenses in respect of currency exchange differences on balances in other currencies, mainly
the NIS and the Euro versus the U.S. dollar, and derivatives impact, as compared to $0.7 million in the year ended December 31,
2019.
Financial Expenses
In the year ended December
31, 2020, we incurred $0.3 million of financial expenses, as compared to $0.3 million in the year ended December 31, 2019.
Taxes on Income
In the year ended December
31, 2020, we recorded a $1.4 million tax expense, as compared to $0.7 million in the year ended December 31, 2019. Tax expenses
relate primarily to the utilization of a deferred tax asset on account of earnings that were offset against our net operating loss
carryforward for tax purposes.
Year Ended December 31, 2019 Compared
to Year Ended December 31, 2018
Segment Results
|
|
Change
|
|
|
|
2019 vs. 2018
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(U.S. Dollars in thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary Products
|
|
$
|
97,696
|
|
|
$
|
90,784
|
|
|
$
|
6,912
|
|
|
|
8
|
%
|
Distribution
|
|
|
29,491
|
|
|
|
23,685
|
|
|
|
5,806
|
|
|
|
25
|
%
|
Total
|
|
|
127,187
|
|
|
|
114,469
|
|
|
|
12,718
|
|
|
|
11
|
%
|
Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary Products
|
|
|
52,425
|
|
|
|
52,796
|
|
|
|
(371
|
)
|
|
|
(1
|
)%
|
Distribution
|
|
|
25,025
|
|
|
|
20,201
|
|
|
|
4,824
|
|
|
|
24
|
%
|
Total
|
|
|
77,450
|
|
|
|
72,997
|
|
|
|
4,453
|
|
|
|
6
|
%
|
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary Products
|
|
$
|
45,271
|
|
|
$
|
37,988
|
|
|
$
|
7,283
|
|
|
|
19
|
%
|
Distribution
|
|
|
4,466
|
|
|
|
3,484
|
|
|
|
982
|
|
|
|
28
|
%
|
Total
|
|
$
|
49,737
|
|
|
$
|
41,472
|
|
|
$
|
8,265
|
|
|
|
20
|
%
|
Revenues
In the year ended December
31, 2019, we generated $127.2 million of total revenues, as compared to $114.5 million in the year ended December 31, 2018, an
increase of $12.7 million, or approximately 11%. This increase was primarily due to a $6.9 million increase in our Proprietary
Products segment revenues, mainly due increase of sales of KEDRAB and GLASSIA in United States during 2019, and a $5.8 million
increase in our Distribution segment, mainly attributable to increased sales of IVIG product.
Cost of Revenues
In the year ended December
31, 2019, we incurred $77.5 million of cost of revenues, as compared to $73.0 million in the year ended December 31, 2018, an increase
of $4.4 million, or approximately 6%. The increase is mainly attributable to a $4.8 million in increase in cost of revenues in
our Distribution segment, primarily due to an increase in volume of sales, offset in part by a decrease of $0.4 million in the
Proprietary segment, mainly attributed to improved manufacturing efficiencies.
Gross profit
Gross profit in our
Proprietary Products segment increased by $7.3 million in 2019, primarily due to the sales of GLASSIA and KEDRAB in the United
States and resulting in improved products sales mix and improved manufacturing efficiencies. Gross profit in our Distribution segment
increased by $1.0 million in 2019, primarily due to increased sales volume. As a percentage of total revenues, gross margin increased
to 39.1 % for the year ended December 31, 2019 from 36.2% for the year ended December 31, 2018. Gross margin for the Proprietary
Products segment, as a percentage of revenues from that segment, was 46.3% and 41.8% for the years ended December 31, 2019 and
2018, respectively. Gross margin for the Distribution segment, as a percentage of revenues from that segment, was 15.1% and 14.7%
for the years ended December 31, 2019 and 2018, respectively. The increase in gross profit margin was primarily driven by an increase
in the Proprietary Products segment revenues and high profitability of KEDRAB.
Research and Development
Expenses
In the year ended December
31, 2019, we incurred $13.1 million of research and development expenses, as compared to $9.7 million in the year ended December
31, 2018, an increase of $3.4 million, or approximately 34%. This increase was primarily due to a $3.2 million increase in clinical
trial expenses, mainly attributed to an increase in expenses in connection with the initiation of our pivotal Phase 3 InnovAATe
clinical trial of approximately $2.8 million and costs associated with a proof-of-concept clinical trial of our IV-AAT as preemptive
therapy for patients at high-risk for the development of steroid-refractory acute GvHD of approximately $0.3 million. Research
and development expenses accounted for approximately 10.2% and 8.5% of total revenues for the years ended December 31, 2019 and
2018, respectively.
Set forth below are
the research and development expenses associated with our major development programs in the years ended December 31, 2019 and 2018:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(U.S. Dollars in thousands)
|
|
Inhaled AAT
|
|
$
|
3,192
|
|
|
$
|
356
|
|
AAT IV for treatment of GvHD
|
|
|
666
|
|
|
|
356
|
|
Anti-Rabies
|
|
|
272
|
|
|
|
208
|
|
Recombinant AAT
|
|
|
352
|
|
|
|
223
|
|
AAT IV for lung transplantation rejection
|
|
|
34
|
|
|
|
194
|
|
Unallocated salary
|
|
|
5,816
|
|
|
|
5,823
|
|
Unallocated facility cost allocated to research and development
|
|
|
2,146
|
|
|
|
1,990
|
|
Unallocated other expenses
|
|
|
581
|
|
|
|
597
|
|
Total research and development expenses
|
|
$
|
13,059
|
|
|
$
|
9,747
|
|
Unallocated expenses
are expenses that are not managed by project and are allocated between various tasks that are not always related to a major project.
In the years ended December 31, 2019 and 2018, we incurred $5.8 million and $5.8 million, respectively, of unallocated salary expenses
which represent all research and development salary expenses, $2.1 million and $2.0 million, respectively, of facility costs allocated
to research and development and $0.6 million and $0.6 million, respectively, of unallocated other expenses.
Selling and Marketing
Expenses
In the year ended December
31, 2019, we incurred $4.4 million of selling and marketing expenses, as compared to $3.6 million in the year ended December 31,
2018, an increase of $0.8 million, or approximately 20%. This increase was primarily due to a $0.4 million increase in registration
and marketing fees and a $0.4 million increase in marketing and advertising expenses. Selling and marketing expenses accounted
for approximately 3.43% and 3.2% of total revenues for the years ended December 31, 2019 and 2018, respectively.
General and Administrative
Expenses
In the year ended
December 31, 2019, we incurred $9.2 million of general and administrative expenses, as compared to $8.5 million in the year ended
December 31, 2018, an increase of $0.7 million, or approximately 8%. This increase was primarily due to an increase of $0.4 million
in salary and related expenses and $0.3 million in professional fees and employee welfare. General and administrative expenses
accounted for approximately 7.2% and 7.4% of total revenues for the years ended December 31, 2019 and 2018, respectively.
Other expenses
In each of the years
ended December 31, 2019, and 2018 we incurred $0.3 million of other expenses related to an ongoing technology transfer project
performed with an external service provider that was planned to be completed during 2020.
Financial Income
In the years ended
December 31, 2019 and December 31, 2018, we generated $1.1 million and $0.8 million of financial income, respectively, from our
short-term investment portfolio and bank deposits.
Income (expense)
in respect of securities measured at fair value, net
In the year ended December
31, 2019, we incurred $5,000 of expenses in respect of securities measured at fair value, net, as compared to $0.2 million
in the year ended December 31, 2018.
Income (expense)
in respect of currency exchange differences and derivatives instruments, net
In the year ended December
31, 2019, we incurred $0.6 million of expenses in respect of currency exchange differences on balances in other currencies versus
the U.S. dollar and derivatives impact, as compared to income of $0.6 million in the year ended December 31, 2018.
Financial Expenses
In the year ended December
31, 2019, we incurred $0.3 million of financial expenses, as compared to $0.2 million in the year ended December 31, 2018.
Taxes on Income
In the year ended December
31, 2019, we recognized $0.7 million tax expenses. In the year ended December 31, 2018, we recognized a deferred tax asset representing
a portion of carryforward losses that we estimate that we will realize in the coming years, resulting in tax income of $2.0 million
for such period.
Quarterly Results of Operations
The following tables
set forth unaudited quarterly consolidated statements of operations data for the four quarters of fiscal years 2020 and 2019. We
have prepared the statement of operations data for each of these quarters on the same basis as the audited consolidated financial
statements included elsewhere in this Annual Report and, in the opinion of management, each statement of operations includes all
adjustments, consisting solely of normal recurring adjustments, necessary for the fair statement of the results of operations for
these periods. This information should be read in conjunction with the audited consolidated financial statements and related notes
included elsewhere in this Annual Report. These quarterly operating results are not necessarily indicative of our operating results
for any future period.
|
|
Three Months Ended
|
|
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
|
March 31,
2019
|
|
|
|
(U.S. Dollars in thousands)
|
|
Revenues from Proprietary Products
|
|
$
|
23,283
|
|
|
$
|
29,691
|
|
|
$
|
22,625
|
|
|
$
|
25,317
|
|
|
$
|
25,175
|
|
|
$
|
24,859
|
|
|
$
|
27,281
|
|
|
$
|
20,381
|
|
Revenues from Distribution
|
|
|
8,259
|
|
|
|
5,634
|
|
|
|
10,464
|
|
|
|
7,973
|
|
|
|
6,896
|
|
|
|
8,207
|
|
|
|
7,972
|
|
|
|
6,416
|
|
Total revenues
|
|
|
31,542
|
|
|
|
35,325
|
|
|
|
33,089
|
|
|
|
33,290
|
|
|
|
32,071
|
|
|
|
33,066
|
|
|
|
35,253
|
|
|
|
26,797
|
|
Cost of revenues from Proprietary Products
|
|
|
13,933
|
|
|
|
15,936
|
|
|
|
12,934
|
|
|
|
14,947
|
|
|
|
14,013
|
|
|
|
13,234
|
|
|
|
14,688
|
|
|
|
10,490
|
|
Cost of revenues from Distribution
|
|
|
7,444
|
|
|
|
4,568
|
|
|
|
9,040
|
|
|
|
6,892
|
|
|
|
5,969
|
|
|
|
6,968
|
|
|
|
6,965
|
|
|
|
5,123
|
|
Total cost of revenues
|
|
|
21,377
|
|
|
|
20,504
|
|
|
|
21,974
|
|
|
|
21,839
|
|
|
|
19,982
|
|
|
|
20,202
|
|
|
|
21,653
|
|
|
|
15,613
|
|
Gross profit
|
|
|
10,165
|
|
|
|
14,821
|
|
|
|
11,115
|
|
|
|
11,451
|
|
|
|
12,089
|
|
|
|
12,864
|
|
|
|
13,600
|
|
|
|
11,184
|
|
Research and development expenses
|
|
|
3,274
|
|
|
|
3,365
|
|
|
|
3,623
|
|
|
|
3,347
|
|
|
|
3,329
|
|
|
|
3,477
|
|
|
|
3,487
|
|
|
|
2,766
|
|
Selling and marketing expenses
|
|
|
1,221
|
|
|
|
1,179
|
|
|
|
1,178
|
|
|
|
940
|
|
|
|
929
|
|
|
|
1,161
|
|
|
|
1,188
|
|
|
|
1,092
|
|
General and administrative expenses
|
|
|
3,006
|
|
|
|
2,514
|
|
|
|
2,307
|
|
|
|
2,312
|
|
|
|
2,343
|
|
|
|
2,230
|
|
|
|
2,527
|
|
|
|
2,094
|
|
Other expense (income)
|
|
|
15
|
|
|
|
0
|
|
|
|
32
|
|
|
|
2
|
|
|
|
3
|
|
|
|
299
|
|
|
|
5
|
|
|
|
23
|
|
Operating income (loss)
|
|
|
2,649
|
|
|
|
7,763
|
|
|
|
3,975
|
|
|
|
4,850
|
|
|
|
5,485
|
|
|
|
5,697
|
|
|
|
6,393
|
|
|
|
5,209
|
|
Financial income
|
|
|
162
|
|
|
|
250
|
|
|
|
298
|
|
|
|
317
|
|
|
|
259
|
|
|
|
328
|
|
|
|
274
|
|
|
|
285
|
|
Financial expenses
|
|
|
(62
|
)
|
|
|
(69
|
)
|
|
|
(58
|
)
|
|
|
(77
|
)
|
|
|
(76
|
)
|
|
|
(68
|
)
|
|
|
(72
|
)
|
|
|
(77
|
)
|
Income (expense) in respect of securities measured at fair value, net
|
|
|
-
|
|
|
|
0
|
|
|
|
0
|
|
|
|
102
|
|
|
|
(2
|
)
|
|
|
55
|
|
|
|
(6
|
)
|
|
|
(52
|
)
|
Income (expense) in respect of currency exchange differences and derivatives instruments, net
|
|
|
(839
|
)
|
|
|
(761
|
)
|
|
|
(367
|
)
|
|
|
432
|
|
|
|
(148
|
)
|
|
|
25
|
|
|
|
(216
|
)
|
|
|
(312
|
)
|
Income (loss) before taxes on income
|
|
|
1,910
|
|
|
|
7,183
|
|
|
|
3,848
|
|
|
|
5,624
|
|
|
|
5,518
|
|
|
|
6,037
|
|
|
|
6,373
|
|
|
|
5,053
|
|
Taxes on income
|
|
|
281
|
|
|
|
348
|
|
|
|
390
|
|
|
|
406
|
|
|
|
156
|
|
|
|
214
|
|
|
|
230
|
|
|
|
130
|
|
Net income (loss)
|
|
$
|
1,629
|
|
|
$
|
6,835
|
|
|
$
|
3,458
|
|
|
$
|
5,218
|
|
|
$
|
5,362
|
|
|
$
|
5,823
|
|
|
$
|
6,143
|
|
|
$
|
4,923
|
|
Liquidity and Capital Resources
Our primary uses of
cash are to fund working capital requirements, research and development expenses and capital expenditures. Historically, we have
funded our operations primarily through cash flow from operations (including sales of our proprietary products and distribution
products), payments received in connection with strategic partnerships (including milestone payments from collaboration agreements),
issuances of ordinary shares (including our 2005 initial public offering and listing on the Tel Aviv Stock Exchange, our 2013 initial
public offering in the United States and listing on Nasdaq, our 2017 underwritten public offering and our 2020 private placement),
and the issuance of convertible debentures and warrants to purchase our ordinary shares. The balance of cash and cash equivalents
and short-term investments as of December 31, 2020, 2019 and 2018 totaled 109.3 million, $73.9 million and $50.6 million,
respectively. We plan to fund our future operations and strategic initiatives (See “Item 4. Information on the Company”)
through our financial resources, continued sales and distribution of our proprietary and distribution products, commercialization
and or out-licensing of our pipeline product candidates, and to the extent required, raising additional capital through the issuance
of equity or debt.
Our strategic partnership
agreement with Takeda includes payments for the achievement of certain milestones. Since inception and through December 31, 2020,
we received an aggregate of $40 million in payments under these agreements, and there are $5.0 million in payments under these
agreements that we could potentially receive if we achieve additional milestones as set forth in such agreements. See “Item
4. Information on the Company— Strategic Partnerships — Takeda (GLASSIA).”
Our capital expenditures
for the years ended December 31, 2020, 2019 and 2018 were $5.5 million, $2.3 million and $2.9 million, respectively. Our capital
expenditures currently relate primarily to the maintenance and improvements of our facilities. We expect our capital expenditures
to remain substantially similar in the near term as such capital expenditures are planned to be attributable mainly to the maintenance
and improvements of our facilities.
We believe our current
cash and cash equivalents and short-term investments will be sufficient to satisfy our liquidity requirements for the next 12 months.
Cash Flows from Operating Activities
Net cash provided by
operating activities was $ 19.1 million for the year ended December 31, 2020. This net cash provided by operating activities reflects
net income of $17.1 million, $8.1 million of non-cash expenses and a decrease in inventories of $1.2 million, a decrease in trade
receivables of $1.3 million and a decrease in trade payables of $9.5 million.
Net cash provided
by operating activities was $ 27.6 million for the year ended December 31, 2019. This net cash provided by operating activities
reflects net income of $22.3 million, $6.3 million of non-cash expenses and an increase in inventories of $14.0 million, a decrease
in trade receivables of $5.1 million and an increase in trade payables of $6.3 million.
Net cash provided
by operating activities was $ 10.5 million for the year ended December 31, 2018. This net cash provided by operating activities
reflects a net income of $22.3 million and non-cash expenses of $1.7 million and an increase in inventory of $8.2 million.
Cash Flows from Investing Activities
Net cash used in investing
activities was $13.1 million for the year ended December 31, 2020, which comprises of investment in short term investment and
bank deposits of $7.6 million and purchase of property, plant and equipment of $5.5 million.
Net cash used in investing
activities was $0.6 million for the year ended December 31, 2019, which comprises of proceeds from short term investment of $1.7
million and purchase of property, plant and equipment of $2.3 million.
Net cash used in investing
activities was $5.2 million for the year ended December 31, 2018. This net cash used in investing activities reflects $2.3 million
net cash invested in short-term investments and investment in property, plant and equipment of $2.9 million.
Cash Flows from Financing Activities
Net cash provided
by financing activities was $23.3 million for the year ended 2020, mainly due to proceeds from our January 2020 private placement
to the FIMI Funds of an aggregate 4,166,667 ordinary shares at a price of $6.00 per share, for an aggregate $25 million gross
proceeds.
Net cash used in financing
activities was $1.5 million for the year ended 2019, mainly due to repayments of long-term loans and leases in the amount to $1.5
million.
Net cash used in financing
activities was $0.6 million for the year ended 2018. This net cash used in financing activities reflects $0.6 million repayments
of long-term loans.
Contractual Obligations and Commitments
The following is a
summary of our contractual obligations and commitments as of December 31, 2020 (in thousands):
|
|
Total
|
|
|
Less than
1 Year
|
|
|
1 – 3 Years
|
|
|
4-5 Years
|
|
|
More than
5 Years
|
|
|
|
(U.S. Dollars in thousands)
|
|
Purchase commitments
|
|
|
24,563
|
|
|
|
21,669
|
|
|
|
2,894
|
|
|
|
-
|
|
|
|
-
|
|
Long-term debt obligations (1)
|
|
|
281
|
|
|
|
244
|
|
|
|
37
|
|
|
|
-
|
|
|
|
-
|
|
Leases obligations
|
|
|
5,230
|
|
|
|
1,238
|
|
|
|
1,808
|
|
|
|
1,436
|
|
|
|
748
|
|
Total
|
|
|
30,074
|
|
|
|
23,151
|
|
|
|
4,739
|
|
|
|
1,436
|
|
|
|
748
|
|
|
(1)
|
Includes
interest payments on our long-term loans which bear annually fixed interest rate in the range of 3.15%-3.55%.
|
Purchase commitments
are obligations under purchase agreements or purchase orders not yet fulfilled that are non-cancelable. Operating leases consist
of contractual obligations from offices and vehicles leases agreements.
We are also obligated to make certain severance or pension payments
to our Israeli employees upon their retirement under Israeli law. Due to the uncertainty of the timing of future cash flows associated
with these payments (see Note 2u and Note 16 in our consolidated financial statements included in this Annual Report), we are unable
to make reasonably reliable estimates for the period of cash settlement, if any, with respect to such obligations.
Seasonality
We have experienced
in the past, and expect to continue to experience, certain fluctuations in our quarterly revenues. See “Item 5. Operating
and Financial Review and Prospects - Quarterly Results of Operations”.
Off-Balance Sheet Arrangements
As of December 31,
2020, we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Critical Accounting Policies and Estimates
This discussion and
analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in
accordance with IFRS as issued by the IASB. The preparation of these financial statements requires management to make estimates
that affect the reported amounts of our assets, liabilities, revenues and expenses. Significant accounting policies employed by
us, including the use of estimates, are presented in the notes to the consolidated financial statements included elsewhere in
this Annual Report. We periodically evaluate our estimates, which are based on historical experience and on various other assumptions
that management believes to be reasonable under the circumstances. Critical accounting policies are those that are most important
to the portrayal of our financial condition and results of operations and require management’s subjective or complex judgments,
resulting in the need for management to make estimates about the effect of matters that are inherently uncertain. If actual performance
should differ from historical experience or if the underlying assumptions were to change, our financial condition and results
of operations may be materially impacted. In addition, some accounting policies require significant judgment to apply complex
principles of accounting to certain transactions, such as acquisitions, in determining the most appropriate accounting treatment.
A detailed description
of our accounting policies is provided in Note 2 of our consolidated financial statements appearing elsewhere in this Annual Report.
The following provides an overview of certain accounting policies that we believe are the most critical for understanding and
evaluating our financial condition and results of operations.
Revenue Recognition
Revenues are recognized
when the customer obtains control over the promised goods or services. In determining the amount of revenue from contracts with
customers, we evaluate whether it is a principal or an agent in the arrangement. We are a principal when we control the promised
goods or services before transferring them to the customer. In these circumstances, we recognize revenue for the gross amount
of the consideration.
On the contract’s
inception date, we assess the goods or services promised in the contract with the customer and identify the performance obligations.
Revenues are recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for
transferring goods or services to a customer.
We include variable
consideration, such as milestone payments or volume rebates, in the transaction price, only when it is highly probable that its
inclusion will not result in a significant revenue reversal in the future when the uncertainty has been subsequently resolved.
For contracts that consist of more than one performance obligation, at contract inception we allocate the contract transaction
price to each performance obligation identified in the contract on a relative stand-alone selling price basis.
For most contracts,
revenue recognition occurs at a point in time when control of the asset is transferred to the customer, generally on delivery
of the goods. For agreements with a strategic partner, performance obligations are generally satisfied over time, given that the
customer either simultaneously receives or consumes the benefits provided by us, or receives assets with no alternative use, for
which we have an enforceable right to payment for performance completed to date.
With respect to our
agreement with Takeda, we identified the following performance obligations in the contract: (a) the grant of a license to Takeda
for distribution of GLASSIA in certain territories and the supply of predetermined minimum quantities; (b) the grant of a license
to Takeda for the use our knowledge and patents, and the provision of consulting services to Takeda with respect to the transfer
of technology; and (c) the supply of a predetermined quantity of GLASSIA for the purpose of clinical trials performed by Takeda.
For the Takeda agreement,
when determining the transaction price we took into consideration the following elements: (a) variable consideration – certain
amounts of the promised consideration in the Takeda agreement, such as milestone payments and volume rebates, are variable, and
were allocated to a single performance obligation or to a distinct goods or services within it; (b) significant financing component
– we concluded that certain advance payments received from Takeda provide us with the benefit of financing. Therefore, we
adjusted the transaction price for the effects of the time value of money; and (c) non-cash consideration – we identified
raw materials provided by Takeda as non-cash consideration. This consideration is measured at fair value. We allocate the transaction
price to the different performance obligation identified. This allocation is based on relative stand-alone selling price. We also
concluded that we transfer the goods and services over time. This is because Takeda either receives and consumes the benefits
provided by us as it is being performed, or because our performance creates assets with no alternative use and we have an enforceable
right to payment for performance completed to date.
Clinical Trial Accruals and Related
Expenses
We incurred costs
for clinical trial activities performed by third parties (or CROs), based upon estimates made as of the reporting date of the
work completed over the life of the respective study in accordance with agreements established with the CRO. We determine the
estimates of clinical activities incurred at the end of each reporting period through discussion with internal personnel and outside
service providers as to the progress or stage of completion of trials or services, as of the end of each reporting period, pursuant
to contracts with numerous clinical trial centers and CROs and the agreed upon fee to be paid for such services.
To date, we have not
experienced significant changes in our estimates of clinical trial accruals after a reporting period. However, due to the nature
of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional
information about the status or conduct of our clinical trials.
Inventories
Inventories are measured
at the lower of cost and net realizable value. The cost of inventories is comprised of costs required to purchase raw materials
and other indirect costs required to manufacture the product (including salaries), in addition, such costs may include the costs
of purchase and shipping and handling. Net realizable value is the estimated selling price in the ordinary course of business
less the estimated costs of completion and the estimated selling costs.
We determine a standard
manufacturing capacity for each quarter. To the extent the actual manufacturing capacity in a given quarter is lower than the
predetermined standard, then a portion of the indirect costs which is equal to the product of the overall quarterly indirect costs
multiplied by the quarterly manufacturing shortfall rate is recognized as costs of revenues.
We periodically evaluate
the condition and age of inventories and make provisions for slow-moving inventories accordingly. Unfavorable changes in market
conditions may result in a need for additional inventory reserves that could adversely impact our gross margins. Conversely, favorable
changes in demand could result in higher gross margins when we sell products.
We periodically assess
the potential effect on inventory in cases of deviations from quality standards in the manufacturing process to identify potential
required inventory write offs. Such assessment is subject to our professional judgment.
Inventory that is
produced following a change in manufacturing process prior to final approval of regulatory authorities is subject to our estimates
as to the probability of receipt of such approval. We periodically reassess the probability of such approval and the remaining
shelf life of such inventory. If regulatory approval is not granted, the cost of this inventory will be charged to research and
development expenses.
Impairment of Non-financial Assets
We evaluate the need
to record an impairment of the carrying amount of non-financial assets whenever events or changes in circumstances indicate that
the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets
are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use.
In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks
specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the
cash-generating unit to which the asset belongs. Impairment losses are recognized in profit or loss.
An impairment loss
of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset’s
recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, will not be increased
above the lower of the carrying amount that would have been determined (net of depreciation or amortization) had no impairment
loss been recognized for the asset in prior years and its recoverable amount. The reversal of impairment loss of an asset presented
at cost is recognized in profit or loss.
We had no impairment
of non-financial assets in 2020.
Share-based Payment Transactions
Our employees and
directors are entitled to remuneration in the form of equity-settled share-based payment transactions (options and restricted
share units).
The cost of equity-settled
transactions is measured at the fair value of the equity instruments granted at grant date. We use the binomial model when estimating
the grant date fair value of equity settled share options. We selected the binomial option pricing model as the most appropriate
method for determining the estimated fair value of our share-based awards without market conditions. We use the share price at
the grant date when estimating the grant date fair value of equity settled restricted share units.
The determination
of the grant date fair value of options using an option pricing model is affected by estimates and assumptions regarding a number
of complex and subjective variables. These variables include the expected volatility of our share price over the expected term
of the options, share option exercise and cancellation behaviors, expected exercise multiple, risk-free interest rates, expected
dividends and the price of our ordinary shares on the TASE, which are estimated as follows:
|
●
|
Expected Life.
The expected life of the share options is based on historical data, and is not necessarily indicative of the exercise patterns
of share options that may occur in the future.
|
|
●
|
Volatility.
The expected volatility of the share prices reflects the assumption that the historical volatility of the share prices on
the TASE is reasonably indicative of expected future trends.
|
|
●
|
Risk-free interest
rate. The risk-free interest rate is based on the yields of non-index-linked Bank of Israel treasury bonds with maturities
similar to the expected term of the options for each option group.
|
|
●
|
Expected forfeiture
rate. The post-vesting forfeiture rate is based on the weighted average historical forfeiture rate.
|
|
●
|
Dividend yield
and expected dividends. We have not recently declared or paid any cash dividends on our ordinary shares and do not intend
to pay any cash dividends. We have therefore assumed a dividend yield and expected dividends of zero.
|
|
●
|
Share price on
the TASE. The price of our ordinary shares on the TASE used in determining the grant date fair value of options is based
on the price on the grant date.
|
If any of the assumptions
used in the binomial model change significantly, share-based compensation for future awards may differ materially compared with
the awards granted previously.
The cost of equity-settled
transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period which the performance
and/or service conditions are to be satisfied, ending on the date on which the relevant grantee become fully entitled to the award.
The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects
the extent to which the vesting period has expired and our best estimate of the number of equity instruments that will ultimately
vest. The expense or income recognized in profit or loss represents the change between the cumulative expense recognized at the
end of the reporting period and the cumulative expense recognized at the end of the previous reporting period.
No expense is recognized
for awards that do not ultimately vest.
If we modify the conditions
on which equity-instruments were granted, an additional expense is recognized for any modification that increases the total fair
value of the share-based payment arrangement or is otherwise beneficial to the grantee at the modification date.
If a grant of an equity
instrument is cancelled, it is accounted for as if it had vested on the cancellation date, and any expense not yet recognized
for the grant is recognized immediately. However, if a new grant replaces the cancelled grant and is identified as a replacement
grant on the grant date, the cancelled and new grants are accounted for as a modification of the original grant, as described
above.
Post-employment Benefits Liabilities
Our post-retirement
benefit plans are normally financed by contributions to insurance companies and classified as defined contribution plans or as
defined benefit plans.
We operate a defined benefit plan in respect of severance pay
pursuant to the Israeli Severance Pay Law, 1963. See Note 2u and Note 16 in our consolidated financial statements included in this
Annual Report for more details.
The present value
of our severance pay depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The
assumptions used in determining the net cost or income for severance pay and plan assets include a discount rate. Any changes
in these assumptions will impact the carrying amount of severance pay and plan assets.
Other key assumptions
inherent to the valuation include employee turnover, inflation, expected long term returns on plan assets and future payroll increases.
The expected return on plan assets is determined by considering the expected returns available on assets underlying the current
investments policy. These assumptions are given a weighted average and are based on independent actuarial advice and are updated
on an annual basis. Actual circumstances may vary from these assumptions, giving rise to a different severance pay liability.
Accounting for Income Taxes
At the end of each
reporting period, we are required to estimate our income taxes. There are transactions and calculations for which the ultimate
tax determination is uncertain during the ordinary course of business, determined according to complex tax laws and regulations.
Where the effect of these laws and regulations is unclear, we use estimates in determining the liability for the tax to be paid
on our past profits, which we recognize in our financial statements. We believe the estimates, assumptions and judgments are reasonable,
but this can involve complex issues which may take a number of years to resolve. Where the final tax outcome of these matters
is different from the amounts that were initially recorded, such differences will impact the income tax and deferred income tax
provisions in the period in which such determination is made. In addition, at the end of each reporting period, we estimate our
ability to utilize our carryforward losses and accordingly account for the relevant amount of deferred taxes. When calculating
the deferred tax asset, we estimate the effective tax rate to be applied for the years in which we expect the carryforward loss
to be utilized, considering the impact of the Israeli Law for the Encouragement of Capital Investments, 1959 (as amended) and
rulings that we received from the Israel Tax Authority.
We follow IFRIC 23,
“Uncertainty over Income Tax Treatments” (the “Interpretation”) issued by the IASB, The Interpretation
clarifies the accounting for recognition and measurement of assets or liabilities in accordance with the provisions of IAS 12,
“Income Taxes”, in situations of uncertainty involving income taxes. The Interpretation provides guidance on: (i)
considering whether some tax treatments should be considered collectively; (ii) measurement of the effects of uncertainty involving
income taxes on the financial statements; and (iii) accounting for changes in facts and circumstances in respect of the uncertainty.
As of December 31,
2020, 2019 and 2018, the application of IFRIC 23 did not have a material effect on the financial statements.
Short-term investments
Our short-term bank
investments include deposits that have a maturity of more than three months from the deposit date but less than one year and financial
assets measured at fair value through other comprehensive income that include debt securities. Debt financial instruments are
subsequently measured at fair value through profit or loss (“FVPL”), amortized cost or fair value through other comprehensive
income (“FVOCI”). The classification is based on two criteria: our business model for managing the assets; and whether
the instruments’ contractual cash flows represent solely payments of principal and interest on the principal amount outstanding
(“SPPI”).
The classification
and measurement of our debt financial assets are as follows:
|
●
|
Debt instruments
measured at amortized cost for financial assets that are held within a business model with the objective to hold the financial
assets in order to collect contractual cash flows that meet the SPPI criteria. This category includes our trade and other
receivables.
|
|
●
|
Debt instruments
measured at FVOCI, with gains or losses recycled to profit or loss on the recognition. Financial assets in this category are
our quoted debt instruments that meet the SPPI criteria and are held within a business model both to collect cash flows and
to sell. Interest earned whilst holding available for sale financial investments is reported as interest income using the
effective interest rate method.
|
Our policy is to record
an allowance for expected credit loss (“ECL”) for all debt financial assets not measured at FVPL. ECLs are based on
the difference between the contractual cash flows due in accordance with the contract and the cash flows that we actually expect
to receive. For other debt financial assets (i.e., debt securities measured at FVOCI), the ECL is based on the 12-month ECL. The
12-month ECL is the portion of lifetime ECLs that results from default events on a financial instrument that are possible within
12 months after the reporting date. As of December 31, 2020, we have liquidated our securities portfolio.
Leases
As of January 1, 2019,
we applied IFRS 16, “Leases”. We account for a contract as a lease when the contract terms convey the right to control
the use of an identified asset for a period of time in exchange for consideration.
On the inception date
of the lease, we determine whether the arrangement is a lease or contains a lease, while examining if it conveys the right to
control the use of an identified asset for a period of time in exchange for consideration. In our assessment of whether an arrangement
conveys the right to control the use of an identified asset, we assess whether we have the following two rights throughout the
lease term:
|
(a)
|
The right to obtain substantially all the economic
benefits from use of the identified asset; and
|
|
(b)
|
The right to direct the identified asset’s
use.
|
For leases in which
we are the lessee, we recognize on the commencement date of the lease a right-of-use asset and a lease liability, excluding leases
whose term is up to 12 months and leases for which the underlying asset is of low value. For these excluded leases, we have elected
to recognize the lease payments as an expense in profit or loss on a straight-line basis over the lease term. In measuring the
lease liability, we have elected to apply the practical expedient in IFRS 16 and do not separate the lease components from the
non-lease components (such as management and maintenance services, etc.) included in a single contract.
On the commencement
date, the lease liability includes all unpaid lease payments discounted at the interest rate implicit in the lease, if that rate
can be readily determined, or otherwise using our incremental borrowing rate. After the commencement date, we measure the lease
liability using the effective interest rate method.
On the commencement
date, the right-of-use asset is recognized in an amount equal to the lease liability plus lease payments already made on or before
the commencement date and initial direct costs incurred less any lease incentives received. The right-of-use asset is measured
applying the cost model and depreciated over the shorter of its useful life or the lease term. We test for impairment of the right-of-use
asset whenever there are indications of impairment pursuant to the provisions of IAS 36.
For additional information, see Note 2m, and Note 14b in our
consolidated financial statements included in this Annual Report.
Government grants
We record government grants when there is reasonable assurance
that the grants will be received, and we will comply with the attached conditions.
Government grants
received from the Israel Innovation Authority (formerly the Office of the Chief Scientist of the Israel Ministry of Economy) are
recognized upon receipt as a liability if future economic benefits are expected from the research project that will result in
royalty-bearing sales.
A liability for royalties
is first measured at fair value using a discount rate that reflects a market rate of interest. The difference between the amount
of the grant received and the fair value of the liability is accounted for as a government grant and recognized as a reduction
of research and development expenses. After initial recognition, the liability is measured at amortized cost using the effective
interest method. Royalty payments are treated as a reduction of the liability. If no economic benefits are expected from the research
activity, the grant receipts are recognized as a reduction of the related research and development expenses. In that event, the
royalty obligation is treated as a contingent liability in accordance with IAS 37.
Item 6. Directors, Senior Management
and Employees
Executive Officers and Directors
The following table
sets forth certain information relating to our executive officers and directors as of February 24, 2021.
Name
|
|
Age
|
|
Position
|
Executive
Officers:
|
|
|
|
|
Amir London
|
|
52
|
|
Chief Executive
Officer
|
Chaime Orlev
|
|
50
|
|
Chief Financial
Officer
|
Michal Ayalon, PhD
|
|
54
|
|
Vice President,
Research and Development and IP
|
Yael Brenner
|
|
57
|
|
Vice President,
Quality
|
Hanni Neheman
|
|
51
|
|
Vice President,
Marketing & Sales
|
Eran Nir
|
|
48
|
|
Vice President,
Operations
|
Yifat Philip
|
|
44
|
|
Vice President,
General Counsel and Corporate Secretary
|
Orit Pinchuk
|
|
55
|
|
Vice President,
Regulatory Affairs and PVG
|
Ariella Raban
|
|
45
|
|
Vice President,
Human Resources
|
Dr. Naveh Tov, PhD
|
|
57
|
|
Vice President,
Clinical Development and Medical Director
|
|
|
|
|
|
Directors:
|
|
|
|
|
Lilach Asher Topilsky*
|
|
50
|
|
Chairman of the
Board of Directors
|
Avraham Berger*
|
|
69
|
|
Director, Chairman
of Audit Committee
|
Amiram Boehm *
|
|
49
|
|
Director
|
Ishay Davidi*
|
|
58
|
|
Director
|
Karnit Goldwasser*
|
|
44
|
|
Director
|
Jonathan Hahn
|
|
38
|
|
Director, Chairman
of Strategy Committee
|
Leon Recanati*
|
|
72
|
|
Director, Chairman
of Compensation Committee
|
Prof. Ari Shamiss, MD*
|
|
62
|
|
Director
|
David Tsur
|
|
71
|
|
Director
|
|
*
|
Independent
director under the Nasdaq listing requirements.
|
Executive Officers
Amir London
has served as our Chief Executive Officer since July 2015. Prior to that, Mr. London served as our Senior Vice President, Business
Development since December 2013. Mr. London brings with him over 20 years of senior management and international business development
experience. From 2011 to 2013, Mr. London served as the Chief Operating Officer of Fidelis Diagnostics, a U.S.-based provider
of innovative in-office medical diagnostic services. Earlier in his career, from 2009 to 2011, Mr. London was the Chief Executive
Officer of Promedico, a leading Israeli-based $350 million healthcare distribution company, and the General Manager of Cure Medical,
from 2006 to 2009, providing contract manufacturing services for clinical studies, as well as home-care solutions. From 1995 to
2006, Mr. London was a Partner with Tefen, an international publicly-traded operations management consulting firm, responsible
for the firm’s global biopharma practice. Mr. London holds a B.Sc. degree in Industrial and Management Engineering from
the Technion – Israel Institute of Technology.
Chaime Orlev
has served as our Chief Financial Officer since December 2017. Prior to that, Mr. Orlev had served in senior finance roles for
more than 20 years, with approximately 12 years spent in the life sciences industry. Most recently, from September 2016 to November
2017, Mr. Orlev served as Chief Financial Officer and Vice President Finance and Administration at Bioblast Pharma Ltd. (Nasdaq:
ORPN), a clinical-stage, orphan disease-focused biotechnology company. Prior to that, from 2010, Mr. Orlev served as Vice President
Finance and Administration at Chiasma (Nasdaq: CHMA), currently, a commercial biopharmaceutical company focused on treating rare
and serious chronic diseases. In this role, Mr. Orlev helped lead the company’s 2015 over $100 million initial public offering
and listing on Nasdaq, and participated in the negotiations and closing of the licensing agreement for the company’s lead
product to F. Hoffmann-La Roche. Previously, Mr. Orlev was Chief Financial Officer at Oramed Pharmaceuticals Inc. (Nasdaq: ORMP),
which has developed an innovative technology to transform injectable treatments into oral therapies. In this role, Mr. Orlev led
multiple capital raises. Mr. Orlev is a certified public accountant in Israel, holds an MBA degree from the Leon Recanati Graduate
School of Business Administration at the Tel Aviv University and a BA degree in Business Administration from the College of Management
in Israel.
Dr. Michal Ayalon
has served as our Vice President, Research and Development and IP since February 2019. Prior to joining us, from 2018 to 2019,
Dr. Ayalon served as Head of R&D at 89bio Ltd., where Dr. Ayalon led the overall development strategy of the company and managed
all R&D functions, including medical, clinical, pre-clinical, CMC, regulatory, and project management. Prior to that, from
2016 to 2018, Dr. Ayalon served as Project Champion at Teva Pharmaceutical Industries Ltd., where she led novel biologics and
biosimilar projects in oncology, respiratory and metabolic disease. In 2015, Dr. Ayalon served as Vice President of Research &
Development at Galmed Pharmaceuticals Ltd., where she led the pre-clinical as well as CMC activities and managed the clinical
operation group. Prior to that, Dr. Ayalon worked for Immune Pharmaceuticals, Inc. (from 2012 to 2015), BioLineRx and Compugen
Ltd. Dr. Ayalon received her B.Sc., M.Sc. and Ph.D. degrees from Tel-Aviv University, Faculty of Life Sciences. Dr. Ayalon completed
her postdoctoral research at Weizmann Institute of Science in the Department of Molecular Biology of the Cell. Dr. Ayalon is the
author of multiple patents and publications.
Yael Brenner has
served as our Vice President, Quality since March 2015. Ms. Brenner has more than 25 years of experience in Quality Management,
including Quality Assurance and Quality Control managerial positions in the pharmaceutical industry. Prior to joining Kamada,
from 2007 to 2015, Ms. Brenner was at Teva Pharmaceuticals Industries, lastly as Senior Director Quality Operations of Teva Kfar
Sava Site, managing over 400 employees in Quality Assurance, Quality Control and Regulatory Affairs. Ms. Brenner holds B.Sc. and
M.Sc. degrees in Chemistry from the Technion - Israel Institute of Technology, and in addition is a Certified Quality Engineer
(CQE) from the American and Israeli Societies for Quality.
Hanni Neheman has
served as our Vice President, Marketing & Sales since January 2020. Ms. Neheman joined us in August 2014 and served as Head
of Business Operations, Israel. Ms. Neheman has more than 20 years of expertise in different positions in the field of marketing
and sales in the pharmaceutical industry. Prior to joining us, Ms. Neheman served as a Commercial Manager at Neopharm Israel.
Ms. Neheman holds a B.A. degree in Occupational Therapy from the Technion Israel Institute of Technology and Executive M.B.A degree
from Derby University.
Eran Nir has
served as our Vice President, Operations since November 1, 2016. Mr. Nir has over 20 years of operations management experience
in the pharmaceutical and medical industries. Mr. Nir’s recent roles include management of TEVA’s Pharmaceutical plant
in Jerusalem from 2002 to 2011, VP Operations of Amelia Cosmetics from 2014 to 2015 and management of a medical equipment plant
of Philips Medical Systems from 2015 to 2016. Mr. Nir’s extensive experience spans across the management of large scale
FDA and EMA- approved manufacturing facilities, tech-transfer of new products from development to production and the implementation
of world-class operational excellence systems. Mr. Nir holds a B.Sc. degree in Industrial and Management Engineering and a MBA
degree in Business Management, both from Ben-Gurion University.
Yifat Philip has
served as our VP General Counsel and Corporate Secretary since October 2020. Ms. Philip has been practicing law for more than
15 years, with an experience of over a decade in the BioMed industry. Prior to joining Kamada, Ms. Philip served as VP Legal Affairs
and Compliance Officer of OPKO Biologics, a subsidiary of OPKO Health, Inc. (NASDAQ:OPK), responsible for all the company’s
legal matters and commercial agreements, including IP licensing, R&D collaborations, clinical trials and drug manufacturing
contracts. Ms. Philip has vast experience from leading law firms on international biotech M&A deals, joint ventures and commercial
transactions. Prior to that, Ms. Philip worked at the Israel Securities Authority, the Department of Economics and Fiscal Law
of the State Attorney, Israel. Ms. Philip is a member of the Israel Bar Association and holds an LLB degree (cum laude) and a
BA degree in Economics, both from Haifa University; an MA degree (cum laude) in Law and Economics from Erasmus University in the
Netherlands in collaboration with Berkeley University, USA; and an MBA degree from the Technion-Israel Institute of Technology,
Israel. Ms. Philip also serves as a member of the board of directors of the Israeli Association of Corporate Counsels and head
of the ACC BioMed Forum.
Orit Pinchuk has
served as our Vice President, Regulatory Affairs and PVG since October 2014. Ms. Pinchuk has experience of more than 25 years
in the pharmaceutical industry, fulfilling key positions that cover, among others, disciplines of Regulatory Affairs and Compliance.
Prior to joining Kamada, Ms. Pinchuk was at Teva Pharmaceuticals Industries, from 1993 to 2014, where she served as Director of
Compliance and Regulatory Affairs, Operation Israel and Senior Director Regulatory Affairs, Research and Development and Operation
Israel. Ms. Pinchuk has extensive experience with FDA, EMA and Canada Health Authorities. Ms. Pinchuk holds a B.Tech degree in
Textile Chemistry from Shenkar College for Engineering and Design and M.Sc. degree in Applied Chemistry from the Hebrew University
of Jerusalem.
Ariella Raban
has served as our Vice President, Human Resources since May
2018. Ms. Raban joined us in March 2014 and served as Human Resources Manager at our manufacturing facility in Beit Kama. Ms. Raban
has experience of 14 years in different positions in the field of human resources in the pharmaceutical industry. Prior to joining
us, Ms. Raban served as a Human Resources Manager at Teva Pharmaceuticals Industries Ltd. Ms. Raban holds a B.A. degree in Humanities
Social Science from Ben-Gurion University.
Dr. Naveh Tov has served as our Vice President, Clinical Development and Medical
Director for Pulmonary Diseases since July 2016. Prior to joining us, Dr. Tov served as our Medical Director in a part- time consultancy
role, from 2007. Dr. Tov served in both active hospital academic and clinical positions at Bnei Zion Medical Center, Haifa, Israel
from 1994 through 2016. Dr. Tov specializes in Internal, Pulmonary and Sleep Medicine and served as Head of the Pulmonary Unit
and as Deputy of Internal Ward C at Bnei Zion Medical Center, for 14 years from 2002 through 2016. During these years, Dr. Tov
served in academia and held appointments at the Ruth and Bruce Rappaport Faculty of Medicine of The Technion – Israel Institute
of Technology. Dr. Tov is a member of the American Thoracic Society and the European Respiratory Society. Dr. Tov holds an M.D.
and a Ph.D. from the Ruth and Bruce Rappaport Faculty of Medicine of The Technion – Israel Institute of Technology. With
respect to change in Dr. Tov’s terms of employment, see “Agreements with Five Most Highly Compensated Office Holders”
below.
Directors
Mrs. Lilach Asher
Topilsky has served as a member of our board of directors since December 2019, as the Chairman of our board of directors since
August 2020, and serves as a member of our Compensation Committee and Strategy Committee. Mrs. Asher Topilsky has been a Senior
Partner in the FIMI Opportunity Funds, Israel’s largest group of private equity funds, since December 2019. Mrs. Asher Topilsky
currently serves as the chairman of G1 Security Systems Ltd. (TASE), Rimoni Industries Ltd. (TASE) and Elyakim Ben Ari Group Ltd.
and as a director at Amiad Water Systems Ltd. (AIM) and Tel Aviv University. Prior to joining FIMI, Mrs. Asher Topilsky served
as the President and CEO of Israel Discount Bank (TASE), one of the leading banking groups in Israel, as the Chairman at IDBNY
BANKCORP and as a director at IDB Bank New York from 2014 -2019. Mrs. Asher Topilsky also served as the Chairman of Mercantile
Bank from 2014-2016. Before that, Mrs. Asher Topilsky served as a member of the management of Bank Hapoalim (TASE) as Deputy CEO & Head of Retail Banking Division (2009-2013) & Head of Strategy & Planning Division (2007-2009). Mrs. Asher Topilsky
served as a Strategy Consultant at The Boston Consulting Group (BCG, Chicago 1997-1998) and at Shaldor Strategy Consulting (Israel
1995-1996). Mrs. Asher Topilsky holds an M.B.A. degree from Kellogg School of Management, Northwestern University, Chicago, USA
(1997), and a B.A. degree in Management and Economics from Tel Aviv University, Israel (Magna Cum Laude, 1994).
Avraham Berger
has served on our board of directors since August 2016, and serves as the Chair of our Audit Committee and as a member of
our Compensation Committee. Until 2014, Mr. Berger served as a senior partner and Chief Executive Officer of PwC Israel, for more
than 20 years. Mr. Berger joined PwC Israel in 1976 and led it from 1991. Mr. Berger has vast experience in mergers and acquisitions
and complex public offerings, both in Israel and abroad. Mr. Berger lectures at professional forums and has published several
articles in the professional press. Mr. Berger also serves as Chairman of the board of directors of TopAudio Ltd. and serves as
director on the board of Weizmann Institute of Science. Mr. Berger holds a BA degree in Accounting and Economics from Tel Aviv
University and is a certified public accountant in Israel.
Amiram Boehm
has served on our board of directors since December 2019 and serves as a member of our Strategy Committee. Mr. Bohem is a Partner
in the FIMI Opportunity Funds, Israel’s largest group of private equity funds, since 2004. Mr. Boehm served as the Managing
Partner and Chief Executive Officer of FITE GP (2004), and serves as a director at Gilat Satellite Communications (NASDAQ), Ham-Let
(Israel-Canada) Ltd. (TASE), Hadera Paper Ltd (TASE)., Rekah Pharmaceuticals Ltd. (TASE), TAT Technologies Ltd. (NASDAQ, TASE),
PCB Technologies Ltd. (TASE) and DelekSan Ltd. and Galam Ltd. Mr. Boehm previously served as a director of DIMAR Ltd, Ormat Technologies
Inc. (NYSE, TASE), Scope Metal Trading Ltd. (TASE), Inter Industries, Ltd. (TASE), Global Wire Ltd. (TASE), Telkoor Telecom Ltd.
(TASE) and Solbar Industries Ltd. (previously traded on the TASE) and Novolog Ltd (TASE). Prior to joining FIMI, from 1999 until
2004, Mr. Boehm served as Head of Research of Discount Capital Markets, the investment arm of Israel Discount Bank. Mr. Boehm
holds a BA degree in Economics and LLB degree from Tel Aviv University and a Joint MBA degree from Northwestern University and
Tel Aviv University.
Ishay Davidi
has served on our board of directors since December 2019. Mr. Davidi is the Founder and has served as Chief Executive Officer
of the FIMI Opportunity Funds, Israel’s largest group of private equity funds, since 1996. Mr. Davidi currently serves as
the Chairman of the Board of Directors of Hadera Paper Ltd. (TASE) and Polyram Plastic Industries Ltd (TASE). Mr. Davidi also
serves as a director of Gilat Satellite Networks Ltd. (NASDAQ and TASE), Ham-Let Ltd. (TASE), Bet Shemesh Engines Ltd. (TASE),
C. Mer Industries Ltd. (TASE), G1 Security Systems Ltd. (TASE), PCB Technologies Ltd. (TASE), Tadir- Gan (precision products)
1993 Ltd. (TASE), Rekah Pharmaceutical Industries (TASE), SOS Ltd., DelekSan Ltd., Amiad Water Systems Ltd (AIM), Rimoni Industries
Ltd. (TASE) and Elyakim Ben-Ari Group Ltd. Mr. Davidi previously served as the Chairman of the board of directors of Inrom, Retalix
(previously traded on NASDAQ and TASE) and Tefron Ltd. (NYSE and TASE) and as a director of Pharm Up Ltd (TASE), Ormat Industries
Ltd. (previously traded on TASE), Lipman Electronic Engineering Ltd. (NASDAQ and TASE), Merhav Ceramic and Building Materials
Center Ltd. (NASDAQ and TASE), Orian C.M. Ltd. (TASE), Ophir Optronics Ltd., Overseas Commerce Ltd, (TASE), Scope Metals Group
Ltd. (TASE) and Formula Systems Ltd. (NASDAQ and TASE). Prior to establishing FIMI, from 1993 until 1996, Mr. Davidi was the Founder
and Chief Executive Officer of Tikvah Fund, a private Israeli investment fund. From 1992 until 1993 Mr. Davidi served as the Chief
Executive Officer of Zer Science Industries Ltd. Mr. Davidi holds an M.B.A. degree from Bar Ilan University, Israel, and a B.Sc.
degree, with honors, in Industrial Engineering from the Tel Aviv University, Israel.
Karnit
Goldwasser has served on our board of directors since December 2019 and serves as a member of our Audit Committee and
Compensation Committee. Ms. Goldwasser serves as an independent consultant and environmental engineer for various agencies
and organizations. Ms. Goldwasser is a director at Delek San Recycling Ltd. (since December 2016) and ELA Recycling
Corporation (since April 2015). Ms. Goldwasser previously served as a director at Orian DB Schenker (2017-2020) and at the government-owned Environmental Services Company Ltd., as chair of the Safety Committee (2010-2016), and as a
member of the Tel Aviv-Jaffa City Council, holding the environmental portfolio (2013-2016). Ms. Goldwasser also served as a
director in several Tel Aviv-Jaffa municipality corporations: Dan Municipal Sanitation Association, as chair of the audit
committee; Tel Aviv-Jaffa Economic Development Authority; and Ganei Yehoshua Co. Ltd. Ms. Goldwasser holds a B.Sc. degree in
Environmental Engineering, focusing on chemistry, mathematics and environmental engineering, and M.Sc. degree in Civil
Engineering, specializing in Hydrodynamics and Water Resources, both from the Technion – Israel Institute of
Technology, and MA degree in Public Policy and Administration from the Lauder School of Government Diplomacy and Strategy,
IDC Herzliya. Ms. Goldwasser also completed the Directors Program at LAHAV, School of Management, Tel Aviv University.
Jonathan Hahn
has served on our board of directors since March 2010, and serves as the Chairman of our Strategy Committee. Mr. Hahn serves as
the President and a director of Tuteur SACIFIA, where he has been since 2013. Prior to that, Mr. Hahn served as Strategic Planning
Manager at Tuteur and held a business development position at Forest Laboratories, Inc., based in New York. Mr. Hahn holds a BA
degree from San Andrés University and an MBA degree from New York University — Stern School of Business, with specializations
in Finance and Entrepreneurship.
Leon Recanati
has served on our board of directors since May 2005, as the Chairman of our board of directors from March 2013 to August 2020,
and serves as the Chairman of our Compensation Committee. Mr. Recanati currently serves as a board member of Evogene Ltd., a plant
genomics company listed on the TASE and New York Stock Exchange. Mr. Recanati is also a board member of the following private
companies: GlenRock Israel Ltd., Gov, Govli Limited, RelTech Holdings Ltd., Legov Ltd., Insight Capital Ltd., and Shavit Capital
Funds. Mr. Recanati currently serves as the Chairman and Chief Executive Officer of GlenRock. Previously, Mr. Recanati was Chief
Executive Officer and/or Chairman of IDB Holding Corporation; Clal Industries Ltd.; Azorim Investment Development and Construction
Co Ltd.; Delek Israel Fuel Corporation; and Super-Sol Ltd. Mr. Recanati also founded Clal Biotechnologies Industries Ltd., a biotechnology
investment company operating in Israel. Mr. Recanati holds an MBA degree from the Hebrew University of Jerusalem and Honorary
Doctorates from the Technion – Israel Institute of Technology and Tel Aviv University.
Prof. Ari Shamiss
has served as on our board of directors since August 2020 and serves as a member of our Audit Committee. Prof. Shamiss is
the Founder, General Partner and Chairman of the Investment Committee at Assuta Life Sciences Ventures, a life sciences-focused
venture capital entity. Prior to that, from September 2016 to June 2020 he served as CEO of Assuta Medical Centers, the largest
private hospital network in Israel, which includes eight hospitals and medical centers, with over $600 million in annual revenue.
From July 2005 to 2016, Prof. Shamiss was the chief executive officer of Sheba General Hospital, the largest hospital in Israel.
Prof. Shamiss also served as Vice Dean at Ben Gurion University School of Medicine from January 2017 to June 2020 and remains
a Professor at the institution. Prof. Shamiss is a past Surgeon General of the Israel Air Force, Colonel (Retired). Prof. Shamiss
currently serves on the boards of BATM Advanced Technologies and Therapix Biosciences.
David Tsur
has served as on our board of directors since July 2015, as Active Deputy Chairman on a half-time basis until December 31, 2019
and serves as a member of our Strategy Committee. Prior to that, Mr. Tsur served as our Chief Executive Officer and a director
since our inception. Prior to co-founding Kamada in 1990, Mr. Tsur served as Chief Executive Officer of Arad Systems and RAD Chemicals
Inc. Mr. Tsur previously served as the Chairman of the Board of Directors of CollPlant Ltd., a company listed on the TASE and
OTC market. Mr. Tsur has also held various positions in the Israeli Ministry of Economy and Industry (formerly named the Ministry
of Industry and Trade), including Chief Economist and Commercial Attaché in Argentina and Iran. Mr. Tsur serves as the
Chairman of the Board of Directors of Kanabo Ltd. (LSE). Mr. Tsur holds a BA degree in Economics and International Relations and
an MBA degree in Business Management, both from the Hebrew University of Jerusalem.
Under a shareholders’
agreement entered into on March 6, 2013, the Recanati Group, on the one hand, and the Damar Group, on the other hand, have each
agreed to vote the ordinary shares beneficially owned by them in favor of the election of director nominees designated by the
other group as follows: (i) three director nominees, so long as the other group beneficially owns at least 7.5% of our outstanding
share capital, (ii) two director nominees, so long as the other group beneficially owns at least 5.0% (but less than 7.5%) of
our outstanding share capital, and (iii) one director nominee, so long as the other group beneficially owns at least 2.5% (but
less than 5.0%) of our outstanding share capital. In addition, to the extent that after the designation of the foregoing director
nominees there are additional director vacancies, each of the Recanati Group and Damar Group have agreed to vote the ordinary
shares beneficially owned by them in favor of such additional director nominees designated by the party who beneficially owns
the larger voting rights in our company. See “Item 7. Major Shareholders and Related Party Transactions — Related
Party Transactions — Shareholder Agreement.”
Board of Directors
Under our articles
of association, the number of directors on our board of directors must be no less than five and no more than 11. Our board of
directors currently consists of nine directors, seven of whom qualify as “independent directors” under the Nasdaq
listing requirements, such that we comply with the Nasdaq Listing Rule that requires that a majority of our board of directors
be comprised of independent directors, within the meaning of Nasdaq Listing Rules.
Our directors are
elected by the vote of a majority of the ordinary shares present, in person or by proxy, and voting at a shareholders’ meeting.
Each director holds office until the first annual general meeting of shareholders following his or her appointment, unless the
tenure of such director expires earlier pursuant to the Israeli Companies Law, 1999 (the “Israeli Companies Law”)
or unless he or she is removed from office as described below.
Vacancies on our board
of directors, including vacancies resulting from there being fewer than the maximum number of directors permitted by our articles
of association, may generally be filled by a vote of a simple majority of the directors then in office.
A general meeting
of our shareholders may remove a director from office prior to the expiration of his or her term in office by a resolution adopted
by holders of a majority of our shares voting on the proposed removal, provided that the director being removed from office is
given a reasonable opportunity to present his or her case before the general meeting.
External Directors
Under the Companies
Law, companies incorporated under the laws of the State of Israel that are “public companies,” must appoint at least
two external directors who meet the qualification requirements in the Companies Law.
However, according
to regulations promulgated under the Israel Companies Law, a company whose shares are traded on certain stock exchanges outside
Israel (including the Nasdaq Global Select Market, such as our company) that does not have a controlling shareholder and that
complies with the requirements of the laws of the foreign jurisdiction where the company’s shares are listed, as they apply
to domestic issuers, with respect to the appointment of independent directors and the composition of the audit committee and compensation
committee, may elect to exempt itself from the requirements of Israeli law with respect to (i) the requirement to appoint external
directors and that one external director serve on each committee of the board of directors authorized to exercise any of the powers
of the board of directors; (ii) certain limitations on the employment or service of an external director or his or her spouse,
children or other relatives, following the cessation of the service as an outside director, by or for the company, its controlling
shareholder or an entity controlled by the controlling shareholder; (iii) the composition, meetings and quorum of the audit committee;
and (iv) the composition and meetings of the compensation committee. If a company has elected to avail itself from the requirement
to appoint external directors and at the time a director is appointed all members of the board of directors are of the same gender,
a director of the other gender must be appointed.
On January 30, 2017,
following analysis of our qualification to rely on the exemption, our board of directors determined to adopt the exemption. If
in the future we were to have a controlling shareholder, we would again be required to comply with the requirements relating to
external directors and the composition of the audit committee and compensation committee under Israeli law.
Audit Committee
We have an audit committee
consisting of Mr. Avraham Berger, Ms. Karnit Goldwasser and Prof. Ari Shamiss. Mr. Avraham Berger serves as the chairman of the
audit committee.
In accordance with
regulations promulgated under the Companies Law described above, we elected to “opt out” from the Companies Law requirement
to appoint external directors and related rules concerning the composition of the audit committee and compensation committee.
Under such exemption, among other things, the composition of our audit committee must comply with the requirements of SEC and
Nasdaq rules.
Under the Exchange
Act and Nasdaq listing requirements, we are required to maintain an audit committee consisting of at least three independent directors,
each of whom is financially literate and one of whom has accounting or related financial management expertise. Our board of directors
has affirmatively determined that each member of our audit committee qualifies as an “independent director” for purposes
of serving on an audit committee under the Exchange Act and Nasdaq listing requirements. Our board of directors has determined
that Avraham Berger qualifies as an “audit committee financial expert,” as defined in Item 407(d)(5) of Regulation
S-K. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations
of the SEC and Nasdaq.
Audit Committee Role
Our audit committee
generally provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving
our accounting, auditing, financial reporting and internal control functions by reviewing the services of our independent accountants
and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit
committee also oversees the audit efforts of our independent accountants. Our audit committee also acts as a corporate governance
compliance committee and oversees the implementation and amendment, from time to time, of our policies for compliance with Israeli
and U.S. securities laws and applicable Nasdaq corporate governance requirements, including non-use of inside information, reporting
requirements, our engagement with related parties, whistleblower complaints and protection, and is also responsible for the handling
of any incidents that may arise in violation of our policies or applicable securities laws. Our board of directors has adopted
an audit committee charter setting forth the specific responsibilities of the audit committee consistent with the Companies Law,
and the rules and regulations of the SEC and the Nasdaq listing requirements, which include:
|
●
|
oversight of our
independent auditors and recommending the engagement, compensation or termination of engagement of our independent auditors
to the board of directors or shareholders for their approval, as applicable, in accordance with the requirements of the Companies
Law;
|
|
●
|
pre-approval of
audit and non-audit services to be provided by the independent auditors;
|
|
●
|
reviewing and recommending
to the board of directors approval of our quarterly and annual financial reports; and
|
|
●
|
overseeing the implementation
and amendment of our policies for compliance with Israeli and U.S. securities laws and applicable Nasdaq corporate governance
requirements.
|
Additionally, under
the Companies Law, the role of the audit committee includes: (1) determining whether there are delinquencies in the business management
practices of our company, including in consultation with our internal auditor or our independent auditor, and making recommendations
to the board of directors to improve such practices; (2) determining whether to approve certain related party transactions (including
transactions in which an office holder has a personal interest) and whether any such transaction is an extraordinary or material
transaction under the Companies Law; (3) determining whether a competitive process must be implemented for the approval of certain
transactions with controlling shareholders or in which a controlling shareholder has a personal interest (whether or not the transaction
is an extraordinary transaction), under the supervision of the audit committee or other party determined by the audit committee
and in accordance with standards determined by the audit committee, or whether a different process determined by the audit committee
should be implemented for the approval of such transactions; (4) determining the process for the approval of certain transactions
with controlling shareholders that the audit committee has determined are not extraordinary transactions but are not immaterial
transactions; (5) where the board of directors approves the work plan of the internal auditor, examining such work plan before
its submission to the board of directors and proposing amendments thereto; (6) examining our internal controls and internal auditor’s
performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities; (7)
examining the scope of our auditor’s work and compensation and submitting its recommendation with respect thereto to the
corporate body considering the appointment thereof (either the board of directors or the shareholders at the general meeting);
and (8) establishing procedures for the handling of employees’ complaints as to the management of our business and the protection
to be provided to such employees.
Compensation Committee
We have a compensation
committee consisting of Mr. Leon Recanati, Mr. Avraham Berger, Ms. Karnit Goldwasser and Ms. Lilach Asher-Topilsky. Mr. Recanati
serves as the chairman of the compensation committee.
In accordance with
regulations promulgated under the Companies Law described above, we elected to “opt out” from the Companies Law requirement
to appoint external directors and related rules concerning the composition of the audit committee and compensation committee.
Under such exemption, among other things, the composition of our compensation committee must comply with the requirements of Nasdaq
rules. Under Nasdaq listing requirements, we are required to maintain a compensation committee consisting of at least two members,
each of whom is an “independent director” under the Nasdaq listing requirements. Our board of directors has affirmatively
determined that each member of our compensation committee qualifies as an “independent director” under the Nasdaq
listing requirements.
Compensation Committee Role
In accordance with
the Companies Law, the roles of the compensation committee are, among others, as follows:
|
●
|
recommending to
the board of directors with respect to the approval of the compensation policy for office holders and, once every three years,
regarding any extensions to a compensation policy that was adopted for a period of more than three years;
|
|
●
|
reviewing the implementation
of the compensation policy and periodically recommending to the board of directors with respect to any amendments or updates
of the compensation policy;
|
|
●
|
resolving whether
or not to approve arrangements with respect to the terms of office and employment of office holders; and
|
|
●
|
exempting, under
certain circumstances, a transaction with our Chief Executive Officer from the approval of the general meeting of our shareholders.
|
We rely on the “foreign
private issuer exemption” with respect to the Nasdaq requirement to have a formal charter for the compensation committee.
Strategy Committee
Our strategy committee
currently consists of Mr. Jonathan Hahn, Ms. Lilach Asher-Topilsky, Mr. Amiram Boehm and Mr. David Tsur. Mr. Jonathan Hahn serves
as the chairman of the strategy committee.
The roles of our strategy
committee are (among others): (1) reviewing periodically and making recommendations to the board of directors with respect to
our strategic plan and overall strategy, our research and development plan, annual work plan and budget, strategy with respect
to mergers and acquisitions, and any strategic initiatives identified our board of directors or management from time to time,
including the exit from existing lines of business and entry into newlines of business, joint ventures, acquisitions, investments,
dispositions of business and assets and business expansions; (2) guiding management in the development of our strategy, including
reviewing and discussing with management our strategic direction and initiatives and the risks and opportunities associated with
our strategy; (3) reviewing with management the process for development, approval and modification of the strategy and strategic
plan; (4) assisting management with identifying key issues, options and external developments impacting our strategy; (5) reviewing
management’s progress in implementing our global strategy; and (6) ensuring the board of directors is regularly apprised
of the progress with respect to implementation of any approved strategy.
Internal Auditor
Under the Companies
Law, the board of directors of a public company must appoint an internal auditor recommended by the audit committee. The role
of the internal auditor is, among other things, to examine whether a company’s actions comply with applicable law and orderly
business procedure. Under the Companies Law, the internal auditor may not be an “interested party” or an office holder,
or a relative of an interested party or of an office holder, nor may the internal auditor be the company’s independent accounting
firm or anyone acting on its behalf. An “interested party” is defined in the Companies Law as (i) a holder of 5% or
more of the company’s outstanding shares or voting rights, (ii) any person or entity (or relative of such person) who has
the right to designate one or more directors or to designate the chief executive officer of the company, or (iii) any person who
serves as a director or as a chief executive officer of the company. Linur Dloomy of Brightman Almagor Zohar & Co. (a Firm
in the Deloitte Global Network) serves as our internal auditor.
Fiduciary Duties and Approval of Specified
Related Party Transactions under Israeli Law
Fiduciary Duties of Office Holders
The Companies Law
codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Management —
Executive Officers and Directors” is an office holder under the Companies Law.
An office holder’s
fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level
of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of
care includes, among other things, a duty to use reasonable means, in light of the circumstances, to obtain:
|
●
|
information on the
advisability of a given action brought for his or her approval or performed by the director in his or her capacity as a director;
and
|
|
●
|
all other important
information pertaining to such action.
|
The duty of loyalty
requires an office holder to act in good faith and for the benefit of the company, and includes, among other things, the duty
to:
|
●
|
refrain from any
act involving a conflict of interests between the performance of his or her duties to the company and his or her other duties
or personal affairs;
|
|
●
|
refrain from any
activity that is competitive with the business of the company;
|
|
●
|
refrain from exploiting
any business opportunity of the company to receive a personal gain for himself or herself or others; and
|
|
●
|
disclose to the
company any information or documents relating to the company’s affairs which the office holder received as a result
of his or her position as an office holder.
|
We
may approve an act specified above which would otherwise constitute a breach of the office holder’s duty of loyalty provided
that the office holder acted in good faith, the act or its approval does not harm the company and the office holder discloses
his or her personal interest a sufficient amount of time before the date for discussion of approval of such act.
Disclosure of Personal Interests
of an Office Holder and Approval of Transactions
The Companies Law
requires that an office holder promptly disclose to the company any “personal interest” that he or she may have, and
all related material information or documents relating to any existing or proposed transaction by the company. A “personal
interest” is defined under the Companies Law as the personal interest of a person in an action or in a transaction of the
company, including the personal interest of such person’s relative or of any other corporate entity in which such person
and/or such person’s relative is a director, general manager or chief executive officer, a holder of 5% or more of the outstanding
shares or voting rights, or has the right to appoint at least one director or the general manager, but excluding a personal interest
arising solely from ownership of shares in the company. A personal interest includes the personal interest of a person for whom
the office holder holds a voting proxy and the personal interest of a person voting as a proxy, even when the person granting
such proxy has no personal interest. An interested office holder’s disclosure must be made promptly and no later than the
first meeting of the board of directors at which the transaction is considered. An office holder is not obliged to disclose such
information if the personal interest of the office holder derives solely from the personal interest of his or her relative in
a transaction that is not considered as an “extraordinary transaction.”
An “extraordinary
transaction” is defined under the Companies Law as any of the following:
|
●
|
a transaction other
than in the ordinary course of business;
|
|
●
|
a transaction that
is not on market terms; or
|
|
●
|
a transaction that
is likely to have a material impact on the company’s profitability, assets or liabilities.
|
Under the Companies
Law, unless the articles of association of a company provide otherwise, a transaction with an office holder or with a third party
in which the office holder has a personal interest, and which is not an extraordinary transaction, requires approval by the board
of directors. Our articles of association do not provide for a different method of approval. If the transaction is an extraordinary
transaction with an office holder or third party in which the office holder has a personal interest, then audit committee approval
is required prior to approval by the board of directors. The audit committee determines whether any such transaction is an “extraordinary
transaction” (within the meaning of the Companies Law). For the approval of compensation arrangements with directors and
officers who are controlling shareholders, see “— Disclosures of Personal Interests of a Controlling Shareholder and
Approval of Certain Transactions,” for the approval of compensation arrangements with directors, see “— Compensation
of Directors” and for the approval of compensation arrangements with office holders who are not directors, see “—
Compensation of Executive Officers.”
Subject to certain
exceptions, any person who has a personal interest in the approval of a transaction that is brought before a meeting of the board
of directors or the audit committee may not be present at the meeting, unless such person is an office holder and invited by the
chairman of the board of directors or of the audit committee, as applicable, to present the matter being considered, and may not
vote on the matter. In addition, a director who has a personal interest in the approval of a transaction may be present at the
meeting and vote on the matter if a majority of the directors or members of the audit committee, as applicable, have a personal
interest in the transaction. In such case, shareholder approval is also required.
Disclosure of Personal Interests
of a Controlling Shareholder and Approval of Certain Transactions
Pursuant to the Companies
Law, the disclosure requirements regarding personal interests that apply to office holders also apply to a controlling shareholder
of a public company. For this purpose, a controlling shareholder is a shareholder who has the ability to direct the activities
of a company, including a shareholder who owns 25% or more of the voting rights if no other shareholder owns more than 50% of
the voting rights. Two or more shareholders with a personal interest in the approval of the same transaction are deemed to be
one shareholder.
Extraordinary transactions
with a controlling shareholder or in which a controlling shareholder has a personal interest, the terms of services provided by
a controlling shareholder or his or her relative, directly or indirectly (including through a corporation controlled by a controlling
shareholder), the terms of employment of a controlling shareholder or his or her relative who is employed by the company and who
is not an office holder and the terms of service and employment, including exculpation, indemnification or insurance, of a controlling
shareholder or his or her relative who is an office holder, require the approval of each of the audit committee or the compensation
committee with respect to terms of service and employment by the company as an office holder, employee or service provider, the
board of directors and the shareholders, in that order. In addition, the shareholder approval must fulfill one of the following
requirements:
|
●
|
at least a majority
of the shares held by shareholders who have no personal interest in the transaction and who are present and voting at the
meeting on the matter are voted in favor of approving the transaction, excluding abstentions; or
|
|
●
|
the shares voted
against the transaction by shareholders who have no personal interest in the transaction who are present and voting at the
meeting represent no more than 2% of the voting rights in the company.
|
Each shareholder voting
on the approval of an extraordinary transaction with a controlling shareholder must inform the company prior to voting whether
or not he or she has a personal interest in the approval of the transaction, otherwise, the shareholder is not eligible to vote
on the proposal and his or her vote will not be counted for purposes of the proposal.
Any extraordinary
transaction with a controlling shareholder or in which a controlling shareholder has a personal interest with a term of more than
three years requires approval every three years, unless the audit committee determines that the duration of the transaction is
reasonable given the circumstances related thereto.
Pursuant to regulations
promulgated under the Companies Law, certain transactions with a controlling shareholder or his or her relative, or with directors,
relating to terms of service or employment, that would otherwise require approval of the shareholders may be exempt from shareholder
approval upon certain determinations of the audit committee and board of directors.
Duties of Shareholders
Under the Companies
Law, a shareholder has a duty to refrain from abusing his or her power in the company and to act in good faith and in a customary
manner in exercising its rights and performing its obligations to the company and other shareholders, including, among other things,
when voting at meetings of shareholders on the following matters:
|
●
|
an amendment to
the company’s articles of association;
|
|
●
|
an increase in the
company’s authorized share capital;
|
|
●
|
the approval of
related party transactions and acts of office holders that require shareholder approval.
|
A shareholder also
has a general duty to refrain from discriminating against other shareholders.
In addition, certain
shareholders have a duty to act with fairness towards the company. These shareholders include any controlling shareholder, any
shareholder who knows that his or her vote can determine the outcome of a shareholder vote, and any shareholder that, under a
company’s articles of association, has the power to appoint or prevent the appointment of an office holder or has another
power with respect to the company. The Companies Law does not define the substance of this duty except to state that the remedies
generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness.
Approval of Significant Private Placements
Under the Companies
Law, a significant private placement of securities requires approval by the board of directors and the shareholders by a simple
majority. A private placement is considered a significant private placement if it will cause a person to become a controlling
shareholder or if all of the following conditions are met:
|
●
|
the securities issued
amount to 20% or more of the company’s outstanding voting rights before the issuance;
|
|
●
|
some or all of the
consideration is other than cash or listed securities or the transaction is not on market terms; and
|
|
●
|
the transaction
will increase the relative holdings of a shareholder who holds 5% or more of the company’s outstanding share capital
or voting rights or that will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s
outstanding share capital or voting rights.
|
Compensation of Directors and Executive
Officers
Aggregate Compensation of Directors
and Officers
The aggregate compensation
incurred by us in relation to our executive officers and directors, including share-based compensation, for the year ended December
31, 2020, was approximately $4.2 million. This amount includes approximately $0.3 million set aside or accrued to provide pension,
severance, retirement or similar benefits or expenses, but does not include business travel, professional and business association
dues and expenses reimbursed to executive officers, and other benefits commonly reimbursed or paid by companies in Israel.
From time to time, we grant options and, in the past, granted
restricted share units to our officers and directors. During the year ended December 31, 2020, we granted to our directors and
chief executive officer options to purchase an aggregate of 222,000 ordinary shares and 90,000 ordinary shares, respectively, at
a weighted average exercise price of NIS 23.93 per share and NIS 21.34 per share, respectively, under our 2011 Israeli Share Award
Plan. In addition, in 2020 we granted to our chief executive officer 30,000 restricted share units, under our 2011 Israeli Share
Award Plan. As of December 31, 2020, options to purchase 848,334 of our ordinary shares granted to our officers and directors as
a group were outstanding, of which options to purchase 328,896 of our ordinary shares were vested, with a weighted average exercise
price of NIS 18.94 per ordinary share. As of December 31, 2020, 79,146 restricted share units granted to our officers as a group
were outstanding. For details regarding the beneficial ownership of our shares by our officers and directors, see “Item 6.
Directors, Senior Management and Employees — Share Ownership.”
Compensation of Directors
We pay our
directors an annual fee and per-meeting fees in the maximum amounts payable from time to time for such fees by us under the
Second and Third Addendums, respectively (or, to the extent any director is determined to have financial and accounting
expertise and is deemed an expert director (in each case, within the meaning of the Companies Law and the regulations
thereunder), under the Fourth Addendum) to the Israeli Companies Regulations (Rules Regarding Compensation and Expense
Reimbursement of External Directors), 2000, or the Compensation Regulations. In accordance with the Compensation Regulations,
we currently pay our directors an annual fee of NIS 86,403 (approximately $25,151), as well as a fee of NIS 3,296
(approximately $963) for each board or committee meeting attended in person, NIS 1978 (approximately 578) for each board or
committee meeting attended via telephone or videoconference and NIS 1,658 (approximately $485) for participation by written
consent.
There are no arrangements
or understandings between us, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination
of their service as directors of our company.
To our knowledge,
there are no agreements and arrangements between any director and any third party relating to compensation or other payment in
connection with their candidacy or service on our Board of Directors.
Compensation of Covered Executives
The following table
presents information regarding compensation accrued in our financial statements for our five most highly compensated office holders
(within the meaning of the Companies Law), namely our Chief Executive Officer, Vice President, Clinical Development and Medical
Director, Chief Financial Officer, Vice President, Operations and Vice President, Research and Development and IP, during or with
respect to the year ended December 31, 2020. Each such office holder was covered by our directors’ and officers’ liability
insurance policy and was entitled to indemnification and exculpation in accordance with indemnification and exculpation agreements,
our articles of association and applicable law.
Name and Position
|
|
Salary(1)
|
|
|
Bonus(2)
|
|
|
Value of
Options
Granted(3)
|
|
|
Other(4)
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Amir London
Chief Executive Officer
|
|
$
|
406
|
|
|
$
|
194
|
|
|
$
|
212
|
|
|
$
|
28
|
|
|
$
|
840
|
|
Naveh Tov
Vice President, Clinical Development and
Medical Director
|
|
$
|
256
|
|
|
$
|
62
|
|
|
$
|
28
|
|
|
$
|
17
|
|
|
$
|
363
|
|
Chaime Orlev
Chief Financial Officer
|
|
$
|
254
|
|
|
$
|
62
|
|
|
$
|
30
|
|
|
$
|
16
|
|
|
$
|
362
|
|
Eran Nir
Vice President, Operations
|
|
$
|
239
|
|
|
$
|
61
|
|
|
$
|
31
|
|
|
$
|
28
|
|
|
$
|
359
|
|
Michal Ayalon, PhD
Vice President, Research and Development and IP
|
|
$
|
213
|
|
|
$
|
55
|
|
|
$
|
31
|
|
|
$
|
15
|
|
|
$
|
314
|
|
|
(1)
|
Salary
includes gross salary and fringe benefits.
|
|
(2)
|
Bonuses
includes annual bonuses. The annual bonus is subject to the fulfillment of certain targets determined for each year by the compensation
committee and board of directors.
|
|
(3)
|
The
value of options is the expense recorded in our financial statements for the period ended December 31, 2020 with respect to all
options granted to such executive officer.
|
|
(4)
|
Cost
of use of company car.
|
Agreements with Five Most Highly
Compensated Office Holders
We have entered into
agreements with each of our five most highly compensated office holders (within the meaning of the Companies Law), listed below.
The terms of employment or service of such office holders are directed by our compensation policy. See below “— Compensation
Policy.” Each of these agreements contains provisions regarding non-competition, confidentiality of information and assignment
of inventions. The non-competition provision applies for a period that is generally 12 months following termination of employment.
The enforceability of covenants not to compete in Israel and the United States is subject to limitations. Such office holders
are entitled to an annual bonus subject to the fulfillment of certain targets determined for each year by the compensation committee
and board of directors. In addition, all such executive officers are entitled to a company car, as well as sick pay, convalescence
pay, manager’s insurance and a study fund (“keren hishtalmut”) and annual leave, all in accordance with
Israeli law and our compensation policy for executive officers.
Amir London, Chief
Executive Officer. Mr. London has served as our Chief Executive Officer since July 2015. Prior to that and effective as of
December 1, 2013, Mr. London served as our Vice President, Business Development. Mr. London’s engagement terms as our Chief
Executive Officer have been approved by our Compensation Committee, Board of Directors and shareholders. According to the terms
of the agreement, either party may terminate the agreement at any time upon three months’ prior written notice to the other
party, and we may terminate the agreement immediately for cause in accordance with Israeli law.
Dr. Naveh Tov,
Vice President, Clinical Development and Medical Director. Effective as of July 2016, we entered into an employment agreement
with Dr. Naveh Tov with respect to his employment as our Vice President, Clinical Development and Medical Director. Either
party may terminate the agreement at any time upon three months’ prior written notice to the other party, and we may terminate
the agreement immediately for cause in accordance with Israeli law. Pursuant to an amendment to his employment agreement, effective
as of April 1, 2021, Dr. Tov will cease to serve in such position and will serve as Medical Advisor in a 20% part time position.
Chaime Orlev, Chief
Financial Officer. Effective as of October 1, 2017, we entered into an employment agreement with Mr. Chaime Orlev with respect
to his employment as our Chief Financial Officer. Either party may terminate the agreement at any time upon three months’
prior written notice to the other party, and we may terminate the agreement immediately for cause in accordance with Israeli law.
Eran Nir, Vice
President, Operations. Effective as of November 1, 2016, we entered into an employment agreement with Mr. Eran Nir with respect
to his employment as our Vice President, Operations. Either party may terminate the agreement at any time upon two months’
prior written notice to the other party, and we may terminate the agreement immediately for cause in accordance with Israeli law.
Michal Ayalon, PhD,
Vice President, Research and Development and IP. Effective as of February 1, 2019, we entered into an employment agreement
with Ms. Michal Ayalon, PhD with respect to her employment as our Vice President, Research and Development and IP. Either
party may terminate the agreement at any time upon three months’ prior written notice to the other party, and we may terminate
the agreement immediately for cause in accordance with Israeli law.
Other Executive Officers
We have entered into
written employment agreements with the rest of our executive officers. The terms of employment of our executive office holders
are directed by our compensation policy. See “— Compensation Policy.” Each of these agreements contains provisions
regarding non-competition, confidentiality of information and assignment of inventions. The non-competition provision applies
for a period that is generally 12 months following termination of employment. The enforceability of covenants not to compete in
Israel and the United States is subject to limitations. In addition, we are required to provide up to three months’ notice
prior to terminating the employment of such executive officers, other than in the case of a termination for cause. Each of our
employment agreements with such executive officers provides for annual bonuses, which are subject to the fulfillment of certain
targets determined for each year, and the executive officers are also entitled to special bonuses upon the achievement of certain
company milestones.
Compensation of Directors and Executive
Officers
Compensation Policy.
Under the Companies
Law, a public company is required to adopt a compensation policy, which sets forth the terms of service and employment of office
holders, including the grant of any benefit, payment or undertaking to provide payment, any exemption from liability, insurance
or indemnification, and any severance payment or benefit. Such compensation policy must comply with the requirements of the Companies
Law. The compensation policy must be approved at least once every three years, first, by our board of directors, upon recommendation
of our compensation committee, and second, by the shareholders by a special majority. Our current compensation policy for executive
officers and compensation policy for directors were each approved by our shareholders on March 25, 2020 and were amended by our
shareholders on December 10, 2020.
Compensation of Directors
Under the Companies
Law, the compensation (including insurance, indemnification, exculpation and compensation) of our directors requires the approval
of our compensation committee, the subsequent approval of the board of directors and, unless exempted under the regulations promulgated
under the Companies Law, the approval of the shareholders at a general meeting. The approval of the compensation committee and
board of directors must be in accordance with the compensation policy. In special circumstances, the compensation committee and
board of directors may approve a compensation arrangement that is inconsistent with the company’s compensation policy, provided
that they have considered the same considerations and matters required for the approval of a compensation policy in accordance
with the Companies Law, in which case the approval of the company’s shareholders must be by a special majority (referred
to as the “Special Majority for Compensation”) that requires that either:
|
●
|
a majority of the
shares held by shareholders who are not controlling shareholders and shareholders who do not have a personal interest in such
matter and who are present and voting at the meeting, are voted in favor of approving the compensation package, excluding
abstentions; or
|
|
●
|
the total number
of shares voted by non-controlling shareholders and shareholders who do not have a personal interest in such matter that are
voted against the compensation package does not exceed 2% of the aggregate voting rights in the company.
|
Where the director
is also a controlling shareholder, the requirements for approval of transactions with controlling shareholders apply, as described
above under “— Disclosure of Personal Interests of a Controlling Shareholder and Approval of Certain Transactions.”
Compensation of Officers Other than
the Chief Executive Officer
Pursuant to the Companies
Law, the compensation (including insurance, indemnification and exculpation) of a public company’s office holders (other
than directors, which is described above, and the chief executive officer, which is described below) generally requires approval
first by the compensation committee and second by the company’s board of directors, according to the company’s compensation
policy. In special circumstances the compensation committee and board of directors may approve a compensation arrangement that
is inconsistent with the company’s compensation policy, provided that they have considered the same considerations and matters
required for the approval of a compensation policy in accordance with the Companies Law and such arrangement must be approved
by the company’s shareholders by the Special Majority for Compensation. However, if the shareholders of the company do not
approve a compensation arrangement with an executive officer that is inconsistent with the company’s compensation policy,
the compensation committee and board of directors may, in special circumstances, override the shareholders’ decision, subject
to certain conditions.
Under the Companies
Law, an amendment to an existing arrangement with an office holder (other than the chief executive officer, which is described
below) who is not a director requires only the approval of the compensation committee, if the compensation committee determines
that the amendment is not material in comparison to the existing arrangement. However, according to regulations promulgated under
the Companies Law, an amendment to an existing arrangement with an office holder (who is not a director) who is subordinate to
the chief executive officer shall not require the approval of the compensation committee, if (i) the amendment is approved by
the chief executive officer and the company’s compensation policy determines that a non-material amendment to the terms
of service of an office holder (other than the chief executive officer) will be approved by the chief executive officer and (ii)
the engagement terms are consistent with the company’s compensation policy. Under our compensation policy for executive
officers and subject to applicable law, our chief executive officer may approve an immaterial amendment of up to 10% of the existing
terms of office and engagement (as compared to those approved by the compensation committee) of an executive who is subordinate
to the chief executive officer (who is not a director).
Compensation of Chief Executive
Officer
The compensation (including
insurance, indemnification and exculpation) of a public company’s chief executive officer generally requires the approval
of first, the company’s compensation committee; second, the company’s board of directors; and third (except for limited
exceptions), the company’s shareholders by the Special Majority for Compensation. If the shareholders of the company do
not approve the compensation arrangement with the chief executive officer, the compensation committee and board of directors may
override the shareholders’ decision, subject to certain conditions. The compensation committee and board of directors approval
should be in accordance with the company’s compensation policy; however, in special circumstances, they may approve compensation
terms of a chief executive officer that are inconsistent with such policy provided that they have considered the same considerations
and matters required for the approval of a compensation policy in accordance with the Companies Law and that shareholder approval
was obtained by the Special Majority for Compensation. Under certain circumstances, the compensation committee and board of directors
may waive the shareholder approval requirement in respect of the compensation arrangements with a candidate for chief executive
officer if they determine that the compensation arrangements are consistent with the company’s stated compensation policy.
However, an amendment
to an existing arrangement with an executive officer (who is not a director) requires only the approval of the compensation committee,
if the compensation committee determines that the amendment is not material in comparison to the existing arrangement. Furthermore,
according to regulations promulgated under the Companies Law, the renewal or extension of an existing arrangement with a chief
executive officer shall not require shareholder approval if (i) the renewal or extension is not beneficial to the chief executive
officer as compared to the prior arrangement or there is no substantial change in the terms and other relevant circumstances;
and (ii) the engagement terms are consistent with the company’s compensation policy and the prior arrangement was approved
by the shareholders by the Special Majority for Compensation.
Where the office holder
is also a controlling shareholder, the requirements for approval of transactions with controlling shareholders apply, as described
above under “— Disclosure of Personal Interests of a Controlling Shareholders and Approval of Certain Transactions.”
Exculpation, Insurance and Indemnification
of Office Holders
Under the Companies
Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate
an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result
of a breach of duty of care, but only if a provision authorizing such exculpation is included in the company’s articles
of association. Our articles of association include such a provision. However, we may not exculpate an office holder for an action
or transaction in which a controlling shareholder or any other office holder (including an office holder who is not the office
holder we have undertaken to exculpate) has a personal interest (within the meaning of the Companies Law). We may also not exculpate
in advance a director from liability arising out of a prohibited dividend or distribution to shareholders.
Under the Companies
Law, a company may indemnify an office holder for the following liabilities, payments and expenses incurred for acts performed
by him or her, as an office holder, either pursuant to an undertaking given by the company in advance of the act or following
the act, provided its articles of association authorize such indemnification:
|
●
|
a monetary liability
imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award
approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in
advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen
based on the company’s activities when the undertaking to indemnify is given, and to an amount, or according to criteria,
determined by the board of directors as reasonable under the circumstances. Such undertaking shall detail the foreseen events
and amount or criteria mentioned above;
|
|
●
|
reasonable litigation
expenses, including reasonable attorneys’ fees, incurred by the office holder (1) as a result of an investigation or
proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided
that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial
liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding
or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal
intent (mens rea); and (2) in connection with a monetary sanction; and
|
|
●
|
reasonable litigation
expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against
him or her by the company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office
holder was acquitted, or as a result of a conviction for an offense that does not require proof of criminal intent (mens
rea).
|
In addition, under
the Companies Law, a company may insure an office holder against the following liabilities incurred for acts performed by him
or her as an office holder, to the extent provided in the company’s articles of association:
|
●
|
a breach of a duty
of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that
the act would not harm the company;
|
|
●
|
a breach of duty
of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office
holder; and
|
|
●
|
a monetary liability
imposed on the office holder in favor of a third party.
|
Under the Companies
Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
|
●
|
a breach of the
duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent
that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;
|
|
●
|
a breach of the
duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office
holder;
|
|
●
|
an act or omission
committed with intent to derive illegal personal benefit; or
|
|
●
|
a fine or penalty
levied against the office holder.
|
For the approval of
exculpation, indemnification and insurance of office holders who are directors, see “— Compensation of Directors,”
for the approval of exculpation, indemnification and insurance of office holders who are not directors, see “—Compensation
of Executive Officers” and for the approval of exculpation, indemnification and insurance of office holders who are controlling
shareholders, see “— Fiduciary Duties and Approval of Specified Related Party Transactions under Israeli Law —
Disclosure of Personal Interests of a Controlling Shareholder and Approval of Certain Transactions.”
Our articles of association
permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted under the Companies Law (other
than indemnification for litigation expenses in connection with a monetary sanction); provided that we may not exculpate an office
holder for an action or transaction in which a controlling shareholder or any other office holder (including an office holder
who is not the office holder we have undertaken to exculpate) has a personal interest (within the meaning of the Companies Law).
We have entered into
indemnification and exculpation agreements with each of our current office holders exculpating them from a breach of their duty
of care to us to the fullest extent permitted by the Companies Law (provided that we may not exculpate an office holder for an
action or transaction in which a controlling shareholder or any other office holder (including an office holder who is not the
office holder we have undertaken to exculpate) has a personal interest (within the meaning of the Companies Law)) and undertaking
to indemnify them to the fullest extent permitted by the Companies Law (other than indemnification for litigation expenses in
connection with a monetary sanction), to the extent that these liabilities are not covered by insurance. This indemnification
is limited to events determined as foreseeable by our board of directors based on our activities, as set forth in the indemnification
agreements. Under such agreements, the maximum aggregate amount of indemnification that we may pay to all of our office holders
together is (i) for office holders who joined our company before May 31, 2013, the greater of 30% of the shareholders equity according
to our most recent financial statements (audited or reviewed) at the time of payment and NIS 20 million, and (ii) for office holders
who joined our company after May 31, 2013, 25% of the shareholders equity according to our most recent financial statements (audited
or reviewed) at the time of payment.
We are not aware of
any pending or threatened litigation or proceeding involving any of our office holders as to which indemnification is being sought,
nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any office holder.
Employees
As of December 31,
2020, we employed 408 employees, all of whom in Israel, according to the following division: 211 in Operations, 102 in Quality,
16 in Research and Development, 17 in Regulation, 2 in Business Development, 8 in Medical & Clinical, 13 in sales, Israel,
15 in Human Resources & Administration, 21 in Finance and 2 in Legal. As of December 31, 2019, we employed 429 employees,
according to the following division: 224 in Operations, 108 in Quality, 20 in Research and Development, 17 in Regulation, 4 in
Business Development, 10 in Medical & Clinical, 9 in sales, Israel, 15 in Human Resources & Administration and 22 in Finance.
As of December 31, 2018, we employed 408 employees, according to the following division: 202 in Operations, 104 in Quality, 20
in Research and Development, 17 in Regulation, 19 in Business Development, 8 in Medical & Clinical, 14 in Human Resources
& Administration and 24 in Finance.
We signed a collective
bargaining agreement with the Histadrut (General Federation of Labor in Israel) and the employees’ committee established
by our employees at our Beit Kama facility in December 2013, which expired in December 2017. The collective bargaining agreement
governs certain aspects of our employee-employer relations, such as: firing procedures, annual salary raise, eligibility for certain
compensation terms and welfare. In July 2018, during the course of our negotiations with the Histadrut and the employees’
committee on the extension of the collective bargaining agreement beyond the December 2017 expiration, the employee’s committee
commenced a labor strike, which continued for approximately one month. In November 2018, we signed a new collective bargaining
agreement with the employees’ committee and the Histadrut, which will expire in December 2021. Approximately 60% of our
employees, all of whom are located at our Beit Kama facility, currently work under the collective bargaining agreement signed
in November 2018. In December 2020, during the course of our negotiations with the Histadrut and the employees’ committee
on severance remuneration for employees who may be laid-off as part of the workforce down-sizing planned for 2021 as a result
of the transfer of GLASSIA manufacturing to Takeda, the employee’s committee declared a labor dispute, which was subsequently
concluded during February 2021 following the execution of a special collective bargaining agreement governing such severance
terms.
Israeli labor laws
govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination of
severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination
laws and other conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the
retirement, death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute,
which is similar to the U.S. Social Security Administration. Our employees have defined benefit pension plans that comply with
the applicable Israeli legal requirements.
Extension orders issued
by the Ministry of Labor, Social Affairs, and Social Services apply to us and affect matters such as cost of living adjustments
to payroll, length of working hours and week, recuperation pay, travel expenses, and pension rights.
Share Ownership
The following table
sets forth information with respect to the beneficial ownership of our ordinary shares by each of our directors and executive
officers and all of current directors and executive officers as a group.
The percentage of
beneficial ownership of our ordinary shares is based on 44,745,364 ordinary shares outstanding as of February 24, 2020 Beneficial
ownership is determined in accordance with the rules of the SEC and generally includes voting power or investment power with respect
to securities. All ordinary shares subject to options exercisable into ordinary shares and restricted share units that will become
vested, as applicable, within 60 days of the date of the table are deemed to be outstanding and beneficially owned by the shareholder
holding such options and restricted share units for the purpose of computing the number of shares beneficially owned by such shareholder.
They are not, however, deemed to be outstanding and beneficially owned for the purpose of computing the percentage ownership of
any other shareholder.
|
|
Ordinary Shares
Beneficially Owned
|
|
Name
|
|
Number
|
|
|
Percentage
|
|
Executive Officers
|
|
|
|
|
|
|
Amir London (1)
|
|
|
138,750
|
|
|
|
*
|
|
Chaime Orlev (2)
|
|
|
37,194
|
|
|
|
*
|
|
Michal Ayalon (3)
|
|
|
20,119
|
|
|
|
|
|
Yael Brenner (4)
|
|
|
12,699
|
|
|
|
*
|
|
Hanni Neheman (5)
|
|
|
23,956
|
|
|
|
*
|
|
Eran Nir (6)
|
|
|
33,345
|
|
|
|
*
|
|
Yifat Philip
|
|
|
-
|
|
|
|
-
|
|
Orit Pinchuk (7)
|
|
|
49,531
|
|
|
|
*
|
|
Ariella Raban (8)
|
|
|
41,117
|
|
|
|
*
|
|
Dr. Naveh Tov (9)
|
|
|
55,860
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Directors
|
|
|
|
|
|
|
|
|
Lilach Asher Topilsky(10)
|
|
|
6,625
|
|
|
|
*
|
|
Avraham Berger (11)
|
|
|
23,188
|
|
|
|
*
|
|
Amiram Boehm(12)
|
|
|
6,625
|
|
|
|
*
|
|
Ishay Davidi (13)
|
|
|
9,459,333
|
|
|
|
21.1
|
%
|
Karnit Goldwasser(14)
|
|
|
6,625
|
|
|
|
*
|
|
Jonathan Hahn (15)
|
|
|
1,931,706
|
|
|
|
4.3
|
%
|
Leon Recanati (16)
|
|
|
3,606,311
|
|
|
|
8.0
|
%
|
Ari Shamiss
|
|
|
-
|
|
|
|
-
|
|
David Tsur (17)
|
|
|
708,369
|
|
|
|
1.6
|
%
|
Directors and executive officers as a group (19 persons)(18)
|
|
|
16,161,353
|
|
|
|
36.0
|
%
|
|
*
|
Less
than 1% of our ordinary shares.
|
|
(1)
|
Includes
(i) 15,375 ordinary shares (ii) 23,250 restricted share units that vest within 60 days of the date of the table and (iii) options
to purchase 100,125 ordinary shares exercisable within 60 days of the date of the table, at a weighted average exercise price
of NIS 19.25 (or $5.99) per share, which expire between March 2, 2023 and September 25, 2026. Does not include unvested options
to purchase 115,875 ordinary shares and 38,625 restricted share units that are not exercisable or do no vest, as applicable, within
60 days of the date of the table.
|
|
(2)
|
Includes
(i) 6,853 ordinary shares, (ii) 7,585 restricted share units that vest within 60 days of the date of the table and (iii) options
to purchase 22,756 ordinary shares exercisable within 60 days of the date of the table, at a weighted average exercise price of
NIS 18.95 (or $5.90) per share, which expire between May 12, 2024 and December 20, 2025. Does not include unvested options to
purchase 12,144 ordinary shares and 4,047 restricted share units that are not exercisable or do no vest, as applicable,
within 60 days of the date of the table.
|
|
(3)
|
Includes
(i)3,586 ordinary shares, (ii) 4,133 restricted share units that vest within 60 days of the date of the table and (iii) options
to purchase 12,400 ordinary shares exercisable within 60 days of the date of the table, at exercise price of NIS 20.55(or $6.39)
per share, which expire between August 1, 2025 and December 20, 2025. Does not include unvested options to purchase 13,800 ordinary
shares and 4,600 restricted share units that are not exercisable or do no vest, as applicable, within 60 days of the
date of the table.
|
|
(4)
|
Includes
(i) 2,032 ordinary shares, (ii) 2,667 restricted share units that vest within 60 days of the date of the table and (iii) options
to purchase 8,000 ordinary shares exercisable within 60 days of the date of the table, at a weighted average exercise price of
NIS 20.79 (or $6.47) per share, which expire between January 31, 2024 and December 20, 2025. Does not include unvested options
to purchase 10,800 ordinary shares and 3,600 restricted share units that are not exercisable or do no vest, as applicable,
within 60 days of the date of the table.
|
|
(5)
|
Includes
(i) 2,019 ordinary shares, (ii) 2,234 restricted share units that vest within 60 days of the date of the table and (iii) options
to purchase 19,703 ordinary shares exercisable within 60 days of the date of the table, at a weighted average exercise price of
NIS 18.02 (or $5.61) per share, which expire between October 27, 2021 and December 20, 2025. Does not include unvested options
to purchase 3,547 ordinary shares and 1,182 restricted share units that are not exercisable or do no vest, as applicable,
within 60 days of the date of the table.
|
|
(6)
|
Includes
(i) 6,163 ordinary shares, (ii) 6,798 restricted share units that vest within 60 days of the date of the table and (iii) options
to purchase 20,384 ordinary shares exercisable within 60 days of the date of the table, at a weighted average exercise price of
NIS 20.68 (or $6.43) per share, which expire between May 24, 2023 and December 20, 2025. Does not include unvested options to
purchase 10,800 ordinary shares and 3,600 restricted share units that are not exercisable or do no vest, as applicable,
within 60 days of the date of the table.
|
|
(7)
|
Includes
(i) 7,898 ordinary shares, (ii) 8,533 restricted share units that vest within 60 days of the date of the table and (iii) options
to purchase 33,100 ordinary shares exercisable within 60 days of the date of this Annual Report, at an exercise price of NIS 19.21
(or $5.98) per share, which expire between October 27, 2021 and December 20, 2025. Does not include unvested options to purchase
10,800 ordinary shares and 3,600 restricted share units that are not exercisable or do no vest, as applicable, within 60 days
of the date of the table.
|
|
(8)
|
Includes
(i) 5,334 ordinary shares, (ii) 5,946 restricted share units that vest within 60 days of the date of the table and (iii) options
to purchase 29,838 ordinary shares exercisable within 60 days of the date of the table, at an exercise price of NIS 18.76 (or
$5.84) per share, which expire between October 27, 2021 and December 20, 2025. Does not include unvested options to purchase 11,363
ordinary shares and 3,787 restricted share units that are not exercisable or do no vest, as applicable, within 60 days of the
date of the table.
|
|
(9)
|
Includes
(i) 10,060 ordinary shares, (ii) 10,700 restricted share units that vest within 60 days of the date of the table and (iii) options
to purchase 35,100 ordinary shares exercisable within 60 days of the date of the table, at an exercise price of NIS 18.53 (or
$5.76) per share, which expire between October 27, 2021 and December 20, 2025. Does not include unvested options to purchase 10,800
ordinary shares and 3,600 restricted share units that are not exercisable or do no vest, as applicable, within 60 days
of the date of the table.
|
|
(10)
|
Subject
to options to purchase 6,625 ordinary shares that are currently exercisable or exercisable within 60 days of the date of the table,
at a weighted average exercise price of NIS 23.67 (or $7.36) per share, which expire on September 25, 2026. Does not include unvested
options to purchase 19,875 ordinary shares that are not exercisable within 60 days of the date of the table.
|
|
(11)
|
Subject
to options to purchase 23,188 ordinary shares that are currently exercisable or exercisable within 60 days of the date of the
table, at a weighted average exercise price of NIS 20.79 (or $6.47) per share, which expire between March 2, 2023 and September
25, 2026. Does not include unvested options to purchase 28,313 ordinary shares that are not exercisable within 60 days of the
date of the table.
|
|
(12)
|
Subject
to options to purchase 6,625 ordinary shares that are currently exercisable or exercisable within 60 days of the date of the table,
at a weighted average exercise price of NIS 23.67 (or $7.36) per share, which expire on September 25, 2026. Does not include unvested
options to purchase 19,875 ordinary shares that are not exercisable within 60 days of the date of the table.
|
|
(13)
|
Includes
(i) 9,452,708 shares indirectly beneficially owned through FIMI Opportunity Fund 6, L.P. and FIMI Israel Opportunity Fund 6, Limited
Partnership. See footnote (1) “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders”;
and (ii) 6,625 ordinary shares subject to options held directly held by Mr. Ishay Davidi that are currently exercisable or exercisable
within 60 days of the date of the table, at a weighted average exercise price of NIS 23.67 (or $7.36) per share, which expire
on September 25, 2026. Does not include unvested options to purchase 19,875 ordinary shares held by Mr. Ishay Davidi that are
not exercisable within 60 days of the date of the table.
|
|
(14)
|
Subject
to options to purchase 6,625 ordinary shares that are currently exercisable or exercisable within 60 days of the date of the table,
at a weighted average exercise price of NIS 23.67 (or $7.36) per share, which expire on September 25, 2026. Does not include unvested
options to purchase 19,875 ordinary shares that are not exercisable within 60 days of the date of the table.
|
|
(15)
|
Mr.
Hahn holds 25% of the shares of Sinara, which holds 100% of the shares of Damar, which directly holds 1,903,518 ordinary shares.
Also includes options to purchase 28,188 ordinary shares directly held by Mr. Jonathan Hahn that are exercisable within 60 days
of the date of the table, at a weighted average exercise price of NIS 20.43 (or $6.35) per share, which expire between October
27, 2021 and September 25, 2026. Does not include unvested options to purchase 28,313 ordinary shares held by Mr. Jonathan Hahn
that are not exercisable within 60 days of the date of the table
|
|
(16)
|
Mr.
Recanati holds 677,479 ordinary shares directly and 2,895,644 ordinary shares indirectly through Gov Financial Holdings Ltd.,
a company organized under the laws of the State of Israel (“Gov”). Gov is wholly-owned by Mr. Recanati, the
Chairman of our Board of Directors, who exercises sole voting and investment power over the shares held by Gov. In addition, includes
options to purchase 33,188 ordinary shares directly held by Mr. Recanati that are exercisable within 60 days of the date of the
table, at a weighted average exercise price of NIS 19.64 (or $6.11) per share, which expire between October 27, 2021 and September
25, 2026. Does not include unvested options to purchase 28,813 ordinary shares that are not exercisable within 60 days of the
date of the table.
|
|
(17)
|
Mr.
David Tsur directly holds 680,181 ordinary shares. In addition, includes options to purchase 28,188 ordinary shares directly held
by Mr. Tsur that are exercisable within 60 days of the date of the table, at a weighted average exercise price of NIS 19.80 (or
$6.16) per share, which expire between March 02, 2023 and September 25, 2026. Does not include unvested options to purchase 28,313
ordinary shares that are not exercisable within 60 days of the date of the table.
|
|
(18)
|
See
footnotes (1)-(17) for certain information regarding beneficial ownership.
|
Equity Compensation Plans
In 2005, we adopted
our 2005 Israeli Share Option Plan (the “2005 Plan”). We ceased to grant options under the 2005 Plan in 2010 and the
2005 Plan expired on July 5, 2015.
In July 2011, we adopted
our 2011 Israeli Share Option Plan and in September 2016, we amended and renamed it as the 2011 Israeli Share Award Plan (the
“2011 Plan”). Under the 2011 Plan, we are authorized to grant options and restricted share units to directors, officers,
employees, consultants and service providers of our company and subsidiaries. The 2011 Plan is intended to enhance our ability
to attract and retain desirable individuals by increasing their ownership interests in us. The 2011 Plan, which is effective until
July 23, 2021, is designed to reflect the provisions of the Israeli Tax Ordinance, which affords certain tax advantages to Israeli
employees, officers and directors that are granted options in accordance with its terms. The 2011 Plan may be administered by
our board of directors either directly or upon the recommendation of the compensation committee.
We have granted options
to our employees, officers and directors under the 2011 Plan. Each option granted under the 2011 Plan entitles the grantee to
purchase one of our ordinary shares. In general, the exercise price of options granted to directors and officers under the 2011
Plan prior to January 1, 2020, is generally equal to the higher of (i) the average closing price of our ordinary shares on the
TASE during the 30-TASE trading days immediately prior to board approval of the grant of such options plus 5%; and (ii) the closing
price of our ordinary shares on the TASE on the date of the approval of the grant of options. The exercise price of options granted
to directors and officers under the 2011 Plan following January 1, 2020 is generally equal to the higher of (i) the average closing
price of our ordinary shares on the TASE during the 30-TASE trading days immediately prior to board approval of the grant of such
options; and (ii) the closing price of our ordinary shares on the TASE on the date of the approval of the grant of options. Options
granted under the 2011 Plan are exercised by way of net exercise and accordingly, the grantee is not required to pay the exercise
price when exercising the options and instead, receives, upon exercise and sale of such number of ordinary shares, an amount which
is equal to the difference between the total market value of the ordinary shares on the date of exercise and sale underlying the
exercised options and the total exercise price for such options. The actual number of shares issued pursuant to the net exercise
of the options is equal to the number of shares subject to the option less the number of shares tendered back to the company to
pay the exercise price.
The options granted
under the 2011 Plan prior to January 1, 2020 generally vest during a four-year period following the date of the grant in 13 installments:
25% of the options vest on the first anniversary of the grant date and 6.25% of the remaining options vest at the end of each
quarter thereafter. Options granted under the 2011 Plan following January 1, 2020 generally vest in four equal installments, 25%
each on each of the four anniversaries of the date of grant. Options granted under the 2011 Plan are generally exercisable for
6.5 years following the date of grant and all unexercised options will expire immediately thereafter. Options that have vested
prior to the end of a grantee’s employment or services agreement with us may generally be exercised within 90 days from
the end of such grantee’s employment or services with us, unless such relationship was terminated for cause. Options which
are not exercised during such 90-day period expire at the end of the period, unless all of the 90-day period is a black-out period
during which time the options may not be exercised, in which case our Chief Executive Officer or Chief Financial Officer is entitled
to extend the exercise period for specified periods. Options that have not vested on the date of the end of a grantee’s
employment or services agreement with us, and, in the event of termination of employment or services for cause, all unexercised
options (whether vested or not), expire immediately upon termination.
We have also granted
restricted share units to our officers. The restricted share units awarded under the 2011 Plan generally vest over a period of
four years in 13 installments: 25% of the restricted share units vest on the first anniversary of the grant date and 6.25% of
the remaining restricted share units vest at the end of each quarter thereafter.
In the event of certain
transactions, such as our being acquired, or a merger or reorganization or a sale of all or substantially all of our assets, awards
then outstanding under the 2011 Plan shall be assumed or substituted for shares or other securities of the surviving or acquiring
entity as were distributed to our shareholders in connection and the transaction, subject to an appropriate adjustment to the
exercise price (if applicable). The board or the compensation committee may determine that the terms of certain awards under the
2011 Plan include a provision that their vesting schedules will be accelerated such that they will be exercisable prior to the
closing of such a transaction, if the awards are not assumed or substituted by the successor company.
Options and restricted
share units granted to our employees and Israeli directors under the 2011 Plan were granted pursuant to the provisions of Section
102 of the Israeli Income Tax Ordinance, under the capital gains alternative. In order to comply with the capital gains alternative,
all such options and restricted share units under the 2011 Plan are granted or issued to a trustee and are to be held by the trustee
for at least two years from the date of grant. Under the capital gains alternative, we are not allowed an Israeli tax deduction
for the grant of the options or issuance of the shares issuable thereunder.
As of December 31, 2020, an aggregate of 1,306,718 ordinary
shares were reserved for future issuance under the 2011 Plan (subject to certain adjustments specified in the 2011 Plan), and options
to purchase 1,660,958 ordinary shares were outstanding under the 2011 Plan, of which options to purchase 799,640 ordinary shares
were vested as of such date, and 104,519 restricted share units were outstanding under the 2011 Plan. Any ordinary shares underlying
options that expire prior to exercise or restricted share units that are forfeited under the 2011 Plan will become again available
for issuance under the 2011 Plan.
Item 7. Major Shareholders and Related
Party Transactions
Major Shareholders
The following table
sets forth information with respect to the beneficial ownership of our ordinary shares by each person known to us to own beneficially
more than 5% of our ordinary shares.
The percentage of
beneficial ownership of our ordinary shares is based on 44,745,338 ordinary shares outstanding as of February 24, 2020. Beneficial
ownership is determined in accordance with the rules of the SEC and generally includes voting power or investment power with respect
to securities. All ordinary shares subject to options exercisable into ordinary shares within 60 days of the date of the table
are deemed to be outstanding and beneficially owned by the shareholder holding such options for the purpose of computing the number
of shares beneficially owned by such shareholder. Such shares are also deemed outstanding for purposes of computing the percentage
ownership of the person holding the options. They are not, however, deemed to be outstanding and beneficially owned for the purpose
of computing the percentage ownership of any other shareholder.
Except as described
in the footnotes below, we believe each shareholder has voting and investment power with respect to the ordinary shares indicated
in the table as beneficially owned.
Name
|
|
Number
|
|
|
Percentage
|
|
FIMI Funds(1)
|
|
|
9,452,708
|
|
|
|
21.1
|
%
|
Leon Recanati(2)
|
|
|
3,606,311
|
|
|
|
8.0
|
%
|
|
(1)
|
Based solely upon, and qualified in its entirety with reference
to, Amendment No. 2 to Schedule 13D filed with the SEC on May 20, 2020. According to the Statement, (i) includes 4,421,909 shares
directly owned by FIMI Opportunity Fund 6, L.P. and 5,030,799 shares directly owned by FIMI Israel Opportunity Fund 6, Limited
Partnership (together, the “FIMI Funds”) and (ii) the ordinary shares held by the FIMI Funds are indirectly
beneficially owned by (A) FIMI 6 2016 Ltd. (“FIMI 6”), which serves as the managing general partner of the FIMI
Funds, (B) Mr. Ishay Davidi, Chief Executive Officer of FIMI 6, and (C) Or Adiv Ltd., a company controlled by Mr. Ishay Davidi,
which controls FIMI 6. Information included in this footnote does not include 6,625 ordinary shares subject to options held directly
by Mr. Davidi’s that are currently exercisable or exercisable within 60 days of the date of the table. See Footnote (13)
“Item 6. Directors, Senior Management and Employees — Share Ownership.”
|
|
(2)
|
Mr.
Recanati holds 677,479 ordinary shares directly and 2,895,644 ordinary shares indirectly through Gov Financial Holdings Ltd.,
a company organized under the laws of the State of Israel (“Gov”). Gov is wholly-owned by Mr. Recanati, a director
and the former Chairman of our Board of Directors, who exercises sole voting and investment power over the shares held by Gov.
In addition, includes options to purchase 33,188 ordinary shares directly held by Mr. Recanati that are exercisable within 60
days of the date of the table, at a weighted average exercise price of NIS 19.64 (or $6.11) per share, which expire between October
27, 2021 and September 25, 2026. Does not include unvested options to purchase 28,813 ordinary shares that are not exercisable
within 60 days of the date of the table.
|
To our knowledge,
based on information provided to us by our transfer agent in the United States, as of February 19, 2021, we had one shareholder
of record who was registered with an address in the United States, holding approximately 22.9 % of our outstanding ordinary shares.
Such number is not representative of the portion of our shares held in the United States nor is it representative of the number
of beneficial holders residing in the United States, since such ordinary shares were held of record by one U.S. nominee company,
CEDE & Co.
To our knowledge,
the only significant changes in the beneficial ownership percentage held by our major shareholders during the past three years
have been the following: From January 1, 2018 to the date of this Annual Report, the Hahn family’s beneficial ownership
decreased from 10.04% to less than 5% during such period. Mr. Leon Recanati’s beneficial ownership percentage decreased
by 2.95% from 10.99% to 8.05% during such period. The Phoenix Holdings Group beneficial ownership percentage decreased to less
than 5% during such period. The DS Apex group’s beneficial ownership percentage decreased to less than 5% during such period.
The Brosh Capital Partners group’s beneficial ownership percentage increased from less than 5% to 7.68% during such period
and decreased to less than 5% during such period. The FIMI Funds beneficial ownership percentage increased from less than 5% to
21.14% during such period. Meitav Dash Investments Ltd.’s beneficial ownership percentage decreased to less than 5% during
such period.
None of our shareholders
has different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result
in a change of control of our company.
Related Party Transactions
Tuteur S.A.C.I.F.I.A.
In August 2011, we entered into a distribution agreement with
Tuteur that amended and restated a distribution agreement we entered into in November 2001, under which Tuteur was appointed as
the exclusive distributor of GLASSIA in Argentina, Paraguay and Uruguay. Tuteur is a company organized under the laws of Argentina
and was formerly controlled by Mr. Ralf Hahn, the former Chairman of our board of directors. Mr. Hahn’s son, Mr. Jonathan
Hahn, a director, is currently the President and a director of Tuteur. On August 19, 2014, we entered into an amendment to the
distribution agreement in order to add KamRho(D) as an additional product to be distributed by Tuteur and expanded the territories
to include Bolivia. On January 25, 2017, we entered into a second amendment to the distribution agreement, pursuant to which Uruguay
was removed from the original territories. On January 21, 2019, we entered into a third amendment to the distribution agreement
in order (among other things) to change the terms of payments by Tuteur, change the terms of shipment, appoint a sub-distributor
in Paraguay and to extend a fixed discount for the GLASSIA, per vial, sale price in exchange for obtaining a bank guarantee from
Tuteur to cover any future supply of products. Tuteur was obligated under the agreement to commence marketing, sales and distribution
of the products within each country covered by the agreement within two months after the grant of regulatory approval in each such
country. Under the agreement, Tuteur would cease to have exclusivity if it fails to comply with the minimum purchase requirement
in each of the countries, on a country-by-country basis. Pursuant to the agreement, Tuteur was obligated to obtain the relevant
regulatory approvals and reimbursement in each of the countries within 18 months of receiving the required registration documents
from us. GLASSIA was approved by regulators in Argentina in July 2012. GLASSIA has not yet been submitted and approved by regulators
in Paraguay or Bolivia. The parties agreed to separately negotiate the allocation of any costs relating to clinical trials or studies
required by relevant regulatory authorities in the applicable territory. We retained ownership of all relevant intellectual property.
The distribution agreement, as amended, expired on December 31, 2019, and pending the execution of a new distribution agreement,
the parties continued to act in accordance with the expired distribution agreement.
In May 2020, we entered into a new distribution agreement with
Tuteur, which supersedes the former agreement in its entirety, pursuant to which Tuteur serves as the exclusive distributor of
GLASSIA and KamRho(D) IM and IV in Argentina, Paraguay, Bolivia and Uruguay. Under the new distribution agreement, Tuteur is responsible,
at its own expense, for obtaining marketing authorization and/or registration for each of the products in the foregoing territories
that is not already approved and registered. If Tuteur fails to register any product in any territory within 12 months after receipt
of our approval of all relevant documents, we shall be entitled to terminate the agreement with respect to such product or terminate
the exclusivity granted to Tuteur with respect to such product. The agreement includes minimum annual purchase commitments by Tuteur,
with respect to sales of any products in territories where registration has been completed, commencing as of the effective date
of the agreement, and with respect to sale of any products in the other territories, commencing the first year following the registration
of any such product in the applicable territory; and the parties agreed to negotiate in good faith the minimum quantities to be
purchased by Tuteur in each following marketing year. If Tuteur fails to purchase and pay for the minimum quantity for any product
in any marketing year, we are entitled to (i) terminate the agreement on a product-by-product basis and/or (ii) terminate the exclusivity
and/or narrow the scope of the territories, if applicable, on a product-by-product basis. The price per product per territory payable
by Tuteur pursuant to the agreement will be the higher of 50% of such product’s net price sold by Tuteur in the territory
or a minimum supply price as defined in the agreement. In addition, Tuteur has undertaken to issue a guarantee (from a U.S., Israeli
or a western Europe bank) for every new order of product, in the value of each order, which must be provided prior to the shipment
of the product and extended through the complete payment of the amount due on any such order or shipment; such guarantee may not
be required to the extent we are able to obtain adequate credit insurance covering the value of each order through its complete
payment. We retain ownership of all relevant intellectual property in the products. The agreement is in effect for a period of
five years, and thereafter shall automatically renew for additional periods of one year each, unless either party notifies the
other party of its desire to terminate the agreement by prior written notice of at least 12 months before the expiration of any
of the additional periods. We are entitled to terminate the agreement with respect to all or certain territories in the event of
a change of control of Tuteur, its failure to register the products and obtain all marketing approvals within the period set forth
above, its failure to purchase and pay for the minimum quantities for two consecutive years (provided that Tuteur will be obligated,
during the second marketing year, to purchase the minimum quantity for the preceding marketing year on a product-by-product basis)
or if Tuteur discontinues selling the products, after completing registration and obtaining required approvals, for longer than
45 days or 90 days or more in the event such discontinuation is caused due to a force majeure event. The agreement includes a mutual
indemnification undertaking, standard confidentiality obligations and obligations of Tuteur to comply with anti-corruption and
privacy laws. The agreement includes a non-compete undertaking of Tuteur during the term of the agreement and for a period of 12
months thereunder (other than in the event the agreement is terminated for cause by Tuteur due to our breach of the agreement).
Indemnification Agreements
We have entered into
indemnification and exculpation agreements with each of our current officers and directors, exculpating them from a breach of
their duty of care to us to the fullest extent permitted by the Companies Law (provided that we may not exculpate an office holder
for an action or transaction in which a controlling shareholder or any other office holder (including an office holder who is
not the office holder we have undertaken to exculpate) has a personal interest (within the meaning of the Companies Law)) and
undertaking to indemnify them to the fullest extent permitted by the Companies Law (other than indemnification for litigation
expenses in connection with a monetary sanction), including with respect to liabilities resulting from our initial public offering
in the United States, to the extent such liabilities are not covered by insurance. See “Item 6. Directors, Senior Management
and Employees — Exculpation, Insurance and Indemnification of Office Holders.”
Employment Agreements
We have entered into
employment agreements with our executive officers and key employees, which are terminable by either party for any reason. The
employment agreements contain standard provisions, including assignment of invention provisions and non-competition clauses. See
“Item 6. Directors, Senior Management and Employees — Employment Agreements with Executive Officers.”
Shareholders’ Agreement
Under a shareholders’
agreement entered into on March 4, 2013, the Recanati Group, on the one hand, and the Damar Group, on the other hand, have each
agreed to vote the ordinary shares beneficially owned by them in favor of the election of director nominees designated by the
other group as follows: (i) three director nominees, so long as the other group beneficially owns at least 7.5% of our outstanding
share capital, (ii) two director nominees, so long as the other group beneficially owns at least 5.0% (but less than 7.5%) of
our outstanding share capital, and (iii) one director nominee, so long as the other group beneficially owns at least 2.5% (but
less than 5.0%) of our outstanding share capital. In addition, to the extent that after the designation of the foregoing director
nominees there are additional director vacancies, each of the Recanati Group and Damar Group have agreed to vote the ordinary
shares beneficially owned by them in favor of such additional director nominees designated by the party who beneficially owns
the larger voting rights in our company.
FIMI Private Placement
On January 20, 2020,
we entered into a securities purchase agreement with the FIMI Funds to purchase an aggregate of 4,166,667 ordinary shares at a
price of $6.00 per share, for an aggregate $25 million gross proceeds. Concurrently, we entered into a registration rights agreement
with the FIMI Funds, pursuant to which the FIMI Funds are entitled to customary demand registration rights (effective six months
following the closing of the transaction) and piggyback registration rights with respect to our shares held by them. Upon the
closing of the private placement, the beneficial ownership of the FIMI Funds increased from approximately 12.15% to 21.13%. Lilach
Asher Topilsky, the Chairman of our board of directors, Ishay Davidi and Amiram Boehm, members of our board of directors, are
partners of the FIMI Funds. For details regarding the beneficial ownership of the FIMI Funds and Messrs. Davidi and Boehm and
Ms. Asher Topilsky see “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders” and
“Item 6. Directors, Senior Management and Employees — Share Ownership.”
Engagements with Suppliers and Service
Providers Affiliated with the FIMI Funds
We have entered into
certain agreements in the ordinary course of our business for the purchase of certain products and services (such as security
services, office equipment and recycling services) from entities controlled by or affiliated with the FIMI Funds, all of which
were entered into prior to the FIMI Funds becoming a shareholder of our company and on an arm’s length basis. These agreements
include customary terms and conditions as applicable to the type of supplied product or services.
Item 8. Financial Information
Consolidated financial
statements are set forth under Item 18.
Item 9. The Offer and Listing
Our ordinary shares
are quoted on the Nasdaq Global Select Market and the TASE under the symbol “KMDA.”
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
A copy of our amended and restated articles
of association is attached as Exhibit 1.1 to this Annual Report. Other than as set forth below, the information called for by
this Item is set forth in Exhibit 2.1 to this Annual Report and is incorporated by reference into this Annual Report.
Establishment and Purposes of the
Company
We were incorporated
under the laws of the State of Israel on December 13, 1990 under the name Kamada Ltd. We are registered with the Israeli Registrar
of Companies in Jerusalem. Our registration number is 51-152460-5. Our purpose as set forth in our amended articles of association
is to engage in any lawful business.
Shareholder Meetings
Under the Companies
Law, we are required to convene an annual general meeting of our shareholders at least once every calendar year and within a period
of not more than 15 months following the preceding annual general meeting. In addition, the Companies Law provides that our board
of directors may convene a special general meeting of our shareholders whenever it sees fit and is required to do so upon the
written request of (i) two directors or one quarter of the serving members of our board of directors, or (ii) one or more holders
of 5% or more of our outstanding share capital and 1% of our voting power, or the holder or holders of 5% or more of our voting
power.
Subject to the provisions
of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings
are the shareholders of record on a date to be decided by the board of directors, which, as a company listed on an exchange outside
Israel, may be between four and 40 days prior to the date of the meeting. The Companies Law requires that resolutions regarding
the following matters (among others) be approved by our shareholders at a general meeting: amendments to our articles of association;
appointment, terms of service and termination of service of our auditors; election of external directors (if applicable); approval
of certain related party transactions; increases or reductions of our authorized share capital; mergers; and the exercise of our
board of director’s powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise
of any of its powers is essential for our proper management.
The chairman of our
board of directors presides over our general meetings. However, if at any general meeting the chairman is not present within 15
minutes after the appointed time, or is unwilling to act as chairman of such meeting, then the shareholders present will choose
any other person present to be chairman of the meeting. Subject to the provisions of the Companies Law and the regulations promulgated
thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided
by the board of directors, which, as company listed also on an exchange outside of Israel, may be between four and 40 days prior
to the date of the meeting.
Israeli law requires
that a notice of any annual general meeting or special general meeting be provided to shareholders at least 21 days prior to the
meeting and if the agenda of the meeting includes, among other things, the appointment or removal of directors, the approval of
transactions with office holders or interested or related parties, an approval of a merger or the approval of the compensation
policy, notice must be provided at least 35 days prior to the meeting.
Borrowing powers
Pursuant to the Companies Law and our amended
and restated articles of association, our board of directors may exercise all powers and take all actions that are not required
under law or under our amended and restated articles of association to be exercised or taken by our shareholders, including the
power to borrow money for company purposes.
C. Material Contracts
We have not entered
into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information
on the Company” or elsewhere in this Annual Report.
D. Exchange Controls
There are currently
no Israeli currency control restrictions on remittances of dividends on our ordinary shares, proceeds from the sale of the ordinary
shares or interest or other payments to non-residents of Israel, except for shareholders who are subjects of countries that are,
or have been, in a state of war with Israel.
Non-residents of Israel
who hold our ordinary shares are able to repatriate any dividends (if any), any amounts received upon the dissolution, liquidation
and winding up of our affairs and proceeds of any sale of our ordinary shares, into non-Israeli currency at the rate of exchange
prevailing at the time of conversion, provided that any applicable Israeli income tax has been paid or withheld on these amounts.
In addition, the statutory framework for the potential imposition of exchange controls has not been eliminated, and may be restored
at any time by administrative action.
E. Taxation
The following description
is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition
of our ordinary shares. You should consult your own tax advisor concerning the tax consequences of your particular situation,
as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
Israeli Tax Considerations and Government
Programs
The following is a
brief summary of the material Israeli tax laws applicable to us, and certain Israeli Government programs benefiting us. This section
also contains a discussion of material Israeli tax consequences concerning the ownership of and disposition of our ordinary shares.
This summary does not discuss all aspects of Israeli tax law that may be relevant to a particular investor in light of his or
her personal investment circumstances or to some types of investors, such as traders in securities, who are subject to special
treatment under Israeli law. The discussion below is subject to amendment under Israeli law or changes to the applicable judicial
or administrative interpretations of Israeli law, which could affect the tax consequences described below.
The discussion below
does not cover all possible tax considerations. Potential investors are urged to consult their own tax advisors as to the Israeli
or other tax consequences of the purchase, ownership and disposition of our ordinary shares, including in particular, the effect
of any foreign, state or local taxes.
General Corporate Tax Structure in
Israel
Israeli companies
are generally subject to corporate tax, which has decreased in recent years, from a rate of 25% in 2016 to 24% in 2017 and further
decreased to 23% in 2018 and thereafter. However, the effective corporate tax rate payable by a company that derives income from
an Approved Enterprise, a Privileged Enterprise or a Preferred Enterprise (as discussed below) may be considerably less. Capital
gains generated by an Israeli company are generally subject to tax at the corporate tax rate.
Law for the Encouragement of Industry
(Taxes), 1969
The Law for the Encouragement
of Industry (Taxes), 1969 (the “Encouragement of Industry Law”), provides several tax benefits to “Industrial
Companies.” Pursuant to the Encouragement of Industry Law, a company qualifies as an Industrial Company if it is a resident
of Israel and at least 90% of its income in any tax year (exclusive of income from certain defense loans) is generated from an
“Industrial Enterprise” that it owns and is located in Israel or in the “Area”, in accordance with its
definition under section 3A of the Israeli Income Tax Ordinance. An Industrial Enterprise is defined as an enterprise whose principal
activity, in a given tax year, is industrial activity.
An Industrial Company
is entitled to certain tax benefits, including: (i) a deduction of the cost of purchases of patents and know-how and the right
to use patents and know-how used for the development or promotion of the Industrial Enterprise in equal amounts over a period
of eight years, beginning from the year in which such rights were first used, (ii) the right to elect to file consolidated tax
returns, under certain conditions, with additional Israeli Industrial Companies controlled by it, and (iii) the right to deduct
expenses related to public offerings in equal amounts over a period of three years beginning from the year of the offering.
Eligibility for benefits
under the Encouragement of Industry Law is not contingent upon the approval of any governmental authority.
We believe that we
may qualify as an Industrial Company within the meaning of the Encouragement of Industry Law; however, there is no assurance that
we qualify or will continue to qualify as an Industrial Company or that the benefits described above will be available in the
future.
Law for the Encouragement of Capital
Investments, 1959
Our facilities in
Israel were granted Approved Enterprise status under the Law for the Encouragement of Capital Investments, 1959, commonly referred
to as the “Investment Law”. The Investment Law provides that a capital investment in eligible production facilities
(or other eligible assets) may, upon application to the Investment Center, be designated as an “Approved Enterprise.”
Each certificate of approval for an Approved Enterprise relates to a specific investment program delineated both by its financial
scope, including its sources of capital, and by its physical characteristics, for example, the equipment to be purchased and utilized
pursuant to the program. The tax benefits generated from any such certificate of approval relate only to taxable income attributable
to the specific Approved Enterprise.
In recent years the
Investment Law has undergone major reforms and several amendments which were intended to provide expanded tax benefits and to
simplify the bureaucratic process relating to the approval of investments qualifying under the Investment Law. The different benefits
under the Investment Law depend on the specific year in which the enterprise received approval from the Investment Center or the
year it was eligible for Approved/Privileged/Preferred Enterprise status under the Investment Law, and the benefits available
at that time. Below is a short description of the different benefits available to us under the Investment Law:
Approved Enterprise
One of our facilities
was granted Approved Enterprise status by the Investment Center, which made us eligible for a grant and certain tax benefits under
the “Grant Track.” The approved investment program provided us with a grant in the amount of 24% of our approved investments,
in addition to certain tax benefits, which applied to our turnover resulting from the operation of such investment program, for
a period of up to ten consecutive years from the first year in which we generated taxable income. The tax benefits under the Grant
Track include accelerated depreciation and amortization for tax purposes as well as a tax exemption for the first two years of
the benefit period and the taxation of income generated from an Approved Enterprise at a reduced corporate tax rate of 10%-25%
(depending on the level of foreign investment in each year), for a certain period of time. The benefit period is ordinarily seven
to ten years commencing with the year in which the Approved Enterprise first generates taxable income. The benefit period is limited
to 12 years from the earlier of the operational year as determined by the Investment Center or 14 years from the date of approval
of the Approved Enterprise. The tax benefits under the Approved Enterprise status expired at the end of 2017.
Privileged Enterprise
We obtained a tax
ruling from the Israel Tax Authority according to which, among other things, our activity has been qualified as an “industrial
activity”, as defined in the Investment Law and is also eligible to tax benefits as a Privileged Enterprise under the “Tax
Benefit Track,” which apply to the turnover attributed to such enterprise, for a period of up to ten years from the first
year in which we generated taxable income.
On April 1, 2005,
an amendment to the Investment Law came into effect (the “2005 Amendment”), which revised the criteria for investments
qualified to receive tax benefits. An eligible investment program under the 2005 Amendment will qualify for benefits as a “Privileged
Enterprise” (rather than the previous terminology of Approved Enterprise). Pursuant to the 2005 Amendment, a company whose
facilities meet certain criteria set forth in the 2005 Amendment may claim certain tax benefits offered by the Investment Law
(as further described below) directly in its tax returns, without the need to obtain prior approval. In order to receive the tax
benefits, the company must make an investment in the Privileged Enterprise which meets all of the conditions, including exceeding
a certain percentage or a minimum amount, specified in the Investment Law. Such investment must be made over a period of no more
than three years ending at the end of the year in which the company requested to have the tax benefits apply to the Privileged
Enterprise (the “Year of Election”). According to the tax ruling mentioned above, our Year of Election is 2009. We
also elected 2012 as a Year of Election. The duration of tax benefits is subject to a limitation of the earlier of seven to ten
years from the first year in which the company generated taxable income (at or after the Year of Election), or 12 years from the
first day of the Year of Election. Therefore, the tax benefits under our Privileged Enterprise are scheduled to expire at the
end of 2023.
The term “Privileged
Enterprise” means an industrial enterprise which is “competitive” and contributes to the gross domestic product,
and for which a minimum entitling investment was made in order to establish it (as explained above). For this purpose, an industrial
enterprise is deemed to be competitive and contributing to the gross domestic product if it meets one of the following conditions:
(1) its main activity is in the field of biotechnology or nanotechnology, as certified by the Director of the Industrial Research
and Development Administration before the project was approved; or (2) its income during a tax year from sales to a certain market
does not exceed 75% of its total income from sales in that tax year; or (3) 25% or more of its total income from sales in the
tax year is from sales to a certain market with at least 14,000,000 inhabitants.
A taxpayer owning
a Privileged Enterprise may be entitled to an exemption from corporate tax on undistributed income for a period of two to ten
years, depending on the location of the Privileged Enterprise within Israel, as well as a reduced corporate tax rate of 10% to
25% for the remainder of the benefit period, depending on the level of foreign investment in each year. In addition, the Privileged
Enterprise is entitled to claim accelerated depreciation for manufacturing assets used by the Privileged Enterprise.
However, a company
that pays a dividend out of income generated during the tax exemption period from the Privileged/Approved Enterprise is subject
to deferred corporate tax with respect to the otherwise exempt income (grossed-up to reflect the pre-tax income that we would
have had to earn in order to distribute the dividend) at the corporate tax rate which would have applied if the company had not
enjoyed the exemption (i.e. at a tax rate between 10% and 25%, depending on the level of foreign investment). A company is generally
required to withhold tax on such distribution at a rate of 20% (or a reduced rate under an applicable double tax treaty, subject
to the approval by the Israel Tax Authority).
Preferred Enterprise
An amendment to the
Investment Law that became effective on January 1, 2011 (“Amendment No. 68”) changed the benefit alternatives available
to companies under the Investment Law and introduced new benefits for income generated by a “Preferred Company” through
its “Preferred Enterprises” (as such terms are defined in the Investment Law). The definition of a Preferred Company
includes a company incorporated in Israel that is not wholly-owned by a governmental entity, and that, among other things, owns
a Preferred Enterprise and is controlled and managed from Israel. The tax benefits granted to a Preferred Company are determined
depending on the location of its Preferred Enterprise within Israel. Amendment No. 68 imposes a reduced flat corporate tax rate
which is not program-dependent and applies to the Preferred Company’s “preferred income” which is generated
by its Preferred Enterprise.
According to the Investment
Law, a Preferred Company is subject to reduced corporate tax rate of 10% for preferred income attributed to Preferred Enterprises
located in areas in Israel designated as Development Zone A and 15% for those located elsewhere in Israel in the tax years 2011-2012,
and 7% for Development Zone A and 12.5% for the rest of Israel in the tax year 2013, and 9% for Development Zone A and 16% for
the rest of Israel in the tax years 2014 until 2016. Under an amendment to the Investment Law that became effective on January
1, 2017, the corporate tax rate applying to income attributed to Preferred Enterprise located in Development Zone A was reduced
to 7.5% while the reduced corporate tax rate for the rest of Israel remains 16%. Income derived by a Preferred Company from a
“Special Preferred Enterprise” (as such term is defined in the Investment Law) would be entitled, during a benefits
period of 10 years, to further reduced tax rates of 5% if the Special Preferred Enterprise is located in Development Zone A, or
8% if the Special Preferred Enterprise is located elsewhere in Israel.
The tax benefits
under Amendment No. 68 also include accelerated depreciation and amortization for tax purposes during the first five-year period
for productive assets that the Preferred Enterprise uses pursuant to the rates prescribed in the Investment Law. Preferred Enterprises
located in specific locations within Israel (Development Zone A) are eligible for grants and/or loans approved by the Israeli
Investment Center, as well as tax benefits. Our facility in Beit-Kama, Israel, is located in Development Zone A.
A dividend distributed
from income which is attributed to a Preferred Enterprise/Special Preferred Enterprise will be subject to withholding tax at source
at the following rates: (i) Israeli resident corporation – 0%, (ii) Israeli resident individual – 20% (iii) non-Israeli
resident – 20% subject to a reduced tax rate under the provisions of an applicable double tax treaty.
The provisions of
Amendment No. 68 do not apply to existing Privileged Enterprises or Approved Enterprises, which will continue to be entitled to
the tax benefits under the Investment Law as in effect prior to Amendment No. 68. Nevertheless, a company owning such enterprises
may choose to apply Amendment No. 68 to its existing enterprises while waiving benefits provided under the Investment Law as in
effect prior to Amendment No. 68. Once a company elects to be classified as a Preferred Enterprise under the provisions of Amendment
No. 68, the election cannot be rescinded and such company will no longer enjoy the tax benefits of its Approved/Privileged Enterprises.
To date, we have
not elected to be classified as a Preferred Enterprise under Amendment No. 68.
Tax benefits under the 2017 Amendment
that became effective on January 1, 2017
An amendment to the
Investment Law was enacted as part of the Economic Efficiency Law that was published on December 29, 2016 and became effective
as of January 1, 2017 (the “2017 Amendment”). The 2017 Amendment provides new tax benefits for two types of “Technology
Enterprises”, as described below, and is in addition to the other existing tax beneficial programs under the Investment
Law.
The 2017 Amendment
provides that a technology company satisfying certain conditions will qualify as a “Preferred Technology Enterprise”
and will thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “Preferred Technology Income”,
as defined in the Investment Law. The tax rate is further reduced to 7.5% for a Preferred Technology Enterprise located in Development
Zone A. In addition, a Preferred Technology Company will enjoy a reduced corporate tax rate of 12% on capital gain derived from
the sale of certain “Benefitted Intangible Assets” (as defined in the Investment Law) to a related foreign company
if the Benefitted Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least NIS 200 million,
and the sale receives prior approval from the National Authority for Technological Innovation (“NATI”).
The 2017 Amendment
further provides that a technology company satisfying certain conditions will qualify as a “Special Preferred Technology
Enterprise” and will thereby enjoy a reduced corporate tax rate of 6% on “Preferred Technology Income” regardless
of the company’s geographic location within Israel. In addition, a Special Preferred Technology Enterprise will enjoy a
reduced corporate tax rate of 6% on capital gain derived from the sale of certain “Benefitted Intangible Assets” to
a related foreign company if the Benefitted Intangible Assets were either developed by the Special Preferred Technology Enterprise
or acquired from a foreign company on or after January 1, 2017, and the sale received prior approval from NATI. A Special Preferred
Technology Enterprise that acquires Benefitted Intangible Assets from a foreign company for more than NIS 500 million will be
eligible for these benefits for at least ten years, subject to certain approvals as specified in the Investment Law.
Dividends distributed
by a Preferred Technology Enterprise or a Special Preferred Technology Enterprise, paid out of Preferred Technology Income, are
generally subject to withholding tax at source at the rate of 20% or such lower rate as may be provided in an applicable tax treaty
(subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). However,
if such dividends are paid to an Israeli company, no tax is required to be withheld. If such dividends are distributed to a foreign
company and other conditions are met, the withholding tax rate will be 4%.
There can be no
assurance that we will comply with the conditions required to remain eligible for benefits under the Investment Law in the future,
including under our tax ruling with respect to our Privileged Enterprise, or that we will be entitled to any additional benefits
thereunder. If we do not fulfill these conditions in whole or in part, the benefits can be canceled and we may be required to
refund the amount of the benefits, linked to the Israeli consumer price index, with interest.
The Encouragement of Industrial Research,
Development and Technological Innovation in the Industry Law, 5744-1984 (formerly known as The Encouragement of Industrial Research
and Development Law, 5744-1984)
We have received grants from the Government of the State of
Israel through the Israel Innovation Authority of the Israeli Ministry of Economy and Industry (the “IIA”) (formerly
known as the Office of the Chief Scientist of the Israeli Ministry of Economy (the “OCS”)), for the financing of a
portion of our research and development expenditures pursuant to the Encouragement of Research, Development and Technological Innovation
in the Industry Law 5744-1984 (formerly known as the Encouragement of Industrial and Development Law, 5744-1984) (the “Research
Law”) and related regulations. We previously received funding from the IIA for six research and development programs, in
the aggregate amount of approximately $1.9 million as of December 31, 2020, which amount has accrued aggregate interest of approximately
$8,252 as of such date, and we had paid aggregate royalties to the IIA for these programs in the amount of approximately $1.0 million
and had a contingent liability to the IIA in the amount of approximately $0.9 million (excluding any interest thereon) as of December
31, 2020.
Under the Research
Law, research and development programs which meet specified criteria and are approved by the IIA (formerly the OCS) are eligible
for grants. Under the Research Law, as currently in effect, the grants awarded are typically up to 50% of the project’s
expenditures. The grantee is required to pay royalties to the State of Israel from the sale of products developed under the program.
Regulations under the Research Law, as currently in effect, generally provide for the payment of royalties of 3% to 5% on sales
of products and services based on technology developed using grants, until 100% (which may be increased under certain circumstances)
of the U.S. dollar-linked value of the grant is repaid, with interest at the rate of 12-month LIBOR. The terms of the IIA grants
generally require that products developed with such grants be manufactured in Israel and that the technology developed thereunder
may not be transferred outside of Israel, unless approval is received from the IIA and additional payments are made to the State
of Israel. However, this does not restrict the export of products that incorporate the funded technology. The royalty repayment
ceiling can reach up to three times the amount of the grant received if manufacturing is moved outside of Israel, and if the funded
technology itself is transferred outside of Israel, the royalty ceiling can reach up to six times the amount of grants (plus interest).
Even following the full repayment of any IIA grants, we must nevertheless continue to comply with the requirements of the Research
Law. If we fail to comply with any of the conditions and restrictions imposed by the Research Law, or by the specific terms under
which we received the grants, we may be required to refund any grants previously received together with interest and penalties,
and, in certain circumstances, may be subject to criminal charges.
Taxation of Our Shareholders
The Israeli Income
Tax Ordinance applies Israeli tax on a worldwide basis with respect to Israeli residents, and on an Israeli source income, with
respect to non-Israeli residents. Dividends distributed (or deemed distributed) by an Israeli resident company to a holder in
respect of its securities and consideration received by a holder (or deemed received) in connection with the sale or other disposition
of securities of an Israeli resident company are considered to be an Israeli source income.
Capital Gains
Under present Israeli
tax legislation, the tax rate applicable to real capital gain derived by Israeli resident corporations from the sale of shares
of an Israeli company is the general corporate tax rate (which was 25% in 2016, reduced to 24% in 2017 and further reduced to
23% in 2018 and thereafter).
Generally, as of January
1, 2006, the tax rate applicable to real capital gain derived by Israeli individuals from the sale of shares which had been purchased
on or after January 1, 2003, whether or not listed on a stock exchange, is 25%, unless such shareholder claims a deduction for
interest and linkage differences expenses in connection with the purchase and holding of such shares. Additionally, if such a
shareholder is considered a “Substantial Shareholder” (i.e., a person who holds, directly or indirectly, alone
or together with another, 10% or more of any of the company’s “means of control” (including, among other things,
the right to receive profits of the company, voting rights, the right to receive the company’s liquidation proceeds and
the right to appoint a director)) at the time of sale or at any time during the preceding 12-month period, such gain will be taxed
at the rate of 30%. Individual shareholders dealing in securities in Israel are taxed at their marginal tax rates applicable to
business income (up to 47% from 2017).
Notwithstanding the
foregoing, capital gains generated from the sale of shares by a non-Israeli shareholder may be exempt from Israeli taxes provided
that, in general, both the following conditions are met: (i) the seller of the shares does not have a permanent establishment
in Israel to which the generated capital gain is attributed and (ii) if the seller is a corporation, less than 25% of its means
of control are held, directly and indirectly, by Israeli residents or Israeli residents that are the beneficiaries or are eligible
to less than 25% of the seller’s income or profits from the sale. In addition, the sale of the shares may be exempt from
Israeli capital gain tax under the provisions of an applicable tax treaty. For example, the Convention between the Government
of the United States of America and the Government of Israel with respect to Taxes on Income, or the “Israel-U.S.A. Double
Tax Treaty,” generally exempts U.S. residents from Israeli capital gains tax in connection with such sale, provided that
(i) the U.S. resident owned, directly or indirectly, less than 10% of the Israeli resident company’s voting power at any
time within the 12-month period preceding such sale; (ii) the seller, if an individual, has been present in Israel for less than
183 days (in the aggregate) during the taxable year; and (iii) the capital gain from the sale was not generated through a permanent
establishment of the U.S. resident in Israel.
The purchaser of the
shares, the stockbrokers who effected the transaction or the financial institution holding the shares through which payment to
the seller is made are obligated, subject to the above-referenced exemptions if certain conditions are met, to withhold tax on
the real capital gain resulting from a sale of shares at the rate of 25%.
A detailed return,
including a computation of the tax due, must be filed and an advance payment must be paid on January 31 and July 31 of each tax
year for sales of shares traded on a stock exchange made within the six months preceding the month of the report. However, if
the seller is exempt from tax or all tax due was withheld at the source according to applicable provisions of the Israeli Income
Tax Ordinance and the regulations promulgated thereunder, the return does not need to be filed and an advance payment does not
need to be made. Taxable capital gains are also reportable on an annual income tax return if applicable.
Dividends
Our company is obligated
to withhold tax, at the rate of 20%, upon the distribution of a dividend attributed to an Approved/Privileged Enterprise’s
income, subject to a reduced tax rate under the provisions of an applicable double tax treaty, provided that a certificate from
the Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance. If the dividend is distributed from
income not attributed to an Approved/Privileged Enterprise, the following withholding tax rates will apply: (i) Israeli resident
corporations — 0%, (ii) Israeli resident individuals — 25% (or 30% in the case of a Substantial Shareholder) and (iii)
non-Israeli residents (whether an individual or a corporation), so long as the shares are registered with a nominee company —
25%, subject to a reduced tax rate under the provisions of an applicable double tax treaty, provided that a certificate from the
Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance. Generally, unless the recipient of the
dividend is a U.S. corporate resident which holds at least 10% of the share capital of the Company, the withholding rate will
not be reduced under the Israel-U.S.A. Double Tax Treaty.
Excess Tax
An additional tax
liability at the rate of 3% in 2017 onwards is added to the applicable tax rate on the annual taxable income of individuals (whether
any such individual is an Israeli resident or non-Israeli resident) exceeding NIS 649,560 in 2019, NIS 651,600 in 2020 and NIS
647,640 in 2021.
Estate and gift tax
Israeli law presently
does not impose estate or gift taxes.
United States Federal Income Taxation
The following is a
description of the material U.S. federal income tax consequences to a U.S. Holder (as defined below) of the acquisition, ownership
and disposition of our ordinary shares. This description addresses only the U.S. federal income tax consequences to holders of
our ordinary shares in the United States that will hold our ordinary shares as capital assets for U.S. federal income tax purposes.
This description does not address many of the tax considerations applicable to holders that may be subject to special tax rules,
including, without limitation:
|
●
|
banks, certain financial
institutions or insurance companies;
|
|
●
|
real estate investment
trusts, regulated investment companies or grantor trusts;
|
|
●
|
dealers or traders
in securities, commodities or currencies;
|
|
●
|
certain former citizens
or long-term residents of the United States;
|
|
●
|
persons that received
our shares as compensation for the performance of services;
|
|
●
|
persons that will
hold our shares as part of a “hedging,” “integrated” or “conversion” transaction or as
a position in a “straddle” for U.S. federal income tax purposes;
|
|
●
|
partnerships (including
entities classified as partnerships for U.S. federal income tax purposes) or other pass-through entities, or holders that
will hold our shares through such an entity;
|
|
●
|
persons whose “functional
currency” is not the U.S. Dollar;
|
|
●
|
persons that own
directly, indirectly or through attribution 10% or more of the voting power or value of our shares; or
|
|
●
|
persons holding
our ordinary shares in connection with a trade or business conducted outside the United States.
|
Moreover, this description
does not address the U.S. federal estate, gift or alternative minimum tax consequences, or any state, local or foreign tax consequences,
of the acquisition, ownership and disposition of our ordinary shares.
This description is
based on the U.S. Internal Revenue Code of 1986, as amended, (the “Code”), existing, proposed and temporary U.S. Treasury
Regulations and judicial and administrative interpretations thereof, in each case as in effect on the date hereof. All of the
foregoing is subject to change, which change could apply retroactively and could affect the tax consequences described below.
There can be no assurance that the U.S. Internal Revenue Service (“IRS”) will not take a different position concerning
the tax consequences of the acquisition, ownership and disposition of our ordinary shares or that the IRS’s position would
not be sustained.
For purposes of this
description, a “U.S. Holder” is a beneficial owner of our ordinary shares that, for U.S. federal income tax purposes,
is:
|
●
|
a citizen or resident
of the United States;
|
|
●
|
a corporation (or
other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the
United States or any jurisdiction thereof; or
|
|
●
|
a trust or estate
the income of which is subject to United States federal income taxation regardless of its source.
|
Holders should consult
their tax advisors with respect to the U.S. federal, state, local and foreign tax consequences of acquiring, owning and disposing
of our ordinary shares.
Distributions
Subject to the discussion
below under “Passive Foreign Investment Company Considerations,” the gross amount of any distribution made to a U.S.
Holder with respect to our ordinary shares before reduction for any Israeli taxes withheld therefrom, other than certain pro rata
distributions of our ordinary shares to all our shareholders, generally will be includible in the U.S. Holder’s income as
dividend income to the extent the distribution is paid out of our current or accumulated earnings and profits as determined under
U.S. federal income tax principles. Subject to the discussion below under “Passive Foreign Investment Company Considerations,”
non-corporate U.S. Holders may qualify for the lower rates of taxation with respect to dividends on ordinary shares applicable
to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year) provided that certain conditions
are met, including certain holding period requirements and the absence of certain risk reduction transactions. However, dividends
on our ordinary shares will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders.
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” to the extent that the
amount of any distribution by us exceeds our current and accumulated earnings and profits as determined under U.S. federal income
tax principles, it will be treated first as a tax-free return of tax basis in our ordinary shares and thereafter as capital gain.
We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles and, therefore,
U.S. Holders should expect that the entire amount of any distribution generally will be reported as dividend income.
Dividends paid to
U.S. Holders with respect to our ordinary shares will be treated as foreign source income, which may be relevant in calculating
a U.S. Holder’s foreign tax credit limitation. Subject to certain conditions and limitations, Israeli tax withheld on dividends
may be deducted from taxable income or credited against U.S. federal income tax liability. An election to deduct foreign taxes
instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year. The limitation on foreign
taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends that
we distribute generally should constitute “passive category income,” or, in the case of certain U.S. Holders, “general
category income.” A foreign tax credit for foreign taxes imposed on distributions may be denied if certain minimum holding
period requirements are not satisfied. The rules relating to the determination of the foreign tax credit are complex, and U.S.
Holders should consult their tax advisors to determine whether and to what extent they will be entitled to this credit.
Sale, Exchange or Other Disposition
of Ordinary Shares
Subject to the discussion
below under “Passive Foreign Investment Company Considerations,” U.S. Holders generally will recognize gain or loss
on the sale, exchange or other disposition of our ordinary shares equal to the difference between the amount realized on the sale,
exchange or other disposition and the holder’s tax basis in our ordinary shares, and any gain or loss will be capital gain
or loss. The tax basis in an ordinary share generally will be equal to the cost of the ordinary share. For non-corporate U.S.
Holders, capital gain from the sale, exchange or other disposition of ordinary shares is generally eligible for a preferential
rate of taxation in the case of long-term capital gain. The deductibility of capital losses for U.S. federal income tax purposes
is subject to limitations under the Code. Any gain or loss that a U.S. Holder recognizes generally will be treated as U.S. source
income or loss for foreign tax credit limitation purposes.
Passive Foreign Investment Company
Considerations
If we were to be classified
as a “passive foreign investment company” (“PFIC”) in any taxable year, a U.S. Holder would be subject
to special rules generally intended to reduce or eliminate any benefits from the deferral of U.S. federal income tax that a U.S.
Holder could derive from investing in a non-U.S. company that does not distribute all of its earnings on a current basis.
A non-U.S. corporation
will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through
rules, either
|
●
|
at least 75% of
its gross income is “passive income”, or
|
|
●
|
at least 50% of
the average quarterly value of its gross assets is attributable to assets that produce passive income or are held for the
production of passive income.
|
Passive income for
this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the
excess of gains over losses from the disposition of assets which produce passive income and amounts derived by reason of the temporary
investment of funds raised in offerings of our ordinary shares. If a non-U.S. corporation owns at least 25% by value of the stock
of another corporation, the non-U.S. corporation is treated for purposes of the PFIC tests as owning its proportionate share of
the assets of the other corporation and as directly receiving its proportionate share of the other corporation’s income.
If we are classified as a PFIC in any year with respect to which a U.S. Holder owns our ordinary shares, we generally will continue
to be treated as a PFIC with respect to that U.S. Holder in all succeeding years during which the U.S. Holder owns our ordinary
shares, regardless of whether we continue to meet the tests described above.
However, our PFIC
status for each taxable year may be determined only after the end of such year and will depend on the composition of our income
and assets, our activities and the value of our assets (which may be determined in large part by reference to the market value
of our ordinary shares, which may be volatile) from time to time. If we are a PFIC then unless a U.S. Holder makes one of the
elections described below, a special tax regime will apply to both (i) any “excess distribution” by us to that U.S.
Holder (generally, the U.S. Holder’s ratable portion of distributions in any year which are greater than 125% of the average
annual distribution received by the holder in the shorter of the three preceding years or its holding period for our ordinary
shares) and (ii) any gain realized on the sale or other disposition of the ordinary shares.
Under this regime,
any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (i) the excess distribution
or gain had been realized ratably over the U.S. Holder’s holding period, (ii) the amount deemed realized in each year had
been subject to tax in each year of that holding period at the highest marginal rate for that year (other than income allocated
to the current period or any taxable period before we became a PFIC, which will be subject to tax at the U.S. Holder’s regular
ordinary income rate for the current year and will not be subject to the interest charge discussed below), and (iii) the interest
charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years.
In addition, dividend distributions made to a U.S. Holder will not qualify for the lower rates of taxation applicable to long-term
capital gains discussed above under “Distributions.” Certain elections may be available that would result in an alternative
treatment (such as mark-to-market treatment) of our ordinary shares. We do not intend to provide the information necessary for
U.S. Holders to make qualified electing fund elections if we are classified as a PFIC. U.S. Holders should consult their tax advisors
to determine whether any of these elections would be available and if so, what the consequences of the alternative treatments
would be in their particular circumstances.
If we are determined
to be a PFIC, the general tax treatment for U.S. Holders described in this paragraph would apply to indirect distributions and
gains deemed to be realized by U.S. Holders in respect of any of our subsidiaries that also may be determined to be PFICs.
In addition, all U.S.
Holders may be required to file tax returns (including on IRS Form 8621) containing such information as the U.S. Treasury may
require. For example, if a U.S. Holder owns ordinary shares during any year in which we are classified as a PFIC and the U.S.
Holder recognizes gain on a disposition of our ordinary shares or receives distributions with respect to our ordinary shares,
the U.S. Holder generally will be required to file an IRS Form 8621 with respect to the company, generally with the U.S. Holder’s
federal income tax return for that year. The failure to file this form when required could result in substantial penalties.
Based on the financial
information currently available to us and the nature of our business, we do not expect that we will be classified as a PFIC for
the taxable year ended December 31, 2020. However, this determination could be subject to change. If, contrary to our expectations,
we were to be classified as a PFIC, U.S. Holders of ordinary shares may be required to file form 8621 with respect to their ownership
of our ordinary shares in the year in which we were a PFIC. U.S. Holders of our ordinary shares should consult their tax advisors
in this regard.
Backup Withholding and Information
Reporting Requirements
U.S. backup withholding
and information reporting requirements may apply to payments to holders of our ordinary shares. Information reporting generally
will apply to payments of dividends on, and to proceeds from the sale of, our ordinary shares made within the United States, or
by a U.S. payor or U.S. middleman, to a holder of our ordinary shares, other than an exempt recipient (including a corporation).
A payor may be required to backup withhold from payments of dividends on, or the proceeds from the sale or redemption of, ordinary
shares within the United States, or by a U.S. payor or U.S. middleman, to a holder, other than an exempt recipient, if the holder
fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from,
the backup withholding tax requirements. Any amounts withheld under the backup withholding rules generally should be allowed as
a credit against the beneficial owner’s U.S. federal income tax liability, if any, and any excess amounts withheld under
the backup withholding rules may be refunded, provided that the required information is timely furnished to the IRS.
Additional Medicare Tax
Certain U.S. Holders
who are individuals, estates or trusts may be required to pay an additional 3.8% Medicare tax on, among other things, dividends
and capital gains from the sale or other disposition of shares of common stock. For individuals, the additional Medicare tax applies
to the lesser of (i) “net investment income” or (ii) the excess of “modified adjusted gross income” over
$200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income”
generally equals the taxpayer’s gross investment income reduced by the deductions that are allocable to such income. U.S.
Holders will likely not be able to credit foreign taxes against the 3.8% Medicare tax.
Foreign Asset Reporting
Certain U.S. Holders
who are individuals (and certain domestic entities) may be required to report information relating to an interest in our ordinary
shares, subject to certain exceptions (including an exception for shares held in accounts maintained by U.S. financial institutions).
U.S. Holders are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to
their ownership and disposition of our ordinary shares.
The above description
is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of
our ordinary shares. Holders should consult their tax advisors concerning the tax consequences of their particular situations.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to
certain of the reporting requirements of Exchange Act, as applicable to “foreign private issuers” as defined in Rule
3b-4 under the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual
reports on Form 20-F and reports on Form 6-K. The SEC maintains a website at www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants like us that file electronically with the SEC. You can also inspect the
Annual Report on that website.
A copy of each document
(or a translation thereof to the extent not in English) concerning our company that is referred to in this Annual Report is available
for public view (subject to confidential treatment of certain agreements pursuant to applicable law) at our principal executive
offices.
I. Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative
Disclosures About Market Risk
Interest Rate Risk
We are exposed to
changes in interest arising from our financial assets as our financial debt bears fixed interest rates. We invest our cash balance
in interest-bearing deposits. We have exposure to investments in deposits or securities bearing fixed interest, which expose us
to interest rate risk with respect to fair value.
Foreign Currency Risk
Fluctuations in exchange
rates, especially the NIS against the U.S. dollar, may affect our results, as part of our assets is linked to NIS, as are part
of our liabilities. Changes in exchange rates may also affect the prices of products purchased by us and designated for marketing
in Israel in cases where these product prices are not linked to the U.S. dollar and during the period after these products are
sold to our customers in NIS. In addition, the fluctuation in the NIS exchange rate against the U.S. dollar may impact our results,
as a portion of our manufacturing cost is NIS denominated.
For the years ended
December 31, 2020, 2019 and 2018, we have witnessed high volatility in the U.S. dollar exchange rate. This fact impacts our revenues
from the Distribution segment, where prices are denominated in or linked to the NIS upon delivery of product while our expenses
for the purchase of raw materials and imported goods in the Distribution segment are in U.S. dollars and part of our development
and marketing expenses are paid in NIS.
We attempt to mitigate
our currency exposure by matching assets denominated in NIS currency with liabilities denominated in NIS. In the Distribution
segment, we attempt to mitigate foreign currency exposure by matching Euro denominated expenses with Euro denominated revenues.
Additionally, we used, and from time to time, will continue to use, currency hedging transactions using financial derivatives
and forward currency contracts. We attempt to enter into forward currency contracts with critical terms that match those of the
underlying exposure. As of December 31, 2020, we had open transactions in derivatives in the amount of approximately $0.3 million.
We regularly monitor and review the need for currency hedging transactions in accordance with trend analysis.
The following table
presents information about the changes in the exchange rates of the NIS against the U.S. dollar:
Period
|
|
Change in
Average
Exchange Rate
of the NIS
against the
U.S. Dollar
(%)
|
|
Year ended December 31, 2018
|
|
|
8.1
|
|
Year ended December 31, 2019
|
|
|
(7.8
|
)
|
Year ended December 31, 2020
|
|
|
(7.0
|
)
|
As of December 31,
2020, we had excess liabilities over assets denominated in NIS in the amount of $4.0 million. When the U.S. dollar appreciates
against the NIS, we recognize financial expenses with respect to exchange rate differences. When the U.S. dollar devalues against
the NIS, we recognize financial income.
As of December
31, 2020, we had foreign currency exposures to currencies other than U.S. dollars (mainly in EUR) amounting to $5.0 million
in excess liabilities over assets. Most of this exposure is to the Euro.
A 10% increase (decrease)
in the value of the NIS against the U.S. dollar would have decreased (increased) our financial assets by $0.4 million, $0.05 million
and $1.2 million as of December 31, 2020, 2019 and 2018, respectively.
Item 12. Description of Securities
Other Than Equity Securities
Not applicable.
The Company has four wholly-owned
subsidiaries – Kamada Inc, Kamada Plasma LLC (wholly owned by Kamada Inc), Kamada Ireland limited and Kamada Biopharma Limited
which as of December 31, 2021 are not active. In addition the Company owns 74% of Kamada Assets Ltd (“Kamada Assets”).
Following the global COVID-19 outbreak,
there has been a decrease in economic activity worldwide, including Israel. The spread of the COVID-19 pandemic led, inter alia,
to a disruption in the global supply chain, a decrease in global transportation, restrictions on travel and work that were announced
by the State of Israel and other countries worldwide as well as a decrease in the value of financial assets and commodities across
all markets in Israel and the world.
The Company’s business activity
and commercial operation were affected by these factors, and the Company has taken several actions to ensure its manufacturing
plant remains operational with limited disruption to its business continuity. The Company increased its inventory levels of raw
materials through its suppliers and service providers to appropriately manage any potential supply disruptions and secure continued
manufacturing. In addition, the Company is actively engaging its freight carriers to ensure inbound and outbound international
delivery routes remain operational and identify alternative routes, if needed. The Company expedited shipments of certain of its
products to its customer to minimize any potential shortages.
The Company is complying with the
State of Israel mandates and recommendations with respect to its work-force management and currently maintains the work-force levels
required to support its ongoing commercial operations. The Company has taken several precautionary health and safety measures to
safeguard its employees and continues to monitor and assess orders issued by the State of Israel and other applicable governments
to ensure compliance with evolving COVID-19 guidelines.
While COVID-19 related disruption
had various effect on the Company’s business activities, commercial operation, revenues and operational expenses, as a results
of the actions taken by the Company to date, its overall results of operations for the year ended December 31, 2020 were not materially
affected however, a number of factors, including but not limited to, continued effect of the factors mentioned above as well as,
continued demand for the Company’s products, including GLASSIA and KEDRAB, in the U.S. market and its distributed products
in Israel, financial conditions of the Company’s customer, suppliers and services providers, the Company’s ability
to manage operating expenses, additional competition in the markets that the Company competes, regulatory delays, prevailing market
conditions and the impact of general economic, industry or political conditions in the U.S., Israel or otherwise, may have an effect
on the Company’s future financial position and results of operations.
The financial impact of these factors cannot be reasonably estimated
at this time due to substantial uncertainty but may materially affect our business, financial condition and results of operations.
The Company assess the impact of the COVID-19 in a number of possible scenarios and concluded that there are no uncertainties that
may cast significant doubt on its ability to continue as a going concern or affect significantly on the Company liquidity.
Short-term investments comprised
of bank deposits with a maturity of more than three months from the deposit date but less than one year and securities measured
at fair value through other comprehensive income. The deposits are presented according to their terms of deposit.
The Company did not recognize an
allowance in respect of groups of customers that are collectively assessed for impairment since it did not identify any groups
of customers which bear similar credit risks.
Inventories are measured at the
lower of cost and net realizable value. The cost of inventories comprises of the costs of purchase of raw and other materials and
costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling
price in the ordinary course of business.
On January 1, 2018, the Company
initially adopted IFRS 15, “Revenue from Contracts with Customers” (“the IFRS 15 Standard”). The Company
elected to apply the provisions of the IFRS 15 Standard using the modified retrospective method with the application of certain
practical expedients and without restatement of comparative data. The accounting policy for revenue recognition applied from January
1, 2018, is as follows:
As of December 31, 2020, 2019 and
2018 the Company generate revenue mainly from sale of products to strategic partners and distributors as well as from the licensing
of our technology and distribution rights.
The Company determines the transaction
price and allocates the transaction price to the different performance obligation identified. For certain amounts of variable consideration
the Company allocated to a certain performance obligation or to a distinct goods or services within it.
Taxes on income in profit or loss comprise of current taxes,
deferred taxes and taxes in respect of prior years, which are recognized in profit or loss, except to the extent that the tax arises
from items which are recognized directly in other comprehensive income or equity.
A provision for uncertain tax
positions, including additional tax and interest expenses, is recognized when it is more probable than not that the Group will
have to use its economic resources to pay the obligation..
As of December 31, 2020 and 2019,
the application of IFRIC 23 did not have a material effect on the financial statements.
intangible assets, are in respect of distribution right,
that are acquired by the Company, which have finite useful lives, are measured at cost less accumulated amortization and accumulated
impairment losses. As regards intangible assets in respect of distribution right agreements, see also Note 11.
In order to identify distinct
performance obligations in a contract with a customer, the Company uses judgment when it examines whether it is providing a significant
service of integrating the goods or services in the contract into one integrated outcome.
In order to determine the
transaction price, the Company estimates the amount of the variable consideration and recognizes revenue in an amount where there
is a high probability that its inclusion will not result in a significant revenue reversal in the future after the uncertainty
has been resolved.
When assessing whether a contract
includes a significant financing component, the Company examines, inter alia, the expected length of time between the date it transfers
the promised goods or services to the customer and the date the customer pays for these goods or services, as well as the difference
and the reasons for the difference, if any, between the promised consideration and the cash selling price of the promised goods
or services.
When determining that control
over goods or services is transferred to the customer over time and that therefore revenue should be recognized over time, the
Company relies on legal opinions, provisions of the contract and relevant provisions of the law indicating that the Company has
a right to enforce fulfillment of the contract.
In August 2020, the IASB issued
amendments to IFRS 9, “Financial Instruments”, IFRS 7, “Financial Instruments: Disclosures”, IAS 39, “Financial
Instruments: Recognition and Measurement”, IFRS 4, “Insurance Contracts”, and IFRS 16, “Leases” (“the
Amendments”).
The Amendments provide practical
expedients when accounting for the effects of the replacement of benchmark InterBank Offered Rates (IBORs) by alternative Risk
Free Interest Rates (RFRs).
Pursuant to one of the practical
expedients, an entity will treat contractual changes or changes to cash flows that are directly required by the reform as changes
to a floating interest rate. That is, an entity recognizes the changes in interest rates as an adjustment of the effective interest
rate without adjusting the carrying amount of the financial instrument. The use of this practical expedient is subject to the condition
that the transition from IBOR to RFR takes place on an economically equivalent basis.
In addition, the Amendments permit
changes required by the IBOR reform to be made to hedge designations and hedge documentation without the hedging relationship being
discontinued, provided certain conditions are met. The Amendments also provide temporary relief from having to meet the “separately
identifiable” requirement according to which a risk component must also be separately identifiable to be eligible for hedge
accounting.
The Amendments include new disclosure
requirements in connection with the expected effect of the reform on an entity’s financial statements, such as how the entity is
managing the process to transition to the interest rate reform, the risks to which it is exposed due to the reform and quantitative
information about IBOR-referenced financial instruments that are expected to change.
The Amendments are effective
for annual periods beginning on or after January 1, 2021. The Amendments are to be applied retrospectively. However, restatement
of comparative periods is not required. Early application is permitted.
The Company believes that the
adoption of the Amendment will not have an effect on its financial statements.
In January 2020, the IASB issued an amendment to IAS 1, “Presentation
of Financial Statements” (“the Amendment”) regarding the criteria for determining the classification of liabilities
as current or non-current. The Amendment replaces certain
requirements for classifying liabilities as current or non-current. Thus for example, according to the Amendment, a liability will
be classified as non-current when the entity has the right to defer settlement for at least 12 months after the reporting period,
and it “has substance” and is in existence at the end of the reporting period, this instead of the requirement that there
be an “unconditional” right. According to the Amendment, a right is in existence at the reporting date only if the entity
complies with conditions for deferring settlement at that date. Furthermore, the Amendment clarifies that the conversion option
of a liability will affect its classification as current or non-current, other than when the conversion option is recognized as
equity.
The Amendment is effective for
reporting periods beginning on or after January 1, 2023 with earlier application being permitted. The Amendment is applicable retrospectively,
including an amendment to comparative data.
The Company has not yet commenced
examining the effects of applying the Amendment on the financial statements.
In May 2020, the IASB issued an amendment to IAS 37, regarding
which costs a company should include when assessing whether a contract is onerous (“the Amendment”). According to the
Amendment, when assessing whether a contract is onerous, the costs of fulfilling a contract that should be taken into consideration
are costs that relate directly to the contract, which include as follows:
- An allocation of other costs that relate
directly to fulfilling a contract (such as depreciation expenses for fixed assets used in fulfilling that contract and other
contracts).
The Amendment is effective retrospectively
for annual periods beginning on or after January 1, 2022, in respect of contracts where the entity has not yet fulfilled all its
obligations. Early application is permitted. Upon application of the Amendment, the entity will not restate comparative data, but
will adjust the opening balance of retained earnings at the date of initial application, by the amount of the cumulative effect
of the Amendment.
The Company has not yet commenced
examining the effects of the Amendment on the financial statements.
In May 2020, the IASB
issued an amendment to IAS 16, “Property, Plant and Equipment” (“the Amendment”) The Amendment annuls
the requirement by which in the calculation of costs directly attributable to fixed assets, the net proceeds from selling
certain items that were produced while the Company tested the functioning of the asset should be deducted (such as samples
that were produced when testing the equipment). Instead, such proceeds shall be recognized in profit or loss according to the
relevant standards and the cost of the sold items will be measured according to the measurement requirements of IAS 2, Inventories.
The Amendment is effective for
annual periods beginning on or after January 1, 2022. Early application is permitted. The Amendment shall be applied on a retrospective
basis, including an amendment of comparative data, only with respect to fixed asset items that have been brought to the location
and condition required for them to operate in the manner intended by management subsequent to the earliest reporting period presented
at the date of initial application of the Amendment. The cumulative effect of the Amendment will adjust the opening balance of
retained earnings for the earliest reporting period presented.
The Company has not yet commenced
examining the effects of the Amendment on the financial statements.
The
Company leases vehicles for the use of certain of its employees. The lease term is mainly for three-year periods from several different
leasing companies.
As of December 31, 2020 the company
divested all its investments in debt securities (corporate and government) consequently the Company do not expose to price risk.
As of December 31, 2019, the Company has financial instruments, classified as financial assets measured at fair value through
other comprehensive income for which the Company is exposed to risk of fluctuations in the security price that is determined by
reference to the quoted market price.
Cash flow hedges of the expected
salaries and suppliers expenses in December 31, 2020 was estimated as effective and accordingly a net unrecognized income was recorded
in other comprehensive income in the amount of $348 thousands net. The ineffective portion were allocated to finance expense.
Between 2013 and 2019, the parties amended the License Agreement
and the Distribution Agreement to extend the supply of Glassia by the Company to Takeda and increase Takeda’s minimum purchase
commitment. Pursuant to the recent amendment of the Distribution Agreement entered into during August 2019, the maximum commitment
by the Company to manufacture and sale Glassia to Takeda and the minimum commitment of Takeda to acquire Glassia manufactured by
the Company is currently extended through the end of 2021. Based on the agreement, the Company estimates that the total revenues
from sales of Glassia to Takeda for the year 2021 will be $25 million. See note 22a for information regarding 2020 revenues from
sales to Takeda.
Takeda will complete the technology
transfer of Glassia, and pending FDA approval, will initiate, during 2021 its own production of Glassia for distribution in the
U.S. market as well as Territory. Accordingly, following the transition of manufacturing to Takeda, the Company will terminate
the manufacturing and sale of Glassia to Takeda resulting in a significant reduction in revenues. Upon initiation of sales of Glassia
manufactured by Takeda, Takeda will pay the Company the Royalty Payments as defined above.
On expiration of the royalty
period, the license will become non-exclusive and the Company shall be entitled to use the rights granted to it pursuant to the
agreement without paying royalties or any other compensation. In addition, and according to a mechanism set in the agreement, PARI
would be required to pay royalties to the Company of the total net sales of the device exceeding a certain amount, through the
later of the device patents expiration period or 15 years from the first commercial sale of the Company’s Inhaled AAT product.
In February 2008, the parties
executed an amendment to the agreement according to which the exclusive global license granted to the Company was expanded to two
additional indications. The royalties are applicable to all indications mentioned above.
In addition, the parties entered
into a commercialization and supply agreement, which ensures long-term regular supply of the device, including spare parts.
In May 2019, the Company signed
a Clinical Study Supply Agreement (“CSSA”) with PARI for the supply of the required quantities of controller kits and
the web portal associated with PARI’s device required for Company’s continued clinical trials with respect the its
Inhaled AAT product. The CSSA is a supplement agreement to the agreement and will expire upon the expiration or termination of
the agreement.
In October 2016 the parties
entered into an amendment to the agreement pursuant to which the parties agreed to conduct a required post-marketing-commitment
clinical study which was initiated in March 2017 and finalized during 2020. The cost of the study was equally shared between the
parties.
During 2020 and 2019, 449,093
and 67,470 share options, respectively, were exercised, on a net exercise basis, into 164,867 and 13,133 ordinary shares of NIS
1 par value each and 58,328 and 44,892 restricted share units were vested for total consideration of $17 thousand and $16 thousands,
respectively.
For additional information regarding
options and restricted shares granted to employees and management in 2020, refer to Note 20 below.
The Company’s goals in
its capital management are to preserve capital ratios that will ensure stability and liquidity to support business activity and
create maximum value for shareholders.
FIMI Opportunity Fund 6, L.P.
and FIMI Israel Opportunity Fund 6, Limited Partnership (the “FIMI Funds”) purchased on November 21, 2019 5,240,956
ordinary shares at a price of $6.00, representing 12.99%. On February 10, 2020, the Company closed a private placement with FIMI
Opportunity Fund 6, L.P. and FIMI Israel Opportunity Fund 6, Limited Partnership (the “FIMI Funds”), a then 12.99%
stockholder of the Company. Pursuant to the private placement the Company issued 4,166,667 ordinary shares at a price of $6.00
per share, for an aggregate gross proceeds of $25,000 thousands. Upon closing of the private placement, the FIMI Funds ownership
represents approximately 21% of the Company’s outstanding shares. Concurrently, the Company entered into a registration
rights agreement with the FIMI Funds, pursuant to which the FIMI Funds are entitled to customary demand registration rights (effective
six months following the closing of the transaction) and piggyback registration rights with respect to all shares held by FIMI
Funds. Mr. Ishay Davidi, Ms. Lilach Asher Topilsky and Mr. Amiram Boehm, members of our board of directors, are executives of
the FIMI Funds.
Pursuant to the 2011 Plan, granted
share options and RS generally vest over a four-year period following the date of the grant in 13 installments: 25% of the options
vest on the first anniversary of the grant date and 6.25% options vest at the end of each quarter thereafter. As of 2020 granted
share options and RS are vest over fore equal annual installments of 25% of the granted options.
The range of exercise prices for share options outstanding as
of December 31, 2020 and 2019 were NIS 14.82- NIS 29.68. Exercise is by cashless method.
As of December 31, 2020, the
Company has carried forward losses and other temporary differences in the amount of $ 27,314 thousands. Final tax assessments for
the years 2016 onwards could have an impact on the balance of carry forward tax losses for which deferred tax asset was not recognized.
As of December 31, 2020, The Company did not record deferred tax asset for the remaining carry forward losses due to estimation
that their utilization in the foreseeable future is not probable.
During 2020 the Company accounted
for a bonus accrual to the CEO in the amount of $ 194 thousands. As for a grant of options and restricted shares to the CEO, refer
to Note 20b.