Item 1A. Risk Factors.
Investing in our ordinary
shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below, in addition to the
other information set forth in this Quarterly Report, including the consolidated financial statements and the related notes included
elsewhere in this Quarterly Report, before purchasing our ordinary shares. If any of the following risks actually occurs, our business,
financial condition, cash flows and results of operations could be negatively impacted. In that case, the trading price of our ordinary
shares would likely decline and you might lose all or part of your investment. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial also may impair our business operations.
Principal Risk Factors
Our business is subject to
numerous risks that you should be aware of before making an investment decision. These risks are described more fully in this “Risk
Factors” section and include, among others:
| ● | We
have incurred significant losses since our inception. We anticipate that we will continue
to incur significant losses for the foreseeable future, and we may never achieve or maintain
profitability. |
| ● | We
will need to raise substantial additional funding, which may not be available on acceptable
terms, or at all. Failure to obtain funding on acceptable terms and on a timely basis may
require us to curtail, delay or discontinue our product development efforts or other operations. |
| ● | We
may not have the ability to raise the funds necessary to repurchase our 5.875% convertible
senior notes due 2026, or the Notes, for cash upon a fundamental change. |
| ● | The
Indenture governing the Notes contains restrictions and other provisions regarding events
of default that may make it more difficult to execute our strategy or to effectively compete
or that could adversely affect our liquidity. |
| ● | Raising
additional capital may cause dilution to our shareholders and our share price to fall, restrict
our operations or require us to relinquish rights to our technologies or product candidates. |
| ● | We
have never generated any revenue from product sales and may never be profitable. |
| ● | Our
business has been and could continue to be adversely affected by the evolving and ongoing
COVID-19 global pandemic in regions where we or third parties on which we rely have significant
manufacturing facilities, concentrations of clinical trial sites or other business operations. |
| ● | We
are heavily dependent on the success of our product candidates, including obtaining regulatory
approval to market our product candidates in the United States, the European Union and other
geographies. |
| ● | We
have experienced delays in regulatory approvals for omidubicel and GDA-201, and we may be
unable to obtain further regulatory approvals for omidubicel, GDA-201, and our other potential
product candidates. |
| ● | The
results of earlier studies and trials may not be predictive of future trial results, and
our clinical trials may fail to adequately demonstrate the safety and efficacy of our product
candidates. |
| ● | Interim,
“topline” and preliminary data from our clinical trials that we announce or publish
from time to time may change as more patient data become available and are subject to audit
and verification procedures that could result in material changes in the final data. |
| ● | The
success of our NAM technology platform and our product candidates is substantially dependent
on developments within the emerging field of cellular therapies, some of which are beyond
our control. |
| ● | Because
our product candidates are based on novel technologies, it is difficult to predict the time
and cost of development and our ability to successfully complete clinical development of
these product candidates and obtain the necessary regulatory approvals for commercialization. |
| ● | We
may find it difficult to enroll patients in our clinical studies, which could delay or prevent
us from proceeding with clinical trials. |
| ● | Our
product candidates and the administration process may cause undesirable side effects or have
other properties that could delay or prevent their regulatory approval, limit the commercial
profile of an approved label or result in significant negative consequences following marketing
approval, if any, and result in costly and damaging product liability claims against us. |
| ● | Even
if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain
regulatory approval to commercialize any of our product candidates, and the approval may
be for a narrower indication than we seek or be subject to other limitations or restrictions
that limit its commercial profile. |
| ● | Even
if we obtain regulatory approval for a product candidate, our products will remain subject
to regulatory scrutiny. |
| ● | A
Breakthrough Therapy Designation by the FDA may not lead to a faster development or regulatory
review or approval process and it does not increase the likelihood that our product candidates
will receive marketing approval. |
| ● | We
may be unable to maintain the benefits associated with orphan drug designations that we have
obtained, including market exclusivity, which may cause our revenue, if any, to be reduced. |
| ● | Enacted
and future healthcare legislation may increase the difficulty and cost for us to obtain marketing
approval of and commercialize our product candidates and may affect the prices we may set. |
| ● | Our
business operations and current and future relationships with investigators, healthcare professionals,
consultants, third-party payers, patient organizations and customers will be subject to applicable
healthcare regulatory laws, which could expose us to penalties. |
| ● | Legislative
or regulatory healthcare reforms in the United States may make it more difficult and costly
for us to obtain regulatory clearance or approval of our product candidates and to produce,
market and distribute our products after clearance or approval is obtained. |
We have incurred significant losses
since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future, and we may never achieve
or maintain profitability.
We are a clinical-stage biopharmaceutical
company. We have incurred net losses each year since our inception in 1998, including net losses of $89.8 million and $61.6 million for
the years ended December 31, 2021 and 2020, respectively. As of March 31, 2022, we had an accumulated deficit of $357.7 million.
We have devoted substantially
all our financial resources to designing and developing our product candidates, including conducting preclinical studies and clinical
trials, building a manufacturing facility at Kiryat Gat, Israel and providing general and administrative support for these operations.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Our ability to ultimately
achieve recurring revenue and profitability, which we do not expect to occur for at least several years, is dependent upon our ability
to successfully complete the development of our product candidates, and to obtain necessary regulatory approvals for and successfully
manufacture, market and commercialize our products.
We anticipate that our expenses
will increase substantially based on a number of factors, including to the extent that we:
| ● | prepare
for potential commercialization and/or strategic partnerships for omidubicel, if and when
approved for marketing; |
| ● | continue
our clinical development of omidubicel, GDA-201 and other potential product candidates; |
| ● | seek
regulatory and marketing approvals for our product candidates that successfully complete
clinical studies; |
| ● | identify,
assess, acquire, license and/or develop other product candidates; |
| ● | establish
and validate our commercial-scale manufacturing facilities in accordance with current good
manufacturing practices, or cGMP; |
| ● | establish
a sales, marketing and distribution infrastructure to commercialize any products for which
we may obtain marketing approval; |
| ● | hire
personnel and invest in additional infrastructure to support our operations as a public company
and expand our product development; |
| ● | enter
into agreements to license intellectual property from, or to, third parties; |
| ● | develop,
maintain, protect and expand our intellectual property portfolio; and |
| ● | experience
any delays or encounter issues with respect to any of the above, including but not limited
to, failed studies, complex results, manufacturing issues or other regulatory challenges
that require longer follow-up of existing studies, additional major studies or additional
supportive studies in order to pursue marketing approval. |
To date, we have financed
our operations primarily through our public offerings of equity securities, private placements of debt and equity securities and royalty-bearing
grants that we received from the Israeli Innovation Authority, or the IIA, formerly known as the Office of the Chief Scientist of the
Ministry of Economy and Industry, including from Bereshit Consortium, sponsored by the IIA. The amount of our future net losses will
depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic
collaborations, or grants. Even if we obtain regulatory approval to market omidubicel or any other product candidates, our future revenue
will depend upon the size of any markets in which such product candidates receive approval, and our ability to achieve sufficient market
acceptance, pricing and reimbursement from third-party payers for such product candidates. Further, the net losses that we incur may
fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations
may not be a good indication of our future performance. We may also incur other unanticipated costs from our operations.
Operating our business and servicing
our debt requires a significant amount of cash, and we will need to obtain additional funding in the future to continue to sufficiently
fund our operations and pay our substantial debt, including our convertible senior notes that mature in February 2026.
Our financial statements have been prepared on a going concern basis under which an entity is able to realize its assets and satisfy its
liabilities in the ordinary course of business. Our future operations are dependent upon the identification and successful completion
of equity or debt financing and the achievement of profitable operations at an indeterminate time in the future. There can be no assurances
that we will be successful in completing equity or debt financing or in achieving profitability. The financial statements do not give
effect to any adjustments relating to the carrying values and classification of assets and liabilities that would be necessary should
the Company be unable to continue as a going Additional financing may not be available when we need it or may not be available on terms
that are favorable to us. If we are unable to raise the requisite funds, we will need to curtail or cease operations concern. Developing
our product candidates is expensive, and we expect our research and development expenses to increase substantially in connection with
our ongoing activities, particularly as we advance our product candidates through preclinical studies and clinical development in an effort
to obtain regulatory approval. We recently initiated submission of a Biologics License Application, or BLA, for omidubicel on a rolling
basis, and we plan to submit the full BLA to the FDA in the second quarter of 2022. We also plan to continue our Phase 1/2 investigator-sponsored
clinical trial of omidubicel for the treatment of severe aplastic anemia, and we expect to initiate a Phase 1/2 clinical trial of GDA-201
in patients with follicular and diffuse large B-cell lymphomas in 2022.
In addition, our ability to
make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including the Notes, depends on our
future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may never
generate cash flow from operations sufficient to support our operations, service our debt and make necessary capital expenditures. As
a result, we may be required to adopt one or more alternatives, subject to the restrictions contained in the Indenture between Gamida
Cell Ltd., Gamida Cell Inc., and Wilmington Savings Fund Society, FSB, entered into on February 16, 2021, or the Indenture, governing
the Notes, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous and which are
likely to be highly dilutive. As of March 31, 2022, we had cash and cash equivalents and trading financial assets of $69.7 million. We
currently believe that our existing capital resources will be sufficient to meet our projected operating requirements into mid-2023.
We will require significant additional financing in the future to fund our operations. Our future funding requirements will depend on
many factors, including, but not limited to:
| ● | the
cost, timing and outcomes of regulatory reviews of omidubicel, GDA-201 and our other potential
product candidates; |
| ● | the
progress, results and costs of our current and planned clinical trials of GDA-201 and our
other product candidates; |
| ● | the
costs of qualifying our planned commercial-scale cGMP manufacturing facility at Kiryat Gat,
Israel, and/or engaging third-party manufacturers; |
| ● | the
scope, progress, results and costs of product development, laboratory testing, manufacturing,
preclinical development and clinical trials for any other product candidates that we may
develop or otherwise obtain in the future; |
| ● | the
cost of our future activities, including establishing sales, marketing and distribution capabilities
for any product candidates in any particular geography where we receive marketing approval
for such product candidates; |
| ● | the
terms and timing of any collaborative, licensing and other arrangements that we may establish; |
| ● | the
costs of preparing, filing and prosecuting patent applications, maintaining and enforcing
our intellectual property rights and defending intellectual property-related claims;
and |
| ● | the
level of revenue, if any, received from commercial sales of any product candidates for which
we receive marketing approval. |
Identifying potential product
candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years
to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales.
In addition, our product candidates, if approved, may not achieve commercial success. Our product revenue, if any, will be derived from
or based on sales of product candidates that may not be commercially available for many years, if at all. Accordingly, we will need to
continue to rely on additional financing to achieve our business objectives. Any additional fundraising efforts may divert our management
from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. We cannot
guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all, and the terms of any
financing may adversely affect the interests or rights of our shareholders.
We may not have the ability to raise
the funds necessary to repurchase the Notes for cash upon a fundamental change.
Holders of the Notes have
the right to require us to repurchase their Notes for cash upon the occurrence of a fundamental change at a repurchase price equal to
100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. This use of cash may have a material
adverse effect on our liquidity. Furthermore, we may not have enough available cash or be able to obtain financing at the time we are
required to repurchase the Notes. In addition, our ability to repurchase the Notes for cash may be limited by law, regulatory authority
or agreements governing our future indebtedness. Our failure to repurchase Notes for cash at a time when the repurchase is required by
the Indenture pursuant to which the Notes were issued would constitute a default under the Indenture.
The Indenture governing the Notes
contains restrictions and other provisions regarding events of default that may make it more difficult to execute our strategy or to
effectively compete or that could adversely affect our liquidity.
Subject to certain exceptions
and qualifications, the Indenture governing the Notes restricts our ability to, among other things, (i) pay dividends or make other payments
or distributions on capital stock, or purchase, redeem, defease or otherwise acquire or retire for value any capital stock, (ii) incur
indebtedness or issue preferred stock, other than certain forms of permitted debt, (iii) sell assets or dispose of certain material assets,
(iv) enter into certain transactions with affiliates or (v) merge, consolidate or sell all or substantially all assets. The Indenture
also requires us to make an offer to repurchase the Notes upon the occurrence of certain asset sales or disposition of certain material
assets. These restrictions may make it difficult to successfully execute our business strategy or effectively compete with companies
that are not similarly restricted. The Indenture governing the Notes also provides that a number of events will constitute an event of
default, including, among other things, (i) a failure to pay interest or additional amounts for 30 days, (ii) failure to pay the principal
of the notes when due at maturity, upon redemption, upon any required repurchase, upon declaration of acceleration or otherwise, (iii)
failure to comply with our obligation to exchange the Notes in accordance with the Indenture upon a holder’s exercise of its exchange
right, (iv) not issuing certain notices required by the Indenture within a timely manner, (v) failure to comply with the other covenants
or agreements in the Notes or the Indenture, (vi) a default or other failure by us to make required payments under our other indebtedness
having an outstanding principal amount of $10.0 million or more, (vii) failure by us to pay final judgments aggregating in excess of
$20.0 million, and (viii) certain events of bankruptcy or insolvency. In the case of an event of default arising from certain events
of bankruptcy or insolvency with respect to us, all outstanding Notes will become due and payable immediately without further action
or notice. If any other event of default occurs and is continuing, the trustee or the holders of at least 25% in aggregate principal
amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Such acceleration of our debt could
have a material adverse effect on our liquidity if we are unable to negotiate mutually acceptable terms with the holders of the Notes
or if alternate funding is not available to us. Furthermore, if we are unable to repay the Notes upon an acceleration or otherwise, we
would be forced into bankruptcy or liquidation.
Raising additional capital may cause
dilution to our shareholders and our share price to fall, restrict our operations or require us to relinquish rights to our technologies
or product candidates.
Until such time, if ever,
as we can generate substantial product revenue, we expect to obtain additional capital through a combination of equity offerings, debt
financings, collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale
of equity or convertible debt securities, your ownership interest will be diluted, and the terms of such securities may include liquidation
or other preferences that adversely affect your rights as a shareholder. Debt financing, if available, may involve covenants restricting
our operations or our ability to incur additional debt. If we raise additional funds through collaboration and licensing arrangements
with third parties, it may be necessary to relinquish certain rights to our technologies or our product candidates, or to grant licenses
on terms that are not favorable to us.
Even if we believe that we
have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or
if we have specific strategic considerations. The issuance of additional securities, whether equity or debt, by us, or the possibility
of such issuance, may cause the market price of our shares to decline.
We have also entered into
an Open Market Sale Agreement, or the Sales Agreement under which we may offer and sell our ordinary shares having an aggregate gross
sales price of up to $50 million from time to time through Jefferies LLC. Pursuant to the Sales Agreement and upon delivery of notice
by the Company, Jefferies may sell our ordinary shares under an “at the market offering”. The sale of a substantial amount
of our ordinary shares in this manner may depress the market price for our ordinary shares.
If we are unable to obtain
funding on acceptable terms and on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our
research, development or manufacturing programs or the commercialization of any approved product, or be unable to expand our operations
or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and
results of operations.
We have never generated any revenue
from product sales and may never be profitable.
We have no products approved
for marketing in any jurisdiction, and we have never generated any revenue from product sales. Our ability to generate revenue and achieve
profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of, and
obtain the regulatory and marketing approvals necessary to commercialize one or more of our product candidates. Our ability to generate
future revenue from the commercialization of omidubicel is uncertain. If we decide to commercialize omidubicel on our own, we will have
to undertake sufficient costs to build out a sales and distribution team. If we enter into one or more partnerships for the commercialization
of omidubicel, we will surrender a portion of our revenue to our partner or partners, and if we securitize royalty streams related to
omidubicel, future revenues would be held in trust for beneficiaries of the financing in exchange for which we would receive certain
payments based on an assessment of future sales. Furthermore, revenue from product sales will depend heavily on our ability to:
| ● | obtain
regulatory approvals and marketing authorizations for omidubicel and those of our other product
candidates for which we complete clinical studies; |
| ● | develop
and obtain regulatory approval for a sustainable and scalable in-house and/or third-party
manufacturing process for omidubicel that meets all applicable regulatory standards; |
| ● | establish
and maintain supply and, if applicable, manufacturing relationships with third parties that
can provide adequate, in both amount and quality, products to support clinical development
and the market demand for our product candidates, if and when approved; |
| ● | complete
research and preclinical and clinical development of our product candidates in a timely and
successful manner; |
| ● | launch
and commercialize our product candidates for which we obtain regulatory and marketing approval,
either directly by establishing a sales force, marketing and distribution infrastructure,
and/or with collaborators or distributors; |
| ● | expose,
educate and train physicians and other medical professionals to use our products; |
| ● | price
omidubicel and our other product candidates, if and when approved, in a manner designed to
encourage market acceptance from the medical community and third-party payers; |
| ● | ensure
procedures utilizing our product candidates are approved for coverage and adequate reimbursement
from governmental agencies, private insurance plans, managed care organizations, and other
third-party payers in jurisdictions where they have been approved for marketing; |
| ● | address
any competing technological and market developments that impact our product candidates or
their prospective usage by medical professionals; |
| ● | identify,
assess, acquire and/or develop new product candidates; |
| ● | negotiate
favorable terms in any collaboration, licensing or other arrangements into which we may enter
and perform our obligations under such collaborations; |
| ● | maintain,
protect and expand our portfolio of intellectual property rights, including patents, patent
applications, trade secrets and knowhow; |
| ● | avoid
and defend against third-party interference, infringement or other intellectual property
related claims; attract, hire and retain qualified personnel; and |
| ● | locate
and lease or acquire suitable facilities to support our clinical development, manufacturing
facilities and commercial expansion. |
Even if one or more of our
product candidates is approved for marketing and sale, we anticipate incurring significant incremental costs associated with commercializing
such product candidates. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration,
or the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies or ethical committees in medical centers, to change
our manufacturing processes or assays or to perform clinical, nonclinical, or other types of studies in addition to those that we currently
anticipate. Even if we are successful in obtaining regulatory approvals to market one or more of our product candidates, our revenue
earned from such product candidates will be dependent in part upon the size of the markets in the territories for which we gain regulatory
approval for such products, the accepted price for such products, our ability to obtain reimbursement for such products at any price,
whether we own the commercial rights for that territory in which such products have been approved and the expenses associated with manufacturing
and marketing such products for such markets. Therefore, we may not generate significant revenue from the sale of such products, even
if approved. Further, if we are not able to generate significant revenue from the sale of our approved products, we may be forced to
curtail or cease our operations. Due to the numerous risks and uncertainties involved in product development, it is difficult to predict
the timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability.
Our business could be adversely affected
by the evolving and ongoing COVID-19 global pandemic in regions where we or third parties on which we rely have significant manufacturing
facilities, concentrations of clinical trial sites or other business operations. The COVID-19 pandemic could adversely affect our operations,
as well as the business or operations of our manufacturers, CROs or other third parties with whom we conduct business.
Our business could be adversely
affected by the effects of the recent and evolving COVID-19 pandemic, which was declared by the World Health Organization as a global
pandemic. The COVID-19 pandemic has resulted in travel and other restrictions in order to reduce the spread of the disease including
in the Commonwealth of Massachusetts, where our U.S. operations are focused.
Some of our third-party manufacturers
which we use for the supply of materials for product candidates or other materials necessary to manufacture product to conduct preclinical
tests and clinical trials are located in countries affected by COVID-19. Quarantines, shelter-in-place and similar government orders,
or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, whether related
to COVID-19 or other infectious diseases could impact personnel at third-party manufacturing facilities, or the availability or cost
of materials, which would disrupt our supply chain, and should they experience additional disruptions, such as temporary closures or
suspension of services, we would likely experience delays in advancing these tests and trials. Currently, we expect no material impact
on the clinical supply of omidubicel or GDA-201.
Our clinical trials may also
be affected by the COVID-19 pandemic. Clinical site initiation and patient enrollment may be delayed due to prioritization of hospital
resources toward the COVID-19 pandemic. Some patients may not be able to comply with clinical trial protocols if quarantines impede patient
movement or interrupt healthcare services. Similarly, our ability to recruit and retain patients and principal investigators and site
staff who, as healthcare providers, may have heightened exposure to COVID-19 and adversely impact our clinical trial operations.
The spread of COVID-19, which
has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration
of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial
markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession
or other market corrections resulting from the spread of COVID-19 could materially affect our business and the value of our ordinary
shares.
The global pandemic of COVID-19
continues to rapidly evolve. The extent to which the COVID-19 pandemic impacts our business, our clinical development and regulatory
efforts will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic
spread of the disease, the duration of the outbreak, efficacy of vaccines, travel restrictions, quarantines, social distancing requirements
and business closures in the United States and other countries, business disruptions and the effectiveness of actions taken in the United
States and other countries to contain and treat the disease. Accordingly, we do not yet know the full extent of potential delays or impacts
on our business, our clinical and regulatory activities, healthcare systems or the global economy as a whole. However, these impacts
could adversely affect our business, financial condition, results of operations and growth prospects.
In addition, to the extent
the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many
of the other risks and uncertainties described in this “Risk Factors” section and in the “Risk Factors” incorporated
by reference herein.
Risks Related to the Discovery, Development
and Clinical Testing of Our Product Candidates
We are heavily dependent on the success
of our product candidates, including obtaining regulatory approval to market our product candidates in the United States, the European
Union and other geographies.
To date, we have deployed
all our efforts and financial resources to: (i) research and develop our NAM, or nicotinamide, cell expansion platform, our lead product
candidate, omidubicel, for the treatment of hematologic malignancies, and our second product candidate, GDA-201, for the treatment of
NHL, and our other potential product candidates, including conducting preclinical and clinical studies and providing general and administrative
support for these operations; and (ii) develop and secure our intellectual property portfolio for our product candidates. Our future
success is dependent on our ability to successfully develop, obtain regulatory approval for and commercialize one or more of our current
and future product candidates. Our product candidates’ marketability is subject to significant risks associated with successfully
completing current and future clinical trials and commercializing our product candidates that receive regulatory approval, including:
| ● | our
ability to develop, qualify and maintain a commercially viable manufacturing process that
is compliant with cGMP and produces omidubicel that has the same treatment profile as the
products used in our clinical trials, whether at our facility at Kiryat Gat or through third
party manufacturers; |
| ● | completion
of the Phase 1/2 clinical trial of GDA-201 and the acceptance by the FDA of the sufficiency
of early development data to support approval of the IND application that we submitted; |
| ● | acceptance
by the FDA, EMA or other regulatory agencies of our parameters for regulatory approval relating
to omidubicel and our other product candidates, including our proposed indications, primary
and secondary endpoint assessments and measurements, safety evaluations and regulatory pathways; |
| ● | the
acceptance by the FDA, EMA or other regulatory agencies of the number, design, size, conduct
and implementation of our clinical trials, our trial protocols and the interpretation of
data from preclinical studies or clinical trials; |
| ● | our
ability to successfully complete the clinical trials of our product candidates, including
timely patient enrollment and acceptable safety and efficacy data and our ability to demonstrate
the safety and efficacy of the product candidates undergoing such clinical trials; |
| ● | the
acceptance by the FDA of the sufficiency of the data we collect from our preclinical studies
and our investigator-sponsored Phase 1/2 clinical trial of omidubicel for the treatment of
severe aplastic anemia; |
| ● | the
willingness of the FDA, EMA or other regulatory agencies to schedule an advisory committee
meeting in a timely manner to evaluate and decide on the approval of our regulatory filings,
if such advisory committee meetings are required; |
| ● | the
recommendation of the FDA’s advisory committee to approve our applications to market
omidubicel and our other product candidates in the United States, and the EMA in the European
Union, if such advisory committee reviews are scheduled, without limiting the approved labeling,
specifications, distribution or use of the products, or imposing other restrictions; |
| ● | the
satisfaction of the FDA, EMA or other regulatory agencies with the safety and efficacy of
our product candidates; |
| ● | the
prevalence and severity of adverse events associated with our product candidates; |
| ● | the
timely and satisfactory performance by third-party contractors, trial sites and principal
investigators of their obligations in relation to our clinical trials; |
| ● | our
success in educating medical professionals and patients about the benefits, administration
and use of our product candidates, if approved; |
| ● | the
availability, perceived advantages, relative cost, safety and efficacy of alternative and
competing treatments for the indications addressed by our product candidates; |
| ● | the
effectiveness of our marketing, sales and distribution strategy, and operations, as well
as that of any current and future licensees; |
| ● | the
extent to which third-party payers provide coverage and adequate reimbursement for procedures
utilizing our products; and/or |
| ● | our
ability to obtain, maintain, protect and enforce our intellectual property rights with respect
to our product candidates and to regulatory guidelines. |
Many of these clinical, regulatory
and commercial risks are beyond our control. Accordingly, we cannot assure you that we will be able to advance any of our product candidates
through clinical development, or to obtain regulatory approval of or commercialize any of our product candidates. If we fail to achieve
these objectives or overcome the challenges presented above, we could experience significant delays or an inability to successfully commercialize
our product candidates. Accordingly, we may not be able to generate sufficient revenue through the sale of our product candidates to
enable us to continue our business.
We may be unable to obtain regulatory
approval for our product candidates.
The research, development,
testing, manufacturing, labeling, packaging, approval, promotion, advertising, storage, recordkeeping, marketing, distribution, post-approval
monitoring and reporting and export and import of drug products are subject to extensive regulation by the FDA, the EMA and by regulatory
authorities in other countries. These regulations differ from country to country. To gain approval to market our product candidates,
we must provide data from well-controlled clinical trials that adequately demonstrate the safety and efficacy of the product for the
intended indication to the satisfaction of the FDA, EMA or other regulatory authority. We have not yet obtained regulatory approval to
market any of our product candidates in the United States or any other country. The FDA, EMA or other regulatory agencies can delay,
limit or deny approval of our product candidates for many reasons, including:
| ● | regulatory
requests for additional analyses, reports, data, non-clinical and preclinical studies and
clinical trials, including with respect to our and our third-party manufacturer’s production
of omidubicel in commercial processes that has the same treatment profile as the product
used in our successful Phase 3 clinical trial; |
| ● | our
inability to demonstrate that the product candidates are safe and effective for the target
indication to the satisfaction of the FDA, EMA or other regulatory agencies; |
| ● | regulatory
requests to provide additional data regarding analytical and clinical comparability from
our planned commercial manufacturing sites, or the failure of a regulatory agency to accept
the manufacturing processes or facilities at our manufacturing site or those of third-party
manufacturers with which we contract; |
| ● | the
FDA’s, EMA’s, or other regulatory agencies’ disagreement with our clinical
trial protocol, the interpretation of data from preclinical studies or clinical trials, or
adequacy of the conduct and control of clinical trials; |
| ● | clinical
holds, other regulatory objections to commencing or continuing a clinical trial or the inability
to obtain regulatory approval to commence a clinical trial in countries that require such
approvals, including the clinical hold the FDA placed on our GDA-201 IND prior to the initiation
of patient dosing for our planned Phase 1/2 study in NHL, which was removed by the FDA on
April 21, 2022; |
| ● | the
population studied in the clinical trial may not be sufficiently broad or representative
to assess safety in the patient population for which we seek approval; |
| ● | unfavorable
or inconclusive results of clinical trials and supportive non-clinical studies, including
unfavorable results regarding safety or efficacy of our product candidates observed in clinical
trials; |
| ● | our
inability to demonstrate that clinical or other benefits of our product candidates outweigh
any safety or other perceived risks; |
| ● | any
determination that a clinical trial presents unacceptable health risks to subjects; |
| ● | our
inability to obtain approval from institutional review boards, or IRBs, to conduct clinical
trials at their respective sites; |
| ● | the
non-approval of the formulation, labeling or the specifications of our product candidates; |
| ● | the
potential for approval policies or regulations of the FDA, EMA or other regulatory agencies
to significantly change in a manner rendering our clinical data insufficient for approval;
or |
| ● | resistance
to approval from the advisory committees of the FDA, EMA or other regulatory agencies for
any reason including safety or efficacy concerns. |
In the United States, we are
required to submit a BLA to obtain FDA approval before marketing omidubicel or any of our product candidates. A BLA must include extensive
preclinical and clinical data and supporting information to establish the product candidate’s safety, purity and potency, or efficacy,
for each desired indication. The BLA must also include significant information regarding the chemistry, manufacturing and controls for
the product. In November 2021, we completed a Type B Pre-Biologics License Application, or pre-BLA meeting with the FDA for omidubicel
during which the FDA requested that we provide revised analysis of the manufacturing data generated at our wholly-owned commercial manufacturing
facility in Kiryat Gat, Israel to demonstrate the comparability to the omidubicel that was produced at the clinical manufacturing sites
for the Phase 3 study. Although the FDA has agreed that we established analytical comparability between the omidubicel product that is
manufactured at our commercial manufacturing facility and the omidubicel product that was manufactured for the Phase 3 trial, there is
no guarantee that we will continue to meet the FDA’s manufacturing requirements in the future.
In connection with our BLA
submission, the FDA may conduct an inspection of our Kiryat Gat, Israel manufacturing facility to ensure that it can manufacture omidubicel
and our other product candidates, if and when approved, in compliance with the applicable regulatory requirements. The FDA may also inspect
our clinical trial sites to ensure that our studies are properly conducted. Obtaining approval of a BLA is a lengthy, expensive and uncertain
process, and approval may not be obtained. Upon submission of a BLA, the FDA must make an initial determination that the application
is sufficiently complete to accept the submission for filing. We cannot be certain that our rolling BLA submission for omidubicel, or
any future submissions, will be accepted for filing and review by the FDA, or ultimately be approved. If our planned application for
omidubicel is not accepted for review or approval, the FDA may require that we conduct additional clinical or preclinical trials, or
take other actions before it will reconsider our application. If the FDA requires additional studies or data, we would incur increased
costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition,
the FDA may not consider any additional information to be complete or sufficient to support approval.
Regulatory authorities outside
of the United States, such as in the European Union, also have requirements for approval of biologics for commercial sale with which
we must comply prior to marketing in those areas. Regulatory requirements can vary widely from country to country and could delay or
prevent the introduction of our product candidates. Clinical trials conducted in one country may not be accepted by regulatory authorities
in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other
country.
However, the failure to obtain
regulatory approval in one jurisdiction could have a negative impact on our ability to obtain approval in a different jurisdiction. Approval
processes vary among countries and can involve additional product candidate testing and validation and additional administrative review
periods. Seeking additional regulatory approvals outside the United States and European Union could require additional nonclinical studies
or clinical trials, which could be costly and time consuming. These regulatory approvals may include all of the risks associated with
obtaining FDA or EMA approval. For all of these reasons, if we seek such regulatory approvals for any of our other product candidates,
we may not obtain such approvals on a timely basis, if at all.
Even if we receive approval
of any regulatory filing for omidubicel, the FDA may grant any such approval contingent on the performance of costly and potentially
time-consuming additional post-approval clinical trials or subject to contraindications, black box warnings, restrictive surveillance
or a Risk Evaluation and Mitigation Strategy, or REMS. Further, the FDA, EMA or other regulatory authorities may also approve our product
candidates for a more limited indication or a narrower patient population than we originally requested, and these regulatory authorities
may not approve the labeling that we believe is necessary or desirable for the successful commercialization of our product candidates.
Following any approval for commercial sale of omidubicel or our product candidates, certain changes to the product, such as changes in
manufacturing processes and additional labeling claims, as well as new safety information, will be subject to additional FDA notification,
or review and approval. Also, regulatory approval for any of our product candidates may be withdrawn. To the extent we seek regulatory
approval in jurisdictions outside of the United States and European Union, we may face challenges similar to those described above with
regulatory authorities in applicable jurisdictions.
Any delay in obtaining, or
inability to obtain, applicable regulatory approval for any of our product candidates would delay or prevent commercialization of our
product candidates and would thus negatively impact our business, results of operations and prospects.
Clinical development is difficult
to design and implement and involves a lengthy and expensive process with uncertain outcomes.
Clinical testing is expensive
and can take many years to complete, and its outcome is inherently uncertain. Bone marrow transplant and cell-based therapies that appear
promising in the early phases of development may fail to reach the market. Further, a failure of one or more of our clinical trials can
occur at any time during the clinical trial process. We do not know whether future clinical trials, if any, will begin on time, need
to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed,
suspended or terminated for a variety of reasons, including failure to:
| ● | generate
sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation
or continuation of clinical trials; |
| ● | obtain
regulatory approval, or feedback on trial design, in order to commence a trial; |
| ● | identify,
recruit and train suitable clinical investigators; |
| ● | reach
agreement on acceptable terms with prospective contract research organizations, or CROs,
and clinical trial sites, the terms of which can be subject to extensive negotiation and
may vary significantly among CROs and clinical trial sites, and have such CROs and sites
effect the proper and timely conduct of our clinical trials; |
| ● | obtain
and maintain IRB approval at each clinical trial site; |
| ● | identify,
recruit and enroll suitable patients to participate in a trial; |
| ● | have
a sufficient number of patients complete a trial or return for post-treatment follow-up; |
| ● | ensure
clinical investigators and clinical trial sites observe trial protocol or continue to participate
in a trial; |
| ● | address
any patient safety concerns that arise during the course of a trial; |
| ● | address
any conflicts with new or existing laws or regulations; |
| ● | add
a sufficient number of clinical trial sites; |
| ● | manufacture
sufficient quantities at the required quality of product candidate for use in clinical trials;
or |
| ● | raise
sufficient capital to fund a trial. |
We may also experience numerous
unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or
commercialize our product candidates, including:
| ● | we
may receive feedback from regulatory authorities that requires us to modify the design of
our clinical trials; |
| ● | clinical
trials of our product candidates may produce negative or inconclusive results, and we may
decide, or regulators may require us, to conduct additional clinical trials or abandon development
programs; |
| ● | the
number of patients required for clinical trials of our product candidates may be larger than
we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants
may drop out of these clinical trials at a higher rate than we anticipate; |
| ● | our
third-party contractors may fail to comply with regulatory requirements or meet their contractual
obligations to us in a timely manner, or at all; |
| ● | regulators
or IRBs may not authorize us or our investigators to commence a clinical trial or conduct
a clinical trial at a prospective trial site or amend a trial protocol; |
| ● | we
may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts
or clinical trial protocols with prospective trial sites and CROs; |
| ● | we
or our investigators might have to suspend or terminate clinical trials of our product candidates
for various reasons, including noncompliance with regulatory requirements, a finding that
our product candidates have undesirable side effects or other unexpected characteristics,
or a finding that the participants are being exposed to unacceptable health risks; |
| ● | the
cost of clinical trials of our product candidates may be greater than we anticipate; |
| ● | the
supply or quality of our product candidates or other materials necessary to conduct clinical
trials of our product candidates may be insufficient or inadequate; |
| ● | there
may be changes in government regulations or administrative actions; |
| ● | our
product candidates may have undesirable adverse effects or other unexpected characteristics; |
| ● | we
may not be able to demonstrate that a product candidate’s clinical and other benefits
outweigh its safety risks; |
| ● | we
may not be able to demonstrate that a product candidate provides an advantage over current
standards of care of future competitive therapies in development; |
| ● | regulators
may revise the requirements for approving our product candidates, or such requirements may
not be as we anticipate; and |
| ● | any
future collaborators that conduct clinical trials may face any of the above issues, and may
conduct clinical trials in ways they view as advantageous to them but that are suboptimal
for us. |
We may also encounter delays
if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the
trial’s data safety monitoring board, by the FDA, EMA or other regulatory agencies. Such authorities may suspend or terminate one
or more of our clinical trials due to a number of factors, including our failure to conduct the clinical trial in accordance with relevant
regulatory requirements or clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EMA or other regulatory
agencies resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit
from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical
trial.
Further, conducting clinical
trials in countries outside of the United States and European Union, as we plan to do for our product candidates, presents additional
risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to
adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative
burdens associated with jurisdiction-specific regulatory schemes, as well as political and economic risks relevant to such jurisdictions.
In addition, disruptions caused
by the COVID-19 pandemic may increase the likelihood that we encounter difficulties or delays in initiating, screening, enrolling, conducting,
or completing our ongoing and planned preclinical studies and clinical trials. Clinical site initiation and patient screening and enrollment
may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic. Investigators and patients may not be able to
comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, our ability
to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure
to COVID-19, could be limited, which in turn could adversely impact our clinical trial operations. Additionally, we may experience interruption
of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing
protocols imposed or recommended by federal or state governments, employers and others in connection with the ongoing COVID-19 pandemic.
As a result of the COVID-19 pandemic, we have faced and may continue to face delays in meeting our anticipated timelines for our ongoing
and planned clinical trials. Specifically, the initial timeline for submission of our BLA for omidubicel was delayed, in part, as a result
of the impact of the COVID-19 pandemic on our operations.
If we experience delays in
carrying out or completing any clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed,
and our ability to generate product revenue from any of these product candidates will be delayed. In addition, any delays in completing
our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability
to commence product sales and generate revenue. Any of these occurrences may significantly harm our business and financial condition.
In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately
lead to the denial of regulatory approval of our product candidates.
The results of earlier studies and
trials may not be predictive of future trial results, and our clinical trials may fail to adequately demonstrate the safety and efficacy
of our product candidates.
Results from preclinical studies
or early-stage clinical trials are not necessarily predictive of future clinical trial results, and interim results of a clinical trial
are not necessarily indicative of final results. For example, our Phase 1/2 clinical trial of GDA-201 demonstrated significant clinical
activity in patients with non-Hodgkin lymphoma, with 13 complete responses and one partial response observed in 19 patients, for a response
rate of 74%. However, further clinical trials may show that the response rate in a larger sample size is lower than 74%. A decrease in
the response rate could cause us to abandon further development of GDA-201 in this indication.
There is a high failure rate
for product candidates proceeding through clinical trials. Many companies in the pharmaceutical industry have suffered significant setbacks
in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials. Data obtained
from preclinical and clinical activities are subject to varying interpretations, including conclusions about relapse rates that are based
on small sample sizes of data, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays
or rejections as a result of many factors, including due to changes in regulatory policy during the period of our product candidate development.
Success in preclinical testing and early clinical trials does not ensure that later clinical trials will generate the same results or
otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate.
Interim, “topline” and
preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available
and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may
publish interim, “top-line” or preliminary data from our clinical studies. Interim data from clinical trials that we may
complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and
more patient data become available. Preliminary or “top-line” data also remain subject to audit and verification procedures
that may result in the final data being materially different from the preliminary data previously published. In addition, successful
results in one or a few patients may not be indicative of the final results after completion of treatment of all patients in a clinical
trial. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse changes between
preliminary or interim data and final data could significantly harm our business prospects.
The success of our NAM technology
platform and our product candidates is substantially dependent on developments within the emerging field of cellular therapies, some
of which are beyond our control.
Our NAM expansion technology
platform and our product candidates are designed to increase the therapeutic functionality of cell therapy products, which represents
a novel development within the field of cellular therapeutics. Stem cell therapies in turn represent a relatively new therapeutic area
that presents a number of scientific, clinical, regulatory and ethical challenges. Any adverse developments in the field of stem cell
therapies generally, and in the practice of hematopoietic stem cell transplant in particular, will negatively impact our ability to develop
and commercialize our product candidates. In particular, we currently anticipate that omidubicel and any additional product candidates
that we develop from our NAM technology platform would be adopted into the current standard of care for hematopoietic stem cell transplant,
or HSCT, procedures. If the market for HSCT procedures declines or fails to grow at anticipated levels for any reason, or if the development
and commercialization of therapies targeted at the underlying cause of diseases addressed by omidubicel obviate the need for patients
to undergo HSCT procedures, our business prospects will be significantly harmed.
Because our product candidates are
based on novel technologies, it is difficult to predict the time and cost of development and our ability to successfully complete clinical
development of these product candidates and obtain the necessary regulatory approvals for commercialization.
Our product candidates are
based on our novel NAM technology platform, and unexpected problems related to this new technology may arise that could cause us to delay,
suspend or terminate our development efforts. Regulatory approval of novel product candidates such as ours can be more expensive and
take longer, than for other more well-known or extensively studied pharmaceutical or biopharmaceutical product candidates due to our
and regulatory agencies’ lack of experience with them. Stem cell therapies represent a relatively new therapeutic area, and the
FDA has cautioned consumers about potential safety risks associated with these therapies. To date, there are relatively few approved
stem cell products.
Regulatory requirements governing
cell therapy products have changed frequently and may continue to change in the future. For example, the FDA established the Office of
Cellular, Tissue and Gene Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of gene
therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. In addition,
adverse developments in clinical trials of potential stem cell therapies conducted by others may cause the FDA or other regulatory bodies
to change the requirements for approval of any of our product candidates. These regulatory authorities and advisory groups and the new
requirements or guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies, increase
our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of
our product candidates or lead to significant post-approval limitations or restrictions.
We may find it difficult to enroll
patients in our clinical studies, which could delay or prevent us from proceeding with clinical trials.
Identifying and qualifying
patients to participate in clinical studies of our product candidates is critical to our success. The timing of our clinical trials depends
in part on the speed at which we can recruit patients to participate in testing our product candidates, and we may experience delays
in our clinical trials if we encounter difficulties in enrollment. Patient enrollment and retention in clinical trials depends on many
factors, including the size of the patient population, the nature of the trial protocol, our ability to recruit clinical trial investigators
with the appropriate competencies and experience, the existing body of safety and efficacy data with respect to the study drug, the number
and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of patients
to clinical sites, clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied
in relation to other available therapies, including any drugs that may be approved for the indications we are investigating, the eligibility
criteria for the study, our ability to obtain and maintain patient consents and the risk that patients enrolled in clinical trials will
drop out of the trials before completion. For example, patients may prefer to undergo treatment with stem cell transplantation with cells
sourced from matched related donors, matched unrelated donors or haploidentical donors, as opposed to being treated with omidubicel,
which would adversely affect the enrollment of our clinical trials.
We may not be able to identify,
recruit and enroll a sufficient number of patients to complete our clinical studies because of the perceived risks and benefits of the
product candidate under study, the availability and efficacy of competing therapies and clinical studies, the proximity and availability
of clinical study sites for prospective patients and the patient referral practices of physicians. If patients are unwilling to participate
in our studies for any reason, the timeline for recruiting patients, conducting studies, and obtaining regulatory approval of potential
products will be delayed.
In addition, any negative
results we may report in clinical trials of our product candidate may make it difficult or impossible to recruit and retain patients
in other clinical trials of that same product candidate. Delays or failures in planned patient enrollment or retention may result in
increased costs, program delays or both, which could have a harmful effect on our ability to develop our product candidates, or could
render further development impossible. For example, the impact of public health epidemics, such as the ongoing COVID-19 pandemic, may
delay or prevent patients from enrolling or from receiving treatment in accordance with the protocol and the required timelines, which
could delay our clinical trials, or prevent us from completing our clinical trials at all, and harm our ability to obtain approval for
such product candidate. Further, if patients drop out of our clinical trials, miss follow-up visits, or otherwise fail to follow clinical
trial protocols, whether as a result of the COVID-19 pandemic or actions taken to slow the spread of COVID-19 or otherwise, the integrity
of data from our clinical trials may be compromised or not accepted by the FDA or other regulatory authorities, which would represent
a significant setback for the applicable program. In addition, we may rely on CROs and clinical trial sites to ensure proper and timely
conduct of our future clinical trials and, while we intend to enter into agreements governing their services, we will be limited in our
ability to compel their actual performance.
Our product candidates and the administration
process may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the
commercial profile of an approved label or result in significant negative consequences following marketing approval, if any, and result
in costly and damaging product liability claims against us.
Undesirable side effects,
including toxicology, caused by our product candidates, or the drugs encapsulated by our product candidates, could cause us or regulatory
authorities to interrupt, delay or halt clinical studies and could result in a more restrictive label or the delay or denial of regulatory
approval by the FDA, EMA or other regulatory agencies. Results of our studies could reveal a high and unacceptable severity and prevalence
of these or other side effects. In such an event, our clinical studies could be suspended or terminated, and the FDA, EMA or other regulatory
agencies could order us to cease further development of or deny or withdraw approval of our product candidates for any or all targeted
indications. Moreover, during the conduct of clinical trials, patients report changes in their health, including illnesses, injuries
and discomforts, to their study doctor. Often, it is not possible to determine whether or not the product candidate being studied caused
these conditions.
Drug-related, drug-product
related, formulation-related and administration-related side effects could affect patient recruitment, the ability of enrolled patients
to complete the clinical study or result in potential product liability claims, which could exceed our clinical trial insurance coverage.
We obtain clinical trial insurance policies with respect to all our clinical studies. The insurance policies are in accordance with the
local regulations applicable in the jurisdictions where the studies are performed outside of clinical trials.
Further, patients with the
diseases targeted by our product candidates are often already in severe and advanced stages of disease and have both known and unknown
significant pre-existing and potentially life-threatening health risks. Severe (grade 4) infusion reactions have also been reported in
approximately 4% of patients treated with omidubicel. The most common adverse events related to omidubicel were graft versus host disease,
or GvHD, (10%), pain (8%), transplant failure (4%), hypertension (4%), and dyspnea (2%). During the course of treatment, patients may
suffer adverse events, including death, for reasons that may be related to our product candidates. In our Phase 1/2 clinical trial of
omidubicel for the treatment of sickle cell disease, or SCD, which is a chronic illness, two of the patients died: one due to chronic
GvHD and the other due to secondary graft failure. In our Phase 1/2 trial of omidubicel for the treatment of hematologic malignancies,
approximately 10% of patients who received omidubicel experienced serious GvHD. In our Phase 1/2 clinical trial of GDA-201, adverse events
included one patient who died of E. coli sepsis. There was also a low level of sporadic engraftment failures. Such events could subject
us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity
to receive or maintain regulatory approval to market our products, or require us to suspend or abandon our commercialization efforts.
Even in a circumstance in
which we do not believe that an adverse event is related to our products, the investigation into the circumstance may be time-consuming
or inconclusive. For instance, allogeneic bone marrow transplant, the area in which omidubicel is being used, is associated with serious
complications, including death. In addition, there are expected toxicities for patients who receive an allogeneic bone marrow transplant,
such as infertility. Thus, while not directly associated with omidubicel, there are attendant risks with the space in which our product
candidates operate, and any related investigations may interrupt our development and commercialization efforts, delay our regulatory
approval process, or impact and limit the type of regulatory approvals our product candidates receive or maintain. As a result of these
factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition
or results of operations.
Additionally, if one or more
of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products,
a number of potentially significant negative consequences could result, including, but not limited to:
| ● | regulatory
authorities may suspend or withdraw approvals of such product; |
| ● | regulatory
authorities may require additional warnings on the label, such as a “black box”
warning or contraindication; |
| ● | additional
restrictions may be imposed on the marketing of the particular product or the manufacturing
processes for the product or any component thereof; |
| ● | we
may be required to create a REMS, which could include a medication guide outlining the risks
of such side effects for distribution to patients, a communication plan for healthcare providers
and/or other elements to assure safe use; |
| ● | we
may be required to recall a product, change the way a product candidate is administered or
conduct additional clinical trials; |
| ● | we
could be sued and held liable for harm caused to patients; |
| ● | the
product may become less competitive; and |
| ● | our
reputation may suffer. |
Any of these events could
prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly
harm our business, results of operations and prospects.
Risks
Related to Government Regulation
Even
if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize any
of our product candidates, and the approval may be for a narrower indication than we seek or be subject to other limitations or restrictions
that limit its commercial profile.
We
cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate.
Even if our current or future product candidates meet safety and efficacy endpoints in clinical trials, the regulatory authorities may
not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result
if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience
delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory
authority policy during the period of product development, clinical trials and the review process.
Regulatory
authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations
in the form of warnings or a REMS. These regulatory authorities may require precautions or contra-indications with respect to conditions
of use or they may grant approval subject to the performance of costly post-marketing clinical trials. In addition, regulatory authorities
may not approve the labeling claims that are necessary or desirable for the successful commercialization of any of our product candidates.
Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates and materially and adversely
affect our business, financial condition, results of operations and prospects.
Even
if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.
If
one of our product candidates is approved, it will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging,
storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and
other post- market information, including both federal and state requirements in the United States and European Union and requirements
of comparable regulatory authorities.
Manufacturers
and manufacturers’ facilities are required to comply with extensive FDA, EMA and the requirements of additional regulatory authorities,
including ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such, we and our contract manufacturers
will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any approved
marketing application. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory
compliance, including manufacturing, production, and quality control.
We
will have to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect
to prescription drugs and biologics are subject to a variety of legal and regulatory restrictions and must be consistent with the information
in the product’s approved label. As such, we may not promote our products “off-label” for indications or uses for which
they do not have approval. The holder of an approved application must submit new or supplemental applications and obtain approval for
certain changes to the approved product, product labeling, or manufacturing process. We could also be asked to conduct post-marketing
clinical studies to verify the safety and efficacy of our products in general or in specific patient subsets. An unsuccessful post- marketing
study or failure to complete such a study could result in the withdrawal of marketing approval.
If
a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency,
or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product,
such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market.
If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
| ● | impose
civil or criminal penalties; |
| ● | suspend
or withdraw regulatory approval; |
| ● | suspend
any of our clinical studies; |
| ● | refuse
to approve pending applications or supplements to approved applications submitted by us; |
| ● | impose
restrictions on our operations, including closing our contract manufacturers’ facilities;
or |
| ● | seize
or detain products, or require a product recall. |
Any
government investigation of alleged violations of law could require us to expend significant time and resources in response and could
generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability
to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn,
the value of our company and our operating results will be adversely affected.
Moreover,
the policies of the FDA and of other regulatory authorities may change and additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. If we
are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able
to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
A
Breakthrough Therapy Designation by the FDA may not lead to a faster development or regulatory review or approval process and it does
not increase the likelihood that our product candidates will receive marketing approval.
We
have obtained Breakthrough Therapy Designation for omidubicel for the treatment of hematologic malignancies and may receive it in the
future if the clinical data support such a designation for one or more of our other product candidates. A breakthrough therapy is defined
as a drug or biologic that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening
disease or condition and preliminary clinical evidence indicates that the drug, or biologic, may demonstrate substantial improvement
over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical
development. For product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA
and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients
placed in ineffective control regimens. Biologics designated as breakthrough therapies by the FDA may also be eligible for accelerated
approval.
Designation
as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our current or future product candidates
meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation.
In
any event, the receipt of a Breakthrough Therapy Designation for omidubicel for the treatment of hematologic malignancies may not result
in a faster development process, review or approval compared to drugs considered for approval under non-expedited FDA review procedures
and does not assure ultimate approval by the FDA. In addition, the FDA may later decide that the product no longer meets the conditions
to qualify for Breakthrough Therapy Designation.
We
may be unable to maintain the benefits associated with orphan drug designations that we have obtained, including market exclusivity,
which may cause our revenue, if any, to be reduced.
We
have obtained orphan drug designation for omidubicel from the FDA and the EMA for the treatment of hematologic malignancies, and we may
pursue orphan drug designation for certain of our future product candidates. Under the Orphan Drug Act, the FDA may designate a drug
or biologic product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer
than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation
that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the EMA’s Committee
for Orphan Medicinal Products, or COMP, 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. Additionally, designation is granted for products intended for the diagnosis, prevention, or treatment
of a life-threatening, seriously debilitating or serious and chronic condition 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 or
where there is no satisfactory method of diagnosis, prevention, or treatment, or, if such a method exists, the medicine must be of significant
benefit to those affected by the condition.
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 application fee waivers. In addition, if a product receives 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 or where the manufacturer is unable to assure sufficient product quantity
the orphan patient population. In the European Union, orphan drug designation entitles a party to financial incentives such as reduction
of fees or fee waivers and ten years of market exclusivity 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.
Even
though we have obtained orphan drug designation for omidubicel from the FDA and the EMA for the treatment of hematologic malignancies,
we may not be the first to obtain marketing approval for such indication due to the uncertainties associated with developing pharmaceutical
products. Further, orphan drug exclusivity may not effectively protect the product candidate from competition because different drugs
with different active moieties can be approved for the same condition. Even after an orphan drug is approved, the FDA or EMA can subsequently
approve the same drug with the same active moiety for the same condition if the FDA or EMA concludes that the later drug is clinically
superior in that it is safer, more effective, or makes a major contribution to patient care. Orphan drug designation neither shortens
the development time or regulatory review time of a drug or biologic nor gives the drug or biologic any advantage in the regulatory review
or approval process.
Enacted
and future healthcare legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product
candidates and may affect the prices we may set.
In
the United States, the European Union and other jurisdictions, there have been, and we expect there will continue to be, a number of
legislative and regulatory changes and proposed changes to the healthcare system that could affect our future results of operations.
In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare
costs and improve the quality of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act, or collectively the PPACA, was enacted, which substantially changed the way healthcare
is financed by both governmental and private payers. Among the provisions of the PPACA, those of greatest importance to the pharmaceutical
and biotechnology industries include the following: an annual, non-deductible fee payable by any entity that manufactures or imports
certain branded prescription drugs and biologic agents (other than those designated as orphan drugs), which is apportioned among these
entities according to their market share in certain government healthcare programs;
| ● | new
requirements to report certain financial arrangements with physicians and teaching hospital
personnel including transplant teams, including reporting “transfers of value”
made or distributed to physicians, as defined by such law, and reporting investment interests
held by physicians and their immediate family members; |
| ● | 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; |
| ● | expansion
of eligibility criteria for Medicaid programs by, among other things, allowing states to
offer Medicaid coverage to certain individuals with income at or below 133% of the federal
poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability; |
| ● | a
licensure framework for follow-on biologic products; |
| ● | a
new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and
conduct comparative clinical effectiveness research, along with funding for such research;
and |
| ● | establishment
of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services,
or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid
spending, potentially including prescription drug spending. |
There
have been judicial and Congressional challenges to certain aspects of the PPACA. For example, tax legislation enacted on December 22,
2017, titled “an Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal
year 2018,” or the Tax Act, included a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment
imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly
referred to as the “individual mandate”. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds
that argued the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Thus,
the PPACA will remain in effect in its current form. Further, prior to the U.S. Supreme Court ruling, on January 28, 2021, President
Biden issued an executive order to initiate a special enrollment period from February 26, 2021 through August 15, 2021 for purposes of
obtaining health insurance coverage through the PPACA marketplace. The executive order also instructed certain governmental agencies
to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid
demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining
access to health insurance coverage through Medicaid or the PPACA. It is possible that the PPACA will be subject to judicial or Congressional
challenges in the future. It is unclear how such challenges and the healthcare reform measures of the Biden administration.
In
addition, other legislative changes have been proposed and adopted in the United States since the PPACA was enacted. In August 2011,
the Budget Control Act of 2011, among other things, led to aggregate reductions of Medicare payments to providers of 2% per fiscal year.
These reductions went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through
2031 with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 unless additional action is taken by Congress.
Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 3% in the final fiscal year of
this sequester. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced
Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the
statute of limitations period for the government to recover overpayments to providers from three to five years. Additionally, Congress
is considering additional health reform measures. These new laws or any other similar laws introduced in the future may result in additional
reductions in Medicare and other health care funding, which could negatively affect our customers and accordingly, our financial operations.
Moreover,
payment methodologies are subject to changes in healthcare legislation and regulatory initiatives. For example, CMS has developed value-based
payment models for a variety of care settings, including the inpatient prospective payment system used for reimbursing inpatient hospital
services. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for
their marketed products, which has resulted in several U.S. Presidential executive orders, Congressional inquiries and proposed and enacted
federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription
drugs under government payer programs, and review the relationship between pricing and manufacturer patient programs. At the federal
level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals,
executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, the Trump administration announced several
executive orders related to prescription drug pricing that seek to implement several of the administration’s proposals. As a result,
the FDA concurrently released a final rule and guidance in September2020, providing pathways for states to build and submit importation
plans for drugs from Canada. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions
from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price
reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January
1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale,
as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation
of which have also been delayed by the Biden administration until January 1, 2023. On November 20, 2020, CMS issued an interim final
rule implementing the Trump administration’s Most Favored Nation executive order, which would tie Medicare Part B payments for
certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. As
a result of litigation challenging the Most Favored Nation model, on December 27, 2021, CMS published a final rule that rescinds the
Most Favored Nation model interim final rule. Additionally, in July 2021, the Biden administration released an executive order, “Promoting
Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive
order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing
reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions
HHS can take to advance these principles. No legislation or administrative actions have been finalized to implement these principles.
It is unclear whether these or similar policy initiatives will be implemented in the future.
We
expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that
the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates
or additional pricing pressures.
Individual
states in the United States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical
and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access
and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and
bulk purchasing. Legally mandated price controls on payment amounts by third- party payers or other restrictions could harm our business,
results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly
using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and
other healthcare programs. This could reduce the ultimate demand for our product candidates or put pressure on our product pricing.
In
the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our product
candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the
European Union or member state level may result in significant additional requirements or obstacles that may increase our operating costs.
The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement
of medicines, is almost exclusively a matter for national, rather than European Union, law and policy. National governments and health
service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products
in that context. In general, however, the healthcare budgetary constraints in most European Union member states have resulted in restrictions
on the pricing and reimbursement of medicines by relevant health service providers. Any increase in European Union and national regulatory
burdens on those wishing to develop and market products could prevent or delay marketing approval of our product candidates, restrict
or regulate post- approval activities and affect our ability to commercialize our product candidates, if approved. In markets outside
of the United States and European Union, reimbursement and healthcare payment systems vary significantly by country, and many countries
have instituted price ceilings on specific products and therapies.
We
cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action
in the United States, the European Union or any other jurisdiction. It is also possible that additional government action is taken in
response to the COVID-19 pandemic. If we or any third parties we may engage are slow or unable to adapt to changes in existing requirements
or the adoption of new requirements or policies, or if we or such third parties are not able to maintain regulatory compliance, our product
candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability.
Our
business operations and current and future relationships with investigators, healthcare professionals, consultants, third-party payers,
patient organizations and customers will be subject to applicable healthcare regulatory laws, which could expose us to penalties.
Our
business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payers,
patient organizations and customers, may expose us to broadly applicable fraud and abuse, privacy and security and other healthcare laws
and regulations. These laws may constrain the business or financial arrangements and relationships through which we conduct our operations,
including how we research, market, sell and distribute our product candidates, if approved. Such laws include:
| ● | the
U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities
from knowingly and willfully soliciting, offering, receiving or providing any remuneration
(including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly,
in cash or in kind, to induce or reward, or in return for, either the referral of an individual
for, or the purchase, lease, order or recommendation of, any good, facility, item or service,
for which payment may be made, in whole or in part, under any U.S. federal healthcare program,
such as Medicare and Medicaid. A person or entity does not need to have actual knowledge
of the statute or specific intent to violate it in order to have committed a violation; |
| ● | the
U.S. federal civil and criminal false claims, including the civil False Claims Act, which
prohibit, among other things, including through civil whistleblower or qui tam actions, and
civil monetary penalties laws which prohibit individuals or entities from knowingly presenting,
or causing to be presented, to the U.S. federal government, claims for payment or approval
that are false or fraudulent, knowingly making, using or causing to be made or used, a false
record or statement material to a false or fraudulent claim, or from knowingly making a false
statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government.
Pharmaceutical manufacturers can cause false claims to be presented to the U.S. federal government
by engaging in impermissible marketing practices, such as the off-label promotion of a product
for an indication for which it has not received FDA approval. In addition, the government
may assert that a claim including items and services resulting from a violation of the U.S.
federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the
civil False Claims Act; |
| ● | the
Health Insurance Portability and Accountability Act, or HIPAA, which imposes criminal and
civil liability for, among other things, knowingly and willfully executing, or attempting
to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully
falsifying, concealing or covering up a material fact or making any materially false statement,
in connection with the delivery of, or payment for, healthcare benefits, items or services.
Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have
actual knowledge of the healthcare fraud statute implemented under HIPAA or specific intent
to violate it in order to have committed a violation; |
| ● | HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act, or
HITECH, and its implementing regulations, which also imposes certain obligations, including
mandatory contractual terms, with respect to safeguarding the privacy and security of individually
identifiable health information of covered entities subject to the rule, such as health plans,
healthcare clearinghouses and certain healthcare providers, as well as their business associates,
independent contractors of a covered entity that perform certain services involving the use
or disclosure of individually identifiable health information on their behalf and their subcontractors
that use, disclose, access, or otherwise process individually identifiable health information; |
| ● | the
Food Drug and Cosmetic Act, or the FDCA, which prohibits, among other things, the adulteration
or misbranding of drugs, biologics and medical devices; |
| ● | the
U.S. Public Health Service Act, which prohibits, among other things, the introduction into
interstate commerce of a biological product unless a biologics license is in effect for that
product; |
| ● | the
U.S. Physician Payments Sunshine Act and its implementing regulations, which requires certain
manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under
Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions,
to report annually to the government information related to certain payments and other transfers
of value to physicians (defined to include doctors, dentists, optometrists, podiatrists,
and chiropractors), certain other healthcare professionals (such as physician assistants
and nurse practitioners), and teaching hospitals, as well as ownership and investment interests
held by physicians and their immediate family members; |
| ● | analogous
U.S. state laws and regulations, including: state anti-kickback and false claims laws, which
may apply to our business practices, including but not limited to, research, distribution,
sales and marketing arrangements and claims involving healthcare items or services reimbursed
by any third-party payer, including private insurers; state laws that require pharmaceutical
companies to comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise
restrict payments that may be made to healthcare providers and other potential referral sources;
state laws and regulations that require drug manufacturers to file reports relating to pricing
and marketing information, which requires tracking gifts and other remuneration and items
of value provided to healthcare professionals and entities; state and local laws requiring
the registration of pharmaceutical sales representatives; and state laws governing the
privacy and security of health information in certain circumstances, many of which differ
from each other in significant ways and often are not preempted by HIPAA, thus complicating
compliance efforts; the U.S. Foreign Corrupt Practices Act of 1977, as amended, which
prohibits, among other things, U.S. companies and their employees and agents from authorizing,
promising, offering, or providing, directly or indirectly, corrupt or improper payments or
anything else of value to non-U.S. government officials, employees of public international
organizations and non-U.S. government owned or affiliated entities, candidates for non-U.S.
political office, and non-U.S. political parties or officials thereof; and |
| ● | similar
healthcare laws and regulations in the European Union and other jurisdictions, including
reporting requirements detailing interactions with and payments to healthcare providers. |
Ensuring
that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations
will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply
with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws
and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and
regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties,
damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries
or jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, disgorgement, individual imprisonment,
contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations. If any of the physicians
or other providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be
subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment,
which could affect our ability to operate our business. Further, defending against any such actions can be costly, time-consuming and
may require significant personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought
against us, our business may be impaired.
Legislative
or regulatory healthcare reforms in the United States may make it more difficult and costly for us to obtain regulatory clearance or
approval of our product candidates and to produce, market and distribute our products after clearance or approval is obtained.
From
time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the
regulatory clearance or approval, manufacture and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations
and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new
regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of our product
candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated,
enacted or adopted may have on our business in the future. Such changes could, among other things, require:
| ● | changes
to manufacturing methods; |
| ● | change
in protocol design; |
| ● | additional
treatment arm (control); |
| ● | recall,
replacement, or discontinuance of one or more of our products; and |
| ● | additional
recordkeeping. |
We
face competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.
The
biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We face
competition from major multinational pharmaceutical companies, established and early-stage biotechnology companies, and universities
and other research institutions. Many of our competitors have greater financial and other resources, such as larger research and development
staff and more experienced marketing and manufacturing organizations. Large pharmaceutical companies, in particular, have extensive experience
in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also
have significantly greater research, sales and marketing capabilities and collaborative arrangements in our target markets with leading
companies and research institutions.
Established
pharmaceutical companies may also invest heavily to accelerate discovery and development of novel therapeutics or to in-license novel
therapeutics that could make the product candidates that we develop obsolete. As a result of all of these factors, our competitors may
succeed in obtaining patent protection or FDA approval or discovering, developing and commercializing treatments in the rare disease
indications that we are targeting before we do. Smaller or early-stage companies may also prove to be significant competitors, particularly
through collaborative arrangements with large, established companies.
Doctors
may recommend that patients undergo stem cell transplantation using cells from matched related donors, matched or mismatched unrelated
donors, haploidentical donors or unmodified umbilical cord blood instead of using omidubicel or may choose other therapy options instead
of our other NAM-derived product candidates. In addition, there are several clinical-stage development programs that seek to improve
umbilical cord blood transplantation through the use of ex vivo expansion technologies to increase the quantity of hematopoietic stem
cells for use in HSCT or the use of ex vivo differentiation technologies to increase the quantity of hematopoietic progenitor cells for
use in HSCT. We are aware of several other companies with product candidates in various stages of development for allogeneic HSCT grafts,
including Magenta Therapeutics, ExCellThera, Garuda Therapeutics and Bellicum Pharmaceuticals, and for NK cells, including, Takeda Pharmaceutical
Company Limited, Fate Therapeutics, Artiva, Sanofi, MiNK Therapeutics, ONK Therapeutics, Shoreline, Cellularity, NKarta, Wugen, Century
Therapeutics, Appia Bio and FujiFilm Cellular Dynamics. In addition, many universities and private and public research institutes may
develop technologies of interest to us but license them to our competitors. Our competitors may succeed in developing, acquiring or licensing
on an exclusive basis, technologies and drug products that are more effective or less costly than omidubicel or any other product candidates
that we are currently developing or that we may develop, which could render our products obsolete and noncompetitive.
We
believe that our ability to successfully compete will depend on, among other things:
| ● | the
results of our preclinical studies and clinical trials; |
| ● | our
ability to recruit and enroll patients for our clinical trials; |
| ● | the
efficacy, safety and reliability of our product candidates; |
| ● | the
speed at which we develop our product candidates; |
| ● | our
ability to design and successfully execute appropriate clinical trials; |
| ● | our
ability to protect, develop and maintain intellectual property rights related to our products; |
| ● | our
ability to maintain a good relationship with regulatory authorities; |
| ● | the
timing and scope of regulatory approvals, if any; |
| ● | our
ability to commercialize and market any of our product candidates that receive regulatory
approval; |
| ● | market
perception and acceptance of stem cell therapeutics; |
| ● | acceptance
of our product candidates by physicians and institutions that perform HSCT procedures; |
| ● | the
price of our products; |
| ● | coverage
and adequate levels of reimbursement under private and governmental health insurance plans,
including Medicare; and |
| ● | our
ability to manufacture and sell commercial quantities of any approved products to the market. |
If
our competitors market products that are more effective, safer or less expensive than our future products, if any, or that reach the
market sooner than our future products, if any, we may not achieve commercial success. Any inability to successfully compete effectively
will adversely impact our business and financial prospects.
Even
if we obtain and maintain approval for omidubicel or our other product candidates from the FDA, we may never obtain approval outside
of the United States, which would limit our market opportunities and adversely affect our business.
Approval
of a product candidate in the United States by the FDA does not ensure approval of such product candidate by regulatory authorities in
other countries or jurisdictions, and approval by non-U.S. regulatory authority does not ensure approval by regulatory authorities in
other countries or by the FDA. However, the failure to obtain approval from the FDA or other regulatory authorities may negatively impact
our ability to obtain approval in non-U.S. countries. Sales of omidubicel or our other product candidates outside of the United States
will be subject to the regulatory requirements of other jurisdictions governing clinical trials and marketing approval. Even if the FDA
grants marketing approval for a product candidate, comparable regulatory authorities in other countries also must approve the manufacturing
and marketing of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements
and administrative review periods different from, and more onerous than, those in the United States, including additional preclinical
studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before
it can be approved for sale in that country. In some cases, the price that we intend to charge for our product candidates, if approved,
is also subject to approval.
We
intend to submit a marketing authorization application to the EMA for approval of omidubicel in the European Union, but obtaining such
approval from the European Commission following the opinion of the EMA is a lengthy and expensive process. Even if a product candidate
is approved, the applicable regulatory agency may limit the indications for which the product may be marketed, require extensive warnings
on the product labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of approval. Regulatory
authorities in countries outside of the United States and the European Union also have requirements for approval of product candidates
with which we must comply prior to marketing in those countries. Obtaining non-U.S. regulatory approvals and compliance with non-U.S.
regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction
of our product candidates in certain countries.
Further,
clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Also, regulatory approval
for a product candidate may be withdrawn. If we fail to comply with the regulatory requirements, our target market will be reduced and
our ability to realize the full market potential of omidubicel or our other product candidates will be harmed and our business, financial
condition, results of operations and prospects will be adversely affected.
The
misuse or off-label use of our products may harm our reputation in the marketplace, result in injuries that lead to product liability
suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of
these uses, any of which could be costly to our business.
We
initially intend to seek marketing approval for omidubicel for the treatment of hematologic malignancies. We will train our marketing
and sales personnel or the marketing and sales personnel of any strategic partner to not promote our products, if approved, for any other
uses outside of any FDA-cleared indications for use, known as “off-label use.”
We
cannot, however, prevent a physician from using our products off-label, when in the physician’s independent professional medical
judgment, he or she deems it appropriate. As a result, there may be increased risk of injury to patients if physicians attempt to use
our products for these uses for which they are not approved. Furthermore, the use of our products for indications other than those approved
by the FDA or any non-U.S. regulatory body may not effectively treat such conditions, which could harm our reputation in the marketplace
among physicians and patients.
If
the FDA, EMA or any other regulatory body in a jurisdiction in which we operate determines that our promotional materials or training
constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory
or enforcement actions, including the issuance or imposition of an untitled letter, which is used for violators that do not necessitate
a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or non-U.S. enforcement
authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to
constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil
and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment
of our operations.
Collection
and use of data, including personal information, is governed by restrictive regulations that could lead to government enforcement actions,
private litigation, adverse publicity, or other adverse actions that could negatively affect our operating results of business
The
collection and use of personal health data in the European Union are governed by the provisions of the General Data Protection Regulation
((EU) 2016/679), or GDPR. This legislation imposes requirements relating to (a) having legal bases for processing personal information
relating to identifiable individuals and transferring such information outside the European Economic Area including to the United States,
(b) providing details to those individuals regarding the processing of their personal information, (c) keeping personal information secure
and confidential, (d) having data processing agreements with third parties who process personal information, (e) responding to individuals’
requests to exercise their rights in respect of their personal information, (f) reporting security breaches involving personal data to
the competent national data protection authority and, possibly, affected individuals, (g) appointing data protection officers, (h) conducting
data protection impact assessments and (i) recordkeeping. The GDPR imposes additional responsibilities and liabilities in relation to
personal data that we process and we may be required to put in place additional mechanisms ensuring compliance with the new data protection
rules. Further, the GDPR prohibits the transfer of personal data to countries outside the European Economic Area, such as the United
States, which are not considered by the European Commission to provide an adequate level of data protection. Switzerland has adopted
similar restrictions. Although there are legal mechanisms to allow for the transfer of personal data from the EEA and Switzerland to
the United States, they are subject to legal challenges and uncertainty regarding compliance with the European Union data protections
laws. Failure to comply with the requirements of the GDPR and related national data protection laws of the member states of the European
Union may result in substantial fines (up to or the great of €20 million or 4% of annual global revenue), other administrative penalties
and civil claims being brought against us, which could have a material adverse effect on our business, results of operations and financial
condition. Such civil claims, based on a private right of actions in the GDPR, allow data subjects and consumer associations to lodge
complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the
GDPR.
Risks
Related to our Reliance on Third Parties
We
rely on third parties to conduct certain elements of our preclinical studies and clinical trials and perform other tasks for us. If these
third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements,
we may not be able to obtain regulatory approval for or commercialize our product candidates.
We
have relied upon, and plan to continue to rely upon, third-party vendors, including CROs, to monitor and manage data for our ongoing
preclinical studies and clinical trials. We rely on these parties for execution of our preclinical studies 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, legal, regulatory and scientific standards, and our reliance on the vendors and CROs does
not relieve us of our regulatory responsibilities.
We
and our CROs and other vendors are required to comply with good clinical practice, or GCP, cGMP, the Helsinki Declaration, the International
Council for Harmonization Guideline for Good Clinical Practice, applicable European Commission Directives on Clinical Trials, laws and
regulations applicable to clinical trials conducted in other territories, good laboratory practices, or GLP, which are regulations and
guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, or EEA, and comparable
regulatory authorities for all our product candidates in clinical development as well as rules and regulations regarding the collection
and use of personal data such as the GDPR.
Regulatory
authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, study sites and other
contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, including GCP and cGMP regulations, the
clinical data generated in our clinical studies may be deemed unreliable and the FDA, EMA or comparable regulatory authorities may require
us to perform additional clinical studies before approving our marketing applications. Our failure to comply with these regulations may
require us to repeat clinical studies, which would delay the regulatory approval process.
If
any of our relationships with these third-party CROs or vendors terminate, we may not be able to enter into arrangements with alternative
CROs or vendors or do so on commercially reasonable terms. In addition, our CROs are not our employees, and, except for remedies available
to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing
clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet
expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to
the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical studies may be extended,
delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates.
CROs may also generate higher costs than anticipated, which could adversely affect our results of operations and the commercial prospects
for our product candidates, increase our costs and delay our ability to generate revenue.
Replacing
or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition
period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical
development timelines. Though we carefully manage our relationships with our CROs, we may encounter similar challenges or delays in the
future, which could have a material adverse impact on our business, financial condition and prospects.
Independent
clinical investigators and CROs that we engage to conduct our clinical trials may not devote sufficient time or attention to our clinical
trials or be able to repeat their past success.
We
expect to continue to depend on third parties, including independent clinical investigators and CROs, to conduct our clinical trials.
CROs may also assist us in the collection and analysis of data. There is a limited number of third-party service providers and vendors
that specialize or have the expertise required to achieve our business objectives. Identifying, qualifying and managing performance of
third-party service providers can be difficult, time consuming and cause delays in our development programs.
These
investigators and CROs will not be our employees and we will not be able to control, other than through contract, the amount of resources,
including time, which they devote to our product candidates and clinical trials. If independent investigators or CROs fail to devote
sufficient resources to the development of our product candidates, or if their performance is substandard, it may delay or compromise
the prospects for approval and commercialization of any product candidates that we develop.
Investigators
for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection
with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or other regulatory
authorities. The FDA or other regulatory authorities may conclude that a financial relationship between us and an investigator has created
a conflict of interest or otherwise affected interpretation of the study. The FDA or other regulatory authorities may therefore question
the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized.
This could result in a delay in approval or rejection of our marketing applications by the FDA or other regulatory authorities, as the
case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates.
In
addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could
increase the risk that this information will be misappropriated. Further, the FDA and other regulatory authorities require that we comply
with standards, commonly referred to as GCP, for conducting, recording and reporting clinical trials to assure that data and reported
results are credible and accurate and that the rights, integrity and confidentiality of trial subjects are protected. Failure of clinical
investigators or CROs to meet their obligations to us or comply with GCP procedures could adversely affect the clinical development of
our product candidates and harm our business.
We
rely on a limited number of suppliers to provide the raw materials other than cord blood (serum and growth factor) needed to produce
our product candidates. We have a relationship with a single supplier, Miltenyi Biotec GmbH, for certain equipment (columns and beads)
necessary to create our product candidates.
We
do not have any control over the availability of these raw materials or pieces of equipment. If we or our providers are unable to purchase
these raw materials or equipment on acceptable terms, at sufficient quality levels, or in adequate quantities, if at all, the development
and commercialization of our product candidates or any future product candidates, could be delayed or there could be a shortage in supply,
which could impair our ability to meet our development objectives for our product candidates or generate revenue from the sale of any
approved products.
Even
following our establishment of our own planned cGMP-compliant manufacturing capabilities, we intend to continue to rely on third-party
suppliers for these raw materials and pieces of equipment, which will expose us to risks including:
| ● | failure
of any supplier to become or maintain its status as a cGMP-compliant manufacturer of raw
materials, which status is a prerequisite to our attainment of a BLA for omidubicel and our
other product candidate; |
| ● | termination
or nonrenewal of supply or service agreements with third parties in a manner or at a time
that is costly or damaging to us; and |
| ● | disruptions
to the operations of our third-party suppliers and service providers caused by conditions
unrelated to our business or operations, including the bankruptcy of the supplier or service
provider. |
We
rely on a single facility located in Kiryat Gat, Israel to manufacture omidubicel. Severe natural or other disaster, power outages or
disruption at this site could have a material adverse effect on our ability to manufacture sufficient commercial supply.
After
the termination of the Services Agreement with Lonza and unless and until we establish an alternative supplier, we will be solely dependent
on our facility in Kiryat Gat, Israel for the manufacture of the commercial supply of omidubicel, if omidubicel is approved. We have
completed construction on the facility in Kiryat Gat and we are now working to qualify our manufacturing process and facility with the
FDA’s cGMP regulations. Severe natural or other disasters, power outages, ongoing or revived hostilities or other political or
economic factors could severely disrupt our manufacturing operations at our Kiryat Gat facility. If any event occurred that prevented
us from using all or a significant portion of this facility or otherwise disrupted operations, it may be difficult or, in certain cases,
impossible for us to continue manufacturing omidubicel for a substantial period of time in sufficient quantities, or at all. The disaster
recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate to guarantee a sufficient
continuation of supply in the event of a serious disaster or similar event. Although we intend to establish an alternative source supplier
or manufacturer for the commercial supply of omidubicel, we cannot guarantee that we will be able to establish an alternative source,
supplier or partner for the manufacturing of omidubicel at acceptable commercial terms, or at all.
Our
reliance on third parties requires us to share our trade secrets and other intellectual property, which increases the possibility that
a competitor will discover them or that our trade secrets and other intellectual property will be misappropriated or disclosed.
Because
we rely on third parties to provide us with the materials that we use to develop and manufacture our product candidates, we may, at times,
share trade secrets and other intellectual property with such third parties. We seek to protect our proprietary technology in part by
entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting
agreements, or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing
proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information,
such as trade secrets and intellectual property. Despite the contractual provisions employed when working with third parties, the need
to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors,
are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our
proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other
unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.
Despite
our efforts to protect our trade secrets, our competitors or other third parties may discover our trade secrets, either through breach
of these agreements, independent development or publication of information including our trade secrets by third parties. A competitor’s
or other third party’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business,
financial condition, results of operations and prospects.
We
face a variety of challenges and uncertainties associated with our dependence on the availability of human umbilical cord blood units,
or CBUs, at cord blood banks for the manufacture of omidubicel.
CBUs
are one of the raw materials for the manufacture of omidubicel. The CBUs currently used in the manufacture of omidubicel are procured
directly by the clinical cell processing facilities from cord blood banks, which hold more than 800,000 CBUs that have been donated,
processed and cryopreserved. However, the availability of CBUs for the manufacture of omidubicel depends on a number of regulatory, political,
economic and technical factors outside of our control, including:
| ● | government
policies relating to the regulation of CBUs for clinical use; |
| ● | the
availability of government funding for cord blood banks; |
| ● | pregnancy
and birth rates, which we expect to decline temporarily in response to the COVID-19 pandemic,
and the willingness of mothers to consent to the donation of CBUs and the terms of such consent; |
| ● | individual
cord blood bank policies and practices relating to CBU acquisition and banking; |
| ● | the
methods used in searching for and matching CBUs to patients, which involve emerging technology
related to current and future CBU parameters that guide the selection of an appropriate CBU
for transplantation; and |
| ● | methods
for the procurement and shipment of CBUs and their handling and storage at clinical sites,
any or all of which may have been complicated by public health policies aimed at slowing
the spread of the COVID-19 virus. |
Additionally,
we do not have control over the types of CBUs used in the manufacture of omidubicel. We rely heavily on these clinical cell processing
facilities to procure CBUs from cord blood banks that are compliant with government regulations and within the current standard of care.
In addition, we may identify specific characteristics of CBUs, such as their volume and red blood cell content, that may limit their
ability to be used to manufacture omidubicel even though these CBUs may otherwise be suitable for use in allogeneic transplant. As a
result, the requirement for CBUs to meet our specifications may limit the potential inventory of CBUs eligible for use in the manufacture
of omidubicel. There is a large variability in the tests, methods and equipment utilized by cord blood banks in testing CBUs before storage.
This could result in CBUs that are found to be unsuitable for production after their arrival at the manufacturing site. In the United
States, cord blood banks are required to file a BLA and meet certain continued regulatory requirements in order to bank and provide CBUs
for transplantation. Despite these requirements, most of the cord blood banks in the United States are not licensed. While the FDA currently
allows CBUs from unlicensed cord blood banks to be used for transplantation and we have used CBUs from such facilities in the manufacture
of omidubicel for our clinical trials, the FDA may later prohibit the use of such CBUs for transplantation. Additionally, although CBUs
from non-U.S. cord blood banks, which are generally unlicensed, are currently available in the United States for use in transplantation
and we have used CBUs from non-U.S. cord blood banks in our clinical trials, we anticipate we will not be able to use cord blood from
non-U.S. cord blood banks for the manufacturing of omidubicel. Any inability to procure adequate supplies of CBUs will adversely impact
our ability to develop and commercialize omidubicel.
Risks
Related to Our Intellectual Property
If
we are unable to obtain, maintain or protect intellectual property rights related to any of our product candidates or any future product
candidates, we may not be able to compete effectively in our market.
We
rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related
to our technologies and product candidates. Our success depends in large part on our ability to obtain and maintain patent and other
intellectual property protection in the United States and in other countries with respect to our proprietary technology and product candidates.
We
have sought to protect our proprietary position by filing patent applications in the United States and in other countries, with respect
to our novel technologies and product candidates, which are important to our business. Patent prosecution is expensive and time consuming.
We may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely
manner or in all jurisdictions. It is also possible that we will fail to identify patentable aspects of our research and development
activities before it is too late to obtain patent protection.
Further,
the patent position of biopharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for
which legal principles remain unsettled. This renders the patent prosecution process particularly expensive and time-consuming. There
is no assurance that all potentially relevant prior art relating to our patent applications has been found and that there are no material
defects in the form, preparation, or prosecution of our patent applications, which can invalidate a patent or prevent a patent from issuing
from a pending patent application. Even if patents do successfully issue, and even if such patents cover our product candidates, because
the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our patents or pending patent applications
may be challenged in the courts or patent offices in the United States and abroad, which may result in such patents being narrowed, found
unenforceable or invalidated. For example, we may be subject to a third party pre-issuance submission of prior art to the United States
Patent and Trademark Office, or USPTO, or become involved in post-grant review procedures, oppositions, derivations, reexaminations,
inter parts review, or IPR, or interference proceedings, in the United States or elsewhere, challenging our patent rights or the patent
rights of others. An adverse determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed,
invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar
or identical technology and products, or limit the duration of the patent protection of our technology and products. Furthermore, even
if they are unchallenged, our patent applications and any future patents may not adequately protect our intellectual property, provide
exclusivity for our product candidates, or prevent others from designing around our claims. Any of these outcomes could impair our ability
to prevent competition from third parties, which may have an adverse impact on our business.
If
we cannot obtain and maintain effective patent rights for our product candidates, we may not be able to compete effectively and our business
and results of operations would be harmed.
In
addition to the protection afforded by any patents that have been or may be granted, we rely on trade secret protection and confidentiality
agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult
to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information
or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary
technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and
contractors. We also seek to preserve the integrity and confidentiality of our data, trade secrets and intellectual property by maintaining
the physical security of our premises and physical and electronic security of our information technology systems. Notwithstanding these
measures, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach.
In addition, our trade secrets and intellectual property may otherwise become known or be independently discovered by competitors. Although
we expect all our employees and consultants and other third parties who may be involved in the development of intellectual property for
us to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary
knowhow, information, or technology to enter into confidentiality agreements, we cannot provide any assurances that we have entered into
such agreements with all applicable third parties or that all such agreements have been duly executed. Even if we have entered into such
agreements, we cannot assure you that our counterparties will comply with the terms of such agreements or that the assignment of intellectual
property rights under such agreements is self-executing. We may be forced to bring claims against third parties, or defend claims that
they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending
any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful
in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior management
and scientific personnel.
We
also cannot assure you that our trade secrets and other confidential proprietary information will not be disclosed or that competitors
will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation
or unauthorized disclosure of our trade secrets and intellectual property could impair our competitive position and may have a material
adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets and intellectual property are deemed inadequate,
we may have insufficient recourse against third parties for misappropriating the trade secret. Any of the foregoing could significantly
harm our business, results of operations and prospects.
Patent
reform legislation and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications
and the enforcement or defense of any issued patents.
Our
ability to obtain patents is highly uncertain because, to date, some legal principles remain unsettled, there has not been a consistent
policy regarding the breadth or interpretation of claims allowed in patents in the United States and the specific content of patents
and patent applications that are necessary to support and interpret patent claims is highly uncertain due to the complex nature of the
relevant legal, scientific, and factual issues. Changes in either patent laws or interpretations of patent laws in the United States
and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.
For
example, on September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act
includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications
will be prosecuted and may also affect patent litigation. The USPTO has developed new and untested regulations and procedures to govern
the full implementation of the Leahy-Smith Act and many of the substantive changes to patent law associated with the Leahy-Smith Act,
and in particular, the first to file provisions only became effective in March 2013. Prior to March 2013, in the United States, the first
to invent was entitled to the patent. As of March 2013, assuming the other requirements for patentability are met, the first to file
a patent application is generally entitled to the patent. Publications of discoveries in the scientific literature often lag behind the
actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months
after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our
patents or pending patent applications, or that we were the first to file for patent protection of such inventions. The Leahy-Smith Act
has also introduced procedures making it easier for third parties to challenge issued patents, as well as to intervene in the prosecution
of patent applications. Finally, the Leahy-Smith Act contains new statutory provisions that require the USPTO to issue new regulations
for their implementation, and it may take the courts years to interpret the provisions of the new statute.
However,
the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications
and the enforcement or defense of our issued patents. Further, the U.S. Supreme Court has ruled on several patent cases in recent years,
either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain
situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events
has created uncertainty with respect to the value of patents, once obtained. Depending on actions by the U.S. Congress, the federal courts,
and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain
new patents or to enforce patents that we have owned or licensed or that we might obtain in the future. Any inability to obtain, enforce,
and defend patents covering our proprietary technologies would materially and adversely affect our business prospects and financial condition.
Similarly,
changes in patent laws and regulations in other countries or jurisdictions or changes in the governmental bodies that enforce them or
changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or
to enforce patents that we own or that we may obtain in the future. Further, the laws of some countries do not protect proprietary rights
to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting
and defending our intellectual property both in the United States and abroad. For example, if the issuance to us, in a given country,
of a patent covering an invention is not followed by the issuance, in other countries, of patents covering the same invention, or if
any judicial interpretation of the validity, enforceability, or scope of the claims, or the written description or enablement, in a patent
issued in one country is not similar to the interpretation given to the corresponding patent issued in another country, our ability to
protect our intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws
in the United States and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent
protection. Any of the foregoing could significantly harm our business, results of operations and prospects.
If
our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest
and our business may be adversely affected.
Our
registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to
be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name
recognition by potential partners or customers in our markets of interest. Over the long term, if we are unable to establish name recognition
based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. If
other entities use trademarks similar to ours in different jurisdictions, or have senior rights to ours, it could interfere with our
use of our current trademarks throughout the world.
Intellectual
property rights of third parties could adversely affect our ability to commercialize our product candidates, and we might be required
to litigate or obtain licenses from third parties in order to develop or market our product candidate. Such litigation or licenses could
be costly or not available on commercially reasonable terms.
It
is inherently difficult to conclusively assess our freedom to operate without infringing on or otherwise violating third-party rights.
Our competitive position may suffer if patents issued to third parties or other third-party intellectual property rights cover our product
candidates or elements thereof, or our manufacturing or uses relevant to our development plans. In such cases, we may not be in a position
to develop or commercialize products or our product candidates unless we successfully pursue litigation to nullify or invalidate the
third-party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if
available on commercially reasonable terms.
There
may also be pending patent applications that if they result in issued patents, could be alleged to be infringed by our product candidates.
If such an infringement claim should be brought and be successful, we may be required to pay substantial damages, including treble damages
and attorneys’ fees if we are found to have willfully infringed, we may be forced to cease the development and commercialization
of and otherwise abandon our product candidates, or we may need to seek a license from any patent holders. No assurances can be given
that a license will be available on commercially reasonable terms, if at all. Even if we were able to obtain such a license, it could
be granted on non-exclusive terms, thereby providing our competitors and other third parties access to the same technologies licensed
to us.
It
is also possible that we have failed to identify relevant third-party patents or applications. For example, U.S. applications filed before
November 29, 2000 and certain U.S. applications filed after that date that will not be filed outside the U.S. remain confidential until
patents issue. Patent applications in the U.S. and elsewhere are published approximately 18 months after the earliest filing to which
priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering
our product candidates or platform technology could have been filed by others without our knowledge. Additionally, pending patent applications
which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies,
our product candidates or the use of our product candidates. Third-party intellectual property right holders may also actively bring
infringement claims against us. We cannot guarantee that we will be able to successfully defend, settle or otherwise resolve such infringement
claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage in or continue
costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in pursuing the development
of and/or marketing of our product candidates. If we fail in any such dispute, in addition to being forced to pay damages, we may be
temporarily or permanently prohibited from commercializing our product candidates that are held to be infringing. We might, if possible,
also be forced to redesign our product candidates so that we no longer infringe the third-party intellectual property rights, which may
not be commercially feasible. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial
and management resources that we would otherwise be able to devote to our business and otherwise significantly harm our business, results
of operations and prospects.
Third-party
claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our
commercial success depends in part on our avoiding infringing or otherwise violating the patents and proprietary rights of third parties.
There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and
pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, post grant review, IPR, and reexamination
proceedings before the USPTO and corresponding non-U.S. patent offices. Numerous U.S. and non-U.S. issued patents and pending patent
applications, which are owned by third parties, exist in the fields in which we are developing product candidates. As the pharmaceutical
industry expands and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement
of the patent rights of third parties or other intellectual property claims.
Third
parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent
applications with claims to materials, formulations, methods of manufacture, or methods for treatment related to the use or manufacture
of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications
that may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the
future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent
jurisdiction to cover the manufacturing process of any of our product candidates, any materials formed during the manufacturing process
or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidates
unless we obtain a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable.
Similarly,
if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture,
or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product
candidate unless we obtain a license or until such patent expires or is finally determined to be invalid or unenforceable. In either
case, such a license may not be available on commercially reasonable terms or at all.
Parties
making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop
and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial
litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of
infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement,
pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require
substantial time and monetary expenditure.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some
of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements
of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these
results to be negative, it could have a material adverse effect on the price of our ordinary shares. Any of the foregoing could significantly
harm our business, results of operations and prospects.
We
may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
Because
our programs may require the use of intellectual property or proprietary rights held by third parties, the growth of our business will
likely depend in part on our ability to acquire, in-license, or use these intellectual property and proprietary rights. In addition,
our product candidates may require specific formulations to work effectively and efficiently and the rights to these formulations may
be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual
property rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition of third-party
intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license
or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive
advantage over us due to their size, cash resources, and greater clinical development and commercialization capabilities. In addition,
the Indenture governing our Notes contain restrictions that may limit our ability to enter into acquisition or in-licensing agreements.
For
example, we sometimes collaborate with academic institutions to accelerate our preclinical research or development under written agreements
with these institutions, some of which provide that the applicable institution will own certain rights in any technology developed thereunder.
Typically,
these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting
from the collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms
that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially
blocking our ability to pursue our program.
In
addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We are also subject to certain
restrictions regarding obtaining licenses of third-party intellectual property pursuant to the terms of the indenture governing the Notes,
and we may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate
return on our investment. If we are unable to successfully obtain rights to required third-party intellectual property rights, we may
have to abandon development of that program and our business and financial condition could suffer.
We
may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors
may infringe, misappropriate or otherwise violate our intellectual property or that of our licensors that we may acquire in the future.
To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming.
If we initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could
counterclaim that the patent covering our product or product candidate is invalid and/or unenforceable. In patent litigation in the United
States, defendant counterclaims alleging invalidity and/or unenforceability are common, and there are numerous grounds upon which a third
party can assert invalidity or unenforceability of a patent. In an infringement proceeding, a court may decide that a patent of ours
is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents
do not cover the technology in question. Third parties may also raise similar claims before administrative bodies in the United States
or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, inter parties review, or
IPR, and equivalent proceedings in non-U.S. jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation
of or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions
of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there
is no invalidating prior art, of which we, our patent counsel, and the patent examiner were unaware during prosecution. If a defendant
were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent
protection on our product candidates. An adverse result in any litigation or defense proceedings could put one or more of our patents
at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could have a material
adverse impact on our business.
Interference
proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patent
applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from
the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms.
Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract
our management and other employees. We may not be able to prevent misappropriation of our intellectual property rights, particularly
in countries where the laws may not protect those rights as fully as in the United States.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some
of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements
of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these
results to be negative, it could have a material adverse effect on the price of our ordinary shares. Any of the foregoing could significantly
harm our business, results of operations and prospects.
We
may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information
of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We
employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors
or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary
information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants, or independent
contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information,
of any of our employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. If
we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel,
which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial
costs and be a distraction to management and other employees. Any of the foregoing could significantly harm our business, results of
operations and prospects.
We
may be subject to claims challenging the inventorship of our intellectual property.
We
may be subject to claims that former employees, collaborators or other third parties have an interest in or right to compensation with
respect to our current patent and patent applications, future patents or other intellectual property as an inventor or co-inventor. For
example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing
our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the
right to compensation. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material
adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs
and be a distraction to management and other employees. To the extent that our employees have not effectively waived the right to compensation
with respect to inventions that they helped create, they may be able to assert claims for compensation with respect to our future revenue.
As a result, we may receive less revenue from future products if such claims are successful which in turn could impact our future profitability,
business, results of operations and prospects.
We
may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result
in litigation and adversely affect our business.
A
significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under
the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee in the course and as a result of or arising
from his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific
agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there
is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee, or the Committee, a body
constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his inventions. Case law clarifies
that the right to receive consideration for “service inventions” can be waived by the employee and that in certain circumstances,
such waiver does not necessarily have to be explicit. The Committee will examine, on a case-by-case basis, the general contractual framework
between the parties, using interpretation rules of the general Israeli contract laws. Further, the Committee has not yet determined one
specific formula for calculating this remuneration (but rather uses the criteria specified in the Patent Law). Although we generally
enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions
created in the scope of their employment or engagement with us, we may face claims demanding remuneration in consideration for assigned
inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former
employees, or be forced to litigate such claims, which could negatively affect our business.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements
imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic
maintenance fees, renewal fees, annuity fees and various other government fees on patents and/or applications will be due to be paid
to the USPTO and various government patent agencies outside of the United States over the lifetime of our patents and/or applications
and any patent rights we may own or license in the future. We rely on our outside counsel or third-party service providers to pay these
fees due to the USPTO and non-U.S. patent agencies. The USPTO and various non-U.S. government patent agencies require compliance with
several procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable
law firms and other professionals to help us comply. In many cases, an inadvertent lapse can be cured by payment of a late fee or by
other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment
or lapse of the patents or patent applications, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
In such an event, potential competitors might be able to enter the market and this circumstance could harm our business.
We
may enjoy only limited geographical protection with respect to certain patents and we may not be able to protect our intellectual property
rights throughout the world.
Filing
and prosecuting patent applications and defending patents covering our product candidates in all countries throughout the world would
be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop
their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement
rights are not as strong as that in the United States. These products may compete with our product candidates, and our patents or other
intellectual property rights may not be effective or sufficient to prevent them from competing.
In
addition, we may decide to abandon national and regional patent applications before grant. The examination of each national or regional
patent application is an independent proceeding. As a result, patent applications in the same family may issue as patents in some jurisdictions,
such as in the United States, but may issue as patents with claims of different scope or may even be refused in other jurisdictions.
It is also quite common that depending on the country, the scope of patent protection may vary for the same product candidate or technology.
The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws or rules and regulations in
the United States, and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets
and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing
of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in other jurisdictions,
whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business,
could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing as patents,
and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other
remedies awarded, if any, may not be commercially meaningful.
Accordingly,
our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage
from the intellectual property that we develop or license. Furthermore, while we intend to protect our intellectual property rights in
our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions
in which we may wish to market our product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries
may be inadequate, which may have an adverse effect on our ability to successfully commercialize our product candidates in all our expected
significant non-U.S. markets. If we encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the
intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished and we may
face additional competition from others in those jurisdictions.
Some
countries also have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition,
some countries limit the enforceability of patents against government agencies or government contractors. In those countries, the patent
owner may have limited remedies, which could materially diminish the value of such patents. If we are forced to grant a license to third
parties with respect to any patents relevant to our business, our competitive position may be impaired.
Patent
terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents
have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally
20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection
it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product
candidate, we may be open to competition from competitive medications, including biosimilar and generic medications. Given the amount
of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates
might expire before or shortly after such product candidates are commercialized. As a result, our patent portfolio may not provide us
with sufficient rights to exclude others from commercializing product candidates similar or identical to ours.
Depending
upon the timing, duration and conditions of any FDA marketing approval of our product candidates, one or more of our U.S. patents may
be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as
the Hatch-Waxman Amendments, and similar legislation in the European Union. The Hatch-Waxman Amendments permit a patent term extension
of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development
and the FDA regulatory review process. However, we may not receive an extension if we fail to exercise due diligence during the testing
phase or regulatory review process, fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents
or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. Only one patent
per approved product can be extended, the extension cannot extend the total patent term beyond 14 years from approval and only those
claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. If we are unable to obtain
patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights
for the applicable product candidate will be shortened and our competitors may obtain approval to market competing products sooner. As
a result, our revenue from applicable products could be reduced. Further, if this occurs, our competitors may take advantage of our investment
in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the
case, and our competitive position, business, financial condition, results of operations, and prospects could be materially harmed.
Intellectual
property rights do not necessarily address all potential threats to our competitive advantage.
The
degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations
and may not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative:
| ● | others
may be able to make products that are similar to our product candidates but that are not
covered by the claims of the patents that we own; |
| ● | we
might not have been the first to invent the inventions covered by our patents or the first
to file patent applications covering our inventions; |
| ● | others
may independently develop similar or alternative technologies or duplicate any of our technologies
without infringing our intellectual property rights; |
| ● | it
is possible that our pending patent applications will not lead to issued patents; |
| ● | issued
patents that we own may be held invalid or unenforceable as a result of legal challenges
by our competitors; |
| ● | issued
patents that we own may not provide coverage for all aspects of our product candidates in
all countries; |
| ● | our
competitors might conduct research and development activities in countries where we do not
have patent rights and then use the information learned from such activities to develop competitive
products for sale in our major commercial markets; |
| ● | we
may not develop additional proprietary technologies that are patentable; and |
| ● | the
patents of others may have an adverse effect on our business. |
Should
any of these events occur, they could significantly harm our business, results of operations and prospects.
Risks
Related to Our Business Operations
Our
future success depends in part on our ability to retain our senior management team and to attract, retain and motivate other qualified
personnel.
We
are highly dependent on the members of our senior management team. The loss of their services without a proper replacement may adversely
impact the achievement of our objectives. Our employees may leave our employment at any time. Recruiting and retaining other qualified
employees, consultants and advisors for our business, including scientific and technical personnel, will also be critical to our success.
There is currently a shortage of skilled personnel in our industry, which is likely to continue for the foreseeable future. This is particularly
the case in Israel and Boston, Massachusetts, where our operations are focused and where there is a “war for talent” between
members in our industry. As a result, competition for skilled personnel is intense, and the turnover rate can be high. We may not be
able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical companies for individuals
with similar skill sets. In addition, failure to succeed in preclinical or clinical studies may make it more challenging to recruit and
retain qualified personnel. The inability to recruit and retain qualified personnel, or the loss of the services of any members of our
senior management team without proper replacement, may impede the progress of our research, development and commercialization objectives.
We
will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
Our
future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our
ability to effectively manage any future growth. As our development and commercialization plans and strategies develop, we expect to
need additional managerial, operational, sales, marketing, financial and legal personnel. Our management may need to divert a disproportionate
amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities.
We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational
mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could
require significant capital expenditures and may divert financial resources from other projects, such as the development of additional
product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability
to generate and/or grow revenue could be reduced, and we may not be able to implement our business strategy.
Due
to our limited resources and access to capital, we must, and have in the past decided to, prioritize development of certain product candidates
over other potential candidates. These decisions may prove to have been wrong and may adversely affect our revenue.
Because
we have limited resources and access to capital to fund our operations, we must decide which product candidates to pursue and the amount
of resources to allocate to each. Our decisions concerning the allocation of research, collaboration, management and financial resources
toward particular product candidates may not lead to the development of viable commercial products and may divert resources away from
better opportunities. Similarly, our decisions to delay, terminate or collaborate with third parties in respect of certain product development
programs may also prove not to be optimal and could cause us to miss valuable opportunities. For instance, we made the decision to prioritize
the development of omidubicel for the treatment of hematologic malignancies over SCD because our hematologic malignancy program is at
a more advanced stage of development, while our sickle cell program remains exploratory. In addition, we are evaluating alternatives
for commercialization of omidubicel, if approved, which may include commercializing omidubicel ourselves or entering into potential strategic
alliances or licensing arrangements with pharmaceutical companies and other partners. If we make the decision to commercialize omidubicel
ourselves, we may have to significantly expand our commercial organization in time for omidubicel approval, which may jeopardize the
success of a timely commercial launch and may reduce or delay our anticipated revenue from sales of omidubicel. Commercializing omidubicel
ourselves will also require additional capital to fund an increase in workforce as well as operating expenses and capital expenses to
expand our manufacturing facility in Kiryat Gat, Israel. If we decide to enter into licensing arrangements or other forms of collaboration,
the potential for us to generate revenue from royalties on sales of such out-licensed products depends on the performance of our partners.
If our partners do not perform in the manner we expect, fail to fulfill their responsibilities in a timely manner or at all, if the FDA,
EMA or other similar regulatory authorities decline to grant a marketing authorization to them, or provide them with a restricted authorization,
if our agreements with them terminate, they abandon the collaboration or if the quality or accuracy of the clinical data they obtain
is compromised, the clinical development, regulatory approval and commercialization efforts related to our out-licensed product candidates
could be delayed or terminated, and it could become necessary for us to assume the responsibility at our own expense, or seek new partners
on reduced commercial terms, for the clinical development of such product candidates. If we make incorrect determinations regarding the
market potential of our product candidates or misread trends in the pharmaceutical industry, in particular for our lead product candidate,
our business, financial condition and results of operations could be materially adversely affected.
Business
disruptions could seriously harm our future revenue and financial condition and increase costs and expenses.
Our
operations and those of our third-party suppliers and collaborators could be subject to earthquakes, power shortages, telecommunications
failures, water shortages, floods, hurricanes or other extreme weather conditions, medical epidemics, labor disputes, war or other business
interruptions. Although we have limited business interruption insurance policies in place, any interruption could come with high costs
for us, as salaries and loan payments would usually continue. Moreover, any interruption could seriously harm one or more of our research,
development or manufacturing programs, the commercialization of any approved product or our clinical trial operations. For example, the
current COVID-19 pandemic has, at points, caused an interruption in our ongoing and planned clinical trials activities. In addition,
the initial timeline for submission of our BLA for omidubicel was delayed, in part, as a result of the impact of the COVID-19 pandemic
on our operations. Moreover, at the end of 2021 and into 2022, tensions between the United States and Russia escalated when Russia amassed
large numbers of military ground forces and support personnel on the Ukraine-Russia border and, in February 2022, Russia invaded Ukraine.
In response, North Atlantic Treaty Organization, or NATO has deployed additional military forces to Eastern Europe, including to Lithuania,
and the Biden administration implemented certain sanctions against Russia. The invasion of Ukraine and the retaliatory measures that
have been taken, or could be taken in the future, by the United States, NATO, and other countries have created global security concerns
that could result in a regional conflict and otherwise have a lasting impact on regional and global economies, any or all of which could
disrupt our supply chain, adversely affect our ability to conduct ongoing and future clinical trials of our product candidates or commercialize
our products. In addition, the conflict has had significant ramifications on global financial markets, which may adversely impact our
ability to raise capital on favorable terms or at all.
We
may not be successful in our efforts to identify, discover or license additional product candidates.
Although
a substantial amount of our effort will focus on the continued clinical testing, potential approval and commercialization of omidubicel
and GDA-201, the success of our business also depends upon our ability to identify, discover or license additional product candidates,
including within our NK-cell pipeline. Our research programs or licensing efforts may fail to yield additional product candidates for
clinical development for a number of reasons, including but not limited to the following:
| ● | our
research or business development methodology or search criteria and process may be unsuccessful
in identifying potential product candidates; |
| ● | we
may not be able or willing to assemble sufficient resources to acquire or discover additional
product candidates; |
| ● | our
product candidates may not succeed in preclinical or clinical testing; |
| ● | our
product candidates may be shown to have harmful side effects or may have other characteristics
that may make the products unmarketable or unlikely to receive marketing approval; |
| ● | competitors
may develop alternatives that render our product candidates obsolete or less attractive; |
| ● | product
candidates we develop may be covered by third parties’ patents or other exclusive rights; |
| ● | the
market for a product candidate may change during our development program so that such product
may become unprofitable to continue to develop; |
| ● | a
product candidate may not be capable of being produced in commercial quantities at an acceptable
cost, or at all; and |
| ● | a
product candidate may not be accepted as safe and effective by patients, the medical community,
or third-party payers. |
If
any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify,
license, or discover additional product candidates, which would have a material adverse effect on our business and could potentially
cause us to cease operations. Research programs to identify new product candidates require substantial technical, financial and human
resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.
Our
business and operations would suffer in the event of computer system failures, cyber-attacks or a deficiency in our cybersecurity.
Despite
the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to
damage from a variety of causes, including computer viruses, malware, intentional or accidental mistakes or errors by users with authorized
access to our computer systems, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions
over the Internet, or attachments to emails. The risk of a security breach or disruption, particularly through cyber-attacks or cyber
intrusions, including by computer hackers, non-U.S. governments, extra-state actors and cyber terrorists, has generally increased as
the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event were
to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example,
the loss or compromise of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory
approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security
breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information,
we could incur material legal claims and liability, damage to our reputation, and the further development of our drug candidates could
be delayed. Further, any breach, loss or compromise of clinical study participant personal data may also subject us to civil fines and
penalties, including under GDPR and relevant member state law in the European Union, or, potentially, other relevant state and federal
privacy laws in the United States.
In
the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists,
state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. We may be subject to elevated
cybersecurity risk due to Russia’s invasion of Ukraine. High-profile security breaches at other companies and in government agencies
have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyber-attacks
targeting businesses such as ours. Computer hackers and others routinely attempt to breach the security of technology products, services
and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems
or data. We can provide no assurance that our current IT systems, software, or third party services, or any updates or upgrades thereto
will be fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats.
Legislative
or regulatory action in these areas is also evolving, and we may be unable to adapt our IT systems to accommodate these changes. We have
experienced and expect to continue to experience sophisticated attempted cyber-attacks of our IT networks. Although none of these attempted
cyber-attacks has had a material adverse impact on our operations or financial condition, we cannot guarantee that any such incidents
will not have such an impact in the future.
We
incur significant costs as a result of operating as a public company in the United States, and our management is required to devote substantial
time to compliance initiatives.
As
a public company whose ordinary shares are listed in the United States, we are subject to an extensive regulatory regime, requiring us,
among other things, to maintain various internal controls and facilities and to prepare and file periodic and current reports and statements,
including reports on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002. Complying with these requirements is costly and time consuming. In the event that we are unable to demonstrate compliance
with our obligations as a public company in a timely manner, or are unable to produce timely or accurate financial statements, we may
be subject to sanctions or investigations by regulatory authorities, such as the SEC, or The Nasdaq Global Market, and investors may
lose confidence in our operating results and the price of our ordinary shares could decline.
Our
independent registered public accounting firm is not engaged to perform an audit of our internal control over financial reporting, and
as long as we remain an emerging growth company, as such term is defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS
Act, we will be exempt from the requirement to have an independent registered public accounting firm perform such audit. Accordingly,
no such opinion was expressed or will be expressed any during any such period. Once we cease to qualify as an emerging growth company,
our independent registered public accounting firm will be required to attest to our management’s annual assessment of the effectiveness
of our internal controls over financial reporting, which will entail additional costs and expenses.
International
expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing
business outside of the United States or Israel.
Other
than substantial operations in Israel (as further described below), we currently have limited international operations, but our business
strategy incorporates potentially significant international expansion, particularly in anticipation of approval of our product candidates.
We plan to retain sales representatives and third-party distributors and conduct physician, infectious disease specialist, hospital pharmacist
and patient association outreach activities, as well as clinical trials, outside of the United States, EU and Israel. Doing business
internationally involves a number of risks, including but not limited to:
| ● | multiple,
conflicting and changing laws and regulations such as privacy regulations, tax laws, export
and import restrictions, employment laws, regulatory requirements and other governmental
approvals, permits, and licenses; |
| ● | failure
by us to obtain regulatory approvals for the use of our product candidates in various countries; |
| ● | additional
potentially relevant third-party patent or other intellectual property rights; |
| ● | complexities
and difficulties in obtaining protection and enforcing our intellectual property; |
| ● | difficulties
in staffing and managing international operations; |
| ● | complexities
associated with managing multiple payer reimbursement regimes, government payers, price controls
or patient self-pay systems; |
| ● | limits
in our ability to penetrate international markets; |
| ● | financial
risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact
of local and regional financial crises on demand and payment for our products and exposure
to foreign currency exchange rate fluctuations; |
| ● | natural
disasters, political and economic instability, including wars, terrorism, and political unrest,
outbreak of disease, boycotts, curtailment of trade, and other business restrictions; |
| ● | certain
expenses including, among others, expenses for travel, translation and insurance; and |
| ● | regulatory
and compliance risks that relate to maintaining accurate information and control over sales
and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act
its books and records provisions, or its anti-bribery provisions. |
Any
of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.
We
may be subject to extensive environmental, health and safety, and other laws and regulations in multiple jurisdictions.
Our
business involves the controlled use, directly or indirectly through our service providers, of hazardous materials, various biological
compounds and chemicals; therefore, we, our agents and our service providers may be subject to various environmental, health and
safety laws and regulations, including those governing air emissions, water and wastewater discharges, noise emissions, the use, management
and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. The risk of accidental
contamination or injury from these materials cannot be eliminated. If an accident, spill or release of any regulated chemicals or substances
occurs, we could be held liable for resulting damages, including for investigation, remediation and monitoring of the contamination,
including natural resource damages, the costs of which could be substantial. We are also subject to numerous environmental, health and
workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling
of biohazardous materials and chemicals. Although we maintain workers’ compensation insurance to cover the costs and expenses that
may be incurred because of injuries to our employees resulting from the use of these materials, this insurance may not provide adequate
coverage against potential liabilities. Additional or more stringent federal, state, local or non-U.S. laws and regulations affecting
our operations may be adopted in the future. We may incur substantial capital costs and operating expenses and may be required to obtain
consents to comply with any of these or certain other laws or regulations and the terms and conditions of any permits or licenses required
pursuant to such laws and regulations. For instance, we have undergone inspections and obtained approvals from various governmental agencies.
We hold a general business license from the City of Jerusalem that is valid until December 31, 2022.
We
also hold a toxic substances permit from the Ministry of Environmental Protection (the Hazardous Material Division) and a Certificate
of GMP Compliance of a Manufacturer from the Israeli Ministry of Health - Pharmaceutical Administration. Failure to renew any of the
foregoing licenses and permits may harm our on-going and future operations. 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 our business license, or required environmental or other permits or consents.
Our
employees and independent contractors may engage in misconduct or other improper activities, including noncompliance with regulatory
standards and requirements.
We
are exposed to the risk of fraud or other misconduct by our employees and independent contractors. Misconduct by these parties could
include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards
we may establish, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data
accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry
are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices.
These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,
customer incentive programs and other business arrangements. Employee and independent contractor misconduct could also involve the improper
use of information obtained in the course of clinical trials, including individually identifiable information, creating fraudulent data
in our preclinical studies or clinical trials or illegal misappropriation of product candidates. If our operations are found to be in
violation of any of these laws, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages,
fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or
jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, disgorgement, imprisonment, contractual
damages, reputational harm, diminished profits and the curtailment or restructuring of our operations. It is not always possible to identify
and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be
effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or
lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person
or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and
we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business,
including the imposition of significant fines or other sanctions.
Under
current Israeli law, we may not be able to enforce employees’ covenants not to compete and therefore may be unable to prevent our
competitors from benefiting from the expertise of some of our former employees.
We
generally enter into non-competition agreements with our key employees, in most cases within the framework of their employment agreements.
These
agreements prohibit our key employees, if they cease working for us, from competing directly with us or working for our competitors for
a limited period. Under applicable Israeli law, we may be unable to enforce these agreements or any part thereof. If we cannot enforce
our noncompetition agreements with our employees, then we may be unable to prevent our competitors from benefiting from the expertise
of our former employees, which could materially adversely affect our business, results of operations and ability to capitalize on our
proprietary information.
We
are vulnerable to interest rate risk with respect to the grants received from the Israel Innovation Authority
Since
our incorporation, we have received grants from the IIA relating to various projects. We were members of Bereshit Consortium, sponsored
by IIA in which certain of our technologies were developed, such program does not require payments of royalties to the IIA, but all other
restrictions under the Innovation Law, such as local manufacturing obligations and know-how transfer limitations, as further detailed
hereunder, are applicable to the know how developed by us with the funding received in such consortium program. No royalties have been
paid to the IIA in respect of any grant. Our total outstanding obligation to the IIA, including the interest accrued through March 31,
2022, amounts to approximately $44.9 million.
The
United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate, or LIBOR, announced that it will
no longer persuade or require banks to submit rates for LIBOR after January 1, 2022. The grants received from the IIA bear an annual
interest rate based on the 12-month LIBOR. Accordingly, there is considerable uncertainty regarding the interest accrued to the IIA grants.
While it is not currently possible to determine precisely whether, or to what extent, the withdrawal and replacement of LIBOR would affect
us, the implementation of alternative benchmark rates to LIBOR may increase our financial liabilities to the IIA. Management continues
to monitor the status and discussions regarding LIBOR. We are not yet able to reasonably estimate the expected impact. To date, the IIA
has not issued any clarification regarding an alternative interest to be used instead of the LIBOR.
Risks
Related to Commercialization of Our Product Candidates
We
do not have experience producing our product candidates at commercial levels or operating a cGMP manufacturing facility and may not obtain
the necessary regulatory approvals or produce our product candidates at the quality, quantities, locations and timing needed to support
commercialization.
The
Israeli Ministry of Health issued a GMP certificate for our manufacturing facility at Kiryat Gat, Israel in July 2021 and we are working
to establish cGMP compliance under the FDA’s regulations. We do not have an extensive number of employees with the experience or
ability to manufacture our product candidates at commercial levels. We may encounter technical or scientific issues related to manufacturing
or development that we may be unable to resolve in a timely manner or with available funds. We also have not completed all of the characterization
and validation activities necessary for commercialization and regulatory approval of omidubicel. If we do not conduct all such necessary
activities in the second quarter of 2022, our commercialization efforts will be delayed.
We
also may encounter problems hiring and retaining the experienced specialist scientific, quality control and manufacturing personnel needed
to operate our manufacturing process, which could result in delays in our production or difficulties in maintaining compliance with applicable
regulatory requirements. Any problems in our manufacturing process or facilities could make us a less attractive collaborator for potential
partners, including larger pharmaceutical companies, which could limit our access to additional attractive development programs. Problems
in our manufacturing process or facilities also could restrict our ability to meet market demand for our product candidates.
If
the market opportunities for our product candidates are smaller than we believe they are, our revenue may be adversely affected, and
our business may suffer.
Our
projections of the number of people who have the potential to benefit from treatment with our product candidates are based on our beliefs
and estimates. These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics and
other market research, and may prove to be incorrect. Our target patient populations may be lower than expected, may not be otherwise
amenable to treatment with our product candidates or patients may become increasingly difficult to identify and access, all of which
would adversely affect our business, financial condition, results of operations and prospects. In addition, medical advances may reduce
our target markets. For example, new processes and advances in oral antibiotic medications or new operative procedures may limit the
need for localized delivery systems like our product candidates. Further, advances in treatments in the fields in which we are conducting
research programs that reduce side effects and have better deliverability to target organs may limit the market for our future product
candidates.
We
currently have limited marketing and sales organization. If we are unable to establish adequate sales and marketing capabilities to support
the potential commercial launch of omidubicel or enter into agreements with third parties to market and sell omidubicel, if approved,
we may be unable to generate any product revenue.
Although
we have a chief commercial officer to lead our efforts to commercialize omidubicel should it receive regulatory approval and we decide
to commercialize omidubicel ourselves, we currently have a limited sales and marketing organization, and we have limited experience selling
and marketing our product candidates. To successfully commercialize any product candidates that may result from our development programs,
we will need to develop these capabilities, either on our own or with others. If omidubicel or any other product candidate receives regulatory
approval, we may establish a sales and marketing organization independently or by utilizing experienced third parties with technical
expertise and supporting distribution capabilities to commercialize our product candidates in major markets, all of which will be expensive,
difficult and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities
or identification of appropriate strategic partnering would adversely impact our ability to commercialize our product candidates.
Further,
our initial estimate of the size of the required sales force may be materially more or less than the size of the sales force actually
required to effectively commercialize our product candidates. As such, we may be required to hire sales representatives and third-party
partners to adequately support the commercialization of our product candidates, or we may incur excess costs if we hire more sales representatives
than necessary. With respect to certain geographical markets, we may enter into collaborations with other entities to utilize their local
marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. We also may
enter into collaborations with large pharmaceutical companies to develop and commercialize product candidates. If our future collaborators
do not commit sufficient resources to develop and commercialize our future products, if any, and we are unable to develop the necessary
marketing capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We may compete with
companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a
third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
Our
efforts to educate the medical community, including physicians, hospital pharmacists and infectious disease specialists, and third-party
payers on the benefits of our product candidates may require significant resources and may never be successful. If any of our product
candidates are approved, but fail to achieve market acceptance among physicians, patients or third-party payers, we will not be able
to generate significant revenue from such product, which could have a material adverse effect on our business, financial condition, results
of operations and prospects.
Delays
in establishing and obtaining regulatory approval of our manufacturing process and facility or disruptions in our manufacturing process
may delay or disrupt our product development and commercialization efforts.
We
are working to establish our own cGMP compliant manufacturing facility at Kiryat Gat, Israel. We have completed construction on the facility,
and we are now working to qualify our manufacturing process and facility with the FDA’s cGMP regulations. Before we can begin to
commercially manufacture omidubicel or any product candidate in our facility, we must pass a pre-approval inspection of our manufacturing
facility by the FDA before omidubicel or any product candidate can obtain marketing approval. A manufacturing authorization must also
be obtained from the appropriate regulatory authorities in the European Union, Israel and worldwide. Such manufacturing authorizations
must also be obtained for any third-party manufacturing facility and process. In order to obtain approval, we will need to ensure that
all our processes, methods and equipment are compliant with cGMP, and perform extensive audits of vendors, contract laboratories and
suppliers. If any of our vendors, contract laboratories or suppliers is found to be out of compliance with cGMP, we may experience delays
or disruptions in manufacturing while we work with these third parties to remedy the violation or while we work to identify suitable
replacement vendors. If we do not demonstrate to the satisfaction of the applicable regulator that our manufacturing facilities, or those
of our contract manufacturers, are in compliance with applicable requirements, we may be materially delayed in the development of our
product candidates, which would materially harm our business. The cGMP requirements govern quality control of the manufacturing process
and documentation policies and procedures. In complying with cGMP, we will be obligated to expend time, money and effort in production,
record keeping and quality control to assure that the product meets applicable specifications and other requirements. If we fail to comply
with these requirements, we would be subject to possible regulatory action and may not be permitted to sell any product candidate that
we may develop. While we continue to work to establish the cGMP compliance of our manufacturing facility at Kiryat Gat in Israel, we
do not have another long-term partner for the manufacturing of omidubicel.
Qualifying
our manufacturing facility is subject to other delays, including because of COVID-19 related shortages of labor and governmentally imposed
shut-downs. Unexpected problems in the qualification of our manufacturing facility may adversely impact our ability to provide supply
for the development and commercialization of omidubicel as well as our financial condition.
If
we receive marketing approval for our product candidates, sales will be limited unless the product achieves broad market acceptance by
physicians, patients, third-party payers, hospital pharmacists and others in the medical community.
The
commercial success of our product candidates will depend upon the acceptance of the product by the medical community, including physicians,
patients, healthcare payers and hospital personnel, including transplant teams and pharmacists. The degree of market acceptance of any
approved product will depend on a number of factors, including:
| ● | the
demonstration of clinical safety and efficacy of our product candidates in clinical trials; |
| ● | the
efficacy, potential and perceived advantages of our product candidates over alternative treatments; |
| ● | the
prevalence and severity of any adverse side effects; |
| ● | product
labeling or product insert requirements of the FDA or other regulatory authorities, including
any limitations or warnings contained in a product’s approved labeling; |
| ● | distribution
and use restrictions imposed by the FDA or agreed to by us as part of a mandatory or voluntary
risk management plan; |
| ● | our
ability to obtain third-party payer coverage and adequate reimbursement for our products; |
| ● | the
willingness of patients to pay for drugs out of pocket in the absence of third-party coverage; |
| ● | the
demonstration of the effectiveness of our product candidates in reducing the cost of treatment; |
| ● | the
strength of marketing and distribution support; |
| ● | the
timing of market introduction of competitive products; |
| ● | the
availability of products and their ability to meet market demand; and |
| ● | publicity
concerning our product candidates or competing products and treatments. |
There
are a number of alternatives to our product candidates, including stem cell transplantation using cells from matched related donors,
matched unrelated donors, haploidentical donors or unmodified umbilical cord blood. If our product candidates are approved but do not
achieve an adequate level of acceptance by physicians, patients, healthcare payers and hospital personnel, including transplant teams
and pharmacists, we may not generate sufficient revenue from the product, and we may not become or remain profitable. In addition, our
efforts to educate the medical community and third-party payers on the benefits of our product candidates may require significant resources
and may never be successful.
It
may be difficult for us to profitably sell our product candidates if coverage and reimbursement for these products is limited by government
authorities and/or third-party payer policies.
Significant
uncertainty exists as to the coverage and reimbursement status of any 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 extent to which third-party payers provide coverage, and establish adequate reimbursement levels, for such
products. In the United States, third-party payers include federal and state healthcare programs, private managed care providers, health
insurers and other organizations.
The
process for determining whether a third-party payer will provide coverage for a product may be separate from the process for setting
the price of a product or for establishing the reimbursement rate that such a payer will pay for the product. Third-party payers may
limit coverage to specific products on an approved list, or also known as a formulary, which might not include all of the FDA-approved
products for a particular indication.
Third-party
payers are increasingly challenging the price, examining the medical necessity and reviewing the cost-effectiveness of medical products,
therapies and services, in addition to questioning their safety and efficacy.
We
may need to conduct expensive pharmaco-economic 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.
Payer’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further,
the determination of one payer to provide coverage for a product does not assure that other payers will also provide such coverage for
the product. 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.
Different
pricing and reimbursement schemes exist in other countries. In the EU, governments influence the price of pharmaceutical products through
their pricing and reimbursement rules and control of national health care systems that in some countries subsidize a large part of the
cost of those products for 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 then available therapies.
Other EU member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure
on health care costs 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 of our product candidates for which we receive regulatory approval for commercial sale may suffer if the government
and third-party payers 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 healthcare 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.
In
addition to any healthcare reform measures that may affect reimbursement, market acceptance and sales of our product candidates, if approved,
will depend on, in part, the extent to which the procedures utilizing our product candidates, performed by health care providers, will
be covered by third-party payers, such as government health care programs, commercial insurance and managed care organizations. In the
event health care providers and patients accept our product candidates as medically useful, cost effective and safe, there is uncertainty
on how exactly our products will be reimbursed. Third-party payers determine the extent to which new products will be covered as a benefit
under their plans and the level of reimbursement for any covered product or procedure that may utilize a covered product. Coverage will
be dependent on FDA-approval and other factors; reimbursement may vary across payers which is a risk for our product candidates.
Establishment of reimbursement guidelines for products is difficult to predict at this time what third-party payers will decide with
respect to the coverage and reimbursement for our product candidates.
A
primary trend in the U.S. healthcare industry and elsewhere has been cost containment, including price controls, restrictions on coverage
and reimbursement and requirements for substitution of less expensive products. Third-party payers decide which products and procedures
they will pay for and establish reimbursement and co-payment levels. Government and other third-party payers are increasingly challenging
the prices charged for health care products and procedures, examining the cost effectiveness of procedures, and the products used in
such procedures, in addition to their safety and efficacy, and payers limit coverage and reimbursement to the appropriate patient per
a products label. We cannot be sure that coverage will be available for our product candidates, if approved, or, if coverage is available,
the level of direct or indirect reimbursement.
We
expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare,
the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcare
costs in general, particularly prescription drugs and other treatments, has become increasingly intense. As a result, high barriers exist
to the successful commercialization of new products. Further, the adoption and implementation of any future governmental cost containment
or other health reform initiative may result in additional downward pressure on the price that we may receive for any approved product.
Reimbursement
by a third-party payer may depend upon a number of factors including the third-party payer’s determination that use of a product
is:
| ● | a
covered benefit or part of a covered benefit under its health plan; |
| ● | safe,
effective and medically necessary; |
| ● | appropriate
for the specific patient; |
| ● | neither
experimental nor investigational. |
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the
principal decisions about reimbursement are typically made by The Centers for Medicare & Medicaid Services, or CMS, an agency within
the U.S. Department of Health and Human Services, as CMS decides whether and to what extent products, and the procedures that utilize
such products, will be covered and reimbursed under Medicare. Private payers may follow CMS, but have their own methods and approval
processes for determining reimbursement for new products and the procedures that utilize such products. It is difficult to predict what
CMS as well as other payers will decide with respect to reimbursement for fundamentally novel products such as ours, as there is no body
of established practices and precedents for these new products.
In
addition, under current Medicare hospital inpatient reimbursement policies CMS offers a process whereby manufacturers may apply for the
temporary New Technology Add-on Payment or NTAP program for a new medical technology when the applicable Diagnosis-Related Group, or
DRG, based inpatient prospective payment rate is inadequate to cover the cost of a new product. As part of our commercialization efforts,
we are evaluating the potential application for omidubicel to be eligible under the NTAP program. To obtain add-on payment, a technology
must be considered “new,” represent an advance in medical technology that substantially improves, relative to technologies
previously available, the diagnosis or treatment of Medicare beneficiaries, and data reflecting the cost of the new technology must not
yet be available in the data used to recalibrate the DRGs and the sponsor much show that admissions involving the furnishing of the technology
exceed cost thresholds established by CMS for each applicable DRG. If an application is approved, new technology add-on payments are
made to hospitals for no less than two years and no more than three years. We must demonstrate the safety and effectiveness of our technology
to the FDA in addition to meeting CMS’s requirements for the NTAP program before add-on payments can be made, and we cannot assure
that CMS will agree to provide such incremental payments for omidubicel or any of our other product candidates.
Obtaining
coverage and reimbursement approval for a product from a government or other third-party payer is a time-consuming and costly process
that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to the payer.
We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. Further, no uniform policy
requirement for coverage and reimbursement exists among third-party payers in the United States. Similarly, health care providers enter
into participation agreements with third-party payers wherein reimbursement rates are negotiated. Therefore, coverage and reimbursement
can differ significantly from payer to payer and health care provider to health care provider. As a result, we cannot be sure that coverage
or adequate reimbursement will be available for our product candidates, if approved or procedures utilizing such products. Also, we cannot
be sure that reimbursement amounts will not reduce the demand for, or the price of, our future products. If reimbursement is not available,
or is available only to limited levels, we may not be able to commercialize our product candidates, or achieve profitably at all, even
if approved.
Our
business entails a significant risk of product liability and our ability to obtain sufficient insurance coverage could have a material
effect on our business, financial condition, results of operations or prospects.
Our
business exposes us to significant product liability risks inherent in the development, testing, manufacturing and marketing of therapeutic
treatments. Product liability claims could delay or prevent completion of our development programs. If we succeed in marketing products,
such claims could result in an FDA investigation of the safety and effectiveness of our products, our manufacturing processes and facilities
or our marketing programs and potentially a recall of our products or more serious enforcement action, limitations on the approved indications
for which they may be used or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims may
also result in decreased demand for our products, injury to our reputation, costs to defend the related litigation, a diversion of management’s
time and our resources, substantial monetary awards to trial participants or patients and a decline in our share price. We do not currently
have product liability insurance and do not anticipate obtaining product liability insurance until such time as we have received FDA
or other comparable authority approval for a product and there is a product that is being provided to patients outside of clinical trials.
Any insurance we have or may obtain may not provide sufficient coverage against potential liabilities. Furthermore, product liability
insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect
us against losses caused by product liability claims that could have a material adverse effect on our business.
Risks
Related to Ownership of our Ordinary Shares
Our
executive officers, directors and principal shareholders maintain the ability to exert significant control over matters submitted to
our shareholders for approval.
Certain
of our executive officers, directors and holders of more than 5% of our voting securities beneficially owned as of March 31, 2022 shares
that represent approximately 38.8% of our share capital. As a result, if these shareholders were to act together, they would be able
to control all matters submitted to our shareholders for approval, as well as our management and affairs. For example, these persons,
if they act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially
all our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other shareholders
may desire or result in management of our company that our public shareholders disagree with.
The
market price of our ordinary shares may fluctuate significantly, which could result in substantial losses by our investors.
The
stock market in general, and the market for pharmaceutical companies in particular, has experienced extreme volatility that has often
been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your
ordinary shares at or above the initial public offering price. The following factors, in addition to other risk factors described in
this section, may have a significant impact on the market price of our ordinary shares:
| ● | inability
to obtain the approvals necessary to commence marketing of omidubicel or initiate further
clinical trials of GDA-201; |
| ● | unsatisfactory
results of clinical trials; |
| ● | announcements
of regulatory approvals or the failure to obtain them, or specific label indications or patient
populations for their use, or changes or delays in the regulatory review process; |
| ● | announcements
of therapeutic innovations or new products by us or our competitors; |
| ● | adverse
actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply
chain or sales and marketing activities; |
| ● | changes
or developments in laws or regulations, and payer reimbursement requirements applicable to
any candidate product in any of our platforms; |
| ● | any
adverse changes to our relationship with manufacturers or suppliers, especially manufacturers
of candidate products; |
| ● | any
intellectual property infringement, misappropriation or other actions in which we may become
involved; |
| ● | announcements
concerning our competitors or the pharmaceutical industry in general; |
| ● | achievement
of expected product sales and profitability or our failure to meet expectations; |
| ● | our
commencement of, or involvement in, litigation; |
| ● | any
changes in our board of directors or management; and |
| ● | the
other factors described in this “Risk Factors” section. |
If
our quarterly operating results fall below the expectations of investors or securities analysts, the price of our ordinary shares could
decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our shares to
fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not
be relied upon as an indication of our future performance.
Further,
the stock market in general, the Nasdaq Global Market and the market for biotechnology companies in particular, have experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like ours,
including due to coordinate buying and selling activities and market manipulation. Broad market and industry factors may negatively affect
the market price of our ordinary shares regardless of our actual operating performance. In addition, a systemic decline in the financial
markets and related factors beyond our control may cause our share price to decline rapidly and unexpectedly. Price volatility of our
ordinary shares might be worse if the trading volume of our ordinary shares is low. In the past, following periods of market volatility,
shareholders have often instituted securities class action litigation. If we were involved in securities litigation, it could have a
substantial cost and divert resources and attention of management from our business, even if we are successful.
Sales
of a substantial number of shares of our ordinary shares in the public market, 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.
We are unable to predict the effect that sales may have on the prevailing market price of our ordinary shares. In addition, we have registered
all ordinary shares that we may issue under our equity compensation plans, and, as such, these shares can be freely sold in the public
market upon issuance.
Moreover,
the liquidity of our ordinary shares may be limited, not only in terms of the number of ordinary shares that can be bought and sold at
a given price, but by potential delays in the timing of executing transactions in our ordinary shares and a reduction in security analyst
and media’s coverage of our company, if any. These factors may result in lower prices for our ordinary shares than might otherwise
be obtained and could also result in a larger spread between the bid and ask prices for our ordinary shares. In addition, without a large
float, our ordinary shares will be less liquid than the stock of companies with broader public ownership and, as a result, the trading
prices of our ordinary shares may be more volatile. In the absence of an active public trading market, an investor may be unable to liquidate
its investment in our ordinary shares. Trading of a relatively small volume of our ordinary shares may have a greater impact on the trading
price of our ordinary shares than would be the case if our public float were larger. We cannot predict the prices at which our ordinary
shares will trade in the future.
If
we are or become classified as a passive foreign investment company, our U.S. shareholders may suffer adverse tax consequences as a result.
Generally,
for any taxable year, if 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, including cash, we would be characterized as
a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. For purposes of these tests, passive income includes
dividends, interest gains from commodities and securities transactions, the excess of gains over losses from the disposition of assets
which produce passive income (including amounts derived by reason of the temporary investment of funds raised in offerings of our shares)
and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct
of a trade or business. 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 by individuals who are U.S. holders, and having interest charges apply to
distributions by us and gains from the sales of our shares.
Our
status as a PFIC will depend on the nature and composition of our income and the nature, composition and value of our assets (which may
be determined based on the fair market value of each asset, with the value of goodwill and going concern value determined in large part
by reference to the market value of our common shares, which may be volatile). Based upon the value of our assets, including any goodwill,
and the nature and composition of our income and assets, we do not believe that we were classified as a PFIC for the taxable year ended
December 31, 2021. Because the determination of whether we are a PFIC for any taxable year is a factual determination made annually after
the end of each taxable year, there can be no assurance that we will not be considered a PFIC in any taxable year. Accordingly, our U.S.
counsel expresses no opinion with respect to our PFIC status for our taxable year ended December 31, 2021, and also expresses no opinion
with regard to our expectations regarding our PFIC status in the future.
The
tax consequences that would apply if we are classified as a PFIC would also be different from those described above if a U.S. shareholder
were able to make a valid qualified electing fund, or QEF, election. At this time, we do not expect to provide U.S. shareholders with
the information necessary for a U.S. shareholder to make a QEF election. Prospective investors should assume that a QEF election will
not be available.
If
a United States person is treated as owning at least 10% of our shares, such holder may be subject to adverse U.S. federal income tax
consequences.
If
a United States person is treated as owning (directly, indirectly or constructively through the application of attribution rules) at
least 10% of the value or voting power of our shares, such person may be treated as a “United States shareholder” with respect
to each “controlled foreign corporation” in our group (if any). Because our group includes one or more U.S. subsidiaries,
certain of our current or future non-U.S. subsidiaries could be treated as controlled foreign corporations (regardless of whether we
are or are not treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required
to annually report and include in its U.S. taxable income its pro rata share of the controlled foreign corporation’s “Subpart
F income”, “global intangible low-taxed income” and investments in U.S. property, whether or not such controlled foreign
corporation makes any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation
generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that
is a U.S. corporation. A failure to comply with these reporting obligations may subject you to significant monetary penalties and may
prevent the statute of limitations with respect to your U.S. federal income tax return for the year for which reporting was due from
starting. We cannot provide any assurances that we will assist investors in determining whether any of our current or future non-U.S.
subsidiaries are treated as a controlled foreign corporation or whether such investor is treated as a United States shareholder with
respect to any of such controlled foreign corporations or furnish to any United States shareholders information that may be necessary
to comply with the aforementioned reporting and tax paying obligations. A United States investor should consult their own advisors regarding
the potential application of these rules to its investment in the shares.
The
intended tax effects of our corporate structure and intercompany arrangements depend on the application of the tax laws of various jurisdictions
and on how we operate our business.
Significant
judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business,
there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rates
could be adversely affected by changes in foreign currency exchange rates or by changes in the relevant tax, accounting and other laws,
regulations, principles and interpretations. As we intend to operate in numerous countries and taxing jurisdictions, the application
of tax laws can be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not
uncommon for taxing authorities in different countries to have conflicting views, for instance, with respect to, among other things,
the manner in which the arm’s length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual
property.
If
tax authorities in any of the countries in which we operate were to successfully challenge our transfer prices as not reflecting arms’
length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect these revised transfer
prices, which could result in a higher tax liability to us. In addition, if the country from which the income is reallocated does not
agree with the reallocation, both countries could tax the same income, potentially resulting in double taxation. If tax authorities were
to allocate income to a higher tax jurisdiction, subject our income to double taxation or assess interest and penalties, it would increase
our consolidated tax liability, which could adversely affect our financial condition, results of operations and cash flows. Similarly,
a tax authority could assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable connection,
often referred to as a “permanent establishment” under international tax treaties, and such an assertion, if successful could
increase our expected tax liability in one or more jurisdictions.
Future
changes to tax laws could materially adversely affect our company and reduce net return to our shareholders
Tax
laws are dynamic and subject to change as new laws are passed and interpretations of the law are issued or applied. Such changes may
include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context
of withholding tax) dividends paid. We are unable to predict what tax reform may be proposed or enacted in the future or what effect
such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies
or practices, could affect our financial position and overall or effective tax rates in the future in countries where we have operations,
reduce post-tax returns to our shareholder, and increase the complexity, burden and cost of tax compliance.
The
tax benefits 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.
Some
of our operations in Israel may entitle us to certain tax benefits under the Law for the Encouragement of Capital Investments, 5719-1959,
or the Investment Law, once we begin to produce revenue. If we do not meet the requirements for maintaining these benefits, they may
be reduced or cancelled and the relevant operations would be subject to Israeli corporate tax at the standard rate, which is set at 23%
in 2021 and thereafter. In addition to being subject to the standard corporate tax rate, we could be required to refund any tax benefits
that we will receive, plus interest and penalties thereon. Even if we continue to meet the relevant requirements, the tax benefits that
our current “Preferred Enterprise” is entitled to may not be continued in the future at their current levels or at all. If
these tax benefits were reduced or eliminated, the amount of taxes that we will pay would likely increase, as all our operations would
consequently be subject to corporate tax at the standard rate, which could adversely affect our results of operations. Additionally,
if we increase our activities outside of Israel, for example, by way of acquisitions, our increased activities may not be eligible for
inclusion in Israeli tax benefits programs.
We
have never paid cash dividends on our share capital, and we do not anticipate paying any cash dividends in the foreseeable future.
We
have never declared or paid cash dividends on our ordinary shares. We currently anticipate that we will retain future earnings for the
development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable
future. As a result, capital appreciation, if any, of our ordinary shares will be investors’ sole source of gain for the foreseeable
future. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding
taxes.
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 ordinary shares, our share price and
trading volume could be negatively impacted.
The
trading market for our ordinary shares is influenced by the research and reports that industry or securities analysts publish about us,
our business, our market or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that
analysts will continue to cover us or provide favorable coverage. If any of the analysts who 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 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 cause our share price or trading volume to decline.
We
are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our ordinary
shares less attractive to investors.
We
are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements
that are applicable to other public companies that are not emerging growth companies. For as long as we remain an emerging growth company,
we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies
that are not “emerging growth companies.” These exemptions include:
| ● | being
permitted to provide only two years of audited financial statements, in addition to any required
unaudited condensed consolidated interim financial statements, with correspondingly; |
| ● | not
being required to comply with the auditor attestation requirements in the assessment of our
internal control over financial reporting; |
| ● | not
being required to comply with any requirement that may be adopted by the Public Company Accounting
Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s
report providing additional information about the audit and the financial statements; |
| ● | reduced
disclosure obligations regarding executive compensation; and |
| ● | exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not previously approved. |
We
may take advantage of these provisions until such time that we are no longer an emerging growth company. We will cease to be an emerging
growth company upon the earlier to occur of: (1) the last day of our fiscal year following the fifth anniversary of the date of our October
2018 initial public offering; (2) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more;
(2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (4) the date
on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all
of these reduced burdens, and therefore the information that we provide holders of our ordinary shares may be different than the information
you might receive from other public companies in which you hold equity. In addition, Section 107 of the JOBS Act also provides that an
emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable
to public companies. However, given that we currently report and expect to continue to report under IFRS as issued by the IASB, the extended
transition period available to emerging growth companies that report under GAAP is inapplicable to us.
When
we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed
above. We cannot predict if investors will find our ordinary shares less attractive as a result of our reliance on exemptions under the
JOBS Act. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary
shares and our share price may be more volatile.
We
must meet the Nasdaq Global Market’s continued listing requirements and comply with the other Nasdaq rules, or we may risk delisting.
Delisting could negatively affect the price of our ordinary shares, which could make it more difficult for us to sell securities in a
financing and for you to sell your ordinary shares.
We
are required to meet the continued listing requirements of the Nasdaq Global Market and comply with the other Nasdaq rules, including
those regarding director independence and independent committee requirements, minimum shareholders’ equity, minimum share price
and certain other corporate governance requirements. If we do not meet these continued listing requirements, our ordinary shares could
be delisted. Delisting of our ordinary shares from the Nasdaq Global Market would cause us to pursue eligibility for trading on other
markets or exchanges, or on the pink sheets. In such case, our shareholders’ ability to trade, or obtain quotations of the market
value of, our ordinary shares would be severely limited because of lower trading volumes and transaction delays. These factors could
contribute to lower prices and larger spreads in the bid and ask prices for our securities. There can be no assurance that our ordinary
shares, if delisted from the Nasdaq Global Market in the future, would be listed on a national securities exchange or quoted on a national
quotation service, the OTCBB or the pink sheets. Delisting from the Nasdaq Global Market, or even the issuance of a notice of potential
delisting, would also result in negative publicity, make it more difficult for us to raise additional capital, adversely affect the market
liquidity of our ordinary shares, reduce security analysts’ coverage of us and diminish investor, supplier and employee confidence.
In addition, as a consequence of any such delisting, our share price could be negatively affected and our shareholders would likely find
it more difficult to sell, or to obtain accurate quotations as to the prices of, our ordinary shares.
Risks
Related to Israeli Law and Our Operations in Israel
Significant
parts of our operations are located in Israel and, therefore, our results may be adversely affected by political, economic and military
conditions in Israel.
We
have substantial operations in Israel, including our research and development facilities and our manufacturing facilities, that may be
influenced by regional instability and extreme military tension. Accordingly, political, economic and military conditions in Israel and
the surrounding region could directly affect our business. Any armed conflicts, political instability, terrorism, cyberattacks or any
other hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could
affect adversely our operations.
Ongoing
and revived hostilities or other Israeli political or economic factors, could prevent or delay shipments of our products, harm our operations
and product development and cause any future sales to decrease. In the event that hostilities 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 operations may be materially adverse
affected.
Our
operations may be disrupted as a result of the obligation of management or key personnel or consultants to perform military service.
Many
Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they
reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military
conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups
of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted
by such call-ups, which may include the call-up of members of our management. Such disruption could materially adversely affect our business,
financial condition and results of operations.
Because
we incur a portion of our expenses in currencies other than the U.S. dollar, our financial condition and results of operations may be
harmed by currency fluctuations and inflation.
While
our reporting and functional currency is the U.S. dollar, we pay a meaningful portion of our expenses in NIS, Euros and other currencies.
All of the salaries of our employees, our general and administrative expenses (including rent for our real property facility in Israel),
and the fees that we pay to certain of our partners, are denominated in NIS. Certain of our suppliers are located in Europe and are paid
in Euros. As a result, we are exposed to the currency fluctuation risks relating to the denomination of our future expenses in U.S. dollars.
More specifically, if the U.S. dollar becomes devalued against the NIS or the Euro, our NIS- or Euro- denominated expenses will be greater
than anticipated when reported in U.S. dollars. Inflation in Israel compounds the adverse impact of such devaluation by further increasing
the amount of our Israeli expenses. Israeli inflation may also (in the future) outweigh the positive effect of any appreciation of the
U.S. dollar relative to the NIS, if, and to the extent that, it outpaces such appreciation or precedes such appreciation. The Israeli
rate of inflation did not have a material adverse effect on our financial condition during 2020 or 2021. Given our general lack of currency
hedging arrangements to protect us from fluctuations in the exchange rates of the NIS or the Euro and other non-U.S. currencies in relation
to the U.S. dollar (and/or from inflation of such non-U.S. currencies), we may be exposed to material adverse effects from such movements.
We cannot predict any future trends in the rate of inflation in Israel or in Europe or the rate of devaluation (if any) of the U.S. dollar
against the NIS or the Euro.
Provisions
of Israeli law and our amended and restated 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 amended and restated 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, our amended and restated articles of association provide that our directors are
elected on a staggered basis, such that a potential acquirer cannot readily replace our entire board of directors at a single annual
general shareholder meeting. In addition, Israeli corporate law regulates mergers and requires that a tender offer be affected when more
than a specified percentage of shares in a company are purchased.
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, Israeli
tax law may impose 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.
Furthermore,
under the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984 (formerly known as the Law
for the Encouragement of Research and Development in Industry 5744-1984), and the regulations and guidelines promulgated thereunder,
or the Innovation Law, to which we are subject due to our receipt of grants from the Israel Innovation Authority, or IIA (formerly known
as the Office of the Chief Scientist of the Ministry of Economy and Industry, or the OCS), a recipient of IIA grants such as us must
report to IIA regarding any change of control of our company or regarding any change in the holding of the means of control of our company
which results in any non- Israeli citizen or resident becoming an “interested party”, as defined in the Innovation Law, in
our company, and in the latter event, the non-Israeli citizen or resident will be required to execute an undertaking in favor of IIA,
in a form prescribed by IIA, acknowledging the restrictions imposed by such law and agreeing to abide by its terms.
Investors
may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities
laws against us, or our executive officers and directors or asserting U.S. securities laws claims in Israel.
Not
all our directors are residents of the United States and most our assets are located outside the United States. Service of process upon
us or our non-U.S. resident directors and enforcement of judgments obtained in the United States against us or our non-U.S. directors
may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may be difficult to
assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions
of U.S. federal securities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or
our non-U.S. directors because Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court
agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable,
the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure
will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israeli courts
might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our non-U.S.
directors.
Moreover,
among other reasons, including but not limited to, fraud or absence of due process, or the existence of a judgment which is at variance
with another judgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court
or tribunal in Israel, an Israeli court will not enforce a 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) or if its enforcement is likely to prejudice the sovereignty
or security of the State of Israel.
Your
liabilities and responsibilities as a shareholder will be governed by Israeli law, which differs in some material respects from the U.S.
law that governs the liabilities and responsibilities of shareholders of U.S. corporations.
We
are incorporated under Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our amended and
restated articles of association and the Israeli Companies Law 5759-1999, or Companies Law. These rights and responsibilities differ
in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, pursuant to the Companies
Law each shareholder of an Israeli company has to act in good faith in exercising his or her rights and fulfilling his or her obligations
toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among other things,
in voting at the general meeting of shareholders and class meetings, on amendments to a company’s articles of association, increases
in a company’s authorized share capital, mergers, and transactions requiring shareholders’ approval under the Companies Law.
In addition, a controlling shareholder of an Israeli company or a shareholder who knows that it possesses the power to determine the
outcome of a shareholder vote or who has the power to appoint or prevent the appointment of a director or officer in the company, or
has other powers toward the company, has a duty of fairness toward the company. However, Israeli law does not define the substance of
this duty of fairness.
Because
Israeli corporate law has undergone extensive revision in recent years, there is little case law available to assist in understanding
the implications of these provisions that govern shareholder behavior.