Commission File No. 001-36203
Can-Fite BioPharma Ltd.
(Name, Telephone, E-mail and/or Facsimile
number and Address of Company Contact Person)
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act:
None
* Ordinary shares not for trading, but only in
connection with the registration of the American Depositary Shares.
Indicate the number of outstanding
shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report (December
31, 2021): 815,746,293 ordinary shares are outstanding.
Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒
If this report is an annual
or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such a shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No
☐
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes ☒ No ☐
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition
of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
If an emerging growth
company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected
not to use the extended transition period for complying with any new or revised financial accounting standards† provided
pursuant to Section 13(a) of the Exchange Act ☐
Ϯ The term “new
or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting
Standards Codification after April 5, 2012.
Indicate by check mark whether
the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☐
Indicate by check mark which
basis of accounting the registrant has used to prepare the financial statements included in this filing:
If “Other” has
been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow. Item 17 ☐ Item 18 ☐
If this is an annual report,
indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
Can-Fite is a clinical-stage
biopharmaceutical company that develops orally bioavailable small molecule therapeutic products for the treatment of cancer, liver and
inflammatory diseases and erectile dysfunction. We are also developing specific formulations of cannabis components for the treatment
of cancer, inflammatory, autoimmune, and metabolic diseases. Our platform technology utilizes the Gi protein associated A3 adenosine receptor,
or A3AR, as a therapeutic target. A3AR is highly expressed in pathological body cells such as inflammatory and cancer cells, and has a
low expression in normal cells, suggesting that the receptor could be a specific target for pharmacological intervention. Our pipeline
of drug candidates are synthetic, highly specific agonists and allosteric modulators targeting the A3AR.
Our ordinary shares have been
trading on the Tel Aviv Stock Exchange, or TASE, under the symbol “CFBI” since October 2005. On October 2, 2012, our ADSs
began trading over the counter, or OTC, in the United States under the symbol “CANFY” and on November 19, 2013, our ADSs began
trading on the NYSE American under the symbol “CANF.”
Unless otherwise indicated, all references to the “Company,”
“we,” “our” and “Can-Fite” refer to Can-Fite BioPharma Ltd. and its consolidated subsidiary. References
to “ordinary shares”, “ADSs”, “warrants” and “share capital” refer to the ordinary shares,
ADSs, warrants and share capital, respectively, of Can-Fite.
References to “U.S.
dollars”, “USD”, and “$” are to currency of the United States of America, and references to “NIS”
are to New Israeli Shekels. References to “ordinary shares” are to our ordinary shares, par value of NIS 0.25 per share. We
report financial information under generally accepted accounting principles in the United States, or U.S. GAAP.
Unless otherwise indicated,
U.S. dollar translations of NIS amounts presented in this Annual Report on Form 20-F for the year ended on December 31, 2021 are translated
using the rate of NIS 3.11 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2021, U.S. dollar translations of
NIS amounts presented in this Annual Report on Form 20-F for the year ended on December 31, 2020 are translated using the rate of NIS
3.215 to $1.00, the exchange rate reported by the Bank of Israel on December 31, 2020, and U.S. dollar translations of NIS amounts presented
in this Annual Report on Form 20-F for the year ended on December 31, 2019 are translated using the rate of NIS 3.456 to $1.00, the exchange
rate reported by the Bank of Israel on December 31, 2019.
On May 10, 2019, we effected
a change in the ratio of our ADSs to ordinary shares from one (1) ADS representing two (2) ordinary shares to a new ratio of one (1) ADS
representing thirty (30) ordinary shares. For ADS holders, the ratio change had the same effect as a one-for-fifteen reverse ADS split.
All ADS and related option and warrant information presented in this Annual Report on Form 20-F have been retroactively adjusted to reflect
the reduced number of ADSs and the increase in the ADS price which resulted from this action. Unless otherwise indicated, in this Annual
Report on Form 20-F fractional ADSs have been rounded to the nearest whole number.
This Annual Report on Form
20-F contains forward-looking statements, about our expectations, beliefs or intentions regarding, among other things, our product development
efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we or our representatives
have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking
words such as “believe,” “expect,” “intend,” “plan,” “may,” “should”
or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these
statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited
to, various filings made by us with the U.S. Securities and Exchange Commission, or the SEC, press releases or oral statements made by
or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events,
activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred,
these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future
results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially
from the activities and results anticipated in forward-looking statements, including, but not limited to, the factors summarized below.
This Annual Report on Form
20-F identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking
statements, particularly those set forth under the heading “Risk Factors.” The risk factors included in this Annual Report
on Form 20-F are not necessarily all of the important factors that could cause actual results to differ materially from those expressed
in any of our forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking
statements. Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements
include, but are not limited to:
All forward-looking statements
attributable to us or persons acting on our behalf speak only as of the date of this Annual Report on Form 20-F and are expressly qualified
in their entirety by the cautionary statements included in this Annual Report on Form 20-F. We undertake no obligations to update or revise
forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated
events. In evaluating forward-looking statements, you should consider these risks and uncertainties.
Market data and certain industry
data and forecasts used throughout this Annual Report on Form 20-F were obtained from sources we believe to be reliable, including market
research databases, publicly available information, reports of governmental agencies and industry publications and surveys. We have relied
on certain data from third-party sources, including internal surveys, industry forecasts and market research, which we believe to be reliable
based on our management’s knowledge of the industry. Forecasts are particularly likely to be inaccurate, especially over long periods
of time. In addition, we do not necessarily know what assumptions regarding general economic growth were used in preparing the third-party
forecasts we cite. Statements as to our market position are based on the most currently available data. While we are not aware of any
misstatements regarding the industry data presented in this Annual Report on Form 20-F, our estimates involve risks and uncertainties
and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this Annual
Report on Form 20-F.
PART
I
ITEM
1. Identity of Directors, Senior Management and Advisers.
Not applicable.
ITEM
2. Offer Statistics and Expected Timetable.
Not applicable.
ITEM
3. Key Information.
A.
[Reserved]
B.
Capitalization and Indebtedness.
Not applicable.
C.
Reasons for the Offer and Use of Proceeds.
Not applicable.
D.
Risk Factors
You should carefully
consider the risks we describe below, in addition to the other information set forth elsewhere in this Annual Report on Form 20-F, including
our consolidated financial statements and the related notes beginning on page F-1, before deciding to invest in our ordinary shares and
American Depositary Shares, or ADSs. These material risks could adversely impact our results of operations, possibly causing the trading
price of our ordinary shares and ADSs to decline, and you could lose all or part of your investment.
Summary Risk Factors
The principal factors and
uncertainties that make investing in our ordinary shares risky, include, among others:
Risks Related to Our Financial Position
and Capital Requirements
| ● | We have incurred operating losses since our inception and anticipate that we will continue to incur substantial
operating losses for the foreseeable future. |
| ● | We will need to raise additional capital to meet our business requirements in the future, and such capital
raising may be costly or difficult to obtain and will dilute current shareholders’ ownership interests. |
Risks Related to Our Business and
Regulatory Matters
| ● | We have not yet commercialized any products or technologies, and we may never become profitable. |
| ● | Our product candidates are at various stages of clinical and preclinical development and may never be
commercialized. |
| ● | Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials. |
| ● | We might be unable to develop product candidates that will achieve commercial success in a timely and
cost-effective manner, or ever. |
| ● | Our current pipeline is based on our platform technology utilizing the Gi protein associated A3AR, as
a potent therapeutic target and currently includes three molecules, Piclidenoson, Namodenoson and CF602 product candidates, of which Piclidenoson
is the most advanced. Failure to develop these molecules will have a material adverse effect on us. |
| ● | Clinical trials are very expensive, time-consuming and difficult to design and implement, and, as a result,
we may suffer delays or suspensions in future trials which would have a material adverse effect on our ability to generate revenues. |
| ● | The manufacture of our product candidates is a chemical synthesis process and if one of our materials
suppliers encounters problems manufacturing our products, our business could suffer. |
| ● | We do not currently have sales, marketing or distribution capabilities or experience, and we are unable
to effectively sell, market or distribute our product candidates now and we do not expect to be able to do so in the future. The failure
to enter into agreements with third parties that are capable of performing these functions would have a material adverse effect on our
business and results of operations. |
| ● | We depend on key members of our management and key consultants and will need to add and retain additional
leading experts. Failure to retain our management and consulting team and add additional leading experts could have a material adverse
effect on our business, results of operations or financial condition. |
| ● | Our product candidates will remain subject to ongoing regulatory requirements even if they receive marketing
approval, and if we fail to comply with these requirements, we could lose these approvals, and the sales of any approved commercial products
could be suspended. |
| ● | We may not be able to successfully grow and expand our business. Failure to manage our growth effectively
will have a material adverse effect on our business, results of operations and financial condition. |
| ● | Our cannabinoid initiative is uncertain and may not yield commercial results and is subject to significant
regulatory risks. |
| ● | We or the third parties upon whom we depend may be adversely affected by natural disasters and/or health
epidemics, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster. |
| ● | Our business may be adversely affected by the impact of COVID-19. |
Risks Related to Our Intellectual
Property
| ● | The expiry of a patent that we licensed from the National
Institute of Health, or NIH, and the consequent loss of composition of matter exclusivity that we had by virtue of this license may diminish
our proprietary position. |
| ● | We license from Leiden University intellectual property, which protects certain small molecules which
target the A3AR, in furtherance of our platform technology, and we could lose our rights to this license if a dispute with Leiden University
arises or if we fail to comply with the financial and other terms of the license. |
| ● | The failure to obtain or maintain patents, licensing agreements, including our current licensing agreements,
and other intellectual property could impact our ability to compete effectively. |
| ● | International patent protection is particularly uncertain, and if we are involved in opposition proceedings
in foreign countries, we may have to expend substantial sums and management resources. |
| ● | We may be unable to protect the intellectual property rights of the third parties from whom we license
certain of our intellectual property or with whom we have entered into other strategic relationships. |
| ● | Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore,
may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. In addition, employees may
be entitled to seek compensation for their inventions irrespective of their agreements with us, which in turn could impact our future
profitability. |
| ● | We may be subject to claims challenging the inventorship of our patents and other intellectual property. |
Risks Related to Our Industry
| ● | We expect the healthcare industry to face increased limitations on reimbursement as a result of healthcare
reform, which could adversely affect third-party coverage of our products and how much or under what circumstances healthcare providers
will prescribe or administer our products. |
| ● | Our employees, principal investigators, consultants, commercial partners or vendors may engage in misconduct
or other improper activities, including non-compliance with regulatory standards. |
Risks Related to Our Operations in
Israel
| ● | We conduct our operations in Israel and therefore our results may be adversely affected by political,
economic and military instability in Israel and its region. |
| ● | Because a certain portion of our expenses is incurred in currencies other than U.S. dollars, our results
of operations may be harmed by currency fluctuations and inflation. |
Risks Related to Our Ordinary Shares
and ADSs
| ● | We are currently operating in a period of economic uncertainty and capital markets disruption, which has
been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine |
| ● | Our business could be negatively impacted by unsolicited takeover proposals, by shareholder activism or
by proxy contests relating to the election of directors or other matters. |
| ● | Issuance of additional equity securities may adversely affect the market price of our ADSs or ordinary
shares. |
| ● | The market price of our ordinary shares and ADSs is subject to fluctuation, which could result in substantial
losses by our investors. |
| ● | We may not satisfy the NYSE American requirements for continued listing. If we cannot satisfy these requirements,
the NYSE American could delist our securities. |
| ● | As a foreign private issuer, we are permitted to follow certain home country corporate governance practices
instead of applicable SEC and NYSE American requirements, which may result in less protection than is accorded to investors under rules
applicable to domestic issuers. |
Risks Related to Our Financial Position and
Capital Requirements
We have incurred
operating losses since our inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future.
We are a clinical-stage biopharmaceutical
company that develops orally bioavailable small molecule therapeutic products for the treatment of cancer, liver and inflammatory diseases
and erectile dysfunction. Since our incorporation in 1994, we have been focused on research and development activities with a view to
developing our product candidates, CF101, also known as Piclidenoson, CF102, also known as Namodenoson, and CF602. We have financed our
operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and NYSE American)
and payments received under out-licensing agreements and have incurred losses in each year since our inception in 1994. We have historically
incurred substantial net losses, including net losses of approximately $12.6 million in 2021, $14.4 million in 2020, and $12.6 million
in 2019. As of December 31, 2021, we had an accumulated deficit of approximately $140.7 million. We do not know whether or when we will
become profitable. To date, we have not commercialized any products or generated any revenues from product sales and accordingly we do
not have a revenue stream to support our cost structure. Our losses have resulted principally from costs incurred in development and discovery
activities. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:
| ● | initiate and manage pre-clinical development and clinical trials for our current and new product candidates; |
| ● | seek regulatory approvals for our product candidates; |
| ● | implement internal systems and infrastructures; |
| ● | seek to license additional technologies to develop; |
| ● | hire management and other personnel; and |
| ● | move towards commercialization. |
If our product candidates
fail in clinical trials or do not gain regulatory clearance or approval, or if our product candidates do not achieve market acceptance,
we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly
or annual basis. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results
of operations and cash flows. Moreover, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage
company and in highly regulated and competitive markets, such as the biopharmaceutical market, where regulatory approval and market acceptance
of our products are uncertain. There can be no assurance that our efforts will ultimately be successful or result in revenues or profits.
We will need to
raise additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult to obtain
and will dilute current shareholders’ ownership interests.
As of December 31, 2021, we
had cash and cash equivalents of $4.4 million and short-term deposits of $14.5 million. We believe that our existing financial resources
will be sufficient to meet our requirements for the next twelve months from the date of issuance of this Annual Report on Form 20-F. We
have expended and believe that we will continue to expend substantial resources for the foreseeable future developing our product candidates.
These expenditures will include costs associated with research and development, manufacturing, conducting preclinical experiments and
clinical trials and obtaining regulatory approvals, as well as commercializing any products approved for sale. Because the outcome of
our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully
complete the development and commercialization of our product candidates. In addition, other unanticipated costs may arise. As a result
of these and other factors currently unknown to us, we will require additional funds, through public or private equity or debt financings
or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital
due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating
plans.
Our future capital requirements
will depend on many factors, including the progress and results of our clinical trials, the duration and cost of discovery and preclinical
development, and laboratory testing and clinical trials for our product candidates, the timing and outcome of regulatory review of our
product candidates, the number and development requirements of other product candidates that we pursue, and the costs of activities, such
as product marketing, sales, and distribution. Because of the numerous risks and uncertainties associated with the development and commercialization
of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with
our anticipated clinical trials.
Our future capital requirements
depend on many factors, including:
| ● | the level of research and development investment required
to develop our product candidates; |
| ● | the failure to obtain regulatory approval or achieve commercial
success of our product candidates, including Piclidenoson, Namodenoson and CF602; |
| ● | the results of our preclinical studies and clinical trials
for our earlier stage product candidates, and any decisions to initiate clinical trials if supported by the preclinical results; |
| ● | the costs, timing and outcome of regulatory review of our
product candidates that progress to clinical trials; |
| ● | our ability to partner or sub-license any of our product candidates; |
| ● | the costs of preparing, filing and prosecuting patent applications,
maintaining and enforcing our issued patents and defending intellectual property-related claims; |
| ● | the cost of commercialization activities if any of our product
candidates are approved for sale, including marketing, sales and distribution costs; |
| ● | the cost of manufacturing our product candidates and any products
we successfully commercialize; |
| ● | the timing, receipt and amount of sales of, or royalties on, our future products, if any; |
| ● | the expenses needed to attract and retain skilled personnel; |
| ● | any product liability or other lawsuits related to our products; |
| ● | the extent to which we acquire or invest in businesses, products
or technologies and other strategic relationships; |
| ● | the costs of financing unanticipated working capital requirements
and responding to competitive pressures; and |
| ● | maintaining minimum shareholders’ equity requirements
and complying with other continue listing standards under the NYSE American Company Guide |
Additional funds may not be
available when we need them, on terms that are acceptable to us, or at all. General market conditions may make it very difficult for us
to seek financing from the capital markets and the COVID-19 outbreak and Russian invasion of Ukraine could impact the availability or
cost of future financings. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or
terminate preclinical studies, clinical trials or other research and development activities for one or more of our product candidates
or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to
commercialize our product candidates.
We may incur substantial costs
in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees,
printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain
securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.
Raising additional
capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies
or product candidates.
We may seek additional capital
through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing
shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights. Debt
financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such
as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and
alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates,
or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when
needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to
develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Risks Related to Our Business and Regulatory
Matters
We have not yet
commercialized any products or technologies, and we may never become profitable.
We have not yet commercialized
any products or technologies, and we may never be able to do so. We do not know when or if we will complete any of our product development
efforts, obtain regulatory approval for any product candidates incorporating our technologies or successfully commercialize any approved
products. Even if we are successful in developing products that are approved for marketing, we will not be successful unless these products
gain market acceptance for appropriate indications at favorable reimbursement rates. The degree of market acceptance of these products
will depend on a number of factors, including:
| ● | the timing of regulatory approvals in the countries, and for
the uses, we seek; |
| ● | the competitive environment; |
| ● | the establishment and demonstration in the medical community
of the safety and clinical efficacy of our products and their potential advantages over existing therapeutic products; |
| ● | our ability to enter into distribution and other strategic
agreements with pharmaceutical and biotechnology companies with strong marketing and sales capabilities; |
| ● | the adequacy and success of distribution, sales and marketing
efforts; and |
| ● | the pricing and reimbursement policies of government and third-party
payors, such as insurance companies, health maintenance organizations and other plan administrators. |
Physicians, patients, thirty-party
payors or the medical community in general may be unwilling to accept, utilize or recommend, and in the case of third-party payors, cover
any of our products or products incorporating our technologies. As a result, we are unable to predict the extent of future losses or the
time required to achieve profitability, if at all. Even if we successfully develop one or more products that incorporate our technologies,
we may not become profitable.
Our product candidates
are at various stages of clinical and preclinical development and may never be commercialized.
Our product candidates are
at various stages of clinical development and may never be commercialized. The progress and results of any future pre-clinical testing
or future clinical trials are uncertain, and the failure of our product candidates to receive regulatory approvals will have a material
adverse effect on our business, operating results and financial condition to the extent we are unable to commercialize any products. None
of our product candidates has received regulatory approval for commercial sale. In addition, we face the risks of failure inherent in
developing therapeutic products. Our product candidates are not expected to be commercially available for several years, if at all.
In order to receive FDA approval
or approval from foreign regulatory authorities to market a product candidate or to distribute our products, we must demonstrate thorough
pre-clinical testing and thorough human clinical trials that the product candidate is safe and effective for its intended uses (e.g.,
treatment of a specific condition in a specific way subject to contraindications and other limitations). If the FDA, or foreign regulatory
authorities, determine that data from our pre-clinical testing and clinical trials are not sufficient to support approval, the FDA, or
foreign regulatory authorities, may require additional pre-clinical testing or clinical trials for our product candidates. Even if we
comply with all FDA requests, the FDA may ultimately reject one or more of our New Drug Applications, or NDA, or grant approval for a
narrowly intended use that is not commercially feasible. We might not obtain regulatory approval for our drug candidates in a timely manner,
if at all. Failure to obtain FDA approval of any of our drug candidates in a timely manner or at all will severely undermine our business
by reducing the number of salable products and, therefore, corresponding product revenues.
Results of earlier
clinical trials may not be predictive of the results of later-stage clinical trials.
The results of preclinical
studies and early clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Also, interim
results, if at all, during a clinical trial do not necessarily predict final results. Product candidates in later stages of clinical trials
may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and initial clinical trials.
For example, our former subsidiary OphthaliX Inc, or OphthaliX, announced top-line results of a Phase III study with Piclidenoson for
dry-eye syndrome in which Piclidenoson did not meet the primary efficacy endpoint of complete clearing of corneal staining, nor the secondary
efficacy endpoints, OphthaliX released top-line results from its Phase II clinical trial of Piclidenoson for the treatment of glaucoma
in which no statistically significant differences were found between the Piclidenoson treated group and the placebo group in the primary
endpoint of lowering intraocular pressure, or IOP. In addition, two Phase IIb studies in rheumatoid arthritis, utilizing Piclidenoson
in combination with methotrexate, a generic drug commonly used for treating rheumatoid arthritis patients, or MTX, failed to reach their
primary endpoints and we ended our Phase III ACROBAT study after the independent data monitoring committee, or IDMC recommended in a pre-planned
interim analysis not to continue this study. A Phase II/III study of Piclidenoson for psoriasis did not meet its primary endpoint although
positive data from further analysis of the Phase II/III study suggests Piclidenoson as a potential systemic therapy for patients with
moderate-severe psoriasis. Furthermore, a Phase II study for advanced HCC in subjects with Child-Pugh B who failed Nexavar as a first
line treatment did not meet its primary endpoint although it showed superiority in overall survival in the largest study subpopulation.
Many companies in the pharmaceutical
industry have suffered significant setbacks in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding
promising results in earlier studies. Any delay in, or termination or suspension of, our clinical trials will delay the requisite filings
with the FDA, the EMA or other foreign regulatory authorities and, ultimately, our ability to commercialize our product candidates and
generate product revenues. If the clinical trials do not support our product claims, the completion of development of such product candidates
may be significantly delayed or abandoned, which will significantly impair our ability to generate product revenues and will materially
adversely affect our results of operations.
This drug candidate development
risk is heightened by any changes in the planned clinical trials compared to the completed clinical trials. As product candidates are
developed from preclinical through early to late stage clinical trials towards approval and commercialization, it is customary that various
aspects of the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize
processes and results. While these types of changes are common and are intended to optimize the product candidates for late stage clinical
trials, approval and commercialization, such changes do carry the risk that they will not achieve these intended objectives.
Changes in our planned clinical
trials or future clinical trials could cause our product candidates to perform differently, including causing toxicities, which could
delay completion of our clinical trials, delay approval, if any, of our product candidates, and/or jeopardize our ability to commence
product sales and generate revenues.
We might be unable
to develop product candidates that will achieve commercial success in a timely and cost-effective manner, or ever.
Even if regulatory authorities
approve our product candidates, they may not be commercially successful. Our product candidates may not be commercially successful because
government agencies and other third-party payors may not cover the product or the coverage may be too limited to be commercially successful;
physicians and others may not use or recommend our products, even following regulatory approval. A product approval, assuming one issues,
may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the product. Third
parties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at
least some of our product candidates will be expensive, if approved. Patient acceptance of and demand for any product candidates for which
we obtain regulatory approval or license will depend largely on many factors, including but not limited to the extent, if any, of reimbursement
of costs by government agencies and other third-party payors, pricing, the effectiveness of our marketing and distribution efforts, the
safety and effectiveness of alternative products, and the prevalence and severity of side effects associated with our products. If physicians,
government agencies and other third-party payors do not accept our products, we will not be able to generate significant revenue. In addition,
government regulators and legislative bodies in the U.S. are considering numerous proposals that may result in limitations on the prices
at which we could charge customers for our products if we have products that are ultimately approved for sale. At this time, we are unable
to predict how these potential legislative changes might affect our business.
Our current pipeline
is based on our platform technology utilizing the Gi protein associated A3AR, as a potent therapeutic target and currently includes three
molecules, Piclidenoson, Namodenoson and CF602 product candidates, of which Piclidenoson is the most advanced. Failure to develop these
molecules will have a material adverse effect on us.
Our current pipeline is based
on a platform technology where we target the A3AR with highly selective ligands, or small signal triggering molecules that bind to specific
cell surface receptors, such as the A3AR, including Piclidenoson, Namodenoson and CF602. A3ARs are structures found in cell surfaces that
record and transfer messages from small molecules or ligands, such as Piclidenoson, Namodenoson and CF602 to the rest of the cell. Piclidenoson
is the most advanced of our drug candidates. As such, we are currently dependent on only three molecules for our potential commercial
success, and any safety or efficacy concerns related to such molecules would have a significant impact on our business. Failure to develop
our drug candidates, in whole or in part, will have a material adverse effect on us.
Clinical trials
are very expensive, time-consuming and difficult to design and implement, and, as a result, we may suffer delays or suspensions in future
trials which would have a material adverse effect on our ability to generate revenues.
Human clinical trials are
very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Regulatory
authorities, such as the FDA, may preclude or prohibit clinical trials from proceeding. Additionally, the clinical trial process is time-consuming,
failure can occur at any stage of the trials, and we may encounter problems that cause us to abandon or repeat clinical trials. The commencement
and completion of clinical trials may be delayed by several factors, including:
| ● | unforeseen safety issues; |
| ● | non-acceptance of an IND by the FDA; |
| ● | determination of dosing issues; |
| ● | lack of effectiveness or efficacy during clinical trials; |
| ● | inability to manufacture sufficient quantities of drug candidate; |
| ● | changes in formulation or manufacturing changes; |
| ● | failure of third-party suppliers to perform final manufacturing steps for the drug substance; |
| ● | slower than expected rates of patient recruitment and enrollment; |
| ● | inability to retain patients in clinical trials; |
| ● | lack of healthy volunteers and patients to conduct trials; |
| ● | inability to monitor patients adequately during or after treatment; |
| ● | failure to reach an agreement with contract research organizations or clinical trial sites; |
| ● | failure of institutional review boards, or IRBs, to approve
our clinical trial protocols or suspension or termination of our clinical trial by the IRB, DSMB, or the FDA; |
| ● | failure of institutional review boards to approve our clinical trial protocols; |
| ● | inability or unwillingness of clinical investigators and institutional
review boards to follow our clinical trial protocols; |
| ● | failure of clinical investigators or sites to maintain necessary
licenses or permits or comply with good clinical practices, or GCP, or other regulatory requirements; |
| ● | debarment of a clinical investigator by FDA or other similar
suspension or exclusion by a regulatory authority; and |
| ● | lack of sufficient funding to finance the clinical trials. |
We have experienced the risks
involved with conducting clinical trials, including but not limited to, increased expense and delay and failure to meet end points of
the trial. For example, OphthaliX, announced top-line results of a Phase III study with Piclidenoson for dry-eye syndrome in which Piclidenoson
did not meet the primary efficacy endpoint of complete clearing of corneal staining, nor the secondary efficacy endpoints and OphthaliX
released top-line results from its Phase II clinical trial of Piclidenoson for the treatment of glaucoma in which no statistically significant
differences were found between the Piclidenoson treated group and the placebo group in the primary endpoint of lowering IOP. In addition,
two Phase IIb studies in rheumatoid arthritis, utilizing Piclidenoson in combination with MTX failed to reach their primary end points
and we ended our Phase III ACROBAT study after the IDMC recommended in a pre-planned interim analysis not to continue this study. A Phase
II/III study of Piclidenoson for psoriasis did not meet its primary endpoint although positive data from further analysis of the Phase
II/III study suggests Piclidenoson as a potential systemic therapy for patients with moderate-severe psoriasis. Furthermore, a Phase II
study of Namodenoson for advanced HCC in subjects with Child-Pugh B who failed Nexavar as a first line treatment did not meet its primary
endpoint although it showed superiority in overall survival in the largest study subpopulation.
In addition, we or regulatory
authorities may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or
if the regulatory authorities find deficiencies in our regulatory submissions or the conduct of these trials. Any suspension of clinical
trials will delay possible regulatory approval, if any, increase costs, and adversely impact our ability to develop products and generate
revenue.
We seek to partner
with third-party collaborators with respect to the development and commercialization of Piclidenoson and for any other product candidate,
and we may not succeed in establishing and maintaining collaborative relationships, which may significantly limit our ability to develop
and commercialize our product candidates successfully, if at all.
Our business strategy relies
in part on partnering with pharmaceutical companies to complement our internal development efforts. We will be competing with many other
companies as we seek partners for Piclidenoson, Namodenoson and for any other product candidate and we may not be able to compete successfully
against those companies. If we are not able to enter into collaboration arrangements for Piclidenoson, Namodenoson and for any other product
candidate, we may be required to undertake and fund further development, clinical trials, manufacturing and commercialization activities
solely at our own expense and risk. If we are unable to finance and/or successfully execute those expensive activities, or we delay such
activities due to capital availability, our business could be materially and adversely affected, and potential future product launch could
be materially delayed, be less successful, or we may be forced to discontinue clinical development of these product candidates. The process
of establishing and maintaining collaborative relationships is difficult, time-consuming and involves significant uncertainty, including:
| ● | a collaboration partner may shift its priorities and resources away from our product candidates due to a
change in business strategies, or a merger, acquisition, sale or downsizing; |
| ● | a collaboration partner may seek to renegotiate or terminate their relationships with us due to unsatisfactory
clinical results, manufacturing issues, a change in business strategy, a change of control or other reasons; |
| ● | a collaboration partner may cease development in therapeutic areas which are the subject of our strategic
collaboration |
| ● | a collaboration partner may not devote sufficient capital or resources towards our product candidates; |
| ● | a collaboration partner may change the success criteria for a drug candidate thereby delaying or ceasing
development of such candidate; |
| ● | a significant delay in initiation of certain development activities by a collaboration partner will also
delay payment of milestones tied to such activities, thereby impacting our ability to fund our own activities; |
| ● | a collaboration partner could develop a product that competes, either directly or indirectly, with our drug
candidate; |
| ● | a collaboration partner with commercialization obligations may not commit sufficient financial or human resources
to the marketing, distribution or sale of a product; |
| ● | a collaboration partner with manufacturing responsibilities may encounter regulatory, resource or quality
issues and be unable to meet demand requirements; |
| ● | a partner may exercise a contractual right to terminate a strategic alliance; |
| ● | a dispute may arise between us and a partner concerning the research, development or commercialization of
a drug candidate resulting in a delay in milestones, royalty payments or termination of an alliance and possibly resulting in costly litigation
or arbitration which may divert management attention and resources; and |
| ● | a partner may use our products or technology in such a way as to invite litigation from a third party. |
Any collaborative partners
we enter into agreements with in the future may shift their priorities and resources away from our product candidates or seek to renegotiate
or terminate their relationships with us. If any collaborator fails to fulfill its responsibilities in a timely manner, or at all, our
research, clinical development, manufacturing or commercialization efforts related to that collaboration could be delayed or terminated,
or it may be necessary for us to assume responsibility for expenses or activities that would otherwise have been the responsibility of
our collaborator. If we are unable to establish and maintain collaborative relationships on acceptable terms or to successfully transition
terminated collaborative agreements, we may have to delay or discontinue further development of one or more of our product candidates,
undertake development and commercialization activities at our own expense or find alternative sources of capital.
If we acquire
or license additional technology or product candidates, we may incur a number of costs, may have integration difficulties and may experience
other risks that could harm our business and results of operations.
We may acquire and license
additional product candidates and technologies. Any product candidate or technology we license from others or acquire will likely require
additional development efforts prior to commercial sale, including extensive pre-clinical or clinical testing, or both, and approval by
the FDA and applicable foreign regulatory authorities, if any. All product candidates are prone to risks of failure inherent in pharmaceutical
product development, including the possibility that the product candidate or product developed based on licensed technology will not be
shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot assure you that any product
candidate that we develop based on acquired or licensed technology that is granted regulatory approval will be manufactured or produced
economically, successfully commercialized or widely accepted in the marketplace. Moreover, integrating any newly acquired product candidates
could be expensive and time-consuming. If we cannot effectively manage these aspects of our business strategy, our business may not succeed.
The manufacture
of our product candidates is a chemical synthesis process and if one of our materials suppliers encounters problems manufacturing our
products, our business could suffer.
The FDA and foreign regulators
require manufacturers to register manufacturing facilities. The FDA and foreign regulators also inspect these facilities to confirm compliance
with requirements that the FDA or foreign regulators establish. We do not intend to engage in the manufacture of our products other than
for pre-clinical and clinical studies, but we or our materials suppliers may face manufacturing or quality control problems causing product
production and shipment delays or a situation where we or the supplier may not be able to maintain compliance with the FDA’s or
foreign regulators’ requirements necessary to continue manufacturing our drug substance. Drug manufacturers are subject to ongoing
periodic unannounced inspections by the FDA, the U.S. Drug Enforcement Agency, or DEA, and corresponding foreign regulators to ensure
strict compliance with requirements and other governmental regulations and corresponding foreign standards. Any failure to comply with
DEA requirements or FDA or foreign regulatory requirements could adversely affect our clinical research activities and our ability to
develop our product candidates, and delay possible regulatory approval.
We do not currently
have sales, marketing or distribution capabilities or experience, and we are unable to effectively sell, market or distribute our product
candidates now and we do not expect to be able to do so in the future. The failure to enter into agreements with third parties that are
capable of performing these functions would have a material adverse effect on our business and results of operations.
We do not currently have,
and we do not expect to develop, sales, marketing and distribution capabilities. If we are unable to enter into agreements with third
parties to perform these functions, we will not be able to successfully market any of our platforms or product candidates. In order to
successfully market any of our platform or product candidates, we must make arrangements with third parties to perform these services.
As we do not intend to develop
a marketing and sales force with technical expertise and supporting distribution capabilities, we will be unable to market any of our
product candidates directly. To promote any of our potential products through third parties, we will have to locate acceptable third parties
for these functions and enter into agreements with them on acceptable terms, and we may not be able to do so. Any third-party arrangements
we are able to enter into may result in lower revenues than we could achieve by directly marketing and selling our potential products.
In addition, to the extent that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the
efforts of such third parties, as well as the terms of our agreements with such third parties, which cannot be predicted in most cases
at this time. As a result, we might not be able to market and sell our products in the United States or overseas, which would have a material
adverse effect on us.
We will to some
extent rely on third parties to implement our manufacturing and supply strategies. Failure of these third parties in any respect could
have a material adverse effect on our business, results of operations and financial condition.
If our current and future
manufacturing and supply strategies are unsuccessful, then we may be unable to conduct and complete any future pre-clinical or clinical
trials or commercialize our product candidates in a timely manner, if at all. Completion of any potential future pre-clinical or clinical
trials and commercialization of our product candidates will require access to, or development of, facilities to manufacture a sufficient
supply of our product candidates. We do not have the resources, facilities or experience to manufacture our product candidates for commercial
purposes on our own and do not intend to develop or acquire facilities for the manufacture of product candidates for commercial purposes
in the foreseeable future. We may rely on contract manufacturers to produce sufficient quantities of our product candidates necessary
for any pre-clinical or clinical testing we undertake in the future. Such contract manufacturers may be the sole source of production
and they may have limited experience at manufacturing, formulating, analyzing, filling and finishing our types of product candidates.
We also intend to rely on
third parties to supply the requisite materials needed for the manufacturing of our active pharmaceutical ingredients, or API. There may
be a limited supply of these requisite materials. We might not be able to enter into agreements that provide us assurance of availability
of such components in the future from any supplier. Our potential suppliers may not be able to adequately supply us with the components
necessary to successfully conduct our pre-clinical and clinical trials or to commercialize our product candidates. In particular, the
continued spread of COVID-19 globally could result in the inability of our suppliers to deliver components or raw materials on a timely
basis or at all. If we cannot acquire an acceptable supply of the requisite materials to produce our product candidates, we will not be
able to complete pre-clinical and clinical trials delaying possible regulatory approval, and adversely impacting our ability to develop
products, and will not be able to market or commercialize our product candidates, if approved.
We depend on key
members of our management and key consultants and will need to add and retain additional leading experts. Failure to retain our management
and consulting team and add additional leading experts could have a material adverse effect on our business, results of operations or
financial condition.
We are highly dependent on
our executive officers and other key management and technical personnel. Our failure to retain our Chief Executive Officer, Pnina Fishman,
Ph.D., who has developed much of the technology we utilize today, or any other key management and technical personnel, could have a material
adverse effect on our future operations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical,
and management personnel, among others, to continue the development and commercialization, if approved, of our current and future product
candidates.
Our success also depends on
our ability to attract, retain and motivate personnel required for the development, maintenance and expansion of our activities. There
can be no assurance that we will be able to retain our existing personnel or attract additional qualified employees or consultants. The
loss of key personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect
on our business, financial condition and results of operation.
We face significant
competition and continuous technological change, and developments by competitors may render our products or technologies obsolete or non-competitive.
If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may not ever be profitable.
We will compete against fully
integrated pharmaceutical and biotechnology companies and smaller companies that are collaborating with larger pharmaceutical companies,
academic institutions, government agencies and other public and private research organizations. In addition, many of these competitors,
either alone or together with their collaborative partners, operate larger research and development programs than we do, and have substantially
greater financial resources than we do, as well as significantly greater experience in:
| ● | undertaking pre-clinical testing and human clinical trials; |
| ● | obtaining FDA approval, addressing various regulatory matters and other regulatory approvals of drugs; |
| ● | formulating and manufacturing drugs; and |
| ● | launching, marketing and selling drugs. |
If our competitors develop
and commercialize products faster than we do, or develop and commercialize products that are superior to our product candidates, our commercial
opportunities will be reduced or eliminated. The extent to which any of our product candidates achieve market acceptance will depend on
competitive factors, many of which are beyond our control. Competition in the biotechnology and biopharmaceutical industry is intense
and has been accentuated by the rapid pace of technology development. Our competitors include large integrated pharmaceutical companies,
biotechnology companies that currently have drug and target discovery efforts, universities, and public and private research institutions.
Almost all of these entities have substantially greater research and development capabilities and financial, scientific, manufacturing,
marketing and sales resources than we do. These organizations also compete with us to:
| ● | attract parties for acquisitions, joint ventures or other collaborations; |
| ● | license proprietary technology that is competitive with the technology we are developing; |
| ● | attract and hire scientific talent and other qualified personnel. |
Our competitors may succeed
in developing and commercializing products earlier and obtaining regulatory approvals from the FDA or foreign regulators more rapidly
than we do. Our competitors may also develop products or technologies that are superior to those we are developing, and render our product
candidates or technologies obsolete or non-competitive. If we cannot successfully compete with new or existing products, our marketing
and sales will suffer and we may not ever be profitable.
Our competitors currently
include companies with marketed products and/or an advanced research and development pipeline. The major competitors in the psoriasis
therapeutic field include Amgen, J&J, Pfizer, Novartis, Abbvie, Eli Lilly, Bristol-Myers Squibb, and more. Competitors in the HCC
field include companies such as Bayer, Exelixis, Merck, Roche, and Bristol-Myers Squibb. Competitors in the NASH field include companies
such as Gilead, Genfit, Galmed, Intercept, Madrigal, Akero, 89Bio, Viking, and Terns. Competitors in the erectile dysfunction field include
Pfizer, Eli Lilly, Bayer, and Petros Pharmaceuticals. See “Item 4. Information on the Company—B. Business Overview—Competition.”
Moreover, several companies
have reported the commencement of research projects related to the A3AR. Such companies include CV Therapeutics Inc. (which was acquired
by Gilead), King Pharmaceuticals R&D Inv. (which was acquired by Pfizer), Hoechst Marion Roussel Inc. (which was acquired by Aventis),
Novo Nordisk A/S and Inotek Pharmaceuticals. However, to the best of our knowledge, there is no approved drug currently on the market,
which is similar to our A3AR agonists, nor are we aware of any allosteric modulator in the A3AR product pipeline similar to our allosteric
modulator with respect to chemical profile and mechanism of action.
We may suffer
losses from product liability claims if our product candidates cause harm to patients.
Any of our product candidates
could cause adverse events. Although a pooled safety analysis from clinical trials encompassing more than 1,300 humans dosed with Piclidenoson
through the completion of our Phase II rheumatoid arthritis and psoriasis trials indicated that Piclidenoson is generally well-tolerated
at doses up to 4.0 mg administered twice daily for up to 12-48 weeks, there were incidences (less than or equal to 5%) of adverse events
in eight completed and fully analyzed trials in inflammatory disease. Such adverse events included nausea, diarrhea, abdominal pain, vomiting,
constipation, common bacterial and viral syndromes (such as tonsillitis, otitis and respiratory and urinary tract infections), abdominal
pain, vomiting, myalgia, arthralgia, dizziness, headache and pruritus. We observed an even lower incidence (less than or equal to 2%)
of serious adverse events, although only one type of event was reported in more than a single Piclidenoson-treated subject, which was
exacerbation of chronic obstructive lung disease reported in two subjects. Notwithstanding the foregoing, the placebo group in such studies
had a higher incidence of overall adverse events than the pooled Piclidenoson groups. In addition, in normal volunteers, Piclidenoson
at doses 3-4-fold higher than those to be used in therapeutic trials, but not at therapeutic doses, was associated with prolongation of
the electrocardiographic QT intervals. No new safety concerns have been identified and no novel or unexpected safety concerns have appeared
over 48 weeks of treatment in more recent trials.
There is also a risk that
certain adverse events may not be observed in clinical trials, but may nonetheless occur in the future. If any of these adverse events
occur, they may render our product candidates ineffective or harmful in some patients, and our sales would suffer, materially adversely
affecting our business, financial condition and results of operations.
In addition, potential adverse
events caused by our product candidates could lead to product liability lawsuits. If product liability lawsuits are successfully brought
against us, we may incur substantial liabilities and may be required to limit the marketing and commercialization of our product candidates.
Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale of
pharmaceutical products. We may not be able to avoid product liability claims. Product liability insurance for the pharmaceutical and
biotechnology industries is generally expensive, if available at all. If, at any time, we are unable to obtain sufficient insurance coverage
on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to clinically test, market or
commercialize our product candidates. A successful product liability claim brought against us in excess of our insurance coverage, if
any, may cause us to incur substantial liabilities, and, as a result, our business, liquidity and results of operations would be materially
adversely affected.
Our product candidates
will remain subject to ongoing regulatory requirements even if they receive marketing approval, and if we fail to comply with these requirements,
we could lose these approvals, and the sales of any approved commercial products could be suspended.
Even if we receive regulatory
approval to market a particular product candidate, the product will remain subject to extensive regulatory requirements, including requirements
relating to manufacturing, labelling, packaging, adverse event reporting, storage, advertising, promotion, distribution and recordkeeping.
Even if regulatory approval of a product is granted, the approval may be subject to limitations on the uses for which the product may
be marketed or the conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the
safety or efficacy of the product, which could negatively impact us or our collaboration partners by reducing revenues or increasing expenses,
and cause the approved product candidate not to be commercially viable. In addition, as clinical experience with a drug expands after
approval, typically because it is used by a greater number and more diverse group of patients after approval than during clinical trials,
side effects and other problems may be observed after approval that were not seen or anticipated during pre-approval clinical trials or
other studies. Any adverse effects observed after the approval and marketing of a product candidate could result in limitations on the
use of or withdrawal of any approved products from the marketplace. Absence of long-term safety data may also limit the approved uses
of our products, if any. If we fail to comply with the regulatory requirements of the FDA and other applicable U.S. and foreign regulatory
authorities, or previously unknown problems with any approved commercial products, manufacturers or manufacturing processes are discovered,
we could be subject to administrative or judicially imposed sanctions or other setbacks, including the following:
| ● | Restrictions on the products, manufacturers or manufacturing process; |
| ● | Warning or other enforcement letters; |
| ● | Civil or criminal penalties, fines and injunctions; |
| ● | Product seizures or detentions; |
| ● | Import or export bans or restrictions; |
| ● | Voluntary or mandatory product recalls and related publicity requirements; |
| ● | Suspension or withdrawal of regulatory approvals; |
| ● | Total or partial suspension of production; and |
| ● | Refusal to approve pending applications for marketing approval of new products or supplements to approved
applications. |
If we or our collaborators
are slow or unable to adapt to changes in existing regulatory requirements or adoption of new regulatory requirements or policies, marketing
approval for our product candidates may be lost or cease to be achievable, resulting in decreased revenue from milestones, product sales
or royalties, which would have a material adverse effect on our results of operations.
We deal with hazardous
materials and must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do business.
Our activities and those of
our third-party manufacturers on our behalf involve the controlled storage, use and disposal of hazardous materials, including corrosive,
explosive and flammable chemicals and other hazardous compounds. We and our manufacturers are subject to U.S. federal, state, and local,
and Israeli and other foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials.
Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by these
laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In addition, if we develop
a manufacturing capacity, we may incur substantial costs to comply with environmental regulations and would be subject to the risk of
accidental contamination or injury from the use of hazardous materials in our manufacturing process.
In the event of an accident,
government authorities may curtail our use of these materials and interrupt our business operations. In addition, we could be liable for
any civil damages that result, which may exceed our financial resources and may seriously harm our business. Although our Israeli insurance
program covers certain unforeseen sudden pollutions, we do not maintain a separate insurance policy for any of the foregoing types of
risks. In addition, although the general liability section of our life sciences policy covers certain unforeseen, sudden environmental
issues, pollution in the United States and Canada is excluded from the policy. In the event of environmental discharge or contamination
or an accident, we may be held liable for any resulting damages, and any liability could exceed our resources. In addition, we may be
subject to liability and may be required to comply with new or existing environmental laws regulating pharmaceuticals or other medical
products in the environment.
Our business and
operations may be materially adversely affected in the event of computer system failures or security breaches.
Despite the implementation
of security measures, our internal computer systems, and those of our contract research organizations, or CROs, and other third parties
on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, fire, terrorism,
war, and telecommunication and electrical failures. If such an event were to occur and interrupt our operations, it could result in a
material disruption of our drug development programs. For example, the loss of clinical trial data from ongoing or planned clinical trials
could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the
extent that any disruption or security breach results in a loss of or damage to our data or applications, loss of trade secrets or inappropriate
disclosure of confidential or proprietary information, including protected health information or personal data of employees or former
employees, access to our clinical data, or disruption of the manufacturing process, we could incur liability and the further development
of our drug candidates could be delayed. We may also be vulnerable to cyber-attacks by hackers or other malfeasance. This type of breach
of our cybersecurity may compromise our confidential information and/or our financial information and adversely affect our business or
result in legal proceedings. Further, these cybersecurity breaches may inflict reputational harm upon us that may result in decreased
market value and erode public trust.
We may not be
able to successfully grow and expand our business. Failure to manage our growth effectively will have a material adverse effect on our
business, results of operations and financial condition.
We may not be able to successfully
grow and expand. Successful implementation of our business plan will require management of growth, including potentially rapid and substantial
growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capital
resources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems
and controls to expand, train and manage our employee base. Our ability to manage our operations and growth effectively requires us to
continue to expend funds to enhance our operational, financial and management controls, reporting systems and procedures and to attract
and retain sufficient numbers of talented personnel. If we are unable to scale up and implement improvements to our control systems in
an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not be able to make available
the products required to successfully commercialize our technology. Failure to attract and retain sufficient numbers of talented personnel
will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, the management, systems
and controls currently in place or to be implemented may not be adequate for such growth, and the steps taken to hire personnel and to
improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material
adverse effect on our business, results of operations and financial condition.
If we are unable
to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss
or damage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience
difficulty in obtaining adequate directors’ and officers’ liability insurance.
We may not be able to obtain
insurance policies on terms affordable to us that would adequately insure our business and property against damage, loss or claims by
third parties. To the extent our business or property suffers any damages, losses or claims by third parties, which are not covered or
adequately covered by insurance, our financial condition may be materially adversely affected.
We may be unable to maintain
sufficient insurance as a public company to cover liability claims made against our officers and directors. Our insurance costs have increased
for directors’ and officers’ liability insurance, and we may be required to incur further substantial increased costs to maintain
the same or similar coverage or be forced to accept reduced coverage in future. If we are unable to adequately ensure our officers and
directors, we may not be able to retain or recruit qualified officers and directors to manage us.
Our cannabinoid
initiative is uncertain and may not yield commercial results and is subject to significant regulatory risks.
We are developing formulations
of cannabis components for the treatment of diseases in which there is an overexpression of A3AR. While we believe there are substantial
business opportunities for us in this field, there can be no assurance that our activities will be successful, or that any research and
development and product testing efforts will result in commercially saleable products, or that the market will accept or respond positively
to our products. In addition, our current and potential involvement in cannabis-related activity may expose us to legal and reputational
risks. Such risks include:
| ● | Medical-use cannabis remains illegal under U.S. federal law, and therefore, strict enforcement of federal
laws regarding medical -use cannabis would likely result in our inability to market any products; |
| ● | FDA has not approved a marketing application for the treatment of any disease or condition; |
| ● | Changes in laws, regulations and guidelines related to cannabis may result in significant additional compliance
costs for us or limit our ability to operate in certain jurisdictions; |
| ● | Certain banks will not accept deposits from or provide other bank services to businesses involved with cannabis
and U.S. federal money laundering laws make it a federal crime to engage in financial transactions involving the proceeds of some form
of unlawful activity; and |
| ● | Third parties with whom we do business may perceive that they are exposed to reputational risk as a result
of our cannabis-related business activities and may ultimately elect not to do business with us. |
Complying with laws and regulations
relating to cannabinoids is evolving, complex and expensive, and may divert management’s attention and resources from other aspects
of our business. Failure to maintain compliance with such laws and regulations may result in regulatory action that could have a material
adverse effect on our business, results of operations and financial condition. The DEA, FDA or state agencies may seek civil penalties,
refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could
lead to criminal proceedings.
We or the third
parties upon whom we depend may be adversely affected by natural disasters and/or health epidemics, and our business continuity and disaster
recovery plans may not adequately protect us from a serious disaster.
Natural disasters could severely
disrupt our operations and have a material adverse effect on our business, results of operations, financial condition and prospects. If
a natural disaster, power outage, health epidemic or other event occurred that prevented us from using all or a significant portion of
our office, manufacturing and/or lab spaces, that damaged critical infrastructure, such as the manufacturing facilities of our third-party
contract manufacturers, CROs, clinical sites, third parties ongoing activities and schedules or that otherwise disrupted operations, it
may be difficult or, in certain cases, impossible for us to continue our plans and business for a substantial period of time.
In late 2019, a novel strain
of COVID-19, also known as coronavirus, was reported in Wuhan, China and began spreading to various parts of the world. In particular,
our clinical trial sites are based in areas currently affected by COVID-19. Epidemics such as this can adversely impact our business as
they can cause disruptions, such as travel bans, quarantines, and interruptions to access the trial sites and supply chain, which could
result in material delays and complications with respect to our research and development programs and clinical trials. Moreover, as a
result of COVID-19, there is a general unease of conducting unnecessary activities in medical centers. It is too early to assess the full
impact of the COVID-19 outbreak on our clinical trials however COVID-19 may affect our ability to complete recruitment in our original
timeframe and could materially affect the operations of key governmental agencies, such as the FDA. The extent to which COVID-19 impacts
our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration
and severity of the outbreak, and the actions that may be required to contain COVID-19 or treat its impact. A health epidemic or other
outbreak, including the current COVID-19 outbreak, may materially and adversely affect our business, financial condition and results of
operations.
The disaster recovery and
business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial
expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse
effect on our business.
Our business may
be adversely affected by the impact of COVID-19.
Public health epidemics or
outbreaks could adversely impact our business. In late 2019, a novel strain of COVID-19, also known as coronavirus, was reported in Wuhan,
China. Initially the outbreak was largely concentrated in China, but it rapidly spread to countries across the globe, including in Israel
and the United States. Many countries around the world, including in Israel and the United States, implemented significant governmental
measures to control the spread of the virus, including temporary closure of businesses, severe restrictions on travel and the movement
of people, and other material limitations on the conduct of business. In response, we implemented remote working and workplace protocols
for our employees in accordance Israeli Ministry of Health requirements to ensure employee safety. The extent to which COVID-19 impacts
our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration
and severity of the outbreak, and the actions that may be required to contain COVID-19 or treat its impact. In particular, the continued
spread of the coronavirus globally, could adversely impact our operations and workforce, including our research and clinical trials and
our ability to raise capital, could affect the operations of key governmental agencies, such as the FDA, which may delay the development
of our product candidates and could result in the inability of our suppliers to deliver components or raw materials on a timely basis
or at all, each of which in turn could have an adverse impact on our business, financial condition and results of operation.
Risks Related to Our Intellectual Property
The expiry of
a patent that we licensed from the National Institute of Health, or NIH, and the consequent loss of composition of matter exclusivity
that we had by virtue of this license may diminish our proprietary position.
As a result of the expiry
in June 2015 of a patent that provided composition of matter protection over Piclidenoson and Namodenoson, that we licensed from the NIH,
we no longer enjoy composition of matter patent exclusivity relating to Piclidenoson and Namodenoson. Nevertheless, because Piclidenoson
and Namodenoson may each be a new chemical entity, or NCE, following approval of an NDA, we, if we are the first applicant to obtain NDA
approval, may be entitled to five years of data exclusivity in the United States with respect to such NCEs. Analogous data and market
exclusivity provisions, of varying duration, may be available in Europe and other foreign jurisdictions. We also have rights under our
pharmaceutical use issued patents with respect to Piclidenoson and Namodenoson and under our Piclidenoson manufacturing process patents,
which provide patent exclusivity within our field of activity until the mid- to late-2020s. While we believe that we may be able to protect
our exclusivity through such use patent portfolio and such period of exclusivity, the lack of composition of matter patent protection
may diminish our ability to maintain a proprietary position for our intended uses of Piclidenoson or Namodenoson. Moreover, we cannot
be certain that we will be the first applicant to obtain an FDA approval for any indication of Piclidenoson or Namodenoson and we cannot
be certain that we will be entitled to NCE exclusivity. In addition, we have discontinued the prosecution of a family of pending patent
applications under joint ownership of us and NIH pertaining to the use of A3AR agonists for the treatment of uveitis. Such diminution
of our proprietary position could have a material adverse effect on our business, results of operation and financial condition.
We license from
Leiden University intellectual property, which protects certain small molecules which target the A3AR, in furtherance of our platform
technology, and we could lose our rights to this license if a dispute with Leiden University arises or if we fail to comply with the financial
and other terms of the license.
We have licensed intellectual
property from Leiden University pursuant to a license agreement. The license agreement imposes certain payment, reporting, confidentiality
and other obligations on us. In the event that we were to breach any of the obligations and fail to cure, Leiden University would have
the right to terminate the license agreement. In addition, Leiden University has the right to terminate the license agreement upon our
bankruptcy, insolvency, or receivership. If any dispute arises with respect to our arrangements with Leiden University, such dispute may
disrupt our operations and may have a material adverse impact on us if resolved in a manner that is unfavorable to us.
The failure to
obtain or maintain patents, licensing agreements, including our current licensing agreements, and other intellectual property could impact
our ability to compete effectively.
To compete effectively, we
need to develop and maintain a proprietary position with regard to our own technologies, intellectual property, licensing agreements,
product candidates and business. Legal standards relating to the validity and scope of claims in the biotechnology and biopharmaceutical
fields are still evolving. Therefore, the degree of future protection for our proprietary rights in our core technologies and any products
that might be made using these technologies is also uncertain. The risks and uncertainties that we face with respect to our patents and
other proprietary rights include the following:
| ● | while some of our patents or patents that we in-licensed have issued, the pending patent applications we
have filed may not result in issued patents or may take longer than we expect to result in issued patents; |
| ● | a third party may initiate an inter parties review, or IPR, proceedings in the U.S.; |
| ● | we may be subject to interference proceedings in the U.S.; |
| ● | a third party may initiate opposition proceedings in foreign countries; |
| ● | any patents that are issued may not provide meaningful protection; |
| ● | we may not be able to develop additional proprietary technologies that are patentable; |
| ● | other companies may challenge patents licensed or issued to us; |
| ● | other companies may independently develop similar or alternative technologies, or duplicate our technologies; |
| ● | other companies may design around patents we have in-licensed or developed; and |
| ● | enforcement of patents is complex, uncertain and expensive. |
If patent rights covering
our products and methods are not sufficiently broad or not issued at all by the United States Patent and Trademark Office, or the USPTO,
or by foreign patent offices, we may not have adequate protection against competitors with similar products and technologies. Furthermore,
if the USPTO or foreign patent offices issue patents to us or our licensors, others may challenge the patents or design around the patents,
or the patent office or the courts may invalidate the patents. Thus, any patents we own or license from third parties may not provide
any protection against our competitors.
We cannot be certain that
patents will be issued as a result of any pending applications, and we cannot be certain that any of our issued patents will give us adequate
protection from competing products. For example, issued patents, including the patents in-licensed by us, may be circumvented or challenged,
declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in the scientific or patent literature
often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions or to file patent applications
covering those inventions.
It is also possible that others
may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment
of significant fees or royalties in order to enable us to conduct our business. As to those patents that we have in-licensed, our rights
depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so.
In addition to patents and
patent applications, we depend upon trade secrets and proprietary know-how to protect our proprietary technology. We require our employees,
consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information
to any other parties. We require our employees and consultants to disclose and assign to us their ideas, developments, discoveries and
inventions. These agreements may not, however, provide adequate protection for our trade secrets, know-how or other proprietary information
in the event of any unauthorized use or disclosure.
Costly litigation
may be necessary to protect our intellectual property rights and we may be subject to claims alleging the violation of the intellectual
property rights of others.
We may face significant expense
and liability as a result of litigation or other proceedings relating to patents and other intellectual property rights of others. In
the event that another party has also filed a patent application or been issued a patent relating to an invention or technology claimed
by us in pending applications, we may be required to participate in an interference proceeding declared by the USPTO to determine priority
of invention, which could result in substantial uncertainties and costs for us, even if the eventual outcome were favorable to us. We,
or our licensors, also could be required to participate in interference proceedings involving issued patents and pending applications
of another entity. An adverse outcome in an interference proceeding could require us to cease using the technology or to license rights
from prevailing third parties.
The cost to us of any patent
litigation or other proceeding relating to our own or in-licensed patents or patent applications, even if resolved in our favor, could
be substantial. Our ability to enforce our patent protection could be limited by our financial resources, and may be subject to lengthy
delays. If we are unable to effectively enforce our proprietary rights, or if we are found to infringe the rights of others, we may be
in breach of our License Agreement.
A third party may claim that
we are using inventions claimed by their patents and may go to court to stop us from engaging in our normal operations and activities,
such as research, development and the sale of any future products. Such lawsuits are expensive and would consume time and other resources.
There is a risk that the court will decide that we are infringing the third party’s patents and will order us to stop the activities
claimed by the patents, redesign our products or processes to avoid infringement or obtain licenses (which may not be available on commercially
reasonable terms). In addition, there is a risk that a court will order us to pay the other party damages for having infringed their patents
and possibly also their legal fees.
Moreover, there is no guarantee
that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed by the patent, or
that such a license, if made available to us, could be acquired on commercially acceptable terms. In addition, third parties may, in the
future, assert other intellectual property infringement claims against us with respect to our product candidates, technologies or other
matters.
We rely on confidentiality
agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual property
to compete against us.
Although we believe that we
take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure of confidential
information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas,
developments, discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly
to enforce. Although we seek to obtain these types of agreements from our contractors, consultants, advisors and research collaborators,
to the extent that employees and consultants utilize or independently develop intellectual property in connection with any of our projects,
disputes may arise as to the intellectual property rights associated with our products. If a dispute arises, a court may determine that
the right belongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets
and proprietary know-how that we seek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors
or others. Despite the protective measures we employ, we still face the risk that:
| ● | these agreements may be breached; |
| ● | these agreements may not provide adequate remedies for the applicable type of breach; |
| ● | our trade secrets or proprietary know-how will otherwise become known; or |
| ● | our competitors will independently develop similar technology or proprietary information. |
International
patent protection is particularly uncertain, and if we are involved in opposition proceedings in foreign countries, we may have to spend
substantial sums and management resources.
Patent law outside the United
States is different than in the United States. Further, the laws of some foreign countries may not protect our intellectual property rights
to the same extent as the laws of the United States, if at all. A failure to obtain sufficient intellectual property protection in any
foreign country could materially and adversely affect our business, results of operations and future prospects. Moreover, we may participate
in opposition proceedings to determine the validity of our foreign patents or our competitors’ foreign patents, which could result
in substantial costs and divert management’s resources and attention.
Although most jurisdictions
in which we have applied for, intend to apply for, or have been issued patents have patent protection laws similar to those of the United
States, some of them do not. For example, we expect to do business in Brazil and India in the future. However, the Brazilian drug regulatory
agency, ENVISA, has the authority to nullify patents on the basis of its perceived public interest and the Indian patent law does not
allow patent protection for new uses of pharmaceuticals (many of our current patent applications are of such nature). Additionally, due
to uncertainty in patent protection law, we have not filed applications in many countries where significant markets exist, including Indonesia,
Pakistan, Russia, African countries and Taiwan.
We may be unable
to protect the intellectual property rights of the third parties from whom we license certain of our intellectual property or with whom
we have entered into other strategic relationships.
Certain of our intellectual
property rights are currently licensed from Leiden University, and, in the future, we wish to continue to license intellectual property
from Leiden University and/or other universities and/or strategic partners. Such third parties may determine not to protect the intellectual
property rights that we license from them and we may be unable to defend such intellectual property rights on our own or we may have to
undertake costly litigation to defend the intellectual property rights of such third parties. There can be no assurances that we will
be able to obtain licenses to such third party intellectual property or otherwise have the right to use through similar strategic relationships.
Any loss or limitations on use with respect to our right to use such intellectual property licensed from third parties or otherwise obtained
from third parties with whom we have entered into strategic relationships could have a material adverse effect on our business, results
of operations and financial condition.
Under applicable
U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore, may be unable to prevent our competitors from
benefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions
irrespective of their agreements with us, which in turn could impact our future profitability.
We generally enter into confidentiality
and non-competition agreements with our employees and certain key consultants, or our employment and consulting agreements contain confidentiality
and non-competition provisions. These agreements, to the extent they are in place and in effect, prohibit our employees and certain key
consultants, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period
of time and maintain confidentiality of our know-how and trade secrets, as long as they do not enter the public domain. We may be unable
to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict
our competitors from benefitting from the expertise our former employees or consultants developed while working for us. For example, Israeli
courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities
of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts,
such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot
demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our
former employees or consultants and our ability to remain competitive may be diminished.
In addition, Chapter 8 to
the Israeli Patents Law, 5727-1967, or the Patents Law, deals with inventions made in the course of an employee’s service and during
his or her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law provides
that if there is no agreement that explicitly determines whether the employee is entitled to compensation for the service inventions and
the extent and terms of such compensation, such determination will be made by the Compensation and Rewards Committee, a statutory committee
of the Israeli Patents Office. Although our employees have agreed to assign to us service invention rights, 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.
Intellectual property
rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection
afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately
protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
| ● | Others may be able to make compounds that are the same as or similar to our product candidates but that are
not covered by the claims of the patents that we own or have exclusively licensed; |
| ● | We or our licensors or any future strategic partners might not have been the first to make the inventions
covered by the issued patent or pending patent application that we own or have exclusively licensed; |
| ● | We or our licensors or any future strategic partners might not have been the first to file patent applications
covering certain of our inventions; |
| ● | Others may independently develop similar or alternative technologies or duplicate any of our technologies
without infringing our intellectual property rights; |
| ● | It is possible that our pending patent applications will not lead to issued patents; |
| ● | Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages,
or may be held invalid or unenforceable, as a result of legal challenges by our competitors; |
| ● | Our competitors might conduct research and development activities in countries where we do not have patent
rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
and |
| ● | We may not develop additional proprietary technologies that are patentable. |
We may be subject
to claims challenging the inventorship of our patents and other intellectual property.
We may be subject to claims
that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor
or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved
in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If
we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such
as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our
business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction
to management and other employees.
Risks Related to Our Industry
We are subject
to government regulations and we may experience delays in obtaining required regulatory approvals in the United States to market our proposed
product candidates.
Various aspects of our operations
are subject to federal, state or local laws, and rules and regulations, any of which may change from time to time. Costs arising out of
any regulatory developments could be time-consuming and expensive and could divert management resources and attention and, consequently,
could adversely affect our business operations and financial performance.
Delays in regulatory approval,
limitations in regulatory approval and withdrawals of regulatory approval may have a material adverse effect on us. If we experience significant
delays in testing or receiving approvals or sign-offs to conduct clinical trials, our product development costs, or our ability to license
product candidates, will increase. If the FDA grants regulatory approval to market a product, this approval will be limited to those disease
states and conditions and populations for which the product has demonstrated, through clinical trials, to be safe and effective. Any product
approvals that we receive in the future could also include significant restrictions on the use or marketing of our products. Product approvals,
if granted, can be withdrawn for failure to comply with regulatory requirements or upon the occurrence of adverse events following commercial
introduction of the products. Failure to comply with applicable FDA or other applicable regulatory requirements may result in criminal
prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other
regulatory action against our product candidates or us. If approval is withdrawn for a product, or if a product were seized or recalled,
we would be unable to sell or license that product and our revenues would suffer. In addition, outside the United States, our ability
to market any of our potential products is contingent upon receiving market application authorizations from the appropriate regulatory
authorities and these foreign regulatory approval processes include all of the risks associated with the FDA approval process described
above.
We expect the
healthcare industry to face increased limitations on reimbursement as a result of healthcare reform, which could adversely affect third-party
coverage of our products and how much or under what circumstances healthcare providers will prescribe or administer our products.
In both the United States
and other countries, sales of our products will depend in part upon the availability of reimbursement from third-party payors, which include
governmental authorities, managed-care organizations and other private-health insurers. Third-party payors are increasingly challenging
the price and examining the cost effectiveness of medical products and services.
Increasing expenditures for
healthcare have been the subject of considerable public attention in the United States. Both private and government entities are seeking
ways to reduce or contain healthcare costs. Numerous proposals that would effect changes in the U.S. healthcare system have been introduced
or proposed in Congress and in some state legislatures, including reducing reimbursement for prescription products and reducing the levels
at which consumers and healthcare providers are reimbursed for purchases of pharmaceutical products.
In 2010, the U.S. congress
enacted the Patient Protection and Affordable Care Act of 2010, or the Affordable Care Act. The Affordable Care Act seeks to reduce the
federal deficit and the rate of growth in healthcare spending through, among other things, stronger prevention and wellness measures,
increased access to primary care, changes in healthcare delivery systems and the creation of health insurance exchanges. Enrollment in
the health insurance exchanges began in October 2013. The Affordable Care Act requires the pharmaceutical industry to share in the costs
of reform, by, among other things, increasing Medicaid rebates and expanding Medicaid rebates to cover Medicaid managed-care programs.
Other components of healthcare reform include funding of pharmaceutical costs for Medicare patients in excess of the prescription drug
coverage limit and below the catastrophic coverage threshold. Under the Affordable Care Act, pharmaceutical companies are now obligated
to fund 50% of the patient obligation for branded prescription pharmaceuticals in this gap, or “donut hole.”
There have been judicial and
congressional challenges to the Affordable Care Act. If a law is enacted, many if not all of the provisions of the Affordable Care Act
may no longer apply to prescription drugs. While we are unable to predict what changes may ultimately be enacted, to the extent that future
changes affect how any future products are paid for and reimbursed by government and private payers, our business could be adversely impacted.
On December 14, 2018, a federal district court in Texas ruled that the Affordable Care Act is unconstitutional as a result of the Tax
Cuts and Jobs Act and the federal income tax reform legislation previously passed by Congress and signed by President Trump on December
22, 2017, that eliminated the individual mandate portion of the Affordable Care Act. The case, Texas, et al. v. United States of America,
et al., (N.D. Texas), is an outlier, but in 2019, the Fifth Circuit Court of Appeals subsequently upheld the lower court decision, which
was then appealed to the U.S. Supreme Court. On June 17, 2021, the U.S. Supreme Court held that the plaintiffs did not have standing to
challenge the individual mandate because they have not shown a past or future injury. In November 2020, Joseph Biden was elected President
and, in January 2021, the Democratic Party obtained control of the Senate. As a result of these electoral developments, it is unlikely
that continued legislative efforts will be pursued to repeal PPACA. Instead, it is possible that legislation will be pursued to enhance
or reform PPACA. We are not able to state with certainty what the impact of potential legislation will be on our business.
In addition, other legislative
changes have been proposed and adopted since the Affordable Care Act was enacted. In August 2011, President Obama signed into law the
Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress
proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of an amount greater than $1.2
trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This
includes aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, starting in 2013. In January
2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to
several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments
to providers from three to five years. If we ever obtain regulatory approval and commercialization of our products, these laws may result
in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly,
our financial operations. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales
and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether
the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our
products may be. Further, the Deficit Reduction Act of 2010, directed Centers for Medicare & Medicaid Services to contract a vendor
to determine “retail survey prices for covered outpatient drugs that represent a nationwide average of consumer purchase prices
for such drugs, net of all discounts and rebates (to the extent any information with respect to such discounts and rebates is available).”
This survey information can be used to determine the National Average Drug Acquisition Cost, or NADAC. Some states have indicated that
they will reimburse based on the NADAC and this can result in further reductions in the prices paid for various outpatient drugs.
As part of its reform of the
340B discount drug program, on October 31, 2018, the Health Resources and Services Administration, or HRSA, at the HHS, issued a notice
of proposed rulemaking to move up the effective date of a final rule that would give HHS authority to impose Civil Monetary Penalties
on pharmaceutical manufacturers who knowingly and intentionally charged a covered entity more than the statutorily allowed ceiling price
for a covered outpatient drug. The final rule is intended to encourage compliance by manufacturers in offering the mandatory 340B ceiling
purchase price to eligible purchasers, such as certain qualified health systems or individual hospitals.
Various states, such as California,
have also taken steps to consider and enact laws or regulations that are intended to increase the visibility of the pricing of pharmaceutical
products with the goal of reducing the prices at which we are able to sell our products. Because these various actual and proposed legislative
changes are intended to operate on a state-by-state level rather than a national one, we cannot predict what the full effect of these
legislative activities may be on our business in the future.
Although we cannot predict
the full effect on our business of the implementation of existing legislation, including the Affordable Care Act or the enactment of additional
legislation, we believe that legislation or regulations that reduce reimbursement for or restrict coverage of our products could adversely
affect how much or under what circumstances healthcare providers will prescribe or administer our products. This could materially and
adversely affect our business by reducing our ability to generate revenue, raise capital, obtain additional collaborators and market our
products, following marketing approval. In addition, we believe the increasing emphasis on managed care in the United States has and will
continue to put pressure on the price and usage of pharmaceutical products, which may adversely impact any future product sales.
If we or any of
our independent contractors, consultants, collaborators, manufacturers, or service providers fail to comply with healthcare and data privacy
laws and regulations, we or they could be subject to enforcement actions, which could result in penalties and affect our ability to develop,
market and sell our product candidates and may harm our reputation.
We are or may in the future
be subject to federal, state, and foreign healthcare and data privacy laws and regulations pertaining to, among other things, fraud and
abuse of patients’ rights. These laws and regulations include:
| ● | The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully soliciting, offering,
receiving, or paying any remuneration, directly or indirectly, in cash or in kind, to induce or reward purchasing, ordering or arranging
for or recommending the purchase or order of any item or service for which payment may be made, in whole or in part, under a federal healthcare
program such as Medicare and Medicaid. Liability may be established without a person or entity having actual knowledge of the federal
Anti-Kickback Statute or specific intent to violate it. This statute has been interpreted to apply broadly to arrangements between pharmaceutical
manufacturers on the one hand and prescribers, patients, purchasers and formulary managers on the other. In addition, the Affordable Care
Act amended the Social Security Act to provide that the U.S. government may assert that a claim including items or services resulting
from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False
Claims Act, or the FCA. A conviction for violation of the Anti-Kickback Statute requires mandatory exclusion from participation in federal
healthcare programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities
from prosecution, the exemptions and safe harbors are drawn narrowly, and those activities may be subject to scrutiny or penalty if they
do not qualify for an exemption or safe harbor; |
| ● | The FCA prohibits, among other things, knowingly presenting, or causing to be presented claims for payment
of government funds that are false or fraudulent, or knowingly making, using or causing to be made or used a false record or statement
material to such a false or fraudulent claim, or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing
an obligation to pay money to the federal government. This statute also permits a private individual acting as a “whistleblower”
to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery. The FCA prohibits
anyone from knowingly presenting, conspiring to present, making a false statement in order to present, or causing to be presented, for
payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that are false or fraudulent,
claims for items or services not provided as claimed, or claims for medically unnecessary items or services. This law also prohibits anyone
from knowingly underpaying an obligation owed to a federal program. Increasingly, U.S. federal agencies are requiring nonmonetary remedial
measures, such as corporate integrity agreements in FCA settlements. The U.S. Department of Justice announced in 2016 its intent to follow
the “Yates Memo,” taking a far more aggressive approach in pursuing individuals as FCA defendants in addition to the corporations.
FCA liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties
of $5,500 to $11,000 per false claim or statement ($10,781 to $21,563 per false claim or statement for penalties assessed after August
1, 2016 for violations occurring after November 2, 2015, and $10,957 to $21,916 per false claim or statement for penalties assessed after
February 3, 2017 for violations occurring after November 2, 2015). Government enforcement agencies and private whistleblowers have investigated
pharmaceutical companies for or asserted liability under the FCA for a variety of alleged promotional and marketing activities, such as
providing free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting
fees and other benefits to physicians to induce them to prescribe products; engaging in promotion for “off-label” uses; and
submitting inflated best price information to the Medicaid Rebate Program; |
| ● | The federal False Statements Statute prohibits knowingly and willfully falsifying, concealing, or covering
up a material fact or making any materially false, fictitious or fraudulent statement or representation, or making or using any false
writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry, in connection with
the delivery of or payment for healthcare benefits, items, or services; |
| ● | The federal Civil Monetary Penalties Law authorizes the imposition of substantial civil monetary penalties
against an entity, such as a pharmaceutical manufacturer, that engages in activities including, among others (1) knowingly presenting,
or causing to be presented, a claim for services not provided as claimed or that is otherwise false or fraudulent in any way; (2) arranging
for or contracting with an individual or entity that is excluded from participation in federal healthcare programs to provide items or
services reimbursable by a federal healthcare program; (3) violations of the federal Anti-Kickback Statute; or (4) failing to report and
return a known overpayment; |
| ● | The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and
civil liability for 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 federal Anti-Kickback Statute, 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; |
| ● | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, which imposes
requirements on certain types of people and entities relating to the privacy, security, and transmission of individually identifiable
health information, and requires notification to affected individuals and regulatory authorities of certain breaches of security of individually
identifiable health information; |
| ● | The federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics
and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, to report
annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value to physicians,
other healthcare providers and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers
and their immediate family members, which is published in a searchable form on an annual basis; |
| ● | State laws comparable to each of the above federal laws, such as, for example, anti-kickback and false
claims laws that may be broader in scope and also apply to commercial insurers and other non-federal payor; |
| ● | Requirements for mandatory corporate regulatory compliance programs, and laws relating to patient data
privacy and security. Other state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance
guidelines and the relevant compliance guidance promulgated by the federal government; require drug manufacturers to report information
related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and
foreign laws govern the privacy and security of health information in some circumstances, many of which differ from each other in significant
ways and often are not preempted by HIPAA, thus complicating compliance efforts; and |
| ● | In the European Union, the General Data Protection Regulation, or the GDPR—Regulation EU 2016/679—which
was adopted in May 2016 and has become applicable on May 25, 2018. The GDPR is further intended to harmonize data protection requirements
across the European Union member states by establishing new and expanded operational requirements for entities that collect, process or
use personal data generated in the European Union, including consent requirements for disclosing the way personal information will be
used, information retention requirements, and notification requirements in the event of a data breach. |
| ● | The California Consumer Privacy Act of 2018, or CCPA, effective as of January 1, 2020, gives California
residents expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing,
and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as
well as a private right of action for data breaches, that is expected to increase data breach litigation. |
| ● | In addition, failure to comply with the Israeli Privacy Protection Law of 1981, and its regulations, as
well as the guidelines of the Israeli Privacy Protection Authority, may expose us to administrative fines, civil claims (including class
actions) and in certain cases criminal liability. Current pending legislation may result in a change of the current enforcement measures
and sanctions. |
If our operations are found
to be in violation of any such healthcare laws and regulations, we may be subject to penalties, including administrative, civil and criminal
penalties, monetary damages, disgorgement, imprisonment, the curtailment or restructuring of our operations, loss of eligibility to obtain
approvals from the FDA or foreign regulatory authorities, or exclusion from participation in government contracting, healthcare reimbursement
or other government programs, including Medicare and Medicaid, any of which could adversely our financial results. Any action against
us for an alleged or suspected violation could cause us to incur significant legal expenses and could divert our management’s attention
from the operation of our business, even if our defense is successful. In addition, achieving and sustaining compliance with applicable
laws and regulations may be costly to us in terms of money, time and resources.
Our employees,
principal investigators, consultants, commercial partners or vendors may engage in misconduct or other improper activities, including
non-compliance with regulatory standards.
We are also exposed to the
risk of employees, independent contractors, principal investigators, consultants, commercial partners or vendors engaging in fraud or
other misconduct. Misconduct by employees, independent contractors, principal investigators, consultants, commercial partners and vendors
could include intentional failures to comply with EU regulations, to provide accurate information to the EMA or EU Member States authorities
or to comply with manufacturing or quality standards we have or will have established. 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 such as promotion of products by medical practitioners. The EU Member States in which we operate have different
statutory provisions regulating the cooperation of pharmaceutical companies with healthcare professionals. In addition to these statutory
provisions, codes of conduct issued by business associations or other non-statutory standards may be applicable to our activities. Both
statutory provisions and non-statutory codes or standards restrict payments or other benefits provided to healthcare professionals, and
in case of non-compliance, may result in severe sanctions such as bans, administrative fines, criminal fines or even imprisonment. The
advertising of medicinal products for human use in the EU is regulated by Title VIII of European Directive 2001/83/EC. These provisions
have been implemented into the law of the EU member States. Such laws inter alia restrict or prohibit a wide range of pricing, discounting,
marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct could also involve
the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and serious and
irreparable harm to our reputation.
This could also apply with
respect to data privacy. In the EU, the EU Directive 95/46/EEC was replaced by the GDPR on May 25, 2018. The GDPR as an EU regulation
does not have to be implemented into Member States’ national law, but applies directly in all Member States since May 25, 2018.
It applies to companies with an establishment in the European Economic Area (EEA) and to certain other companies not in the EEA that offer
or provide goods or services to individuals located in the EEA or monitor individuals located in the EEA. The GDPR implements more stringent
operational requirements for controllers of personal data, including, for example, expanded disclosures about how personal information
is to be used, limitations on retention of information, increased requirements pertaining to health data and pseudonymized (i.e., key-coded)
data, increased cyber security requirements, mandatory data breach notification requirements and higher standards for controllers to demonstrate
that they have obtained a valid legal basis for certain data processing activities. The GDPR provides that EU Member States may continue
to make their own further laws and regulations in relation to the processing of genetic, biometric or health data, which could result
in continued or new differences between Member States, limit our ability to use and share personal data or could cause our costs to increase,
and harm our business and financial condition. We are also subject to evolving and strict rules on the transfer of personal data out of
the European Union to the United States. Further prospective revision of the Directive on privacy and electronic communications (Directive
2002/58/EC), or ePrivacy Directive, may affect our marketing communications.
Our actual or alleged failure
to comply with this regulation, or to protect personal data, could result in enforcement actions and significant penalties against us,
which could result in negative publicity, increase our operating costs, subject us to claims or other remedies and have a material adverse
effect on our business, financial condition, and results of operations. It is not always possible to identify and deter misconduct by
employees or other parties. The precautions we take to detect and prevent such activity may not protect us from legal or regulatory action
resulting from a failure to comply with applicable laws or regulations. Misconduct by our employees, principal investigators, consultants,
commercial partners or vendors could result in significant financial penalties, criminal sanctions, civil law claims and/or negative media
coverage, and thus have a material adverse effect on our business, including through the imposition of significant fines or other sanctions,
and our reputation. In particular, failure to comply with EU laws, including failure under the GDPR, ePrivacy Directive and other laws
relating to the security of personal data may result in fines up to €20,000,000 or up to 4% of the total worldwide annual turnover
of the preceding financial year, if greater, and other administrative penalties including criminal liability, which may be onerous and
adversely affect our business, financial condition, results of operations and prospects. Failure to comply with the GDPR and related laws
may also give risk to increase risk of private actions, including a new form of class action that is available under the GDPR.
Risks Related to Our Operations in Israel
We conduct our
operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and
its region.
Our headquarters, all of our
operations and some of our suppliers and third party contractors are located in central Israel and our key employees, officers and most
of our directors are residents of Israel. Accordingly, political and economic instability, war or acts of terrorism or natural disasters,
emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an emergency, including for
example, the COVID-19 outbreak), may directly affect our business. Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment
of trade within Israel or between Israel and its trading partners could adversely affect our operations and results of operations and
could make it more difficult for us to raise capital. During the winter of 2008, winter of 2012 and the summer of 2014, Israel was engaged
in an armed conflict with Hamas, a militia group and political party operating in the Gaza Strip, and during the summer of 2006, Israel
was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. Israel faces political
tension with respect to its relationships with Turkey, Iran and certain Arab neighbor countries. In addition, recent conflicts involved
missile strikes against civilian targets in various parts of Israel, and negatively affected business conditions in Israel. Recent political
uprisings and social unrest in various countries in the Middle East and North Africa are affecting the political stability of those countries.
This instability may lead to deterioration of the political relationships that exist between Israel and these countries, and have raised
concerns regarding security in the region and the potential for armed conflict. Any armed conflicts, terrorist activities or political
instability in the region could adversely affect business conditions and could harm our results of operations. For example, any major
escalation in hostilities in the region could result in a portion of our employees and service providers being called up to perform military
duty for an extended period of time. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened
unrest or tension, forcing us to make alternative arrangements when necessary. In addition, the political and security situation in Israel
may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their
commitments under those agreements pursuant to force majeure provisions in such agreements. Any future deterioration in the political
and security situation in Israel will negatively impact our business.
Our commercial insurance does
not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli
government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure
you that this government coverage will be maintained. Any losses or damages incurred by us could have a material adverse effect on our
business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm
our results of operations.
Further, in the past, the
State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business with the State
of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial
condition or the expansion of our business.
The legislative power of the
State resides in the Knesset, a unicameral parliament that consists of 120 members elected by nationwide voting under a system of proportional
representation. Actual or perceived political instability in Israel or any negative changes in the political environment, may individually
or in the aggregate adversely affect the Israeli economy and, in turn, our business, financial condition, results of operations and prospects.
Our operations
may be disrupted as a result of the obligation of Israeli citizens to perform military service.
Many Israeli citizens, including
Motti Farbstein, our Chief Operating and Financial Officer, are obligated to perform one month, and in some cases more, of annual military
reserve duty until they reach the age of 40 (or older, for reservists with 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 Motti Farbstein. Such disruption could materially adversely affect our business, financial
condition and results of operations.
Because a certain
portion of our expenses is incurred in currencies other than U.S. dollars, our results of operations may be harmed by currency fluctuations
and inflation.
From our inception through
January 1, 2018, our functional and presentation currency was the NIS. Management conducted a review of the functional currency and decided
to change its functional and presentation currency to U.S. dollars from the NIS effective January 1, 2018. These changes were based on
an assessment by our management that U.S. dollars is the primary currency of the economic environment in which we operate. Part of our
expenses are payable in U.S. dollars or in Euros as well as the revenues from our licensing arrangements that are payable in U.S. dollars
and Canadian dollars, we expect our revenues from future licensing arrangements to be denominated in U.S. dollars or in Euros. To date,
we have not engaged in hedging transactions. Although the Israeli rate of inflation has not had a material adverse effect on our financial
condition during 2019, 2020 or 2021 to date, we may, in the future, decide to enter into currency hedging transactions to decrease the
risk of financial exposure from fluctuations in the exchange rates of the currencies mentioned above in relation to U.S. dollars. These
measures, however, may not adequately protect us from material adverse effects.
It may be difficult
to enforce a U.S. judgment against us and our officers and directors named in this Annual Report on Form 20-F in Israel or the United
States, or to serve process on our officers and directors.
We are incorporated in Israel.
All of our executive officers and directors listed in this Annual Report on Form 20-F reside outside of the United States, and all of
our assets and most of the assets of our executive officers and directors are located outside of the United States. Therefore, a judgment
obtained against us or most of our executive officers and all of our directors in the United States, including one based on the civil
liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli
court. It also may be difficult for you to effect service of process on these persons in the United States or to assert U.S. securities
law claims in original actions instituted in Israel.
Your rights and
responsibilities as a shareholder will be governed by Israeli law which may differ in some respects from the rights and responsibilities
of shareholders of U.S. companies.
We are incorporated under
Israeli law. The rights and responsibilities of the holders of our shareholders are governed by our Amended and Restated Articles of Association
and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical
U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith toward the company and other
shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of
shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share
capital, mergers and acquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who knows
that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive
officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the
implications of these provisions that govern shareholders’ actions. These provisions may be interpreted to impose additional obligations
and liabilities of our shareholders that are not typically imposed on shareholders of U.S. corporations.
Provisions of
Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our Company, which could prevent a change of control,
even when the terms of such a transaction are favorable to us and our shareholders.
Israeli corporate law regulates
mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving
directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example,
a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company
with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the
merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, a full tender offer
can only be completed if the acquirer receives at least 95% of the issued share capital; provided that, pursuant to an amendment to the
Companies Law, 5759-1999, as amended, or the Israeli Companies Law, effective as of May 15, 2011, a majority of the offerees that do not
have a personal interest in such tender offer shall have approved the tender offer; except that, if the total votes to reject the tender
offer represent less than 2% of our issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that
do not have a personal interest in such tender offer is not required to complete the tender offer, and the shareholders, including those
who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition
the court to alter the consideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts
the offer may not seek appraisal rights).
Furthermore, Israeli tax considerations
may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel
exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent
as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent
on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales
and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the
tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred.
These and other similar provisions
could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be
beneficial to us or to our shareholders. See “Description of the Offered Securities—Articles of Association.”
Risks Related to Our Ordinary Shares and ADSs
We are currently operating
in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability
due to the ongoing military conflict between Russia and Ukraine.
U.S. and global markets are
experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between
Russia and Ukraine. In February 2022, Russia launched a full-scale military invasion of Ukraine. Although the length and impact of the
ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility
in commodity prices, credit and capital markets. Additionally, Russia’s prior annexation of Crimea, recent recognition of two separatist
republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions in Ukraine have led to sanctions and other
penalties being levied by the United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine,
the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic, including agreement to remove certain
Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment system. Additional
potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could
adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially
making it more difficult for us to obtain additional funds. Any of the abovementioned factors could affect our business, prospects, financial
condition, and operating results. The extent and duration of the military action, sanctions and resulting market disruptions are impossible
to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this Annual Report
on Form 20-F.
There can be no
assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes in 2022 or in any subsequent
year. If we are a PFIC, there may be negative tax consequences for U.S. taxpayers that are holders of our ordinary shares, ADSs, Warrants,
or Pre-funded Warrants.
We will be treated as a PFIC
for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of our gross income is “passive income”
or (ii) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. Passive
income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities
and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes
amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a
non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly,
at least a 25% interest (by value) is taken into account.
Based on our analysis of our
income, assets, and operations, we believe that we were not a PFIC for 2021. Because the PFIC determination is highly fact intensive,
there can be no assurance that we will not be a PFIC in 2022 or in any other taxable year. If we were to be characterized as a PFIC for
U.S. federal income tax purposes in any taxable year during which a U.S. shareholder owns our ordinary shares, ADSs, Warrants, or Pre-funded
Warrants, then “excess distributions” to such U.S. shareholder, and any gain realized on the sale or other disposition of
our ordinary shares, ADSs, Warrants, or Pre-funded Warrants, as applicable, will be subject to special rules. Under these rules: (i) the
excess distribution or gain would be allocated ratably over the U.S. shareholder’s holding period for the ordinary shares (or ADSs,
Warrants, or Pre-funded Warrants, as the case may be); (ii) the amount allocated to the current taxable year and any period prior to the
first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (iii) the amount allocated to each
of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that
year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such
other taxable year. Certain of the adverse consequences of PFIC status can be mitigated if a U.S. shareholder makes an election to treat
us as a “qualified electing fund,” or QEF, or makes a “mark-to-market” election. A QEF election is unavailable
with respect to our Warrants, and a mark-to-market election is unavailable with respect to our Warrants and Pre-funded Warrants. In addition,
if the U.S. Internal Revenue Service, or IRS, determines that we are a PFIC for a year with respect to which we have determined that we
were not a PFIC, it may be too late for a U.S. shareholder to make a timely QEF or mark-to-market election. U.S. shareholders who hold
our ordinary shares, ADSs, Warrants or Pre-funded Warrants during a period when we are a PFIC will be subject to the foregoing rules,
even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. shareholders who made a timely QEF or mark-to-market
election (to the extent available). A U.S. shareholder can make a QEF election by completing the relevant portions of and filing IRS Form
8621 in accordance with the instructions thereto. Upon request, we intend to annually furnish U.S. shareholders with information needed
in order to complete IRS Form 8621 (which form would be required to be filed with the IRS on an annual basis by the U.S. shareholder)
and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries that we control is a PFIC.
Provisions of
our charter documents and Israeli law may discourage, delay, prevent or otherwise impede a merger with, or an acquisition of, our Company,
which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
Provisions in articles of
association may discourage, delay, prevent or otherwise impede a merger, acquisition or other change in control of us that shareholders
may consider favorable, including transactions in which they might otherwise receive a premium for their ADSs. On February 20, 2020, we
amended our articles of association to establish a staggered Board of Directors, which divides the board into three groups, with directors
in each group serving a three-year term. The existence of a staggered board can make it more difficult for shareholders to replace or
remove incumbent members of our Board of Directors. As such, these provisions could also limit the price that investors might be willing
to pay in the future for our ADSs, thereby depressing the market price of our ADSs. In addition, because our Board of Directors is responsible
for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our shareholders to replace
or remove our current management by making it more difficult for shareholders to replace members of our Board of Directors.
In addition, Israeli corporate
law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions
involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions.
For example, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each
merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies
approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, a full
tender offer can only be completed if the acquirer receives at least 95% of the issued share capital; provided that, pursuant to an amendment
to the Companies Law, 5759-1999, as amended, or the Israeli Companies Law, effective as of May 15, 2011, a majority of the offerees that
do not have a personal interest in such tender offer shall have approved the tender offer; except that, if the total votes to reject the
tender offer represent less than 2% of our issued and outstanding share capital, in the aggregate, approval by a majority of the offerees
that do not have a personal interest in such tender offer is not required to complete the tender offer, and the shareholders, including
those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer,
petition the court to alter the consideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder
that accepts the offer may not seek appraisal rights).
Furthermore, Israeli tax considerations
may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel
exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent
as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent
on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales
and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the
tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred.
Our business could
be negatively impacted by unsolicited takeover proposals, by shareholder activism or by proxy contests relating to the election of directors
or other matters.
Our business could be negatively
affected as a result of an unsolicited takeover proposal, by shareholder activism or a proxy contest. During 2019, an activist shareholder
sought to make changes to our Board of Directors, among other matters, which ultimately resulted in us entering into a settlement agreement
with the shareholder, and for which considerable costs were incurred and absorbed significant time and attention by management and the
Board of Directors. A future proxy contest, unsolicited takeover proposal, or other shareholder activism relating to the election of directors
or other matters would most likely require us to incur significant legal fees and proxy solicitation expenses and require significant
time and attention by management and our Board of Directors. The potential of a proxy contest, unsolicited takeover proposal, or other
shareholder activism could interfere with our ability to execute our strategic plan, give rise to perceived uncertainties as to our future
direction, result in the loss of potential business opportunities or make it more difficult to attract and retain qualified personnel,
any of which could materially and adversely affect our business and operating results.
Issuance of additional
equity securities may adversely affect the market price of our ADSs or ordinary shares.
We are currently authorized
to issue 5,000,000,000 ordinary shares. As of the date of this Annual Report, we had 815,746,293 ordinary shares issued and outstanding
and we had no preferred shares outstanding. As of the date of this Annual Report, we also had warrants to purchase 377,947,640 ordinary
shares and options to purchase 19,422,700 ordinary shares outstanding, of which options to purchase 7,899,575 ordinary shares are currently
fully vested or vest within the next 60 days.
To the extent that ADSs or
ordinary shares are issued or options and warrants are exercised, holders of our ADSs and our ordinary shares will experience dilution.
In addition, in the event of any future issuances of equity securities or securities convertible into or exchangeable for ADSs or ordinary
shares, holders of our ADSs or our ordinary shares may experience dilution. We also consider from time to time various strategic alternatives
that could involve issuances of additional ADSs or ordinary shares, including but not limited to acquisitions and business combinations,
but do not currently have any definitive plans to enter into any of these transactions.
We have no plans
to pay dividends on our ordinary shares, and you may not receive funds without selling our ADSs or ordinary shares.
We have not declared or paid
any cash dividends on our ordinary shares, nor do we expect to pay any cash dividends on our ordinary shares for the foreseeable future.
We currently intend to retain any additional future earnings to finance our operations and growth and for future stock repurchases and,
therefore, we have no plans to pay cash dividends on our ordinary shares at this time. Any future determination to pay cash dividends
on our ordinary shares will be at the discretion of our Board of Directors and will be dependent on our earnings, financial condition,
operating results, capital requirements, any contractual restrictions, and other factors that our Board of Directors deems relevant. Accordingly,
you may have to sell some or all of our ADSs or ordinary shares in order to generate cash from your investment. You may not receive a
gain on your investment when you sell our ADSs or ordinary shares and may lose the entire amount of your investment.
The market price
of our ordinary shares and ADSs is subject to fluctuation, which could result in substantial losses by our investors.
The stock market in general
and the market price of our ordinary shares on the TASE and our ADSs on the NYSE American is subject to fluctuation, and changes in our
share price may be unrelated to our operating performance. The market price of our ordinary shares and ADSs are and will be subject to
a number of factors, including:
| ● | announcements of technological innovations or new products by us or others; |
| ● | announcements by us of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions
or capital commitments; |
| ● | expiration or terminations of licenses, research contracts or other collaboration agreements; |
| ● | public concern as to the safety of drugs we, our licensees or others develop; |
| ● | general market conditions; |
| ● | the volatility of market prices for shares of biotechnology companies generally; |
| ● | success of research and development projects; |
| ● | success in clinical and preclinical studies; |
| ● | departure of key personnel; |
| ● | developments concerning intellectual property rights or regulatory approvals; |
| ● | variations in our and our competitors’ results of operations; |
| ● | changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or ADSs are
covered by analysts; |
| ● | changes in government regulations or patent decisions; |
| ● | developments by our licensees; and |
| ● | general market conditions and other factors, including factors unrelated to our operating performance, such
as natural disasters and political and economic instability, including wars, terrorism, political unrest, results of certain elections
and votes, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an emergency, including
for example, the COVID-19 outbreak), boycotts, adoption or expansion of government trade restrictions, and other business restrictions. |
These factors and any corresponding
price fluctuations may materially and adversely affect the market price of our ordinary shares and our ADSs and result in substantial
losses by our investors.
Additionally, market prices
for securities of biotechnology and pharmaceutical companies historically have been very volatile. The market for these securities has
from time to time experienced significant price and volume fluctuations for reasons unrelated to the operating performance of any one
company. See also Risk Factors—Risks Relating to Ownership of Our Ordinary Shares and ADSs “We are currently operating
in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability
due to the ongoing military conflict between Russia and Ukraine.” In the past, following periods of market volatility, shareholders
have often instituted securities class action litigation and we have been named in the past in a lawsuit requesting recognition as a class
action, in which we ultimately prevailed. 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.
Future sales of our ordinary
shares or ADSs could reduce the market price of our ordinary shares and ADSs.
Substantial sales
of our ordinary shares or our ADSs either on the TASE or on the NYSE American, as applicable, may cause the market price of our ordinary
shares or our ADSs to decline.
Sales by us or our security-holders
of substantial amounts of our ordinary shares or our ADSs, or the perception that these sales may occur in the future, could cause a reduction
in the market price of our ordinary shares or our ADSs. The issuance of any additional ordinary shares or ADSs, or any securities that
are exercisable for or convertible into our ordinary shares or our ADSs, may have an adverse effect on the market price of our ordinary
shares or our ADSs, as applicable, and will have a dilutive effect on our shareholders.
We may not satisfy
the NYSE American requirements for continued listing. If we cannot satisfy these requirements, the NYSE American could delist our securities.
Our ADSs are listed on the
NYSE American under the symbol “CANF.” To continue to be listed on the NYSE American, we are required to satisfy a number
of conditions, including maintaining a share price and shareholders’ equity above certain thresholds. If we are delisted from the
NYSE American, trading in our securities may be conducted, if available, on the OTC Markets or, if available, via another market. In the
event of such delisting, our shareholders would likely find it significantly more difficult to dispose of, or to obtain accurate quotations
as to the value of our securities, and our ability to raise future capital through the sale of our securities could be severely limited.
In addition, if our securities were delisted from the NYSE American, our ADSs could be considered a “penny stock” under the
U.S. federal securities laws. Additional regulatory requirements apply to trading by broker-dealers of penny stocks that could result
in the loss of an effective trading market for our securities. Moreover, if our ADSs were delisted from the NYSE American, we will no
longer be exempt from certain provisions of the Israeli Securities Law, and therefore will have increased disclosure requirements.
ADS holders are
not shareholders and do not have shareholder rights.
The Bank of New York Mellon,
as Depositary, delivers our ADSs. Each ADS represents two of our ordinary shares. ADS holders will not be treated as shareholders and
do not have the rights of shareholders. The Depositary will be the holder of the shares underlying our ADSs. Holders of ADSs will have
ADS holder rights. A deposit agreement among us, the Depositary, ADS holders and the beneficial owners of ADSs sets out ADS holder rights
as well as the rights and obligations of the Depositary. New York law governs the deposit agreement and our ADSs. Our shareholders have
shareholder rights. Israeli law and our Amended and Restated Articles of Association govern shareholder rights. ADS holders do not have
the same voting rights as our shareholders. Shareholders are entitled to our notices of general meetings and to attend and vote at our
general meetings of shareholders. At a general meeting, every shareholder present (in person or by proxy, attorney or representative)
and entitled to vote has one vote. This is subject to any other rights or restrictions which may be attached to any shares. ADS holders
may instruct the Depositary how to vote the number of deposited shares their ADSs represent. Otherwise, you won’t be able
to exercise your right to vote unless you withdraw the shares. However, you may not know about the meeting enough in advance to withdraw
the shares. The Depositary will notify ADS holders of shareholders’ meetings and arrange to deliver our voting materials to
them if we ask it to. Those materials will describe the matters to be voted on and explain how ADS holders may instruct the Depositary
how to vote. For instructions to be valid, they must reach the Depositary by a date set by the Depositary. The Depositary will try, as
far as practical, subject to the laws of Israel and our Amended and Restated Articles of Association or similar documents, to vote or
to have its agents vote the shares or other deposited securities as instructed by ADS holders. The Depositary will only vote or attempt
to vote as instructed. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the Depositary
to vote your shares. In addition, the Depositary and its agents are not responsible for failing to carry out voting instructions or for
the matter of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be
nothing you can do if your shares are not voted as requested.
ADS holders do not have the
same rights to receive dividends or other distributions as our shareholders. Subject to any special rights or restrictions attached to
a share, the directors may determine that a dividend will be payable on a share and fix the amount, the time for payment and the method
for payment (although we have never declared or paid any cash dividends on our ordinary shares and we do not anticipate paying any cash
dividends in the foreseeable future). Dividends and other distributions payable to our shareholders with respect to our ordinary shares
generally will be payable directly to them. Any dividends or distributions payable with respect to ordinary shares deposited in the ADS
facility will be paid to the Depositary, which has agreed to pay to ADS holders the cash dividends or other distributions it or the custodian
receives on shares or other deposited securities, after deducting its fees and expenses. ADS holders will receive these distributions
in proportion to the number of ordinary shares their ADSs represent. In addition, there may be certain circumstances in which the Depositary
may not pay ADS holder’s amounts distributed by us as a dividend or distribution.
Our ordinary shares
and our ADSs are traded on different markets and this may result in price variations.
Our ordinary shares have traded
on the TASE since October 2005 and our ADSs have been listed on the NYSE American since November 2013. Trading on these markets will take
place in different currencies (U.S. dollars on the NYSE American and NIS on the TASE), and at different times (resulting from different
time zones, different trading days and different public holidays in the United States and Israel). The trading prices of our securities
on these two markets may differ due to these and other factors. Any decrease in the price of our securities on one of these markets could
cause a decrease in the trading price of our securities on the other market.
We have incurred
significant additional increased costs as a result of the listing of our ADSs for trading on the NYSE American, and our management is
required to devote substantial time to new compliance initiatives as well as to compliance with ongoing U.S. and Israeli reporting requirements.
As a public company in the
United States, we incur additional significant accounting, legal and other expenses that we did not incur before becoming a reporting
company in the United States. We also incur costs associated with corporate governance requirements of the SEC and the NYSE American Company
Guide, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act as
a result of our ADSs being listed on the NYSE American. These rules and regulations have increased our legal and financial compliance
costs, introduced new costs such as investor relations, stock exchange listing fees and shareholder reporting, and made some activities
more time consuming and costly. Since we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business
Startups Act of 2012, and are no longer able to take advantage of certain exemptions from various reporting requirements that are applicable
to public companies that are “emerging growth companies” and that were applicable to us prior to January 1, 2020, we may incur
additional compliance costs in the future. The implementation and testing of such processes and systems may require us to hire outside
consultants and incur other significant costs. Any future changes in the laws and regulations affecting public companies in the United
States and Israel, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC
and the NYSE American Company Guide, as well as applicable Israeli reporting requirements, for so long as they apply to us, may result
in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly
for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced
policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements
could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our Board committees
or as executive officers.
As a foreign private
issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and NYSE American requirements,
which may result in less protection than is accorded to investors under rules applicable to domestic issuers.
As a foreign private issuer,
we will be permitted to follow certain home country corporate governance practices instead of those otherwise required under the NYSE
American Company Guide for domestic issuers. For instance, we may follow home country practice in Israel with regard to, among other things,
composition and function of the audit committee and other committees of our Board of Directors and certain general corporate governance
matters. In addition, in certain instances we will follow our home country law, instead of the NYSE American Company Guide, which requires
that we obtain shareholder approval for certain dilutive events, such as an issuance that will result in a change of control of the company,
certain transactions other than a public offering, involving issuances of a 20% or more interest in the company and certain acquisitions
of the stock or assets of another company. We comply with the director independence requirements of the NYSE American Company Guide, including
the requirement that a majority of the Board of Directors be independent. Following our home country governance practices as opposed to
the requirements that would otherwise apply to a U.S. company listed on the NYSE American may provide less protection than is accorded
to investors under the NYSE American Company Guide applicable to domestic issuers.
In addition, as a foreign
private issuer, we are exempt from the rules and regulations under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange
Act, related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from
the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required
under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly
as domestic companies whose securities are registered under the Exchange Act.
Because we became
a reporting company under the Exchange Act by means of filing a Form 20-F, we may have difficulty attracting the attention of research
analysts at major brokerage firms.
Because we did not become
a reporting company by conducting an underwritten initial public offering in the United States, we may have difficulty attracting the
attention of security analysts at major brokerage firms in order for them to provide coverage of our company. The failure to receive research
coverage or support in the market for our shares will have an adverse effect on our ability to develop a liquid market for our ADSs.
If we are unable
to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act as they apply to a foreign private issuer that is listed on a U.S.
exchange, or our internal control over financial reporting is not effective, the reliability of our financial statements may be questioned
and our share price and the ADS price may suffer.
We are subject to the requirements
of the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires companies subject to the reporting requirements of the U.S.
securities laws to do a comprehensive evaluation of its and its subsidiaries’ internal control over financial reporting. To comply
with this statute, we must document and test our internal control procedures and our management and issue a report concerning our internal
control over financial reporting. In addition, as long as we do not become an accelerated or large accelerated filer, we are exempt from
the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. Under this exemption, our auditor will not be required
to attest to and report on our management’s assessment of our internal control over financial reporting until the date we are no
longer a non-accelerated filer. We will need to prepare for compliance with Section 404 by strengthening, assessing and testing our system
of internal controls to provide the basis for our report. However, the continuous process of strengthening our internal controls and complying
with Section 404 is complicated and time-consuming. Furthermore, as our business continues to grow both domestically and internationally,
our internal controls will become more complex and will require significantly more resources and attention to ensure our internal controls
remain effective overall. During the course of the testing, our management may identify material weaknesses or significant deficiencies,
which may not be remedied in a timely manner to meet the deadline imposed by the Sarbanes-Oxley Act. If our management cannot favorably
assess the effectiveness of our internal control over financial reporting, or our independent registered public accounting firm identifies
material weaknesses in our internal controls, investor confidence in our financial results may weaken, and the market price of our securities
may suffer.
ITEM
4. Information on the Company
A.
History and Development of the Company
Our legal name is Can-Fite
BioPharma Ltd. and our commercial name is “Can-Fite.” We are a company limited by shares organized under the laws of the State
of Israel. Our principal executive offices are located at 10 Bareket Street, Kiryat Matalon, Petah-Tikva 4951778 Israel. Our telephone
number is +972 (3) 924-1114.
We were founded on September
11, 1994 by Pnina Fishman, Ph.D., our Chief Executive Officer and a director, and Ilan Cohn, Ph.D., our Chairman of the Board of Directors,
under the name Can-Fite Technologies Ltd. On January 7, 2001, we changed our name to Can-Fite BioPharma Ltd. We completed our initial
public offering in Israel in October 2005 and our ordinary shares are traded on the TASE under the symbol “CFBI.” On October
2, 2012, our ADSs began trading over the counter in the United States under the symbol “CANFY” and on November 19, 2013, our
ADSs began trading on the NYSE American under the symbol “CANF.”
In November 2011, through
a series of transactions, we spun-off our activity in the ophthalmic field to our now former subsidiary, OphthaliX, a Delaware corporation
and successor-in-interest to Denali Concrete Management, Inc., a Nevada corporation, whose common shares were traded in the United States
on OTC under the symbol “OPLI.” In the spin-off transactions, we granted an exclusive license for the use of our Piclidenoson
drug candidate in the ophthalmic field, or the License Agreement, to Eye-Fite Ltd., an Israel limited company, or Eye-Fite, and transferred
our issued and outstanding ordinary shares in Eye-Fite to OphthaliX in exchange for an 86.7% interest in OphthaliX. In connection with
the spin-off transactions, OphthaliX completed a series of private placement financing transactions. Following the spin-off transactions
and the private placement financing transactions, we held approximately 82% interest in OphthaliX. In July 2016, OphthaliX released top-line
results from its Phase II clinical trial of Piclidenoson for the treatment of glaucoma. In this trial, no statistically significant differences
were found between the Piclidenoson treated group and the placebo group in the primary endpoint of lowering IOP. High IOP is a characteristic
of glaucoma. Piclidenoson was found to have a favorable safety profile and was generally well-tolerated. Based on these overall results,
OphthaliX saw no immediate path forward in glaucoma and ceased active business operations. Subsequently, on May 21, 2017, OphthaliX and
a wholly owned private Israeli subsidiary of OphthaliX, Bufiduck Ltd, or the Merger Sub, and Wize Pharma Ltd., or Wize Israel, an Israeli
company formerly listed on the TASE entered into an Agreement and Plan of Merger, or the Merger Agreement, providing for the merger of
the Merger Sub with and into Wize Israel, with Wize Israel becoming a wholly-owned subsidiary of OphthaliX and the surviving corporation
of the merger, or the Merger. On November 16, 2017, the Merger was completed. As a result of the Merger, our ownership of OphthaliX, immediately
post-Merger, became approximately 8% of the outstanding shares of common stock. In addition, immediately prior to the Merger, OphthaliX
sold on an “as is” basis to us all the ordinary shares of Eye-Fite in exchange for the irrevocable cancellation and waiver
of all indebtedness owed by OphthaliX and Eye-Fite to us, including approximately $5 million of deferred payments owed by OphthaliX and
Eye-Fite to us and, as part of the purchase of Eye-Fite, we also assumed certain accrued milestone payments in the amount of $175,000
under a license agreement previously entered into with NIH. In addition, that certain License Agreement granted to OphthaliX by us and
a related services agreement was terminated.
Our capital expenditures for
the years ended December 31, 2021, 2020 and 2019 were $11,000, $26,000 and $3,000, respectively. Our current capital expenditures are
made solely within Israel and primarily consist of the acquisition of computers and related communications equipment. Such capital expenditures
are financed internally.
We use our website (http://www.canfite.com)
as a channel of distribution of Company information. The information we post on our website may be deemed material. Accordingly, investors
should monitor the website, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents
of our website are not, however, a part of this Annual Report on Form 20-F.
B.
Business Overview
We are a clinical-stage biopharmaceutical
company that develops orally bioavailable small molecule therapeutic products for the treatment of cancer, liver and inflammatory diseases
and erectile dysfunction. We are also developing specific formulations of cannabis components for the treatment of cancer, inflammatory,
autoimmune, and metabolic diseases. Our platform technology utilizes the Gi protein associated A3AR as a therapeutic target. A3AR is highly
expressed in pathological body cells such as inflammatory and cancer cells, and has a low expression in normal cells, suggesting that
the receptor could be a specific target for pharmacological intervention. Our pipeline of drug candidates are synthetic, highly specific
agonists and allosteric modulators targeting the A3AR.
Our research further suggests
that A3AR affects pathological and normal cells differently. While specific A3AR agonists, such as Piclidenoson and Namodenoson, and allosteric
modulators, such as CF602, appear to inhibit growth and induce apoptosis of cancer and inflammatory cells, normal cells are refractory,
or unresponsive to the effects of these drugs. To date, the A3AR agonists have had a positive safety profile as a result of this differential
effect.
Our product pipeline is based
on the research of Dr. Pnina Fishman, who investigated a clinical observation that tumor metastasis can be found in most body tissues,
but are rarely found in striated muscle tissue, which constitutes approximately 60% of human body weight. Dr. Fishman’s research
revealed that one reason that striated muscle tissue is resistant to tumor metastasis is that muscle cells release small molecules which
bind with high selectivity to the A3AR. As part of her research, Dr. Fishman also discovered that A3ARs have significant expression in
tumor and inflammatory cells, whereas normal cells have low or no expression of this receptor. The A3AR agonists and allosteric modulators,
currently our pipeline drug candidates, bind with high selectivity and affinity to the A3ARs and initiating down-stream signal transduction
pathways resulting in apoptosis, or programmed cell death, of tumors and inflammatory cells and inhibition of inflammatory cytokines.
Cytokines are proteins produced by body cells and affect the immune system in order to maintain homeostasis. Overproduction or inappropriate
production of certain cytokines by the body can result in disease.
Our product candidates, CF101,
CF102 and CF602, are being developed to treat cancer, liver and inflammatory diseases, as well as erectile dysfunction. CF101, also known
as Piclidenoson, is in an advanced stage of clinical development for the treatment of psoriasis. During 2021, we decided to end our Phase
II COVID-19 trial of Piclidenoson for the treatment of COVID-19 to focus on other clinical programs. CF102, also known as Namodenoson,
is being developed for the treatment of HCC and has an orphan drug designation for this indication in the United States and Europe. Namodenoson
was granted Fast Track designation by the FDA as a second line treatment for patients with advanced HCC who failed first line therapy.
Namodenoson is also being developed for the treatment of NASH, a disease for which no FDA approved therapies currently exist. CF602 is
our second-generation allosteric drug candidate for the treatment of erectile dysfunction, which has shown efficacy in the treatment of
erectile dysfunction in preclinical studies and we are investigating additional compounds, targeting A3AR, for the treatment of erectile
dysfunction. Preclinical studies revealed that our drug candidates have potential to treat liver diseases, additional inflammatory diseases,
oncological diseases, viral diseases, such as the JC virus, and obesity.
We believe our pipeline of
drug candidates represent a significant market opportunity. For instance, according to iHealthcareAnalyst, the psoriasis drug market is
forecasted to be worth $11.3 billion by 2025. According to DelveInsight, the HCC drug market in the G8 countries (U.S., Germany, France,
Italy, Spain, UK, Japan and China) is expected to reach $3.8 billion by 2027.
We have out-licensed the following
product candidates for indications that we are currently pursuing:
| ● | Piclidenoson for the treatment of (i) psoriasis to Cipher Pharmaceuticals, or Cipher, for Canada, (ii)
psoriasis to Gebro Holding, or Gebro, for Spain, Switzerland and Austria, (iii) psoriasis to CMS Medical, or CMS, for China (including
Hong Kong, Macao and Taiwan), (iv) psoriasis to Kyongbo Pharm Co. Ltd., or Kyongbo Pharm, for South Korea, (v) psoriasis to Ewopharma
AG, or Ewopharma, for Central Eastern Europe, and (vi) osteoarthritis in companion animals including dogs and cats to Vetbiolix. |
| ● | Namodenoson for the treatment of (i) liver cancer and NASH to Chong Kun Dang Pharmaceuticals, or CKD,
for South Korea, (ii) advanced liver cancer and NAFLD/NASH to CMS for China (including Hong Kong, Macao and Taiwan), and (iii) HCC and
NASH to Ewopharma, for Central Eastern Europe and Switzerland. |
We are currently: (i) completed
enrollment in our Phase III trial for Piclidenoson in the treatment of psoriasis, with topline results expected in the second quarter
of 2022, (ii) preparing to commence a Phase III trial for Namodenoson in the treatment of advanced liver cancer and expect to commence
patient enrollment in the second quarter of 2022, (iii) conducting a Phase IIb study of Namodenoson in the treatment of NASH, having recently
commenced enrollment, (iv) investigating additional compounds, targeting the A3 adenosine receptor, for the treatment of erectile dysfunction,
and (v) developing formulations of cannabis components for the treatment of diseases in which there is an overexpression of A3AR.
Moreover, we believe characteristics
of Piclidenoson, as exhibited in our clinical studies to date, including its good safety profile, clinical activity, simple and less frequent
delivery through oral administration and its low cost of production, position it well against the competition in psoriasis markets, where
treatments, when available, often include injectable drugs, many of which can be highly toxic, expensive and not always effective.
Like Piclidenoson, Namodenoson
has a good safety profile, is orally administered and has a low cost of goods, which we believe may position it well in the HCC market,
where no drug has yet been approved by the FDAn for patients with advanced liver cancer disease defined as Child Pugh B7. In addition,
pre-clinical studies show Namodenoson’s novel mechanism of action which entails de-regulation of three key signaling pathways which
mediate the etiology and pathology of NAFLD/NASH and are responsible for the anti-inflammatory and anti-fibrogenic effect in the liver.
Most recently, pre-clinical data support Namodenoson’s potential utilization as an anti-obesity drug.
Nevertheless, other drugs
on the market, new drugs under development (including drugs that are in more advanced stages of development in comparison to our drug
candidates) and additional drugs that were originally intended for other purposes, but were found effective for purposes targeted by us,
may all be competitive to the current drugs in our pipeline. In fact, some of these drugs are well established and accepted among patients
and physicians in their respective markets, are orally bioavailable, can be efficiently produced and marketed, and are relatively safe.
None of our product candidates have been approved for sale or marketing and, to date, there have been no commercial sales of any of our
product candidates.
Our Strategy
Our strategy is to build a
fully integrated biotechnology company that discovers, in-licenses and develops an innovative and effective small molecule drug portfolio
of ligands that bind to a specific therapeutic target for the treatment of cancer, liver and inflammatory diseases and erectile dysfunction.
We continue to develop and test our existing pipeline, while also testing other indications for our existing drugs and examining, from
time to time, the potential of other small molecules that may fit our platform technology of utilizing small molecules to target the A3AR.
We generally focus on drugs with global market potential and we seek to create global partnerships to effectively assist us in developing
our portfolio and to market our products. Our approach allows us to:
| ● | continue to advance our clinical and preclinical pipeline; |
| ● | test our products for additional indications which fit our molecules’ mechanism of action; |
| ● | identify other small molecule drugs or ligands; |
| ● | focus on our product candidates closest to realizing their potential; and |
| ● | avoid dependency on a small number of small molecules and indications. |
Using this approach, we have
successfully advanced our product candidates for a number of indications into various stages of clinical development. Specific elements
of our current strategy include the following:
Successful development
of our existing portfolio of small molecule orally bioavailable drugs for the treatment of various diseases. We intend to continue
to develop our existing portfolio of small molecule orally bioavailable drugs, both for existing targeted diseases, as well as other potential
indications. Our drug development will continue to focus on cancer, liver and inflammatory diseases and erectile dysfunction. We intend
to focus most prominently on advancing our product candidates that are in the most advanced stages, i.e., psoriasis with respect to Piclidenoson,
and HCC and NASH with respect to Namodenoson.
Use our expertise with
our platform technology to evaluate in-licensing opportunities. We continuously seek attractive product candidates and innovative
technologies to in-license or acquire. We intend to focus on product candidates that would be synergistic with our A3AR expertise. We
believe that by pursuing selective acquisitions of technologies in businesses that complement our own, we will be able to enhance our
competitiveness and strengthen our market position. We intend to utilize our expertise in A3AR and our pharmacological expertise to validate
new classes of small molecule orally bioavailable drugs. We will then seek to grow our product candidate portfolio by attempting to in-license
those various candidates and to develop them for a variety of indications.
Primarily develop products
that target major global markets. Our existing product candidates are almost all directed at diseases that have major global markets.
Our intent is to continue to develop products that target diseases that affect significant populations using our platform technology.
We believe these arrangements will allow us to share the high development cost, minimize the risk of failure and enjoy our partners’
marketing capabilities, while also enabling us to treat a more significant number of persons. We believe further that this strategy will
increase the likelihood of advancing clinical development and potential commercialization of our product candidates.
Commercialize our product
candidates throughout-licensing arrangements. We have entered into several out-licensing arrangements with leading pharmaceutical
companies in the Far East, Canada and Europe. We intend to continue to commercialize our product candidates throughout-licensing arrangements
with third parties who may perform any or all of the following tasks: completing development, securing regulatory approvals, manufacturing,
marketing and sales. We do not intend to develop our own manufacturing facilities or sales forces. If appropriate, we may enter into co-development
and similar arrangements with respect to any product candidate with third parties or commercialize a product candidate ourselves. We believe
these arrangements will allow us to share the high development cost, minimize the risk of failure and enjoy our partners’ marketing
capabilities. We believe further that this strategy will increase the likelihood of advancing clinical development and potential commercialization
of our product candidates.
Our Product Pipeline
The table below sets forth
our current pipeline of product candidates, including the target indication and status of each.
Clinical Application/Drug |
Pre-Clinical |
Phase I |
Phase II |
Phase
III |
Autoimmune-Inflammatory |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Psoriasis - Piclidenoson (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liver diseases |
|
|
|
|
|
|
|
HCC – Namodenoson (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASH – Namodenoson (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Erectile Dysfunction - CF602 (4) |
|
|
|
|
|
|
|
|
|
|
|
|
Cannabinoid-Based Pharmaceuticals (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed |
|
|
|
|
|
On-going |
|
|
|
|
|
Preparatory work |
| (1) | We competed enrollment in our Phase III trial for Piclidenoson
in the treatment of psoriasis and are expecting topline data in the second quarter of 2022. |
| (2) | We are preparing to commence a Phase III trial for Namodenoson
in the treatment of advanced liver cancer. We expect to commence patient enrollment in the first half of 2022. |
| (3) | We are conducting a Phase IIb trial for Namodenoson for the
treatment of NASH having recently commenced patient enrollment. |
| (4) | We are investigating additional compounds, targeting the A3AR,
for the treatment of erectile dysfunction. |
| (5) | We are developing formulations of cannabis components for the
treatment of diseases in which there is an overexpression of A3AR. |
Piclidenoson (CF101)
Piclidenoson, our lead therapeutic
product candidate, is in development for the treatment of autoimmune-inflammatory diseases. Piclidenoson is a highly-selective, orally
bioavailable small molecule synthetic drug, which targets the A3AR. Based on our clinical studies to date, we believe that Piclidenoson
has a favorable safety profile and significant anti-inflammatory effects as a result of its capability to inhibit the production of inflammatory
cytokines, such as TNF-α, IL-6 and IL-1, chemokines and MMPs, by modulating key proteins such as NF-кB and PKB/AKT. Overall,
these up-stream events result in apoptosis of inflammatory cells. See Figure 1 below. Piclidenoson’s anti-inflammatory effect is
mediated via the A3AR, which is highly expressed in inflammatory cells.
Figure 1: Piclidenoson anti-inflammatory mechanism
of action
Psoriasis is an autoimmune
hereditary disease that affects the skin. In psoriasis, immune cells move from the dermis to the epidermis, where they stimulate keratinocytes,
or skin cells, to proliferate. DNA acts as an inflammatory stimulus to stimulate receptors which produce cytokines, such as IL-1, IL-6,
and TNF-α, and antimicrobial peptides. These cytokines and antimicrobial peptides signal more inflammatory cells to arrive and produce
further inflammation. In other words, psoriasis occurs when the immune system overreacts and mistakes the skin cells as a pathogen, and
sends out faulty signals that speed up the growth cycle of skin cells. Normally, skin cells grow gradually and flake off approximately
every four weeks. New skin cells grow to replace the outer layers of the skin as they shed. But in psoriasis, new skin cells move rapidly
to the surface of the skin in days rather than weeks. They build up and form thick patches called plaques.
There are five types of psoriasis:
plaque, guttate, inverse, pustular and erythrodermic. The most common form, plaque psoriasis, is commonly seen as red and white hues of
scaly patches appearing on the top first layer of the epidermis, or skin. In plaque psoriasis, skin rapidly accumulates at these sites,
which gives it a silvery-white appearance. Plaques frequently occur on the skin of the lower back, elbows and knees, but can affect any
area, including the scalp, palms of hands, soles of feet and genitals. The plaques range in size from small to large. In contrast to eczema,
psoriasis is more likely to be found on the outer side of the joint. Some patients, though, have no dermatological symptoms.
Psoriasis is a chronic recurring
condition that varies in severity from minor localized patches to complete body coverage. Fingernails and toenails are frequently affected,
known as psoriatic nail dystrophy, and can be seen as an isolated symptom. Psoriasis can also cause inflammation of the joints, which
is known as psoriatic arthritis.
Pre-Clinical Studies with Piclidenoson
The information below is based
on the various studies conducted with Piclidenoson, including preclinical studies. All of the studies were conducted by Can-Fite and/or
by Can-Fite’s partners or affiliates.
Pre-clinical studies are a
set of experiments carried out in animals to show that a certain drug does not evoke toxicity. Based on the animal studies and safety
data, one can approach the FDA and request permission to conduct a Phase I study in human beings.
The toxicity of Piclidenoson
has been evaluated following 28-day, 90-day, six-month and nine-month good laboratory practice repeated-dose toxicity studies in male
and female mice (28-day, 90-day and six-month), dogs (single-dose only), and monkeys (28-day, 90-day and nine-month). Even though the
dose of Piclidenoson in these studies was escalated to an exposure that is many folds higher than the dose used in human clinical studies,
no toxic side effects were identified.
Effects on cardiovascular
parameters were evaluated in conscious instrumented monkeys and anesthetized dogs. These studies demonstrated no significant cardiovascular
risk.
Genotoxicity studies were
conducted in bacterial and mammalian mutation assays in vitro (i.e., laboratory) and in an in vivo (i.e.,
animal) mouse micronucleus assay. These studies were all negative, indicating no deleterious action on cellular genetic material.
Reproductive toxicology studies
that we completed in mice and rabbits did not reveal evidence of negative effects on male or female fertility. In mouse teratology studies,
or studies for abnormalities of physiological developments, craniofacial and skeletal abnormalities were observed at doses greater than
10 mg/kg; however, no such effects were observed at 3 mg/kg demonstrating the safety of the drug in this concentration range. Teratogenicity,
or any developmental anomaly in a fetus, was not observed in rabbits given doses (greater than 13 mg/kg) that induced severe maternal
toxicity in such rabbits.
Studies of P450 enzymes, or
enzymes that participate in the metabolism of drugs, showed that Piclidenoson caused no P450 enzyme inhibition, or increased drug activity,
or induction, or reduced drug activity. Studies carried out with radiolabeled (C14) Piclidenoson in rats showed that the drug
is excreted essentially unchanged. These studies also showed that the drug is widely distributed in all body parts, except the central
nervous system.
In pre-clinical studies with
skin cells, modeling psoriasis in humans, Piclidenoson destroyed pathological skin cells. We observed that in a cell culture of human
HaCaT cells, incubated with Piclidenoson, cell apoptosis was induced with an increase in the caspase protein, known to mediate apoptotic
responses.
Clinical Studies with Piclidenoson
The information below is based
on the various studies conducted with Piclidenoson, including clinical studies in patients with autoimmune-inflammatory and ophthalmic
diseases. All of the studies were conducted by Can-Fite and/or by Can-Fite’s partners or affiliates.
Phase I Clinical
Studies of Piclidenoson
Piclidenoson has been studied
comprehensively in normal volunteer trials to assess safety, pharmacokinetic metabolism and food interaction. Two Phase I studies in 40
healthy volunteers, single dose and repeated dose, indicated that Piclidenoson is rapidly absorbed (reaching a maximal concentration within
one to two hours) with a half-life of eight to nine hours. Some mild adverse events (principally, increased heart rate) were observed
at doses higher than single doses of 10.0 mg and twice-daily doses of 5.0 mg. Such increase in heart rate was not accompanied by any change
in QT intervals. The drug showed linear kinetics, in that the concentration that results from the dose is proportional to the dose and
the rate of elimination of the drug is proportional to the concentration, and low inter-subject variability, meaning that the same dose
of the drug does not produce large differences in pharmacological responses in different individuals. A fed-fast Phase I study (with and
without food) demonstrated that food causes some attenuation in Piclidenoson absorption; accordingly, Piclidenoson is administered to
patients on an empty stomach in our trials. An additional Phase I study of the absorption, metabolism, excretion and mass balance of 4.0
mg (C14) Piclidenoson was conducted in six healthy male subjects and demonstrated that Piclidenoson was generally well-tolerated
in this group.
Based on the findings from
Phase I clinical studies, 4.0 mg twice daily, or BID, was selected as the upper limit for initial Phase II clinical trials.
Additionally, in preparation
for Phase III studies of Piclidenoson to establish cardiac safety in humans prior to registration for marketing approval, we conducted
a cardiodynamic trial that was a placebo-controlled crossover study using precise methodology to determine the effect of Piclidenoson
on electrocardiograms of healthy volunteers. The primary objective of the trial was to assess whether Piclidenoson causes a delay in cardiac
repolarization, as manifested by prolongation of the QT interval of the electrocardiogram. A drug-induced delay in cardiac repolarization
creates an electrophysiological environment that can lead to the development of ventricular cardiac arrhythmias. In this study, Piclidenoson
doses were up to 3-fold higher than the highest dose expected to be used in our registration-directed clinical trials. Trial results showed
that our highest projected Piclidenoson dose had no clinically significant adverse electrocardiographic effects.
Phase II, Phase
II/III and Phase III Clinical Studies of Piclidenoson
Piclidenoson has completed
ten Phase II studies, one Phase II/III study and two Phase III studies in different clinical indications including psoriasis, rheumatoid
arthritis, glaucoma and dry eye syndrome, or DES, in approximately 1,700 patients. These studies indicate that Piclidenoson has a favorable
safety profile at doses up to 4.0 mg BID for up to 48 weeks. In these studies, we did not observe a dose-response relationship between
Piclidenoson and adverse events. Moreover, we did not observe any clinically significant changes in vital signs, electrocardiograms, blood
chemistry or hematology. Furthermore, no new emergent safety signals have been observed in the completed or ongoing Phase III rheumatoid
arthritis and psoriasis trials.
Piclidenoson given as a standalone
therapy reached the primary endpoint in Phase II clinical studies in DES; however, a Phase III study of Piclidenoson for DES failed to
reach the primary endpoint. We have observed positive data utilizing Piclidenoson as a standalone drug in a Phase IIa clinical study in
rheumatoid arthritis. In this study, we also observed a significant direct correlation between A3AR expression prior to treatment and
the patients’ responses to Piclidenoson. However, we did not fully attain the primary endpoint in this study as we did not observe
a significant difference in responses between Piclidenoson and the placebo (which for this study was 0.1 mg of Piclidenoson). Moreover,
two Phase IIb studies in rheumatoid arthritis utilizing Piclidenoson in combination with MTX, also failed to reach the primary endpoints.
Based on this data, we believe that the failures in the Phase IIb studies in rheumatoid arthritis may have been due to low A3AR expression
in the MTX-treated patients. A Phase IIb of Piclidenoson given as a standalone therapy in patients with A3AR expression levels above a
certain threshold reached the primary endpoint in rheumatoid arthritis in December 2013. Piclidenoson has been tested in Phase II trials
to establish dose and activity (first, orally administered capsules and then tablets in formulations of 1.0, 2.0 and 4.0 mg of Piclidenoson
BID) in psoriasis (moderate to severe plaque psoriasis), rheumatoid arthritis and DES (moderate to severe). A Phase II/III study of Piclidenoson
for psoriasis did not meet its primary endpoint although positive data from further analysis of the Phase II/III study suggests Piclidenoson
as a potential systemic therapy for patients with moderate-severe psoriasis. In addition, a Phase II study of Piclidenoson for glaucoma
showed no statistically significant differences between the Piclidenoson treated group and the placebo group in the primary endpoint of
lowering IOP.
Psoriasis: The rationale
for utilizing Piclidenoson to treat psoriasis stems from our pre-clinical pharmacology studies showing that Piclidenoson acts as an anti-inflammatory
agent via the inhibition of inflammatory cytokines, including TNF-α, which plays a major role in the pathogenesis of psoriasis.
In addition, the A3AR is over-expressed in the tissue and PBMCs of patients with psoriasis.
We completed an exploratory
Phase II trial in ten European and Israeli medical centers involving 76 patients. This study was a randomized, double-blind, placebo controlled
and included four cohorts of 1.0, 2.0, and 4.0 mg of Piclidenoson and a placebo for a 12-week period. The study objectives were efficacy
and safety of daily doses of Piclidenoson administered orally in patients with moderate-to-severe plaque-type psoriasis and the efficacy
endpoints were improvements in both the Psoriasis Area Sensitivity Index score, or PASI score, and the Physicians’ Global Assessment
score, or PGA score. We concluded that Piclidenoson met such efficacy endpoints and was well-tolerated and effective in ameliorating disease
manifestations in these patients. The patient group receiving 2.0 mg Piclidenoson BID showed progressive improvement over the course of
the 12-week study in the PGA and PASI scores. Analysis of the mean change from baseline in the PASI score at week 12 revealed a statistically
significant difference between the 2.0 mg Piclidenoson BID treated group and the placebo group (p<0.001 versus baseline and p=0.031
versus placebo). Analysis of the PGA score revealed that 23.5% of the patients treated with the 2.0 mg Piclidenoson BID achieved a score
of 0 or 1, in comparison to 0% in the placebo group (p<0.05). The study also demonstrated linear improvement in patients in both PASI
and PGA. See Figure 2. No drug-related serious adverse events were evident during the study.
Figure 2: Psoriasis efficacy by PGA and PASI
Set forth below are representative
pictures of a patient with plaque-type psoriasis on the upper and lower back treated with 2.0 mg Piclidenoson BID, both baseline and week
12.
A comparison between baseline and week 12
of a patient treated with 2.0 mg CF101
In February 2015, we completed
a Phase II/III randomized, double-blind, placebo-controlled, dose-finding study of the efficacy and safety of Piclidenoson administered
daily orally in patients with moderate-to-severe plaque psoriasis. This clinical trial enrolled 326 patients in 17 clinical centers in
the United States, Europe and Israel, of which 103 patients were enrolled in the first study cohort and were treated for 6 months and
223 patients were enrolled in the second study cohort and were treated for 8 months. The first study cohort was comprised of three arms
with patients receiving: 1.0 mg of Piclidenoson; 2.0 mg of Piclidenoson; and placebo. All patients receiving placebo were switched to
either 1.0 mg or 2.0 mg of Piclidenoson after 12 weeks. Based on a positive safety and efficacy interim analysis of the first 103 patients
who completed 24 weeks of treatment in the trial, we decided to continue patient enrollment for the second stage of the study and the
study protocol was amended to extend the Piclidenoson 2.0 mg BID and placebo administration for a period of 32 weeks. The positive clinical
effects of the Piclidenoson 2.0 mg BID dose relative to a placebo were observed in a variety of standard psoriasis assessment parameters,
including PASI 75 and PGA scores, with the responses accumulating steadily over the 24-week treatment period.
In March 2015, we announced
the study did not meet its primary endpoint of a statistically significant improvement in the PASI 75 score relative to placebo after
12 weeks of treatment. Further analysis of the entire study period revealed that by 32 weeks of treatment with Piclidenoson, 33% of the
patients achieved PASI 75 while the mean percent of improvement in PASI score was 57% (p<0.001). This was a statistically significant
cumulative and linear improvement during weeks 16 to 32. Most significantly, by week 32 of the study, 20% of the study patients reached
PASI 90, a result demonstrating a response rate of 90% clearing of skin lesions. PASI 90 is one of the most stringent and difficult to
meet clinical endpoints for measuring responses to psoriasis treatments. Moreover, the PASI 90 subset analysis further suggests a higher
and significant (p=0.026) Piclidenoson response rate of 27% among patients previously untreated with systemic psoriasis therapy compared
to patients pre-treated with systemic drugs. We believe this presents the opportunity that Piclidenoson can be developed as a first-line
systemic therapy for patients with moderate-severe psoriasis and for patients who do not want to be treated with the current systemic
drugs due to safety issues.
Figure 3: Linear Effect of Piclidenoson
on PASI Scores through 32 Weeks of Treatment
We are currently conducting
our pivotal COMFORT Phase III trial for Piclidenoson for the treatment of psoriasis. The trial is a randomized, double-blind, placebo-
and active-controlled study that is investigating the efficacy and safety of daily Piclidenoson 2.0 mg or 3.0 mg administered twice daily
orally as compared to placebo as its primary endpoint and as compared to apremilast (Otezla®) as a secondary endpoint in approximately
400 patients with moderate-to-severe plaque psoriasis. Medication is to be taken orally twice daily for 32 weeks in a double-blinded fashion.
The primary end point is the proportion of subjects who achieve a PASI score response of ≥75% (PASI 75) vs. placebo at week 16. The
secondary endpoints include non-inferiority to Otezla® on weeks 16 and 32, achievement of PASI 50 at week 16 and efficacy and safety
data for Piclidenoson through the extension period of up to 48 weeks of treatment. Patients are being selected to the study based on over
expression of the A3AR biomarker. In September 2021, we announced that we completed enrollment of all patients. We expect COMFORT will
serve as the first of two pivotal studies required for EMA-drug approval.
In October 2020, an independent
data monitoring committee which conducted an interim analysis of the our Phase III Comfort™ trial of Piclidenoson in the treatment
of moderate-to-severe plaque psoriasis, recommended, based on the positive data, to continue the study with the original sample size and
drop one dose group. This means that an optimal dose has been found and that the study can be concluded earlier than has been originally
planned.
In September 2021, we completed
enrollment of all patients in the COMFORT Phase III trial and currently expect to announce top line data in the second quarter of 2022.
Rheumatoid Arthritis: We
previously conducted a Phase IIa blinded to dose study in 74 patients with rheumatoid arthritis, randomized to receive Piclidenoson as
a monotherapy in one of three doses—0.1 mg, 1.0 mg and 4.0 mg. The primary efficacy endpoint was ACR20 response at week 12, a criterion
determined by the American College of Rheumatology that reflects 20% improvement in inflammation parameters. The study data revealed maximal
response at the 1.0 mg group, showing 55.6% with ACR20, 33.3% with 50% improvement, or ACR50, and 11.5% with 70% improvement, or ACR70.
Piclidenoson administered BID for 12 weeks resulted in improvement in signs and symptoms of rheumatoid arthritis and was well-tolerated.
Subsequently, two Phase IIb
studies with Piclidenoson in combination with MTX were conducted. The study protocols were multicenter, randomized, double-blind, placebo-controlled,
parallel-group and dose-finding to determine the safety and efficacy of daily Piclidenoson administered orally when added to weekly MTX
in patients with active rheumatoid arthritis. The objectives of both studies were improvement in ACR20, ACR50, ACR70 and DAS28, or the
Disease Activity Score of 28 Joints, and EULAR, or the European League Against Rheumatism, response criteria, as well as a positive safety
profile. The trials’ primary endpoints were both ACR20. The first Phase IIb trial showed that the combined treatment had an excellent
safety profile, but no significant ACR20 response was observed between the rheumatoid arthritis group treated with Piclidenoson and MTX
and the group treated with MTX alone (the placebo group). However, the ACR50, ACR70 and the EULAR Good Values in the combined treatment
group were higher than those of the MTX placebo group. The study also indicated that the 1.0 mg Piclidenoson dose was the most favorable
dose, i.e., the dose yielded the highest ACR50 and EULAR Good Values as compared to the MTX placebo group. The most commonly reported
adverse events in this study included nausea, dizziness, headache and common bacterial and viral infections and infestations. Following
a decision of our Clinical Advisory Board in October 2007, an additional Phase IIb study was initiated. This study was conducted in medical
centers in Europe and Israel and included 230 patients who received the drug orally BID (0.1 and 1.0 mg Piclidenoson tablets plus MTX
versus a placebo, which was MTX alone) for 12 weeks. On April 30, 2009, we published preliminary results of the Phase IIb study, which
were later confirmed as the final results, also indicating that the study’s objectives were not achieved. The most commonly reported
adverse events in this study included nausea, myalgia and dizziness. The two Phase IIb studies failed to achieve the primary endpoint
of ACR20. A cross study analysis of the three rheumatoid arthritis clinical studies revealed that in the first Phase IIa study, where
Piclidenoson had been administered as a standalone drug, A3AR had been over-expressed in the patients’ PBMCs prior to Piclidenoson
treatment, whereas A3AR had not been over-expressed in the Phase IIb patient population. We believe, based on the foregoing data, that
there may be a direct and statistically significant correlation between A3AR over-expression at baseline and patients’ response
to Piclidenoson, and that Piclidenoson should be administered as a standalone drug and not in combination with MTX. Furthermore, the
correlation between A3AR expression levels prior to treatment and patients’ response to the drug suggest that the A3AR may be a
predictive biomarker to be analyzed prior to Piclidenoson treatment.
Based on the results of the
two Phase IIb studies, we conducted an additional Phase IIb clinical study with Piclidenoson as a stand-alone, monotherapy treatment and
not in combination with MTX. The trial was a 12-week multicenter, randomized, double-blind, placebo-controlled, parallel-group study involving
79 patients to determine the safety and efficacy of Piclidenoson administered orally daily in patients with active rheumatoid arthritis
and elevated baseline expression levels of the A3AR in PBMCs. Enrolled patients had high baseline A3AR biomarker expression (determined
at 1.5-fold over a predetermined age-matched standard). This selection criteria was made following the findings during previous Phase
IIa and IIb rheumatoid arthritis studies showing a positive correlation between A3AR expression at baseline and patients’ response
to the drug, potentially rendering A3AR expression as a predictive biomarker. The primary objectives of this study were to determine the
efficacy of oral Piclidenoson when administered daily as a standalone treatment for 12 weeks to patients with active rheumatoid arthritis
and elevated baseline expression levels of the A3AR in the patients’ PBMCs, in comparison to a placebo treatment, and to assess
the safety of daily oral Piclidenoson under the circumstances of the trial. In December 2013, we announced the results of the study in
which Piclidenoson met all primary efficacy endpoints, showing statistically significant superiority over placebo in reducing signs and
symptoms of rheumatoid arthritis as compared to the placebo. The treatment had an ACR20 response rate of 49% for Piclidenoson compared
to 25% for placebo (p=0.035), an ACR50 response rate of 19% for Piclidenoson compared to 9% for placebo, and an ACR70 response rate of
11% for Piclidenoson compared to 3% for placebo. Similar to our observations in the previously reported Piclidenoson psoriasis trials,
the response of patients with rheumatoid arthritis was cumulative over time, suggesting a consistent anti-inflammatory effect of Piclidenoson.
Moreover, half of the rheumatoid arthritis patients treated with Piclidenoson showed clinically meaningful improvement. Piclidenoson was
very well-tolerated and showed no evidence of immunosuppression, and there were no severe treatment-emergent adverse events during the
study. A subgroup analysis of 16 patients with no prior systemic therapy showed a dramatic increase in the response showing ACR20 of 75%,
ACR50 of 50%, and ACR70 of 50%. See Figure 7. We believe this may be related to the fact that in this patient population there is a full
receptor expression since they had not been treated earlier with any systemic drugs.
At the end of 2017, we initiated
the pivotal ACRobat Phase III trial of Piclidenoson to evaluate Piclidenoson as a first line treatment and replacement for MTX. The trial
was a randomized, double-blind, active and placebo-controlled, parallel-group study in approximately 500 patients in Europe, Israel and
Canada. The primary endpoint of ACRobat was low disease activity after 12 weeks of treatment in patients dosed with Piclidenoson compared
to those dosed with MTX. Piclidenoson at 1.0 mg and 2.0 mg, or placebo, will be administered twice daily, and MTX or placebo will be administered
once weekly. Secondary endpoints include disease activity remission at week 24, ACR 20/50/70 response rates, European League Against Rheumatism
good and moderate response rates and change from baseline for disease activity and ACR responses. The total study duration was to be 24
weeks in order to provide more data on long term efficacy and safety. In October 2020, an independent data monitoring committee for an
interim analysis recommended not to continue this study. Subsequently, we conducted a detailed analysis of the interim results which showed
that although Piclidenoson efficacy was significantly superior to placebo, the study missed the primary endpoint which was non-inferiority
vs. the comparator methotrexate. Accordingly, we decided to stop developing Piclidenoson for the treatment of rheumatoid arthritis to
focus on other indications.
Additional Developments with Piclidenoson
COVID-19
In
2020, with the aim of developing a much-needed drug to treat manifestations of COVID-19, mainly the Cytokine Release Syndrome, we initiated
a Phase II COVID-19 study of Piclidenoson, with patient enrollment in Israel and Europe. With the anticipated launch of Pfizer’s
oral COVID-19 antiviral drug candidate, in November 2021, we made a strategic decision to end our COVID-19 program and to focus our resources
on our other clinical programs, all in advanced clinical trials.
Osteoarthritis
According to the Arthritis
Foundation, osteoarthritis, or OA, is the most common arthritic disease. Currently, there is a shortage of effective drugs for treating
OA patients. Piclidenoson has induced a significant anti-inflammatory effect in experimental animal models with respect to the treatment
of OA. We have not yet filed an IND for this indication as Piclidenoson for the treatment of OA is not currently being clinically tested
in the United States and there are no near-term plans to do so.
In November 2019, we announced
that the U.S. Patent and Trademark Office, or the PTO, has issued to us Patent #10,265,337 titled “Use of A3 Adenosine Receptor
Agonist in Osteoarthritis Treatment” for Piclidenoson for the treatment of osteoarthritis in mammals. We are evaluating potential
partnerships with companies in the animal health pharmaceutical market that may in-license and develop Piclidenoson for the companion
animal market, a substantial and rapidly growing global market.
In June 2021, we signed a
development and commercialization agreement with Vetbiolix, a France-based veterinary biotech company, for the development of Piclidenoson
for the treatment of osteoarthritis in companion animals including dogs and cats. In November 2021, we announced that Vetbiolix commenced
a safety and efficacy study of Piclidenoson for the treatment of osteoarthritis in dogs. Safety and efficacy results are expected in the
second quarter of 2022.
Namodenoson (CF102)
Namodenoson is our second
drug candidate and is under development for the treatment of HCC, hepatitis C virus, or HCV, or NAFLD, the precursor to NASH. Namodenoson
is also a small, orally bioavailable molecule, and an A3AR agonist, with high affinity and selectivity to the A3AR. In comparison to the
expression in adjacent normal liver tissue, the A3AR is over-expressed in tumor tissues of patients with HCC, and the over-expression
is also reflected in the patients’ PBMCs. A3AR over-expression in the patients’ tumor cells and PBMCs is attributed to high
expression of certain A3AR transcription factors. The binding of Namodenoson to the A3AR results in down-regulation, or a decrease in
the quantity of a cellular component, such as the number of receptors on a cell’s surface, of certain A3AR transcription factors.
Our studies have shown that this down-regulation leads to apoptosis of HCC cells. In our pre-clinical and clinical studies, Namodenoson
demonstrated anti-cancer, anti-viral and liver protective effects. As a result, we believe that Namodenoson can be used to treat a variety
of oncological and liver-related diseases and viruses.
In February 2012, the FDA
granted an orphan drug status for the active moiety, or the part of the drug that is responsible for the physiological or pharmacological
action of the drug substance, of Namodenoson for the treatment of HCC. Subsequently, in October 2015, the EMA granted Namodenoson orphan
drug designation for the treatment of HCC.
An orphan drug designation
is a special designation for drug approval and marketing. The special designation is granted to companies that develop a given drug for
unique populations and for incurable and relatively rare diseases. The FDA orphan drug designation program provides orphan status to drugs
and biologics, which are intended for the safe and effective treatment, diagnosis or prevention of rare diseases or disorders that affect
fewer than 200,000 people in the United States and in the EU not more than 5 per 10,000. Orphan drug designations have enabled companies
to achieve medical breakthroughs that may not have otherwise been achieved due to the economics of drug research and development as this
status lessens some of the regulatory burdens, for approval, including statistical requirements for efficacy, safety and stability, in
an effort to maintain development momentum. Orphan drug designation also results in additional marketing exclusivity and could result
in certain financial incentives.
In September 2015, the FDA
granted Fast Track designation to Namodenoson as a second line treatment to improve survival for patients with advanced HCC who have previously
received Nexavar (sorafenib). Fast Track, aimed at getting important new drugs that meet an unmet need to patients earlier, is expected
to expedite the development of Namodenoson. Drugs that receive Fast Track designation benefit from more frequent meetings and communications
with the FDA to review the drug’s development plan to support approval. It also allows us to submit parts of the NDA on a rolling
basis for review as data becomes available.
Israel’s Ministry of
Health has previously approved Namodenoson for Compassionate Use for HCC.
Set forth below are general
descriptions of the diseases with respect to which Namodenoson has underwent or is currently undergoing or being prepared for clinical
trials.
HCC: HCC is an
oncological disease characterized by malignant tumors that grow on the surface or inside of the liver. This type of tumor is refractory
to chemotherapy and to other anti-cancer agents. HCC, like any other cancer, develops when there is a mutation to the cellular machinery
that causes the cell to replicate at a higher rate and/or results in the cell avoiding apoptosis. Chronic infections of Hepatitis B and/or
C can aid the development of HCC by repeatedly causing the body’s own immune system to attack the liver cells, some of which are
infected by the virus. While this constant cycle of damage followed by repair can lead to mistakes during repair which in turn lead to
carcinogenesis, this hypothesis is more applicable, at present, to HCV. Chronic HCV causes HCC through cirrhosis. In chronic Hepatitis
B, however, the integration of the virus into infected cells can directly induce a non-cirrhotic liver to develop HCC. Alternatively,
repeated consumption of large amounts of ethanol can have a similar effect.
Hepatitis C: HCV
is an infectious disease affecting primarily the liver, caused by the Hepatitis C virus. The infection is often asymptomatic, but chronic
infection can lead to scarring of the liver and ultimately to cirrhosis, which is generally apparent after many years, and chronic liver
disease. The virus also increases the chance for HCC development. In some cases, those with cirrhosis will develop liver failure, liver
cancer or life-threatening esophageal and gastric varices, or dilated submucosal veins, which can be life-threatening. HCV is spread primarily
by blood-to-blood contact often associated with intravenous drug use, poorly sterilized medical equipment, transfusions, and erectile
intercourse.
NAFLD/NASH: NASH, also
called “fatty liver,” is a condition in which fat builds up inside the liver causing inflammation. Prior to the presence of
inflammation, the disease is simply referred to as NAFLD, the most common form of liver disorder in the United States. The accumulation
of macroglobular fat inside the liver causes oxidative stress that reduces the efficiency of the liver and can lead to increased liver
enzymes such as alanine aminotransferase and aspartate aminotransferase. Loss of liver efficiency and oxidative stress leads to inflammation,
liver cell ballooning, and the development of NASH. Prolonged inflammation results in cirrhosis (scar tissue), liver failure, or liver
cancer. There are currently no drugs approved for the treatment of NASH.
Pre-Clinical Studies with Namodenoson
In pre-clinical pharmacology
studies, Namodenoson inhibited the growth of HCC via the induction of tumor cell apoptosis. In addition, in collaboration with leading
virology labs, we observed that Namodenoson inhibited viral replication of HCV through the down-regulation of viral proteins. Both of
these findings served as a basis to further explore development of this drug for HCC.
We conducted several pre-clinical
studies demonstrating robust anti-inflammatory, anti-fibrogenic and anti-steatotic effects, supporting the development of Namodenoson
for the NAFLD/NASH indication. Furthermore, the results indicated that Namodenoson was very well-tolerated.
In pre-clinical studies, we
evaluated the toxicity, stability, metabolism and other safety parameters of Namodenoson at doses much higher than the doses that we currently
administer to humans in our clinical trials of Namodenoson.
In preclinical studies, Namodenoson
revealed its capability to act as an anti NAFLD/NASH agent and data has shown as follows:
| ● | In the STAM model, Namodenoson significantly decreased the
non-alcoholic fatty liver disease (NAFLd) activity score, NAS, demonstrating anti-inflammatory and anti steatotic effects. |
| ● | In the carbon tetrachloride (ccl4) model, Namodenoson reversed
alanine aminotransferase (ALT) to normal values and significantly improved liver inflammation and fibrosis, as well as the adiponectin
and leptin levels; and |
| ● | Namodenoson mechanism of action entailed de-regulation of
the Wnt/β-catenin pathway in the liver extracts of the ccl4 model mice and in the LX2 HScs, manifested by a decreasing the expression
of phosphoinositide 3-kinase (PI3K), NF-κB. |
Clinical Studies of Namodenoson
The information discussed
below is based on the various studies conducted by Can-Fite with Namodenoson, including clinical studies in patients with oncological
and liver-related diseases and viruses.
Phase I Clinical Study
Namodenoson completed a Phase
I double-blind, randomized, placebo-controlled, ascending single dose trial to evaluate the safety, tolerability, and pharmacokinetics
of orally administered Namodenoson in healthy volunteers. The study was conducted in the United States under an open IND. Namodenoson
was found to be safe and well-tolerated with a half-life time of 12 hours. See Figure 8.
Figure 8: Half-life of orally administered
Namodenoson – Phase I Clinical Study
Phase I/II and Phase II Clinical Studies
HCC
Namodenoson completed two
Phase I/II studies in Israel, one in patients with HCC and another in patients with HCV. The HCC Phase I/II study was an open-label, dose-escalation
study evaluating the safety, tolerability, pharmacokinetics and pharmacodynamics of orally administered Namodenoson in patients with advanced
HCC. The primary objectives of the study were to determine the safety and tolerability, dose-limiting toxicities, maximum tolerated dose,
and recommended Phase II dose of orally administered Namodenoson in patients with advanced HCC; and to assess the repeat-dose pharmacokinetics
behavior of Namodenoson in those patients. The secondary objectives were to document any observed therapeutic effect of Namodenoson in
patients with HCC and to evaluate the relationship between PBMCs and the A3AR expression at baseline, as a biomarker, and the effects
of Namodenoson in patients with HCC. The study included 18 patients, nine of which were also carriers of HCV. The initial dose of Namodenoson
was 1.0 mg BID, with planned dose escalations in subsequent cohorts to 5.0 and 25.0 mg BID. This Phase I/II study achieved its objectives,
showing a good safety profile, or no material differences versus a placebo with respect to observed and patient-indicated side effects,
for Namodenoson and a linear pharmacokinetic drug profile, with no dose-limiting toxicities at any dose level. The median overall survival
time for the patients in this study was 7.8 months, which is encouraging data considering that (i) 67% of the patient population in the
study had previously progressed on Nexavar, produced by Onyx Pharmaceuticals and Bayer, and that Namodenoson was a second line therapy
for these patients and (ii) 28% of the patient population were Child-Pugh Class B patients (patients classified on the Child Pugh scoring
system for chronic liver disease as having significantly impaired liver function) whose overall survival time is usually 3.5 to 5.5 months.
Accordingly, we may also consider Namodenoson as a drug to be developed for this patient sub-population of Child-Pugh Class B patients.
Namodenoson had no adverse effect on routine measures of liver function over a six-month period in 12 patients treated for at least that
duration. These findings are consistent with our pre-clinical Namodenoson data which demonstrated a protective effect on normal liver
tissue in an experimental model of liver inflammation. As such, Namodenoson may potentially be a safer alternative to patients with cirrhosis
and/or hepatic impairment. The study also demonstrated a direct relationship between A3AR expression at baseline and patients’ response
to Namodenoson, suggesting A3AR as a predictive biological marker. We also observed a decrease in the viral load of seven out of nine
patients who were also carriers of HCV. The most commonly reported adverse events included loss of appetite, ascites, nausea, diarrhea,
constipation and pain. However, many of these events are expected in a population of patients with advanced HCC. The most frequently reported
drug-related adverse events included diarrhea, fatigue, loss of appetite, pain and weakness.
Our second Phase I/II study
was a randomized, double-blind, placebo-controlled, dose-escalation study evaluating the safety, tolerability, biological activity, and
pharmacokinetics of orally administered Namodenoson in 32 subjects with chronic HCV genotype 1. Eligible subjects were assigned in a 3:1
ratio (eight subjects in each cohort) to receive QD or BID treatment (1.0, 5.0 and 25.0 mg of Namodenoson) for 15 days with oral Namodenoson
or with a placebo. Dose escalation occurred in four sequential cohorts. The study’s primary objectives were to determine the safety
and tolerability of orally administered Namodenoson in patients with chronic HCV genotype 1, to assess the effects on HCV load during
15 days of treatment with Namodenoson and to assess the repeat-dose pharmacokinetic behavior of Namodenoson under the conditions of this
trial. The secondary objective of this trial was to perform an exploratory evaluation of the relationship between A3AR in PBMCs at baseline
and the clinical effects of Namodenoson on the study’s patients. Following the decrease in HCV load that had been observed in HCV
patients treated with Namodenoson in the parallel HCC study and the good safety profile of Namodenoson, we received Israeli Institutional
Review Board, or IRB, approval to extend the treatment period of the Phase I/II in patients with HCV to four months with the 1.0 mg dose
vs. the placebo. The results of this Phase I/II HCV study demonstrated a good safety profile and a linear pharmacokinetic drug profile,
however, no significant decrease in the viral load was observed. Notwithstanding, we did observe in the parallel HCC study that seven
out of the nine patients with both HCC and HCV experienced a decrease in viral load and that these seven patients were treated with higher
Namodenoson dosages than what was administered to the patients with chronic HCV genotype 1 only, and not HCC, possibly explaining the
difference in results. The most commonly reported adverse events included loss of appetite, ascites, nausea, diarrhea, constipation and
pain. However, many of these events are expected in a population of patients with advanced HCV. The most frequently reported drug-related
adverse events included diarrhea, fatigue, loss of appetite, pain and weakness.
In 2019, we completed a Phase
II study in HCC patients. In January 2013, as part of our preparatory work for such study, we announced that we believe that the optimal
drug dose for the upcoming study is Namodenoson 25.0 mg. This dose was found to be the most effective dose out of the three dosages tested
(1.0 mg, 5.0 mg and 25.0 mg) in the previous Phase I/II study. We filed a patent application protecting such optimal dose of Namodenoson
for HCC. A publication summarizing the results of the Phase I/II study was published in “The Oncologist,” a leading oncology
scientific journal. We also highlighted that one patient has been treated with Namodenoson for over five years.
The Phase II study was a randomized,
double-blind, placebo controlled trial conducted in the United States, Europe and Israel to evaluate the efficacy and safety of Namodenoson
as a second-line treatment for advanced HCC in subjects with Child-Pugh B who failed Nexavar as a first line treatment. Advanced HCC in
patients with underlying cirrhosis is categorized into three subclasses based on the severity of cirrhosis, starting with Child Pugh A,
or CPA, mostly treated with Nexavar and progressing to Child Pugh B, or CPB, and Child Pugh C, or CPC, for which there are no drugs on
market with proven efficacy. In the study, we enrolled only patients with CPB stage liver cancer with CBP stage patients being further
divided into three categories of increasing severity, namely CPB7, CPB8, and CPB9. These patients already failed first line Nexavar and
were treated with Namodenoson (25mg), or placebo, as a second line treatment, twice daily, using a 2:1 randomization. The primary endpoint
of the study was median overall survival. Secondary endpoints included progression free survival, partial response, and disease control
rate. In March 2014, the study protocol was approved by the IRB at the Rabin Medical Center in Israel and in December 2014, we dosed the
first patient at the study’s Israeli site. In the third quarter of 2017, we announced that we completed enrollment and randomization
of all 78 patients and in March 2019, we announced top-line results.
While the study did not achieve
the primary end point of overall survival in the whole population (n=78), superiority in overall survival was found in the largest study
subpopulation of CPB7 (n=56) and in secondary end points in the whole population, including objective response measured by CT or MRI.
Findings from the study include the following: (i) for the whole population (n=78), median overall survival was 4.1 months for Namodenoson
vs. 4.3 months for placebo (HR: 0.82), (ii) pre-planned subpopulation analysis of the CPB7 patients (n=56), revealed that the Namodenoson
treated group (n=34) showed median overall survival of 6.8 months vs 4.3 months in placebo (n=22) [HR: 0.77 (95% CI 0.49-1.40)]; similarly,
for this subgroup of patients, progression free survival was 3.5 months for the Namodenoson treated group vs 1.9 (HR: 0.87) in the placebo
group; (iv) 1-year survival in the CPB7 population was 44% for the Namodenoson treated group, as compared to 18% for patients dosed with
placebo (p=0.028); (v) objective response in the whole patient population measured by CT or MRI, demonstrated that 9% treated by Namodenoson
achieved partial response vs 0% in the placebo group, (vi) consistent with safety results from previously completed clinical trials, Namodenoson
was generally well-tolerated, with no treated patients being withdrawn for toxicity and no cases of treatment-related deaths, (vii) disease
control rate was 18.0% in the Namodenoson group vs 7.1% in the placebo group (p=0.013) after four months of treatment, (viii) 32.0% of
patients treated with Namodenoson completed at least 12 months of treatment vs 14.3% who were treated with placebo (p=0.058), (vii) as
of March 27, 2019, two patients in the Namodenoson group are ongoing after 30 months of treatment; these patients will continue to receive
Namodenoson, and (ix) all nine patients with CBP9 cirrhosis, the most severe grade allowed into the trial, were randomly assigned to the
Namodenoson treatment group (OS=3.5 months), a fact which has distorted the results in the whole population. Subgroup analyses using a
variety of demographic and baseline disease characteristics, such as sex, performance status, and HCC disease status indicate the overall
survival advantage of Namodenoson over placebo persists in the vast majority of the subgroups.
A paper titled “Namodenoson
in Advanced Hepatocellular Carcinoma and Child–Pugh B Cirrhosis: Randomized Placebo-Controlled Clinical Trial” was published
in the peer reviewed journal Cancers with respect to the Phase II HCC trial.
In February 2021, we announced
that two patients continued to receive Namodenoson treatment from our Phase II study of HCC after nearly four years under an open label
extension. Additional findings show disappearance of ascites, normal liver function and good quality of life. In one patient stable disease
has been recorded with disappearance of peritoneal carcinomatosis. Namodenoson continued to demonstrate a good safety profile and was
well tolerated with no severe adverse events reported. Furthermore, in December 2021, we reported that the last patient treated under
the open label extension experienced a complete response. Under treatment with Namodenoson, we reported that the patient survived five
years, during which time the clinical benefits of treatment have included the disappearance of ascites, normal liver function, and the
disappearance of peritoneal carcinomatosis leading to complete clearance of all cancer lesions.
In October 2019, we held an
End-of-Phase II Meeting with the FDA regarding our Phase II study of Namodenoson in the treatment of HCC. The purpose of the meeting was
to review the Phase II study data with the FDA and to present our proposed Phase III study design to the regulatory agency. The FDA agreed
with our proposed pivotal Phase III trial design to support an NDA submission and approval. Subsequently in June 2020, we concluded a
meeting with the Scientific Advice Working Party of the EMA to discuss our planned Phase III study. Based on the input received from the
FDA and EMA, we plan on conducting a Phase III, randomized, double blind, placebo controlled trial of Namodenoson, that will enroll approximately
450 patients with HCC and underlying CPB7 cirrhosis at multiple centers worldwide. Patients will be randomized to oral treatment with
either Namodenoson 25 mg or matching placebo given twice daily. The primary efficacy endpoint of the trial is overall survival (OS), based
on the favorable OS response seen in the Phase II trial in patients with HCC and CPB7 cirrhosis. Other oncology trial efficacy outcomes,
such as tumor radiographic response rates and median progression-free survival, as well as standard safety parameters, will be assessed.
The study is designed to support an NDA submission in the U.S. and a marketing authorization application, or MAA, in Europe. We plan on
commencing patient enrollment in the first half of 2022.
In November 2019, we initiated
a compassionate use program for Namodenoson in the treatment of HCC, the most common form of liver cancer. Our compassionate use program
has enrolled and continues to treat patients. The compassionate use program, which enables liver cancer patients not enrolled in our clinical
study to be treated with Namodenoson, is being administered by Dr. Salomon Stemmer, the Principal Investigator of the Company’s
prior Phase II liver cancer study, and Professor at the Institute of Oncology, Rabin Medical Center, Israel.
NAFLD/NASH
We conducted a Phase II double-blind,
placebo-controlled, dose-finding efficacy and safety study that enrolled 60 patients with NAFLD with or without NASH in three clinical
sites in Israel including Hadassah Medical Center, Jerusalem; Rabin Medical Center, Petach Tikva; and Holy Family Hospital, Nazareth;
with Prof. Rifaat Safadi as the Principal Investigator. Patients with evidence of an active inflammation were treated twice daily with
12.5 mg (n=21) or 25 mg (n=19) of oral Namodenoson vs. placebo (n=20). The patients were treated for 12 weeks and followed-up until week
16. The study’s end points included among others alanine aminotransferase (ALT) and aspartate aminotransferase (AST) blood level,
% of liver fat, liver stiffness, serum adiponectin, leptin and patient’s weight loss. In April 2020 we announced top-line data and
in June 2020 we announced our final data analysis. As a whole, the data show that Namodenoson at the 25 mg dose produced statistically
significant results in all measures of efficacy, while also having a strong safety profile and well tolerated.
Therapeutically significant
positive data and trends were found as follows:
Anti-Inflammatory Effect:
Namodenoson significantly reduced two liver enzymes, AST and ALT, which are elevated in a damaged liver, and increased the anti-inflammatory
cytokine adiponectin known also to act as an anti-fibrotic factor. Serum adiponectin levels increased in the 25 mg dose group by 220 ng/mL
and the 12.5 mg dose group by 539 ng/mL (p=0.03). Adiponectin is a cytokine with robust anti-inflammatory and anti-fibrotic effects that
is used as a biomarker in NAFLD/NASH trials. In addition, a dose response decrease compared to placebo was observed, indicating a reduction
of hepatic inflammation was achieved: (i) % of patients who reached ALT normalization at follow up was 36.8% in the 25 mg dose vs. 10%
in the placebo (p=0.038). In the 12.5 mg dose, 23.8% was recorded at follow up, (ii) ALT change from baseline (CFB) and % change from
baseline (PCFB) - in the 25 mg group, CFB decreased by 15.4 U/L (p=0.066) and PCFB by 22% (p=0.079) compared to placebo (1.7 U/L, 3.0%,
respectively); in the 12.5 mg group, a decrease CFB of 10.4 U/L and PCFB of 8.2% was recorded; and, (iii) AST CFB and PCFB - in the 25
mg group, CFB decreased by 8.1 U/L (p=0.03) and PCFB by 17.9% (p=0.05) compared to placebo (increase of 0.3 U/L, decrease of 1.3%, respectively).
In the 12.5 mg group, a decrease in CFB of 7.4 U/L and PCFB of 8.1 % was recorded.
Reduction of Liver Steatosis:
In the Namodenoson 25 mg treated group, the proportion of patients with high steatosis scores declined from 37.5% to 13.3% of the population,
as compared to the placebo treated group in which the proportion of patients with high steatosis scores decreased from 37.5% to 35.3%
of the population, with p=0.08. Steatosis was assessed by Controlled Attenuation Parameter (CAP) measurement of the FibroScan, a non-invasive
marker of hepatic steatosis.
NASH – All Cases
Resolved: 25% of patients randomized into the Namodenoson 25 mg dosed group had NASH at baseline, as compared to none in the placebo
group, which comprised of patients who had NAFLD without NASH at baseline. Following 12 weeks of treatment, all NASH cases were resolved
in patients treated with 25 mg of Namodenoson, as compared to new NASH that developed in the placebo group representing 5% of that population,
with p<0.009. NASH was evaluated by FibroScan-AST (FAST) score, a noninvasive marker of NASH, the severe form of NAFLD (equivalent
to biopsy findings of NAS≥4, F≥2), measured by FibroScan elastography, CAP and serum AST.
Decrease in Body weight:
A linear decrease in body weight was recorded in the 25 mg and 12.5 mg Namodenoson groups.
A3 Adenosine Receptor (A3AR):
The A3AR biomarker was stable, demonstrating the presence of the receptor after chronic treatment and reflecting the validity of the target.
Safety: Namodenoson
continued to be safe and very well tolerated with no drug emergent severe adverse effects and no hepatotoxicity.
We are currently conducting
a Phase IIb study Namodenoson in the treatment of NASH, having announced first patient enrollment in January 2022. The Phase IIb trial
is a multicenter, randomized, double-blind, placebo-controlled study in subjects with biopsy-confirmed NASH. The primary efficacy objective
of the trial is to evaluate the efficacy of Namodenoson as compared to placebo in 140 subjects with NASH, as determined by a histological
endpoint. Eligible subjects are randomly assigned in a 2:1 ratio to oral doses of Namodenoson 25 mg every 12 hours or a matching placebo
for 36 weeks. . The protocol was developed in conjunction with Dr. Scott Friedman, Chief of the Division of Liver Diseases at the Icahn
School of Medicine at Mount Sinai in New York, and Dr. Stephen A. Harrison, Medical Director of Pinnacle Clinical Research, both of whom
were involved in the design of Namodenoson’s Phase II study in NAFLD/NASH.
Additional Developments with Namodenoson
Anti-Obesity
In January 2019, we announced
new pre-clinical findings demonstrating that Namodenoson, inhibits lipid production and fat accumulation in adipocytes (lipid producing
cells). More specifically, Namodenoson showed a significant decrease in lipid production and fat accumulation utilizing 3T3-L1 adipocytes,
functioning as lipid producing cells and are also responsible for fat storage. Namodenoson was also shown to inhibit the proliferation
of adipocytes, further hampering the expansion of fat producing cells. These findings, together with the safety profile of Namodenoson,
support its potential utilization as an anti-obesity drug. A patent application for the utilization of Namodenoson as an anti-obesity
drug has been filed. In January 2020, we announced further pre-clinical data generated at the Hadassah Medical Center by Dr. Rifaat Safadi’s
lab that demonstrated that Namodenoson induces weight loss in experimental models and normalizes glucose levels.
JC Virus
In April 2011, we announced
that, in laboratory study, Namodenoson inhibited the reproduction of the JC virus, a type of polyomavirus, which is dormant in approximately
70% to 90% of the world population. However, in patients treated with biological drugs, including monoclonal antibody therapeutics, such
as anti-TNFs or anti-CD20, JC virus replication may occur, resulting in development of progressive multifocal leukoencephalopathy, or
PML, which is characterized by progressive damage or inflammation of the white matter of the brain and, eventually, death. The ability
of Namodenoson to suppress the JC virus culture, as indicated in the laboratory study, may indicate that it may be used for the treatment
of PML as a combination therapy with biological drugs. As Namodenoson is already in various stages of clinical development for other indications,
its efficacy for this new application may be tested in clinical trials.
CF602
The allosteric modulator,
CF602, is our third drug candidate in its pipeline. CF602 is an orally bioavailable small molecule, which enhances the affinity of the
natural ligand, adenosine, to its A3AR. The advantage of this molecule is its capability to target specific areas where adenosine levels
are increased. Normal body cells and tissues are refractory to allosteric modulators. This approach complements the basic platform technology
of Can-Fite, utilizing the Gi coupled protein A3AR as a potent target in inflammatory diseases. CF602 has demonstrated proof of concept
for anti-inflammatory activity in in vitro and in vivo studies performed by us.
During clinical studies conducted
with our product candidates, other than CF602, patients suffering from erectile dysfunction reported that they returned to normal functioning
following the treatment with such drugs. We believe that these findings are correlated with our platform technology, which is the targeting
of the A3AR. Adenosine, like nitric oxide, is a potent and short-lived vaso-relaxant that functions via intracellular signaling (in particular,
through cAMP) to promote smooth muscle relaxation. Recent studies conducted by others show that adenosine functions to relax the corpus
cavernosum and thereby promote penile erection.
CF602 was tested in an experimental
animal model of diabetic rats, which similar to diabetic patients, suffer from erectile dysfunction. Erectile dysfunction was assessed
by monitoring the ratio between intra-cavernosal pressure, or ICP, and mean arterial pressure, or MAP, as a physiological index of erectile
function. The ICP/MAP for the CF602 treated group improved by 118% over the placebo group. This data is similar to that achieved earlier
by sildenafil (Viagra) in preclinical studies. In addition, treatment with CF602 reversed smooth muscle and endothelial damage, in a dose
dependent manner, leading to the improvement in erectile dysfunction.
Further studies of CF602 have
revealed that CF602 restores the impaired vascular endothelial growth factor system in the penis of diabetes mellitus rats, thereby inducing
an increase in nitric oxide resulting in significant improvement of penile erection compared to placebo. This mechanism of action is similar
to that of sildenafil, with CF602 demonstrating effects on erection superior to that demonstrated by sildenafil in animal studies. Among
the most important factors to affect erectile function is nitric oxide, which is released by endothelial cells that line the corpus cavernosum
and control smooth muscle relaxation and vascular inflow. It has been well established that release of nitric oxide is diminished in diabetes.
In addition, CF602 induced
a dose-dependent, linear effect in a diabetic mellitus rat model after treatment with one single dose of CF602. One hour after dosing,
erectile function was measured. Statistically significant full recovery from erectile dysfunction took place in rats treated with a 500
µ/kg dose.
In March 2021, we announced
new data from a preclinical study of CF602 in the treatment of erectile dysfunction, or ED, in a diabetes experimental model. The study
evaluated the efficacy of topically applied CF602 in a 4-cohort study with diabetic Sprague-Dawley (SD) rats receiving placebo; 100nM
CF602; 500nM CF602. Naïve rats served as a comparative negative control. ED was assessed by tracing ICP under cavernous nerve stimulation.
Treatment with CF602 at a dose of 500 nM resulted in statistically significant improvement of erectile dysfunction compared to vehicle
treated controls when measured in a two-way ANOVA followed by Bonferroni multiple comparisons post-hoc analysis (p<0.001). The improvement
was even better than recorded for the naïve animals group. Efficacy was dose-dependent.
According to the American
Diabetes Association, approximately 30 million children and adults have diabetes mellitus in the United States. It is estimated that 35-75%
of men with diabetes mellitus suffer from erectile dysfunction.
In November 2016, a Notice
of Allowance was granted to us by the USPTO for our patent covering A3AR ligands for use in the treatment of erectile dysfunction. The
patent addresses methods for treating erectile dysfunction with different A3AR ligands including our erectile dysfunction drug candidate,
CF602. With this new broader patent protection, we made a strategic decision to investigate additional compounds, owned by us, for the
most effective and safest profile in this indication and we are seeking to partner development of CF602.
Cannabinoid-Based Pharmaceuticals
In September 2019, we entered
into a collaboration agreement with Univo, a medical cannabis company, to identify and co-develop specific formulations of cannabis components
for the treatment of diseases in which there is an overexpression of A3AR. Based on our recent scientific findings, we have filed patents
for the use of cannabinoid-based drugs to treat cancer, autoimmune, inflammatory and metabolic diseases. Our most recent pre-clinical
research revealed that cannabis derived CBD enriched fractions, supplied by Univo, inhibit the expansion of human fat cells (pre-adipocytes)
by 60%, a result that points towards the potential anti-obesity effect of this agent. Although it is already documented that cannabis
derived compounds possess anti-obesity effect, the novel data presented by us demonstrates the anti-obesity effect at low nano-molar concentrations.
Low CBD concentrations are known to be safe and well accepted in humans. Previously, we announced pre-clinical findings demonstrating
CBD’s robust anti-neoplastic effect in pre-clinical studies against liver cancer. The studies were carried out on human liver cancer
cells and utilized cannabinoid fractions enriched for CBD, in nano and pico molar concentrations. Marked inhibition of Hep-3b, liver cancer
cell proliferation was noted and was mediated via the A3 adenosine receptor. As of December 31, 2020, our collaboration agreement with
Univo expired.
In July 2020, we completed
the development of a biological cell-based in vitro assay which can identify clinically active cannabis derived compounds that bind to
and activate A3AR, thus enabling the development of pharmaceuticals that use a specific cannabis derived compound to treat a variety of
diseases.
In December 2020, we received
approval from the Medical Cannabis Unit of Israel’s Ministry of Health to conduct pre-clinical studies on the effect of nanomolar
concentrations of cannabinoid fractions on the proliferation and functionality of cancer, inflammatory and adipocyte cells (fat cells).
This regulatory approval allows us to advance our cannabinoid program by evaluating the effect of cannabis fractions at nanomolar concentrations
binding with A3AR.
In February 2021, we announced
the completion of a set of pre-clinical studies demonstrating that cannabis derived compounds bind to A3AR, mediating therapeutic effects.
CBD rich T3/C15 cannabis fraction inhibited the proliferation of LX-2 hepatic-stellate cells, the liver cell type mediating the development
of fibrosis. This inhibitory response was neutralized by an antagonist to the A3AR, demonstrating that the anti-fibrotic effect was mediated
via the A3AR.
In April 2021, we announced
the completion of a set of pre-clinical studies demonstrating that a CBD rich T3/C15 cannabis fraction inhibited the growth of liver HEP-3b
hepatocellular carcinoma cells via the A3AR by inhibiting Wnt- and NF-kappa B-related regulatory pathways. The Wnt signaling pathway is
known to be highly active in controlling the growth of liver cancer cells. An A3AR antagonist, MRS1523 reversed this effect demonstrating
that the inhibitory effect is mediated via our target, A3AR.
Commercial Biomarker Test
In March 2015, we completed
the development of a commercial predictive biomarker blood test kit for A3AR. The biomarker test can be used at any molecular biology
lab, where a small blood sample from a prospective patient would be tested and within just a few hours, results indicate if the patient
would benefit from treatment with our drugs, which are currently in clinical trials for rheumatoid arthritis, psoriasis, and liver cancer.
The USPTO previously issued
to us a patent for the utilization of A3AR as a biomarker to predict patient response to our drug Piclidenoson in autoimmune inflammatory
indications.
In-Licensing Agreements
The following is a summary
description of our in-licensing agreement with Leiden University. Our previously granted license with NIH expired in June 2015 with the
expiration of certain patents. The description provided below does not purport to be complete and is qualified in its entirety by the
complete agreement, which is attached as an exhibit to this Annual Report on Form 20-F.
Leiden University Agreements
On November 2, 2009, we entered
into a license agreement, or the Leiden University Agreement, with Leiden University. Leiden University is affiliated with NIH and is
the joint owner with NIH of the patents licensed pursuant to the Leiden University Agreement. The Leiden University Agreement grants an
exclusive license for the use of the patents of several compounds, including CF602, that comprise certain allosteric compound drugs, and
for the use, sale, production and distribution of products derived from such patents in the territory, i.e., China and certain countries
in Europe (Austria, Belgium, Denmark, France, Germany, Italy, Spain, Sweden, Switzerland, Holland and England). Subject to certain conditions,
we may sublicense the Leiden University Agreement. However, the U.S. government has an irrevocable, royalty-free, paid-up right to practice
the patent rights throughout the territory on behalf of itself or any foreign government or international organization pursuant to any
existing or future treaty or agreement to which the U.S. government is a signatory and the U.S. government may require us to grant sublicenses
when necessary to fulfill health or safety needs.
Pursuant to the Leiden University
Agreement, we are committed to make the following payments: (i) a one-time concession commission of 25,000 Euros; (ii) annual royalties
of 10,000 Euros until clinical trials commence; (iii) 2% to 3% of net sales value, as defined in the Leiden University Agreement, received
by us; (iv) royalties of up to 850,000 Euros based on certain progress milestones in the clinical stages of the products which are the
subject of the patent under the Leiden University Agreement; and (v) if we sublicense the agreement, we will provide Leiden University
royalties at a rate of 2-3% of net sales value, as defined in the Leiden University Agreement, and 10% of certain consideration received
for granting the sublicense. In the event that we transfer to a transferee the aspect of our business involving the Leiden University
Agreement, we must pay to Leiden University an assignment royalty of 10% of the consideration received for the transfer of the agreement.
However, a merger, consolidation or any other change in ownership will not be viewed as an assignment of the agreement. In addition, we
have agreed to bear all costs associated with the prosecution of the patents and patent applications to which we are granted a license
under the Leiden University Agreement. As of December 31, 2021, we have paid approximately 145,000 Euros in royalties to Leiden University
in connection with the Leiden University Agreement.
The Leiden University Agreement
expires when the last of the patents expires in each country of the territory, unless earlier terminated in accordance with the terms
of the Leiden University Agreement. The last of such patents is set to expire on 2027. The termination rights of the parties include,
but are not limited to, (i) the non-defaulting party’s right to terminate if the defaulting party does not cure within 90 days of
written notice identifying the default and requesting remedy of the same; and (ii) Leiden University’s right to terminate if we
become insolvent, have a receiver appointed over our assets or initiate a winding-up. In addition, Leiden University may terminate the
agreement when it is determined, in consultation with NIH, that termination is necessary to alleviate health and safety needs and certain
other similar circumstances.
Out-Licensing and Distribution Agreements
The following are summary
descriptions of certain out-licensing and distribution agreements of Piclidenoson and Namodenoson for the indications we are currently
investigating.
Cipher Pharmaceuticals Agreement
On March 20, 2015, we entered
into a Distribution and Supply Agreement with Cipher granting Cipher the exclusive right to distribute Piclidenoson in Canada for the
treatment of psoriasis and rheumatoid arthritis. In 2020, we ended our development of Piclidenoson for rheumatoid arthritis.
Under the Distribution and
Supply Agreement, we are entitled to CAD 1.65 million upon execution of the agreement plus milestone payments upon receipt of regulatory
approval by the Therapeutic Products Directorate of Health Canada, or Health Canada, for Piclidenoson and the first delivery of commercial
launch quantities as follows (i) CAD 1 million upon the first approved indication for either psoriasis or rheumatoid arthritis, and (ii)
CAD 1 million upon the second approved indication for either psoriasis or rheumatoid arthritis. In addition, following regulatory approval,
we shall be entitled to a royalty of 16.5% of net sales of Piclidenoson in Canada and reimbursement for the cost of manufacturing Piclidenoson.
We are also entitled to a royalty payment for any authorized generic of Piclidenoson that Cipher distributes in Canada. To date, we have
received a total of $1.3 million from Cipher in an upfront payment.
We are responsible for supplying
Cipher with finished product for distribution and conducting product development activities while Cipher is responsible for distributing,
marketing and obtaining applicable regulatory approvals in Canada. The Distribution and Supply Agreement has an initial term of fifteen
years, automatically renewable for additional five-year periods and may be terminated in certain limited circumstances including certain
breaches of the agreement and failure to achieve certain minimum quantities of sales during the contract period.
The timeline to regulatory
submissions to Health Canada will be determined by the completion of the remaining clinical trial program.
CKD Agreement
On October 25, 2016, we entered
into an exclusive Distribution Agreement with CKD for the exclusive right to distribute Namodenoson for the treatment of liver cancer
in South Korea, upon receipt of regulatory approvals. On February 25, 2019, the Distribution Agreement was amended to expand the exclusive
right to distribute Namodenoson for the treatment of NASH in South Korea. The Distribution Agreement further provides that we will deliver
finished product to CKD and grant CKD a right of first refusal to distribute Namodenoson for other indications for which we develop Namodenoson.
The Distribution Agreement
provides for up to $3,000,000 in upfront and milestone payments payable with respect to the liver cancer indication and up to $3,000,000
with respect to the NASH indication. In addition, we are entitled to a transfer price of the higher of the manufacturing cost plus 10%
or 23% of net sales of Namodenoson following commercial launch in South Korea. To date, we have received a total of $2,000,000 from CKD,
$1,500,000 in upfront payments for the expansion of CKD’s existing agreement with us to include the rights to distribute Namodenoson
for the treatment of NASH in South Korea, and a further $500,000 for a milestone payment received in the third quarter of 2017 upon receipt
by CKD of a positive result from the preliminary review by the MFDS on obtaining orphan drug designation in South Korea.
The Distribution Agreement
has an initial term of 10 years from first commercial sale of Namodenoson for the treatment of liver cancer or NASH and is renewable for
additional 3-year periods unless either party gives notice of termination at least 6 months prior to the then current term. The Distribution
Agreement may be terminated by CKD upon 30 days prior written notice if we fail to successfully complete our ongoing Phase II clinical
trial for Namodenoson and we may terminate the Distribution Agreement upon 30 days prior written notice if certain commercialization milestones
are not met by CKD or certain minimum quantities of sales are not made during the contract period. In addition, either party may terminate
the Distribution Agreement in the event of an uncured material breach or insolvency.
Gebro Agreement
On January 8, 2018, we entered
into a Distribution and Supply Agreement with Gebro, granting Gebro the exclusive right to distribute Piclidenoson in Spain, Switzerland,
Liechtenstein and Austria for the treatment of psoriasis and rheumatoid arthritis. In 2020, we ended our development of Piclidenoson for
rheumatoid arthritis.
Under the Distribution and
Supply Agreement, we are entitled to €1,500,000 upon execution of the agreement plus milestone payments upon achieving certain clinical,
launch and sales milestones, as follows: (i) €300,000 upon initiation of the ACRobat Phase III clinical trial for the treatment of
rheumatoid arthritis and €300,000 upon the initiation of the COMFORT Phase III clinical trial for the treatment of psoriasis, (ii)
between €750,000 and €1,600,000 following first delivery of commercial launch quantities of Piclidenson for either the treatment
of rheumatoid arthritis or psoriasis, and (iii) between €300,000 and up to €4,025,000 upon meeting certain net sales. In addition,
following regulatory approval, we shall be entitled to double digit percentage royalties on net sales of Piclidenoson in the territories
and payment for the manufacturing Piclidenoson. To date, we have received a total of €2,100,000 from Gebro in upfront and milestone
payments.
We are initially responsible
for supplying Gebro with finished product for distribution and obtaining EMA and Swissmedic marketing approval while Gebro is responsible
for distributing, marketing and obtaining pricing and reimbursement approvals in the territories. The Distribution and Supply Agreement
has an initial term of fifteen years, automatically renewable for additional five-year periods and may be terminated in certain limited
circumstances including certain breaches of the agreement and failure to achieve certain minimum quantities of sales during the contract
period.
CMS Medical Agreement
On August 6, 2018, we entered
into a License, Collaboration and Distribution Agreement with CMS for the exclusive right to develop, manufacture and commercialize Piclidenoson
for the treatment of rheumatoid arthritis and psoriasis and Namodenoson for the treatment of HCC and NAFLD/NASH in China (including Hong
Kong, Macau and Taiwan).
Under the License, Collaboration
and Distribution Agreement, we are entitled to $2,000,000 upon execution of the agreement plus milestone payments of up to $14,000,000
upon achieving certain regulatory milestones and payments of up to $58,500,000 upon achieving certain sales milestones, as follows: (i)
$500,000 upon the granting of the marketing authorization of Piclidenoson in the United States for rheumatoid arthritis; (ii) $500,000
upon the granting of the marketing authorization of Piclidenoson in the European Union for rheumatoid arthritis; (iii) $500,000 upon the
granting of the marketing authorization of Piclidenoson in the United States for psoriasis; (iv) $500,000 upon the granting of the marketing
authorization of Piclidenoson in the European Union for psoriasis; (v) $500,000 upon the granting of the marketing authorization of Namodenoson
in the United States for HCC; (vi) $500,000 upon the granting of the marketing authorization of Namodenoson in the European Union for
HCC; (vii) $500,000 upon the granting of the marketing authorization of Namodenoson in the United States for NAFLD/NASH; (viii) $500,000
upon the granting of the marketing authorization of Namodenoson in the European Union for NAFLD/NASH; (ix) $2,500,000 upon the issuance
of an imported drug license permitting the product to be imported into and marketed in China, or the IDL and granting of marketing authorization
of Piclidenoson in China for rheumatoid arthritis; (x) $2,500,000 upon the issuance of the IDL and granting of marketing authorization
of Piclidenoson in China for psoriasis; (xi) $2,500,000 upon the issuance of the IDL and granting of marketing authorization of Namodenoson
in China for HCC; (xii) $2,500,000 upon the issuance of the IDL and granting of marketing authorization of Namodenoson in China for NAFLD/NASH;
and (xiii) between $1,000,000 and up to $30,000,000 upon meeting certain net sales. In addition, following regulatory approval, we shall
be entitled to double-digit percentage royalties on net sales of Piclidenoson and Namodenoson in the licensed territories. To date, we
have received a total of $2,000,000 from CMS in upfront and milestone payments.
According to the agreement,
CMS will be responsible for the development of Piclidenoson and Namodenoson to obtain regulatory approval in China and shall be further
responsible for obtaining and maintaining regulatory approval in China for the indications described above. We may, at the option of CMS,
supply finished product to CMS.
The License, Collaboration
and Distribution Agreement shall continue in force unless earlier terminated and may be terminated in certain limited circumstances including
certain breaches of the agreement and failure to achieve certain minimum quantities of sales during the contract period. Following expiration
of the term of the agreement, the license granted shall become non-exclusive, fully paid, royalty free and irrevocable.
Kyongbo Pharm Agreement
In August 2019, we entered
into a License and Distribution Agreement with Kyongbo Pharm. Under the terms of agreement, Kyongbo Pharm, in exchange for exclusive distribution
rights to sell Piclidenoson in the treatment of psoriasis in South Korea, made a total upfront payment of $750,000 to us, with additional
payments of up to $3,250,000 upon achievement of certain milestones. We will also be entitled to a transfer price for delivering finished
product to Kyongbo Pharm. To date, we have received a total of $750,000 from Kyongbo Pharm in upfront and milestone payments.
Ewopharma Agreement
In March 2021, we signed an
exclusive distribution agreement with Switzerland-based Ewopharma for Piclidenoson in the treatment of psoriasis and Namodenoson in the
treatment of liver diseases namely, HCC, the most common form of liver cancer, and NASH. Under the terms of the distribution agreement,
Ewopharma we received $2.25 million upfront and are entitled to up to an additional $40.45 million payable upon the achievement of regulatory
and sales milestones plus 17.5% royalties on net sales. In exchange, Ewopharma will have the exclusive right to market and sell Piclidenoson
in Central Eastern European (CEE) countries and Namodenoson in CEE countries and Switzerland. Ewopharma has the right to extend the distribution
agreement to new indications that we may identify for its drug candidates. We will also be entitled to a transfer price for delivering
finished product to Ewopharma. To date, we have received a total of $2.25 million from Ewopharma in upfront, milestone and royalty payments.
Vetbiolix Agreement
In June 2021, we signed a
development and commercialization agreement with Vetbiolix, a France-based veterinary biotech company, for the development of Piclidenoson
for the treatment of osteoarthritis in companion animals including dogs and cats. Vetbiolix will have the exclusive right to Piclidenoson
in the veterinary osteoarthritis market for two years, during which time Vetbiolix will conduct proof-of-concept studies and cover all
associated costs. If the studies yield positive data and Vetbiolix exercises its option to obtain the license from Can-Fite, then Vetbiolix
will be obligated to pay Can-Fite upfront and milestone payments, in addition to royalties on sales upon regulatory approval for veterinary
use.
Total Revenues by Category of Activity and Geographic
Markets
Historically, we have generated
revenues from payments received pursuant to our out-licensing agreements with respect to Piclidenoson and Namodenoson. See “Item
4. Information on the Company—B. Business Overview—Out-Licensing and Distribution Agreements”.
For the year ended December
31, 2021, we recorded the following revenues: (i) $0.19 million as a result of recognition of a portion of an advance payment
received in January 2018 under the distribution agreement with Gebro; (ii) $0.20 million under the Distribution Agreement with CKD which
was due to the recognition of a portion of the advance payment received in December 2016 and April 2019 under the Distribution Agreement
with CKD; and (iii) $0.11 million under the Distribution Agreement with Cipher; and (iv) $0.35 million under the Distribution Agreement
with Ewopharma.
For the year ended December
31, 2020, we recorded the following revenues: (i) $0.26 million for the as a result of recognition of a portion of an advance payment
received in January 2018 under the distribution agreement with Gebro; (ii) $0.35 million under the Distribution Agreement with CKD which
was due to the recognition of a portion of the advance payment received in December 2016 and April 2019 under the Distribution Agreement
with CKD; and (iii) $0.15 million under the Distribution Agreement with Cipher.
For the year ended December
31, 2019, we recorded the following revenues: (i) $0.75 million as a result of an upfront payment from Kyongbo Pharm, (i) $0.59 million
for the as a result of recognition of a portion of an advance payment received in January 2018 under the distribution agreement with Gebro;
(iii) $0.34 million under the Distribution Agreement with CKD which was due to the recognition of a portion of the advance payment received
in December 2016 and April 2019 under the Distribution Agreement with CKD; and (iv) $0.35 million under the Distribution Agreement with
Cipher.
We expect to generate future
revenues through our current and potential future out-licensing arrangements with respect to Piclidenoson and Namodenoson based on the
progress we make in our clinical trials.
Seasonality
Our business and operations
are generally not affected by seasonal fluctuations or factors.
Raw Materials and Suppliers
We believe that the raw materials
that we require to manufacture Piclidenoson, Namodenoson and CF602 are widely available from numerous suppliers and are generally considered
to be generic industrial chemical supplies. We do not rely on a single or unique supplier for the current production of any therapeutic
small molecule in our pipeline.
Manufacturing
We are currently manufacturing
our API through a leading CRO. The relevant suppliers of our drug products are compliant with both current Good Manufacturing Practices,
or cGMP, and current Good Laboratory Practices, or cGLP, and allow us to manufacture drug products for our current clinical trials. We
anticipate that we will continue to rely on third parties to produce our drug products for clinical trials and commercialization.
There can be no assurance
that our drug candidates, if approved, can be manufactured in sufficient commercial quantities, in compliance with regulatory requirements
and at an acceptable cost. We and our contract manufacturers are, and will be, subject to extensive governmental regulation in connection
with the manufacture of any pharmaceutical products or medical devices. We and our contract manufacturers must ensure that all of the
processes, methods and equipment are compliant with cGMP for drugs on an ongoing basis, as mandated by the FDA and other regulatory authorities,
and conduct extensive audits of vendors, contract laboratories and suppliers.
Contract Research Organizations
We outsource certain preclinical
and clinical development activities to CROs, which in pre-clinical studies work according to cGMP and cGLP. We believe our clinical CROs
comply with guidelines from the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals
for Human Use, which attempt to harmonize the FDA and the EMA regulations and guidelines. We create and implement the drug development
plans and, during the preclinical and clinical phases of development, manage the CROs according to the specific requirements of the drug
candidate under development.
Marketing and Sales
We do not currently have any
marketing or sales capabilities. We intend to license to, or enter into strategic alliances with, larger companies in the pharmaceutical
business, which are equipped to market and/or sell our products, if any, through their well-developed marketing capabilities and distribution
networks. We intend to out-license some or all of our worldwide patent rights to more than one party to achieve the fullest development,
marketing and distribution of any products we develop.
Intellectual Property
Our success depends in part
on our ability to obtain and maintain proprietary protection for our product candidates, technology and know-how, to operate without infringing
the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary
position by, among other filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements
that we believe are important to the development of our business. We also rely on trade secrets, know-how and continuing technological
innovation to develop and maintain our proprietary position.
Patents
As of March 20, 2022, we owned
or exclusively licensed (from Leiden University) 15 patent families that, collectively, contain approximately 194 issued patents and pending
patent applications in various countries around the world relating to our two clinical candidates, Piclidenoson and Namodenoson, and our
preclinical candidate, CF602. Patents related to our drug candidates may provide future competitive advantages by providing exclusivity
related to the composition of matter, formulation and method of administration of the applicable compounds and could materially improve
their value. The patent positions for our leading drug candidates are described below. In addition, we filed a patent application in Israel
concerning the use of cannabinoids for treatment of conditions associated with elevated expression of the A3 adenosine
receptor.
With respect to our product
candidates, we currently own patents and/or have patent applications pending in several countries around the world for the following families
of patents:
|
● |
A3AR ligands to treat viral diseases – a family of patents which pertain to use of substances that bind to the A3AR for the treatment of viral diseases, such as AIDS and hepatitis, and which inhibit viral replication. Such patents were granted in the United States, in Europe (by the EPO and validated in France, Germany, Italy, Switzerland and the United Kingdom), Australia, China, Israel, Japan, Singapore, Canada and Hong Kong. These patents have a filing date of January 1, 2002 and a priority date of January 16, 2001 and expired in January 2022, other than the U.S. patent that will expire in 2023. |
| ● | A3AR ligands to treat RA – a patent which pertains to the use of A3AR agonists for the treatment
of inflammatory arthritis, in particular rheumatoid arthritis. This patent was granted in the United States and is set to expire in 2023. |
| ● | A3AR as a predictive and follow up biomarker – a family of patents and patent applications which
pertain to a method of identifying inflammation, determining its severity, and determining and monitoring the efficacy of the anti-inflammatory
treatment by determining the level of A3AR expression in white blood cells as a biological marker for inflammation. These patents were
granted in the United States, Europe (by the EPO and validated in France, Germany, Italy, Spain, Switzerland and the United Kingdom),
Australia, Israel, Japan, China, Mexico and Canada. The patents are set to expire in 2025. There is a patent application pending in Brazil.
Each of the patents and the patent application has a filing date of November 30, 2005 and a priority date of December 2, 2004; |
| ● | Specific dose to protect from psoriasis – a family of patents and patent applications which pertains
to the use of a specific dose level of Piclidenoson (total daily dose of 4.0 mg) for the treatment of psoriasis. Such a patent was granted
in Israel, Japan, the United States, South Korea and Europe (by the EPO and validated in in Austria, Belgium, Denmark, France, Germany,
Italy, the Netherlands, Spain, Sweden, Switzerland and the United Kingdom). The patent is set to expire in 2030, and in 2031 in the U.S.
The patent applications are pending in China, Hong Kong, and India each with a filing date of September 6, 2010 and a priority date of
September 6, 2009. |
| ● | Piclidenoson method of synthesis – a family of patents which pertain to the method for producing
Piclidenoson. Such patents were granted in the United States, India, China, Japan, Israel and Europe (by the EPO and validated in Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Monaco, the Netherlands, Norway, Poland, Portugal,
Spain, Sweden, Switzerland, Turkey and the United Kingdom). These patents are set to expire in 2028 and in 2031 in the U.S. Each patent
has a filing date of March 13, 2008 and a priority date of March 14, 2007. |
| ● | Osteoarthritis (OA) indication - a family of patents and patent applications which pertain to the use
of A3AR agonists for the treatment of OA. Such patents were granted in Europe (by the EPO and validated in Austria, Belgium, Denmark,
France, Germany, Italy, Spain, Sweden, Switzerland, Netherlands and the United Kingdom), U.S., Australia, Canada, South Korea, China,
Israel, Japan and Mexico. The patents are set to expire in 2026. A patent application is pending in Brazil. These patents and patent applications
have a filing date of November 29, 2006 and a priority date of November 30, 2005. |
| ● | Liver protection– a family of patents which pertains to the use of A3AR agonists for increasing
liver cell division, intended to induce liver regeneration following injury or surgery. Such patents were granted in China, Israel, Japan,
U.S. and Europe (by the EPO and validated in Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Poland, Spain, Sweden,
Switzerland, United Kingdom and Turkey). Each patent in this family has a filing date of October 22, 2008 and a priority date of October
15, 2007. |
| ● | Erectile dysfunction – a family of patents and patent applications which pertain to treatment of
erectile dysfunction. This family includes granted patents in the United States, Australia, China, Hong Kong, Canada, South Korea, Israel
and Japan and patent applications in Brazil, Europe, and Mexico, the latter application in Mexico recently allowed. The patents and patent
applications have a filing date of August 8, 2013 with priority dates of August 8, 2012 and November 12, 2012. |
| ● | CAR T induced cytokine release syndrome – a family of patent applications which pertains to the
use of A3AR ligands for managing cytokine release syndrome. This family includes a patent applications in Israel and in the U.S., China,
EP and HK claiming priority from this Israeli application. The US, China, EP and HK patent applications have a filing date of September
16, 2018 and the Israeli patent application has a filing date of September 17, 2017. |
| ● | NAFLD/NASH - a family of patents and patent applications which pertain to the use of A3AR ligands for
treatment of ectopic fat accumulation. This family includes granted patents in U.S., Israel, Europe, South Korea, Hong Kong, and Mexico,
and patent applications in China, Brazil, Canada, and Japan. The patent applications have a filing date of November 22, 2016. |
| ● | Obesity - a family of patent applications which pertains to the use of A3AR ligand for reducing level
of adipocytes and specifically, for treating obesity. This family includes a patent application in Israel and a PCT application claiming
priority from this Israeli application. The PCT patent application has a filing date of January 6, 2020 while the Israeli patent application
has a filing date of January 6, 2019. |
| ● | Cannabinoids – a family of patent applications pertaining to the use of cannabinoids for treating
conditions and diseases that involve elevated expression of the A3AR. This family includes a patent application in Israel and a PCT application
claiming priority from this Israeli application. The PCT patent application has a filing date of January 16, 2021 while the Israeli patent
application has a filing date of January 16, 2020. |
| ● | PD-1/PD-L1 - an Israeli patent application pertaining to the use of PD-1/PD-L1 axis inhibitor in combination
with an A3AR. This Israeli patent application has a filing date of January 29, 2020. |
| ● | Treatment of advanced cancer – a family of patent applications that makes use of A3AR ligands, particularly
Namodenoson, for the treatment of advanced solid cancer, including advanced liver cancer. This family includes patent applications in
the US, Australia, Brazil, Canada, Turkey, Japan, South Korea and Mexico. The US application (which is a provisional application) was
filed on December 29, 2021, and the other patent applications where filed on the same date or a few days later. |
We currently hold an exclusive
license from Leiden University of the Netherlands to a family of patents and patent applications that relate to the allosteric modulators
of the A3AR, which includes the allosteric modulator CF602. This exclusive license relates to patents that were granted in the United
States, China, Japan, South Korea, India and in Europe (validated in, Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands,
Spain, Sweden, Switzerland and United Kingdom). These granted patents are set to expire in 2028.
We believe that our owned
and licensed patents provide broad and comprehensive coverage of our technology, and we intend to aggressively enforce our intellectual
property rights if necessary to preserve such rights and to gain the benefit of our investment. However, as a result of the termination
of the NIH license agreement between Can-Fite and NIH in June 2015 due to patent expiration, we no longer hold rights to a family of composition
of matter patents relating to Piclidenoson and Namodenoson that were licensed from NIH. Nevertheless, because Piclidenoson or Namodenoson
may be a NCE following approval of an NDA, we, if we are the first applicant to obtain NDA approval, may be entitled to five years of
data exclusivity in the United States with respect to such NCEs. Analogous data and market exclusivity provisions, of varying duration,
may be available in Europe and other foreign jurisdictions. However, we cannot be certain that we will be the first applicant to obtain
an FDA approval for any indication of Piclidenoson or Namodenoson and we cannot be certain that we will be entitled to NCE exclusivity.
In addition, we have discontinued the prosecution of a family of pending patent applications under joint ownership of Can-Fite and NIH
pertaining to the use of A3AR agonists for the treatment of uveitis. Such diminution of our proprietary position could have a material
adverse effect on our business, results of operation and financial condition.
The patent positions of companies
like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary
position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not
know whether any of our patent applications or those patent applications that we license will result in the issuance of any patents. Our
issued patents and those that may issue in the future, or those licensed to us, may be challenged, narrowed, circumvented or found to
be invalid or unenforceable, which could limit our ability to stop competitors from marketing related products or the length of term of
patent protection that we may have for our products. Neither we nor our licensors can be certain that we were the first to invent the
inventions claimed in our owned or licensed patents or patent applications. In addition, our competitors may independently develop similar
technologies or duplicate any technology developed by us, and the rights granted under any issued patents may not provide us with any
meaningful competitive advantages against these competitors. Furthermore, because of the extensive time required for development, testing
and regulatory review of a potential product, before any of our products can be commercialized, any related patent may expire or remain
in force for only a short period following commercialization, thereby reducing any advantage of the patent.
Trade Secrets
We may rely, in some circumstances,
on trade secrets to protect our technology. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology
and processes, in part, by confidentiality agreements and assignment of inventions agreements with our employees, consultants, scientific
advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical
security of our premises and physical and electronic security of our information technology systems. While we have confidence in these
individuals, organizations and systems, such agreements or security measures may be breached, and we may not have adequate remedies for
any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors or others.
Scientific Advisory Board
We seek advice from our Scientific
Advisory Board on scientific and medical matters generally. We call for Scientific Advisory Board meetings on an as-needed basis. The
following table sets forth certain information with respect to our Scientific Advisory Board member.
Name |
|
Position/Institutional Affiliation |
Nabil Hanna, Ph.D. |
|
Former Chief Science Officer of Biogen-Idec |
Clinical Advisory Board
Our Clinical Advisory Board,
which consists of seven members, a leading U.S.-based rheumatologist, oncologist, dermatologist, and three hepatologists, who play an
active role in consulting with us with respect to clinical drug development. We call for Clinical Advisory Board meetings on an as-needed
basis. The following table sets forth certain information with respect to our Clinical Advisory Board members.
Name |
|
Position/Institutional Affiliation |
Dr. Michael Weinblatt |
|
Head, Division of Rheumatology, Immunology and Allergy, Brigham and Women’s Hospital |
|
|
|
Dr. Keith Stuart |
|
Chairman, Department of Hematology and Oncology; Professor of Medicine, Tufts University School of Medicine; Lahey Clinic Medical Center |
|
|
|
Dr. Jonathan Wilkin |
|
Former Head, Dermatology Division, FDA |
|
|
|
Dr. Scott Friedman |
|
Dean for Therapeutic Discovery and Chief of the Division of Liver Diseases at the Icahn School of Medicine at Mount Sinai in New York |
|
|
|
Dr. Arun Sanyal |
|
Professor of Medicine, Physiology and Molecular Pathology at Virginia Commonwealth University School of Medicine |
|
|
|
Dr. Rifaat Safadi |
|
Head of the Liver Unit, Gastroenterology and Liver Diseases, Division of Medicine at Hadassah Medical Center and Professor of Internal Medicine, Bowel, Liver Disease, and Metabolic Syndrome at Hadassah University in Israel |
|
|
|
Dr. Stephen Harrison |
|
Dr. Harrison is currently a Visiting Professor of Hepatology at the Radcliffe Department of Medicine, University of Oxford. |
Competition
The pharmaceutical industry
is characterized by rapidly evolving technology, intense competition and a highly risky, costly and lengthy research and development process.
Adequate protection of intellectual property, successful product development, adequate funding and retention of skilled, experienced and
professional personnel are among the many factors critical to success in the pharmaceutical industry.
Our technology platform is
based on the finding that the A3AR is highly expressed in pathological cells, such as various tumor cell types and inflammatory cells.
We believe that targeting the A3AR with synthetic and highly selective A3AR agonists, such as Piclidenoson and Namodenoson, and allosteric
modulators, such as CF602, induces anti-cancer and anti-inflammatory effects. Currently, our drug candidates, Piclidenoson, Namodenoson
and CF602 are being developed to treat autoimmune inflammatory indications, oncology and liver diseases as well as erectile dysfunction,
including but not limited to psoriasis, HCC and NASH. Preclinical studies have also indicated that our drug candidates have the potential
to treat additional inflammatory diseases, such as erectile dysfunction, Crohn’s disease, oncological diseases and viral diseases,
such as the JC virus, and obesity.
Despite the competition, however,
we believe that our drug candidates have unique characteristics and advantages over certain drugs currently available on the market and
under development to treat these indications. We believe that our pipeline of drug candidates has exhibited a potential for therapeutic
success with respect to the treatment of autoimmune-inflammatory, oncological and liver diseases. We believe that targeting the A3AR with
synthetic and highly selective A3AR agonists, such as Piclidenoson and Namodenoson, and allosteric modulators, such as CF602, induces
anti-cancer and anti-inflammatory effects.
We believe the characteristics
of Piclidenoson, as exhibited in our clinical studies to date, including its good safety profile, clinical activity, simple and less frequent
delivery through oral administration and its low cost of production, position it well against the competition in the autoimmune-inflammatory
markets, including the psoriasis markets, where treatments, when available, often include injectable drugs, many of which can be highly
toxic, expensive and not always effective. For example, while TNF inhibitor therapies transformed the treatment for many patients, a substantial
percentage of patients (40% to 60%) do not respond to either a DMARD or biologic therapies (Simsek, 2010).
Pre-clinical pharmacology
studies in different experimental animal models revealed that Piclidenoson acts as a DMARD, which, when coupled with its good safety profile,
makes it competitive in the psoriasis market. Our recent findings suggest that Piclidenoson might offer a superior efficacy and tolerability
profile, allowing patients to stay on drug longer and potentially leading to an improvement in response rate. Like Piclidenoson, Namodenoson
has a good safety profile, is orally administered and has a low cost of production, which we believe positions it well in the HCC market,
where only a handful of drugs have been approved by the FDA.
In addition, our human clinical
data suggests that A3AR may be a biological marker in that high A3AR expression prior to treatment has been predictive of good patient
response to our drug treatment. In fact, as a result of our research we have developed a simple blood assay to test for A3AR expression
as a predictive biological marker. We hold a patent with respect to the intellectual property related to such assay and are currently
analyzing A3AR expression levels in our Phase III psoriasis trial.
On the other hand, other drugs
on the market, new drugs under development (including drugs that are in more advanced stages of development in comparison to our drug
pipeline) and additional drugs that were originally intended for other purposes, but were found effective for purposes targeted by us,
may all be competitive to the current drug candidates in our pipeline. In fact, some of these drugs are well established and accepted
among patients and physicians in their respective markets, are orally bioavailable, can be efficiently produced and marketed, and are
relatively safe. Moreover, other companies of various sizes engage in activities similar to ours. Most, if not all, of our competitors
have substantially greater financial and other resources available to them. Competitors include companies with marketed products and/or
an advanced research and development pipeline. The major competitors in the psoriasis therapeutic field include Amgen, J&J, Pfizer,
Novartis, Abbvie, Eli Lilly, Bristol-Myers, and more. Competitors in the HCC field include companies such as Bayer, Exelixis, Merck, Roche,
and Bristol-Myers. Competitors in the NASH field include companies such as Gilead, Genfit, Galmed, Intercept, Madrigal, Akero, 89Bio,
Viking, and Terns. Competitors in the erectile dysfunction field include Pfizer, Eli Lilly, Bayer, and Petros Pharmaceuticals.
Moreover, several companies
have reported the commencement of research projects related to the A3AR. Such companies include CV Therapeutics Inc. (which was acquired
by Gilead), King Pharmaceuticals R&D Inv. (which was acquired by Pfizer), Hoechst Marion Roussel Inc., Novo Nordisk A/S and Inotek
Pharmaceuticals. However, to the best of our knowledge, there is no approved drug currently on the market which is similar to our A3AR
agonists, nor are we aware of any allosteric modulator in the A3AR product pipeline similar to our allosteric modulator with respect to
chemical profile and mechanism of action.
Piclidenoson for the Treatment of Psoriasis
Psoriasis is a skin condition
that affects 2% to 3% of the general population according to the National Psoriasis Foundation. The disease is manifested by scaly plaques
on the skin and in the severe form has a major effect on the physical and emotional well-being of the patients. Topical agents are typically
used for mild disease, phototherapy for moderate disease, and systemic agents for severe disease. For moderate to severe cases, systemic
biologic drugs, delivered via intravenous injection, or IV, have dominated the market. According to the National Psoriasis Foundation,
common side effects of biologics include respiratory infections, flu-like symptoms, and injection site reactions while rare side effects
include serious nervous system disorders, such as multiple sclerosis, seizures, or inflammation of the nerves of the eyes, blood disorders,
and certain types of cancer. We believe a significant need remains for novel oral and safe drugs for patients who do not respond to existing
therapies or for whom these therapies are unsuitable.
The psoriasis therapeutic market is dominated by biological drugs that
are primarily administered via IV and have potential side effects. Recently, a new oral small molecule inhibitor of phosphodiesterase
4, Celgene’s Otezla, has gained sizable market share as a result in part due to its convenience of oral dose and comparable efficacy
to the biologic drugs. In January 2015, the FDA approved Cosentyx (secukinumab) by Novartis. In March 2016, the FDA approved Taltz (ixekizumab)
by Eli Lilly. The psoriasis drug market is forecast to grow to $11.3 billion by 2025, according to estimates of iHealthcareAnalyst.
The current common treatments
for psoriasis include topical and systemic drugs, steroids, immunosuppressive drugs such as Cyclosporine A by Novartis, MTX and biological
drugs.] Biological drugs, such as Enbrel (etanercept) by Amgen and Pfizer, Remicade (infliximab) by Centocor, Humira (adalimumab) by Abbvie,
Stelara (ustekinumab) by Janssen, Otezla (aprelimast) byAmgen, Cosentyx (secukinumab) by Novartis and Taltz (ixekizumab) by Eli Lilly
have significant side effects, are expensive and patients are often not responsive. For example, some of these drugs have received an
FDA “black box” warning for increased risk of cancer in children and adolescents and risk of infection with Legionella and
Listeria bacteria.
Namodenoson for the Treatment of HCC
According to the American
Cancer Society, HCC is the fifth most common form of cancer death in the U.S., the most common form of liver cancer in adults and the
third most common cause of cancer-related mortality worldwide, particularly in Asia. According to the American Cancer Society, more than
700,000 people are diagnosed with liver cancer each year throughout the world and more than 600,000 persons die from liver cancer each
year. Despite several new approvals in the HCC market, including immunotherapy agents, this remains a significant unmet medical need where
five year survival rates remain less than 20%. According to Grand View Research, the HCC drug market is expected to reach $1.5 billion
by 2022.
Several therapies are in advanced
clinical development for HCC. Some drugs under development act as a single agent and some act in combination with Nexavar or approved
checkpoint inhibitors pembrolizumab and/or nivolumab. Moreover, some are first line treatments while others are second line treatments.
In addition, many existing approaches are used in the treatment of unresectable liver cancer, including alcohol injection, radiofrequency
ablation, chemoembolization, cryoablation and radiation therapy.
Namodenoson for the Treatment of NASH
Rates of NAFLD and NASH are
increasing in the United States in concert with increasing rates of obesity and diabetes. In fact, NASH is now the third leading cause
of liver transplant in the United States. It is estimated that 17-33% of Americans have fatty liver, with approximately one-third going
on to develop NASH. NASH is believed to affect 2-5% of adult Americans. Despite the progression of several interesting clinical-stage
candidates by companies such as Gilead, Genfit, Madrigal, Conatus, Galmed, Intercept, Akero, 89Bio, Viking, and Terns as well as others,
there are currently no FDA approved treatment options for NASH.
In February 2019, Intercept
Pharmaceuticals announced its Phase 3 results of their OCA drug for the treatment of liver fibrosis due to NASH and Intercept reported
that it submitted an NDA to the FDA seeking accelerated approval of OCA for NASH and an MAA to the EMA. In June 2020, the FDA issued a
complete response letter, or the CRL, regarding the NDA of OCA for the treatment of NASH. Recently, Intercept reported that it is in discussions
with the FDA with respect to the potential resubmission of its NDA. If approved, OCA will become the first approved NASH drug.
By 2028, Vantage Market Research estimates the addressable pharmaceutical
market for NASH will reach $21.9 billion in size.
CF602 for the Treatment of Erectile Dysfunction
According to the Massachusetts
Male Aging Study in 1994, 52% of the respondents between the ages of 40 and 70 years old reported some degree of erectile dysfunction.
The most popular class of
drug to treat erectile dysfunction is the phosphodiesterase type 5, or PDE5, inhibitors. These drugs block the degradative action of cyclic
guanosine monophosphate, or GMP, specific PDE5 on cyclic GMP in the smooth muscle cells lining the blood vessels supplying the corpus
cavernosum of the penis. An erection is caused by increased blood flow into the penis resulting from the relaxation of penile arteries
and corpus cavernosal smooth muscle. This response is mediated by the release of nitric oxide from nerve terminals and endothelial cells,
which stimulates the synthesis of cyclic GMP in smooth muscle cells. The inhibition of PDE5 enhances erectile function by increasing the
concentration of cyclic GMP in the corpus cavernosum and pulmonary arteries.
Unfortunately, the systemic
side effects of PDE5 inhibitors include a decrease in sitting blood pressure. This has resulted in warnings and precautions and contraindications
of use in patients already taking antihypertensive agents like nitrates or alpha-blockers. A study published in the American Journal of
Medicine (Selvin E., et al., 2007) found that persons with a history of heart disease, hypertension, and diabetes had a higher probability
of impotence. A second study published in the same journal (Shah NP., et al, 2015) notes that vascular erectile dysfunction is a powerful
marker of increased cardiovascular risk. We believe a significant market opportunity exists targeting erectile dysfunction patients contraindicated
for use of the market leading products, Viagra and Cialis.
Grand View Research Inc. estimates
the value of the erectile dysfunction therapeutic market to be approximately $3.2 billion by 2022.
Insurance
We maintain insurance for
our offices and laboratory in Petah-Tikva, Israel. Our insurance program covers approximately $0.85 million of equipment and lease improvements
against risk of loss. In addition, we maintain the following insurance: employer liability with coverage of approximately $5.7 million;
third party liability with coverage of approximately $0.87 million; fire insurance coverage of approximately $0.43 million; natural disaster
coverage of approximately $1.3 million; all risk coverage of approximately $0.02 million for electronic equipment and machinery insurance
for laboratory refrigerators; and directors’ and officers’ liability insurance with coverage of $5.0 million per claim and
$5.0 million in the aggregate.
We also maintain worldwide
product and clinical trial liability insurance with coverage of approximately $5 million with respect to the Piclidenoson and Namodenoson
drugs used in clinical trials. We also procure additional insurance for each specific clinical trial which covers a certain number of
trial participants and which varies based on the particular clinical trial. Certain of such policies are based on the Declaration of Helsinki,
which is a set of ethical principles regarding human experimentation developed for the medical community by the World Medical Association,
and certain protocols of the Israeli Ministry of Health.
We procure cargo marine coverage
when we ship substances for our clinical studies. Such insurance is custom-fit to the special requirements of the applicable shipment,
such as temperature and/or climate sensitivity. If required, we ensure the substances to the extent they are stored in central depots
and at clinical sites.
We believe that our insurance
policies are adequate and customary for a business of our kind. However, because of the nature of our business, we cannot assure you that
we will be able to maintain insurance on a commercially reasonable basis or at all, or that any future claims will not exceed our insurance
coverage.
Environmental Matters
We are subject to various
environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges, noise
emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated
sites. We believe that our business, operations and facilities are being operated in compliance in all material respects with applicable
environmental and health and safety laws and regulations. Our laboratory personnel in Israel have ongoing communication with the Israeli
Ministry of Environmental Protection in order to verify compliance with relevant instructions and regulations. In addition, all of our
laboratory personnel participate in instruction on the proper handling of chemicals, including hazardous substances before commencing
employment, and during the course of their employment with us. In addition, all information with respect to any chemical substance that
we use is filed and stored as a Material Safety Data Sheet, as required by applicable environmental regulations. Based on information
currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. The operation
of our testing facilities, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities
are required to comply with new or more stringent environmental or health and safety laws, regulations or requirements. See “Item
4. Information on the Company—B. Business Overview—Government Regulation and Funding—Israel Ministry of the Environment—Toxin
Permit.”
Government Regulation and Funding
We operate in a highly controlled
regulatory environment. Stringent regulations establish requirements relating to analytical, toxicological and clinical standards and
protocols in respect of the testing of pharmaceuticals. Regulations also cover research, development, manufacturing and reporting procedures,
both pre- and post-approval. In many markets, especially in Europe, marketing and pricing strategies are subject to national legislation
or administrative practices that include requirements to demonstrate not only the quality, safety and efficacy of a new product, but also
its cost-effectiveness relating to other treatment options. Failure to comply with regulations can result in stringent sanctions, including
product recalls, withdrawal of approvals, seizure of products and criminal prosecution.
Before obtaining regulatory
approvals for the commercial sale of our product candidates, we must demonstrate through preclinical studies and clinical trials that
our product candidates are safe and effective. Historically, the results from preclinical studies and early clinical trials often have
not accurately predicted results of later clinical trials. In addition, a number of pharmaceutical products have shown promising results
in clinical trials but subsequently failed to establish sufficient safety and efficacy results to obtain necessary regulatory approvals.
We have incurred, and will continue to incur substantial expense for and devote a significant amount of time to, preclinical studies and
clinical trials. Many factors can delay the commencement and rate of completion of clinical trials, including the inability to recruit
patients at the expected rate, the inability to follow patients adequately after treatment, the failure to manufacture sufficient quantities
of materials used for clinical trials, and the emergence of unforeseen safety issues and governmental and regulatory delays. If a product
candidate fails to demonstrate safety and efficacy in clinical trials, this failure may delay development of other product candidates
and hinder our ability to conduct related preclinical studies and clinical trials. Additionally, as a result of these failures, we may
also be unable to obtain additional financing.
Governmental authorities in
all major markets require that a new pharmaceutical product be approved or exempted from approval before it is marketed, and have established
high standards for technical appraisal which can result in an expensive and lengthy approval process. The time to obtain approval varies
by country and some products are never approved. The lengthy process of conducting clinical trials, seeking approval and subsequent compliance
with applicable statutes and regulations, if approval is obtained, are very costly and require the expenditure of substantial resources.
A summary of the United States,
European Union and Israeli regulatory processes follow below.
United States
In the United States, the
Public Health Service Act and the Federal Food, Drug, and Cosmetic Act (FDCA), as amended, and the regulations promulgated thereunder,
and other federal and state statutes and regulations govern, among other things, the safety and effectiveness standards for our products
and the raw materials and components used in the production of, testing, manufacture, labeling, storage, record keeping, approval, advertising
and promotion of our products on a product-by-product basis.
Preclinical tests include in
vitro and in vivo evaluation of the product candidate, its chemistry, formulation and stability, and animal
studies to assess potential safety and efficacy. Certain preclinical tests must be conducted in compliance with good laboratory practice,
or GLP, regulations. Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring them to be replicated.
After laboratory analysis and preclinical testing, a sponsor files an IND application including the results of the preclinical testing,
manufacturing information and analytical data, with FDA. An IND is a request for authorization from FDA to administer an investigational
new drug or biological product to humans.to begin human testing. An IND becomes effective 30 days after FDA receives it, unless the FDA
notifies the sponsor that the clinical trial is subject to a clinical hold. FDA also may impose a clinical hold at any time during a clinical
trial. A sponsor may not proceed with a clinical trial that is subject to a clinical hold until the clinical hold has been lifted.
Typically, a manufacturer
conducts a three-phase human clinical testing program which itself is subject to numerous laws and regulatory requirements, including
good clinical practice requirements, or GCP, which include adequate monitoring, reporting, record keeping and informed consent. In Phase
I, small clinical trials are conducted, typically in healthy human volunteers, to determine the safety and proper dose ranges of product
candidates. In Phase II, clinical trials are conducted in patients with the targeted disease or condition to assess safety and gain preliminary
evidence of the efficacy of product candidates. In Phase III, clinical trials are conducted in an expanded population of patients with
the targeted disease or condition to further evaluate clinical efficacy and safety. Phase III trials are designed to provide sufficient
data for the statistically valid evidence of safety and efficacy to support approval, and if approved, the basis for product labeling.
Post-approval studies, sometimes referred to as Phase IV trials, may be conducted, voluntarily or as a condition of approval, after initial
product approval to obtain additional information about the drugs risks and benefits in patients with the targeted disease or condition.
The time and expense required for us to perform this clinical testing can vary and is substantial. We cannot be certain that we will successfully
complete Phase I, Phase II or Phase III testing of our product candidates within any specific time period, if at all. Furthermore, the
FDA, the Institutional Review Board responsible for approving and monitoring the clinical trials at a given site, the Data Safety Monitoring
Board, where one is used, or we may suspend the clinical trials at any time on various grounds, including a finding that subjects or patients
are exposed to unacceptable health risk.
If the clinical data from
these clinical trials (Phases I, II and III) are deemed to support the safety and effectiveness of the candidate product for its intended
use, then we may proceed to seek to file with the FDA an NDA seeking approval to market a new drug for one or more specified intended
uses. We have not completed our clinical trials for any candidate product for any intended use and therefore, we cannot ascertain whether
the clinical data will support and justify filing an NDA. Nevertheless, if and when we are able to ascertain that the clinical data supports
and justifies filing an NDA, we intend to make such appropriate filings.
The purpose of the NDA is
to provide the FDA with sufficient information so that it can assess whether it ought to approve the candidate product for marketing for
specific intended uses. Under PDUFA, the submission of an NDA requires the payment of substantial user fees, unless a waiver is granted.
The NDA normally contains,
among other things, sections describing the chemistry, manufacturing, and controls, non-clinical pharmacology and toxicology, human pharmacokinetics
and bioavailability, microbiology, the results of the clinical trials, and the proposed labeling which contains, among other things, the
intended uses of the candidate product. FDA reviews the information submitted under the NDA to determine, among other things, whether
a product is safe and effective for its intended use and whether its manufacturing is compliant with cGMP requirements to assure and preserve
the product’s identity, strength, quality and purity. Before accepting an NDA for filing, FDA conducts a preliminary review of the
NDA, within 60 days of submission, to determine whether it is sufficiently complete to permit substantive review. Generally, under PDUFA
guidelines, FDA has a goal of ten months from the date of acceptance of a standard NDA for a new molecular entity to review and act on
the submission. Because of the 60 day review FDA is permitted prior to accepting an NDA for filing, this review typically takes 12 months
from the date the NDA is submitted to FDA.
The FDA may refer an application
for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific
experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions.
The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve an
application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate
to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect
one or more clinical trial sites to assure compliance with GCP requirements.
Manufacturers cannot take
any action to market any new drug or biologic product in the United States until an appropriate marketing application has been approved
by the FDA. The FDA has substantial discretion over the approval process and may disagree with a manufacturer’s interpretation of
the data submitted. The process may be significantly extended by requests for additional information or clarification regarding information
already provided. As part of this review, the FDA may refer the application to an appropriate advisory committee. An advisory committee
is a panel comprised of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a
recommendation as to whether an application should be approved and under what conditions. FDA is not bound by the recommendations of an
advisory committee; however, it takes into consideration the advisory committee’s recommendations when making decisions., typically
a panel of clinicians. As part of the approval process, FDA determines whether the manufacturer’s facilities and manufacturing processes
are in compliance with cGMP requirements and sufficient to ensure consistent production of the product within required specifications.
Prior to approving an NDA, FDA also may inspect one or more clinical trial sites to assure compliance with GCP requirements.
Following the completion of
its evaluation of an NDA, FDA will issue an approval letter or a Complete Response Letter, or CRL. An approval letter authorizes commercialization
of the drug for specified indications. A CRL informs the manufacturer that the review cycle for an application is complete and that the
application is not ready for approval in its present form. A CRL typically identifies specific deficiencies in the NDA that may require
additional clinical data or other significant requirements related to clinical trials or manufacturing. If FDA issues a CRL, the manufacturer
must resubmit the NDA with all deficiencies addressed or withdraw the NDA. Even if all requested data and information are submitted, FDA
ultimately may not approve the NDA.
Satisfaction of these and
other regulatory requirements typically takes several years, and the actual time required may vary substantially based upon the type,
complexity and novelty of the product. Government regulation may delay or prevent marketing of potential products for a considerable period
of time and impose costly procedures on our activities. We cannot be certain that the FDA or other regulatory agencies will approve any
of our products on a timely basis, if at all. Success in preclinical or early stage clinical trials does not assure success in later-stage
clinical trials. Even if a product receives regulatory approval, the approval may be significantly limited to specific indications or
uses and these limitations may adversely affect the commercial viability of the product. Delays in obtaining, or failures to obtain regulatory
approvals, would have a material adverse effect on our business.
Even after we obtain FDA approval,
we may be required to conduct further clinical trials (i.e., Phase IV trials) and provide additional data on safety and effectiveness.
FDA also may impose other conditions on approval including the requirement for a risk evaluation and mitigation strategy, or REMS, designed
to ensure the safe use of the drug. A REMS could include, among other things, medication guides, physician communication plans, restricted
distribution methods, and patient registries. Any of these limitations on approval or marketing could restrict our ability to successfully
commercialize products.
We are also required to gain
separate approval for the use of an approved product as a treatment for indications other than those initially approved. In addition,
side effects or adverse events that are reported during clinical trials can delay, impede or prevent marketing approval. Similarly, adverse
events that are reported after marketing approval can result in additional limitations being placed on the product’s use and, potentially,
withdrawal of the product from the market. Any adverse event, either before or after marketing approval, can result in product liability
claims against us.
As an alternate path for FDA
approval of new indications or new formulations of previously-approved products, a company may file a Section 505(b)(2) NDA, instead of
a “stand-alone” or “full” NDA. Section 505(b)(2) of the FDCA, was enacted as part of the Drug Price Competition
and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Amendments. Section 505(b)(2) permits the submission of an
NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which
the applicant has not obtained a right of reference. Some examples of products that may be allowed to follow a 505(b)(2) path to approval
are drugs that have a new dosage form, strength, route of administration, formulation or indication. The Hatch-Waxman Amendments permit
the applicant to rely upon certain published nonclinical or clinical studies conducted for an approved product or the FDA’s conclusions
from prior review of such studies. The FDA may require companies to perform additional studies or measurements to support any changes
from the approved product. The FDA may then approve the new product for all or some of the labeled indications for which the reference
product has been approved, as well as for any new indication supported by the NDA. While references to nonclinical and clinical data not
generated by the applicant or for which the applicant does not have a right of reference are allowed, all development, process, stability,
qualification and validation data related to the manufacturing and quality of the new product must be included in an NDA submitted under
Section 505(b)(2).
To the extent that the Section
505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for an already approved product, the applicant
is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book publication. Specifically,
the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the
listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed
patent is invalid or will not be infringed by the new product. The Section 505(b)(2) application also will not be approved until any non-patent
exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the reference product
has expired. Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products
only to be subject to significant delay and patent litigation before its products may be commercialized.
In addition to regulating
and auditing human clinical trials, the FDA regulates and inspects equipment, facilities, laboratories and processes used in the manufacturing
and testing of such products prior to providing approval to market a product. If, after receiving FDA approval, we make a material change
in manufacturing equipment, location or process, additional regulatory review and approval may be required. We also must adhere to cGMP
regulations and product-specific regulations enforced by the FDA through its facilities inspection program. The FDA also conducts regular,
periodic visits to re-inspect our equipment, facilities, laboratories and processes following the initial approval. If, as a result of
these inspections, the FDA determines that our equipment, facilities, laboratories or processes do not comply with applicable FDA regulations
and conditions of product approval, the FDA may seek civil, criminal or administrative sanctions and/or remedies against us, including
the suspension of our manufacturing operations.
We have currently received
no approvals to market our products from the FDA or other foreign regulators.
We are also subject to various
federal, state and international laws pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false claims
laws. The federal anti-kickback law, which governs federal healthcare programs (e.g., Medicare, Medicaid), makes it illegal to solicit,
offer, receive or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription
of a particular drug. Many states have similar laws that are not restricted to federal healthcare programs. Federal and state false claims
laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third party payers (including
Medicare and Medicaid), claims for reimbursement, including claims for the sale of drugs or services, that are false or fraudulent, claims
for items or services not provided as claimed, or claims for medically unnecessary items or services. If the government or a whistleblower
were to allege that we violated these laws there could be a material adverse effect on us, including our stock price. Even an unsuccessful
challenge could cause adverse publicity and be costly to respond to, which could have a materially adverse effect on our business, results
of operations and financial condition. A finding of liability under these laws can have significant adverse financial implications for
us and can result in payment of large penalties and possible exclusion from federal healthcare programs. We will consult counsel concerning
the potential application of these and other laws to our business and our sales, marketing and other activities and will make good faith
efforts to comply with them. However, given their broad reach and the increasing attention given by law enforcement authorities, we cannot
assure you that some of our activities will not be challenged or deemed to violate some of these laws.
Orphan Drug Designation
Pursuant to the Orphan Drug
Act, FDA may grant special status, or orphan designation, to a drug intended to treat a rare disease or condition, which is a defined
as a disease or condition that affects fewer than 200,000 individuals in the United States, or there is no reasonable expectation that
the sales of the product will offset the cost of developing and making the drug available in the United States. A request for orphan drug
designation must be filed before the NDA is filed. Following the grant of orphan designation, FDA will publicly disclose the identity
of the therapeutic drug candidate and its potential orphan use. Orphan designation does not shorten the duration of the regulatory review
and approval process. The fact that the FDA has designated a drug as an orphan drug for a particular intended use does not mean that the
drug has been approved for marketing. Only after an NDA has been approved by the FDA is marketing appropriate.
If a drug candidate with orphan
designation subsequently receives the first FDA approval for the disease or condition for which it has orphan designation, the drug is
entitled to a seven-year period of market exclusivity subject to certain exceptions (e.g., clinical superiority of a subsequent product).
This means that FDA may not approve another drug application authorizing another manufacturer to market the same drug for the same indication
for seven years. This does not preclude competitors from receiving approval of the same product that has orphan exclusivity for a different
indication or a different product for the same indication for which the orphan product has exclusivity. The orphan designation of a drug
also provides the sponsor with certain financial incentives including tax credits, waiver of PDUFA fees, and access to certain grant funding
for orphan products.
In February 2012, the FDA
granted orphan drug status for the active moiety, or the part of the drug that is responsible for the physiological or pharmacological
action of the drug substance, of Namodenoson for the treatment of HCC. Subsequently, in October 2015, the EMA granded Namodenoson orphan
drug designation for the treatment of HCC. See “Item 4. Information on the Company—B. Business—Overview—Namodenoson.”
European Union
Regulation and Marketing Authorization
in the European Union
The process governing approval
of medicinal products in the European Union follows essentially the same lines as in the United States and, likewise, generally involves
satisfactorily completing each of the following:
| ● | preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the
applicable E.U. Good Laboratory Practice regulations; |
| ● | submission to the relevant national authorities of a clinical trial application, or CTA, which must be approved
before human clinical trials may begin; |
| ● | performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product
for each proposed indication; |
| ● | submission to the relevant competent authorities of an MAA, which includes the data supporting safety and
efficacy as well as detailed information on the manufacture and composition of the product in clinical development and proposed labelling; |
| ● | satisfactory completion of an inspection by the relevant national authorities of the manufacturing facility
or facilities, including those of third parties, at which the product is produced to assess compliance with strictly enforced current
cGMP; |
| ● | potential audits of the non-clinical and clinical trial sites that generated the data in support of the MAA;
and |
| ● | review and approval by the relevant competent authority of the MAA before any commercial marketing, sale
or shipment of the product. |
Preclinical Studies
Preclinical tests include
laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies, in
order to assess the potential safety and efficacy of the product. The conduct of the preclinical tests and formulation of the compounds
for testing must comply with the relevant E.U. and/or Member States’ regulations and requirements. The results of the preclinical
tests, together with relevant manufacturing information and analytical data, are submitted as part of the CTA.
Clinical Trial Approval
Requirements for the conduct
of clinical trials in the European Union including Good Clinical Practice, or GCP, are implemented in the Clinical Trials Directive 2001/20/EC
and the GCP Directive 2005/28/EC. Pursuant to Directive 2001/20/EC and Directive 2005/28/EC, as amended, a system for the approval of
clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, approval
must be obtained from the competent national authority of an E.U. member state in which a study is planned to be conducted or in multiple
member states if the clinical trial is to be conducted in a number of member states. To this end, a CTA is submitted, which must be supported
by an investigational medicinal product dossier, or IMPD, and further supporting information prescribed by Directive 2001/20/EC and Directive
2005/28/EC and other applicable guidance documents. Furthermore, a clinical trial may only be started after a competent ethics committee
has issued a favorable opinion on the clinical trial application in that country.
Clinical trials in the EU
are now regulated under Regulation (EU) 536/2014, or the CTR. As opposed to the former law, Directive 2001/20/EC, or CTD, which as an
EU directive was not directly applicable in the member states, the CTR has immediate effect and does not have to be transposed into national
law. While national law transposing the CTD varied to a great extent, the CTR aims at significant further harmonization of the law governing
clinical trials in the EU. After significant delay, the CTR has now become applicable on January 31, 2022. The CTR further harmonizes
the assessment and supervision processes for clinical trials throughout the EU via a Clinical Trials Information System, or CTIS, which
includes a centralized EU portal and database for clinical trials. The exact timing of the Regulation’s application depends on confirmation
of full functionality of CTIS through an independent audit. The CTR will become applicable six months after the European Commission publishes
notice of this confirmation. The CTR provides inter alia:
| ● | Consistent rules for conducting clinical trials throughout the EU; |
| ● | Making information on the authorization, conduct and results of each clinical trial carried out in the EU
publicly available; |
| ● | Harmonized electronic submission and assessment process for clinical trials conducted in multiple member
states; |
| ● | Improved collaboration, information sharing and decision-making between and within member states; |
| ● | Increased transparency of information on clinical trials; and |
| ● | Higher standards of safety for all participants in EU clinical trials. |
The authorization of a clinical
trial (Phase I-III) in an EU member state requires the submission of a clinical trial application (CTA) via the EU Portal. The application
will be reviewed by the competent authorities of the member states where the trial is supposed to take place. The application and approval
process is conducted by the member states under the cooperation system set forth in the CTR. Particularities under member states’
national law still apply to some extent. In general, the CTA should include, among other documents, the study protocol, results of the
nonclinical studies and manufacturing information and analytical results. Also, the sponsor has to suggest one of the concerned member
states as reporting member state. The CTR aims at speeding up the validation and review of clinical trial applications and therefore provides
strict deadlines.
Marketing Authorization
Authorization to market a
product in the member states of the European Union proceeds under one of four procedures: a centralized authorization procedure, a mutual
recognition procedure, a decentralized procedure or a national procedure.
Centralized Authorization Procedure
The centralized procedure
enables applicants to obtain a marketing authorization that is valid in all E.U. member states based on a single application. Certain
medicinal products, including products developed by means of biotechnological processes, must undergo the centralized authorization procedure
for marketing authorization which, if granted by the European Commission, is automatically valid in all 28 E.U. member states. The EMA
and the European Commission administer this centralized authorization procedure pursuant to Regulation (EC) No 726/2004.
Pursuant to Regulation (EC)
No 726/2004, this procedure is inter alia mandatory for:
| ● | medicinal products developed by means of one of the following biotechnological processes: |
| ● | recombinant DNA technology; |
| ● | controlled expression of genes coding for biologically active proteins in prokaryotes and eukaryotes including
transformed mammalian cells; and |
| ● | hybridoma and monoclonal antibody methods; |
| ● | advanced therapy medicinal products as defined in Article
2 of Regulation (EC) No. 1394/2007 on advanced therapy medicinal products; |
| ● | medicinal products for human use containing a new active substance
that, on the date of effectiveness of this regulation, was not authorized in the European Union, and for which the therapeutic indication
is the treatment of any of the following diseases: |
| ● | acquired immune deficiency syndrome; |
| ● | neurodegenerative disorder; |
| ● | auto-immune diseases and other immune dysfunctions; |
| ● | medicinal products that are designated as orphan medicinal
products pursuant to Regulation (EC) No 141/2000. |
The centralized authorization
procedure is optional for other medicinal products if they contain a new active substance or if the applicant shows that the medicinal
product concerned constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization is in
the interest of patients in the European Union.
Administrative Procedure
Under the centralized authorization
procedure, the EMA’s Committee for Human Medicinal Products, or CHMP, serves as the scientific committee that renders opinions about
the safety, efficacy and quality of medicinal products for human use on behalf of the EMA. The CHMP is composed of experts nominated by
each member state’s national authority for medicinal products, with expert appointed to act as Rapporteur for the co-ordination
of the evaluation with the possible assistance of a further member of the Committee acting as a Co-Rapporteur. After approval, the Rapporteur(s)
continue to monitor the product throughout its life cycle. The CHMP has 210 days to adopt an opinion as to whether a marketing authorization
should be granted. The process usually takes longer in case additional information is requested, which triggers clock-stops in the procedural
timelines. The process is complex and involves extensive consultation with the regulatory authorities of member states and a number of
experts. When an application is submitted for a marketing authorization in respect of a drug that is of major interest from the point
of view of public health and in particular from the viewpoint of therapeutic innovation, the applicant may pursuant to Article 14(9) Regulation
(EC) No 726/2004 request an accelerated assessment procedure. If the CHMP accepts such request, the time-limit of 210 days will be reduced
to 150 days but it is possible that the CHMP can revert to the standard time-limit for the centralized procedure if it considers that
it is no longer appropriate to conduct an accelerated assessment. Once the procedure is completed, a European Public Assessment Report,
or EPAR, is produced. If the opinion is negative, information is given as to the grounds on which this conclusion was reached. After the
adoption of the CHMP opinion, a decision on the MAA must be adopted by the European Commission, after consulting the E.U. member states.
Conditional Approval
In specific circumstances,
E.U. legislation (Article 14(7) Regulation (EC) No 726/2004 and Regulation (EC) No 507/2006 on Conditional Marketing Authorisations for
Medicinal Products for Human Use) enables applicants to obtain a conditional marketing authorization prior to obtaining the comprehensive
clinical data required for an application for a full marketing authorization. Such conditional approvals may be granted for product candidates
(including medicines designated as orphan medicinal products) if (1) the risk-benefit balance of the product candidate is positive, (2)
it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) the product fulfills
unmet medical needs and (4) the benefit to public health of the immediate availability on the market of the medicinal product concerned
outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization may contain specific
obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or
new studies, and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year,
and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified
conditions and/or specific obligations. The timelines for the centralized procedure described above also apply with respect to the review
by the CHMP of applications for a conditional marketing authorization.
Marketing Authorization under Exceptional
Circumstances
Under Article 14(8) Regulation
(EC) No 726/2004, products for which the applicant can demonstrate that comprehensive data (in line with the requirements laid down in
Annex I of Directive 2001/83/EC, as amended) cannot be provided (due to specific reasons foreseen in the legislation) might be eligible
for marketing authorization under exceptional circumstances. This type of authorization is reviewed annually to reassess the risk-benefit
balance. The fulfillment of any specific procedures/obligations imposed as part of the marketing authorization under exceptional circumstances
is aimed at the provision of information on the safe and effective use of the product and will normally not lead to the completion of
a full dossier/approval.
Market Authorizations Granted by Authorities
of E.U. Member States
In general, if the centralized
procedure is not followed, there are three alternative procedures as prescribed in Directive 2001/83/EC:
| ● | The decentralized procedure allows applicants to file identical applications to several E.U. member states
and receive simultaneous national approvals based on the recognition by E.U. member states of an assessment by a reference member state; |
| ● | The national procedure is only available for products intended to be authorized in a single E.U. member state;
and |
| ● | A mutual recognition procedure similar to the decentralized procedure is available when a marketing authorization
has already been obtained in at least one E.U. member state. |
A marketing authorization
may be granted only to an applicant established in the European Union.
Pediatric Studies
Prior to obtaining a marketing
authorization in the European Union, applicants have to demonstrate compliance with all measures included in an EMA-approved Paediatric
Investigation Plan, or PIP, covering all subsets of the paediatric population, unless the EMA has granted a product-specific waiver, a
class waiver, or a deferral for one or more of the measures included in the PIP. The respective requirements for all marketing authorization
procedures are set forth in Regulation (EC) No 1901/2006, which is referred to as the Pediatric Regulation. This requirement also applies
when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized.
The Pediatric Committee of the EMA, or PDCO, may grant deferrals for some medicines, allowing a company to delay development of the medicine
in children until there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may also grant waivers when
development of a medicine in children is not needed or is not appropriate, such as for diseases that only affect the elderly population.
Before a marketing authorization
application can be filed, or an existing marketing authorization can be amended, the EMA determines that companies actually comply with
the agreed studies and measures listed in each relevant PIP.
Periods of Authorization and Renewals
A marketing authorization
is valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of
the risk-benefit balance by the competent authority of the authorizing member state. To this end, the marketing authorization holder must
provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including
all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases
to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent
authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any authorization
which is not followed by the actual placing of the drug on the E.U. market (in case of centralized procedure) or on the market of the
authorizing member state within three years after authorization ceases to be valid (the so-called sunset clause).
Orphan Drug Designation and Exclusivity
Pursuant to Regulation (EC)
No 141/2000 and Regulation (EC) No. 847/2000, the European Commission can grant such orphan medicinal product designation to products
for which the sponsor can establish that it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically
debilitating condition affecting not more than five in 10,000 people in the European Union, or a life threatening, seriously debilitating
or serious and chronic condition in the European Union and with regards to that without incentives it is unlikely that sales of the drug
in the European Union would generate a sufficient return to justify the necessary investment. In addition, the sponsor must establish
that there is no other satisfactory method approved in the European Union of diagnosing, preventing or treating the condition, or if such
a method exists, the proposed orphan drug will be of significant benefit to patients.
Orphan drug designation is
not a marketing authorization. It is a designation that provides a number of benefits, including fee reductions, regulatory assistance,
and the possibility to apply for a centralized E.U. marketing authorization, as well as ten years of market exclusivity following a marketing
authorization. During this market exclusivity period, neither the EMA, the European Commission nor the member states can accept an application
or grant a marketing authorization for a “similar medicinal product.” A “similar medicinal product” is defined
as a medicinal product containing a similar active substance or substances as those contained in an authorized orphan medicinal product
and that is intended for the same therapeutic indication. The market exclusivity period for the authorized therapeutic indication may
be reduced to six years if, at the end of the fifth year, it is established that the orphan designation criteria are no longer met, including
where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. In addition, a competing
similar medicinal product may in limited circumstances be authorized prior to the expiration of the market exclusivity period, including
if the marketing authorization holder is unable to supply sufficient quantities of the product or if the competing product is shown to
be safer, more effective or otherwise clinically superior to the already approved orphan drug. Furthermore, a product can lose orphan
designation, and the related benefits, prior to us obtaining a marketing authorization if it is demonstrated that the orphan designation
criteria are no longer met.
Regulatory Data Protection
E.U. legislation also provides
for a system of regulatory data and market exclusivity. According to Article 14(11) of Regulation (EC) No 726/2004, as amended, and Article
10(1) of Directive 2001/83/EC, as amended, upon receiving marketing authorization, new chemical entities approved on the basis of a complete
independent data package benefit from eight years of data exclusivity and an additional two years of market exclusivity. Data exclusivity
prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic (abbreviated) application.
During the additional two-year period of market exclusivity, a generic marketing authorization can be submitted, and the innovator’s
data may be referenced, but no generic medicinal product can be marketed until the expiration of the market exclusivity. The overall ten-year
period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder,
or MAH, obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization,
are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical
entity and the innovator is able to gain the period of data exclusivity, another company nevertheless could also market another version
of the drug if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical
tests, preclinical tests and clinical trials. However, products designated as orphan medicinal products enjoy, upon receiving marketing
authorization, a period of ten years of orphan market exclusivity—see also Orphan Drug Designation and Exclusivity.
Depending upon the timing and duration of the E.U. marketing authorization process, products may be eligible for up to five years’
supplementary protection certificates, or SPCs, pursuant to Regulation (EC) No 469/2009. Such SPCs extend the rights under the basic patent
for the drug (see below sub Patent Term Extension).
Regulatory Requirements After a Marketing
Authorization has been Obtained
If we obtain authorization
for a medicinal product in the European Union, we will be required to comply with a range of requirements applicable to the manufacturing,
marketing, promotion and sale of medicinal products:
Pharmacovigilance and other requirements
We will, for example, have
to comply with the E.U.’s stringent pharmacovigilance or safety reporting rules, pursuant to which post-authorization studies and
additional monitoring obligations can be imposed. Other requirements relate, for example, to the manufacturing of products and APIs in
accordance with good manufacturing practice standards. E.U. regulators may conduct inspections to verify our compliance with applicable
requirements, and we will have to continue to expend time, money and effort to remain compliant. Non-compliance with E.U. requirements
regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population,
can also result in significant financial penalties in the European Union. Similarly, failure to comply with the E.U.’s requirements
regarding the protection of individual personal data can also lead to significant penalties and sanctions. Individual E.U. member states
may also impose various sanctions and penalties in case we do not comply with locally applicable requirements.
Manufacturing
The manufacturing of authorized
drugs, for which a separate manufacturer’s license is mandatory, must be conducted in strict compliance with the EMA’s Good
Manufacturing Practices, or cGMP, requirements and comparable requirements of other regulatory bodies in the European Union, which mandate
the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. The EMA
enforces its current cGMP requirements through mandatory registration of facilities and inspections of those facilities. The EMA may have
a coordinating role for these inspections while the responsibility for carrying them out rests with the member states competent authority
under whose responsibility the manufacturer falls. Failure to comply with these requirements could interrupt supply and result in delays,
unanticipated costs and lost revenues, and could subject the applicant to potential legal or regulatory action, including but not limited
to warning letters, suspension of manufacturing, seizure of product, injunctive action or possible civil and criminal penalties.
Marketing and Promotion
The marketing and promotion
of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs
and/or the general public, are strictly regulated in the European Union under Directive 2001/83/EC. The applicable regulations aim to
ensure that information provided by holders of marketing authorizations regarding their products is truthful, balanced and accurately
reflects the safety and efficacy claims authorized by the EMA or by the competent authority of the authorizing member state. Failure to
comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal
penalties.
Patent Term Extension
In order to compensate the
patentee for delays in obtaining a marketing authorization for a patented product, a supplementary certificate, or SPC, may be granted
extending the exclusivity period for that specific product by up to five years. Applications for SPCs must be made to the relevant patent
office in each E.U. member state and the granted certificates are valid only in the member state of grant. An application has to be made
by the patent owner within six months of the first marketing authorization being granted in the European Union (assuming the patent in
question has not expired, lapsed or been revoked) or within six months of the grant of the patent (if the marketing authorization is granted
first). In the context of SPCs, the term “product” means the active ingredient or combination of active ingredients for a
medicinal product and the term “patent” means a patent protecting such a product or a new manufacturing process or application
for it. The duration of an SPC is calculated as the difference between the patent’s filing date and the date of the first marketing
authorization, minus five years, subject to a maximum term of five years.
A six month pediatric extension
of an SPC may be obtained where the patentee has carried out an agreed pediatric investigation plan, the authorized product information
includes information on the results of the studies and the product is authorized in all member states of the European Union.
United Kingdom
The withdrawal of the United
Kingdom (U.K.) from the E.U. took effect on January 1, 2021, and there are 27 member states remaining in the E.U. As of January 1, 2021,
the U.K. is a “third country” with regard to the EU (subject to the terms of the EU UK Trade Agreement) and EU law ceased
to apply directly in the UK. However, the U.K. has retained the E.U. regulatory regime with certain modifications as standalone U.K. legislation.
Therefore, the U.K. regulatory regime is currently similar to E.U. regulations, but the U.K. may adopt changed regulations that may diverge
from the E.U. legislative regime for medicines and their research, development and commercialization. For a two-year period starting January
1, 2021, the U.K. has adopted transitional provisions, which inter alia apply to the importation of medicines into the
U.K. and rely on certain EMA marketing authorization application procedures.
Israel
Israel Ministry of the Environment —
Toxin Permit
In accordance with the Israeli
Dangerous Substance Law — 1993, the Ministry of the Environment may grant a permit in order to use toxic materials. Because we utilize
toxic materials in the course of operation of our laboratories, we were required to apply for a permit to use these materials. Our current
toxin permit will remain in effect until March 9, 2023 and is in the process of being renewed.
Other Licenses and Approvals
We have a business license
from the municipality of Petah-Tikva for a drug development research laboratory located at our offices in Petah Tikva, Israel. In order
to obtain this license, we also received approval from the Petah-Tikva Association of Towns Fire Department. The business license is valid
until December 31, 2025 and is in the process of being renewed. We also have a radioactive materials or products containing radioactive
materials license, which is valid until July 25, 2022.
Clinical Testing in Israel
In order to conduct clinical
testing on humans in Israel, special authorization must first be obtained from the ethics committee and general manager of the institution
in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implemented
pursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable
legislation. These regulations also require authorization from the Israeli Ministry of Health, except in certain circumstances, and in
the case of genetic trials, special fertility trials and similar trials, an additional authorization of the overseeing institutional ethics
committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived
from the project to determine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must
ensure that adequate protection exists for the rights and safety of the participants as well as the accuracy of the information gathered
in the course of the clinical testing. Since we intend to perform a portion of the clinical studies on certain of our product candidates
in Israel, we will be required to obtain authorization from the ethics committee and general manager of each institution in which we intend
to conduct our clinical trials, and in most cases, from the Israeli Ministry of Health.
Israel Ministry of Health
Israel’s Ministry of
Health, which regulates medical testing, has adopted protocols that correspond, generally, to those of the FDA and the EMA, making it
comparatively straightforward for studies conducted in Israel to satisfy FDA and the European Medicines Agency requirements, thereby enabling
medical technologies subjected to clinical trials in Israel to reach U.S. and EU commercial markets in an expedited fashion. Many members
of Israel’s medical community have earned international prestige in their chosen fields of expertise and routinely collaborate,
teach and lecture at leading medical centers throughout the world. Israel also has free trade agreements with the United States and the
European Union.
Other Countries
In addition to regulations
in the United States, the EU and Israel, we are subject to a variety of other regulations governing clinical trials and commercial sales
and distribution of drugs in other countries. Whether or not our products receive approval from the FDA, approval of such products must
be obtained by the comparable regulatory authorities of countries other than the United States before we can commence clinical trials
or marketing of the product in those countries. The approval process varies from country to country, and the time may be longer or shorter
than that required for FDA approval. The requirements governing the conduct of clinical trials and product licensing vary greatly from
country to country.
The requirements that we and
our collaborators must satisfy to obtain regulatory approval by government agencies in other countries prior to commercialization of our
products in such countries can be rigorous, costly and uncertain. In Canada and Australia, regulatory requirements and approval processes
are similar in principle to those in the United States. For example, in Canada, pharmaceutical product candidates are regulated by the
Food and Drugs Act and the rules and regulations promulgated thereunder, which are enforced by Health Canada. Before commencing clinical
trials in Canada, an applicant must complete preclinical studies and file a clinical trial application with Health Canada. After filing
a clinical trial application, the applicant must receive different clearance authorizations to proceed with Phase 1 clinical trials, which
can then lead to Phase 2 and Phase 3 clinical trials. To obtain regulatory approval to commercialize a new drug in Canada, a new drug
submission, or NDS, must be filed with Health Canada. If the NDS demonstrates that the product was developed in accordance with the regulatory
authorities’ rules, regulations and guidelines and demonstrates favorable safety and efficacy and receives a favorable risk/benefit
analysis, Health Canada issues a notice of compliance which allows the applicant to market the product. Facilities, procedures, operations
and/or testing of products are subject to periodic inspection by Health Canada and the Health Products and Food Branch Inspectorate. In
addition, Health Canada conducts pre-approval and post-approval reviews and plant inspections to determine whether systems are in compliance
with the good manufacturing practices in Canada, Drug Establishment Licensing requirements and other provisions of the Food and Drug Regulations.
Foreign governments also have
stringent post-approval requirements including those relating to manufacture, labeling, reporting, record keeping and marketing. Failure
to substantially comply with these on-going requirements could lead to government action against the product, our company and/or our representatives.
Related Matters
From time to time, legislation
is drafted, introduced and passed in governmental bodies that could significantly change the statutory provisions governing the approval,
manufacturing and marketing of products regulated by the FDA, the EMA, the Israeli Ministry of Health and other applicable regulatory
bodies to which we are subject. In addition, regulations and guidance are often revised or reinterpreted by the national agency in ways
that may significantly affect our business and our product candidates. It is impossible to predict whether such legislative changes will
be enacted, whether FDA, EMA or Israeli Ministry of Health regulations, guidance or interpretations will change, or what the impact of
such changes, if any, may be. We may need to adapt our business and product candidates and products to changes that occur in the future.
C.
Organizational Structure
Our corporate structure consists
of Can-Fite and our wholly owned subsidiary, Can-Fite Biopharma Europe, incorporated in France.
D.
Property, Plants and Equipment
We are headquartered in Petah-Tikva,
Israel. We lease one floor in one facility pursuant to a lease agreement with Eshkolit Nihul Nadlan LTD, an Israeli limited company. Pursuant
to a verbal agreement with the lessor, the lease expires on December 31, 2022. The Petah-Tikva headquarters consists of approximately
300 square meters of space. Lease payments are approximately NIS 20,447, or $6,197, per month. If our lease is terminated, we do not foresee
significant difficulty in leasing another suitable facility. The current facility houses our administrative, clinical and research operations.
The research laboratory consists of approximately 150 square meters and includes a tissue culture laboratory and a molecular biology laboratory.
ITEM
4A. Unresolved Staff Comments
Not Applicable.
ITEM
5. Operating and Financial Review and Prospects
The information in this section
should be read in conjunction with our consolidated financial statements and related notes beginning on page F-1 and the related information
included elsewhere in this Annual Report on Form 20-F. Our financial statements are prepared in accordance with U.S. GAAP. We maintain
our accounting books and records in U.S. dollars and our functional currency is the U.S. dollar. Certain amounts presented herein may
not sum due to rounding.
Overview
We are a clinical-stage biopharmaceutical
company that develops orally bioavailable small molecule therapeutic products for the treatment of cancer, liver and inflammatory diseases
and erectile dysfunction. We are also developing specific formulations of cannabis components for the treatment of cancer, inflammatory,
autoimmune, and metabolic diseases. Our platform technology utilizes the Gi protein associated A3 adenosine receptor, or A3AR, as a therapeutic
target. A3AR is highly expressed in pathological body cells such as inflammatory and cancer cells, and has a low expression in normal
cells, suggesting that the receptor could be a specific target for pharmacological intervention. Our pipeline of drug candidates are synthetic,
highly specific agonists and allosteric modulators targeting the A3AR.
Our product pipeline is based
on the research of Dr. Pnina Fishman, who investigated a clinical observation that tumor metastasis can be found in most body tissues,
but are rarely found in muscle tissue, which constitutes approximately 60% of human body weight. Dr. Fishman’s research revealed
that one reason that striated muscle tissue is resistant to tumor metastasis is that muscle cells release small molecules which bind with
high selectivity to the A3AR. As part of her research, Dr. Fishman also discovered that A3ARs have significant expression in tumor and
inflammatory cells, whereas normal cells have low or no expression of this receptor. The A3AR agonists and allosteric modulators, currently
our pipeline of drug candidates, bind with high selectivity and affinity to the A3ARs and upon binding to the receptor initiate down-stream
signal transduction pathways resulting in apoptosis, or programmed cell death, of tumors and inflammatory cells and to the inhibition
of inflammatory cytokines. Cytokines are proteins produced by cells that interact with cells of the immune system in order to regulate
the body’s response to disease and infection. Overproduction or inappropriate production of certain cytokines by the body can result
in disease.
Our product candidates, CF101,
CF102 and CF602, are being developed to treat cancer, liver and inflammatory diseases, as well as erectile dysfunction. CF101, also known
as Piclidenoson, is in an advance stage of clinical development for the treatment of autoimmune-inflammatory diseases, including psoriasis.
During 2021, we decided to stop developing Piclidenoson for the treatment of COVID-19 to focus on other indications. CF102, also known
as Namodenoson, is being developed for the treatment of HCC and has orphan drug designation for the treatment of HCC in the United States
and Europe. Namodenoson was granted Fast Track designation by the FDA as a second line treatment to improve survival for patients with
advanced HCC who have previously received Nexavar (sorafenib). Namodenoson is also being developed for the treatment of NASH, a disease
for which no FDA approved therapies currently exist. CF602 is our second-generation allosteric drug candidate for the treatment of erectile
dysfunction, which has shown efficacy in the treatment of erectile dysfunction in preclinical studies and we are investigating additional
compounds, targeting A3AR, for the treatment of erectile dysfunction. Preclinical studies revealed that our drug candidates have potential
to treat additional inflammatory diseases, such as Crohn’s disease, oncological diseases, viral diseases, such as the JC virus,
and obesity.
We believe our pipeline of
drug candidates represent a significant market opportunity. For instance, according to iHealthcareAnalyst, the psoriasis drug market is
forecasted to be worth $11.3 billion by 2025. According to DelveInsight, the HCC drug market in the G8 countries (U.S., Germany, France,
Italy, Spain, UK, Japan and China) is expected to reach $3.8 billion by 2027.
We have in-licensed an allosteric
modulator of the A3AR, CF602 from Leiden University. In addition, we have out-licensed the following product candidates for indications
that we are currently pursuing:
| ● | Piclidenoson for the treatment of (i) psoriasis to Cipher Pharmaceuticals, or Cipher, for Canada, (ii) psoriasis
to Gebro Holding, or Gebro, for Spain, Switzerland and Austria, (iii) psoriasis to CMS Medical, or CMS, for China (including Hong Kong,
Macao and Taiwan), (iv) psoriasis to Kyongbo Pharm Co. Ltd., or Kyongbo Pharm, for South Korea, (v) psoriasis to Ewopharma AG, or Ewopharma,
for Central Eastern Europe, and (vi) osteoarthritis in companion animals including dogs and cats to Vetbiolix. |
| ● | Namodenoson for the treatment of (i) liver cancer and NASH to Chong Kun Dang Pharmaceuticals, or CKD, for
South Korea, (ii) advanced liver cancer and NAFLD/NASH to CMS for China (including Hong Kong, Macao and Taiwan), and (iii) HCC and NASH
to Ewopharma, for Central Eastern Europe and Switzerland. |
We are currently: (i) completed enrollment in our Phase III trial for
Piclidenoson in the treatment of psoriasis, with topline results expected in the second quarter of 2022, (ii) preparing to commence a
Phase III trial for Namodenoson in the treatment of advanced liver cancer and expect to commence patient enrollment in the first half
of 2022, (ii) conducting a Phase IIb study of Namodenoson in the treatment of NASH, having recently commenced enrollment, (iv) investigating
additional compounds, targeting the A3 adenosine receptor, for the treatment of erectile dysfunction, and (v) developing formulations
of cannabis components for the treatment of diseases in which there is an overexpression of A3AR.Since inception, we have incurred significant
losses in connection with our research and development. As of December 31, 2021, we had an accumulated deficit of approximately $140.7
million. Although we have recognized revenues in connection with our existing out-licensing agreements with KD, Cipher, CKD, Gebro, CMS,
Kyongbo and Ewopharma and our historic out-licensing agreement with SKK, we expect to generate losses in connection with the research
and development activities relating to our pipeline of drug candidates. Such research and development activities are budgeted to expand
over time and will require further resources if we are to be successful. As a result, we expect to incur operating losses, which may be
substantial over the next several years, and we will need to obtain additional funds to further develop or research and development programs.
We have funded our operations
primarily through the sale of equity securities (both in private placements and in public offerings) and payments received under our existing
out-licensing agreements with KD, Cipher, CKD Gebro, CMS, and Kyongbo and our historic out-licensing agreement with SKK. We expect to
continue to fund our operations over the next several years through our existing cash resources, potential future milestone payments that
we expect to receive from our licensees, interest earned on our investments, if any, and additional capital to be raised through public
or private equity offerings or debt financings. As of December 31, 2021, we had approximately $4.4 million of cash and cash equivalents
and $14.5 million of short-term deposits. A substantial part of this amount is designated for payments to be made in relation to the ongoing
treatment of patients who are currently enrolled in the Company’s on-going trials.
Revenues
Our revenues to date have
been generated primarily from payments under our existing out-licensing agreements with Kwang Dong, Cipher, CKD, Gebro, CMS and Kyongbo,
and our historic out-licensing agreement with SKK and Ewopharma.
Under the Kwang Dong License
Agreement, we are entitled to up-front and milestone payments of up to $1.5 million. In accordance with the Kwang Dong License Agreement,
we received an up-front payment of $0.3 million and a payment of $0.048 million as consideration for Kwang Dong’s purchase of our
ordinary shares in 2009 and a milestone payment of $0.2 million in 2010. Under the terms of the Kwang Dong License Agreement, in addition
to the payments mentioned above, we are entitled to certain additional payments based on the sale of raw materials, subject to the terms
and conditions of the respective agreements. To date, we have received a total of $0.5 million from Kwang Dong in an upfront payment.
See “Item 4. Information on the Company—B. Business Overview—Out-Licensing and Distribution Agreements”.
Under the Distribution and
Supply Agreement with Cipher we received CAD 1.65 million upon execution of the agreement and are entitled to milestone payments upon
receipt of regulatory approval by Health Canada for Piclidenoson and the first delivery of commercial launch quantities as follows (i)
CAD 1 million upon the first approved indication for either psoriasis or rheumatoid arthritis, and (ii) CAD 1 million upon the second
approved indication for either psoriasis or rheumatoid arthritis. In addition, following regulatory approval, we shall be entitled to
a royalty of 16.5% of net sales of Piclidenoson in Canada and reimbursement for the cost of manufacturing Piclidenoson. We are also entitled
to a royalty payment for any authorized generic of Piclidenoson that Cipher distributes in Canada. To date, we have received a total of
$1.3 million (CAD 1.65 million) from Cipher in an upfront payment. See “Item 4. Information on the Company—B. Business Overview—Out-Licensing
and Distribution Agreements”.
The Distribution Agreement
with CKD provides for up to $3,000,000 in upfront and milestone payments payable with respect to the liver cancer indication and up to
$3,000,000 with respect to the NASH indication. In addition, we are entitled to a transfer price of the higher of (a) the manufacturing
cost plus 10% or (b) 23% of net sales of Namodenoson following commercial launch in South Korea. To date, we have received a total of
$2,000,000 from CKD, comprising $1,500,000 in upfront payments for the expansion of CKD’s existing agreement with us to include
the rights to distribute Namodenoson for the treatment of NASH in South Korea, and a further $500,000 for a milestone payment received
in the third quarter of 2017 upon receipt by CKD of a positive result from the preliminary review by the MFDS, on obtaining orphan drug
designation in South Korea. See “Item 4. Information on the Company—B. Business Overview—Out-Licensing and Distribution
Agreements”.
In January 2018, we entered
into a Distribution and Supply Agreement with Gebro. The Distribution and Supply Agreement with Gebro provides that we are entitled to
€1,500,000 upon execution of the agreement plus milestone payments upon achieving certain clinical, launch and sales milestones,
as follows: (i) €300,000 upon initiation of the ACRobat Phase III clinical trial for the treatment of rheumatoid arthritis and €300,000
upon the initiation of the COMFORT Phase III clinical trial for the treatment of psoriasis, (ii) between €750,000 and €1,600,000
following first delivery of commercial launch quantities of Piclidenson for either the treatment of rheumatoid arthritis or psoriasis,
and (iii) between €300,000 and up to €4,025,000 upon meeting certain net sales. In addition, following regulatory approval,
we shall be entitled to double digit percentage royalties on net sales of Piclidenoson in the territories and payment for the manufacturing
Piclidenoson. To date, we have received a total of €2,100,000 from Gebro in upfront and milestone payments. See “Item 4. Information
on the Company—B. Business Overview—Out-Licensing and Distribution Agreements”.
In August 2018, we entered
into a License, Collaboration and Distribution Agreement with CMS. Under the License, Collaboration and Distribution Agreement, we are
entitled to $2,000,000 upon execution of the agreement plus milestone payments of up to $14,000,000 upon achieving certain regulatory
milestones and payments of up to $58,500,000 upon achieving certain sales milestones. In addition, following regulatory approval, we shall
be entitled to double-digit percentage royalties on net sales of Piclidenoson and Namodenoson in the licensed territories. To date, we
have received a total of $2,000,000 from CMS in upfront and milestone payments. See “Item 4. Information on the Company—B.
Business Overview—Out-Licensing and Distribution Agreements”.
In July 2019, we entered
into a License and Distribution Agreement with Kyongbo Pharm. Under the terms of agreement, Kyongbo Pharm, in exchange for exclusive distribution
rights to sell Piclidenoson in the treatment of psoriasis in South Korea, made a total upfront payment of $750,000 to us, with additional
payments of up to $3,250,000 upon achievement of certain milestones. We will also be entitled to a transfer price for delivering finished
product to Kyongbo Pharm. To date, we have received a total of $750,000 from Kyongbo Pharm in upfront and milestone payments.
In March 2021, we signed an
exclusive distribution agreement with Switzerland-based Ewopharma for Piclidenoson in the treatment of psoriasis and Namodenoson in the
treatment of liver diseases namely, HCC, the most common form of liver cancer, and NASH. Under the terms of the distribution agreement,
Ewopharma we received $2.25 million upfront and are entitled to up to an additional $40.45 million payable upon the achievement of regulatory
and sales milestones plus 17.5% royalties on net sales. We will also be entitled to a transfer price for delivering finished product to
Ewopharma. To date, we have received a total of $2,250,000 from Ewopharma in upfront, milestone and royalty payments.
Under the terminated SKK license
agreement we received an aggregate of approximately $8.5 million from SKK. See “Item 4. Information on the Company—B. Business—Out-Licensing
and Distribution Agreements”.
Certain payments we have received
from SKK and KD have been subject to a 10% and 5% withholding tax in Japan and Korea, respectively, and certain payments we may receive
in the future, if at all, may also be subject to the same withholding tax in Korea. Receipt of any milestone payment under our out-licensing
agreements depends on many factors, some of which are beyond our control. We cannot assure you that we will receive any of these future
payments. We expect our revenues for the next several years, if any, to be derived primarily from payments under our current out-license
agreements and our public capital raising activities, as well as additional collaborations that we may enter into in the future with respect
to our drug candidates.
Research and Development
Our research and development
expenses consist primarily of salaries and related personnel expenses, fees paid to external service providers, up-front and milestone
payments under our license agreements, patent-related legal fees, costs of preclinical studies and clinical trials, drug and laboratory
supplies and costs for facilities and equipment. We charge all research and development expenses to operations as they are incurred. We
expect our research and development expense to remain our primary expense in the near future as we continue to develop our products. Increases
or decreases in research and development expenditures are attributable to the number and/or duration of the pre-clinical and clinical
studies that we conduct.
The following table identifies
our current major research and development projects:
Project |
|
Status |
|
Expected or Recent Near Term Milestone |
Piclidenoson |
|
COMFORT Phase III study in psoriasis |
|
Topline results expected in the second quarter of 2022 |
|
|
|
|
|
Namodenoson |
|
Phase III in HCC |
|
Expect to commence patient enrollment in the first half of 2022 |
|
|
Phase IIb study in NASH |
|
Enrollment commenced in January 2022 |
We record certain costs for
each development project on a “direct cost” basis, as they are recorded to the project for which such costs are incurred.
Such costs include, but are not limited to, CRO expenses, drug production for pre-clinical and clinical studies and other pre-clinical
and clinical expenses. However, certain other costs, including but not limited to, salary expenses (including salaries for research and
development personnel), facilities, depreciation, share-based compensation and other overhead costs are recorded on an “indirect
cost” basis, i.e., they are shared among all of our projects and are not recorded to the project for which such costs are incurred.
We do not allocate direct salaries to projects due to the fact that our project managers are generally involved in several projects at
different stages of development, and the related salary expense is not significant to the overall cost of the applicable projects. In
addition, indirect labor costs relating to our support of the research and development process, such as manufacturing, controls, pre-clinical
analysis, laboratory testing and initial drug sample production, as well as rent and other administrative overhead costs, are shared by
many different projects and have never been considered by management to be of significance in its decision-making process with respect
to any specific project. Accordingly, such costs have not been specifically allocated to individual projects.
Set forth below is a summary
of the gross direct costs allocated to our main projects on an individual basis, as well as the gross direct costs allocated to our less
significant projects on an aggregate basis, for the years ended December 31, 2019, 2020 and 2021; and on an aggregate basis since project
inception:
| |
(USD in thousands) | | |
Total Costs | |
| |
Year Ended December 31, | | |
Since Project | |
| |
2019 | | |
2020 | | |
2021 | | |
Inception | |
Piclidenoson | |
| 7,348 | | |
| 6,046 | | |
| 4,041 | | |
| 43,797 | |
Namodenoson | |
| 2,217 | | |
| 1,261 | | |
| 3,991 | | |
| 16,027 | |
CF602 | |
| 20 | | |
| - | | |
| 31 | | |
| 1,734 | |
| |
| | | |
| | | |
| | | |
| | |
Other projects | |
| 201 | | |
| 2,199 | | |
| - | | |
| 4,129 | |
Total gross direct project costs (1) | |
| 9,585 | | |
| 9,506 | | |
| 8,063 | | |
| 65,687 | |
| (1) | Does not include indirect project costs and overhead, such as
payroll and related expenses (including stock-based compensation), facilities, depreciation and impairment of intellectual property,
which are included in total research and development expenses in our financial statements. |
From our inception through
December 31, 2021, we have incurred research and development expenses of approximately $132.45 million. We expect that a large percentage
of our research and development expense in the future will be incurred in support of our current and future preclinical and clinical development
projects. Due to the inherently unpredictable nature of preclinical and clinical development processes and given the early stage of our
preclinical product development projects, we are unable to estimate with any certainty the costs we will incur in the continued development
of the product candidates in our pipeline for potential commercialization. Clinical development timelines, the probability of success
and development costs can differ materially from expectations. We expect to continue to test our product candidates in preclinical studies
for toxicology, safety and efficacy, and to conduct additional clinical trials for each product candidate. If we are not able to enter
into an out-licensing arrangement with respect to any product candidate prior to the commencement of later stage clinical trials, we may
fund the trials for the product candidates ourselves.
While we are currently focused
on advancing each of our product development projects, our future research and development expenses will depend on the clinical success
of each product candidate, as well as ongoing assessments of each product candidate’s commercial potential. In addition, we cannot
forecast with any degree of certainty which product candidates may be subject to future out-licensing arrangements, when such out-licensing
arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
As we obtain results from
clinical trials, we may elect to discontinue or delay clinical trials for certain product candidates or projects in order to focus our
resources on more promising product candidates or projects. Completion of clinical trials by us or our licensees may take several years
or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate.
The cost of clinical trials
may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:
| ● | the number of sites included in the clinical trials; |
| ● | the length of time required to enroll suitable patients; |
| ● | the number of patients that participate in the clinical trials; |
| ● | the duration of patient follow-up; |
| ● | the development stage of the product candidate; and |
| ● | the efficacy and safety profile of the product candidate. |
We expect our research and
development expenses to increase in the future from current levels as we continue the advancement of our clinical trials and preclinical
product development and to the extent we in-license new product candidates. The lengthy process of completing clinical trials and seeking
regulatory approval for our product candidates requires expenditure of substantial resources. Any failure or delay in completing clinical
trials, or in obtaining regulatory approvals, could cause a delay in generating product revenue and cause our research and development
expenses to increase and, in turn, have a material adverse effect on our operations. Because of the factors set forth above, we are not
able to estimate with any certainty when we would recognize any net cash inflows from our projects.
General and Administrative Expenses
General and administrative
expenses consist primarily of compensation for employees in executive and operational functions, including accounting, finance, legal,
business development, investor relations, information technology and human resources. Other significant general and administration costs
include facilities costs, professional fees for outside accounting and legal services, travel costs, insurance premiums and depreciation.
Financial Expense and Income
Financial expense and income
consists of interest earned on our cash and cash equivalents; bank fees and other transactional costs; expense or income resulting from
fluctuations of the NIS and other currencies, in which a portion of our assets and liabilities are denominated, against the U.S. dollar
(our functional currency).
Critical Accounting Policies and Estimates
Our accounting policies and
their effect on our financial condition and results of operations are more fully described in our audited consolidated financial statements
included elsewhere in this Annual Report on Form 20-F. The preparation of financial statements in conformity with U.S. GAAP as issued
by the Financial Accounting Standards Board (FASB) requires management to make estimates and assumptions that in certain circumstances
affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities. These
estimates are prepared using our best judgment, after considering past and current events and economic conditions. While management believes
the factors evaluated provide a meaningful basis for establishing and applying sound accounting policies, management cannot guarantee
that the estimates will always be consistent with actual results. In addition, certain information relied upon by us in preparing such
estimates includes internally generated financial and operating information, external market information, when available, and when necessary,
information obtained from consultations with third party experts. Actual results could differ from these estimates and could have a material
adverse effect on our reported results.
We believe that the accounting
policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies
relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be
critical if: (1) it requires us to make assumptions because information was not available at the time or it included matters that were
highly uncertain at the time we were making our estimate; and (2) changes in the estimate could have a material impact on our financial
condition or results of operations.
Functional and Presentation Currency
Our functional and presentation
currency is the U.S. dollar (“dollar”, “USD” or “$”) since the USD is the primary currency of the
economic environment in which we operate.
Principles of Consolidation
Our financial statements
reflect the consolidation of the financial statements of companies that we control based on legal control or effective control. We fully
consolidate into our financial statements the results of operations of companies that we control. Legal control exists when we have the
power, directly or indirectly, to govern the financial and operating policies of an entity. The effect of potential voting rights that
are exercisable at the balance sheet date are considered when assessing whether we have legal control. In addition, we consolidate on
the basis of effective control even if we do not have voting control.
Revenue Recognition
We generate income from distribution
agreements. See “Item 4. Information on the Company—B. Business—Out-Licensing and Distribution Agreements”. Such
income comprises of upfront license fees, milestone payments and potential royalty payments.
We recognize revenue in accordance
with ASC 606, “Revenue from Contracts with Customers” pursuant to which each required deliverable is evaluated to determine
whether it qualifies as a separate unit of accounting based on whether the deliverable has “stand-alone value” to the customer.
The arrangement’s consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the
relative selling price of each deliverable which is based on the Estimated Selling Price.
Our contracts generally include
three contract obligations: (i) performing the research and development services through regulatory approval; (ii) delivery of an exclusive
licensing to distribute the product, once available; and, (iii) participation in joint steering committee.
Our contracts also include
development milestones payments and future sales-based royalties. Development milestones payments are recognized only to the extent that
it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated
with those milestones is subsequently resolved. As such sales based royalties are recognized only when the subsequent sale occurs. We
have not yet received the required regulatory approvals for our products and we have not yet recognized any sales-based royalties.
Revenue from supply and distribution
agreements with customers are recognized over time as we satisfy the performance obligations. We usually accept long-term upfront payment
from our customers. Contract liabilities for those upfront payments are recognized as revenue over time.
Revenues from milestone payments:
Contingent payments related
to milestones will be recognized immediately upon satisfaction of the milestone and contingent payments related to royalties will be recognized
in the period that the related sales have occurred.
Revenues from royalties:
Revenues from royalties will
be recognized as they accrue in accordance with the terms of the relevant agreement.
Share-based Compensation
We account for share-based
compensation arrangements in accordance with ASC 718, “Compensation - Stock Compensation” (“ASC 718”), which requires
companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s
consolidated statement of comprehensive loss. We recognize compensation expenses for the value of its awards granted based on the vesting
attribution approach over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures
to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
We selected the binomial option
pricing model as the most appropriate method for determining the estimated fair value of our share-based awards without market conditions.
The determination of the grant date fair value of options using an option pricing model is affected by estimates and assumptions regarding
a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term
of the options, share option exercise and forfeiture rate, risk-free interest rates, expected dividends and the price of our ordinary
shares on the TASE. As our ordinary shares are publicly traded on the TASE, we do not need to estimate the fair value of our ordinary
shares. Rather, we use the actual closing market price of our ordinary shares on the date of grant, as reported by the TASE although in
the future may use the closing market price of our ADSs on the date of grant, as reported by the NYSE American.
If any of the assumptions
used in the binomial option pricing model change significantly, share-based compensation for future awards may differ materially compared
with the awards previously granted.
As for other service providers,
the cost of the transactions is measured at the fair value of the goods or services received as consideration for equity instruments.
In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured, they are measured
by reference to the fair value of the equity instruments granted.
The cost of equity-settled
transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period which the service are
to be satisfied, ending on the date on which the relevant employees or other service providers become fully entitled to the award.
If we modify the conditions
on which equity-instruments are granted, an additional expense is recognized for any modification that increases the total fair value
of the share-based payment arrangement or is otherwise beneficial to the employee or other service provider at the modification date.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued
ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which
replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized
cost to be presented at the net amount expected to be collected. The adoption of the standard did not have material effect on our results.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic
740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing a variety of exceptions
within the framework of ASC 740. These exceptions include the exception to the incremental approach for intraperiod tax allocation in
the event of a loss from continuing operations and income or a gain from other items (such as other comprehensive income), and the exception
to using general methodology for the interim period tax accounting for year-to-date losses that exceed anticipated losses. The adoption
of the standard did not have a material effect on our results.
Recent Offerings
On January 18, 2019, we
sold to a single institutional investor an aggregate 149,206 ADSs in a registered direct offering at $15.75 per ADS, resulting in
gross proceeds of $2,350,000. In addition, we issued to the investor unregistered warrants to purchase 149,206 ADSs in a private
placement. The warrants are immediately exercisable from the date of issuance for a period of five and a half years and have an
exercise price of $19.50 per ADS, subject to adjustment as set forth therein. The warrants may be exercised on a cashless basis if
six months after issuance there is no effective registration statement registering the ADSs underlying the warrants. We paid an
aggregate of $428,000 in placement agent fees and other expenses and issued unregistered placement agent warrants to purchase 7,460
ADS on the same terms as the warrants except they have a term of five years.
On April 4, 2019, we sold
to certain institutional investors an aggregate 328,205 ADSs in a registered direct offering at $9.75 per ADS, resulting in gross proceeds
of $3,200,000. In addition, we issued to the investors unregistered warrants to purchase 328,205 ADSs in a private placement. The warrants
are immediately exercisable and will expire five years from issuance at an exercise price of $12.90 per ADS, subject to adjustment as
set forth therein. The warrants may be exercised on a cashless basis if six months after issuance there is no effective registration statement
registering the ADSs underlying the warrants. We paid an aggregate of $242,000 in placement agent fees and expenses and issued unregistered
placement agent warrants to purchase 16,410 ADS on the same terms as the warrants except they have a term of five years.
On May 22, 2019, we sold to
certain institutional investors an aggregate of 1,500,000 ADSs in a registered direct offering at $4.00 per ADS, resulting in gross proceeds
of $6,000,000. In addition, we issued to the investors unregistered warrants to purchase an aggregate of 1,500,000 ADSs in a private placement.
The warrants are immediately exercisable and will expire five and one-half years from issuance at an exercise price of $4.00 per ADS,
subject to adjustment as set forth therein. The warrants may be exercised on a cashless basis if six months after issuance there is no
effective registration statement registering the ADSs underlying the warrants. We paid an aggregate of $410,000 in placement agent fees
and expenses and issued unregistered placement agent warrants to purchase 75,000 ADS on the same terms as the warrants except they have
a term of five years.
On January 9, 2020, we entered
into warrant exercise agreements, or the Exercise Agreements, with several accredited investors who are the holders, or the Holders, of
warrants issued in September 2015, October 2015, March 2018, January 2019, and April 2019 or the Public Warrants, to purchase our ordinary
shares, represented by ADS, pursuant to which the Holders agreed to exercise in cash their Public Warrants to purchase up to an aggregate
of 22,278,540 ordinary shares represented by 742,618 ADSs having exercise prices ranging from $12.90 to $78.75 per ADS issued by us, at
a reduced exercise price of $3.25 per ADS, resulting in gross proceeds of approximately $2.4 million. Closing occurred on January 13,
2020. Under the Exercise Agreements, we also issued to the Holders new unregistered warrants to purchase up to 22,278,540 ordinary shares
represented by 742,618 ADSs, or the Private Placement Warrants. The Private Placement Warrants are immediately exercisable, expire five
and one-half years from issuance date and have an exercise price of $3.45 per ADS, subject to adjustment as set forth therein. The Private
Placement Warrants may be exercised on a cashless basis if six months after issuance there is no effective registration statement registering
the ADSs underlying the warrants.
On February 12, 2020, we sold
to certain institutional investors an aggregate of (i) 1,825,000 units, or Units, each Unit consisting of one ADS, and one warrant to
purchase one ADS, or the Warrant, at a price of $1.50 per Unit, and (ii) 1,508,334 pre-funded units, or the Pre-funded Units, each Pre-funded
Unit consisting of one pre-funded warrant to purchase one ADS, or the Pre-funded Warrant, and one Warrant, at a price of $1.49 per Pre-funded
Unit, in a public offering, resulting in gross proceeds of approximately $5.0 million. Each Pre-funded Warrant contained in a Pre-funded
Unit is immediately exercisable for one ADS at an exercise price of $0.001 per share and remains exercisable until exercised in full.
The Warrants included in the Units and the Pre-funded Units are immediately exercisable at a price of $1.50 per ADS, subject to adjustment
in certain circumstances, and expire five years from the date of issuance. We paid an aggregate of $315,000 in placement agent fees and
expenses and issued placement agent warrants to purchase 250,000 ADS on the same terms as the warrants except they have a term of five
years and have an exercise price of $1.875.
In March, April and May 2020,
we issued an aggregate of 51,250,020 ordinary shares represented by 1,708,334 ADSs in exchange for exercise of warrants. Total consideration
received by us was approximately $2,562,000.
On June 12, 2020, we sold to several institutional and accredited investors
an aggregate of 117,073,200 ordinary shares represented by 3,902,440 ADSs in a registered direct offering at $2.05 per ADS, resulting
in gross proceeds of approximately $8.0 million. In addition, we issued to the investors unregistered warrants to purchase up to an aggregate
of 1,951,220 ADSs in a private placement. The warrants are immediately exercisable and will expire four and one-half years from the issuance
date at an exercise price of $2.50 per ADS, subject to adjustment as set forth therein. The warrants may be exercised on a cashless basis
if there is no effective registration statement registering the ADSs underlying the warrants. We paid an aggregate of $600,000 in placement
agent fees and expenses and issued unregistered placement agent warrants to purchase up to 292,683 ADS on the same terms as the warrants.
On July 8, 2020, we sold to several institutional and accredited investors
an aggregate of 51,165,000 ordinary shares represented by 1,705,500 ADSs in a registered direct offering at $2.00 per ADS, resulting in
gross proceeds of approximately $3.4 million. In addition, we issued to the investors unregistered warrants to purchase up to an aggregate
of 852,750 ADSs in a private placement. The warrants are immediately exercisable and will expire four and one-half years from the issuance
date at an exercise price of $2.50 per ADS, subject to adjustment as set forth therein. The warrants may be exercised on a cashless basis
if there is no effective registration statement registering the ADSs underlying the warrants. We paid an aggregate of $255,825 in placement
agent fees and expenses and issued unregistered placement agent warrants to purchase up to 127,913 ADS on the same terms as the warrants.
In February and March 2021, we issued 50,926,830 ordinary shares represented
by 1,697,561 ADSs in exchange for exercise of warrants. Total consideration received by us was approximately $2,744,000.
On August 16, 2021, we sold
to an institutional investor an aggregate of (i) 57,000,000 ordinary shares represented by 1,900,000 ADSs at $2.00 per ADS, and (ii) 93,000,000
ordinary shares represented by 3,100,000 pre-funded warrant to purchase one ADS, or Pre-funded Warrants, at a price of $1.99 per Pre-funded
Warrant, in a registered direct offering. Each Pre-funded Warrant is immediately exercisable for one ADS at an exercise price of $0.001
per share and remains exercisable until exercised in full. In addition, we issued to the investors unregistered warrants to purchase 150,000,000
ordinary shares represented by 5,000,000 ADSs in a private placement. The warrants are immediately exercisable and will expire three years
from the effectiveness of an initial resale registration statement registering the ordinary shares issuable upon the exercise of the warrants.
We paid on aggregate of $700,000 in placement agent fees and expenses and issued placement agent warrants in an amount equal to 7.0% of
the aggregate number of ADSs sold in the offering (or warrants to purchase up to an aggregate of 350,000 ADSs), at an initial exercise
price equal to $2.00 per ADS, on substantially the same terms as the investor warrants, except that the placement agent warrants expire
on the earlier of (i) the third-year anniversary of the date on which an initial resale registration statement registering the ordinary
shares (or the ADSs) issuable upon the exercise of the warrants becomes effective and (ii) August 11, 2026.
On December 20, 2021, we entered
into a warrant exercise agreement, or the Exercise Agreement, with an institutional investor, or the Holder, of warrants issued in August
2021, or the Warrants, to purchase ordinary shares, represented by ADS, pursuant to which the Holder agreed to exercise in cash its Warrant
to purchase up to an aggregate of 150,000,000 ordinary shares represented by 5,000,000 ADSs having an exercise price of $2.00 per ADS,
at an exercise price of $2.00 per ADS, resulting in gross proceeds of $10.0 million. Closing occurred on December 23, 2021. Under the
Exercise Agreement, we also issued to the Holder new unregistered warrants to purchase up to 180,000,000 ordinary shares represented by
6,000,000 ADSs, or the Private Placement Warrants. The Private Placement Warrants are immediately exercisable, expire five years following
the effectiveness of an initial resale registration statement registering the ADSs issuable upon the exercise of the warrants and have
an exercise price of $2.00 per ADS, subject to adjustment as set forth therein. We paid an aggregate of $875,000 in placement agent fees
and expenses and issued unregistered placement agent warrants to purchase 350,000 ADS on the same terms as the warrant.
A.
Results of Operations
Comparison of the Year Ended December 31, 2021
to Year Ended December 31, 2020
Revenues
Revenues for the year ended
December 31, 2021 were $0.85 million, an increase of $0.09 million, or 12%, compared to $0.76 million for the year ended December 31,
2020. The increase in revenues was mainly due to the recognition a portion of advance payment received under Ewopharma distribution agreement
entered in 2021 which was set off by recognition of a lower portion of advance payments received under distribution agreements from Gebro,
Chong Kun Dung Pharmaceuticals, and Cipher Pharmaceuticals.
Research and development
expenses
Research and development expenses
for the year ended December 31, 2021 were $9.85 million, a decrease of $2.1 million, or 17%, compared to $11.95 million for the year ended
December 31, 2020. Research and developments expenses for the year ended 2021 comprised primarily of expenses associated with two studies
for Piclidenoson, a Phase III study in the treatment of psoriasis and a Phase II study in COVID-19 and Phase II studies for Namodenoson
in the treatment of liver cancer and NASH. The decrease is primarily due to costs incurred in 2020 associated with Univo research project
which was completed by the end of that year, a Phase III study of Piclidenoson for the treatment of rheumatoid arthritis which was ongoing
during 2020, partially offset by pre-clinical projects and the two ongoing studies of Piclidenoson. We expect that the research and development
expenses will increase through 2022 and beyond.
General and administrative
expenses
General and administrative
expenses were $3.84 million for the year ended December 31, 2021 an increase of $0.89 million, or 30%, compared to $2.95 million for the
year ended December 31, 2020. The increase is primarily due to the increase in salaries and related benefits due to the distribution of
bonuses to employees, increase in public relationship expenses and insurance expenses. We expect that general and administrative expenses
will remain at the same level through 2022.
Financial income
(expenses), net
Financial income, net for
the year ended December 31, 2021 aggregated $0.23 million compared to financial expense, net of $0.3 million for the year ended December
31, 2020. The decrease in financial expense, net was mainly due to increase in the revaluation of our short-term investment.
Comparison of the Year Ended December 31, 2020
to Year Ended December 31, 2019
Revenues
Revenues for the year ended
December 31, 2020 were $0.76 million, a decrease of $1.27 million, or 63%, compared to $2.03 million for the year ended December 31, 2019.
The decrease in revenues was mainly due to the recognition of a lower portion of advance payments received under distribution agreements
from Gebro, Chong Kun Dung Pharmaceuticals, and Cipher Pharmaceuticals.
Research and development
expenses
Research and development expenses
for the year ended December 31, 2020 were $11.95 million, an increase of $0.98 million, or 8.9%, compared to $10.97 million for the year
ended December 31, 2019. Research and developments expenses for the year ended 2020 comprised primarily of expenses associated with the
Phase II studies for Namodenoson in the treatment of NASH and HCC, as well as expenses for ongoing Phase III studies of Piclidenoson in
the treatment of rheumatoid arthritis and psoriasis. The increase is primarily due to increased costs for the Phase III clinical trial
of Piclidenoson for the treatment of rheumatoid arthritis and for psoriasis. We expect that the research and development expenses will
increase through 2021 and beyond.
General and administrative
expenses
General and administrative
expenses were $2.95 million for the year ended December 31, 2020 a decrease of $0.11 million, or 3.6%, compared to $3.06 million for the
year ended December 31, 2019. The decrease is primarily due to the decrease is primarily due to is primarily due to a decrease in professional
services and travel expenses which was partly offset by an increase in salaries and related benefits and insurance expenses. We expect
that general and administrative expenses will remain at the same level through 2021.
Financial income,
net
Financial expense, net for
the year ended December 31, 2020 aggregated $0.3 million compared to $0.6 million for the year ended December 31, 2019. The decrease in
financial expense, net was mainly due to decrease in the revaluation of our short-term investment.
B.
Liquidity and Capital Resources
Since inception, we have funded
our operations primarily through public (in Israel and the United States) and private offerings of our equity securities and payments
received under our strategic licensing arrangements. As of December 31, 2021, we had approximately $4.39 million in cash and cash equivalents
and $14.51 million in short-term deposits. We have invested most of our available cash funds in ongoing cash accounts and short-term deposits.
In August 2021, we raised approximately $10.0 million from a registered direct offering, and in December 2021, we raised approximately
$10.0 million from the exercise of warrants.
We may be able to use U.S.
taxes withheld as credits against Israeli corporate income tax when we have income, if at all, but there can be no assurance that we will
be able to realize the credits. In addition, we believe that we may be entitled to a refund of such withholding tax from the U.S. government
but there can be no assurance that we will be entitled to such a refund. For information regarding the revenues and expenses associated
with our licensing agreements, see “Item 4. Information on the Company—B. Business Overview—Out-Licensing and Distribution
Agreements”, “Item 4. Information on the Company—B. Business Overview—In-Licensing Agreements” and “Item
5. Operating and Financial Review and Prospects—Revenues.”
Net cash used in operating activities was $9.85 million for the year
ended December 31, 2021, compared with net cash used in operating activities of $12.0 million and $11.0 million for the years ended December
31, 2020 and 2019, respectively. The $2.15 million decrease in the net cash used in operating activities during 2021, compared to 2020,
was primarily the result of $1.8 million decrease in net loss, $1.95 million change in trade payables, $1.7 million change in deferred
revenues and $0.8 change in other accounts payable, which were offset by a decrease of $4.1 million in prepaid expenses and other current
assets. The $1.0 million increase in the net cash used in operating activities during 2020, compared to 2019, was primarily the result
of $1.8 million increase in net loss, $2.7 million decrease in trade payables and $0.5 million decrease in deferred revenues which were
offset by an increase of $4.0 increase in prepaid expenses, and other current assets.
Net cash used in investing
activities for the year ended December 31, 2021 was $14.5 million compared to net cash used in investing activities of $0.03 million and
$0.003 million for the years ended December 31, 2020 and December 31, 2019, respectively. The changes in cash flows from investing activities
was primarily result of investment of $14.5 million in short-term deposits in 2021.
Net cash provided by financing
activities for the year ended December 31, 2021 was $20.4 million, compared to $17.7 million for the year ended December 31, 2020 and
$10.1 million of net cash provided by financing activities for the year ended December 31, 2019. The increase in net cash provided by
financing activities during 2021 compared to 2020 was due to increase in issuance of shares and warrants, net of issuance expenses during
2021.
Developing drugs, conducting
clinical trials and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic
objectives. Although we believe our existing financial resources as of the date of issuance of this Annual Report on Form 20-F, will be
sufficient to fund our projected cash requirements at least through the end of the next twelve months, we will require significant additional
financing to fund our operations. Additional financing may not be available on acceptable terms, if at all. Our future capital requirements
will depend on many factors, including:
| ● | the level of research and development investment required to develop our product candidates; |
| ● | the failure to obtain regulatory approval or achieve commercial success of our product candidates, including
Piclidenoson, Namodenoson and CF602; |
| ● | the results of our preclinical studies and clinical trials for our earlier stage product candidates, and
any decisions to initiate clinical trials if supported by the preclinical results; |
| ● | the costs, timing and outcome of regulatory review of our product candidates that progress to clinical trials; |
| ● | the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our issued
patents and defending intellectual property-related claims; |
| ● | the cost of commercialization activities if any of our product candidates are approved for sale, including
marketing, sales and distribution costs; |
| ● | the cost of manufacturing our product candidates and any products we successfully commercialize; |
| ● | the timing, receipt and amount of sales of, or royalties on, our future products, if any; |
| ● | the expenses needed to attract and retain skilled personnel; |
| ● | any product liability or other lawsuits related to our products; |
| ● | the extent to which we acquire or invest in businesses, products or technologies and other strategic relationships; |
| ● | the costs of financing unanticipated working capital requirements and responding to competitive pressures; |
| ● | maintaining minimum shareholders’ equity requirements under the NYSE American Company Guide; and |
| ● | the impact of the COVID-19 outbreak and the Russian invasion of Ukraine, which may exacerbate the magnitude
of the factors discussed above. |
Until we can generate significant
continuing revenues, we expect to satisfy our future cash needs through payments received under our license agreements, debt or equity
financings, or by out-licensing other product candidates. We cannot be certain that additional funding will be available to us on acceptable
terms, or at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research
or development programs or our commercialization efforts.
The following table summarizes
our significant contractual obligations in U.S. dollars as of December 31, 2021:
|
|
Total |
|
|
Less than
1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
More than
5 years |
|
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leiden University milestones(1) |
|
|
124,498 |
|
|
|
11,318 |
|
|
|
113,180 |
|
|
|
- |
|
|
|
- |
|
Car lease obligations |
|
|
155,430 |
|
|
|
66,526 |
|
|
|
88,903 |
|
|
|
- |
|
|
|
- |
|
Total |
|
|
279,928 |
|
|
|
77,844 |
|
|
|
202,083 |
|
|
|
- |
|
|
|
- |
|
|
(1) |
Includes a €10,000 annual royalty and €50,000 upon the initiation of a Phase I study. We will update our milestone payment obligations upon releasing the Phase I data from such study. As such, the obligations above do not include a potential milestone payment of €100,000 upon the initiation of a Phase II study, €200,000 upon the initiation of a Phase III study or €500,000 upon marketing approval by any regulatory authority. |
Other than as described above,
we did not have any material commitments for capital expenditures, including any anticipated material acquisition of plant and equipment
or interests in other companies, as of December 31, 2021.
C.
Research and Development, Patents and Licenses, Etc.
For information concerning
our research and development policies and a description of the amount spent during each of the last three fiscal years on company-sponsored
research and development activities, see “Item 5. Operating and Financial Review and Prospects— Results of Operation.”
D.
Trend Information
We are a development stage
company and it is not possible for us to predict with any degree of accuracy the outcome of our research, development or commercialization
efforts. As such, it is not possible for us to predict with any degree of accuracy any known trends, uncertainties, demands, commitments
or events that are reasonably likely to have a material effect on our net sales or revenues, income from continuing operations, profitability,
liquidity or capital resources, or that would cause reported financial information to not necessarily be indicative of future operating
results or financial conditions. However, to the extent possible, certain trends, uncertainties, demands, commitments and events are in
this “Operating and Financial Review and Prospects.”
E.
Critical Accounting Estimates
We prepare our financial statements
in accordance with U.S. GAAP. In doing so, we must make estimates and assumptions that affect our reported amounts of assets, liabilities
and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different
accounting policies and estimates. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly,
actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and
actual results, our financial condition or results of operations will be affected. Significant estimates include, but are not limited
to, those related to deferred revenue, revenue recognition, stock-based compensation and fair value of marketable debt securities. For
further significant accounting policies please see Note 2 to our audited consolidated financial statements of this annual report. We believe
that our accounting policies contained therein are critical in fully understanding and evaluating our financial condition and operating
results.
ITEM
6. Directors, Senior Management and Employees
A.
Directors and Senior Management.
The following table sets forth
our directors and senior management:
Member |
|
Age |
|
Position |
Ilan Cohn, Ph.D. |
|
66 |
|
Chairman of the Board |
|
|
|
|
|
Pnina Fishman, Ph.D. |
|
73 |
|
Chief Executive Officer, Director |
|
|
|
|
|
Motti Farbstein |
|
58 |
|
Chief Operating and Financial Officer |
|
|
|
|
|
Sari Fishman, Ph.D. |
|
50 |
|
VP of Business Development |
|
|
|
|
|
Guy Regev(1)(2)(3)(4)(5) |
|
52 |
|
Director |
|
|
|
|
|
Abraham Sartani, M.D.(4) |
|
75 |
|
Director |
|
|
|
|
|
Yoseph Bornstein |
|
64 |
|
Director |
|
|
|
|
|
Yaacov Goldman (1)(2)(3)(4)(5) |
|
66 |
|
Director |
| (1) | Member of the Compensation Committee |
| | |
| (2) | Member of the Audit Committee |
| | |
| (3) | External Director under Israeli Law |
| | |
| (4) | Independent Director under Israeli Law |
| | |
| (5) | Independent Director under the NYSE American rules |
Ilan Cohn, Ph.D. Ilan
Cohn, Ph.D. is a patent attorney and a founding partner at the patent attorney firm Cohn, de Vries, Stadler & Co. since December 2020.
Previously, Dr. Cohen was a senior partner at Reinhold Cohn and Partners, where he has been an attorney since 1986. Dr. Cohn co-founded
Can-Fite, served as its Chief Executive Officer until September 2004, served on our Board of Directors since 1994 and since May 30, 2013
serves as the Chairman of the Can-Fite Board of Directors. Dr. Cohn has also been a director of OphthaliX since November 21, 2011. Dr.
Cohn holds a Ph.D. in biology and is a patent attorney with many years of experience in the biopharmaceutical field. He has served on
the Board of Directors of a number of life science companies, including Discovery Laboratories Inc. (formerly Ansan Pharmaceuticals),
a U.S. public company. Dr. Cohn has also been involved in the past in management of venture capital funds focused on investments in the
life sciences industry. Dr. Cohn served a number of years as a co-chairman of the Biotech Committee of the US-Israeli Science and Technology
Commission. Dr. Cohn is also currently a member of the Board of Directors of I.C.R.C. Management Ltd, Famillion BVI Ltd. and Famillion
Ltd. (a subsidiary of Famillion BVI Ltd.). Dr. Cohn holds a Ph.D. in Biology from the Hebrew University of Jerusalem.
Pnina Fishman, Ph.D. Pnina
Fishman, Ph.D. co-founded Can-Fite and has served as our Chief Executive Officer and served on our Board of Directors since September
2005. Dr. Fishman is the scientific founder of Can-Fite and was previously a professor of Life Sciences and headed the Laboratory of
Clinical and Tumor Immunology at the Felsenstein Medical Research Institute, Rabin Medical Center, Israel. Dr. Fishman has authored or
co-authored over 150 publications and presented the findings of her research at many major scientific meetings. Her past managerial experience
included seven years as Chief Executive Officer of Mor Research Application, the technology transfer arm of Clalit Health Services, the
largest healthcare provider in Israel. Mor Research Application was also the first clinical research organization in Israel. Dr. Fishman
currently also serves as a member of the Board of Directors of F.D Consulting Ltd., and Eye-Fite Ltd. Dr. Fishman holds a Ph.D. in Immunology
from the Bar Ilan University in Ramat Gan, Israel.
Motti Farbstein.
Motti Farbstein has been with Can-Fite since 2003. Mr. Farbstein served as our Chief Operating Officer from August 2003 until May 2005
and from that date onwards he served as Chief Operating and Financial Officer. Mr. Farbstein also serves as a director of Eye-Fite Ltd.
since July 2011. Mr. Farbstein’s past managerial experience includes seven years as Vice President of Mor Research Application,
a company that managed the commercialization of the intellectual property of all hospitals and research centers affiliated with Clalit
Health Services, which is the largest healthcare provider in Israel and was Israel’s first clinical CRO. Mr. Farbstein also has
extensive experience in the data management of clinical trials.
Sari Fishman, Ph.D. Sari
Fishman, Ph.D. has served as our Director Clinical Affairs from 2004 to 2014, Director of Business Development from 2014 to 2017 and since
2017 serves as VP of Business Development. Dr. Fishman gained her Ph.D. at the Bar-Ilan University, Ramat-Gan, Israel.
Abraham Sartani, M.D. Abraham
Sartani has served on our Board of Directors since 2001. Dr. Sartani has over 30 years of experience in the pharmaceuticals industry and
currently acts as a consultant to pharmaceutical and medical device companies. Dr. Sartani is a member of a number of scientific and management
societies and the author or co-author of numerous publications and patents in the urology, pain treatment and hypertension fields. Dr.
Sartani previously served on the Board of Directors of Akkadeas Pharma Srl (formerly Arkadia Pharma) and was a co-founder. From 1985 until
2008, Dr. Sartani was the Vice-President of R&D and Licensing and Group coordinator of B&D of Recordati, a European specialty
pharmaceutical company. Prior to joining Recordati, from 1980 until 1985, Dr. Sartani was employed at Farmitalia-Carlo Erba, serving in
a number of capacities, including as the Medical Director for Europe. Currently, Dr. Sartani is a BoD member of BLV Pharma Group Srl,
a privately owned Italian food supplements company.
Guy Regev. Guy
Regev has over fourteen years of experience in accounting, financial management and control and general management of commercial enterprises.
He has served on our Board of Directors since July 2011 and has served as a member of our Audit Committee and Compensation Committee since
February 2014. Mr. Regev has also been a director of OphthaliX since November 2011. Mr. Regev is currently the Chief Executive Officer
of Gaon Holdings Ltd, a publicly traded Israeli holding company traded on the TASE which focuses on three areas of operation - Cleantech
/ Water, Financial Services, Retail/Trading. Mr. Regev is currently also the Chief Executive Officer of Middle East Tube Company Ltd a
publicly traded Israeli company traded on the TASE which focuses on steel pipe manufacturing and galvanization services. Mr. Regev was
the Chief Executive Officer of Shaked Global Group Ltd, a privately-held equity investment firm that provides value added capital to environmental-related
companies and technologies. Prior to joining Shaked, from 2001 to 2008, Mr. Regev was Vice President of Commercial Business at Housing
& Construction Holding, or HCH, Israel’s largest infrastructure company. His duties included being responsible for the consolidation
and financial recovery of various business units within HCH. Prior to that, Mr. Regev carried several roles within the group including
as a Chief Financial Officer and later the Chief Executive Officer of Blue-Green Ltd., the environmental services subsidiary of HCH. Between
1999 and 2001, Mr. Regev was a manager at Deloitte & Touche, Israel. Mr. Regev holds an LLB degree in Law (Israel) and is a licensed
attorney and has been a licensed CPA since 1999. Mr. Regev is also a director of, The Green Way Ltd, Shtang Construction and Engineering
Ltd, R.I.B.E. Consulting & Investment Ltd., Middle East Tube Company Ltd, Middle East Tube - Industries 2001 Ltd, Middle East Tubes
- Galvanizing (1994) Ltd, I-Solar Greentech Ltd, Plassim Infrastructure Ltd, Plassim Advanced Solutions in Sanitation Ltd, Hakohav Valves
Industries Metal (1987) Ltd, Metzerplas Agriculture Cooperative Ltd, B. Gaon Retail & Trading Ltd, Gaon Agro - Rimon Management Services
Ltd, B. Gaon Business (2004) Ltd, Gaon Antan Investments Ltd, Or Asaf Investments Ltd, Hamashbir Holdings (1999) Ltd, and AHAVA Holdings
LTD.
Yoseph Borenstein.
Yoseph Bornstein has played key roles in the Israeli biomed industry during the past 35 years. Mr. Bornstein is a co-founder of Microbot
Medical and has been a member of the Board of Directors since Microbot Israel was founded in November 2010. He is also serving as a compensation
committee member and Audit committee member at Microbot Medical. Mr. Bornstein founded Shizim Ltd., a life science holding group in October
2000 and has served as its president since then. Mr. Bornstein is the Chairman of GCP Clinical Studies Ltd., a provider of clinical research
services and educational programs in Israel since January 2002. He is the Chairman of Biotis Ltd., that supplies bio-pharmaceutical industry,
since June 2000. In addition, he is the Chairman of Dolphin Medical Ltd, that supplies medical device industry, since April 2012. Mr.
Bornstein is a co-founder and director of XACT Robotics, developing a novel platform technology for robotic needle steering in minimally
invasive interventional procedures, and is the founder of ShizimXL & ShizimVS, Innovation Centers. In October 1992, Mr. Bornstein
founded Pharmateam Ltd., an Israeli company that specialized in representing international pharmaceutical companies which was sold in
2000. Mr. Bornstein is also a founder of a number of other privately held life-science companies. Mr. Bornstein served as the Biotechnology
Committee Chairman of the United States-Israel Science & Technology Commission, or the USISTC, from September 2002 to February 2005
as well as a consultant for USISTF from September 2002 to February 2005. He is also the founder of ILSI-Israel Life Science Industry Organization
(who was integrated into Israel Advanced Technology Industries) and ITTN-Israel Tech Transfer Organization. Mr. Bornstein was the General
Manager of Bristol-Myers Squibb (Israel), until 1992. Mr. Bornstein holds a Bachelor of Science degree in Agriculture from the Hebrew
University of Jerusalem.
Yaacov Goldman.
Yaacov Goldman has served as external director since August 2017. Mr. Goldman provides consulting services to companies in strategic-financial
areas, through his wholly owned company, Maanit-Goldman Management & Investments (2002) Ltd. Mr. Goldman also serves as a director
of Avgol Industries 1953 Ltd., Mivne Real Estate (K.D) Ltd., Fattal Properties (Europe) Ltd. and Prashkovsky Investments and Construction
Ltd. Mr. Goldman served as the Professional Secretary of the Peer Review Institute of the Certified Public Accountants Institute in Israel
from October 2004 until September 2008. Commencing in 1981, Mr. Goldman worked for Kesselman & Kesselman (Israeli member firm of PricewaterhouseCoopers)
for 19 years, and from 1991 until 2000, as a partner and then senior partner of such firm. From September 2000 until November 2001, Mr.
Goldman served as managing director of Argoquest Holdings, LLC. Mr. Goldman holds a B.A. degree in Economics and Accounting from Tel Aviv
University and is a Certified Public Accountant (Israel).
B.
Compensation.
Compensation of Directors and Senior Management
The following table presents
in the aggregate all compensation we paid to all of our office holders as a group
The term ‘office holder’
as defined in the Companies Law includes a general manager, chief business manager, deputy general manager, vice general manager, any
other person fulfilling or assuming the responsibilities of any of the foregoing positions without regard to such person’s title,
as well as a director, or a manager directly subordinate to the general manager or the chief executive officer. As of December 31, 2021,
in addition to the seven members of the Board of Directors (including the Company’s Chief Executive Officer), the Company considers
two other individuals, including its Chief Financial Officer and its VP Business Development to be office holders.
| |
Salaries, fees, commissions, bonuses and options (thousand USD) | |
All office holders as a group, consisting of 9 persons | |
| 1,780 | * |
| * | This amount includes approximately $0.1 million set aside or accrued
to provide pension, severance, retirement or similar benefits or expenses, but does not include business travel, professional and business
association dues and expenses reimbursed to office holders, and other benefits commonly reimbursed or paid by companies in our industry. |
The following table presents
information regarding compensation reflected in our financial statements for five most highly compensated office holders, as of December
31, 2021.
| |
Salary |
| |
Bonus | | |
Value of Options Granted(4) | | |
Other(5) | | |
Total | |
Name and Position | |
(USD in thousands) | |
Pnina Fishman Chief Executive Officer | |
| 448 |
(1) | |
| 180 | | |
| 123 | | |
| 16 | | |
| 767 | |
| |
| |
| |
| | | |
| | | |
| | | |
| | |
Motti Farbstein Chief Financial Officer | |
| 291 |
(2) | |
| 109 | | |
| 68 | | |
| 16 | | |
| 484 | |
| |
| |
| |
| | | |
| | | |
| | | |
| | |
Sari Fishman VP Business Development | |
| 228 |
(2) | |
| 70 | | |
| 63 | | |
| 19 | | |
| 380 | |
| |
| |
| |
| | | |
| | | |
| | | |
| | |
Yaacov Goldman External Director | |
| 33 |
(3) | |
| - | | |
| 10 | | |
| - | | |
| 43 | |
| |
| |
| |
| | | |
| | | |
| | | |
| | |
Guy Regev External Director | |
| 33 |
(3) | |
| - | | |
| 10 | | |
| - | | |
| 43 | |
| (1) | Amount represents consulting fee. |
| (2) | Salary includes gross salary plus payment of social benefits made
by us on behalf of such person. Such benefits may include, to the extent applicable, payments, contributions and/or allocations for savings
funds (e.g., managers’ life insurance policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension,
severance, risk insurances (e.g., life, or work disability insurance), payments for social security payments and tax gross-up payments,
vacation, medical insurance and benefits, convalescence or recreation pay and other benefits and perquisites consistent with our policies. |
| (3) | Amount represents fees for Board service. |
| (4) | The value of options is the expense recorded in our financial
statements for the period ended December 31, 2021 with respect to all options granted to such person. Assumptions and key variables used
in the calculation of such amounts are discussed in Note 12 of our financial statements. |
| (5) | Amount represents cost of use of company car. |
Each director other than our
Chief Executive Officer and Avraham Sartani, is entitled to the payment of annual fee of NIS 50,492 or $16,235 (based on the exchange
rate reported by the Bank of Israel on December 31, 2021), and payment of NIS 3,374 or $1,085 (based on the exchange rate reported by
the Bank of Israel on December 31, 2021) per meeting for participating in meetings of the Board and committees of the Board. The annual
fee shall not exceed the annual fee of an expert external director set forth in the Companies Regulations (Rules regarding Compensation
and Expenses of External Directors) 5760-2000 as adjusted by the Companies Regulations (Relief for Public Companies with Shares Listed
for Trading on a Stock Market Outside of Israel), 5760-2000. The compensation awarded for participating in resolutions that are adopted
without an actual convening (i.e., unanimous written resolutions) and for participating through telephone meetings will be reduced as
follows: (1) for resolutions that will be adopted without an actual convening, the participation compensation will be reduced by 50%;
and (2) for participation through telephone meetings, the participation compensation will be reduced by 40%. The participation compensation
and the annual fee is inclusive of all expenses incurred by our directors in connection with their participation in a meeting held at
our offices or with regard to resolutions resolved by written consent or teleconference. Avraham Sartani is entitled to a fee of $1,000
per meeting. In addition, our directors (other than our Chief Executive Officer and external directors) are entitled to reimbursement
for expenses related to their participation at meetings taking place not at our offices and outside their respective residency area.
Employment and Consulting Agreements
We have entered into employment
or consulting agreements with our directors, senior management and key service providers. All of these agreements contain customary provisions
regarding noncompetition, confidentiality of information and assignment of proprietary information and inventions. However, the enforceability
of the noncompetition provisions may be limited under applicable law.
The following are summary
descriptions of certain agreements to which we are a party. The descriptions provided below do not purport to be complete and are qualified
in their entirety by the complete agreements, which are attached as exhibits to this Annual Report on Form 20-F.
Service Management Agreement
with F.D. Consulting: On June 27, 2002, we entered into a Service Management Agreement with F.D. Consulting, a company partially
owned by Pnina Fishman, pursuant to which Dr. Fishman began serving as our Chief Scientific Officer and later became our Chief Executive
Officer and is a member of our Board of Directors and continues to be retained through this agreement. F.D. Consulting’s current
gross monthly fee is NIS 124,614 or $40,068 (based on the exchange rate reported by the Bank of Israel on December 31, 2021) which is
linked to the Israeli CPI and fluctuates accordingly. Dr. Fishman, through F.D. Consulting, is also entitled to reimbursement for reasonable
out-of-pocket expenses and use of a company automobile and mobile phone.
The term of F.D. Consulting’s
service management agreement is indefinite, unless earlier terminated for cause by us or without cause by either party, subject to three
months’ advanced notice.
Dr. Fishman is also entitled
to receive options exercisable into our ordinary shares from time to time. As of the date of this Annual Report, Dr. Fishman has outstanding
options to purchase an aggregate of 5,600,000 ordinary shares, of which (i) 200,000 options to purchase 200,000 ordinary shares have an
exercise price of NIS 3.573 per ordinary share or $1.15 per ordinary share (based on the exchange rate reported by the Bank of Israel
on December 31, 2021), vesting on a quarterly basis over four years commencing October 22, 2015, and expire on October 22, 2025, (ii)
400,000 options to purchase 400,000 ordinary shares have an exercise price of NIS 2.344 per ordinary share or $0.75 per ordinary share
(based on the exchange rate reported by the Bank of Israel on December 31, 2021), vesting on a quarterly basis over three years commencing
January 7, 2019, and expire on January 7, 2029, (iii) 2,500,000 options to purchase 2,500,000 ordinary shares have an exercise price of
NIS 0.25 per ordinary share or $0.08 per ordinary share (based on the exchange rate reported by the Bank of Israel on December 31, 2021),
vesting on a quarterly basis over four years commencing May 27, 2020, and expire on May 27, 2030, (iv) 2,500,000 options to purchase 2,500,000
ordinary shares have an exercise price of NIS 0.25 per ordinary share or $0.08 per ordinary share (based on the exchange rate reported
by the Bank of Israel on December 31, 2021), vesting on a quarterly basis over four years commencing April 13, 2021, and expire on April
13, 2031.
Employment and Non-Competition
Agreement with Motti Farbstein: On September 1, 2003 we entered into an employment and non-competition agreement with Motti Farbstein
pursuant to which Mr. Farbstein began serving as our Director of Clinical Operations and Administrative Affairs on September 1, 2003 and
is currently serving as our Chief Operating and Financial Officer. Mr. Farbstein’s current gross monthly salary is NIS 59,800 or
$19,228 (based on the exchange rate reported by the Bank of Israel on December 31, 2021). Mr. Farbstein is entitled to an allocation to
a manager’s insurance policy equivalent to an amount up to 13-1/3% of his gross monthly salary, up to 2-1/2% of his gross monthly
salary for disability insurance and 7-1/2% of his gross monthly salary for a study fund. The foregoing amounts are paid by us. Five percent
of his gross monthly salary is deducted for the manager’s insurance policy and 2-1/2% is deducted for the study fund. Mr. Farbstein
is also entitled to reimbursement for reasonable out-of-pocket expenses, including travel expenses, and use of a company automobile and
mobile phone.
The term of Mr. Farbstein’s
employment and non-competition agreement is indefinite, unless earlier terminated for just cause by either party, upon the death, disability
or retirement age, or without cause by either party, subject to 60 days’ advanced notice.
Mr. Farbstein is also entitled
to receive options exercisable into our ordinary shares from time to time. As of December 31, 2021, Mr. Farbstein has outstanding options
to purchase an aggregate of 2,978,000 ordinary shares, of which (i) 100,000 options are exercisable into 4,000 ordinary shares at an exercise
price of NIS 0.385 per option or $0.12 per option (based on the exchange rate reported by the Bank of Israel on December 31, 2021), are
fully vested, and expire on May 2, 2022, (ii) 100,000 options are exercisable into 4,000 ordinary shares at an exercise price of NIS 0.326
per option or $0.10 per option (based on the exchange rate reported by the Bank of Israel on December 31, 2021) are fully vested, and
expire on March 20, 2023, (iii) 10,000 options to purchase 10,000 ordinary shares at an exercise price of NIS 8.1205 per option or $2.61
per option (based on the exchange rate reported by the Bank of Israel on December 31, 2021), vesting on a quarterly basis over four years
commencing March 19, 2015, and expire on March 18, 2025, (iv) 60,000 options to purchase 60,000 ordinary shares at an exercise price of
NIS 4.317 per option or $1.38 per option (based on the exchange rate reported by the Bank of Israel on December 31, 2021), vesting on
a quarterly basis over four years commencing February 18, 2016 and expire on February 18, 2026, (v) 250,000 options to purchase 250,000
ordinary shares at an exercise price of NIS 2.513 per option or $0.80 per option (based on the exchange rate reported by the Bank of Israel
on December 31, 2021), vesting on a quarterly basis over four years commencing December 28, 2017 and expire on December 28, 2027, (vi)
150,000 options to purchase 150,000 ordinary shares at an exercise price of NIS 2.344 per option or $0.75 per option (based on the exchange
rate reported by the Bank of Israel on December 31, 2021), vesting on a quarterly basis over four years commencing January 7, 2019 and
expire on January 7, 2029, (vii) 1,000,000 options to purchase 1,000,000 ordinary shares at an exercise price of NIS 0.25 per option or
$0.08 per option (based on the exchange rate reported by the Bank of Israel on December 31, 2021), vesting on a quarterly basis over four
years commencing May 27, 2020 and expire on May 27, 2030, (viii) 1,500,000 options to purchase 1,500,000 ordinary shares at an exercise
price of NIS 0.25 per option or $0.08 per option (based on the exchange rate reported by the Bank of Israel on December 31, 2021), vesting
on a quarterly basis over four years commencing April 13, 2021 and expire on April 14, 2031.
Consulting Agreement with
BioStrategics: On September 27, 2005, we entered into a consulting agreement with BioStrategics through its President, Michael
Silverman pursuant to which Dr. Silverman began serving as our Medical Director. Dr. Silverman has extensive experience in clinical development
acquired through his involvement in clinical development in large pharmaceutical and small biopharmaceutical companies. He was involved
in international clinical research, market-oriented strategic planning, and the challenges of managing research and development portfolios
in various capacities at Sterling Winthrop Research Institute and subsequently at Sandoz Research Institute.
BioStrategics’ current
fee is $400 per hour with a maximum daily fee of $2,600. In addition, BioStrategics is entitled to reimbursement for reasonable pre-approved
expenses. The term of the consulting agreement is currently on a year-to-year basis, unless earlier terminated by either party upon 30
days’ prior written notice or immediately by either party if such termination is for cause.
Master Services Agreement
with Accellient Partners: On May 10, 2010, we entered into a Master Services Agreement with Accellient Partners, a company owned
by William Kerns, who currently serves as our current Vice President of Drug Development. Dr. Kerns has over 20 years of experience in
Pharmaceutical Research and Development at SmithKline Beecham and Eisai Pharmaceuticals. As a Senior Executive he has participated in
the development of drugs for over 100 Phase I studies and 13 NDA’s and/or Marketing Authorization Applications. Dr. Kerns has chaired
an FDA committee on biomarkers and he is an expert in preclinical development and regulatory strategy.
According to the agreement,
consulting services are provided by Accellient Partners’ personnel in accordance with individual work orders that are executed from
time to time. Each individual work order defines the scope of work to be provided and sets forth the fees to be paid to Accellient Partners.
Beginning on May 10, 2012,
the term of the master services agreement is on a month-to-month basis, unless terminated by us upon 30 days’ prior written notice,
by us at any time if Accellient Partners commits a breach and fails to cure, or by Accellient Partners upon 30 days’ prior written
notice if we commit a breach and fail to cure.
Cohn, De Vries, Stadler
& Co.: Cohn, De Vriew, Stadler & Co. of which Ilan Cohn, Ph.D. is a partner provides intellectual property services to
us in the ordinary course of business. Previously, Dr. Cohn was a partner with Reinhold Cohn and Partners that provided intellectual property
services to us in the ordinary course of business.
C.
Board Practices
General
According to the Israeli Companies
Law, the management of our business is vested in our Board of Directors. Our Board of Directors may exercise all powers and may take all
actions that are not specifically granted to our shareholders. Our executive officers are responsible for our day-to-day management and
have individual responsibilities established by our Board of Directors. Executive officers are appointed by and serve at the discretion
of our Board of Directors, subject to any applicable employment agreements we have entered into with the executive officers. See “Item
6. Directors, Senior Management and Employees—B. Compensation—Employment and Consulting Agreements.”
Election of Directors and Terms of Office
Our Amended and Restated Articles
of Association provide that the maximum number of members of the Board of Directors is 13. The Board of Directors is presently comprised
of six members.
In February 2020, a special
general meeting of our shareholders approved an amendment to the our Amended and Restated Articles of Association, according to which
the Board of Directors, excluding the external directors, if any (who shall be elected and serve in office in strict accordance with the
provisions of the Companies Law, if so required by the Companies Law), shall consist of three classes of directors as nearly equal in
number as practicable, which are appointed for fixed terms of office in accordance with the Israeli Companies Law and our Amended and
Restated Articles of Association, as follows: (i) the term of office of the initial Class I directors expired at the first annual general
meeting of our shareholders held in 2020 and when their successors are elected and qualified, (ii) the term of office of the initial Class
II directors shall expire at the first annual general meeting of our shareholders following the annual general meeting of our shareholders
referred to in clause (i) above and when their successors are elected and qualified, and (iii) the term of office of the initial Class
III directors shall expire at the first annual general meeting of our shareholders following the annual general meeting of our shareholders
referred to in clause (ii) above and when their successors are elected and qualified.
Directors (other than external
directors), may be elected only in annual general meetings of our shareholders. At each annual general meeting of our shareholders, commencing
with the annual general meeting of our shareholders held in 2021, each of the successors elected to replace the directors of a class whose
term shall have expired at such annual general meeting of our shareholders shall be elected to hold office until the third annual general
meeting of our shareholders next succeeding his or her election and until his or her respective successor shall have been elected and
qualified. Notwithstanding anything to the contrary, each director shall serve until his or her successor is elected and qualified or
until such earlier time as such director’s office is vacated.
If the number of directors
(excluding external directors) that constitutes the Board of Directors is hereafter changed, the then-serving directors shall be re-designated
to other classes and/or any newly created directorships or decrease in directorships shall be apportioned by the Board of Directors among
the classes so as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent director.
Directors so elected may not
be dismissed from office by the shareholders or by a general meeting of our shareholders prior to the expiration of their term of office.
The directors do not receive any benefits upon the expiration of their term of office.
The three classes of directors
are Class I Directors, Class II Directors and Class III Directors. Dr. Pnina Fishman and Mr. Guy Regev serve as our Class III Directors
until the close of the annual meeting to be held in 2022; Abraham Sartani serves as our Class I Director until the close of the annual
meeting to be held in 2023; and Ilan Cohn serves as our Class II Director until the close of the annual meeting to be held in 2024.
Any amendment, replacement
or suspension of our Amended and Restated Articles of Association regarding the election of directors, as described above, require a majority
of 65% of the voting power represented at the general meeting of our shareholders in person or by proxy and voting thereon, disregarding
abstentions from the count of the voting power present and voting, provided that such majority constitutes more than 20% of our then issued
and outstanding share capital.
A nominee for service as a
director in a public company may not be elected without submitting a declaration to the company, prior to election, specifying that he
or she has the requisite qualifications to serve as a director, independent director or external director (if required), as applicable,
and the ability to devote the appropriate time to performing his or her duties as such.
A director, who ceases to
meet the statutory requirements to serve as a director, external director or independent director, as applicable, must notify the company
to that effect immediately and his or her service as a director will expire upon submission of such notice.
On August 1, 2017, at an annual
general meeting of our shareholders Yaacov Goldman was elected to serve as one of our external directors for a three-year term ending
July 31, 2020. On August 12, 2020 at an annual general meeting of our shareholders, Yaacov Goldman was elected to serve for an additional
three-year term ending July 24, 2023. On December 27, 2017, at a special meeting of our shareholders, Israel Shamay was elected to
serve for a three-year term ending December 26, 2020 as one of our external directors. On December 9, 2020, at an annual general meeting
of our shareholders, Israel Shamay was elected to serve for an additional three-year term ending December 30, 2023. On June 11, 2021,
Israel Shamay passed away. On August 5, 2021, at a special meeting of our shareholders Yoseph Bornstein was elected to serve as one of
our external directors for a three-year term ending July 29, 2024. On May 30, 2013, Ilan Cohn was appointed as Chairman of the Board.
None of our directors or senior
management has any family relationship with any other director or senior management except that Sari Fishman is the daughter of Pnina
Fishman. None of our directors have service contracts that provide for benefits upon termination of his or her directorship with us, other
than the payment of salary due, accrued and unpaid as of and through the date of termination. See “Item 6. Directors, Senior Management
and Employees—B. Compensation—Employment and Consulting Agreements.”
Chairman of the Board.
Under the Israeli Companies Law, without shareholder approval, a person cannot hold the role of both chairman of the Board of Directors
and chief executive officer of a company. Furthermore, a person who is directly or indirectly subordinate to a chief executive officer
of a company may not serve as the chairman of the Board of Directors of that company and the chairman of the Board of Directors may not
otherwise serve in any other capacity in a company or in a subsidiary of that company other than as the chairman of the Board of Directors
of such a subsidiary.
The Israeli Companies Law
provides that an Israeli company may, under certain circumstances, exculpate an office holder from liability with respect to a breach
of his duty of care toward the company if appropriate provisions allowing such exculpation are included in its articles of association.
Our Amended and Restated Articles of Association permit us to maintain directors’ and officers’ liability insurance and to
indemnify our directors and officers for actions performed on behalf of us, subject to specified limitations. We maintain a directors
and officers insurance policy which covers the liability of our directors and officers as allowed under the Israeli Companies Law.
The term office holder is
defined in the Israeli Companies Law as a director, general manager, chief business manager, deputy general manager, vice general manager,
executive vice president, vice president, any other manager directly subordinate to the general manager, director, or any other person
assuming the responsibilities of any of the foregoing positions, without regard to such person’s title.
External and Independent Directors
Under the Israeli Companies
Law, the boards of directors of companies whose shares are publicly traded, either within or outside of Israel, are required to include
at least two members who qualify as external directors.
External directors must be
elected by a majority vote of the shares present and voting at a shareholders meeting, provided that either:
| ● | the majority of the shares that are voted at the meeting,
shall include at least a majority of the shares held by non-controlling shareholders and shareholders who do not have a personal interest
in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder)
who voted at the meeting, excluding abstentions, vote in favor of the election of the external director; Anyone with a personal interest
will be subject to the provisions of section 276, mutatis mutandis; or |
| ● | the total number of shares held by non-controlling, disinterested
shareholders (as described in the preceding bullet point) that are voted against the election of the external director does not exceed
2% of the aggregate voting rights in the company. |
The term “controlling
shareholder” means a shareholder with the ability to direct the activities of the company, other than by virtue of being an office
holder. A shareholder is presumed to have “control” of the company and thus to be a controlling shareholder of the company
if the shareholder holds 50% or more of the “means of control” of the company. “Means of control” is defined as
(1) the right to vote at a general meeting of a company or a corresponding body of another corporation; or (2) the right to appoint directors
of the corporation or its general manager. For the purpose of approving related-party transactions, the term also includes any shareholder
that holds 25% or more of the voting rights of the company if the company has no shareholder that owns more than 50% of its voting rights.
For the purpose of determining the holding percentage stated above, two or more shareholders who have a personal interest in a transaction
that is brought for the company’s approval are deemed as joint holders.
A person may not serve as
an external director of a company if (i) such person is a relative of a controlling shareholder of a company or (ii) at the date of such
person’s appointment or within the prior two years, such person, such person’s relative, partner, employer or any entity under
such person’s control or anyone to whom such person is subordinate, whether directly or indirectly, has or had any affiliation with
(a) the company, (b) the controlling shareholder or his relative, at the time of such person’s appointment or (c) any entity that
is either controlled by the company or by its controlling shareholder at the time of such appointment or during the prior two years. If
a company does not have a controlling shareholder or a group of shareholders who have a control block entitling them to vote at least
25% of the votes in a shareholders meeting, then a person may not serve as an external director if, such person or such person’s
relative, partner, employer or any entity under such person’s control, has or had, on or within the two years preceding the date
of the person’s appointment to serve as an external director, any affiliation with the chairman of our Board of Directors, chief
executive officer, a substantial shareholder who holds at least 5% of the issued and outstanding shares of the company or voting rights
which entitle him to vote at least 5% of the votes in a shareholders meeting, or the chief financial officer of the company.
The term affiliation includes:
| ● | an employment relationship; |
| ● | a business or professional relationship even if not maintained
on a regular basis (excluding insignificant relationships); |
| ● | service as an office holder, excluding service as a director
in a private company prior to the initial offering of its shares to the public if such director was appointed as a director of the private
company in order to serve as an external director following the public offering. |
The term relative is defined
as a spouse, sibling, parent, grandparent or descendant; a spouse’s sibling, parent or descendant; and the spouse of each of the
foregoing persons.
In addition, no person may
serve as an external director if that person’s professional activities create, or may create, a conflict of interest with that person’s
responsibilities as a director or otherwise interfere with that person’s ability to serve as an external director or if the person
is an employee of the Israel Securities Authority, or the ISA, or of the TASE. Furthermore, a person may not continue to serve as an external
director if he or she received direct or indirect compensation from the company for his or her role as a director. This prohibition does
not apply to compensation paid or given in accordance with regulations promulgated under the Israeli Companies Law or amounts paid pursuant
to indemnification and/or exculpation contracts or commitments and insurance coverage. If, at the time an external director is appointed,
all current members of the Board of Directors not otherwise affiliated with the company are of the same gender, then that external director
must be of the other gender. In addition, a director of a company may not be elected as an external director of another company if, at
that time, a director of the other company is acting as an external director of the first company.
Following the termination
of an external director’s service on a Board of Directors, such former external director and his or her spouse and children may
not be provided with a direct or indirect benefit by the company, its controlling shareholder or any entity under its controlling shareholder’s
control. This includes engagement to serve as an executive officer or director of the company or a company controlled by its controlling
shareholder, or employment by, or providing services to, any such company for consideration, either directly or indirectly, including
through a corporation controlled by the former external director, for a period of two years (and for a period of one year with respect
to relatives of the former external director).
The Israeli Companies Law
provides that an external director must meet certain professional qualifications or have financial and accounting expertise and that at
least one external director must have financial and accounting expertise. However, if at least one of our other directors (i) meets the
independence requirements of the Securities Exchange Act of 1934, as amended, (ii) meets the standards of the NYSE American rules for
membership on the audit committee and (iii) has financial and accounting expertise as defined in the Israeli Companies Law and applicable
regulations, then neither of our external directors is required to possess financial and accounting expertise as long as both possess
other requisite professional qualifications. Our Board of Directors is required to determine whether a director possesses financial and
accounting expertise by examining whether, due to the director’s education, experience and qualifications, the director is highly
proficient and knowledgeable with regard to business-accounting issues and financial statements, to the extent that the director is able
to engage in a discussion concerning the presentation of financial information in our financial statements, among others. The regulations
define a director with the requisite professional qualifications as a director who satisfies one of the following requirements: (i) the
director holds an academic degree in either economics, business administration, accounting, law or public administration; (ii) the director
either holds an academic degree in any other field or has completed another form of higher education in our primary field of business
or in an area which is relevant to the office of an external director; or (iii) the director has at least five years of experience serving
in any one of the following, or at least five years of cumulative experience serving in two or more of the following capacities: (a) a
senior business management position in a corporation with a substantial scope of business; (b) a senior position in our primary field
of business; or (c) a senior position in public administration. Yaacov Goldman, who is one of our external directors, meets the required
qualifications and has financial and accounting expertise as required by the Israeli Companies Law, while Guy Regev, an independent director,
also meets the required qualifications and has financial and accounting expertise as required by the Israeli Companies Law.
The Israeli Companies Law
defines an independent director as a director who complies with the following and was appointed as such in accordance with Chapter 1 of
Part 56 of the Israeli Companies Law: (1) the director complies with the qualification to serve as an external director as set out in
Sections 240 (b)-(f) of the Israeli Companies Law and the audit committee has approved such compliance; and (2) the director has not served
as a director of the company for more than nine consecutive years (which, for such purpose, does not include breaks in such service for
periods of less than two year).
If an external directorship
becomes vacant and there are less than two external directors on the Board of Directors at the time, then the Board of Directors is required
under the Israeli Companies Law to call a shareholders’ meeting as soon as possible to appoint a replacement external director.
Each committee of the Board
of Directors that is authorized to exercise the powers of the Board of Directors must include at least one external director, except that
the audit committee and compensation committee must each include all external directors then serving on the Board of Directors. Under
the Israeli Companies Law, external directors of a company are prohibited from receiving, directly or indirectly, any compensation for
their services as external directors, other than compensation and reimbursement of expenses pursuant to applicable regulations promulgated
under the Israeli Companies Law. Compensation of an external director is determined prior to his or her appointment and may not be changed
during his or her term subject to certain exceptions.
Yoseph Borenstein and Yaacov
Goldman serve as external directors on our Board of Directors pursuant to the provisions of the Israeli Companies Law. They both serve
on our audit committee and our compensation committee. Our Board of Directors has determined that Yaacov Goldman possesses accounting
and financial expertise, and that both of our external directors possess the requisite professional qualifications. In addition to our
external directors, Guy Regev and Abraham Sartani serve as independent directors on our Board of Directors. Guy Regev also serves on our
audit committee and our compensation committee.
Audit Committee
The Israeli Companies Law
requires public companies to appoint an audit committee. The responsibilities of the audit committee include identifying irregularities
in the management of our business and approving related party transactions as required by law. An audit committee must consist of at least
three directors, including all of its external directors and a majority of independent directors. The chairman of the Board of Directors,
any director employed by or otherwise providing services to the company, and a controlling shareholder or any relative of a controlling
shareholder, may not be a member of the audit committee. An audit committee may not approve an action or a transaction with a controlling
shareholder, or with an office holder, unless at the time of approval two external directors are serving as members of the audit committee
and at least one of the external directors was present at the meeting in which an approval was granted.
Our audit committee is currently
comprised of three independent non-executive directors. The audit committee is chaired by Yaacov Goldman, who serves as the audit committee
financial expert, with Yoseph Borenstein and Guy Regev as members. Our audit committee meets at least four times a year and monitors the
adequacy of our internal controls, accounting policies and financial reporting. It regularly reviews the results of the ongoing risk self-assessment
process, which we undertake, and our interim and annual reports prior to their submission for approval by the full Board of Directors.
The audit committee oversees the activities of the internal auditor, sets its annual tasks and goals and reviews its reports. The audit
committee reviews the objectivity and independence of the external auditors and also considers the scope of their work and fees.
Our audit committee provides
assistance to our Board of Directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,
financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants
and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee
also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that
the accountants are independent of management.
Under the Israeli Companies
Law, our audit committee is responsible for (i) determining whether there are deficiencies in the business management practices of our
company, including in consultation with our internal auditor or the independent auditor, and making recommendations to the Board of Directors
to improve such practices and amend such deficiencies, (ii) determining whether certain related party transactions (including transactions
in which an office holder has a personal interest) should be deemed as material or extraordinary, and to approve such transactions (which
may be approved according to certain criteria set out by our audit committee on an annual basis) (see “—Approval of Related
Party Transactions under the Israeli Companies Law”); (iii) establishing procedures to be followed in respect of related party transactions
with a controlling shareholder (where such are not extraordinary transactions), which may include, where applicable, the establishment
of a competitive process for such transaction, under the supervision of the audit committee, or individual, or other committee or body
selected by the audit committee, in accordance with criteria determined by the audit committee; (iv) determining procedures for approving
certain related party transactions with a controlling shareholder, which having been determined by the audit committee not to be extraordinary
transactions, were also determined by the audit committee not to be negligible transactions; (v) approving the working plan of the internal
auditor, to examine such working plan before its submission to the Board and proposing amendments thereto, (vi) examining our internal
controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose
of its responsibilities, (vii) examining the scope of our auditor’s work and compensation and submitting a recommendation with respect
thereto to our Board of Directors or shareholders, depending on which of them is considering the appointment of our auditor, and (viii)
establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be
provided to such employees.
We have adopted a written
charter for our audit committee, setting forth its responsibilities as outlined by the regulations of the SEC. In addition, our audit
committee has adopted procedures for the receipt, retention and treatment of complaints we may receive regarding accounting, internal
accounting controls or auditing matters and the submission by our employees of concerns regarding questionable accounting or auditing
matters. In addition, SEC rules mandate that the audit committee of a listed issuer consist of at least three members, all of whom must
be independent, as such term is defined by rules and regulations promulgated by the SEC. We are in compliance with the independence requirements
of the SEC rules.
Any person who is not eligible
to serve on the audit committee is further restricted from participating in its meetings and votes, unless the chairman of the audit committee
determines that such person’s presence is necessary in order to present a certain matter; provided, however, that company employees
who are not controlling shareholders or relatives of such shareholders may be present in the meetings, but not for actual voting, and
likewise, company counsel and secretary who are not controlling shareholders or relatives of such shareholders may be present in the meetings
and for actual voting if such presence is requested by the audit committee.
In addition to the above,
all such committee’s members must apply with the following requirements:
| ● | All members shall be members of the Board of Directors of
the company. |
| ● | At least one of the committee’s members shall have financial
and accounting expertise and the rest of the committee’s members must have the ability to read and understand financial statements. |
Our company, through our audit
committee, is in full compliance with the above requirements.
Financial Statement Examination Committee
Under the Israeli Companies
Law, the Board of Directors of a public company must appoint a financial statement examination committee, which consists of members with
accounting and financial expertise or the ability to read and understand financial statements. According to a resolution of our Board
of Directors, the audit committee has been assigned the responsibilities and duties of a financial statements examination committee, as
permitted under relevant regulations promulgated under the Israeli Companies Law. From time to time as necessary and required to approve
our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire Board of Directors
regarding financial statement approval. The function of a financial statements examination committee is to discuss and provide recommendations
to its Board of Directors (including the report of any deficiency found) with respect to the following issues: (i) estimations and assessments
made in connection with the preparation of financial statements; (ii) internal controls related to the financial statements; (iii) completeness
and propriety of the disclosure in the financial statements; (iv) the accounting policies adopted and the accounting treatments implemented
in material matters of the company; and (v) value evaluations, including the assumptions and assessments on which evaluations are based
and the supporting data in the financial statements. Our independent auditors and our internal auditors are invited to attend all meetings
of audit committee when it is acting in the role of the financial statements examination committee.
Compensation Committee
Amendment no. 20 to the Israeli
Companies Law was published on November 12, 2012 and became effective on December 12, 2012, or Amendment no. 20. In general, Amendment
no. 20 requires public companies to appoint a compensation committee and to adopt a compensation policy with respect to its officers,
or the Compensation Policy. In addition, Amendment no. 20 addresses the corporate approval process required for a public company’s
engagement with its officers (with specific reference to a director, a non-director officer, a chief executive officer and controlling
shareholders and their relatives who are employed by the company).
The compensation committee
shall be nominated by the Board of Directors and be comprised of its members. The compensation committee must consist of at least three
members. All of the external directors must serve on the compensation committee and constitute a majority of its members. The remaining
members of the compensation committee must be directors who qualify to serve as members of the audit committee (including the fact that
they are independent) and their compensation should be identical to the compensation paid to the external directors of the company.
Similar to the rules that
apply to the audit committee, the compensation committee may not include the chairman of the board, or any director employed by the Company,
by a controlling shareholder or by any entity controlled by a controlling shareholder, or any director providing services to the company,
to a controlling shareholder or to any entity controlled by a controlling shareholder on a regular basis, or any director whose primary
income is dependent on a controlling shareholder, and may not include a controlling shareholder or any of its relatives. Individuals who
are not permitted to be compensation committee members may not participate in the committee’s meetings other than to present a particular
issue; provided, however, that an employee that is not a controlling shareholder or relative may participate in the committee’s
discussions, but not in any vote, and our legal counsel and corporate secretary may participate in the committee’s discussions and
votes if requested by the committee.
The roles of the compensation
committee are, among others, to: (i) recommend to the Board of Directors the Compensation Policy for office holders and recommend to the
board once every three years the extension of a Compensation Policy that had been approved for a period of more than three years; (ii)
recommend to the directors any update of the Compensation Policy, from time to time, and examine its implementation; (iii) decide whether
to approve the terms of office and of employment of office holders that require approval of the compensation committee; and (iv) decide,
in certain circumstances, whether to exempt the approval of terms of office of a chief executive officer from the requirement of shareholder
approval.
The Compensation Policy requires
the approval of the general meeting of shareholders with a “Special Majority”, which requires a majority of the shareholders
of the company who are not either a controlling shareholder or an “interested party” in the proposed resolution, or that shareholders
holding less than 2% of the voting power in the company voted against the proposed resolution at such meeting. However, under special
circumstances, the Board of Directors may approve the compensation policy without shareholder approval, if the compensation committee
and thereafter the Board of Directors decided, based on substantiated reasons after they have reviewed the Compensation Policy again,
that the Compensation Policy is in the best interest of the company. The Compensation Policy is required to be brought before the shareholders
of the Company once every three years for approval.
Under the Israeli Companies
Law, our Compensation Policy must generally serve as the basis for corporate approvals with respect to the financial terms of employment
or engagement of office holders, including exemption, insurance, indemnification or any monetary payment or obligation of payment in respect
of employment or engagement. The Compensation Policy must relate to certain factors, including advancement of the company’s objective,
the company’s business plan and its long term strategy, and creation of appropriate incentives for office holders. It must also
consider, among other things, the company’s risk management, size and nature of its operations. The Compensation Policy must furthermore
consider the following additional factors:
| ● | The knowledge, skills, expertise, and accomplishments of the
relevant office holder; |
| ● | The office holder’s roles and responsibilities and prior
compensation agreements with him or her; |
| ● | The relationship between the terms offered and the average
compensation of the other employees of the company, including those employed through manpower companies; |
| ● | The impact of disparities in salary upon work relationships
in the company; |
| ● | The possibility of reducing variable compensation at the discretion
of the Board of Directors; |
| ● | The possibility of setting a limit on the exercise value of
non-cash variable equity-based compensation; and |
| ● | As to severance compensation, the period of service of the
office holder, the terms of his or her compensation during such service period, the company’s performance during that period of
service, the person’s contributions towards the company’s achievement of its goals and the maximization of its profits, and
the circumstances under which the person is leaving the company. |
The Compensation Policy must
also include the following principles:
| ● | the link between variable compensation and the long term performance
and measurable criteria; |
| ● | the relationship between variable and fixed compensation,
and the ceiling for the value of variable compensation; |
| ● | the conditions under which an office holder would be required
to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and
was required to be restated in the company’s financial statements; |
| ● | the minimum holding or vesting period for variable, equity-based
compensation; and |
| ● | maximum limits for severance compensation. |
The Compensation Policy was
approved by the general meeting of shareholders on January 19, 2017 after discussions and recommendation of the compensation committee
and approval by the Board of Directors. The Compensation Policy was amended by the general meeting of shareholders on June 7, 2021. Moreover,
the approval of the compensation committee is required in order to approve terms of office and/or employment of office holders.
Yaacov Goldman is the chairman
of our compensation committee. Guy Regev and Yoseph Bornstein serve as the other members of our compensation committee.
Under Amendment no. 27 to
the Israeli Companies Law, which became effective as of February 17, 2016, the audit committee of an Israeli public company which has
been established and conducts itself also in accordance with provisions governing the composition of the compensation committee as set
forth in the Israeli Companies Law, may act in lieu of a compensation committee with respect to the responsibilities of a compensation
committee which are set forth in the Israeli Companies Law.
Approval of Related Party Transactions
under the Israeli Companies Law
Fiduciary duties of
the office holders
The Israeli Companies Law
imposes a duty of care and a duty of loyalty on all office holders of a company. The duty of care of an office holder is based on the
duty of care set forth in connection with the tort of negligence under the Israeli Torts Ordinance (New Version) 5728-1968. This duty
of care requires an office holder to act with the degree of proficiency with which a reasonable office holder in the same position would
have acted under the same circumstances. The duty of care includes a duty to use reasonable means, in light of the circumstances, to obtain:
| ● | information on the advisability of a given action brought
for his or her approval or performed by virtue of his or her position; and |
| ● | all other important information pertaining to these action. |
The duty of loyalty requires
an office holder to act in good faith and for the benefit of the company, and includes the duty to:
| ● | refrain from any act involving a conflict of interest between
the performance of his or her duties in the company and his or her other duties or personal affairs; |
| ● | refrain from any activity that is competitive with the business
of the company; |
| ● | refrain from exploiting any business opportunity of the company
for the purpose of gaining a personal advantage for himself or herself or others; and |
| ● | disclose to the company any information or documents relating
to our affairs which the office holder received as a result of his or her position as an office holder. |
We may approve an act performed
in breach of the duty of loyalty of an office holder provided that the office holder acted in good faith, the act or its approval does
not harm the company, and the office holder discloses his or her personal interest, as described below.
Disclosure of personal
interests of an office holder and approval of acts and transactions
The Compensation Policy requires
the approval of the general meeting of shareholders with a “Special Majority”, which requires a majority of the shareholders
of the company who are not either a controlling shareholder or an “interested party” in the proposed resolution, or that shareholders
holding less than 2% of the voting power in the company voted against the proposed resolution at such meeting. However, under special
circumstances, the Board of Directors may approve the compensation policy without shareholder approval, if the compensation committee
and thereafter the Board of Directors decided, based on substantiated reasons after they have reviewed the Compensation Policy again,
that the Compensation Policy is in the best interest of the company. The Compensation Policy is required to be brought before the shareholders
of the Company once every three years for approval.
The term personal interest
is defined under the Israeli Companies Law to include the personal interest of a person in an action or in the business of a company,
including the personal interest of such person’s relative or the interest of any corporation in which the person is an interested
party, but excluding a personal interest stemming solely from the fact of holding shares in the company. A personal interest furthermore
includes the personal interest of a person for whom the office holder holds a voting proxy or the interest of the office holder with respect
to his or her vote on behalf of the shareholder for whom he or she holds a proxy even if such shareholder itself has no personal interest
in the approval of the matter. An office holder is not, however, obliged to disclose a personal interest if it derives solely from the
personal interest of his or her relative in a transaction that is not considered an extraordinary transaction.
Under the Israeli Companies
Law, an extraordinary transaction which requires approval is defined as any of the following:
| ● | a transaction other than in the ordinary course of business; |
| ● | a transaction that is not on market terms; or |
| ● | a transaction that may have a material impact on our profitability,
assets or liabilities. |
Under the Israeli Companies
Law, once an office holder has complied with the disclosure requirement described above, a company may approve a transaction between the
company and the office holder or a third party in which the office holder has a personal interest, or approve an action by the office
holder that would otherwise be deemed a breach of duty of loyalty. However, a company may not approve a transaction or action that is
adverse to our interest or that is not performed by the office holder in good faith.
Under the Israeli Companies
Law, unless the articles of association of a company provide otherwise, a transaction with an office holder, a transaction with a third
party in which the office holder has a personal interest, and an action of an office holder that would otherwise be deemed a breach of
duty of loyalty requires approval by the Board of Directors. Our Amended and Restated Articles of Association do not provide otherwise.
If the transaction or action considered is (i) an extraordinary transaction, (ii) an action of an office holder that would otherwise be
deemed a breach of duty of loyalty and may have a material impact on a company’s profitability, assets or liabilities, (iii) an
undertaking to indemnify or insure an office holder who is not a director, or (iv) for matters considered an undertaking concerning the
terms of compensation of an office holder who is not a director, including, an undertaking to indemnify or insure such office holder,
then approval by the audit committee is required prior to approval by the Board of Directors. Arrangements regarding the compensation,
indemnification or insurance of a director require the approval of the audit committee, Board of Directors and shareholders, in that order.
A director who has a personal
interest in a matter that is considered at a meeting of the Board of Directors or the audit committee may generally not be present at
the meeting or vote on the matter, unless a majority of the directors or members of the audit committee have a personal interest in the
matter or the chairman of the audit committee or Board of Directors, as applicable, determines that he or she should be present to present
the transaction that is subject to approval. If a majority of the directors have a personal interest in the matter, such matter would
also require approval of the shareholders of the company.
Disclosure of personal
interests of a controlling shareholder and approval of transactions
Under the Israeli Companies
Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. See “—
Audit Committee” for a definition of controlling shareholder. Extraordinary transactions with a controlling shareholder or in which
a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest,
as well as transactions for the provision of services whether directly or indirectly by a controlling shareholder or his or her relative,
or a company such controlling shareholder controls, and transactions concerning the terms of engagement of a controlling shareholder or
a controlling shareholder’s relative, whether as an office holder or an employee, require the approval of the audit committee, the
Board of Directors and a majority of the shares voted by the shareholders of the company participating and voting on the matter in a shareholders’
meeting. In addition, such shareholder approval must fulfill one of the following requirements:
| ● | at least a majority of the shares held by shareholders who
have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding
abstentions; or |
| ● | the shares voted by shareholders who have no personal interest
in the transaction who vote against the transaction represent no more than 2% of the voting rights in the company. |
To the extent that any such
transaction with a controlling shareholder is for a period extending beyond three years, approval is required once every three years,
unless the audit committee determines that the duration of the transaction is reasonable given the circumstances related thereto.
Duties of shareholders
Under the Israeli Companies
Law, a shareholder has a duty to refrain from abusing its power in the company and to act in good faith and in an acceptable manner in
exercising its rights and performing its obligations to the company and other shareholders, including, among other things, voting at general
meetings of shareholders on the following matters:
| ● | an amendment to the articles of association; |
| ● | an increase in our authorized share capital; |
| ● | the approval of related party transactions and acts of office
holders that require shareholder approval. |
A shareholder also has a general
duty to refrain from discriminating against other shareholders.
The remedies generally available
upon a breach of contract will also apply to a breach of the above mentioned duties, and in the event of discrimination against other
shareholders, additional remedies are available to the injured shareholder.
In addition, any controlling
shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under
a company’s articles of association, has the power to appoint or prevent the appointment of an office holder, or has another power
with respect to a company, is under a duty to act with fairness towards the company. The Israeli Companies Law does not describe the substance
of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach
of the duty to act with fairness, taking the shareholder’s position in the company into account.
Exculpation, Insurance and Indemnification
of Directors and Officers
Under the Israeli Companies
Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate
an office holder in advance from liability to us, in whole or in part, for damages caused to us as a result of a breach of duty of care
but only if a provision authorizing such exculpation is included in its articles of association. Our Amended and Restated Articles of
Association include such a provision. We may not exculpate in advance a director from liability arising out of a prohibited dividend or
distribution to shareholders.
Under the Israeli Companies
Law and the Israeli Securities Law, a company may indemnify, or undertake in advance to indemnify, an office holder, provided its articles
of association include a provision authorizing such indemnification, for the following liabilities and expenses imposed on an office holder
or incurred by office holder due to acts performed by him or her as an office holder:
| ● | Financial liability incurred by or imposed on him or her in
favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an
undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited
to events which, in the opinion of the Board of Directors, can be foreseen based on our activities when the undertaking to indemnify
is given, and to an amount or according to criteria determined by the Board of Directors as reasonable under the circumstances, and such
undertaking shall detail the abovementioned foreseen events and amount or criteria; |
| ● | Reasonable litigation expenses, including attorneys’
fees, incurred by the office holder as a result of an investigation or proceeding instituted against him or her by an authority authorized
to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such
investigation or proceeding; and (ii) no financial liability was imposed upon him or her as a substitute for the criminal proceeding
as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense
that does not require proof of criminal intent or as a monetary sanction; |
| ● | Reasonable litigation expenses, including attorneys’
fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by us, on our behalf, or by a
third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of a conviction for
an offense that does not require proof of criminal intent; and |
| ● | Expenses, including reasonable litigation expenses and legal
fees, incurred by an office holder in relation to an administrative proceeding instituted against such office holder, or certain compensation
payments required to be made to an injured party, pursuant to certain provisions of the Israeli Securities Law. |
Under the Israeli Companies
Law, a company may insure an office holder against the following liabilities incurred for acts performed by him or her as an office holder
if and to the extent provided in the Company’s articles of association:
| ● | a breach of the duty of loyalty to us, provided that the office
holder acted in good faith and had a reasonable basis to believe that the act would not harm us; |
| ● | a breach of duty of care to us or to a third party; and |
| ● | a financial liability imposed on the office holder in favor
of a third party. |
Subject to the provisions
of the Israeli Companies Law and the Israeli Securities Law, we may also enter into a contract to insure an office holder, in respect
of expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative proceeding
instituted against such office holder or payment required to be made to an injured party, pursuant to certain provisions of the Israeli
Securities Law.
Nevertheless, under the Israeli
Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
| ● | a breach of fiduciary duty, except for indemnification and
insurance for a breach of the duty of loyalty to us in the event office holder acted in good faith and had a reasonable basis to believe
that the act would not prejudice us; |
| ● | a breach of duty of care committed intentionally or recklessly,
excluding a breach arising out of the negligent conduct of the office holder; |
| ● | an act or omission committed with intent to derive unlawful
personal benefit; or |
| ● | a fine, monetary sanction, penalty or forfeit levied against
the office holder. |
Under the Israeli Companies
Law, exculpation, indemnification and insurance of office holders require the approval of the compensation committee, Board of Directors
and, in certain circumstances, the shareholders. Our Amended and Restated Articles of Association permit us to exculpate, indemnify and
insure our office holders to the fullest extent permitted by the Israeli Companies Law.
Approval of Compensation to Our Officers
The Israeli Companies Law
prescribes that compensation to officers must be approved by a company’s Board of Directors after obtaining the approval of the
compensation committee.
As detailed above, our compensation
committee consists of three independent directors: Yoseph Borenstein, Yaacov Goldman and Guy Regev. The responsibilities of the compensation
committee are to set our overall policy on executive remuneration and to decide the specific remuneration, benefits and terms of employment
for directors, officers and the Chief Executive Officer.
The objectives of the compensation
committee’s policies are that such individuals should receive compensation which is appropriate given their performance, level of
responsibility and experience. Compensation packages should also allow us to attract and retain executives of the necessary caliber while,
at the same time, motivating them to achieve the highest level of corporate performance in line with the best interests of shareholders.
In order to determine the elements and level of remuneration appropriate to each executive director, the compensation committee reviews
surveys on executive pay, obtains external professional advice and considers individual performance.
Internal Auditor
Under the Israeli Companies
Law, the Board of Directors must appoint an internal auditor, nominated by the audit committee. The role of the internal auditor is to
examine, among other matters, whether our actions comply with the law and orderly business procedure. Under the Israeli Companies Law,
an internal auditor may not be:
| ● | a person (or a relative of a person) who holds more than 5%
of our ordinary shares; |
| ● | a person (or a relative of a person) who has the power to
appoint a director or the general manager of the company; |
| ● | an executive officer or director of the company (or a relative
thereof); or |
| ● | a member of our independent accounting firm, or anyone on
his or her behalf. |
We comply with the requirement
of the Israeli Companies Law relating to internal auditors. Our internal auditors examine whether our various activities comply with the
law and orderly business procedure. Our current internal auditor is Deloitte.
D. Employees.
As of December 31, 2021, we
had eight employees, three of whom were employed in management and administration, four of whom were employed in research and development
and one of whom was employed in business development. All of these employees were located in Israel.
While none of our employees
are party to any collective bargaining agreements, certain provisions of the collective bargaining agreements between the Histadrut (General
Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations)
are applicable to our employees by order of the Israel Ministry of Labor. These provisions primarily concern the length of the workday,
minimum daily wages for professional workers, pension fund benefits for all employees, insurance for work-related accidents, procedures
for dismissing employees, determination of severance pay and other conditions of employment. We generally provide our employees with benefits
and working conditions beyond the required minimums. We have never experienced any employment-related work stoppages and believe our relationship
with our employees is good.
E. Share Ownership.
The following table sets forth
information regarding the beneficial ownership of our outstanding ordinary shares as of March 20, 2022 by the members of our senior management
and Board of Directors individually and as a group. The beneficial ownership of ordinary shares is based on the 815,746,293 ordinary shares
outstanding as of March 20, 2022 and is determined in accordance with the rules of the SEC and generally includes any ordinary shares
over which a person exercises sole or shared voting or investment power. For purposes of the table below, we deem shares subject to options
or warrants that are currently exercisable or exercisable within 60 days of March 20, 2022, to be outstanding and to be beneficially owned
by the person holding the options or warrants for the purposes of computing the percentage ownership of that person but we do not treat
them as outstanding for the purpose of computing the percentage ownership of any other person.
Name of Beneficial Owner | |
Number of Ordinary Shares* |
| | |
Percentage of Class** | |
Senior Management and Directors | |
|
| | |
| |
Ilan Cohn, Ph.D. | |
| 444,067 |
(1) | | |
| ** | |
Pnina Fishman, Ph.D. | |
| 2,507,183 |
(2) | | |
| ** | |
Motti Farbstein | |
| 1,259,508 |
(3) | | |
| ** | |
Sari Fishman, Ph.D. | |
| 1,194,000 |
(4) | | |
| ** | |
Guy Regev | |
| 344,740 |
(5) | | |
| ** | |
Abraham Sartani, M.D. | |
| 314,500 |
(6) | | |
| ** | |
Yaacov Goldman | |
| 310,500 |
(7) | | |
| ** | |
Yoseph Borenstein | |
| 112,500 |
(8) | | |
| ** | |
Senior Management and Directors as a group (8 persons) | |
| 6,486,998 |
| | |
| ** | |
| * | U.S. dollar translations of NIS amounts presented in the footnotes
to this table are translated using the exchange rate reported by the Bank of Israel on December 31, 2021. |
| (1) | Represents (i) 133,567 ordinary shares, (ii) 48,000 options to
purchase 48,000 ordinary shares at an exercise price of NIS 2.926 per option or $0.89 per option and expire on November 8, 2027, and
(iii) 262,500 options to purchase 262,500 ordinary shares at an exercise price of NIS 0.25 per option or $0.08 per option and expire
on June 14, 2030. Excludes 337,500 options to purchase 337,500 ordinary shares that vest in more than 60 days from March 20, 2022. |
| (2) | Represents (i) 263,433 ordinary shares, (ii) 200,000 options to
purchase 200,000 ordinary shares at an exercise price of NIS 3.573 per option or $1.09 per option and expire on October 22, 2025, (iii)
325,000 options to purchase 325,000 ordinary shares at an exercise price of NIS 2.344 per option or $0.72 per option and expire on January
7, 2029, and (iv) 1,093,750 options to purchase 1,093,750 ordinary shares at an exercise price of NIS 0.25 per option or $0.08 per option
and expire on May 27, 2030. (v) 625,000 options to purchase 625,000 ordinary shares at an exercise price of NIS 0.25 per option or $0.08
per option and expire on April 13, 2031. Excludes 3,356,250 options to purchase 3,356,250 ordinary shares that vest in more than 60 days
from March 20, 2022. |
| (3) | Represents (i) 1,133 ordinary shares, (ii) 4,000 options to purchase
4,000 ordinary shares at an exercise price of NIS 0.326 per option or $0.10 per option and expire on March 20, 2023, (iii) 10,000 options
to purchase 10,000 ordinary shares at an exercise price of NIS 8.1205 per option or $2.49 per option and expire on March 18, 2025, (iv)
60,000 options to purchase 60,000 ordinary shares at an exercise price of NIS 4.317 per option or $1.32 per option and expire on February
18, 2026, (v) 250,000 options to purchase 250,000 ordinary shares at an exercise price of NIS 2.513 per option or $0.78 per option and
expire on December 28, 2027, (vi) 121,875 options to purchase 121,875 ordinary shares at an exercise price of NIS 2.344 per option or
$0.72 per option and expire on January 7, 2029, and (vii) 437,500 options to purchase 437,500 ordinary shares at an exercise price of
NIS 0.25 per option or $0.08 per option and expire on May 27, 2030. (viii) 375,000 options to purchase 375,000 ordinary shares at an
exercise price of NIS 0.25 per option or $0.08 per option and expire on April 13, 2031. Excludes 1,715,625 options to purchase 1,715,625
ordinary shares that vest in more than 60 days from March 20, 2022. |
| (4) | Represents (i) 4,000 options to purchase 4,000 ordinary shares
at an exercise price of NIS 0.326 per option or $0.1 per option and expire on March 20, 2023, and (ii) 10,000 options to purchase 10,000
ordinary shares at an exercise price of NIS 8.1205 per option or $2.49 per option and expire on March 18, 2025, (iii) 40,000 options
to purchase 40,000 ordinary shares at an exercise price of NIS 4.317 per option or $1.32 per option and expire on February 18, 2026,
(iv) 80,000 options to purchase 80,000 ordinary shares at an exercise price of NIS 3.662 per option or $1.12 per option and expire on
March 30, 2027, (v) 150,000 options to purchase 150,000 ordinary shares at an exercise price of NIS 2.513 per option or $0.77 per option
and expire on December 30, 2027, (vi) 97,500 options to purchase 97,500 ordinary shares at an exercise price of NIS 2.344 per option
or $0.72 per option and expire on January 7, 2029, (vii) 437,500 options to purchase 437,500 ordinary shares at an exercise price of
NIS 0.25 per option or $0.08 per option and expire on May 27, 2030 and (viii) 375,000 options to purchase 375,000 ordinary shares at
an exercise price of NIS 0.25 per option or $0.08 per option and expire on April 13, 2031. Excludes 1,710,000 options to purchase 1,710,000
ordinary shares that vest in more than 60 days from March 20, 2022. |
| (5) | Represents (i) 24,240 ordinary shares, (ii) 10,000 options to
purchase 10,000 ordinary shares at an exercise price of NIS 0.60 per option or $0.18 per option and expire on May 2, 2023, (iii) 48,000
options to purchase 48,000 ordinary shares at an exercise price of NIS 2.926 per option or $0.89 per option and expire on December 28,
2027, and (iv) 262,500 options to purchase 262,500 ordinary shares at an exercise price of NIS 0.25 per option or $0.08 per option and
expire on June 14, 2030. Excludes 337,500 options to purchase 337,500 ordinary shares that vest in more than 60 days from March 20,
2022. |
| (6) | Represents (i) 4,000 options to purchase 4,000 ordinary shares
at an exercise price of NIS 0.60 per option or $0.18 per option and expire on August 14, 2022, (ii) 48,000 options to purchase 48,000
ordinary shares at an exercise price of NIS 2.926 per option or $0.88 per option and expire on November 8, 2027, and (iv) 262,500 options
are exercisable into 262,500 ordinary shares at an exercise price of NIS 0.25 per option or $0.08 per option and expire on June 14, 2030.
Excludes 337,500 options to purchase 337,500 ordinary shares that vest in more than 60 days from March 20, 2022. |
| (7) | Represents (i) 48,000 options to purchase 48,000 ordinary shares
at an exercise price of NIS 2.926 per option or $0.89 per option and expire on November 8, 2027, (ii) 262,500 options to purchase 262,500
ordinary shares at an exercise price of NIS 0.25 per option or $0.08 per option and expire on June 14, 2030. Excludes 337,500 options
to purchase 337,500 ordinary shares that vest in more than 60 days from March 20, 2022. |
| (8) | Represents 112,500 options to purchase 112,500 ordinary shares
at an exercise price of NIS 0.25 per option or $0.08 per option and expire on June 22, 2031. Excludes 487,500 options to purchase 487,500
ordinary shares that vest in more than 60 days from March 20, 2022. |
| (9) | Based solely upon, and qualified in its entirety with reference
to, Schedule 13G filed with the SEC on January 29, 2021. Mitchell P. Kopin, or Mr. Kopin, and Daniel B. Asher, or Mr. Asher, each of
whom are managers of Intracoastal Capital, LLC, or Intracoastal, have shared voting control and investment discretion over the securities
reported herein that are held by Intracoastal. As a result, each of Mr. Kopin and Mr. Asher may be deemed to have beneficial ownership
(as determined under Section 13(d) of Exchange Act) of the securities reported herein that are held by Intracoastal. In the aggregate,
Mr. Kopin and Mr. Asher may be deemed to have beneficial ownership (as determined under Section 13(d) of the Exchange Act). Each of the
reporting persons may have been deemed to have beneficial ownership of 32,911,650 ordinary shares, which consisted of (i) 6,000,000
ordinary shares issuable upon exercise of a warrant held by Intracoastal (“Intracoastal Warrant 1”), (ii) 8,527,500 Ordinary
Shares issuable upon exercise of a second warrant held by Intracoastal (“Intracoastal Warrant 2”), (iii) 3,750,000 Ordinary
Shares issuable upon exercise of a third warrant held by Intracoastal (“Intracoastal Warrant 3”) and (iv) 14,634,150
Ordinary Shares issuable upon exercise of a fourth warrant held by Intracoastal (“Intracoastal Warrant 4”), and all such
ordinary shares represented beneficial ownership of approximately 6.4% of the Ordinary Shares. The foregoing excludes (I) 500,010 ordinary
shares issuable upon exercise of a fifth warrant held by Intracoastal (“Intracoastal Warrant 5”) because Intracoastal Warrant
5 contains a blocker provision under which the holder thereof does not have the right to exercise Intracoastal Warrant 5 to the extent
(but only to the extent) that such exercise would result in beneficial ownership by the holder thereof, together with the holder’s
affiliates, and any other persons acting as a group together with the holder or any of the holder’s affiliates, of more than 4.99%
of the ordinary shares and (II) 6,137,430 ordinary shares issuable upon exercise of a sixth warrant held by Intracoastal (“Intracoastal
Warrant 6”) because Intracoastal Warrant 6 contains a blocker provision under which the holder thereof does not have the right
to exercise Intracoastal Warrant 6 to the extent (but only to the extent) that such exercise would result in beneficial ownership by
the holder thereof, together with the holder’s affiliates, and any other persons acting as a group together with the holder or
any of the holder’s affiliates, of more than 4.99% of the Ordinary Shares. Without such blocker provisions, each of the reporting
persons may have been deemed to have beneficial ownership of 39,549,090 ordinary shares. |
The Bank of New York Mellon,
or BNY, is the holder of record for our ADR program, pursuant to which each ADS represents 30 ordinary shares. As of March 20, 2022, BNY
held 606,796,860 ordinary shares representing approximately 74% of the outstanding ordinary shares at that date. Certain of these ordinary
shares were held by brokers or other nominees.
As a result, the number of
holders of record or registered holders in the United States is not representative of the number of beneficial holders or of the residence
of beneficial holders.
Share Option Plans
We maintain the following
share option plans for our and our subsidiary’s employees, directors and consultants. In addition to the discussion below, see Note
11b of our consolidated financial statements, included elsewhere in this Annual Report on Form 20-F.
Our Board of Directors administers
our share option plans and has the authority to designate all terms of the options granted under our plans including the grantees, exercise
prices, grant dates, vesting schedules and expiration dates, which may be no more than ten years after the grant date. Options may not
be granted with an exercise price of less than the fair market value of our ordinary shares on the date of grant, unless otherwise determined
by our Board of Directors.
As of December 31, 2021, options
to purchase an aggregate of 18,422,700 ordinary shares, par value NIS 0.25, are outstanding pursuant to the 2003 and 2013 share option
plans.
2003 Share Option Plan
Under the 2003 Plan we granted
options during the period between 2003 and 2013, at exercise prices between NIS 0.25 and NIS 31.175 per ordinary share, par value NIS
0.25. There are no options to purchase ordinary shares, par value NIS 0.25, were available to be granted under the 2003 Plan. As of December
31, 2021, 1,030,000 options to purchase 41,200 ordinary shares were outstanding. Options granted to Israeli employees were in accordance
with section 102 of the Income Tax Ordinance, 1961, or the Tax Ordinance, under the capital gains option set forth in section 102(b)(2)
of the Tax Ordinance. The options are non-transferable.
The option term is for a period
of ten years from the grant date. The options were granted for no consideration. The options vest over a four or two year period. As of
March 20, 2022, 41,200 options to purchase 41,200 ordinary shares, par value NIS 0.25, were fully vested.
2013 Share Option Plan
Under the 2013 Plan we granted
options at exercise prices between NIS 0.25 and NIS 12 per ordinary share, par value NIS 0.25. As of December 31, 2021, options to purchase
up to 6,618,500 ordinary shares, par value NIS 0.25, were available to be granted under the 2013 Plan. As of December 31, 2021, 18,381,500
options to purchase 18,381,500 ordinary shares were outstanding. Options granted to Israeli employees were in accordance with the Tax
Ordinance under the capital gains option set forth in section 102(b)(2) of the Tax Ordinance. The options are non-transferable.
The option term is for a period
of ten years from the grant date. The options were granted for no consideration. The options vest over a four year period. As of March
20, 2022, options to purchase 7,343,375 ordinary shares, par value NIS 0.25, were fully vested.
ITEM
7. Major Shareholders and Related Party Transactions
A.
Major Shareholders.
Except as set forth in “Item
6. Directors, Senior Management and Employees—E. Share Ownership,” to the best of our knowledge, no other person who we know
beneficially owns 5.0% or more of the Company’s ordinary shares outstanding as of March 20, 2022. None of our shareholders has different
voting rights from other shareholders. Other than as described herein, to the best of our knowledge, we are not owned or controlled, directly
or indirectly, by another corporation, by any foreign government or by any natural person or legal persons, severally or jointly, and
we are not aware of any arrangement that may, at a subsequent date, result in a change of control of our Company.
To our knowledge, other than
as disclosed in the table above, our other filings with the SEC and this Annual Report on Form 20-F, there has been no significant change
in the percentage ownership held by any major shareholder since January 1, 2019.
B.
Related Party Transactions.
The following is a description of the transactions with related parties
to which we, or our subsidiary, are party, and which were in effect since January 1, 2021. The descriptions provided below are summaries
of the terms of such agreements, do not purport to be complete and are qualified in their entirety by the complete agreements.
We believe that we have executed
all of our transactions with related parties on terms no less favorable to us than those we could have obtained from unaffiliated third
parties. We are required by Israeli law to ensure that all future transactions between us and our officers, directors and principal shareholders
and their affiliates are approved by a majority of our Board of Directors, including a majority of the independent and disinterested members
of our Board of Directors, and that they are on terms no less favorable to us than those that we could obtain from unaffiliated third
parties.
Employment and Consulting Agreements
We have or have had employment,
consulting or related agreements with each member of our senior management. See “Item 6. Directors, Senior Management and Employees—Compensation”.
We employ Zivit Harpaz as
Director of Regulatory and Clinical Operations. For fiscal years 2021 and 2020, Ms. Harpaz received salary, bonus and benefits totaling
approximately $262,000 and $229,000, respectively, and during fiscal years 2021 and 2020 we awarded to Ms. Harpaz options to purchase
1,000,000 and 750,000 ordinary shares, respectively. Ms. Harpaz is the daughter of Pnina Fishman.
Options
We have granted options to
purchase our ordinary shares to certain of our senior management and directors. See “Item 6. B.—Compensation” and “Item
6. Directors, Senior Management and Employees—Share Ownership”. We describe our option plans under “Item 6. Directors,
Senior Management and Employees—Share Ownership”.
Indemnification Agreements
Our Amended and Restated Articles
of Association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Israeli
Companies Law. We have obtained directors’ and officers’ insurance for each of our officers and directors and have entered
into indemnification agreements with all of our current officers and directors.
C.
Interests of Experts and Counsel.
Not applicable.
ITEM
8. Financial Information
A.
Consolidated Financial Statements and Other Financial Information
See “Item 18. Financial
Statements” for a list of all financial statements filed as part of this Annual Report on Form 20-F.
Legal Matters
We are not involved in any
legal or arbitration proceedings that may have or have had in the recent past, significant effects on our financial position or profitability.
Dividend Policy
We have never declared or
paid cash dividends to our shareholders. Currently we do not intend to pay cash dividends. We intend to reinvest any earnings in developing
and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our Board of Directors
and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions,
capital requirements, business prospects, applicable Israeli Companies Law and other factors our Board of Directors may deem relevant.
B.
Significant Changes
See “Note 19:- Subsequent
Events” to our consolidated financial statements included in this Annual Report beginning on page F-1 for a discussion of significant
events that have occurred since December 31, 2021.
ITEM
9. The Offer and Listing
A.
Offer and Listing Details
Ordinary Shares
Our ordinary shares have been
trading on the TASE under the symbol “CFBI” since October 2005.
ADSs
On October 2, 2012, our ADSs
began trading OTC in the United States under the symbol “CANFY” and on November 19, 2013, our ADSs began trading on the NYSE
American under the symbol “CANF.” One ADS represents thirty (30) ordinary shares. See “Item 12. Description of Securities
Other Than Equity Securities—D. American Depositary Shares” for a description of the rights attaching to our ADSs. See “Item
12. Description of Securities Other Than Equity Securities—D. American Depositary Shares” for a description of the rights
attaching to our ADSs.
B.
Plan of Distribution.
Not applicable.
C.
Markets.
See “—Offer and
Listing Details” above.
D.
Selling Shareholders.
Not applicable.
E.
Dilution.
Not applicable.
F.
Expenses of the Issue.
Not applicable.
ITEM
10. Additional Information
A.
Share Capital.
Not applicable.
B.
Memorandum and Articles of Association.
Our number with the Israeli
Registrar of Companies is 512022153. Our purpose is set forth in Section 3 of our Articles of Association and includes every lawful purpose.
Our ordinary shares that are
fully paid for are issued in registered form and may be freely transferred under our Amended and Restated Articles of Association, unless
the transfer is restricted or prohibited by applicable law or the rules of a stock exchange on which the shares are traded. The ownership
or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our Amended and Restated Articles of Association
or the laws of the State of Israel, except for ownership by nationals of some countries that are, or have been, in a state of war with
Israel.
Pursuant to the Israeli Companies
Law and our Amended and Restated Articles of Association, our Board of Directors may exercise all powers and take all actions that are
not required under law or under our Amended and Restated Articles of Association to be exercised or taken by our shareholders, including
the power to borrow money for company purposes.
Our Amended and Restated Articles
of Association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Israeli Companies
Law and must be approved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the
capital. In addition, transactions that have the effect of reducing capital, such as the declaration and payment of dividends in the absence
of sufficient retained earnings and profits and an issuance of shares for less than their nominal value, require a resolution of our Board
of Directors and court approval.
Dividends
We may declare a dividend
to be paid to the holders of our ordinary shares in proportion to their respective shareholdings. Under the Israeli Companies Law, dividend
distributions are determined by the Board of Directors and do not require the approval of the shareholders of a company unless such company’s
articles of association provide otherwise. Our Amended and Restated Articles of Association do not require shareholder approval of a dividend
distribution and provide that dividend distributions may be determined by our Board of Directors.
Pursuant to the Israeli Companies
Law, we may only distribute dividends from our profits accrued over the previous two years, as defined in the Israeli Companies Law, according
to our then last reviewed or audited financial reports, or we may distribute dividends with court approval. In each case, we are only
permitted to pay a dividend if there is no reasonable concern that payment of the dividend will prevent us from satisfying our existing
and foreseeable obligations as they become due.
Election of Directors
Our Amended and Restated Articles
of Association provide that the maximum number of members of the Board of Directors is 13. The Board of Directors is presently comprised
of six members.
In February 2020, a special
general meeting of our shareholders approved an amendment to the our Amended and Restated Articles of Association, according to which
the Board of Directors, excluding the external directors, if any (who shall be elected and serve in office in strict accordance with the
provisions of the Companies Law, if so required by the Companies Law), shall consist of three classes of directors as nearly equal in
number as practicable, which are appointed for fixed terms of office in accordance with the Israeli Companies Law and our Amended and
Restated Articles of Association, as follows: (i) the term of office of the initial Class I directors shall expire at the first annual
general meeting of our shareholders held in 2020 and when their successors are elected and qualified, (ii) the term of office of the initial
Class II directors shall expire at the first annual general meeting of our shareholders following the annual general meeting of our shareholders
referred to in clause (i) above and when their successors are elected and qualified, and (iii) the term of office of the initial Class
III directors shall expire at the first annual general meeting of our shareholders following the annual general meeting of our shareholders
referred to in clause (ii) above and when their successors are elected and qualified.
Directors (other than external
directors), may be elected only in annual general meetings of our shareholders. At each annual general meeting of our shareholders, commencing
with the annual general meeting of our shareholders held in 2021, each of the successors elected to replace the directors of a class whose
term shall have expired at such annual general meeting of our shareholders shall be elected to hold office until the third annual general
meeting of our shareholders next succeeding his or her election and until his or her respective successor shall have been elected and
qualified. Notwithstanding anything to the contrary, each director shall serve until his or her successor is elected and qualified or
until such earlier time as such director’s office is vacated.
If the number of directors
(excluding external directors) that constitutes the Board of Directors is hereafter changed, the then-serving directors shall be re-designated
to other classes and/or any newly created directorships or decrease in directorships shall be apportioned by the Board of Directors among
the classes so as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent director.
Directors so elected may not
be dismissed from office by the shareholders or by a general meeting of our shareholders prior to the expiration of their term of office.
The directors do not receive any benefits upon the expiration of their term of office.
The three classes of directors
are Class I Directors, Class II Directors and Class III Directors. Dr. Pnina Fishman and Mr. Guy Regev serve as our Class III Directors
until the close of the annual meeting to be held in 2022; Abraham Sartani serves as our Class I Director until the close of the annual
meeting to be held in 2023; and Ilan Cohn serves as our Class II Director until the close of the annual meeting to be held in 2024.
Any amendment, replacement
or suspension of our Amended and Restated Articles of Association regarding the election of directors, as described above, require a majority
of 65% of the voting power represented at the general meeting of our shareholders in person or by proxy and voting thereon, disregarding
abstentions from the count of the voting power present and voting, provided that such majority constitutes more than 20% of our then issued
and outstanding share capital.
A nominee for service as a
director in a public company may not be elected without submitting a declaration to the company, prior to election, specifying that he
or she has the requisite qualifications to serve as a director, independent director or external director (if required), as applicable,
and the ability to devote the appropriate time to performing his or her duties as such.
A director, who ceases to
meet the statutory requirements to serve as a director, external director or independent director, as applicable, must notify the company
to that effect immediately and his or her service as a director will expire upon submission of such notice.
See “Item 6. Directors,
Senior Management and Employees—C. Board Practices—External Directors.”
Shareholder Meetings
Under Israeli Companies Law,
we are required to hold an annual general meeting of our shareholders once every calendar year that must be no later than 15 months after
the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as
special meetings. Our Board of Directors may call special meetings whenever it sees fit, at such time and place, within or outside of
Israel, as it may determine. In addition, the Israeli Companies Law and our Amended and Restated Articles of Association provide that
our Board of Directors is required to convene a special meeting upon the written request of (i) any two of our directors or one quarter
of our Board of Directors or (ii) one or more shareholders holding, in the aggregate, either (1) 5% of our outstanding shares and 1% of
our outstanding voting power or (2) 5% of our outstanding voting power.
Subject to the provisions
of the Israeli Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings
are the shareholders of record on a date to be decided by the Board of Directors, which may be between four and forty days prior to the
date of the meeting. Furthermore, the Israeli Companies Law and our Amended and Restated Articles of Association require that resolutions
regarding the following matters must be passed at a general meeting of our shareholders:
| ● | amendments to our Amended and Restated Articles of Association; |
| ● | appointment or termination of our auditors; |
| ● | appointment of directors and appointment and dismissal of
external directors; |
| ● | approval of acts and transactions requiring general meeting
approval pursuant to the Israeli Companies Law; |
| ● | director compensation, indemnification and change of the principal
executive officer; |
| ● | increases or reductions of our authorized share capital; |
| ● | the exercise of our Board of Director’s powers by a
general meeting, if our Board of Directors is unable to exercise its powers and the exercise of any of its powers is required for our
proper management. |
The Israeli Companies Law
requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda
of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related
parties, or an approval of a merger, notice must be provided at least 35 days prior to the meeting.
The Israeli Companies Law
does not allow shareholders of publicly traded companies to approve corporate matters by written consent. Consequently, our Amended and
Restated Articles of Association does not allow shareholders to approve corporate matters by written consent.
Pursuant to our Amended and
Restated Articles of Association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to
a vote before the shareholders at a general meeting.
Quorum
The quorum required for our
general meetings of shareholders consists of at least two shareholders present in person, by proxy or written ballot who hold or represent
between them at least 25% of the total outstanding voting rights.
A meeting adjourned for lack
of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in the summons
or notice of the meeting. At the reconvened meeting, any number of our shareholders present in person or by proxy shall constitute a lawful
quorum.
Resolutions
Our Amended and Restated Articles
of Association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable
law.
Israeli law provides that
a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholder indicates
how he or she votes on resolutions relating to the following matters:
| ● | an appointment or removal of directors; |
| ● | an approval of transactions with office holders or interested or related parties; |
| ● | an approval of a merger or any other matter in respect of which there is a provision in the articles of association
providing that decisions of the general meeting may also be passed by written ballot; |
| ● | authorizing the chairman of the Board of Directors or his relative to act as our chief executive officer
or act with such authority; or authorize our chief executive officer or his relative to act as the chairman of the Board of Directors
or act with such authority; and |
| ● | other matters which may be prescribed by Israel’s Minister of Justice. |
The provision allowing the
vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote. Our Amended
and Restated Articles of Association provide that our Board of Directors may prevent voting by means of a written ballot and this determination
is required to be stated in the notice convening the general meeting.
The Israeli Companies Law
provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its other shareholders,
must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings
on matters such as changes to the articles of association, increasing our registered capital, mergers and approval of related party transactions.
A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any
controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who,
under such company’s articles of association, can appoint or prevent the appointment of an office holder, is required to act with
fairness towards the company. The Israeli Companies Law does not describe the substance of this duty except to state that the remedies
generally available upon a breach of contract will also apply to a breach of the duty to act with fairness, and, to the best of our knowledge,
there is no binding case law that addresses this subject directly.
Under the Israeli Companies
Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval
by a simple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution.
A resolution for the voluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the
meeting, in person, by proxy or by written ballot and voting on the resolution.
In the event of our liquidation,
after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to
their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution
rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Access to Corporate Records
Under the Israeli Companies
Law, all shareholders of a company generally have the right to review minutes of our general meetings, its shareholders register and principal
shareholders register, articles of association, financial statements and any document it is required by law to file publicly with the
Israeli Companies Registrar and the Israel Securities Authority. Any of our shareholders may request access to review any document in
our possession that relates to any action or transaction with a related party, interested party or office holder that requires shareholder
approval under the Israeli Companies Law. We may deny a request to review a document if we determine that the request was not made in
good faith, that the document contains a commercial secret or a patent or that the document’s disclosure may otherwise prejudice
our interests.
Acquisitions under Israeli Law
Full Tender Offer
A person wishing to acquire
shares of a public Israeli company and who would as a result hold over 90% of the target company’s issued and outstanding share
capital is required by the Israeli Companies Law to make a tender offer to all of our shareholders for the purchase of all of the issued
and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who would as a result hold over
90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders
who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class. If the shareholders
who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, all
of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law (provided that a majority
of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer except that if the total
votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate,
approval by a majority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender
offer). However, a shareholder that had its shares so transferred may petition the court within six months from the date of acceptance
of the full tender offer, whether or not such shareholder agreed to the tender or not, to determine whether the tender offer was for less
than fair value and whether the fair value should be paid as determined by the court unless the acquirer stipulated in the tender offer
that a shareholder that accepts the offer may not seek appraisal rights. If the shareholders who did not accept the tender offer hold
5% or more of the issued and outstanding share capital of the company or of the applicable class, the acquirer may not acquire shares
of the company that will increase its holdings to more than 90% of our issued and outstanding share capital or of the applicable class
from shareholders who accepted the tender offer.
Special Tender
Offer
The Israeli Companies Law
provides that an acquisition of shares of a public Israeli company must be made by means of a special tender offer if as a result of the
acquisition the purchaser would become a holder of 25% or more of the voting rights in the company, unless one of the exemptions in the
Israeli Companies Law is met. This rule does not apply if there is already another holder of at least 25% of the voting rights in the
company. Similarly, the Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a tender
offer if as a result of the acquisition the purchaser would become a holder of 45% or more of the voting rights in the company, if there
is no other shareholder of the company who holds 45% or more of the voting rights in the company, unless one of the exemptions in the
Israeli Companies Law is met.
A special tender offer must
be extended to all shareholders of a company but the offeror is not required to purchase shares representing more than 5% of the voting
power attached to our outstanding shares, regardless of how many shares are tendered by shareholders. A special tender offer may be consummated
only if (i) at least 5% of the voting power attached to our outstanding shares will be acquired by the offeror and (ii) the number of
shares tendered in the offer exceeds the number of shares whose holders objected to the offer.
If a special tender offer
is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling
person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger
with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to
effect such an offer or merger in the initial special tender offer.
Merger
The Israeli Companies Law
permits merger transactions if approved by each party’s Board of Directors and, unless certain requirements described under the
Israeli Companies Law are met, a majority of each party’s shares voted on the proposed merger at a shareholders’ meeting called
with at least 35 days’ prior notice.
For purposes of the shareholder
vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented at the shareholders
meeting that are held by parties other than the other party to the merger, or by any person who holds 25% or more of the outstanding shares
or the right to appoint 25% or more of the directors of the other party, vote against the merger. If the transaction would have been approved
but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still
approve the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is
fair and reasonable, taking into account the value of the parties to the merger and the consideration offered to the shareholders.
Upon the request of a creditor
of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern
that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger,
and may further give instructions to secure the rights of creditors.
In addition, a merger may
not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed by each party
with the Israeli Registrar of Companies and 30 days have passed from the date the merger was approved by the shareholders of each party.
Antitakeover Measures
The Israeli Companies Law
allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain
preferred rights, distributions or other matters and shares having preemptive rights. As of the date of this Annual Report on Form 20-F,
we do not have any authorized or issued shares other than our ordinary shares. In the future, if we do create and issue a class of shares
other than ordinary shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent
a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The
authorization of a new class of shares will require an amendment to our Amended and Restated Articles of Association which requires the
prior approval of the holders of a majority of our shares at a general meeting. In addition, the rules and regulations of the TASE also
limit the terms permitted with respect to a new class of shares and prohibit any such new class of shares from having voting rights. Shareholders
voting in such meeting will be subject to the restrictions provided in the Israeli Companies Law as described above.
Borrowing Powers
Under the Israeli Companies
Law and our Amended and Restated Articles of Association, our Board of Directors may exercise all powers and take all actions that are
not required under law or under our amended and restated articles of association to be exercised or taken by our shareholders or other
corporate bodies, including the power to borrow money for company purposes.
Changes in Capital
Our Amended and Restated Articles
of Association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Israeli Companies
Law and must be approved by a resolution duly passed by our shareholders at a general meeting by voting on such change in the capital.
In addition, transactions that have the effect of reducing capital, such as the declaration and payment of dividends in the absence of
sufficient retained earnings or profits and, in certain circumstances, an issuance of shares for less than their nominal value, require
the approval of both our Board of Directors and an Israeli court.
C.
Material Contracts.
The following are summary
descriptions of certain material agreements to which we are a party. The descriptions provided below do not purport to be complete and
are qualified in their entirety by the complete agreements, which may be attached as exhibits to this Annual Report on Form 20-F.
License Agreements
See “Item 4. Information
on the Company—B. Business Overview—Out-Licensing and Distribution Agreements”.
OphthaliX Merger Agreement
See “Item 7. Major Shareholders
and Related Party Transactions—B. Related Party Transactions”.
Employment and Consulting Agreements
See “Item 6. Directors,
Senior Management and Employees—B. Compensation—Employment and Consulting Agreements”.
Univo Agreement
On September 10, 2019, we
entered into a collaboration agreement with Univo, a medical cannabis company, to identify and co-develop specific formulations of cannabis
components for the treatment of cancer, inflammatory, autoimmune, and metabolic diseases. Under the collaboration agreement, Univo will
provide us with cannabis and cannabis components, as well as full access to its laboratories for both research and manufacturing. We agreed
to pay Univo a total of $500,000 through two installments and issued to Univo 19,934,355 ordinary shares through a private placement,
representing approximately 16.6% of Can-Fite’s ordinary shares outstanding after giving effect to the issuance. In addition, in
connection therewith, we issued 996,690 ordinary shares to a consultant. On February 17, 2020, the Company entered into an amendment to
Univo agreement, pursuant to which the parties expanded the collaboration to allow the testing of minute CBD concentrations/ dosages in
combination with Namodenoson on liver cancer and additional oncological indications. As part of the expansion, the Company agreed to fund
the research and development activities for the two new indications, to be jointly performed, for an amount of US $200 per indication.
The companies will initially
share ownership of intellectual property developed in this collaboration. Revenues derived from the collaboration will generally be shared
between us and Univo on the basis of each party’s contribution. Golan Bitton, Univo’s CEO, served as an observer to our board
of directors until his appointment to our board of directors on December 18, 2019. On February 27, 2020, Golan Bitton resigned from the
Company’s board of directors, effective immediately. As of December 31, 2020, our collaboration agreement with Univo expired.
D.
Exchange Controls
There are no Israeli government laws, decrees or regulations that restrict
or that affect our export or import of capital or the remittance of dividends, interest or other payments to non-resident holders of our
securities, including the availability of cash and cash equivalents for use by us and our wholly-owned subsidiary, except or otherwise
as set forth under “Item 10. Additional Information—E. Taxation.”
E.
Taxation
The following description
is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our
ordinary shares, ADSs, Warrants or Pre-funded Warrants. You should consult your own tax advisor concerning the tax consequences of your
particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign, or other taxing jurisdiction.
Certain Israeli Tax Considerations
The following is a summary
of the material Israeli tax laws applicable to us. This section also contains a discussion of material Israeli tax consequences concerning
the ownership and disposition of our ordinary shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant
to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment
under Israeli law. Examples of this kind of investor include residents of Israel or traders in securities who are subject to special tax
regimes not covered in this discussion. Because certain parts of this discussion are based on new tax legislation that has not yet been
subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept
the views expressed in this discussion. The discussion does not cover all possible tax consequences.
You are urged to consult
your own tax advisor as to the Israeli and other tax consequences of the purchase, ownership and disposition of our ADSs, including, in
particular, the effect of any non-Israeli, state or local taxes.
General Corporate Tax Structure in Israel
Israeli companies are generally
subject to corporate tax, which has decreased in recent years, from a rate of 26.5% in 2014 and 2015 to 25% in 2016 and to 24% in 2017
to 23% for 2018, 2019, 2020 and 2021. However, the effective corporate tax rate payable by a company that derives income from an Approved
Enterprise, a Privileged Enterprise or a Preferred Enterprise (as discussed below) may be considerably less. Capital gains generated by
an Israeli company are generally subject to tax at the corporate tax rate.
In 2006, transfer pricing
regulations came into force, following the introduction of Section 85A of the Israeli Tax Ordinance under Amendment 132. The transfer
pricing rules require that cross-border transactions between related parties be carried out implementing an arms’ length principle
based on a transfer pricing study and reported and taxed accordingly.
Pre-Ruling from the Israeli Income Tax
Authorities
In connection with the spin-off,
we received a pre-ruling decision from the Israeli Income Tax Authority which confirms: (i) that the grant of the license to Eye-Fite
is not liable for tax pursuant to the provisions of section 104a to the Income Tax Ordinance (New Version), 1961, or the Ordinance; (ii)
that OphthaliX is considered the receiving company pursuant to section 103c(7)(b) to the Ordinance; (iii) that the sale of Eye-Fite shares
to OphthaliX as consideration for OphthaliX shares does not create liability for tax pursuant to the provisions of section 103t to the
Ordinance, or change in structure; and (iv) the date for the change in structure was determined. According to the tax pre-ruling, the
date of change in structure shall also be the date of exchange of shares with respect to the spin-off and notification to the tax assessor.
We and Eye-Fite presented to the tax assessor and the merger and spin-off department of the tax assessor the forms required by the Ordinance
and the regulations thereunder. The tax pre-ruling further provides that the grant of a license to Eye-Fite as consideration for the issuance
of Eye-Fite shares to us does not create liability for tax pursuant to the provisions of section 104a to the Ordinance.
According to the pre-ruling,
we must not sell more than 10% of our common stock holdings in OphthaliX issued in connection with the change in structure for at least
two years from the date of the change (i.e., November 21, 2011), OphthaliX must not sell more than 10% of its ordinary share holdings
in Eye-Fite received in connection with the change in structure for at least two years from the date of the change and Eye-Fite must retain
the assets received from us in connection with the change in structure for at least two years from the date of the change.
The shares of Eye-Fite which
were transferred to OphthaliX in connection with the change in structure will be held in escrow. The sale of these shares will be deemed
as a sale by an Israeli company and will be taxed accordingly. The trustee will withhold tax at the source.
The shares of OphthaliX which
were transferred to us in connection with the change in structure will be held in escrow. The sale of these shares will be deemed as a
sale by an Israeli company and will be taxed accordingly. The trustee will withhold tax at the source.
Any dividend distributed by
Eye-Fite to OphthaliX will be taxed in Israel in accordance with paragraph 125b(5) of the Israeli Tax Ordinance.
A description of the terms
of the pre-ruling is also included in the notes to the financial statements.
Tax Benefits and Grants for Research
and Development
According to section 20A of
the Israeli tax Ordinance, under certain conditions, a tax deduction for research and development expenditures, including capital expenditures,
for the year in which they are incurred. These expenses must relate to scientific research and development projects and must be approved
by the Office of the Chief Scientist, or the OCS, of the relevant Israeli government ministry, determined by the field of research. Furthermore,
the research and development must be for the promotion of the company and carried out by or on behalf of the company seeking such tax
deduction. The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the funding
of the scientific research and development projects. No deduction under these research and development deduction rules is allowed if such
deduction is related to an expense invested in an asset depreciable under the general depreciation rules of the Tax Ordinance. Expenditures
not so approved are deductible in equal amounts over three years.
On a yearly basis, we evaluate
the applicability of the above tax deduction for research and development expenditures and, based on our evaluation, determine whether
to apply to the OCS for approval of a tax deduction. There can be no assurance that any application for a tax deduction will be accepted.
Taxation of our Shareholders
Capital Gains Taxes Applicable
to Non-Israeli Resident Shareholders. Shareholders that are not Israeli residents are generally exempt from Israeli capital gains
tax on any gains derived from the sale, exchange or disposition of our ordinary shares, provided that such shareholders did not acquire
their shares prior to our initial public offering on the TASE and such gains were not derived from a permanent establishment or business
activity of such shareholders in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemptions if an Israeli
resident (i) has a controlling interest of 25% or more in such non-Israeli corporation or (ii) is the beneficiary of or is entitled to
25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
In addition, under the U.S.-Israel
Income Tax Treaty, 1995, or the U.S.-Israel Tax Treaty, the sale, exchange or disposition of our ordinary shares by a shareholder who
is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) holding the shares as a capital asset is exempt from Israeli capital gains
tax unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of our voting capital during any
part of the 12-month period preceding such sale, exchange or disposition or (ii) the capital gains arising from such sale are attributable
to a permanent establishment of the shareholder located in Israel. In either case, the sale, exchange or disposition of the shares would
be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Tax Treaty, the U.S. resident would be permitted to
claim a credit for the tax against the U.S. federal income tax imposed with respect to the sale, exchange or disposition, subject to the
limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes.
Shareholders may be required
to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale.
Taxation of Non-Israeli
Shareholders on Receipt of Dividends. Non-residents of Israel are generally subject to Israeli income tax on the receipt of dividends
paid on our ordinary shares at the rate of 25%, which tax will be withheld at the source, unless a different rate is provided in a tax
treaty between Israel and the shareholder’s country of residence. With respect to a person who is a “substantial shareholder”
at the time receiving the dividend or on any date in the 12 months preceding such date, the applicable tax rate is 30%. A “substantial
shareholder” is generally a person who alone, or together with his relative or another person who collaborates with him on a permanent
basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control”
generally include the right to vote, receive profits, nominate a director or an officer, receive assets upon liquidation, or order someone
who holds any of the aforesaid rights how to act, and all regardless of the source of such right.
Under the U.S.-Israel Tax
Treaty, the maximum rate of tax withheld in Israel on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes
of the U.S.-Israel Tax Treaty) is 25%. However, generally, the maximum rate of withholding tax on dividends paid shall be 12.5% in the
event that the U.S. corporation holding 10% or more of our outstanding voting capital throughout the tax year in which the dividend is
distributed as well as the previous tax year, and no more than 25% of the gross income of our income in such prior taxable year (if any)
consists of interest or dividends (excluding interest derived from the conduct of a banking, insurance, or financing business or interest
received from subsidiary corporations, 50 percent or more of the outstanding shares of the voting stock of which is owned us at the time
such dividends or interest is received). Note that 12.5% tax on dividend shall not apply in the event the dividend derives from income
that is entitled to the reduced tax rate applicable to an approved enterprise under Israel’s Encouragement of Capital Investments
Law (1959) (In such case, 15% tax rate shall apply).
A non-resident of Israel who
receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income,
provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources
of income in Israel.
Taxation of Israeli Shareholders on Receipt
of Dividends
Residents of Israel are generally
subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%, which tax will be withheld at
the source. With respect to a person who is a “substantial shareholder” at the time of receiving the dividend or on any date
within the 12 months preceding such date, the applicable tax rate is 30%.
U.S. Federal Income Tax Consequences
The following is a general
summary of certain material U.S. federal income tax consequences relating to the purchase, ownership and disposition of our ordinary shares,ADSs,
Warrants, and Pre-funded Warrants by U.S. Holders (as defined below) that hold such ordinary shares, ADSs, Warrants, or Pre-funded Warrants
as capital assets (generally, property held for investment). This summary is based on the Internal Revenue Code of 1986, as amended, or
the Code, the regulations of the U.S. Department of the Treasury issued pursuant to the Code, or the Treasury Regulations, administrative
and judicial interpretations thereof, and the U.S.-Israel Income Tax Treaty, all as in effect on the date hereof and all of which are
subject to change, possibly with retroactive effect, or to different interpretation. No ruling has been sought from the IRS, with respect
to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take
a contrary position. This summary does not address all of the tax considerations that may be relevant to specific U.S. Holders in light
of their particular circumstances or to U.S. Holders subject to special treatment under U.S. federal income tax law, including but not
limited to, (1) a bank, insurance company, regulated investment company, or other financial institution or “financial services entity”;
(2) a broker or dealer in securities or foreign currency; (3) a person who acquired our ordinary shares, ADSs, Warrants, or Pre-funded
Warrants in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum
tax; (5) a U.S. Holder that holds our ordinary shares, ADSs, Warrants, or Pre-funded Warrants as a hedge or as part of a hedging, straddle,
conversion or constructive sale transaction or other risk-reduction transaction for U.S. federal income tax purposes; (6) a retirement
plan or tax-exempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of the United States or a former
long-term resident of the United States; or (9) a U.S. Holder having a functional currency other than the U.S. dollar. This discussion
does not address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, ordinary shares
or ADSs representing 10% or more of our voting power or value (including by treating U.S. Holders of Warrants, Pre-funded Warrants, or
other options to acquire our ordinary shares or ADSs as owning such ordinary shares or ADSs). Additionally, this summary does not address
any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift or alternative minimum tax considerations or any
U.S. federal tax consequences other than U.S. federal income tax consequences. In addition, this discussion assumes that a U.S. Holder
will not be entitled to a fractional share upon the exercise of a Warrant or Pre-funded Warrant.
As used in this summary, the
term “U.S. Holder” means a beneficial owner of our ordinary shares, ADSs, Warrants, or Pre-funded Warrants that is, for U.S.
federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation, or other entity taxable as
a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof,
or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source or (iv)
a trust with respect to which a court within the United States is able to exercise primary supervision over its administration and one
or more U.S. persons have the authority to control all of its substantial decisions, or that has a valid election in effect under applicable
Treasury Regulations to be treated as a “United States person.”
If an entity or arrangement
treated as a partnership for U.S. federal income tax purposes holds our ordinary shares, ADSs, Warrants, or Pre-funded Warrants, the tax
treatment of such partnership and each person or entity treated as a partner thereof will generally depend upon the status and activities
of the partnership and such partner. A holder that is treated as a partnership for U.S. federal income tax purposes should consult its
own tax advisor regarding the U.S. federal income tax considerations applicable to it and its partners of the purchase, ownership and
disposition of its ordinary shares, ADSs, Warrants, or Pre-funded Warrants.
This summary is not intended
to be, and should not be considered to be, legal or tax advice. Prospective investors should be aware that this summary does not address
the tax consequences to investors who are not U.S. Holders, except to the limited extent discussed below. Prospective investors should
consult their own tax advisors as to the particular tax considerations applicable to them relating to the purchase, ownership and disposition
of their ordinary shares, ADSs, Warrants, or Pre-funded Warrants, including the applicability of U.S. federal, state and local tax laws
and non-U.S. tax laws.
Taxation of U.S. Holders
The discussions under “—
Distributions” and under “— Sale, Exchange or Other Disposition of Ordinary Shares, ADSs, Warrants, and Pre-funded Warrants”
below assume that we will not be treated as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Based
on our analysis of our income, assets, and operations, we believe that we were not a PFIC for 2021. Because the PFIC determination is
highly fact intensive, there can be no assurance that we will not be a PFIC for 2022 or for any other taxable year. For a discussion of
the rules that would apply if we are treated as a PFIC, see the discussion under “— Passive Foreign Investment Company.”
Tax Characterization of
Pre-funded Warrants. Although the appropriate characterization of Pre-funded Warrants under the tax law is unsettled, it is likely
that the Pre-funded Warrants will be treated as a class of our ordinary shares for U.S. federal income tax purposes. However, it is possible
that the IRS could treat the Pre-funded Warrants as warrants to acquire our ADSs. U.S. Holders should consult their own tax advisors regarding
the U.S. federal income tax consequences of an investment in our Pre-funded Warrants.
Allocation of Purchase
Price and Characterization of Units. Each Unit and Pre-funded Unit should be treated for U.S. federal income tax purposes as an investment
unit consisting of one ADS (or Pre-funded Warrant, as the case may be), and one Warrant to purchase one ADS. For U.S. federal income tax
purposes, each U.S. Holder must allocate the purchase price of a Unit or Pre-funded Unit between that ADS (or Pre-funded Warrant, as applicable),
and the Warrant based on the relative fair market value of each at the time of issuance. The purchase price allocated to each ADS, Pre-funded
Warrant, and Warrant generally will be the U.S. Holder’s tax basis in such security, as the case may be. Each U.S. Holder should
consult its own tax advisor regarding the allocation of the purchase price for a Unit or Pre-funded Unit.
Distributions. We
have no current plans to pay dividends. To the extent we pay any dividends, a U.S. Holder will be required to include in gross income
as a taxable dividend the amount of any distributions made on the ordinary shares or ADSs, including the amount of any Israeli taxes withheld,
to the extent that those distributions are paid out of our current and/or accumulated earnings and profits as determined for U.S. federal
income tax purposes. Any distributions in excess of our earnings and profits will be applied against and will reduce the U.S. Holder’s
tax basis in its shares or ADSs and to the extent they exceed that tax basis, will be treated as gain from the sale or exchange of those
shares or ADSs. If we were to pay dividends, we expect to pay such dividends in NIS with respect to the shares and in U.S. dollars with
respect to ADSs. A dividend paid in NIS, including the amount of any Israeli taxes withheld, will be includible in a U.S. Holder’s
income as a U.S. dollar amount calculated by reference to the exchange rate in effect on the date such dividend is received, regardless
of whether the payment is in fact converted into U.S. dollars. If the dividend is converted to U.S. dollars on the date of receipt, a
U.S. Holder generally will not recognize a foreign currency gain or loss. However, if the U.S. Holder converts the NIS into U.S. dollars
on a later date, the U.S. Holder must include, in computing its income, any gain or loss resulting from any exchange rate fluctuations.
The gain or loss will be equal to the difference between (i) the U.S. dollar value of the amount included in income when the dividend
was received and (ii) the amount received on the conversion of the NIS into U.S. dollars. Such gain or loss will generally be ordinary
income or loss and United States source for U.S. foreign tax credit purposes. U.S. Holders should consult their own tax advisors regarding
the tax consequences to them if we pay dividends in NIS or any other non-U.S. currency.
Subject to certain significant
conditions and limitations, including potential limitations under the U.S.-Israel Tax Treaty, any Israeli taxes paid on or withheld from
distributions from us and not refundable to a U.S. Holder may be credited against the investor’s U.S. federal income tax liability
or, alternatively, may be deducted from the investor’s taxable income. The election to credit or deduct foreign taxes is made on
a year-by-year basis and applies to all foreign taxes paid by a U.S. Holder or withheld from a U.S. Holder that year. Dividends paid on
the ordinary shares generally will constitute income from sources outside the United States and be categorized as “passive category
income” or, in the case of some U.S. Holders, as “general category income” for U.S. foreign tax credit purposes.
Because the rules governing
foreign tax credits are complex, U.S. Holders should consult their own tax advisor regarding the availability of foreign tax credits in
their particular circumstances.
Dividends paid on the ordinary
shares and ADSs will not be eligible for the “dividends-received” deduction generally allowed to corporate U.S. Holders with
respect to dividends received from U.S. corporations.
Certain distributions treated
as dividends that are received by an individual U.S. Holder from “qualified foreign corporations” generally qualify for a
20% tax rate so long as certain holding period and other requirements are met. A non-U.S. corporation (other than a corporation that is
treated as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be
a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the
Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of
information program, or (ii) with respect to any dividend it pays on stock (or ADSs in respect of such stock) which is readily tradable
on an established securities market in the United States. Dividends paid by us in a taxable year in which we are not a PFIC and with respect
to which we were not a PFIC in the preceding taxable year are expected to be eligible for the 20% tax rate, although we can offer no assurances
in this regard. However, any dividend paid by us in a taxable year in which we are a PFIC or were a PFIC in the preceding taxable year
will be subject to tax at regular ordinary income rates. Because the PFIC determination is highly fact intensive, there can be no assurance
that we will not be a PFIC in 2021 or in any other taxable year. The additional 3.8% “net investment income tax” (described
below) may apply to dividends received by certain U.S. Holders who meet certain modified adjusted gross income thresholds.
Adjustments with respect
to Warrants and Pre-funded Warrants. The terms of the Warrants and Pre-funded Warrants provide for an adjustment to the number of
shares for which the warrant may be exercised or to the exercise price of the warrant in certain events. An adjustment that has the effect
of preventing dilution generally is not taxable. However, the U.S. Holders of the Warrants or Pre-funded Warrants would be treated as
receiving a constructive distribution from us if, for example, the adjustment increases the warrant holders’ proportionate interest
in our assets or earnings and profits (e.g., through a decrease in the exercise price of the Warrants or Pre-funded Warrants) as a result
of a distribution of cash to the holders of our ordinary shares or ADSs, which is taxable to the U.S. Holders of such ordinary shares
or ADSs as described under “—Distributions” above. Such constructive distribution would be subject to tax as described
under that section in the same manner as if the U.S. Holders of the Warrants or Pre-funded Warrants received a cash distribution from
us equal to the fair market value of such increased interest. U.S. Holders of Warrants and Pre-funded Warrants are urged to consult their
own tax advisors on these issues.
Sale, Exchange or Other
Disposition of Ordinary Shares, ADSs, Warrants, and Pre-funded Warrants. Subject to the discussion under “— Passive
Foreign Investment Company” below, a U.S. Holder generally will recognize capital gain or loss upon the sale, exchange or other
taxable disposition of our ordinary shares, ADSs, Warrants, or Pre-funded Warrants in an amount equal to the difference between the amount
realized on the sale, exchange or other disposition and the U.S. Holder’s adjusted tax basis in such securities. This capital gain
or loss will be long-term capital gain or loss if the U.S. Holder’s holding period in our securities exceeds one year. Preferential
tax rates for long-term capital gain (currently, with a maximum rate of 20%) will apply to individual U.S. Holders. The deductibility
of capital losses is subject to limitations. The gain or loss will generally be income or loss from sources within the United States for
U.S. foreign tax credit purposes, subject to certain exceptions in the U.S.-Israel Tax Treaty. The additional 3.8% “net investment
income tax” (described below) may apply to gains recognized upon the sale, exchange, or other taxable disposition of our securities
by certain U.S. Holders who meet certain modified adjusted gross income thresholds.
U.S. Holders should consult
their own tax advisors regarding the U.S. federal income tax consequences of receiving currency other than U.S. dollars upon the disposition
of their ordinary shares, ADSs, Warrants, or Pre-funded Warrants.
Exercise or Lapse of a
Warrant and Pre-funded Warrants. Subject to the discussion under “—Passive Foreign Investment Company” below, a
U.S. Holder generally will not recognize gain or loss upon the exercise of a Warrant or Pre-funded Warrant for cash. An ADS acquired pursuant
to the exercise of a Warrant or Pre-funded Warrant for cash generally will have a tax basis equal to the U.S. Holder’s tax basis
in the Warrant or Pre-funded Warrant, increased by the amount paid to exercise the Warrant or Pre-funded Warrant. The holding period of
such ADS generally would begin on the day after the date of exercise of the Warrant or Pre-funded Warrant. If a Warrant or Pre-funded
Warrant is allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such holder’s tax basis
in the warrant.
The tax consequences of a
cashless exercise of Warrants are unclear and could differ from the consequences described above. It is possible that a cashless exercise
could be a taxable event. U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax consequences of the
cashless exercise of Warrants, including with respect to whether the exercise is a taxable event, and their holding period and tax basis
in the ADSs received.
Passive Foreign Investment Company
In general, a corporation
organized outside the United States will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either
(i) at least 75% of its gross income is “passive income” or (ii) on average at least 50% of its assets (by value) produce
passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things,
certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of
property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds,
including those raised in the public offering. Assets that produce or are held for the production of passive income may include cash,
even if held as working capital or raised in a public offering, as well as marketable securities and other assets that may produce passive
income. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in
which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.
Under the tests described
above, whether or not we are a PFIC will be determined annually based upon the composition of our income and the composition and valuation
of our assets, all of which are subject to change.
Based on our analysis of our
income, assets, and operations, we believe that we were not a PFIC for 2021. Because the PFIC determination is highly fact intensive,
there can be no assurance that we will not be a PFIC in 2022 or in any other taxable year.
Default PFIC Rules.
If we are a PFIC for any tax year, a U.S. Holder who does not make a timely QEF election or a mark-to-market election, referred to in
this disclosure as a “Non-Electing U.S. Holder,” will be subject to special rules with respect to (i) any “excess distribution”
(generally, the portion of any distributions received by the Non-Electing U.S. Holder on the ordinary shares or ADSs (or warrants, to
the extent applicable) in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing U.S. Holder
in the three preceding taxable years, or, if shorter, the Non-Electing U.S. Holder’s holding period for the ordinary shares or ADSs),
and (ii) any gain realized on the sale or other disposition of ordinary shares, ADSs, Warrants, or Pre-funded Warrants. Under these rules:
| ● | the excess distribution or gain would be allocated ratably
over the Non-Electing U.S. Holder’s holding period for such ordinary shares, ADSs, Warrants, or Pre-funded Warrants; |
| ● | the amount allocated to the current taxable year and any year
prior to us becoming a PFIC would be taxed as ordinary income; and |
| ● | the amount allocated to each of the other taxable years would
be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for
the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. |
If a Non-Electing U.S. Holder
who is an individual dies while owning our ordinary shares, ADSs, Warrants, or Pre-funded Warrants, the Non-Electing U.S. Holder’s
successor would be ineligible to receive a step-up in tax basis of such ordinary shares, ADSs, Warrants, or Pre-funded Warrants. Non-Electing
U.S. Holders should consult their tax advisors regarding the application of the “net investment income tax” (described below)
to their specific situation.
To the extent a distribution
on our ordinary shares or ADSs (or warrants, to the extent applicable) does not constitute an excess distribution to a Non-Electing U.S.
Holder, such Non-Electing U.S. Holder generally will be required to include the amount of such distribution in gross income as a dividend
to the extent of our current and/or accumulated earnings and profits (as determined for U.S. federal income tax purposes) that are not
allocated to excess distributions. The tax consequences of such distributions are discussed above under “— Taxation of U.S.
Holders — Distributions.” Each U.S. Holder is encouraged to consult its own tax advisor with respect to the appropriate U.S.
federal income tax treatment of any distribution on our ordinary shares or ADSs (or warrants, to the extent applicable).
If we are treated as a PFIC
for any taxable year during the holding period of a Non-Electing U.S. Holder, we will continue to be treated as a PFIC for all succeeding
years during which the Non-Electing U.S. Holder is treated as a direct or indirect Non-Electing U.S. Holder even if we are not a PFIC
for such years. A U.S. Holder is encouraged to consult its tax advisor with respect to any available elections that may be applicable
in such a situation, including the “deemed sale” election of Code Section 1298(b)(1) (which will be taxed under the adverse
tax rules described above).
We may invest in the equity
of foreign corporations that are PFICs or may own subsidiaries that own PFICs. If we are classified as a PFIC, under attribution rules
U.S. Holders will be subject to the PFIC rules with respect to their indirect ownership interests in such PFICs, such that a disposition
of the shares of the PFIC or receipt by us of a distribution from the PFIC generally will be treated as a deemed disposition of such shares
or the deemed receipt of such distribution by the U.S. Holder, subject to taxation under the PFIC rules. There can be no assurance that
a U.S. Holder will be able to make a QEF election or a mark-to-market election with respect to PFICs in which we invest. Each U.S. Holder
is encouraged to consult its own tax advisor with respect to tax consequences of an investment by us in a corporation that is a PFIC.
QEF Election. Certain
adverse consequences of PFIC status can be mitigated for holders of our ordinary shares, ADSs, and Pre-funded Warrants if a U.S. Holder
makes a QEF election. A U.S. Holder may not make a QEF election with respect to our Warrants. A U.S. Holder who makes a timely QEF election,
referred to in this disclosure as an “Electing U.S. Holder,” with respect to us must report for U.S. federal income tax purposes
his pro rata share of our ordinary earnings and net capital gain, if any, for our taxable year that ends with or within the taxable year
of the Electing U.S. Holder. The “net capital gain” of a PFIC is the excess, if any, of the PFIC’s net long-term capital
gains over its net short-term capital losses. The amount so included in income generally will be treated as ordinary income to the extent
of such Electing U.S. Holder’s allocable share of the PFIC’s ordinary earnings and as long-term capital gain to the extent
of such Electing U.S. Holder’s allocable share of the PFIC’s net capital gains. Such Electing U.S. Holder generally will be
required to translate such income into U.S. dollars based on the average exchange rate for the PFIC’s taxable year with respect
to the PFIC’s functional currency. Such income generally will be treated as income from sources outside the United States for U.S.
foreign tax credit purposes. Amounts previously included in income by such Electing U.S. Holder under the QEF rules generally will not
be subject to tax when they are distributed to such Electing U.S. Holder. The Electing U.S. Holder’s tax basis in our ordinary shares,
ADSs, or Pre-funded Warrants generally will increase by any amounts so included under the QEF rules and decrease by any amounts not included
in income when distributed.
An Electing U.S. Holder will
be subject to U.S. federal income tax on such amounts for each taxable year in which we are a PFIC, regardless of whether such amounts
are actually distributed to such Electing U.S. Holder. However, an Electing U.S. Holder may, subject to certain limitations, elect to
defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If an Electing U.S. Holder is an individual,
any such interest will be treated as non-deductible “personal interest.”
Any net operating losses or
net capital losses of a PFIC will not pass through to the Electing U.S. Holder and will not offset any ordinary earnings or net capital
gain of a PFIC recognized by Electing U.S. Holder in subsequent years.
So long as an Electing U.S.
Holder’s QEF election with respect to us is in effect with respect to the entire holding period for our ordinary shares, ADSs, or
Pre-funded Warrants, any gain or loss recognized by such Electing U.S. Holder on the sale, exchange or other disposition of such shares,
ADSs, or Pre-funded Warrants generally will be long-term capital gain or loss if such Electing U.S. Holder has held such shares, ADSs,
or Pre-funded Warrants for more than one year at the time of such sale, exchange or other disposition. Preferential tax rates for long-term
capital gain (currently, a maximum rate of 20%) will apply to individual U.S. Holders. The deductibility of capital losses is subject
to limitations.
In general, a U.S. Holder
must make a QEF election on or before the due date for filing its income tax return for the first year to which the QEF election is to
apply. A U.S. Holder makes a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions
thereto. Upon request, we intend to annually furnish U.S. Holders with information needed in order to complete IRS Form 8621 (which form
would be required to be filed with the IRS on an annual basis by the U.S. Holder) and to make and maintain a valid QEF election for any
year in which we or any of our subsidiaries that we control is a PFIC. There is no assurance, however, that we will have timely knowledge
of our status as a PFIC, or that the information that we provide will be adequate to allow U.S. Holders to make a QEF election. A QEF
election will not apply to any taxable year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable
year in which we become a PFIC.
A U.S. Holder may not make
a QEF election with respect to our Warrants. As a result, if a U.S. Holder sells or otherwise disposes of such Warrants (other than upon
exercise thereof), any gain recognized generally will be subject to special tax and interest charge rules treating the gain as an excess
distribution, as described above, if we were a PFIC at any time during the period the U.S. Holder held the Warrants. If a U.S. Holder
that exercises such Warrants properly makes a QEF election with respect to the newly acquired ADSs (or has previously made a QEF election
with respect to our ADSs), the QEF election will apply to the newly acquired ADSs, but the adverse tax consequences attributable to the
period prior to exercise of the Warrants, adjusted to take into account the current income inclusions resulting from the QEF election,
will continue to apply with respect to such newly acquired ADSs, unless the U.S. Holder makes a “purging election” that creates
a deemed sale of such ADSs at their fair market value. The gain recognized by the purging election will be subject to the special tax
and interest charge rules treating the gain as an excess distribution, as described above.
Each U.S. Holder should consult
its own tax advisor with respect to the advisability of, the tax consequences of, and the procedures for making a QEF election with respect
to us.
Mark-to-Market Election. Alternatively,
if our ordinary shares or ADSs are treated as “marketable stock,” a U.S. Holder would be allowed to make a “mark-to-market”
election with respect to our ordinary shares or ADSs, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the
relevant instructions and related Treasury Regulations. A “mark-to-market” election will not be available with respect to
our Warrants and Pre-funded Warrants. If the election is made, the U.S. Holder generally would include as ordinary income in each taxable
year the excess, if any, of the fair market value of our ordinary shares or ADSs at the end of the taxable year over such holder’s
adjusted tax basis in such shares or ADSs. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any,
of the U.S. Holder’s adjusted tax basis in our ordinary shares or ADSs over their fair market value at the end of the taxable year,
but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s
tax basis in our ordinary shares or ADSs would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange
or other disposition of our ordinary shares or ADSs would be treated as ordinary income, and any loss realized on the sale, exchange or
other disposition of our ordinary shares or ADSs would be treated as ordinary loss to the extent that such loss does not exceed the net
mark-to-market gains previously included in income by the U.S. Holder, and any loss in excess of such amount will be treated as capital
loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term
capital gains.
Generally, stock will be considered
marketable stock if it is “regularly traded” on a “qualified exchange” within the meaning of applicable Treasury
Regulations. A class of stock is regularly traded on an exchange during any calendar year during which such class of stock is traded,
other than in de minimis quantities, on at least 15 days during each calendar quarter. To be marketable stock, our ordinary
shares and ADSs must be regularly traded on a qualifying exchange (i) in the United States that is registered with the SEC or a national
market system established pursuant to the Exchange Act or (ii) outside the United States that is properly regulated and meets certain
trading, listing, financial disclosure and other requirements. Our ordinary shares should constitute “marketable stock” as
long as they remain listed on the TASE and are regularly traded. Our ADSs will be listed on the OTC and/or the NYSE American. While we
believe that our ordinary shares and ADSs may be treated as marketable stock for purposes of the PFIC rules so long as they are listed
on the TASE and the OTC and/or the NYSE American, as applicable, and are regularly traded, the IRS has not provided a list of the exchanges
that meet the foregoing requirements and thus no assurance can be provided that our ordinary shares and/or ADSs will be (or will remain)
treated as marketable stock for purposes of the PFIC rules.
A mark-to-market election
will not apply to our ordinary shares or ADSs held by a U.S. Holder for any taxable year during which we are not a PFIC, but will remain
in effect with respect to any subsequent taxable year in which we become a PFIC. Such election will not apply to any PFIC subsidiary that
we own. Each U.S. Holder is encouraged to consult its own tax advisor with respect to the availability and tax consequences of a mark-to-market
election with respect to our ordinary shares and ADSs.
In addition, U.S. Holders
should consult their tax advisors regarding the IRS information reporting and filing obligations that may arise as a result of the ownership
of ordinary shares in a PFIC, including IRS Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or
Qualified Electing Fund.
The U.S. federal
income tax rules relating to PFICs, QEF elections, and mark-to market elections are complex. U.S. Holders are urged to consult their own
tax advisors with respect to the purchase, ownership and disposition of our ordinary shares, ADSs, Warrants, or Pre-funded Warrants, any
elections available with respect to such shares, ADSs, Warrants, or Pre-funded Warrants, and the IRS information reporting obligations
with respect to the purchase, ownership and disposition of our ordinary shares, ADSs, Warrants, or Pre-funded Warrants.
Tax Consequences for Non-U.S. Holders
of Ordinary Shares, ADSs, Warrants, or Pre-funded Warrants
Except as provided below,
an individual, corporation, estate or trust that is not a U.S. Holder, referred to below as a non-U.S. Holder, generally will not be subject
to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our ordinary shares,
ADSs, Warrants, or Pre-funded Warrants.
A non-U.S. Holder may be subject
to U.S. federal income tax on a dividend paid on our ordinary shares or ADSs (or warrants, to the extent applicable) or gain from the
disposition of our ordinary shares, ADSs, Warrants, or Pre-funded Warrants if: (1) such item is effectively connected with the conduct
by the non-U.S. Holder of a trade or business in the United States and, if required by an applicable income tax treaty is attributable
to a permanent establishment or fixed place of business in the United States; or (2) in the case of a disposition of our ordinary shares,
ADSs, Warrants, or Pre-funded Warrants, the individual non-U.S. Holder is present in the United States for 183 days or more in the taxable
year of the disposition and other specified conditions are met.
In general, non-U.S. Holders
will not be subject to backup withholding with respect to the payment of dividends on our ordinary shares or ADSs (or warrants, to the
extent applicable) if payment is made through a paying agent, or office of a foreign broker outside the United States. However, if payment
is made in the United States or by a U.S. related person, non-U.S. Holders may be subject to backup withholding, unless the non-U.S. Holder
provides an applicable IRS Form W-8 (or a substantially similar form) certifying its foreign status, or otherwise establishes an exemption.
The amount of any backup withholding
from a payment to a non-U.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may
entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
Certain Reporting Requirements
Certain U.S. Holders may be
required to file IRS Form 926, Return by U.S. Transferor of Property to a Foreign Corporation, and IRS Form 5471, Information Return of
U.S. Persons With Respect to Certain Foreign Corporations, reporting transfers of cash or other property to us and information relating
to the U.S. Holder and us. Substantial penalties may be imposed upon a U.S. Holder that fails to comply. See also the discussion regarding
Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, above.
In addition, certain U.S.
Holders must report information on IRS Form 8938, Statement of Specified Foreign Financial Assets, with respect to their investments in
certain “specified foreign financial assets,” which would include an investment in our securities, if the aggregate value
of all of those assets exceeds $50,000 on the last day of the taxable year (and in some circumstances, a higher threshold). This reporting
requirement applies to individuals and certain U.S. entities.
U.S. Holders who fail to report
required information could become subject to substantial penalties. U.S. Holders should consult their tax advisors regarding the possible
implications of these reporting requirements arising from their investment in our securities.
Backup Withholding Tax and Information
Reporting Requirements
Generally, information reporting
requirements will apply to distributions on our ordinary shares or ADSs (or warrants, to the extent applicable) or proceeds on the disposition
of our securities paid within the United States (and, in certain) proceeds on the disposition of our securities paid within the United
States (and, in certain cases, outside the United States) to U.S. Holders other than certain exempt recipients, such as corporations.
Furthermore, backup withholding (currently at 24%) may apply to such amounts if the U.S. Holder fails to (i) provide a correct taxpayer
identification number, (ii) report interest and dividends required to be shown on its U.S. federal income tax return, or (iii) make other
appropriate certifications in the required manner. U.S. Holders who are required to establish their exempt status generally must provide
such certification on IRS Form W-9.
Backup withholding is not
an additional tax. Amounts withheld as backup withholding from a payment may be credited against a U.S. Holder’s U.S. federal income
tax liability and such U.S. Holder may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with
the IRS and furnishing any required information in a timely manner.
Tax on Net Investment
Income
Certain U.S. persons, including
individuals, estates and trusts are generally subject to an additional 3.8% Medicare tax. For individuals, the additional Medicare tax
applies to the lesser of (i) “net investment income” or (ii) the excess of “modified adjusted gross income” over
$200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income” generally
equals the taxpayer’s gross investment income reduced by the deductions that are allocable to such income. Investment income generally
includes passive income such as interest, dividends, annuities, royalties, rents, and capital gains. U.S. Holders are urged to consult
their own tax advisors regarding the implications of the additional Medicare tax resulting from their ownership and disposition of our
securities.
U.S. Holders should
consult their own tax advisors concerning the tax consequences relating to the purchase, ownership and disposition of our ordinary shares,
ADSs, Warrants or Pre-funded Warrants.
F.
Dividends and Paying Agents.
Not applicable.
G.
Statements by Experts.
Not applicable.
H.
Documents on Display.
We are subject to the information
reporting requirements of the Exchange Act, applicable to foreign private issuers and under those requirements will file reports with
the SEC. The SEC maintains an Internet website that contains reports and other information regarding issuers that file electronically
with the SEC. You may read and copy this annual report, including the related exhibits and schedules, and any document we file with the
SEC at http://www.sec.gov.
As a foreign private issuer,
we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors
and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange
Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with
the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, we file
with the SEC, within four months after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on
Form 20-F containing financial statements audited by an independent registered public accounting firm, and submit to the SEC, on a Form
6-K, unaudited quarterly financial information for the first three quarters of each fiscal year within 60 days after the end of each such
quarter, or such applicable time as required by the SEC.
In addition, because our ordinary
shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information to, the TASE
and the ISA, as required under Chapter Six of the Israel Securities Law. Copies of our filings with the ISA can be retrieved electronically
through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).
We maintain a corporate website
at www.canfite.com. Information contained on, or that can be accessed through, our website does not constitute a part of this
Annual Report on Form 20-F. We have included our website address in this Annual Report on Form 20-F solely as an inactive textual reference.
I.
Subsidiary Information.
Not applicable.
ITEM
11. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of
loss related to changes in market prices, including interest rates and foreign exchange rates, of financial instruments that may adversely
impact our consolidated financial position, results of operations or cash flows.
Interest Rate
Risk
We do not anticipate undertaking
any significant long-term borrowings. At present, our investments consist primarily of cash and cash equivalents. We may invest in investment-grade
marketable securities with maturities of up to three years, including commercial paper, money market funds, and government/non-government
debt securities. The primary objective of our investment activities is to preserve principal while maximizing the income that we receive
from our investments without significantly increasing risk and loss. Our investments are exposed to market risk due to fluctuation in
interest rates, which may affect our interest income and the fair market value of our investments, if any. We manage this exposure by
performing ongoing evaluations of our investments. Due to the short-term maturities, if any, of our investments to date, their carrying
value has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be
our policy to hold such investments to maturity in order to limit our exposure to interest rate fluctuations.
Foreign Currency
Exchange Risk
Our foreign currency exposures
give rise to market risk associated with exchange rate movements of the U.S dollar, our functional and reporting currency, mainly against
the NIS and the euro. Although the U.S dollar is our functional currency, a portion of our expenses are denominated in both NIS and euro
and currently all of our revenues are denominated in dollars. Our U.S. dollar and euro expenses consist principally of payments made to
sub-contractors and consultants for preclinical studies, clinical trials and other research and development activities, Our NIS expenses
consist principally of salary related payments. We anticipate that a sizable portion of our expenses will continue to be denominated in
currencies other than the NIS. If the U.S dollar fluctuates significantly against either the NIS or the euro, it may have a negative impact
on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results of operations or financial
condition for the periods under review.
To date, we have not engaged
in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposure from
fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from
the material adverse effects of such fluctuations.
ITEM
12. Description of Securities Other Than Equity Securities
A.
Debt Securities.
Not applicable.
B.
Warrants and Rights.
Not applicable.
C.
Other Securities.
Not applicable.
D.
American Depositary Shares
The Bank of New York Mellon,
as Depositary, will register and deliver American Depositary Shares, or ADSs. Each ADS will represent thirty (30) ordinary shares (or
a right to receive thirty (30) ordinary shares) deposited with the principal Tel Aviv office of Bank Hapoalim, as custodian for the Depositary.
Each ADS will also represent any other securities, cash or other property which may be held by the Depositary. The Depositary’s
corporate trust office at which the ADSs will be administered is located at 101 Barclay Street, New York, New York 10286. The Bank of
New York Mellon’s principal executive office is located at One Wall Street, New York, New York 10286.
The form of the deposit agreement
for our ADSs and the form of American Depositary Receipt that represents an ADS have been incorporated by reference as exhibits to this
Annual Report on Form 20-F.
Fees and Expenses
Persons depositing or withdrawing shares or ADS holders must pay: |
|
For: |
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) |
|
● |
Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property |
|
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|
|
|
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● |
Cancellation of ADSs for the purpose of withdrawal, including if the Deposit Agreement terminates |
|
|
|
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$.05 (or less) per ADS |
|
● |
Any cash distribution to ADS holders |
|
|
|
|
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs |
|
● |
Distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to ADS holders |
|
|
|
|
$.05 (or less) per ADSs per calendar year |
|
● |
Depositary services |
|
|
|
|
Registration or transfer fees |
|
● |
Transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw shares |
|
|
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Expenses of the Depositary |
|
● |
Cable, telex and facsimile transmissions (when expressly provided in the Deposit Agreement) |
|
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● |
Converting foreign currency to U.S. dollars |
|
|
|
|
Taxes and other governmental charges the Depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes |
|
● |
As necessary |
|
|
|
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Any charges incurred by the Depositary or its agents for servicing the deposited securities |
|
● |
As necessary |
The Depositary collects its
fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or
from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the
amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its annual fee for depositary
services by deduction from cash distributions, by directly billing investors or by charging the book-entry system accounts of participants
acting for them. The Depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
From time to time, the Depositary
may make payments to us to reimburse us for expenses and/or share revenue with us from the fees collected from ADS holders, or waive fees
and expenses for services provided, generally relating to costs and expenses arising out of the establishment and maintenance of the ADS
program. In performing its duties under the Deposit Agreement, the Depositary may use brokers, dealers or other service providers that
are affiliates of the Depositary and that may earn or share fees or commissions.
We have served as the Company’s auditor
since at least 2001, but we are unable to determine the specific year.
The accompanying notes are an integral part of
the consolidated financial statements.
The accompanying notes are an integral part of
the consolidated financial statements.
The accompanying notes are an integral part of
the consolidated financial statements.
The accompanying notes are an integral part of
the consolidated financial statements.
The accompanying notes are an integral part of
the consolidated financial statements.
The accompanying notes are an integral part of
the consolidated financial statements.