Item
1. Business.
Historical
Background and Corporate Structure
Intec
Pharma Ltd. was established and incorporated in Israel on October 23, 2000 as a private Israeli company under the name Orly Guy
Ltd. In February 2001, our name was changed to Intec Pharmaceuticals (2000) Ltd. Our research and development activities began
originally through a private partnership, Intec Pharmaceutical Partnership I.P.P, a general Israeli partnership, formed on September
21, 2000. Its operations were transferred in full to us at the beginning of 2002 in return for the allocation of shares in our
company to the partners in the partnership, pro rata with their ownership in the partnership. In March 2004, we changed our corporate
name to Intec Pharma Ltd. In February 2010, we successfully completed an initial public offering in Israel on the Tel Aviv Stock
Exchange, or TASE and in August 2015 we completed an initial public offering in the U.S. In September 2017, we incorporated a
wholly-owned subsidiary, Intec Pharma Inc., in the State of Delaware. In August 2018, we voluntarily delisted from the TASE.
Effective
January 1, 2019, we ceased reporting as a “foreign private issuer” as defined in Rule 3b-4 of the Exchange Act, and
became subject to the rules and regulations under the Securities Exchange Act of 1934, as amended, or Exchange Act, applicable
to U.S. domestic issuers. As a result, we have been filing an Annual Report on Form 10-K beginning with the fiscal year ended
December 31, 2018. Our annual reports for prior years were filed on Form 20-F.
We
are a smaller reporting company, and we will remain a smaller reporting company until the fiscal year following the determination
that our ordinary shares held by non-affiliates is more than $250 million measured on the last business day of our second fiscal
quarter, or our annual revenues are more than $100 million during the most recently completed fiscal year and our ordinary shares
held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. Similar to emerging
growth companies, smaller reporting companies are able to provide simplified executive compensation disclosure, are exempt from
the auditor attestation requirements of Section 404, and have certain other reduced disclosure obligations, including, among other
things, being required to provide only two years of audited financial statements and not being required to provide selected financial
data, supplemental financial information or risk factors.
Our
principal executive offices are located in Har Hotzvim at 12 Hartom Street, Jerusalem, Israel 9777512 and our telephone number
is (+972) (2) 586-4657. Our website address is http://www.intecpharma.com. The information contained on, or that can be accessed
through, our website is neither a part of nor incorporated into this Annual Report. We have included our website address in this
Annual Report solely as an inactive textual reference.
We
use our investor relations website (http://ir.intecpharma.com) as a channel of distribution of Company information. The information
we post through this channel may be deemed material. Accordingly, investors should monitor our 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.
Proposed
Merger with Decoy Biosystems
On
March 15, 2021, Intec Israel, Intec Parent, Inc, a Delaware corporation, or Intec Parent, Dillon Merger Subsidiary Inc., a Delaware
corporation and a wholly owned subsidiary of Intec Parent, or the Merger Sub, Domestication Merger Sub Ltd., an Israeli company
and a wholly owned subsidiary of Intec Parent, or the Domestication Merger Sub, and Decoy Biosystems, Inc., a Delaware corporation,
or Decoy, entered into an Agreement and Plan of Merger and Reorganization, or the Merger Agreement, pursuant to which, following
the merger of the Domestication Merger Sub with and into Intec Israel, with Intec Israel being the surviving entity and a wholly-owned
subsidiary of Intec Parent, or the Domestication Merger, and upon satisfaction of additional closing conditions, the Merger Sub
will merge with and into Decoy, with Decoy being the surviving entity and a wholly-owned subsidiary of Intec Parent, or the Merger.
The Merger is expected to be completed in the third calendar quarter of 2021 and if it is completed then the business of Decoy
will become the business of Intec Parent.
The
Merger
As
set forth in the Merger Agreement, after completion of the Domestication Merger and subject to other closing conditions of the
Merger, on the closing date, or the Closing Date, the Merger Sub will merge with and into Decoy, with Decoy being the surviving
entity. As a result of the Merger, Decoy will become a wholly owned subsidiary of Intec Parent.
Subject
to the terms and conditions of the Merger Agreement, at the effective time of the Merger, which shall occur on the Closing Date,
or the Effective Time, (i) each outstanding share of Decoy common stock, par value $0.001 per share, or the Decoy Common Stock
(other than any shares held as treasury stock (which will be cancelled) and any dissenting shares and after giving effect to the
conversion of Decoy SAFEs (Simple Agreements for Future Equity) and Decoy preferred stock into Decoy Common Stock) will be converted
into shares of Intec Parent common stock, par value $0.01 per share, or Intec Common Stock, based on the exchange ratio as described
below, and (ii) each outstanding and unexercised Decoy stock option, whether vested or unvested, will be converted into a stock
option exercisable for that number of shares of Intec Parent Common Stock equal to the product of (x) the aggregate number of
shares of Decoy Common Stock for which such stock option was exercisable and (y) the exchange ratio. The shares of Intec Parent
Common Stock issuable in exchange for shares of Decoy Common Stock as described above are referred to as the “Merger Shares.”
Under
the exchange ratio formula in the Merger Agreement, without taking into consideration the effect of the respective levels of cash
and liabilities of each of Intec Israel and Decoy, which will result in an adjustment to such exchange ratio, following the closing
of the Merger, or the Closing, the former Decoy securityholders immediately before the Merger are expected to own approximately
75% of the aggregate number of the outstanding securities of Intec Parent, and the securityholders of the Company immediately
before the Domestication Merger are expected to own approximately 25% of the aggregate number of the outstanding securities of
Intec Parent, calculated on a fully diluted basis. The actual allocation will be subject to adjustment based on, among other things,
Decoy’s and Intec Israel’s net cash balance (including, in the case of the Company, any proceeds from any disposition
of the Accordion Pill business), subject to certain exceptions. As further described below, the Closing is also conditioned on
completion of the Domestication Merger and on a financing by the Company or Intec Parent, which will dilute securityholders of
both Intec Israel and Decoy on a pro-rata basis.
Following
the Closing, Jeffrey Meckler will serve as Intec Parent’s Chief Executive Officer, Michael Newman will serve as Intec Parent’s
Chief Scientific Officer, Nir Sassi will serve as Intec Parent’s Chief Financial Officer, and Walt Linscott will serve as
Intec Parent’s Chief Business Officer. Additionally, following the Closing, the board of directors of Intec Parent is expected
to initially consist of eight directors and will be comprised of (i) five (5) members designated by the Company and (ii) three
(3) members designated by Decoy.
The
Merger Agreement contains customary representations, warranties and covenants made by each of the Company and Decoy, including
covenants relating to (i) the conduct of their respective businesses prior to the Closing, (ii) the preparation and filing of
a registration statement on Form S-4 registering the Merger Shares and the shares of Intec Parent Common Stock to be issued in
connection with the Domestication Merger (the “Registration Statement”) and the preparation and/or filing, as applicable,
of a proxy statement/information statement for the special meeting or approval by written consent, as applicable, of shareholders
of each of the Company and Decoy, (iii) holding a meeting or approval by written consent, as applicable, of shareholders of each
of the Company and Decoy to obtain their requisite approvals in connection with the Domestication Merger and Merger, as applicable,
including, among other approvals, the approval by the Company shareholders of the issuance of the Merger Shares, and (iv) subject
to certain exceptions, the recommendation of the board of directors of each party to the Merger Agreement to its shareholders
that such approvals be given.
Consummation
of the Merger is subject to certain closing conditions, including, among other things, (i) consummation of the Domestication Merger,
(ii) approval of certain matters related to the Merger by the shareholders of the Company and approval of the Merger by the stockholders
of Decoy, (iii) the effectiveness of the Registration Statement, (iv) the continued listing of the Company’s ordinary shares
on the Nasdaq Capital Market (and following the Domestication Merger, the shares of Intec Parent Common Stock) and the authorization
for listing on the Nasdaq Capital Market of the Merger Shares, (v) the receipt of a tax ruling from the Israel Tax Authority with
respect to the Domestication Merger, (vi) disposition of the Accordion Pill business, as further described below, and (vii) a
closing financing by Intec Israel or Intec Parent such that upon Closing of the Merger (taking into account of the proceeds to
be received with respect to such financing), the combined net cash of Intec Parent shall be not less than $30 million and not
more than $50 million and which represents an agreed minimum valuation derived from the exchange ratio for Intec Parent following
the Closing. The Merger Agreement requires the Company to convene a shareholders’ meeting for purposes of obtaining the
necessary shareholder approvals required in connection with the Merger.
The
Merger Agreement contains certain termination rights for both the Company and Decoy, including, but not limited to, the right
of the Company and Decoy to terminate the Merger Agreement by mutual written consent or if a court of competent jurisdiction or
other Governmental Body (as defined in the Merger Agreement) has issued a final and non-appealable order, decree or ruling, or
has taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger. In addition,
either the Company or Decoy may terminate the Merger Agreement if the Merger is not consummated on or before the date that is
155 days following the delivery of the Decoy audited financial statements for the fiscal years ended December 31, 2020 and 2019
which date may be extended in certain circumstances. In connection with the termination of the Merger Agreement under specified
circumstances, Decoy may be required to pay to the Company a break-up fee of $1,000,000, or the Company may be required to pay
to Decoy a reverse break-up fee of $1,000,000 and forfeit a deposit in the amount of $350,000 in favour of Decoy to cover transaction
expenses.
Certain
Agreements Related to the Merger
The
Domestication Merger
As
set forth in the Merger Agreement, prior to the date of the Closing Date, Intec Israel shall re-domesticate as a Delaware corporation
by merging with and into the Domestication Merger Sub, with Intec Israel surviving the merger and becoming a wholly owned subsidiary
of Intec Parent. In connection with the Domestication Merger, all Intec Israel ordinary shares, having no par value per share,
or the Intec Israel Shares, outstanding immediately prior to the Domestication Merger will convert, on a one-for-one basis, into
shares of Intec Parent, or the Intec Parent Common Stock and all options and warrants to purchase Intec Israel Shares outstanding
immediately prior to the Domestication Merger will be exchanged for equivalent securities of Intec Parent.
Disposition
of Accordion Pill Business
In
accordance with the terms of the Merger Agreement, Intec Israel agreed that prior to the Closing Date it would use commercially
reasonable efforts to enter into one or more agreements providing for the sale, transfer or assignment or that it would otherwise
take steps related to the divestment or disposal and satisfaction of liabilities of the Company’s Accordion Pill business,
to be effected immediately after the Closing.
Support
Agreements
In
connection with the execution of the Merger Agreement, certain shareholders of Decoy entered into support agreements with the
Company, Intec Parent and Merger Sub covering approximately 74% of the outstanding shares of Decoy relating to the Merger, or
the Decoy Stockholder Support Agreements. The Decoy Stockholder Support Agreements provide, among other things, that the stockholders
party to the Decoy Stockholder Support Agreements will vote all of the shares of Decoy held by them: (i) in favor of the adoption
of the Merger Agreement, the approval of the Merger and the other transactions contemplated by the Merger Agreement, provided
that they will vote such shares in the same manner as the vote in respect of the Merger Agreement and the Merger of the holders
of a majority of the outstanding shares of Decoy’s capital stock who do not sign a Decoy Stockholder Support Agreement,
and (ii) against any adverse proposal, for up to eighteen (18) months following the date of the Decoy Stockholder Support Agreements
(depending on the manner of termination of the Merger Agreement).
In
accordance with the terms of the Merger Agreement, the officers and directors of the Company have each entered into support agreements
with Decoy relating to the Merger (the “Intec Shareholder Support Agreements”). The Intec Shareholder Support Agreements
provide, among other things, that the officers and directors party to the Intec Shareholder Support Agreements will vote all of
the ordinary shares of the Company held by them: (i) in favour of the adoption of the Merger Agreement, the approval of the Merger
Agreement and other transactions contemplated by the Merger Agreement, and (ii) against any adverse proposal.
Lock-Up
Agreements
In
accordance with the terms of the Merger Agreement, certain stockholders of Decoy and the officers and directors of Intec have
each entered into a lock-up agreement with the Company, Intec Parent and Decoy, or the Lock-Up Agreements. The Lock-Up Agreements
place certain restrictions on the transfer of shares of common stock of Intec Parent held by the respective signatories thereto
for 180 days after the Closing Date.
Although
we have entered into the Merger Agreement and intend to consummate the Merger, there is no assurance that we will be able to successfully
complete the Merger on a timely basis, or at all. If, for any reason, the Merger is not completed, we will reconsider our strategic
alternatives and expect that we would either continue to advance the existing Accordion Pill business either on our own or in
partnership with a strategic partner or we may seek to complete a potential merger, reorganization or other business combination
transaction with another company similar to the Merger. If, for any reason, the Merger is not consummated and we are unable to
continue to operate the Accordion Pill business or identify and complete an alternative strategic transaction like the Merger,
we may be required to dissolve and liquidate our assets. In such case, we would be required to pay all of our debts and contractual
obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or
timing of available cash left to distribute to our shareholders after paying our debts and other obligations and setting aside
funds for reserves.
Accordion
Pill Business
As
discussed above, on March 15, 2021, we entered into the Merger Agreement. As a result, you should not place undue reliance on
the plans discussed below relating to our Accordion Pill business as they are subject to change.
We
are a clinical stage biopharmaceutical company focused on developing drugs based on our proprietary Accordion Pill platform technology,
which we refer to as the Accordion Pill, or AP. Our Accordion Pill is an oral drug delivery system that is designed to improve
the efficacy and safety of existing drugs and drugs in development by utilizing an efficient gastric retention, or, GR and specific
release mechanism. Our product pipeline currently includes several product candidates in various stages. Our most advanced product
candidate, Accordion Pill Carbidopa/Levodopa, or, AP-CD/LD, was being developed for the indication of treatment of Parkinson’s
disease symptoms in advanced Parkinson’s disease patients.
In
July 2019, we announced top-line results from our pivotal Phase III clinical for AP-CD/LD for the treatment of advanced Parkinson’s
disease known as the ACCORDANCE study in which the ACCORDANCE study did not meet its target endpoints. While AP-CD/LD provided
treatment for Parkinson’s disease symptoms, it did not demonstrate statistically superiority over immediate release CD/LD
on the primary endpoint of OFF time reduction under the conditions established in the protocol. Treatment-emergent adverse effects
observed with AP-CD/LD were generally consistent with the known safety profile of CD/LD formulations and no new safety issues
were observed throughout the double-blinded study, during the gastroscopy safety sub-study or the 12-month open-label extension
study. From our review of the data, we have observed a meaningful reduction in OFF time in certain subsets of patients. We have
completed the analysis of the full data set. In February 2021, we entered into a non-binding term sheet for the sale or license
of the AP-CD/LD program to an undisclosed third party and are currently negotiating the terms of a definitive agreement. There
is no assurance that this will result in a definitive agreement.
Previously,
we successfully completed a Phase II clinical trial for AP-CD/LD for the treatment of Parkinson’s disease symptoms in advanced
Parkinson’s disease patients and in February 2019, we announced that AP-CD/LD met the primary endpoint in a pharmacokinetic,
or PK study, comparing the AP-CD/LD 50/500mg dosed three times daily, the most common dose used in our ACCORDANCE study, to 1.5
tablets of CD/LD immediate release (Sinemet™) 25/100 dosed five times per day in Parkinson’s disease patients.
We
have invested in the commercial scale manufacture of AP-CD/LD, for which we are in partnership with LTS Lohmann Therapie-Systeme
AG (LTS) in Andernach, Germany. In October 2019, we completed the qualification studies for the commercial scale manufacture of
the Accordion Pill and we have initiated the validation and stability studies of certain batches which are expected to serve as
the clinical material for the next Phase 3 clinical trial plan. We have suspended further validation and stability studies and
we intend to initiate the validation and stability studies of the remaining batches upon partnering the AP-CD/LD program.
In
addition, we have initiated a clinical development program for our Accordion Pill platform with the two primary cannabinoids contained
in cannabis sativa, which we refer to as AP-Cannabinoids. We are formulating and testing CBD and THC for the treatment of various
pain indications. AP-Cannabinoids are designed to extend the absorption phase of CBD and THC, with the goal of more consistent
levels for an improved therapeutic effect, which may address several major drawbacks of current methods of treatment, such as
short duration of effect, delayed onset, variability of exposure, variability of the administered dose and adverse events that
correlate with peak levels. In March 2017, we initiated a Phase I single-center, single-dose, randomized, three-way crossover
clinical trial in Israel to compare the safety, tolerability and PK of AP-THC/CBD with Sativex®, an oral buccal spray containing
CBD and THC that is commercially available outside of the United States. Initial results demonstrated that the Accordion Pill
platform is well suited to safely deliver CBD and THC with significant improvements in exposure compared with Sativex®. In
December 2018, we initiated a PK study of AP-THC and the results of the study demonstrate that the custom designed AP delivery
system in the AP-THC PK study did not meet our expectations. In December 2020, we initiated a clinical trial in Israel evaluating
the safety, tolerability and PK of an optimized AP-THC and we expect to report top line results from this study in the second
quarter of 2021.
While
the ACCORDANCE results were not what we expected, we continue to believe in the potential of the Accordion Pill platform. In December
2018, we reported that we successfully developed an Accordion Pill for a Novartis proprietary compound that met the required in
vitro specifications set forth in a feasibility agreement with Novartis. In 2019 we completed the human PK study and its results
demonstrated that the AP met the technical requirements set forth by Novartis. In December 2019, Novartis, following an internal
and revised commercial strategic assessment, advised us that this program no longer meets Novartis’ mid to long-term strategic
goals. Novartis paid us $1.5 million on conclusion of the program. We restructured our clinical manufacturing planned to support
this program in order to reduce costs.
In
May 2019, we reported entering into a research collaboration agreement with Merck for the development of a custom-designed AP
for one of Merck’s proprietary compounds. We met the required in vitro specifications for that compound but do not anticipate
an in-vivo study. In October 2020, we entered into a new research collaboration agreement with Merck for another compound. Details
of the new agreement are confidential.
In
December 2020, we entered into a cannabinoid research collaboration agreement with GW Research Limited, or GW to explore using
the AP platform for an undisclosed research program.
In
March 2021, we entered into a feasibility agreement on a confidential basis with a pharmaceutical company to develop a custom-designed
AP for a rare disease indication.
In
late 2019, a novel strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. While initially the outbreak was
largely concentrated in China, it has now 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, have 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. We implemented remote working and work place protocols for our employees
in accordance with government requirements. The implementation of measures to prevent the spread of COVID-19 have resulted in
disruptions to our partnering efforts which depend, in part, on attendance at in-person meetings, industry conferences and other
events. It is not possible at this time to estimate the full impact that the COVID-19 pandemic could have on our operations,
as the impact 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.
Our
Accordion Pill Platform Technology
We
believe that our Accordion Pill technology has the potential to improve the performance of approved drugs and drugs in development,
including Levodopa, by providing several distinct advantages, including, but not limited to:
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increasing
efficacy of the drug incorporated into the Accordion Pill;
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improving
safety of the drug incorporated into the Accordion Pill by reducing the side effects
of such drugs;
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reducing
the number of daily administrations required to achieve the same or superior therapeutic
effect as the non-Accordion Pill version of such drugs; and
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expanding
the intellectual protection period of the drug incorporated into the Accordion Pill.
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Our
anticipated ability to submit NDAs pursuant to Section 505(b)(2) for our existing pipeline and future products increases the likelihood
of accelerating the time to commercialization of our products and decreasing costs when compared to those typically associated
with new chemical entities, or NCEs.
Our
Accordion Pill platform technology is designed to increase the time that drugs are retained in the stomach as compared to other
oral dosage forms, such as tablets and capsules. This capability is particularly important to drugs with a narrow absorption window,
or NAW, which are absorbed mainly in the upper part of the gastrointestinal, or GI, tract. Regular controlled-release formulations
of such drugs currently on the market sometimes fail to provide an efficient solution, as once the regular dosage form has passed
the drug’s NAW in the upper gastrointestinal, or GI, tract, the drug is not, or is very poorly, absorbed in the distal parts
of the GI tract. The Accordion Pill platform technology is also designed for drugs with low solubility, which do not efficiently
dissolve in the GI tract, and drugs with low permeability, which do not efficiently penetrate the intestinal wall and reach the
blood stream, such as Biopharmaceutics Classification System, or BCS, Class II (low solubility, high permeability) and Class IV
(low solubility, low permeability) drugs. According to The AAPS Journal published by the American Association of Pharmaceutical
Scientists, of the top 200 oral drugs in the United States, Great Britain, Spain and Japan in 2006, approximately 30% to 35% were
BCS Class II drugs and approximately 5% to 10% were BCS Class IV drugs. Further, according to The AAPS Journal in 2011 approximately
90% of new molecular entities in development were either Class II or Class IV drugs. Poorly soluble drugs are sometimes characterized
by low bioavailability, which is strongly affected by the drug’s solubility. In addition, the extent of absorption of poorly
soluble drugs can be dose dependent, leading to non-linear PK behavior. The Accordion Pill’s efficient GR and specific release
mechanism prolongs the absorption phase of drugs with an NAW, which can result in significantly more stable plasma levels. In
addition, the Accordion Pill has demonstrated an enhancement of the absorption of a poorly soluble, BCS Class II/IV drug in a
crossover PK clinical study in 12 healthy volunteers. For poorly soluble drugs, we believe that our technology acts through the
gradual delivery of an undissolved drug by the Accordion Pill in the stomach, which allows for the complete dissolution of the
drug dose in the stomach over the delivery period. The gradual passage of the drug from the stomach to the upper part of the GI
tract enables an increase in the amount of the drug that can be dissolved and thus absorbed, in the upper small bowel. In addition,
we believe that bile secretion in the upper part of the GI tract also improves the intestinal environment for better absorption.
Finally, the significant dilution of the drug solution in the small bowel caused by prolonged delivery increases the amount of
the drug available for absorption.
Our
clinical trials to date have demonstrated that the Accordion Pill is retained in the stomach for eight to 12 hours, as compared
to significantly shorter time periods, typically as little as two to three hours, when using other solid dosage forms. The efficient
GR and the predetermined release profile for each specific drug associated with our Accordion Pill technology demonstrated a significant
improvement in PK, which is the drug plasma level over time and a corresponding improvement in efficacy and safety.
The
following chart depicts the Accordion Pill’s capability to improve the PK of Levodopa, which is a drug characterized by
a narrow absorption window:
AP-CD/LD
Phase II clinical trial — more stable Levodopa levels with statistically significant
reduced peak-to-trough fluctuations
Levodopa
plasma levels in n=8 advanced Parkinson’s disease patients following twice daily, or b.i.d., administration (eight hours
apart) of AP-CD/LD 50/375 versus four times daily, or q.i.d., administration (four hours apart) of a commercial Carbidopa/Levodopa
formulation (equivalent daily Levodopa dose). The PK study was performed on day seven, following six days of drug administration
at home. No Levodopa medication was allowed for ten hours before the first administration at day seven. The PK results showed
that the peak to trough ratio, which measures the maximum average concentration relative to the minimum average concentration
of LD plasma levels, was reduced from 29.9 to 3.2 with the AP-CD/LD.
The
following chart depicts the Accordion Pill’s capability to improve the PK of a BCS Class II/IV drug combined with our Accordion
Pill technology that is currently on the market and is characterized with poor solubility:
PK
results with the Accordion Pill with a BCS Class II/IV drug that is currently available
on the market in 12 healthy volunteers
The
results of our clinical trial have demonstrated approximately a 100% increase in bioavailability in 12 healthy volunteers with
our Accordion Pill technology, as compared to the commercial formulation of the drug. Furthermore, the results demonstrated that
the increase in bioavailability obtained when administering one Accordion Pill and two Accordion Pills was proportional to the
increase in dosage, or linear absorption, whereas the commercial formulation does not show linear absorption in these dosage ranges.
Although
there is no assurance that these results will be repeated in other instances, we believe that these results are important because
the enhancement of bioavailability of poorly soluble drugs is one of the main challenges facing the pharmaceutical industry.
Our
Accordion Pill technology enables us to combine active pharmaceutical ingredients, or APIs, which are also referred to as drugs,
and inactive ingredients that are included in the U.S. Food and Drug Administration’s, or FDA’s, list of approved
inactive ingredients, into pharmaceutical-grade, biodegradable polymeric films, welded into a planar structure, folded into the
shape of an accordion and placed inside of a capsule. While in the stomach, the capsule dissolves and the Accordion Pill unfolds
and releases the drug in a predetermined profile. In order to provide optimum results for each drug, each Accordion Pill drug
differs and will likely differ in several ways, including composition, structure and properties.
The
diagram below illustrates the general structure of the Accordion Pill:
All
of the ingredients in the Accordion Pill (active and inactive) are combined physically, not chemically, thus maintaining the chemical
composition of the active ingredients.
The
Accordion Pill has a drug release mechanism that is independent of the gastric retention mechanism. It can combine both immediate
and controlled release profiles, as well as more than one drug. We have demonstrated that the Accordion Pill has the ability to
carry a drug load of up to 550 mg. We have also demonstrated that the Accordion Pill fully degrades in the intestine once it is
expelled from the stomach.
Our
Product Pipeline
Our
product pipeline currently includes several product candidates in various stages of development.
Our
most advanced product candidate, AP-CD/LD, was being developed for the indication of treatment of Parkinson’s disease symptoms
in advanced Parkinson’s disease patients. In February 2021, we entered into a non-binding term sheet for the sale or license
of the AP-CD/LD program to an undisclosed third party and are currently negotiating the terms of a definitive agreement. There
is no assurance that this will result in a definitive agreement.
In
July 2019, we announced top-line results from our pivotal Phase III clinical for AP-CD/LD for the treatment of advanced Parkinson’s
disease known as the ACCORDANCE study in which the ACCORDANCE study did not meet its target endpoints. While AP-CD/LD provided
treatment for Parkinson’s disease symptoms, it did not demonstrate statistically superiority over immediate release CD/LD
on the primary endpoint of OFF time reduction under the conditions established in the protocol. Treatment-emergent adverse effects
observed with AP-CD/LD were generally consistent with the known safety profile of CD/LD formulations and no new safety issues
were observed throughout the double-blinded study, during the gastroscopy safety sub-study or the 12-month open-label extension
study. From our review of the data, we have observed a meaningful reduction in OFF time in certain subsets of patients. We have
completed the analysis of the full data set.
Previously,
we successfully completed a Phase II clinical trial for AP-CD/LD for the treatment of Parkinson’s disease symptoms in advanced
Parkinson’s disease patients and in February 2019, we announced that AP-CD/LD met the primary endpoint in a pharmacokinetic,
or PK study, comparing the AP-CD/LD 50/500mg dosed three times daily, the most common dose used in our ACCORDANCE study, to 1.5
tablets of CD/LD immediate release (Sinemet™) 25/100 dosed five times per day in Parkinson’s disease patients.
We
have invested in the commercial scale manufacture of AP-CD/LD, for which we are in partnership with LTS Lohmann Therapie-Systeme
AG (LTS) in Andernach, Germany. In October 2019, we completed the qualification studies for the commercial scale manufacture of
the Accordion Pill and we have initiated the validation and stability studies of certain batches which are expected to serve as
the clinical material for the next Phase 3 clinical trial plan. We have suspended further validation and stability studies and
we intend to initiate the validation and stability studies of the remaining batches upon partnering the AP-CD/LD program.
In
addition, we have initiated a clinical development program for our Accordion Pill platform with the two primary cannabinoids contained
in cannabis sativa, which we refer to as AP-Cannabinoids. We are formulating and testing CBD and THC for the treatment of various
pain indications. AP-Cannabinoids are designed to extend the absorption phase of CBD and THC, with the goal of more consistent
levels for an improved therapeutic effect, which may address several major drawbacks of current methods of treatment, such as
short duration of effect, delayed onset, variability of exposure, variability of the administered dose and adverse events that
correlate with peak levels. In March 2017, we initiated a Phase I single-center, single-dose, randomized, three-way crossover
clinical trial in Israel to compare the safety, tolerability and PK of AP-THC/CBD with Sativex®, an oral buccal spray containing
CBD and THC that is commercially available outside of the United States. Initial results demonstrated that the Accordion Pill
platform is well suited to safely deliver CBD and THC with significant improvements in exposure compared with Sativex®. In
December 2018, we initiated a PK study of AP-THC and the results of the study demonstrate that the custom designed AP delivery
system in the AP-THC PK study did not meet our expectations. In December 2020, we initiated a PK clinical trial in Israel evaluating
the safety, tolerability and PK of an optimized AP-THC and we expect to report top line results from this study in the second
quarter of 2021.
While
the ACCORDANCE results were not what we expected, we continue to believe in the potential of the Accordion Pill platform. In December
2018, we reported that we successfully developed an Accordion Pill for a Novartis proprietary compound that met the required in
vitro specifications set forth in a feasibility agreement with Novartis. In 2019 we completed the human PK study and its results
demonstrated that the AP met the technical requirements set forth by Novartis. In December 2019, Novartis, following an internal
and revised commercial strategic assessment, advised us that this program no longer meets Novartis’ mid to long-term strategic
goals. Novartis paid us $1.5 million on conclusion of the program. We restructured our clinical manufacturing planned to support
this program in order to reduce costs.
In
May 2019, we reported entering into a research collaboration agreement with Merck for the development of a custom-designed AP
for one of Merck’s proprietary compounds. We met the required in vitro specifications for that compound but do not anticipate
an in-vivo study. In October 2020, we entered into a new research collaboration agreement with Merck for another compound. Details
of the new agreement are confidential.
In
December 2020, we entered into a cannabinoid research collaboration agreement with GW to explore using the AP platform for an
undisclosed research program.
In
March 2021, we entered into a feasibility agreement on a confidential basis with a pharmaceutical company to develop a custom-designed
AP for a rare disease indication.
AP-CD/LD
for the Treatment of Parkinson’s Disease Symptoms in Advanced Parkinson’s Disease Patients
Parkinson’s
disease
Parkinson’s
disease is a progressive, degenerative disease characterized by movement symptoms such as involuntary tremor or trembling in the
hands, arms and legs; muscle rigidity of the limbs and trunk; slowness of and a decline in movement; and impaired balance and
coordination. In its advanced stages, the disease causes comprehensive dysfunction of the patient’s bodily systems, including
difficulties in swallowing, speech disorders and significant mental decline. Parkinson’s disease results from a continuing
loss of dopamine-producing nerve cells. Dopamine is required for normal functioning of the central nervous system and smooth,
coordinated function of the body’s muscles and movement. According to the National Parkinson’s Foundation, the symptoms
of Parkinson’s disease appear when approximately 60–80% of dopamine-producing cells are damaged.
Although
there is presently no cure for Parkinson’s disease, there are a number of medications that provide relief from the symptoms.
Dopamine replacement therapy with Levodopa is generally considered to be the most effective treatment for Parkinson’s disease.
After 50 years of clinical use, Levodopa therapy still offers the best symptomatic control of Parkinson’s disease and is
the most widely used therapy. Levodopa is converted into dopamine in the brain and is usually administered with Carbidopa, which
helps prevent Levodopa from converting to dopamine outside the brain. Levodopa helps reduce tremor, stiffness and slowness and
helps improve muscle control, balance and walking. Virtually all Parkinson’s disease patients will require Levodopa therapy
during the course of their disease.
Parkinson’s
disease patients typically experience a satisfactory response to initial treatment with Levodopa. However, at later stages of
Parkinson’s disease, there is a decline in the capacity of the nigrostriatal dopaminergic system, or the brain pathways
that moderate control of voluntary movement, to synthesize, store, and release dopamine. Therefore, the dopaminergic system becomes
more and more dependent on dopamine from external sources, such as Levodopa treatment.
As
the disease progresses, it becomes increasingly difficult to control the symptoms adequately by Levodopa treatment, and patients
develop motor complications, for the following reasons:
|
●
|
The
duration of the response after each Levodopa dose declines, resulting in a “wearing
off” effect, wherein the clinical benefits of Levodopa are lost until the next
dose reaches therapeutic levels.
|
|
●
|
The
patients suffer from longer periods in which Levodopa does not provide symptom relief
and patients’ movements are severely restricted (i.e., off time).
|
|
●
|
When
Levodopa doses are increased to address the loss of clinical benefit, involuntary movements
or troublesome dyskinesia emerges.
|
Recent
studies have reported that up to 50% of patients show the onset of motor fluctuations within two years of starting conventional
Levodopa therapy. For many patients with advanced Parkinson’s disease, the repeated emergence of off states can occupy up
to one-third or more of a typical waking day. The loss of consistent symptomatic control from Levodopa is a major challenge for
the long-term management of Parkinson’s disease. When Parkinson’s disease patients experience “wearing off”
between Levodopa doses, this short-duration response occurs in parallel to the drug’s peripheral PK profile. Therefore,
with the evolution of these short-duration responses, improving the consistency in Levodopa’s plasma levels becomes the
major factor for improving symptom control.
Oral
Levodopa formulations currently on the market do not provide satisfactory consistent Levodopa plasma levels. There are two major
challenges to maintaining consistency in Levodopa plasma levels: (i) the very short half-life of Levodopa (approximately 90 minutes)
and (ii) the fact that Levodopa’s absorption is confined to the upper part of the GI tract (i.e., it has an NAW). For drugs
with an NAW, conventional controlled release formulations are limited in providing long-acting performance, as once the drug has
passed through the upper GI tract, it will no longer be absorbed. These factors result in high peak-to-trough ratios of Levodopa
in the plasma, namely high variability of the concentration of the drug in the blood, rather than a consistent level being maintained,
reducing the clinical benefits of Levodopa therapy. Providing stable Levodopa plasma levels is therefore a major unmet need for
the long-term management of Parkinson’s disease.
Key
opinion leaders interviewed by Global Data, a market research provider, summarized the unmet needs in Parkinson’s disease
treatment to include, among others, greater efficacy in reducing motor complications, reducing side effects and reducing pill
burden.
Market.
According to a 2018 report by Global Data, Parkinson’s disease is the second most common chronic progressive neurodegenerative
disorder in the elderly after Alzheimer’s disease, affecting 1%–2% of individuals worldwide over the age of 65 and
the annual growth of Parkinson’s disease cases in individuals over the age of 65 from 2016 to 2026, in the Seven Major Markets,
is estimated to be 2.28%. According to Global Data, in 2016 the market for pharmaceutical treatments for Parkinson’s disease
was approximately $3.1 billion a year in the Seven Major Markets growing to $8.8 billion by 2026. According to a 2016 Global Burden
of Disease Study there are approximately 6.1 million people worldwide who suffer from Parkinson’s disease.
We
have also conducted, together with leading consultants, market assessment of AP-CD/LD for the treatment of the symptoms associated
with advanced Parkinson’s disease. The assessment indicates there is a substantial market for AP-CD/LD with hundreds of
thousands of patients suffering with Parkinson’s disease appropriate for AP-CD/LD treatment.
Our
Solution — AP-CD/LD
AP-CD/LD,
our lead product candidate, is in development for the treatment of Parkinson’s disease symptoms. AP-CD/LD is an Accordion
Pill that contains the generic drugs Carbidopa and Levodopa, which are currently approved for the treatment of Parkinson’s
disease symptoms. We have successfully completed a Phase II clinical trial, and we completed a Phase III clinical trial of AP-CD/LD,
top-line results of which were announced in July 2019.
AP-CD/LD
– Clinical Trials
Phase
III ACCORDANCE Study
The
Phase III ACCORDANCE clinical trial of AP-CD/LD was a multi-center, global, randomized, double-blind, double-dummy, active-controlled,
parallel-group study in adult subjects with advanced PD. The study was evaluating the safety and efficacy of AP-CD/LD compared
with immediate release CD/LD (IR-CD/LD; Sinemet) as a treatment for the symptoms of PD.
The
study enrolled a total of 462 patients into the Sinemet titration period. After the multiple titration and optimization steps,
320 patients were then randomized into the 13-week double-blinded portion of the study. The study was conducted at approximately
90 clinical sites throughout the U.S., Europe and Israel.
Preliminary
analysis of the baseline data for the enrolled population shows:
|
●
|
Average
age at study entry was 63 and 65% of enrolled patients were male;
|
|
●
|
Entering
patients had a diagnosis of PD for 8.8 years on average;
|
|
●
|
The
average daily levodopa dose for patients upon entering the blinded portion of the study
was in excess of 800 mg and the most common Accordion Pill dose was AP-CD/LD 50/500mg
three times per day;
|
|
●
|
Average
daily OFF time for patients upon entering the study was approximately 6.1 hours; and
|
|
●
|
Approximately
31% of patients were enrolled in the U.S.
|
Prior
to the 13-week randomized portion of the study, the ACCORDANCE study had two open label periods of 6 weeks each during which all
patients in these open label periods were first stabilized and optimized on the active comparator, Sinemet, and then on AP-CD/LD.
All patients who completed the 13-week randomized period were eligible to continue in an Open Label Extension study, or the OLE
study, in which they received treatment with AP-CD/LD for up to an additional 12 months.
The
following is an illustration of the study design:
The
primary efficacy endpoint of the study was the change from baseline to endpoint in the percentage of daily off time during waking
hours based on Hauser home diaries. The study was 90% powered to be statistically significant for a one-hour difference in off
time between Sinemet and AP-CD/LD.
Secondary
endpoints included change from baseline to endpoint in “on time” without troublesome dyskinesia during waking hours,
CGI-I at endpoint as recorded by physician and patient and change from baseline through endpoint in the Unified Parkinson’s
Disease Rating Scale (UPDRS) Score parts 2 and 3.
In
July 2019, we announced top-line results from our pivotal Phase III clinical for AP-CD/LD for the treatment of advanced Parkinson’s
disease known as the ACCORDANCE study in which the ACCORDANCE study did not achieve its primary objective. The ACCORDANCE study
featured two open-label titration steps where patients were first optimized on immediate release CD/LD, and then optimized on
the AP-CD/LD formulation. Patients entered the study with an average OFF time of 6.0 hours per 16-hour day. After the initial
open-label titration, the average OFF time was reduced to 5.02 hours. Double blinded treatment for 13 weeks with either immediate
release or AP CD/LD led to further improvements in OFF time, with the final OFF time for the IR treated group at 4.76 hours and
the OFF time for the AP group at 4.53 hours. Therefore, while AP-CD/LD provided treatment for Parkinson’s disease symptoms
comparable to the immediate release preparation, it did not achieve the primary objective of demonstrating statistically superiority
over immediate release CD/LD under the conditions established in the protocol.
The
following figure displays the average hours of “off” time of the AP-CD/LD treated group and the IR treated group:
From
our review of the data, we observed a meaningful reduction in OFF time in certain subsets of patients and from a safety perspective,
treatment-emergent adverse effects observed with AP-CD/LD were generally consistent with the known safety profile of CD/LD formulations
and no new safety issues were observed throughout the double-blinded study, during the gastroscopy safety sub-study or the 12-month
open-label extension study. We believe that both dosing was suboptimal and titration targets in the protocol were suboptimal.
The
following figures display the post hoc analysis of a subset of patients that did not require the maximal AP dose of 1500 mg LD
and who received 1.6 to 2.0 dose ratio of AP LD to IR LD.
We
have completed the analysis of the full data set and we are currently seeking to partner AP-CD/LD as the basis for the strategy
for AP-CD/LD moving forward.
Phase
II Clinical Trial
Our
Phase II clinical trial with AP-CD/LD was a multi-center, open-label, randomized, crossover, active control trial that included
five groups. Overall, 60 patients completed the trial per protocol, in several medical centers in Israel. The Phase II clinical
trial assessed safety, PK and pharmacodynamics/efficacy in patients with various stages of Parkinson’s disease compared
with their current Levodopa treatment. Each group of the clinical trial was deemed to initiate upon the first patient enrolling
in a group and to be completed upon the conclusion of data analysis. The initiation and completion dates for groups 1, 3, 4, 5
and 6 were August 2009 – December 2009, April 2010 – August 2010, December 2010 – July 2011, August 2011 –
November 2011 and December 2011 – October 2012, respectively. The following table details the structure, design and purpose
of the Phase II clinical trial:
Group
Number
|
|
Trial
Design
|
|
Trial
Purpose
|
|
Population
|
|
N
(PP)
|
|
Test
Treatment
|
|
Treatment
and
Duration*
|
|
Group
1
|
|
Open-label,
multi-dose, multi-center, randomized
|
|
2-way
crossover comparative PK trial
|
|
Early-stage PD patients
|
|
12
|
|
AP-CD/LD 50/250
mg
|
|
b.i.d. for 7 days
|
|
Group
2
|
|
This trial was originally planned in early non-fluctuators with a dose of 50/375 mg b.i.d. In light of the satisfactory PK results with 50/250 mg b.i.d. in this population, the higher dose was considered unnecessary and therefore the trial was not performed.
|
Group
3
|
|
Open-label,
multi-dose, multi-center, randomized
|
|
2-way
crossover comparative PK and PHDS trial
|
|
Advanced PD patients
|
|
10a
|
|
AP-CD/LD 50/375
mg
|
|
b.i.d. for 7 days
|
|
Group
4**
|
|
Open-label,
multi-dose, multi-center, randomized
|
|
2-way crossover
comparative PHDS trial
|
|
Advanced PD patients
|
|
16
|
|
AP-CD/LD 50/375
mg
|
|
b.i.d. for 21 days
|
|
Group
5b**
|
|
Open-label,
multi-dose, multi-center, randomized
|
|
2-way crossover
comparative PHDS trial
|
|
Advanced PD patients
|
|
4
|
|
AP-CD/LD 50/500
mg
|
|
b.i.d. for 21 days
|
|
Group
6**
|
|
Open-label,
multi-dose, multi-center, randomized
|
|
2-way crossover
comparative PHDS trial
|
|
Advanced PD patients
|
|
18
|
|
AP-CD/LD 50/500
mg
|
|
b.i.d. for 21 days
|
|
|
a
|
Eight
patients completed the PK trial.
|
|
b
|
Group
5 was terminated early due to low enrollment.
|
|
|
d = days; PP = Per
Protocol; N = number of subjects; PD = Parkinson’s disease; PHDS = pharmacodynamics.
|
|
*
|
Not
including add-on dosing of immediate release Carbidopa/Levodopa, if needed.
|
|
**
|
Compared
against each patient’s optimized current Levodopa treatment.
|
Pharmacokinetic
Results
Group
1 of our Phase II clinical trial with AP-CD/LD was conducted with 12 male and female patients with non-fluctuating Parkinson’s
disease. The crossover design included the following treatment arms: (i) AP-CD/LD 50/250 mg administered two times a day, or b.i.d.
and (ii) immediate release CD/LD 25/250 mg administered by half tablet q.i.d, resulting in a total daily dosage of 50/500mg. The
treatments were administered for six days, with the seventh day consisting of PK testing. On the PK day of the control period,
patients were given an additional 50 mg of Carbidopa (12.5 mg four times a day, or q.i.d.) to achieve the recommended daily 70
– 100 mg dose of Carbidopa. Immediately following the PK testing on day seven, the patients crossed over to the other treatment
to repeat the seven day process. This study concluded that (i) the bioavailability of Levodopa when administered via AP-CD/LD
was similar to the immediate release reference; (ii) AP-CD/LD provided more stable plasma levels of Levodopa, with reduced peak-to-trough
ratio, when compared to the immediate release reference; and (iii) AP-CD/LD provided higher morning Levodopa plasma levels than
the immediate release reference.
Group
3 of our Phase II clinical trial with AP-CD/LD was conducted with ten male and female patients with advanced, fluctuating Parkinson’s
disease, of which eight completed the PK trial per protocol. The crossover design included the following treatment arms: in the
AP-CD/LD treatment arm, the AP-CD/LD 50/375 mg was administered b.i.d. for six at home days of treatment with up to an additional
three add-on immediate release Carbidopa/Levodopa, as needed, and on day seven, b.i.d. administration of AP-CD/LD 50/375 mg. In
the control arm, the patient’s current treatments were administered for six at home days and, on the seventh day, they were
given immediate release Carbidopa/Levodopa 18.75/187.5 mg q.i.d., resulting in a total dosage of 75/750 mg. On the seventh day
of each treatment regime, we conducted PK testing. Immediately following the PK testing on day seven, the patients were crossed
over to the other treatment to repeat the seven day process.
These
trials concluded that (i) the PK of AP-CD/LD demonstrated an efficient controlled-release profile, with significantly more stable
Levodopa levels; (ii) the Levodopa absorption phase was increased more than six-fold versus the control treatment; (iii) the b.i.d.
administration of AP-CD/LD provided daily coverage of therapeutic Levodopa plasma levels; (iv) the peak-to-trough ratio in Levodopa
plasma levels was half of those of the control; (v) the morning, or pre-first dose, Levodopa plasma levels of AP-CD/LD, were significantly
higher than the control; and (vi) Levodopa’s high bioavailability was preserved when using AP-CD/LD.
The
following figure displays the concentrations of Levodopa in plasma of patients over time, comparing AP-CD/LD (pink) to the reference
treatment (blue):
AP-CD/LD
Phase II clinical trial — more stable Levodopa levels with statistically significant
reduced peak-to-trough fluctuations
The
PK results showed that peak to trough ratio, which measures the maximum average concentration relative to the minimum average
concentration of LD plasma levels, was reduced from 29.9 to 3.2 with the AP-CD/LD. Cmax/Cmin with the AP-CD/LD was 5.8. The average
LD plasma levels during time 0-16 hours was 1,038 ng/ml.
Pharmacodynamics
Results
The
following figure sets forth the structure of the Phase II clinical trial for Groups 4 and 6:
|
*
|
Patient’s
optimized CD/LD regimen.
|
CD/LD
= Carbidopa/Levodopa
Groups
3, 4 and 6 of our Phase II clinical trial examined the pharmacodynamic effects of AP-CD/LD. Each group assessed the effects in
patients with advanced Parkinson’s disease; ten, 16 and 18 patients completed the trials per protocol in Groups 3, 4 and
6, respectively. Groups 3 and 4 tested AP-CD/LD in the 50/375 mg strength, administered b.i.d. with additional CD/LD immediate
release tablets if needed; Group 6 tested the 50/500 mg strength administered b.i.d. with additional CD/LD immediate release tablets
if needed. In these three trials, AP-CD/LD was compared to the patients’ current Levodopa treatment (including a dopamine
decarboxylase inhibitor, such as Carbidopa). All three groups were cross-over, with Group 3 receiving the treatments as described
above and Groups 4 and 6 receiving each of their current treatment and AP-CD/LD for 21 days, with the second tested treatment
starting immediately after completion of the first. In Groups 4 and 6, off time, on time and dyskinesia were assessed by patient-completed
home diaries during days 18 through 20 of each arm.
Because
Levodopa is usually prescribed for long-term treatment, three weeks of treatment with AP-CD/LD was sufficient to demonstrate statistically
significant improvements in the primary endpoint, as well as most of the secondary endpoints. The statistical significance of
a result was captured by the associated “p-value”, or the estimated probability that the observed effect was by chance.
A “p-value” of less than 0.05 implied that there was less than a 5% probability that the observed effect was by chance,
and was generally accepted as a statistically significant event.
These
studies demonstrated that (i) total off time was decreased when taking AP-CD/LD versus the control, by 44% and 45% in Groups 4
and 6, respectively (statistically significant p<0.0001); (ii) improvements in off time and on time without troublesome dyskinesia
did not come at the expense of an increase of on time with troublesome dyskinesia, and, moreover, with the AP-CD/LD 50/500 mg
troublesome dyskinesia was decreased by 0.5 hours (statistically significant p = 0.002); (iii) the effect of AP-CD/LD on total
off time and on time with troublesome dyskinesia resulted in a total increase of “good” on time (i.e., without troublesome
dyskinesia) of 2.1 and 2.7 hours per day in Groups 4 and 6, respectively (statistically significant p<0.0001); (iv) the improvements
in treating symptoms with AP-CD/LD were achieved with fewer daily doses; and (v) the improvements in treating symptoms with AP-CD/LD
correlate with stable Levodopa plasma levels throughout the day with appropriate therapeutic levels of the drug.
The
figure below reflects the mean total off time in hours over a 24 hour period during days 18 through 20 of Groups 4 and 6. The
average total off time was reduced by 1.9 hours and 2.3 hours with AP-CD/LD 50/375 mg (Group 4) and 50/500 mg (Group 6), respectively.
This reduction is statistically significant (p<0.0001).
AP-CD/LD
– Significant reduction of total off time compared to current Levodopa treatment
The
figure below reflects the mean total “good” on time (on time without troublesome dyskinesia) in hours over a 24 hour
period during days 18 through 20 of Groups 4 and 6. The average total “good” on time was increased by 2.1 hours and
2.7 hours with AP-CD/LD 50/375 mg (Group 4) and 50/500 mg (Group 6), respectively. This reduction is statistically significant
(p<0.0001).
AP-CD/LD
– Increase of total “good” on time compared to current Levodopa treatment
The
figure below reflects the mean total on time with troublesome dyskinesia in hours over a 24 hour period during days 18 through
20 of Groups 4 and 6. On time with troublesome dyskinesia was not changed and decreased by 0.5 hours (p = 0.002) with AP-CD/LD
50/375 mg (Group 4) and 50/500 mg (Group 6), respectively.
AP-CD/LD
– Reduction of total on time with dyskinesia compared to current Levodopa treatment
Finally,
the figure below displays the mean number of daily Levodopa administrations of the treatments in Groups 4 and 6.
AP-CD/LD
–Number of daily Levodopa administrations* compared to current Levodopa treatment
|
*
|
In
the administration of the AP-CD/LD arm, patients received b.i.d. AP-CD/LD pills and were allowed to take additional commercially
available immediate release Carbidopa/Levodopa formulations, as add-ons when needed. As seen in the figure above, patients took,
in addition to the b.i.d. AP-CD/LD pills, one-and-a-half to two commercially available immediate-release Carbidopa/Levodopa formulations,
in Groups 4 and 6, respectively.
|
Demonstration
of the clinical benefits of these peak to trough ratios will be further studied and confirmed in the ACCORDANCE study.
Phase
I Clinical Trials
We
conducted five Phase I clinical trials - four to assess the PK profile of Levodopa when administered in several formulations and
one to measure the GR time of our Accordion Pill without an active ingredient.
The
first PK trial was conducted with early formulations in 24 healthy volunteers to assess the PK profile of Levodopa when administered
in the following three forms: (i) in an Accordion Pill with a dosage of 75/300 mg; (ii) in the immediate release form currently
on the market, Sinemet; and (iii) in the controlled release form currently on the market, Sinemet CR. This group underwent a partially
randomized open trial compared with immediate release Sinemet and controlled release Sinemet. The trial results indicated a significant
prolongation of Levodopa’s mean residence time, or MRT, in the blood when administered with the Accordion Pill compared
with the Sinemet and Sinemet CR. Furthermore, the study showed the level of Levodopa received with the Accordion Pill reached
treatment-relevant levels.
The
second PK trial was conducted with early formulations in 23 healthy volunteers to assess the PK profile of Levodopa when administered
in the following two forms: (i) an Accordion Pill in two formulations, 75/300 mg and 50/200 mg; and (ii) in the currently marketed
immediate release form, Sinemet. This was a randomized open trial, compared with immediate release Sinemet. The trial results
indicated a very significant increase in the MRT of Levodopa in the blood when administered with the Accordion Pill in both formulations,
and a very significant prolongation of the absorption phase (up to 12 hours) of Levodopa was demonstrated when administered with
the Accordion Pill compared with Sinemet (two hours).
The
third PK trial was conducted with the AP-CD/LD 50/500 mg Phase II formulation in 18 healthy volunteers to assess the PK profile
of Levodopa when administered in the following two forms: (i) AP-CD/LD 50/500 mg; and (ii) the currently marketed immediate release
form, Sinemet. This was a randomized open trial, compared with immediate release Sinemet. The trial results indicated that the
absorption phase of Levodopa was increased to approximately ten hours when administered with the Accordion Pill compared to approximately
two hours with Sinemet.
The
fourth PK trial was conducted in order to determine the performance of the to-be-marketed formulation of AP-CD/LD when dosed three
time per day (t.i.d). The objective of this open-label, crossover PK study was to compare the plasma levodopa variability in 12
Parkinson’s disease patients treated with standard levodopa therapy and with AP-CD/LD 50/500 mg t.i.d. On day one, all participants
received 1.5 tablets of standard Sinemet 25/100 mg five times at approximately three-hour intervals. Plasma was collected for
PK determination at 30-minute intervals for 16 hours in the clinic. This period provided the reference PK profile for Sinemet.
On days two through seven, PD patients were treated at home with AP-CD/LD 50/500 mg capsules dosed t.i.d., at approximately five-hour
intervals. On day eight, participants returned to the clinic and PK assessments were repeated as described above. The primary
outcome measure in this study was the fluctuation index [(Cmax-Cmin)/Cavg] in plasma levodopa concentration at steady state (between
hours four and 16.) The key secondary endpoint was the levodopa coefficient of variation. AP-CD/LD 50/500 mg t.i.d. met its primary
endpoint demonstrating significantly less variability than standard oral CD/LD when dosed 5x/ day in the levodopa fluctuation
index (p<0.005) (see the table below). These results were supported by the findings of significant outcomes on each of the
pre-specified sensitivity analyses. Similar results were observed for the key secondary endpoint of coefficient of variation of
plasma levodopa levels (p<0.047). AP-CD/LD was very well tolerated with no reported adverse events.
|
|
Primary Endpoint:
Levodopa Fluctuation Index at Steady State (4-16 Hours)
|
|
Treatment/ Difference
|
|
Mean Value
|
|
|
95% Confidence Interval
|
|
|
p-Value
|
|
Sinemet (IR-CD/LD)
|
|
2.22
|
|
|
1.82 – 2.62
|
|
|
--
|
|
Accordion AP-CD/LD
|
|
1.59
|
|
|
1.23 – 1.95
|
|
|
--
|
|
Difference
|
|
0.63
|
|
|
0.24 – 1.03
|
|
|
0.005
|
|
The
GR Phase I clinical trial was an MRI study conducted with 17 Parkinson’s patients to measure the GR time of the Accordion
Pill without an active pharmaceutical ingredient. This trial was a non-randomized open trial comparison of a few formulations.
The results indicated that GR of over 13 hours can be achieved in these patients using all three formulations.
Safety
AP-CD/LD
was tested for safety on Göttingen minipigs in accordance with the FDA’s guidelines. The study was 180 days and a subgroup
of minipigs were kept for recovery for an additional 30 days without receiving any treatments. This study included the following
four arms: AP-CD/LD 50/400 mg three times daily, AP-CD/LD 50/500 mg b.i.d., a Carbidopa/Levodopa reference (Sinemet) and a placebo.
The study was completed in March 2014. The study evaluated (i) animal wellbeing as represented by behavior, food consumption and
weight, (ii) microscopic and macroscopic organ pathology, (iii) ophthalmic evaluation and (iv) electrocardiograms of the miniature
pigs, which is the recording of the electrical activity of the heart. This study’s results form an additional basis regarding
the safety of AP-CD/LD.
In
the Phase I and Phase II clinical trials, AP-CD/LD was well-tolerated with no serious adverse events that were related to the
study drug. Adverse events were generally mild in severity and resolved without intervention. The most common adverse events reported
included nausea, vomiting, diarrhea, abdominal pain, chest pain and fatigue, which are known adverse events associated with Levodopa
treatment.
In
the Phase III clinical trial, treatment-emergent adverse effects observed with AP-CD/LD were generally consistent with the known
safety profile of CD/LD formulations and no new safety issues were observed throughout the double-blinded study, during the gastroscopy
safety sub-study or the 12-month open-label extension study.
Development
of Accordion Pills with additional drugs
In
August 2016, we announced the initiation of a new clinical development program for the Accordion Pill platform with the two primary
cannabinoids contained in Cannabis Sativa, Cannabidiol (CBD) and 9-Tetrahydrocannabinol (THC), for treatment of various
pain indications. The Cannabis sativa plant is used in treatment of chronic pain and a variety of other indications. Previous
clinical studies conducted using the whole plant or specific extracts generated evidence of the cannabis analgesic activity. Furthermore,
extracts containing known amounts of the active plant driven compounds (mainly THC and CBD) or diverse synthetic THC derivatives
are promising treatments for painful conditions that do not respond properly to currently available treatments, such as chronic,
neuropathic, and inflammatory pain.
We
believe that AP-Cannabinoids hold the potential to address several major drawbacks of current methods of use and treatment with
cannabis and cannabinoids, such as short duration of effect, delayed onset, variability of exposure, variability of the administered
dose and adverse events that correlate with peak levels. AP-Cannabinoids are designed to extend the absorption phase of CBD and
THC, with the goal of more consistent levels, for an improved therapeutic effect. We believe that the cannabis market has significant
commercial potential and is projected to grow to approximately $90 billion by 2026.
In
August 2017, we announced the results of a Phase I clinical trial that compared the safety, tolerability and PK of AP-THC/CBD
with Sativex®. This Phase I trial is a single-center, single-dose, randomized, three-way crossover study in Israel
to compare the safety, tolerability and PK of two formulations of AP-CBD/THC with Buccal Sativex® in 21 normal
healthy volunteers. The results showed that patients in the Accordion Pill CBD/THC arm demonstrated significant improvements in
exposure to CBD (290% to 330%) and THC (25% to 50%) compared with Sativex®. The median time to peak concentration
was 2-3 times longer than Sativex and absorption was significantly higher. Additionally, the formation of THC metabolites was
meaningfully reduced, and the drug had a good safety profile and was well-tolerated with no serious adverse events reported. Sativex®
is a commercially available oral buccal spray containing CBD and THC. Following the Phase 1 clinical trial, we evaluated
the program and decided as a next step to develop two new Accordion Pills containing only the individual cannabinoid components,
namely CBD and THC. In December 2018, we initiated a PK study of AP-THC and the results of the study demonstrate that the custom
designed AP delivery system in the AP-THC PK study did not meet our expectations. In December 2020, we initiated a PK clinical
trial in Israel evaluating the safety, tolerability and PK of an optimized AP-THC and we expect to report top line results from
this study in the second quarter of 2021.
While
the ACCORDANCE results were not what we expected, we continue to believe in the potential of the Accordion Pill platform. In December
2018, we reported that we successfully developed an Accordion Pill for a Novartis proprietary compound that met the required in
vitro specifications set forth in a feasibility agreement with Novartis. In 2019 we completed the human PK study and its results
demonstrated that the AP met the technical requirements set forth by Novartis. In December 2019, Novartis, following an internal
and revised commercial strategic assessment, advised us that this program no longer meets Novartis’ mid to long-term strategic
goals. Novartis paid us $1.5 million on conclusion of the program. We restructured our clinical manufacturing planned to support
this program in order to reduce costs.
In
May 2019, we reported entering into a research collaboration agreement with Merck for the development of a custom-designed AP
for one of Merck’s proprietary compounds. We met the required in vitro specifications for that compound but do not anticipate
an in-vivo study. In October 2020, we entered into a new research collaboration agreement with Merck for another compound. Details
of the new agreement are confidential.
In
December 2020, we entered into a cannabinoid research collaboration agreement with GW to explore using the AP platform for an
undisclosed research program.
In
March 2021, we entered into a feasibility agreement on a confidential basis with a pharmaceutical company to develop a custom-designed
AP for a rare disease indication.
We
successfully completed a Phase II clinical trial for Accordion Pill Zaleplon, or AP–ZP, in November 2011 under an IND that
we submitted to the FDA for AP–ZP as a treatment for the induction and maintenance of sleep in patients suffering from insomnia.
The FDA also agreed that AP-ZP could also benefit from the streamlined pathway available through filing an NDA pursuant to Section
505(b)(2) of the FDCA. The FDA indicated in written correspondence to us that we may be able to design the development program
for AP–ZP in a manner that would allow us to obtain sufficient data for the NDA submission for AP–ZP in one pivotal
Phase III clinical trial. The details of such a trial were not determined or confirmed with the FDA. We are not currently developing
or seeking a partner to develop AP-ZP and we have not presently budgeted any funds toward its development.
In
addition, in March 2016, we completed a Phase I clinical trial for one of our product candidates that is being developed for the
prevention and treatment of gastroduodenal and small bowel NSAID induced ulcers. The PK results demonstrated in the Phase I trial
were within the well-defined safety levels of the drug. At this time, we have not presently budgeted any funds toward the development
of this product candidate.
Manufacturing
Our
production and packaging facility is located in Har Hotzvim, in Jerusalem, Israel, in the same building as our offices. This production
and packaging facility was granted the Certificate of GMP Compliance of Manufacturer from the Israeli Ministry of Health in August
2018. This certificate applies in Israel, as well as in the EU, in accordance with the Conformity Assessment and Acceptance of
Industrial Products (CAA) agreement between the EU and Israel. The certificate is valid until August 2021.
Our
fully automated assembly line enables us to manufacture approximately two to three million capsules annually. With respect to
any future commercialization of the AP-CD/LD, we have decided to rely on a third-party manufacturer. Establishing a manufacturing
facility to produce commercial quantities of our products will require a substantial investment by any party intending to manufacture
our products.
In
March 2018, we entered into a Term Sheet for Manufacturing Services with LTS, for the commercial manufacture of AP-CD/LD, which
was subsequently superseded in December 2018 by a Process Development Agreement. Under the agreement, LTS will exclusively manufacture
and supply us with AP-CD/LD capsules using our proprietary Accordion Pill production technology in LTS’ manufacturing facility
in Andernach, Germany subject to the execution and terms of a manufacturing and supply agreement to be negotiated and entered
into between us and LTS. The large-scale automated production line for manufacturing AP-CD/LD capsules, or the Production Line,
will be owned by us with LTS operating and maintaining the Production Line and owning the other production equipment for AP-CD/LD.
Under the agreement, we are responsible for compensating LTS for certain development activities and we agreed to bear the costs
incurred by LTS to acquire the other production equipment for AP-CD/LD, or Production Equipment, which amounted to approximately
$7.8 million and was fully paid; however, such amount is required under the agreement to be later reimbursed to us by LTS in the
form of a reduction in the purchase price of the AP-CD/LD capsules. In addition, upon our decision to not continue with the project
or commercialization of the product, LTS has the right to (i) purchase the Production Equipment from us in which case LTS is required
to pay to us the share of the cost of the Production Equipment paid by us less up to two million Euros for upgrade costs of LTS’s
facility invested by LTS or (ii) transfer such Production Equipment to us in which case we are required to pay LTS up to two million
Euros for upgrade costs of LTS’s facility invested by LTS. The agreement shall continue in force unless earlier terminated
or upon the termination of any future manufacturing agreement. The agreement contains several termination rights, including, among
others, in the cases of bankruptcy, breach by either party, change of control of either of the parties, or the sale or licensing
by us of the Accordion Pill to a third party.
In
October 2019, we completed the qualification studies for the commercial scale manufacture of the Accordion Pill and we have initiated
the validation and stability studies of certain batches which are expected to serve as the clinical material for the next Phase
3 clinical trial plan. We have suspended further validation and stability studies and we intend to initiate the validation and
stability studies of the remaining batches upon partnering the AP-CD/LD program.
We
have received Israeli government grants for certain of our research and development activities. The terms of these grants may
require us to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel. With
respect to the manufacturing of the AP-CD/LD, the Israel Innovation Authority, or IIA (formerly known as the Office of the Chief
Scientist of the Ministry of Economy and Industry, or the OCS) approved our request to transfer 100% of the manufacturing rights
to such product, which was developed under one of the IIA funded programs, to a non-Israeli manufacturer. As a result, we will
be required to pay the IIA royalties from revenue generated from the AP-CD/LD product candidate at an increased rate and up to
an increased cap amount. The IIA noted that the approval granted was exceptional and that the IIA will not approve manufacturing
additional product candidates out of Israel.
The
FDA will likely condition granting any marketing and manufacturing approval, if any, on a satisfactory on-site inspection of our
manufacturing facilities. See “Item 1A. Risk Factors — Risks Related to the Clinical Development, Manufacturing and
Regulatory Approval of Our Product Candidates — Our product candidates are manufactured through a compounding, film casting
and assembly process, and if we or one of our materials suppliers encounters problems manufacturing our products or raw materials,
our business could suffer.”
Our
manufacturing process consists of the following stages: compounding, which includes manufacturing of solutions and/or suspensions;
film casting, which involves manufacturing of specific layers of films, including films containing the applicable drug; assembly
and capsulation, which is processing and folding the films into an accordion shape and capsulation; and packaging, which entails
packaging the pills in plastic bottles or blister packs.
Raw
Materials and Supplies
With
the exception of three inactive ingredients, we believe the raw materials that we require to manufacture AP-CD/LD and AP–Cannabinoids,
as well as the raw materials that we require for our research and development operations relating to our products, are widely
available from numerous suppliers and are generally considered to be generic pharmaceutical materials and supplies. Except as
described below, we do not rely on a single supplier for the current production of any product in development or for our research
and development operations relating to our products.
We
usually contract with suppliers in Israel and worldwide to purchase the materials required for the research and development operations
of our products. All the materials required in the research and development operations of our products are off-the-shelf pharmaceutical
products; special production or special requirements are not required to order these materials. We have no written agreements
with most of our suppliers. Rather, we submit purchase orders to our suppliers from time to time and as required.
Three
of our inactive ingredients used in our products have only one supplier of each such ingredient. The three suppliers are each
large, well-established suppliers (BASF, the Dow Chemical Company and Evonik), and most of the pharmaceutical industry relies
on these suppliers when they need to purchase certain pharmaceutical products such as these inactive ingredients. To avoid a shortfall
of these materials, we usually purchase sufficient material in advance for a period of at least one year. The pharmaceutical industry
usually relies on these three manufacturers as suppliers of specific materials. The prices of these commonly used raw materials
are not volatile.
Competition
The
pharmaceutical and drug delivery technologies industries are 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.
Assertio
Therapeutics, Inc. (formerly known as Depomed Inc.) has several products on the market based on its GR technology. Several companies
have reported research projects related to systems designed for GR including Teva Pharmaceutical Industries, Avadel Pharmaceuticals,
Lyndra Therapeutics, Merrion Pharmaceuticals, Sun Pharma and others, all of which develop products delivered orally that are designed
for GR. We are not aware of any approved drug delivery system currently on the market that is similar to the Accordion Pill.
Other
drug delivery technologies, other drugs on the market, new drugs under development (including drugs that are in more advanced
stages of development in comparison to our product pipeline) and additional drugs that were originally intended for other purposes,
but were found effective for the indications we target, may all be competitive to the current products in our pipeline. In fact,
some of these drug delivery systems and 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 and inexpensive. Moreover,
other companies of various sizes engage in activities similar to ours, including large pharmaceutical companies, such as Pfizer
and Novartis, who have established in-house capabilities for the development of drug delivery technologies. 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.
Current
Treatments on the Market and in Development for Parkinson’s Disease
The
current common treatments for Parkinson’s disease include Levodopa (usually used in conjunction with other drugs such as
Carbidopa), which is currently the standard and most efficient Parkinson’s medication used, and dopamine agonists, such
as bromocriptine, pergolide, pramipexole and ropinirole, as well as MAO inhibitors and COMT inhibitors. However, Levodopa therapy
is associated with “wearing-off”, a condition in which a treatment’s effects diminish over time as the disease
progresses, and dyskinesia, or involuntary disturbing movements.
We
believe our direct competition will include other technologies designed to address the need for more stable Levodopa levels. Our
initial approach with the AP-CD/LD program did not meet a statistically significant endpoint against Sinemet, a combination of
Levodopa and Carbidopa, which is sold by Merck, as well as generic Sinemet, which is sold by various generic manufacturers. Further
clinical work will be required to develop the AP-CD/LD if it is going to be competitive against existing treatments for Parkinson’s.
In addition, other technologies and drug delivery systems designed to address the Levodopa blood concentration problem currently
exist. To our knowledge, based on publicly-filed documents, press releases and published studies, we believe the companies described
below would be the primary competition with respect to AP-CD/LD.
Novartis
and Orion combine Levodopa and Carbidopa with Comtan (entacapone), a drug that inhibits the clearance of Levodopa from the blood,
thereby slowing the rapid drop in the Levodopa level in the blood. Additional drug candidates that are developed by Bial and Orion
are based on the same approach.
Solvay
Pharmaceuticals, which has been acquired by AbbVie Inc., introduced a drug delivery system based on implanting a tube in the duodenum
area attached to an external pump that releases Levodopa formulation directly to the NAW. This product has been approved for marketing
in the United States and Europe. The invasive nature of implanting a tube in patients, most of whom are elderly, as well as various
difficulties related to the system, are certain disadvantages of this technology.
Impax
Laboratories, which has merged with Amneal Pharmaceuticals, has developed a product, RytaryTM, or IPX066, a continuous
release Levodopa capsule formulation. The product was launched in April 2015. In addition, Amneal is developing IPX203, a new
extended-release oral capsule formulation of carbidopa and levodopa, as a potential treatment for symptoms of Parkinson’s
disease. IPX203 has commenced a Phase III clinical trial.
Civitas
Therapeutics, Inc., which was acquired by Acorda Therapeutics, Inc. in September 2014, has developed a product, INBRIJATM,
or CVT-301, a self-administered, adjunctive, as needed, inhaled oral Levodopa, for the ability to rapidly and predictably treat
“off” episodes as they occur. In December 2018, Acorda announced that the FDA approved INBRIJATM for intermittent
treatment of OFF episodes in people with Parkinson’s disease treated with carbidopa/levodopa.
NeuroDerm
Ltd., which was acquired by Mitsubishi Tanabe Pharma Corporation in October 2017, has the following subcutaneous product candidates,
ND0612H and ND0612L for the treatment of patients suffering from Parkinson’s disease. These product candidates have completed
Phase II clinical trials. In August 2019, the company announced that it was advancing ND0612 into a Phase III trial.
Other
technologies for delivering Levodopa, such as through the skin (transdermal administration) using a patch, injections or inhalations,
as well as new formulations and chemical modifications of Levodopa and/or complementary drugs, currently exist and might compete
with AP-CD/LD as well, but, to our knowledge, these technologies, formulations and modifications have not yet been submitted for
approval.
Government
Regulation
In
the United States, the FDA regulates pharmaceuticals under Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing
regulations. These products are also subject to other federal, state, and local statutes and regulations, including federal and
state consumer protection laws, laws protecting the privacy of health-related information, and laws prohibiting unfair and deceptive
acts and trade practices.
The
process required by the FDA before a new drug product may be marketed in the United States generally involves the following: completion
of extensive preclinical laboratory tests and preclinical animal studies, performed in accordance with the FDA’s Good Laboratory
Practice, or GLP, regulations; submission to the FDA of an IND which FDA must allow to become effective before human clinical
trials in the US may begin; performance of adequate and well-controlled human clinical trials to establish the safety and efficacy
of the product candidate for each proposed indication; and submission to the FDA of an NDA for the drug, after completion of all
pivotal clinical trials. An IND is a request for authorization from the FDA to administer an investigational drug product to humans.
Clinical
trials that involve the administration of the investigational drug to human subjects are conducted under the supervision of qualified
investigators in accordance with current Good Clinical Practice, or cGCP which is intended to protect the rights, safety and welfare
of humans participating in research and assure the quality, reliability and integrity of data collected. A protocol for each clinical
trial conducted in the US, or other protocols under IND even not conducted in the US, and any subsequent protocol amendments must
be submitted to the FDA as part of the IND. Additionally, approval must also be obtained from each clinical trial site’s
Institutional Review Board, or IRB, before the trials may be initiated, and the IRB must monitor the trial until completed. There
are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.
Clinical
trials are usually conducted in three phases. Phase I clinical trials are normally conducted in small groups of healthy volunteers
to assess safety and tolerability. After an acceptable dose has been established, the drug is administered to small populations
of patients (Phase II) to look for initial signs of efficacy in treating the targeted disease or condition and to continue to
assess safety. Phase III clinical trials are usually multi-center, double-blind controlled trials in hundreds or even thousands
of subjects at various sites to assess as fully as possible both the safety and effectiveness of the drug.
The
FDA, the IRB, or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including
a finding that the trial subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen
by a data safety monitoring board, or DSMB. This group of experts reviews unblinded data from clinical trials and provides authorization
for whether or not a trial may move forward at designated check points. A DSMB may order a trial halted if it believes that the
risk to subjects is unacceptable or the product is so effective as to make it unethical to administer placebos or alternate treatments
to the non-treatment arms. The sponsor may also suspend or terminate a clinical trial based on evolving business reasons.
Assuming
successful completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational
drug product information is submitted to the FDA in the form of an NDA requesting approval to market the product in the US for
one or more indications. The NDA must be accompanied by a substantial user fee, which may be waived in certain circumstances.
The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous
results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing,
controls and proposed labeling, among other things. FDA has sixty days from the applicant’s submission of an NDA to either
accept the NDA for filing or issue a refusal-to-file letter if it finds that the application is not sufficiently complete to permit
substantive review.
Once
the NDA submission has been accepted for filing, the FDA’s goal is to review standard applications within ten months of
filing. However, the review process is often significantly extended by FDA requests for additional information or clarification.
The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application
should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations.
After
the FDA evaluates the NDA and conducts inspections of manufacturing facilities involved in the production of the product, as well
as inspections of selected clinical trial sites for data integrity, it may issue an approval letter or, instead, a Complete Response
Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
A Complete Response Letter indicates that the application is not ready for approval in its present form. A Complete Response Letter
may require additional clinical data or other significant, expensive and time-consuming requirements related to clinical trials,
preclinical studies or manufacturing, or any combination thereof. Even if such additional information is submitted, the FDA may
ultimately decide that the NDA does not satisfy the criteria for approval. The FDA could also approve the NDA with restrictive
indications, labeling that includes particular risk information, or a risk evaluation and mitigation strategy, or REMS, which
could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution
methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes
to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market
studies or clinical trials. Such post-market testing may include Phase IV clinical trials and surveillance to further assess and
monitor the product’s safety and effectiveness after commercialization.
After
regulatory approval of a drug product is obtained, we would be required to comply with a number of post-approval requirements.
As a holder of an approved NDA, we would be required to report, among other things, certain adverse reactions and production problems
to the FDA, to provide updated safety and efficacy information, and to comply with requirements concerning advertising and promotional
labeling for any of our products. Also, quality control and manufacturing procedures must continue to conform to current Good
Manufacturing Practices, or cGMP after approval, which includes, among other things, maintenance of a stability program. The FDA
periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive,
and record keeping requirements. In addition, changes to the manufacturing process are strictly regulated, and, depending on the
significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation
and correction of product out of specification results and impose reporting and documentation requirements upon us and any third-party
manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area
of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
We
produce, and expect to continue to produce, the quantities of our product candidates required for our clinical trials, and we
do not yet have a need to produce our product candidates for commercial purposes. Future FDA and state inspections may identify
compliance issues at our facilities or at the facilities of our contract manufacturers or licensees that may disrupt production
or distribution, or require substantial resources to correct. In addition, discovery of previously unknown problems with a product
or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved
NDA, including withdrawal or recall of the product from the market or other voluntary withdrawal of the product’s approval,
seizure, or FDA-initiated judicial action that could delay or prohibit further marketing. Newly discovered or developed safety
or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications,
and also may require the implementation of other risk management measures. Also, new government requirements, including those
resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory
approval of our products under development.
In
addition, as the NDA holder, we will be responsible for legal and regulatory compliance for advertising and promotion of the drug
product. We are required to provide to the FDA copies of all drug promotion at the time of first use, and to ensure that all information
disseminated conforms to the product’s approved labeling and other FDA regulations and policies.
505(b)(2)
Applications
We
intend to submit NDAs for our proposed products, assuming that the clinical data justify submission, under Section 505(b)(2) of
the FDCA, assuming the FDA agrees with our assessment that a given proposed product qualifies for review under that section. If
the FDA disagrees with that assessment or revises its decision at a later date, we would be compelled to file under section 505(b)(1),
which is the normal route used for traditional new drugs where the data relied upon for the NDA filing have been developed by
the sponsor during its clinical trials. In contrast, Section 505(b)(2) permits the filing of an NDA when 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. The applicant may rely on published literature and the FDA’s findings of safety and effectiveness
based on certain pre-clinical or clinical studies conducted for an approved product. The FDA may also require companies to perform
additional studies or measurements to support the changes from the approved product. The FDA may then approve the new product
candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new
indication sought by the Section 505(b)(2) applicant. The abbreviated Section 505(b)(2) approval pathway increases the likelihood
that the timeframe and costs associated with commercializing products will be lower than under a typical Section 505(b)(1) approval
pathway.
Upon
approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover
the applicant’s product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published
in the Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the Orange Book) identifies drug products
approved on the basis of safety and effectiveness by FDA under the FDCA and related patent and exclusivity information. When an
Abbreviated New Drug Application, or ANDA, applicant files its application with the FDA, the applicant is required to certify
to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of
use for which the ANDA applicant is not seeking approval. To the extent that the Section 505(b)(2) applicant is relying on 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 Orange Book to the same extent that an ANDA applicant would.
Specifically,
the applicant must certify with respect to each patent that:
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the
required patent information has not been filed;
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the
listed patent has expired;
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the
listed patent has not expired, but will expire on a particular date and approval is sought
after patent expiration; or
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the
listed patent is invalid, unenforceable or will not be infringed by the new product.
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A
certification that the new product will not infringe the already approved product’s listed patents or that such patents
are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or
indicates that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the
listed patents claiming the referenced product have expired.
If
the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph
IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders
may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent
infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving
the ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision
in the infringement case that is favorable to the ANDA applicant. This same procedure that applied to an ANDA applicant also applies
to an NDA applicant under Section 505(b)(2).
Patent
Term Restoration and Extension
A
patent claiming a new drug product may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits
a patent restoration of up to five years for the patent term lost during product development and the FDA regulatory review. The
restoration period granted is typically one-half the time between the effective date of an IND and the submission date of an NDA,
plus the time between the submission date of an NDA and the ultimate approval date. Patent term restoration cannot be used to
extend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable
to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the
expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in
connection with one of the approvals. The USPTO reviews and approves the application for any patent term extension or restoration
in consultation with the FDA.
Marketing
Exclusivity
A
Section 505(b)(2) NDA applicant may be eligible for its own regulatory exclusivity period, such as three-year exclusivity. A Section
505(b)(2) NDA applicant for a new condition of use, or change to a marketed product, such as a new extended release formulation
for a previously approved product, may be granted a three-year market exclusivity if one or more clinical studies, other than
bioavailability or bioequivalence studies, were essential to the approval of the application and were conducted or sponsored by
the applicant. Should this occur, the FDA would be precluded from approving any other application for the same new condition of
use or for a change to the drug product that was granted exclusivity until after that three-year exclusivity period has run. Additional
exclusivities may also apply.
Reimbursement
We
face uncertainties over the pricing of pharmaceutical products. Sales of our product candidates will depend, in part, on the extent
to which the costs of our product candidates will be covered by third-party payors, such as federal health programs, commercial
insurance and managed care organizations. These third-party payors are increasingly challenging the prices charged for medical
products and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments
and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures, foreign governments and third-party
payors have shown significant interest in implementing cost-containment programs, including price controls, pricing transparency
disclosure obligations, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price
controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and
measures, could further limit our net revenue and results. If these third-party payors do not consider our products to be cost-effective
compared to other therapies, they may not cover any of our products after approved as a benefit under their plans or, if they
do, the level of payment may not be sufficient to allow us to sell our product candidates on a profitable basis.
Specifically,
in both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to
change the healthcare system in ways that could affect our ability to sell our product candidates profitably. In the United States,
the Medicare Prescription Drug, Improvement and Modernization Act of 2003, also called the Medicare Modernization Act, or MMA,
changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases
by the elderly and certain others. Prior to MMA, Medicare did not cover most outpatient prescription drugs. MMA created a new
voluntary Part D, which covers outpatient drugs for Medicare beneficiaries and is administered by private insurance plans that
operate partially at-risk under contract with the Centers for Medicare & Medicaid Services, or CMS. These private Part D plans
have incentives to keep costs down. MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered
drugs. In addition, this legislation provided authority for limiting the number of certain outpatient drugs that will be covered
in any therapeutic class.
In
recent years, Congress has considered further reductions in Medicare reimbursement for drugs administered by physicians. CMS has
issued and will continue to issue regulations to implement the law which will affect Medicare, Medicaid and other third-party
payors. Medicare, which is the single largest third-party payment program and which is administered by CMS, covers prescription
drugs in one of two ways. Medicare part B covers outpatient prescription drugs that are administered by physicians and Medicare
part D covers other outpatient prescription drugs, but through private insurers. Medicaid, a health insurance program for the
poor, is funded jointly by CMS and the states, but is administered by the states; states are authorized to cover outpatient prescription
drugs, but that coverage is subject to caps and to substantial rebates. CMS also has the authority to revise reimbursement rates
and to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through
legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect
the price we can receive for those products. While the MMA and implementing regulations apply primarily to drug benefits for Medicare
beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement
rates. Therefore, any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction
in payments from private payors.
In
March 2010, the Patient Protection and Affordable Care Act, as amended, or the Affordable Care Act, which was amended by the Health
Care and Education Affordability Reconciliation Act, or collectively, PPACA became law in the United States, a sweeping law intended
to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and
abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on pharmaceutical
and medical device manufacturers and impose additional health policy reforms. As amended, the PPACA expanded manufacturers’
rebate liability to include covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, increased
the minimum rebate due for innovator drugs (both single source drugs and innovator multiple source drugs) from 15.1% of average
manufacturer price, or AMP to 23.1% of AMP or the difference between the AMP and best price, whichever is greater. The total rebate
amount for innovator drugs is capped at 100.0% of AMP. The PPACA and subsequent legislation also narrowed the definition of AMP.
Furthermore, the PPACA imposes a significant annual, nondeductible fee on companies that manufacture or import certain branded
prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may affect our business
practices with healthcare practitioners, and a significant number of provisions are not yet, or have only recently become, effective.
The PPACA likely will continue to put pressure on pharmaceutical pricing, especially under the Medicare program, and may also
increase our regulatory burdens and operating costs. The PPACA remains subject to continuing legislative scrutiny, including efforts
by Congress to repeal and amend a number of its provisions, as well as administrative actions delaying the effectiveness of key
provisions. In addition, there have been lawsuits filed by various stakeholders pertaining to certain portions of the PPACA that
may have the effect of modifying or altering various parts of the law. Efforts to date to amend or repeal the PPACA have generally
been unsuccessful.
In
addition, other legislative changes have been proposed and adopted since the PPACA was enacted. In August 2011, then President
Obama signed into law the Budget Control Act of 2011, which, among other things, creates 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. Legislative and regulatory
proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical
products or to lower drug prices for pharmaceutical products.
In
November 2020, Joseph Biden was elected President and, in January 2021, the Democratic Party obtained control of the Senate. We
are not able to state with certainty what the impact of potential legislation will be on our business. 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 PPACA or the enactment
of additional legislation pursuant to healthcare and other legislative reform, we believe that legislation or regulations that
would 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.
Additionally,
in some countries, particularly the countries comprising the EU the pricing of pharmaceuticals and certain other therapeutics
is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable
time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we
may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies.
DEA
Our
AP-Cannabinoids product candidates for treatment of various pain indications, uses CBD or THC. These products are quite distinct
from crude herbal “medical marijuana,” and we intend to seek FDA approval for these products in accordance with the
customary FDA approval process and based on adequate and well-controlled clinical studies. However, the active ingredients in
our products are defined as controlled substances under the federal Controlled Substances Act of 1970, or CSA. Under the CSA,
the Drug Enforcement Administration of the United States Department of Justice, or DEA, places each drug that has abuse potential
into one of five categories. The five categories, referred to as Schedules I-V, carry different degrees of restriction. Each schedule
is associated with a distinct set of controls that affect manufacturers, researchers, healthcare providers, and patients. The
controls include registration with the DEA, labeling and packaging, production quotas, security, recordkeeping, and dispensing.
Schedule I is the most restrictive, covering drugs that have “no accepted medical use” in the United States and that
have high abuse potential.
If
and when any of our product candidates receive FDA approval, the DEA will make a scheduling determination and place the product
in a schedule other than Schedule I in order for it to be prescribed to patients in the United States. Accordingly, our ability
to ultimately commercialize the product will depend in part on the ultimate scheduling classification determination by DEA for
our product.
The
FDA has stated that it will continue to facilitate the work of companies interested in bringing safe, effective, and quality products
to market, including scientifically-based research concerning the medical uses of products derived from marijuana and the FDA
has approved synthetic compositions of the active ingredients found in marijuana. However, the use and abuse of controlled substances
is currently subject to political and social pressures from certain constituencies related to their usage which could result in
additional difficulty with respect to the approval of AP-Cannabinoids as a prescription pharmaceutical. For example, the FDA or
DEA may require us to generate more clinical data about the potential for abuse than that which is currently anticipated, which
could increase the cost and/or delay the launch of our product. In addition, DEA scheduling may limit our ability to achieve market
share in the United States due to restricted access and the disinclination of some physicians to prescribe more restrictive scheduled
controlled substances. For example, Schedule II drugs may not be refilled without a new prescription. These factors may limit
the commercial viability of AP-Cannabinoids in the United States.
Most
countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control
of narcotic substances, including the compounds in our AP-Cannabinoids product candidates. Countries may interpret and implement
their treaty obligations in a way that creates a legal obstacle to our obtaining approval to market our AP-Cannabinoids product
candidates. Approval to market in these countries could require amendments or modifications to existing laws and regulations that
such countries would be unwilling to undertake or may cause material delays in any marketing approval.
Other
U.S. Healthcare Laws and Compliance Requirements
In
the United States, our current and future activities with investigators, healthcare professionals, consultants, third-party payors,
patient organizations and customers are subject to healthcare regulation and enforcement by the federal government and the states
in which we conduct our business. Applicable federal and state healthcare laws and regulations include the following:
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The
federal healthcare Anti-Kickback Statute prohibits, among other things, persons from
knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly
or indirectly, in cash or in kind, to induce or reward either the referral of an individual
for, or the purchase, order, or recommendation of, any good, item, facility or service,
for which payment may be made under federal healthcare programs such as Medicare and
Medicaid.
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The
federal Anti-Inducement Act which prohibits persons from offering remuneration to beneficiaries
to induce them to use a particular item or service payable in whole or in part by Medicare
or Medicaid.
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The
Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, and its
corresponding regulations, prohibit physicians from referring patients for designated
health services (including outpatient drugs) reimbursed under the Medicare or Medicaid
programs to entities with which the physicians or their family members have a financial
relationship or an ownership interest, subject to narrow regulatory exceptions, and prohibits
those entities from submitting claims to Medicare or Medicaid for payment of items or
services provided to a referred beneficiary.
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The
federal False Claims Act imposes criminal and civil penalties, including civil whistleblower
or qui tam actions, against individuals or entities for knowingly presenting, or causing
to be presented, to the federal government claims for payment that are false or fraudulent
or making a false statement to avoid, decrease, or conceal an obligation to pay money
to the federal government.
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Health
Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and
civil liability for executing a scheme to defraud any healthcare benefit program and
also imposes obligations, including mandatory contractual terms, with respect to safeguarding
the privacy, security and transmission of individually identifiable health information.
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The
federal false statements statute prohibits 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.
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Analogous
state laws and regulations, such as state anti-kickback and false claims laws, apply
to sales or marketing arrangements and claims involving healthcare items or services
reimbursed by non-governmental third-party payors, including private insurers, and some
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.
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A
PPACA provision, generally referred to as the Physician Payments Sunshine Act or Open
Payments Program, imposes reporting requirements for applicable drug and device manufacturers
of covered products with regard to payments or other transfers of value made to physicians
and teaching hospitals, and certain investment/ownership interests held by physicians
and their immediate family members in the reporting entity. These disclosures are publicly
disclosed by the Centers for Medicare & Medicaid Services, or CMS.
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In
the European Union, the General Data Protection Regulation, or GDPR, —Regulation
EU 2016/679— was adopted in May 2016 and became applicable on May 25, 2018, or
GDPR. The GDPR further harmonizes 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.
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The
California Consumer Privacy Act of 2018, or CCPA, effective as of January 1, 2020, that
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.
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In
addition, failure to comply with the Israeli Privacy Protection Law 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.
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Efforts
to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations could be costly.
Although we believe our business practices are structured to be compliant with applicable laws, it is possible that governmental
authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law
involving applicable fraud and abuse or other healthcare laws and regulations. If our past or present operations, including activities
conducted by our sales team or agents, are found to be in violation of any of these laws or any other governmental regulations
that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement,
exclusion from third party payor programs, such as Medicare and Medicaid, debarment, imprisonment, integrity obligations and other
compliance oversight, and the curtailment or restructuring of our operations. If any of the physicians, providers or entities
with whom we do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative
sanctions, including exclusion from government funded healthcare programs.
Many
aspects of these laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions
are open to a variety of subjective interpretations which increases the risk of potential violations. In addition, these laws
and their interpretations are subject to change. Any action against us for violation of these laws, even if we successfully defend
against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of
our business, and damage our reputation.
In
addition, from time to time in the future, we may become subject to additional laws or regulations administered by the U.S. Federal
Trade Commission, or FTC, or by other federal, state, local or foreign regulatory authorities, to the repeal of laws or regulations
that we generally consider favorable or to more stringent interpretations of current laws or regulations. We are not able to predict
the nature of such future laws, regulations, repeals or interpretations, and we cannot predict what effect additional governmental
regulation, if and when it occurs, would have on our business in the future. Such developments could, however, require reformulation
of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional
record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling,
additional scientific substantiation, additional personnel or other new requirements. Any such developments could have a material
adverse effect on our business.
The
growth and demand for electronic commerce, or eCommerce, could result in more stringent consumer protection laws that impose additional
compliance burdens on online retailers. These consumer protection laws could result in substantial compliance costs and could
interfere with the conduct of our business.
There
is currently great uncertainty in many states whether or how existing laws governing issues such as property ownership, sales
and other taxes, and libel and personal privacy apply to the Internet and commercial online retailers. These issues may take years
to resolve. For example, tax authorities in a number of states, as well as a Congressional advisory commission, are currently
reviewing the appropriate tax treatment of companies engaged in online commerce and new state tax regulations may subject us to
additional state sales and income taxes. New legislation or regulation, the application of laws and regulations from jurisdictions
whose laws do not currently apply to our business, or a change in application of existing laws and regulations to the Internet
and commercial online services could result in significant additional taxes on our business. These taxes could have an adverse
effect on our results of operations.
Intellectual
Property
Our
success depends, at least in part, on our ability to protect our proprietary technology and intellectual property, and to operate
without infringing or violating the proprietary rights of others. We rely on a combination of patent, trademark, trade secret
and copyright laws, know-how, intellectual property licenses and other contractual rights (including confidentiality and invention
assignment agreements) to protect our proprietary technology and intellectual property, including related intellectual property
rights.
Patents
As
of February 28, 2021, we own or exclusively license five families of patents to use within our field of business (families IN-3,
IN-7, IN-11, IN-21 and IN-23). Three of the patent families (IN-3, IN-7 and IN-11) have granted patents registered in various
countries, as detailed below. Four families (IN-3, IN-7, IN-11 and IN-23) have active pending application/s under examination.
The fifth patent family (IN-23) currently comprises of a pending PCT or application, filed on December 31, 2020. Our patents and
patent applications generally relate to gastroretentive drug delivery devices for oral intake, the integration of the drugs into
our delivery devices and their production, and our patents and any patents that issue from our pending patent applications are
expected to expire at various dates between 2027 and 2041. We also rely on trade secrets to protect certain aspects of our technology.
The following discussion describes certain patents/patent applications which we consider to be our material patents and patent
applications.
IN-1
and Yissum License Agreement
Members
of the patent family, IN-1, that we exclusively licensed from Yissum (i.e., Gastroretentive Controlled Release Pharmaceutical
Dosage Forms) pursuant to the license agreement described below, or the License Agreement covers gastroretentive system/device
for controlled release of an active ingredient in the GI tract expired in 2020.
In
the License Agreement, Yissum granted us an exclusive license for developing, manufacturing and marketing of products based, directly
or indirectly, on the IN-1 patent, the know-how and research results defined therein. Under the provisions of the License Agreement,
as amended, Yissum may not transfer its rights in the patent without our prior written consent. In consideration of the license,
we have undertaken to pay Yissum royalties equaling 3% of the total net revenues from the sale of products based on Yissum’s
patent and royalties equal to 15% of any payment or benefit whatsoever received by us from any sublicensee. At the current time
we have not commenced sales and have not granted any sublicenses to any third parties. The parties to the License Agreement are
entitled to terminate the agreement in case of bankruptcy or receivership of the other party, or a material breach (including
in respect of any payment obligations) that is not cured within 30 days. The License Agreement will remain in effect until the
later of the expiration date of the patent or 15 years from the first commercial sale on the basis of the license. We have the
right to assign our rights in the License Agreement with the prior consent of Yissum, not to be unreasonably withheld, and we
are entitled to grant sublicenses under the licensed intellectual property of Yissum to third parties in our sole discretion,
and any sublicensee(s) thereunder will not be required to assume any undertaking towards Yissum.
IN-3
An
additional patent family (i.e., Method and Apparatus for Forming Delivery Devices for Oral Intake of an Agent), which we refer
to as IN-3, covers various methods for making and folding the gastroretentive drug delivery system, and for folding it in an accordion
configuration allowing its integration into an ordinary oral capsule, which are suitable for commercial manufacturing in mass
quantities. The IN-3 family patents, will expire in 2027, except for the first United States patent of this family, which will
expire in 2028. We consider our proprietary process for folding and cutting the films forming the drug delivery system for integration
in an accordion-like configuration into an ordinary oral capsule to be material to our business. We have five granted patents
in the U.S. and an additional pending patent application in connection with IN-3, as well as granted patents in Israel (four patents),
Europe (two granted patents validated in more than 15 countries and a pending divisional application), Canada and Japan. Importantly,
the second IN-3 patents granted in the U.S. and in Europe cover a specific embodiment of the Accordion Pill, particularly suitable
for insoluble or poorly soluble drugs. Similar divisional applications have been filed in other countries and patents for these
have already been granted in Israel and Japan.
IN-7
An
additional patent family (for “frameless” Accordion Pill, specifically but not limited to Levodopa as the active drug)
that we consider material to our business is referred to as IN-7. The accordion technology covered by our other patents may sometimes
need to be specifically adapted for a given drug that might benefit from prolonged gastroretentive release. Thus, the layered
structure of an Accordion Pill may be varied and specially designed by reference to factors that are unique to any given drug
and indication, such as the quantity of active ingredient desired to be released, the length of time over which the active drug
is released, the relative solubility of a particular drug molecule, and other factors. IN-7 patents/patent applications relate
to a special Accordion Pill, which is “frameless”, and is suitable for carrying various active drugs, including but
not limited to Levodopa, optionally in combination with Carbidopa. The IN-7 patent family relates to the Accordion Pill dosage
form, the main feature of which is the uniform inner drug-containing layer, which allows for, but does not require, high load
of the drug, while maintaining the requisite structural or mechanical strength of the Accordion Pill. This patent family includes
patents/patent applications filed in the United States, the European Patent Office, Japan and several other countries in April
2009. We have four granted U.S. patents for an Accordion Pill with specific claims to Carbidopa/Levodopa as the active ingredient(s)
(IN-7), which will be in force until April 17, 2029, and have been granted IN-7 patents in China, Japan, Hong Kong, Canada, Europe,
(validated in over 30 countries), Israel, South Africa and South Korea. Application in Europe (divisional) and in India are pending.
An
additional patent family, related to IN-7, which we refer to as IN-11, seeks protection for an Accordion Pill containing Levodopa
that is specifically formulated for treatment of Parkinson’s disease in a specific treatment regimen. We have been granted
two United States patents and one Canadian patent, and have pending applications in the EPO, India and Israel. Any granted patent
of IN-11 will expire in November 2031.
IN-21
This
patent family is directed to Accordion Pill comprising cannabinoid/s as active drugs (including THC and CBD, separately or in
combination) and currently includes pending patent applications in 21 jurisdictions, including the US, EPO, Israel, China, Republic
of Korea, Canada, India, Japan, Australia, New Zealand, Russia, Brazil, Mexico and others. Patents to be granted on these applications
will expire in 2037.
IN-23
This
patent family is directed to a novel Accordion Pill, with a new platform for delivering active pharmaceutical agents. A PCT application
was filed on December 31, 2020. National phase entry is in July 2022.
General
We
intend to submit patent applications for each Accordion Pill and/or drug combination that we develop. The patent outlook for companies
like ours is generally uncertain and may involve complex legal and factual questions. Our ability to maintain and consolidate
our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims
once granted. We do not know whether any of our patent applications or any patent applications that we license will result in
the issuance of any patents. Our issued patents and those that may be issued in the future, or patents that we exclusively license,
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. We cannot be certain
that we were the first to invent the inventions claimed in our owned patents or patent applications, or that Yissum was the first
to invent the invention claimed in the patent that we exclusively license from Yissum. 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, it is possible that, before any of our products
can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby
reducing any advantage of the patent.
Trademarks
We
rely on trade names, trademarks and service marks to protect our name brands. Our trademark/service mark ACCORDION PILL is registered
in Israel in Classes 5, 40 and 42. The ACCORDION PILL trademark/service mark is also registered in the United States and in the
UK.
Trade
Secrets and Confidential Information
In
addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and
know-how can be difficult to protect. We rely on, among other things, confidentiality and invention assignment agreements to protect
our proprietary know-how and other intellectual property that may not be patentable, or that we believe is best protected by means
that do not require public disclosure. For example, we require our employees to execute confidentiality agreements in connection
with their employment relationships with us, and to disclose and assign to us inventions conceived in connection with their services
to us. However, there can be no assurance that these agreements will be enforceable or that they will provide us with adequate
protection. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining
physical security of our premises and physical and electronic security of our information technology systems.
We
may be unable to obtain, maintain and protect the intellectual property rights necessary to conduct our business, and may be subject
to claims that we infringe or otherwise violate the intellectual property rights of others, which could materially harm our business.
For a more comprehensive summary of the risks related to our intellectual property, see “Item 1A. Risk Factors — Risks
Related to Our Intellectual Property.”
Insurance
We
maintain directors’ and officers’ liability insurance with a coverage limit of $5.0 million for the benefit of our
office holders and directors. Such directors’ and officers’ liability insurance contains certain standard exclusions.
We
also maintain insurance for our premises for a maximum of NIS 40.0 million, including coverage of equipment and lease improvements
against risk of loss (fire, natural hazard and allied perils, excluding damage from theft - hereinafter “named perils”)
and business interruption insurance coverage caused by named perils out of which up to NIS 20.0 million for fixed cost. In addition,
we maintain the following insurance: employer liability with coverage of NIS 20.0 million and third-party liability with coverage
of NIS 20.0 million.
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
believe 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.
Research
Grants
Grants
under the Israeli Innovation Law
Under
the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984, and the regulations, guidelines,
rules, procedures and benefit tracks thereunder, or the Innovation Law, research and development programs that meet specified
criteria and are approved by a committee of the IIA are eligible for grants. The grants awarded are typically up to 50% of the
project’s expenditures, as determined by the IIA committee and subject to the benefit track under which the grant was awarded.
A company that receives a grant from the IIA, or a Participating Company, is typically required to pay royalties to the IIA on
income generated from products incorporating know-how developed using such grants (including income derived from services associated
with such products), until 100% of the U.S. dollars-linked grant plus annual LIBOR interest (or any other interest rate that the
IIA may choose to apply in the future) is repaid. The rate of royalties to be paid may vary between different benefits tracks,
as shall be determined by the IIA. Under the regular benefits tracks the rate of royalties varies between 3% to 5% of the income
generated from the IIA-supported products. The obligation to pay royalties is contingent on actual income generated from such
products and services. In the absence of such income, no payment of such royalties is required.
The
terms of the grants under the Innovation Law also (generally) require that the products developed as part of the programs under
which the grants were given be manufactured in Israel and that the know-how developed thereunder may not be transferred outside
of Israel, unless a prior written approval is received from the IIA (such approval is not required for the transfer of a portion
of the manufacturing capacity which does not exceed, in the aggregate, 10% of the portion declared to be manufactured outside
of Israel in the applications for funding, in which case only notification is required) and additional payments are required to
be made to the IIA. It should be noted, that this does not restrict the export of products that incorporate the funded know-how.
See “Item 1A. Risk Factors — Risks Related to Our Operations in Israel” for additional information.
The
IIA approved our request to transfer 100% of the manufacturing rights of AP-CD/LD that was developed under one of the IIA funded
programs to LTS. As a result, we will be required to pay the IIA royalties from revenue generated from the AP-CD/LD product candidate
at an increased rate and up to an increased cap amount. The IIA noted that the approval granted was exceptional and that the IIA
will not approve manufacturing additional product candidates out of Israel.
We
received from the IIA grants in the total amount of approximately NIS 42.3 million (approximately $11.3 million) for research
and development programs in the years 2009 through 2016. We did not apply for any grants from the IIA since January 1, 2017. For
more information see note 6c in our consolidated financial statements for the year ended December 31, 2020.
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 materials and wastes and the cleanup of
contaminated sites. 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 facilities, however, entails risks in these areas.
Significant expenditures could be required in the future if we are required to comply with new or more stringent environmental
or health and safety laws, regulations or requirements.
We
hold a business license from the Jerusalem Municipality with respect to manufacturing pharmaceutical products at 12 Hartom Street,
Har Hotzvim in Jerusalem. The license is currently valid until December 31, 2023. The business license was granted after an inspection
of our raw materials inventory, which we are permitted to maintain in our facilities and warehouses located at 12 Hartom Street.
We also hold a toxic substance permit from July 26, 2018, which is valid until July 30, 2021.
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.
Human
Capital Management
As
of December 31, 2020, we had 45 employees, 36 of whom are full-time employees, four of whom were employed in management, six of
whom were employed in finance and administration, 29 of whom were employed in research and development and operations, one of
whom were employed in clinical trials and regulatory affairs and five of whom were employed in quality assurance. As of December
31, 2020, all of these employees are located in Israel or the United States, where our U.S. subsidiary employs two employees.
Israeli
labor laws principally govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees,
determination of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination
laws and other conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the
retirement, death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute,
which is similar to the U.S. Social Security Administration. Our employees have defined benefit pension plans that comply with
applicable Israeli legal requirements, which also include the mandatory pension payments required by applicable law and allocations
for severance pay.
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 extension orders issued by the Israel Ministry of Economy
and Industry. These provisions primarily concern the length of the workweek, pension fund benefits for all employees and for employees
in the industry section, insurance for work-related accidents, travel expenses reimbursement, holiday leave, convalescent payments
and entitlement for vacation days. We generally provide our employees with benefits and working conditions beyond the required
minimums.
The
success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health
and safety of our employees. In response to the COVID-19 pandemic, we implemented changes that we determined were in the best
interest of our employees, as well as the communities in which we operate, and which comply with government regulations. This
includes having employees work from home, while implementing additional safety measures for employees continuing critical on-site
work.
We
have never experienced any employment-related work stoppages and believe our relationship with our employees is good.
Available
Information
We
maintain a corporate website at www.intecpharma.com. Copies of our reports on Forms 10-K, Forms 10-Q and Forms 8-K, may be obtained,
free of charge, electronically through our corporate website at www.intecpharma.com as soon as reasonably practicable after we
file such material electronically with, or furnish to, the SEC. All of our SEC filings are also available on our website at http://www.intecpharma.com,
as soon as reasonably practicable after having been electronically filed or furnished to the SEC. The public may read and copy
any materials filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC
20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC at www.sec.gov. The information on our website is not, and will not be deemed, a part of
this Annual Report or incorporated into any other filings we make with the SEC.
Item
1A. Risk Factors.
In
March 2021, Intec Israel entered into a Merger Agreement with Decoy, pursuant to which, subject to the approval of Intec Israel
shareholders and the satisfaction or waiver of the conditions set forth in the Merger Agreement, Decoy would become a wholly-owned
subsidiary of Intec Parent, a successor entity to Intec Israel following redomestication to Delaware. If the merger is completed,
which is expected to occur in the third quarter of 2021, the business of Decoy will become the business of Intec. You should carefully
consider the factors described below, together with all of the other information contained in this Annual Report, including the
Intec Israel audited consolidated financial statements and the related notes included in this Annual Report beginning on page
F-1, before deciding whether to invest in our ordinary shares. If any of the risks discussed below actually occur, Intec Israel’s
business, financial condition, operating results and cash flows could be materially adversely affected. The risks described below
are not the only risks facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations. This could cause the trading price of our ordinary shares to decline, and you may 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 the Proposed Merger
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There
is no assurance that the Merger will be completed in a timely manner or at all. If the
Merger is not consummated, our business could suffer materially and our stock price could
decline.
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The
issuance of shares of common stock of Intec Parent to Decoy stockholders in the Merger
will significantly dilute the voting power of our current shareholders.
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Intec
Israel and Decoy shareholders may not realize a benefit from the Merger commensurate
with the ownership dilution they will experience in connection with the Merger.
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Risks
Related to Our Financial Position and Capital Requirements
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We
are a clinical stage biopharmaceutical company with a history of operating losses, are
not currently profitable, do not expect to become profitable in the near future and may
never become profitable.
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Our
independent registered public accounting firm has expressed substantial doubt regarding
our ability to continue as a going concern.
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Our
business is subject to risks arising from the COVID-19 pandemic which has impacted and
continues to impact our business.
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We
have incurred and could incur further impairment charges of our long-lived assets that
could negatively affect our results of operations.
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Risks
Related to Intec Israel Business and Operations
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We
seek to partner with third-party collaborators with respect to the development and commercialization
of AP-CD/LD and for new custom-designed APs, 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.
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The
members of our management team are important to the efficient and effective operation
of our business, and we may need to add and retain additional leading experts.
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We
expect to face significant competition.
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We
have reduced the size of our organization, and we may encounter difficulties in managing
our business as a result of this reduction, or the attrition that may occur following
this reduction, which could disrupt our operations. In addition, we may not achieve anticipated
benefits and savings from the reduction.
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If
we acquire or license additional technologies or product candidates, we may incur a number
of additional costs, have integration difficulties and/or experience other risks that
could harm our business and results of operations.
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Risks
Related to the Clinical Development, Manufacturing and Regulatory Approval of Our Product Candidates
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Our
product candidates are at various stages of development and may never be commercialized.
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Our
product candidates are subject to extensive regulation and are at various stages of regulatory
development and may never obtain regulatory approval.
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Our
product candidates and future 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 may not obtain such approvals or could lose those approvals that have
been obtained, and the sales of any approved commercial products could be suspended.
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Clinical
trials are very expensive, time-consuming and difficult to design and implement, and,
as a result, we may suffer delays or suspensions to current or future trials, which would
have a material adverse effect on our ability to advance products and generate revenues.
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Positive
results in the previous clinical trials of one or more of our product candidates may
not be replicated in future clinical trials of such product candidate, which could result
in development delays or a failure to obtain marketing approval.
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Our
product candidates are manufactured through a compounding, film casting and assembly
process, and if we or one of our materials suppliers encounters problems manufacturing
our products or raw materials, our business could suffer.
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We
intend to rely on a third-party manufacturer to manufacture commercial quantities of
AP-CD/LD, if approved, and we may rely on other third-party manufacturers for other product
candidates and any failure by a third-party manufacturer or supplier may delay or impair
our ability to commercialize our product candidates.
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Our
AP-CBD/THC, AP-THC and AP-CBD product candidates (collectively “AP-Cannabinoids”)
use Cannabidiol and 9-Tetrahydrocannabinol individually or in combination, which are
subject to U.S. and international controlled substance laws and regulations; our ability
to commercialize any product containing these substances will depend, in part, on the
ultimate classification of the product under these laws and regulations.
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Reimbursement
may not be available for our products, which could make it difficult for us to sell our
products profitably.
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Risks
Related to Our Intellectual Property
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If
we fail to comply with our obligations in the agreements under which we license intellectual
property rights from third parties or these agreements are terminated or we otherwise
experience disruptions to our business relationships with our licensors, we could lose
intellectual property rights that are important to our business.
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If
we fail to adequately protect, enforce or secure rights to the patents which were licensed
to us or any patents we own or may own in the future, the value of our intellectual property
rights would diminish and our business and competitive position would suffer.
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Third-party
claims of intellectual property infringement may prevent or delay our development and
commercialization efforts.
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Patent
terms may be inadequate to protect our competitive position on our product candidates
for an adequate amount of time.
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Risks
Related to Ownership of Our Ordinary Shares
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The
market price of our ordinary shares is volatile and you may sustain a complete loss of
your investment.
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We
expect to be characterized as a passive foreign investment company for the taxable year
ending December 31, 2020 and, as such, our U.S. shareholders may suffer adverse tax consequences.
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We
must meet the Nasdaq Capital Market’s continued listing requirements and comply
with the other Nasdaq rules, or we may risk delisting. Delisting could negatively affect
the price of our ordinary shares, which could make it more difficult for us to sell securities
in a financing and for you to sell your ordinary shares.
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Risks
Related to Our Operations in Israel
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Potential
political, economic and military instability in the State of Israel, where some of our
senior management, our head executive office, research and development, and manufacturing
facilities are located, may adversely affect our results of operations.
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We
have received Israeli government grants for certain of our research and development activities.
The terms of these grants may require us to satisfy specified conditions in order to
manufacture products and transfer technologies outside of Israel. We may be required
to pay penalties in addition to the repayment of the grants. Such grants may be terminated
or reduced in the future, which would increase our costs.
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Risks
Related to the Proposed Merger
There
can be no assurance that the Merger will be completed in a timely manner or at all. If the Merger is not consummated, our business
could suffer materially and our stock price could decline.
The
Closing is subject to the satisfaction or waiver of a number of closing conditions, as described in the Merger Agreement,
including, among other things, (i) consummation of the Domestication Merger, (ii) approval of certain matters related to the
Merger by the shareholders of Intec Israel and approval of the Merger by the stockholders of Decoy, (iii) the effectiveness
of the Registration Statement, (iv) the continued listing of Intec Israel’s ordinary shares on the Nasdaq Capital
Market (and following the Domestication Merger, the shares of Intec Parent Common Stock) and the authorization for listing on
the Nasdaq Capital Market of the Merger Shares, (v) the receipt of a tax ruling from the Israel Tax Authority with respect to
the Domestication Merger, (vi) the sale or other disposition of the Accordion Pill business, and (vii) a closing financing by
Intec Israel or Intec Parent such that upon Closing (taking into account of the proceeds to be received with respect to such
financing), the combined net cash of Intec Parent shall be not less than $30 million and not more than $50 million, and which
represents an agreed minimum valuation derived from the exchange ratio for Intec Parent following the Closing. If the
conditions are not satisfied or waived, the Merger may be materially delayed or abandoned. If the Merger is not consummated,
our ongoing business may be adversely affected and, without realizing any of the benefits of having consummated the Merger,
we will be subject to a number of risks, including, but not limited to, the following:
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we
have incurred and expected to continue to incur significant expenses related to the Merger
even if the Merger is not consummated;
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we
could be obligated to pay Decoy a break-up fee of up to $1,000,000 under certain circumstances
set forth in the Merger Agreement;
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our
collaborators and other business partners and investors in general may view the failure
to consummate the Merger as a poor reflection on our business or prospects;
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the
price of our stock may decline;
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we
may not be able to meet Nasdaq’s continued listing standards, which may lead to
delisting procedures by Nasdaq; and
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we
also could be subject to litigation related to any failure to consummate the Merger or
to perform our obligations under the Merger Agreement.
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If
the Merger is not consummated, these risks may materialize and may adversely affect our business, financial condition and the
market price of our common stock.
If
the Merger is not completed, we may be unsuccessful in completing an alternative transaction on terms that are as favorable as
the terms of the Merger with Decoy, or at all.
While
we have entered into the Merger Agreement with Decoy, the closing of the Merger may be delayed or may not occur at all and there
can be no assurance that the Merger will deliver the anticipated benefits we expect or enhance shareholder value. If we are unable
to consummate the Merger, our Board may elect to pursue an alternative strategy, one of which may be a strategic transaction similar
to the Merger. Attempting to complete an alternative transaction like the Merger will be costly and time consuming, and we can
give no assurances that such an alternative transaction would occur at all. Alternatively, our board of directors may elect to
continue advancing the preclinical and clinical development of the Accordion Pill platform, which would require that we obtain
additional funding, and to continue our efforts to seek potential collaborative, partnering or other strategic arrangements for
our programs, including a sale or other divestiture of our program assets, or our board of directors could instead decide to pursue
a dissolution and liquidation of our company. In such an event, the amount of cash available for distribution to our shareholders
will depend heavily on the timing of such decision, and with the passage of time the amount of cash available for distribution
will be reduced as we continue to fund our operations. In addition, if our board of directors were to approve and recommend, and
our shareholders were to approve, a dissolution and liquidation of our company, we would be required to pay our outstanding obligations,
as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation
to our shareholders. Our commitments and contingent liabilities may include severance obligations, liabilities to the Israel Innovation
Authority, and fees and expenses related to the Merger. As a result of this requirement, a portion of our assets may need to be
reserved pending the resolution of such obligations. In addition, we may be subject to litigation or other claims related to a
dissolution and liquidation. If a dissolution and liquidation were pursued, our board of directors, in consultation with its advisors,
would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our
ordinary shares could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding
up of the company.
The
issuance of shares of common stock of Intec Parent to Decoy’s stockholders in the Merger will significantly dilute the voting
power of our current shareholders.
If
the Merger is completed, each outstanding share of Decoy common stock will be converted into the right to receive a number of
shares of our common stock of Intec Parent equal to the exchange ratio set forth in the Merger Agreement. Under the exchange ratio
formula in the Merger Agreement, without taking into consideration the effect of the respective levels of cash and liabilities
of each of Intec Israel and Decoy, following the Closing, the former Decoy stockholders immediately before the Merger are expected
to own approximately 75% of the aggregate number of the outstanding securities of Intec Parent, and the shareholders of Intec
Israel immediately before the Merger are expected to own approximately 25% of the aggregate number of the outstanding securities
of Intec Israel, calculated on a fully-diluted basis. The actual allocation will be subject to adjustment based on, among other
things, Decoy’s and Intec Israel’s net cash balance (including, in the case of Intec Pharma, any proceeds from any
disposition of the Accordion Pill business), subject to certain exceptions. The Closing is conditioned on completion of a closing
financing, which will dilute securityholders of both Intec Israel and Decoy on a pro-rata basis. The issuance of shares of our
common stock to Decoy’s stockholders in the Merger will significantly reduce the relative voting power of each share of
our common stock held by our current shareholders. Consequently, our shareholders as a group will have significantly less influence
over the management and policies of the combined company after the Merger than prior to the Merger.
The
exchange ratio is not adjustable based on the market price of Intec Israel ordinary shares, so the merger consideration at the
Closing may have a greater or lesser value than at the time the Merger Agreement was signed.
The
Merger Agreement has set an exchange ratio formula that is based on the fully-diluted outstanding capital stock of Intec Israel
and Decoy, after taking into account each company’s outstanding options and warrants, irrespective of the exercise prices
of such options and warrants, and Intec Israel’s and Decoy’s net cash balances, in each case a few days prior to
the Closing. Any changes in the market price of Intec Israel’s ordinary shares before the completion of the Merger will
not affect the number of shares of Intec Parent common stock issuable to Decoy’s stockholders pursuant to the Merger Agreement.
Therefore, if before the completion of the Merger, the market price of Intec Israel ordinary shares declines from the market price
on the date of the Merger Agreement, then Decoy’s stockholders could receive merger consideration with substantially lower
value than the value of such merger consideration on the date of the Merger Agreement. Similarly, if before the completion of
the Merger the market price of Intec Israel ordinary shares increases from the market price of Intec Israel ordinary shares on
the date of the Merger Agreement, then Decoy’s stockholders could receive merger consideration with substantially greater
value than the value of such merger consideration on the date of the Merger Agreement. The Merger Agreement does not include a
price-based termination right. Because the exchange ratio does not adjust as a result of changes in the market price of Intec
Israel ordinary shares, for each one percentage point change in the market price of Intec Israel ordinary shares, there is a corresponding
one percentage point rise or decline, respectively, in the value of the total merger consideration payable to Decoy’s stockholders
pursuant to the Merger Agreement.
The
net cash balances of Intec Israel and Decoy at the Closing could result in their respective securityholders owning a smaller or
larger percentage of Intec Parent.
The
estimates of the respective ownership percentages of the securityholders of Intec Israel and Decoy contained in this Annual
Report on Form 10-K are subject to adjustment prior to the Closing, based on, among other things, the final net cash
positions of the companies at the Closing. Each of the companies’ net cash positions depend on several factors
including, among other things, the amount of permitted pre-closing financing raised, the proceeds, if any, that Intec Israel
receives from the sale or other disposition of the Accordion Pill business, and the cash burn rate from signing of the Merger
Agreement through to the Closing Date. In particular, since the sale or other disposition of the Accordion Pill business is a
condition to Closing in connection with the Merger, Intec Israel may not realize the full value of the Accordion Pill
business which would have the effect of reducing Intec Israel’s net cash.
Uncertainty
about the Merger may adversely affect the relationship of Intec Israel with Intec Israel’s third party collaborators and
manufacturer which could have a materially adverse effect on Intec Israel’s business, financial condition and results of
operation.
In
accordance with the terms of the Merger Agreement, Intec Israel agreed that prior to the Closing Date it would use commercially
reasonable efforts to enter into one or more agreements providing for the sale, transfer or assignment or that it would otherwise
take steps related to the divestment or disposal and satisfaction of liabilities of Intec Israel’s Accordion Pill business,
to be effected immediately after the Closing. In response to the announcement of the Merger, Intec Israel’s third party
collaborators and manufacturer may seek to change the terms or otherwise terminate their relationship with Intec Israel. Any such
change in terms or termination could adversely impact Intec Israel’s ability to enter into any such agreement to sell or
otherwise dispose of the Accordion Pill business and/or reduce the value at which the According Pill business is sold, which in
turn could result in the exchange ratio being less beneficial to Intec Israel shareholders. If Intec Israel is unable to enter
into an agreement to sell or otherwise dispose of the Accordion Pill business, then Intec Israel may be forced to initiate steps
towards the liquidation of the Accordion Pill business. If the Merger is not completed, any change in terms or termination of
the relationship with a third party collaborator or manufacturer may have a material adverse effect on the ongoing viability of
the Accordion Pill business, which would have a material adverse effect on Intec Israel’s business, financial condition
and results of operations.
Failure
to complete the Merger may result in Intec Israel or Decoy paying a termination fee or, in the case of Intec Israel, forfeit a
deposit to Decoy and could significantly harm the market price of Intec Israel’s ordinary shares and negatively affect the
future business and operations of each company.
If
the Merger is not completed and the Merger Agreement is terminated under certain circumstances, Intec Israel and Decoy may be
required to pay the other party a termination fee of $1,000,000 and, in the case of Intec Israel, forfeit a deposit in the amount
of $350,000 in favor of Decoy to cover transaction expenses. Even if a termination fee is not payable or the deposit is not forfeited
in connection with a termination of the Merger Agreement, each of Intec Israel and Decoy will have incurred significant fees and
expenses, such as legal and accounting fees, which must be paid whether or not the Merger is completed. Further, if the Merger
is not completed, it could significantly harm the market price of Intec Israel’s ordinary shares. In addition, if the Merger
Agreement is terminated and the board of directors of Intec Israel determines to seek another business combination, there can
be no assurance that Intec Israel will be able to find a partner and close an alternative transaction on terms that are as favorable
or more favorable than the terms set forth in the Merger Agreement.
The
Merger may be completed even though certain events occur prior to the Closing that materially and adversely affect Intec Israel
or Decoy.
The
Merger Agreement provides that either Intec Israel or Decoy can refuse to complete the Merger if there is a material adverse change
affecting the other party between March 15, 2021, the date of the Merger Agreement, and the Closing. However, certain types of
changes do not permit either party to refuse to complete the Merger, even if such change could be said to have a material adverse
effect on Intec Israel or Decoy, including:
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conditions
generally affecting the industries in which Intec Israel or Decoy participate or the
United States, Israel, or global economy or capital markets as a whole;
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any
failure of Intec Israel or Decoy to meet internal projections or forecasts or any change
in the price or trading volume of Intec Israel’s ordinary shares;
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the
execution, delivery, announcement or performance of the obligations under the Merger
Agreement or the announcement, pendency or anticipated consummation of the Merger;
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any
natural disaster or any acts of terrorism, sabotage, military action or war or any escalation
or worsening thereof, or any pandemics (including the COVID-19 pandemic), man-made disasters,
natural disasters, acts of God or other force majeure event, or any escalation or worsening
thereof;
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any
change in accounting requirements or principles or any change in applicable laws, rules,
or regulations; or
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any
change in net cash balances of Intec Israel or Decoy that result from operations in the
ordinary course.
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If
adverse changes occur and Intec Israel and Decoy still complete the Merger, the market price of the Intec Parent’s common
stock may suffer. This in turn may reduce the value of the Merger to the shareholders of Intec Israel, Decoy or both.
Even
if the Merger is completed, Intec Parent will need to raise additional capital by issuing securities or debt or through licensing
or similar arrangements, which may cause significant dilution to Intec Parent’s stockholders, restrict Intec Parent’s
operations or require Intec Parent to relinquish proprietary rights. Future issuances of Intec Parent’s common stock pursuant
to options and warrants outstanding following the Merger and its equity incentive plans could result in additional dilution.
Following
the completion of the Merger, Intec Israel expects Intec Parent will need to raise additional capital in the future to funds its
operations. Additional financing may not be available to Intec Parent when it needs it or may not be available on favorable terms.
To the extent that Intec Parent raises additional capital by issuing equity securities, the terms of such an issuance may cause
more significant dilution to the combined company’s stockholders’ ownership, and the terms of any new equity securities
may have preferences over the combined organization’s common stock. Any debt financing of the combined organization may
involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and
specific restrictions on the use of the combined organization’s assets, as well as prohibitions on its ability to create
liens, pay dividends, redeem its stock or make investments. In addition, if Intec Parent raises additional funds through licensing
or similar arrangements, it may be necessary to relinquish potentially valuable rights to current product candidates and potential
products or proprietary technologies, or grant licenses on terms that are not favorable to the combined organization. In addition,
the exercise of some or all of Intec Parent’s outstanding options or warrants could result in additional dilution in the
percentage ownership interest of Intec Israel or Decoy shareholders.
Some
Intec Israel and Decoy officers and directors have interests in the Merger that are different from yours and that may influence
them to support or approve the Merger without regard to your interests.
Certain
officers and directors of Intec Israel and Decoy participate in arrangements that provide them with interests in the Merger that
are different from yours, including, among others, the continued service as an officer or director of the combined organization,
severance benefits, stock option vesting.
In
addition, and for example, Decoy’s Chairman and Chief Executive Officer, Dr. Michael Newman is expected to become a director
and the Chief Scientific Officer of Intec Parent upon the Closing, and Intec Israel’s directors and executive officers are
entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement. These interests,
among others, may influence the officers and directors of Intec Israel and Decoy to support or approve the Merger.
The
market price of Intec Israel’s ordinary shares following the Merger may decline as a result of the Merger.
The
market price of Intec Israel’s ordinary shares, or Intec Parent’s shares of common stock after the Domestication Merger,
may decline as a result of the Merger for a number of reasons including if:
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investors
react negatively to the prospects of the combined organization’s product candidates,
business and financial condition following the Merger;
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the
effect of the Merger on the combined organization’s business and prospects is not
consistent with the expectations of financial or industry analysts; or
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the
combined organization does not achieve the perceived benefits of the Merger as rapidly
or to the extent anticipated by financial or industry analysts.
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Intec
Israel and Decoy shareholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience
in connection with the Merger.
If
the combined organization is unable to realize the strategic and financial benefits currently anticipated from the Merger, Intec
Israel’s and Decoy’s shareholders will have experienced substantial dilution of their ownership interests in their
respective companies without receiving the expected commensurate benefit, or only receiving part of the commensurate benefit to
the extent the combined organization is able to realize only part of the expected strategic and financial benefits currently anticipated
from the Merger.
During
the pendency of the Merger, Intec Israel and Decoy may not be able to enter into a business combination with another party at
a favorable price, if at all, because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.
Covenants
in the Merger Agreement impede the ability of Intec Israel and Decoy to make acquisitions, subject to certain exceptions relating
to fiduciary duties or to complete other transactions that are not in the ordinary course of business pending completion of the
Merger. As a result, if the Merger is not completed, the parties may be at a disadvantage to their competitors during such period.
In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging
or entering into certain extraordinary transactions, such as a merger, sale of assets (other than the sale or other disposition
of the Accordion Pill business, in the case of Intec Israel), or other business combination outside the ordinary course of business
with any third party, subject to certain exceptions relating to fiduciary duties. Any such transactions could be favorable to
such party’s shareholders.
Certain
provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals
that may be superior to the arrangements contemplated by the Merger Agreement.
The
terms of the Merger Agreement prohibit each of Intec Israel and Decoy from soliciting alternative takeover proposals or cooperating
with persons making unsolicited takeover proposals, except in limited circumstances when such party’s board of directors
determines in good faith that an unsolicited alternative takeover proposal is or is reasonably likely to lead to a superior takeover
proposal and that failure to cooperate with the proponent of the proposal would be reasonably likely to be inconsistent with the
board of directors’ fiduciary duties.
Because
the lack of a public market for Decoy’s capital stock makes it difficult to evaluate its, the stockholders of Decoy may
receive shares of Intec Parent common stock in the Merger that have a value that is less than, or greater than, the fair market
value of Decoy’s capital stock.
The
outstanding capital stock of Decoy is privately held and is not traded in any public market. The lack of a public market makes
it extremely difficult to determine the fair market value of Decoy. Because the percentage of Intec Parent common stock to be
issued to Decoy’s stockholders was determined based on negotiations between the parties, it is possible that the value of
Intec Parent’s common stock to be received by Decoy’s stockholders will be less than the fair market value of Decoy,
or Intec Parent may pay more than the aggregate fair market value for Decoy.
Lawsuits
may be filed against us and the members of our board of directors arising out of the Merger, which may delay or prevent the Merger.
Putative
securityholder complaints, including securityholder class action complaints, and other complaints may be filed against us, our
board of directors, Decoy, Decoy’s board of directors and others in connection with the transactions contemplated by the
Merger Agreement. The outcome of litigation is uncertain, and we may not be successful in defending against any such future claims.
Lawsuits that may be filed against us, our board of directors, Decoy, or Decoy’s board of directors could delay or prevent
the Merger, divert the attention of our management and employees from our day-to-day business and otherwise adversely affect us
financially.
The
combined organization may become involved in securities class action litigation that could divert management’s attention
and harm the combined organization’s business and insurance coverage may not be sufficient to cover all costs and damages.
In
the past, securities class action or shareholder derivative litigation often follows certain significant business transactions,
such as the sale of a business division or announcement of a merger. The combined organization may become involved in this type
of litigation in the future. Litigation is often expensive and diverts management’s attention and resources, which could
adversely affect the combined organization’s business.
We
are substantially dependent on our remaining employees to facilitate the consummation of the Merger.
As
of March 15, 2021, we had 44 employees, 36 of whom are full-time employees. Our ability to successfully complete the Merger depends
in large part on our ability to retain certain remaining personnel. Despite our efforts to retain these employees, one or more
may terminate their employment with us on short notice. The loss of the services of certain employees could potentially harm our
ability to run our day-to-day business operations, as well as to fulfill our reporting obligations as a public company.
Your
rights as a shareholder will change as a result of the Domestication Merger.
In
accordance with the Merger Agreement, we have agreed to re-domesticate Intec Israel from the State of Israel to the State of Delaware.
Due to the differences between Delaware law and Israeli law and the differences between the governing documents of Intec Israel
and Intec Parent, we are unable to adopt governing documents for Intec Parent that are identical to the governing documents for
Intec Israel. We have sought to preserve in the certificate of incorporation and bylaws of Intec Parent a similar allocation of
rights and powers between the shareholders and our board of directors that exists under Intec Israel’s articles of association
and Israeli law. Nevertheless, Intec Parent’s proposed certificate of incorporation and bylaws differ from Intec Israel’s
articles of association, both in form and substance, and your rights as a shareholder will change.
Risks
Related to Our Financial Position and Capital Requirements
We
are a clinical stage biopharmaceutical company with a history of operating losses, are not currently profitable, do not expect
to become profitable in the near future and may never become profitable.
We
are a clinical stage biopharmaceutical company that was incorporated in 2000. Since our incorporation, we have primarily focused
our efforts on research and development and clinical trials. We are not profitable and have incurred losses since inception, principally
as a result of research and development, clinical trials and general administrative expenses in support of our operations. We
have not generated any revenue, expect to incur substantial losses for the foreseeable future and may never become profitable.
Regardless of whether the Merger is completed, we also expect to incur significant operating and capital expenditures and anticipate
that our expenses and losses may increase substantially in the foreseeable future if we:
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initiate,
either alone or with a partner, further clinical trials for our current and any new product
candidates;
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prepare
new drug applications, or NDAs, for our product candidates, assuming that the clinical
trial data support an NDA;
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seek
regulatory approvals for our current product candidates, or future product candidates,
if any;
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implement
internal systems and infrastructure;
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seek
to in-license additional technologies for development, if any;
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hire
additional management and other personnel; and
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move
towards commercialization of our product candidates and future product candidates, if
any.
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We
may out-license our ability to generate revenue from one or more of our product candidates, depending on a number of factors,
including our ability to:
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obtain
favorable results from and progress the clinical development of our product candidates;
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develop
and obtain regulatory approvals in the countries and for the uses we intend to pursue
for our product candidates;
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subject
to successful completion of registration, clinical trials and perhaps additional clinical
trials of any product candidate, apply for and obtain marketing approval in the countries
we intend to pursue for such product candidate; and
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contract
for the manufacture of commercial quantities of our product candidates at acceptable
cost levels, subject to the receipt of marketing approval.
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For
the years ended December 31, 2019 and 2020, we had net losses of $47.6 million and $14.1 million, respectively, and we expect
such losses to continue for the foreseeable future. As a result, we will ultimately need to generate significant revenues in order
to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability in the future. If
our product candidates do not advance to further clinical trials, 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. Our failure to achieve
or maintain profitability, or substantial delays in achieving profitability, could negatively impact the value of our ordinary
shares and our ability to raise additional financing. A substantial decline in the value of our ordinary shares would also affect
the price at which we could sell shares to secure future funding, which could dilute the ownership interest of current shareholders.
Even
if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Accordingly, it
is difficult to evaluate our business prospects. Moreover, our prospects must be considered in light of the proposed Merger,
the negative outcome of the ACCORDANCE study, the discontinuation of the Novartis program, and the general uncertainty
regarding our development programs and the risks and uncertainties encountered by an early-stage company 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. As a result, our 2020 annual consolidated financial statements note that there is a substantial doubt about our
ability to continue as a going concern.
Our
independent registered public accounting firm has expressed substantial doubt regarding our ability to continue as a going concern.
We believe that we have
adequate cash to fund our ongoing activities through the completion of the Merger and into the first quarter of 2022. However,
changes may occur that would cause us to consume our existing cash prior to that time, including the costs to consummate the Merger.
Prior to closing of the Merger we agreed, among other things, that we would use commercially reasonable efforts to enter into
one or more agreements providing for the sale, transfer or assignment or that we would otherwise take steps related to the divestment
or disposal and satisfaction of liabilities of our Accordion Pill business, to be effected immediately after Closing. Although
we have entered into the Merger Agreement and intend to consummate the Merger, there is no assurance that it will be able to successfully
complete the Merger on a timely basis, or at all. If, for any reason, the Merger is not consummated and we are unable to continue
to operate the Accordion Pill business or identify and complete an alternative strategic transaction like the Merger, we may be
required to dissolve and liquidate our assets. In such case, we would be required to pay all of our debts and contractual obligations,
and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available
cash left to distribute to our shareholders after paying our debts and other obligations and setting aside funds for reserves.
We are also closely monitoring ongoing developments in connection with the COVID-19 pandemic, which has resulted in disruptions
to our partnering efforts and may negatively impact our commercial prospects and our ability to raise capital. As of the date
of this Annual Report, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or
results of operations is uncertain. Our independent registered public accounting firm has issued its report on our consolidated
financial statements for the year ended December 31, 2020 and included an explanatory paragraph stating that the Company has suffered
recurring losses from operations and negative cash outflows from operating activities. As a result, there is substantial doubt
about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty. The perception that we might be unable to continue as a going concern may make it
more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence by
investors, suppliers and employees. If we cannot successfully continue as a going concern, our shareholders may lose their entire
investment in our ordinary shares.
Our
business is subject to risks arising from the COVID-19 pandemic which has impacted and continues to impact our business.
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. While initially the outbreak was largely concentrated in China, it has now 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,
have 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. We implemented
remote working and work place protocols for our employees in accordance with government requirements. The implementation of measures
to prevent the spread of COVID-19 have resulted in disruptions to our partnering efforts which depend, in part, on attendance
at in-person meetings, industry conferences and other events. It is not possible at this time to estimate the full impact that the
COVID-19 pandemic could have on our operations, as the impact 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 COVID-19 globally could materially adversely impact
our operations and workforce, including our research and development, partnering efforts, and our ability to raise capital, each
of which in turn could have a material adverse impact on our business, financial condition and results of operation.
We
will need substantial, additional capital in the future. If additional capital is not available, we will have to delay, reduce
or cease operations.
We
will need to raise substantial, additional capital to complete the research and development of all of our product candidates and
for working capital and for general corporate purposes. In addition, we may choose to expand our current research and development
focus, or other clinical operations. There is no assurance, however, that we will be successful in obtaining the level of financing
needed for our operations and the research and development of our product candidates. As of December 31, 2020, we had cash and
cash equivalents of $14.7 million.
In
addition, our future capital requirements may be substantial and will depend on many factors including:
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our
ability to enter into collaborative, licensing, and other commercial relationships;
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adhering
to patient recruitment in any clinical trials;
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clinical
trial results;
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developing
the Accordion Pill for the treatment of other conditions or indications beyond those
currently being explored;
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the
cost of filing and prosecuting patent applications and the cost of defending our patents;
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the
cost of prosecuting infringement actions against third parties;
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the
cost, timing and outcomes of seeking marketing approval of our product candidates;
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the
costs associated with commercializing our products if we receive marketing approval,
and choose to commercialize our product candidates ourselves, including the cost and
timing of establishing external, and potentially in the future, internal, sales and marketing
capabilities to market and sell our product candidates;
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subject
to receipt of marketing approval, revenue received from sales of approved products, if
any, in the future;
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the
costs associated with any product liability or other lawsuits related to our future product
candidates or products, if any;
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the
costs associated with post-market compliance with regulatory requirements, and of addressing
any allegations of non-compliance by regulatory authorities in countries where we plan
to market and sell our products;
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the
demand for our products;
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the
costs associated with developing and/or in-licensing other research and development programs;
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the
expenses needed to attract and retain skilled personnel; and
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the
costs associated with being a public company.
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Under
General Instruction I.B.6 to Form S-3, or the Baby Shelf Rule, the amount of funds we can raise through primary public offerings
of securities in any 12-month period using our registration statement on Form S-3 is limited to one-third of the aggregate market
value of the ordinary shares held by non-affiliates of the Company. As of March 5, 2021, our public float was approximately $17.8
million, based on 4,481,501 ordinary shares held by non-affiliates and a price of $3.97 per share, which was the last reported
sale price of our ordinary shares on the Nasdaq Capital Market on March 5, 2021. We therefore are limited by the Baby Shelf Rule
as of the filing of this Annual Report on Form 10-K, until such time as our public float exceeds $75 million. If we are required
to file a new registration statement on another form, we may incur additional costs and be subject to delays due to review by
the SEC Staff.
Additional
funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available
to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other
research and development activities for 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.
Because
of our limited operating history, we may not be able to successfully operate our business or execute our business plan.
We
have a limited operating history upon which to evaluate our proposed business and prospects. Our proposed business operations
will be subject to numerous risks, uncertainties, expenses and difficulties associated with early-stage enterprises. Such risks
include, but are not limited to, the following:
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the
absence of a lengthy operating history;
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insufficient
capital to fully realize our operating plan;
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our
ability to obtain FDA approvals in a timely manner, if ever, or that the approved label
indications are sufficiently broad to make sale of the products commercially feasible;
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expected
continual losses for the foreseeable future;
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operating
in an environment that is highly regulated by a number of agencies;
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social
and political unrest;
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operating
in multiple currencies;
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our
ability to anticipate and adapt to a developing market(s);
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acceptance
of our Accordion Pill by the medical community and consumers;
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limited
marketing experience;
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a
competitive environment characterized by well-established and well-capitalized competitors;
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the
ability to identify, attract and retain qualified personnel; and
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reliance
on key personnel.
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Because
we are subject to these risks, evaluating our business may be difficult, our business strategy may be unsuccessful and we may
be unable to address such risks in a cost-effective manner, if at all. If we are unable to successfully address these risks our
business could be harmed.
We
have incurred and could incur further impairment charges of our long-lived assets that could negatively affect our results of
operations.
We
periodically evaluate whether events and circumstances have occurred that require an impairment assessment. In July 2019, we announced
top-line results from our ACCORDANCE study which did not meet its target endpoints. We determined that the clinical trial results
constituted a triggering event that required us to undertake an impairment test and as a result we recorded an impairment charge
of approximately $13.7 million with respect to our production line and related production equipment for commercial scale manufacturing
of AP-CD/LD. In the third quarter ended September 30, 2019, we recorded for the first time an impairment charge of approximately
$9.8 million which was updated in the fourth quarter by approximately $3.9 million following a new impairment assessment performed
at December 31, 2019 following changes in management assumptions. As of December 31, 2020, we performed an additional impairment
test which determined that there is no need to record an additional impairment charge. Although no impairment charge was recorded
in 2020, we could incur further impairment charges if we determine that the carrying value of our long-lived assets is reduced.
In addition, any changes in the actual market conditions versus the assumptions used in the model to determine impairment charges
could result in further impairment charges in the future. In the event that we determine that our long-lived assets are impaired,
we may be required to record a non-cash charge that could adversely affect our results of operations.
Risks
Related to Intec Israel Business and Operations
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. Due to the negative outcome of the ACCORDANCE study, the discontinuation
of the Novartis program, and the general uncertainty regarding our development programs, we do not anticipate commercializing
any products or technologies in the near future. 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, but not limited to:
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the
timing of regulatory approvals in the countries, and for the uses, we intend to pursue
with respect to the commercialization of our product candidates;
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the
competitive environment;
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the
establishment and demonstration in, and acceptance by, the medical community of the safety
and clinical efficacy of our products and their potential advantages over other therapeutic
products;
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our
ability to enter into strategic agreements with a commercial-scale manufacturer and with
pharmaceutical and biotechnology companies with strong marketing and sales capabilities;
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the
adequacy and success of distribution, sales and marketing efforts;
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the
establishment of external, and potentially, internal, sales and marketing capabilities
to effectively market and sell our product candidates in the United States and other
countries; and
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the
pricing and reimbursement policies of government and third-party payors, such as insurance
companies, health maintenance organizations and other plan administrators.
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Physicians,
patients, third-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 payment for, any of our current or future 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.
We
seek to partner with third-party collaborators with respect to the development and commercialization of AP-CD/LD and for new custom-designed
APs, 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 on partnering with pharmaceutical companies to complement our internal development efforts. In July 2019,
we announced top-line results from our ACCORDANCE study in which the ACCORDANCE study did not meet its target endpoints. We have
completed the analysis of the full data set and we are currently seeking to partner AP-CD/LD as the basis for the strategy for
AP-CD/LD moving forward. In addition, we entered into a research collaboration agreement with Merck for the development of a custom-designed
AP for one of Merck’s proprietary compound and entered into a cannabinoid research collaboration agreement with GW to explore
using the AP platform for an undisclosed research program. We are seeking partners for the development of new custom-designed
APs. We will be competing with many other companies as we seek partners for AP-CD/LD and for any new custom-designed APs and we
may not be able to compete successfully against those companies. If we are not able to enter into collaboration arrangements for
AP-CD/LD or for any new custom-designed APs, 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. Furthermore, if we are unable to enter into a commercial agreement for the development
and commercialization of the custom-designed AP for Merck and GW’s programs, then this could have a material adverse effect
on our business, financial condition or results of operations.
The
process of establishing and maintaining collaborative relationships is difficult, time-consuming and involves significant uncertainty,
including:
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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;
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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;
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a
collaboration partner may cease development in therapeutic areas which are the subject
of our strategic collaboration;
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a
collaboration partner may not devote sufficient capital or resources towards our product
candidates;
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a
collaboration partner may change the success criteria for a drug candidate thereby delaying
or ceasing development of such candidate;
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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;
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a
collaboration partner could develop a product that competes, either directly or indirectly,
with our drug candidate;
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a
collaboration partner with commercialization obligations may not commit sufficient financial
or human resources to the marketing, distribution or sale of a product;
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a
collaboration partner with manufacturing responsibilities may encounter regulatory, resource
or quality issues and be unable to meet demand requirements;
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a
partner may exercise a contractual right to terminate a strategic alliance;
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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
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a
partner may use our products or technology in such a way as to invite litigation from
a third party.
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Any
collaborative partners we enter into agreements within the future may shift their priorities and resources away from our product
candidates or seek to renegotiate or terminate their relationships with us. For example, in December 2019, we discontinued the
development of a custom designed AP for a Novartis proprietary compound following an internal and revised commercial strategic
assessment, in which Novartis advised us that this program no longer meets Novartis’ mid to long-term strategic goals. 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 are unable to establish sales, marketing and distribution capabilities or enter into successful relationships with third parties
to perform these services, we may not be successful in commercializing our product candidates if and when they are approved.
We
do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of products. To
achieve commercial success for any product for which we have obtained marketing approval, we will need to establish a sales and
marketing infrastructure or to out-license the product.
In
the future, we may consider building a focused sales and marketing infrastructure to market AP-CD/LD and potentially other product
candidates in the United States, if and when they are approved. There are risks involved with establishing our own sales, marketing
and distribution capabilities. For example, recruiting and training a sales force could be expensive and time consuming and could
delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing
capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization
expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors
that may inhibit our efforts to commercialize our products on our own include:
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our
inability to recruit, train and retain adequate numbers of effective sales and marketing
personnel;
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the
inability of sales personnel to obtain access to physicians;
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the
lack of adequate numbers of physicians to prescribe any future products;
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the
lack of complementary products to be offered by sales personnel, which may put us at
a competitive disadvantage relative to companies with more extensive product lines; and
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unforeseen
costs and expenses associated with creating an independent sales and marketing organization.
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If
we are unable to establish our own sales, marketing and distribution capabilities or enter into successful arrangements with third
parties to perform these services, our product revenues and our profitability, may be materially adversely affected.
In
addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute our product
candidates inside or outside of the United States or may be unable to do so on terms that are favorable to us. We likely will
have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell
and market our products effectively. If we do not establish sales, marketing and distribution capabilities successfully, either
on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.
The
members of our management team are important to the efficient and effective operation of our business, and we may need to add
and retain additional leading experts. Failure to retain our management team and add additional leading experts could have a material
adverse effect on our business, financial condition or results of operations.
Our
executive officers and our management team are important to the efficient and effective operation of our business. Our failure
to retain our management personnel, who have developed much of the technology we utilize today, or any other key management personnel,
could have a material adverse effect on our future operations. Our success is also dependent on our ability to attract, retain
and motivate highly-trained technical and management personnel, among others, to continue the development and commercialization
of our current and future products.
As
such, our future success highly 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 personnel. The loss of personnel or the inability to hire and retain additional qualified personnel
in the future could have a material adverse effect on our business, financial condition and results of operation.
We
expect to face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales
will suffer and we may never be profitable.
If
any of our product candidates are approved, we expect to compete against fully-integrated pharmaceutical and biotechnology companies
and smaller companies that are collaborating with 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:
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undertaking
preclinical testing and human clinical trials;
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obtaining
FDA approvals and addressing various regulatory matters and obtaining other regulatory
approvals of drugs;
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formulating
and manufacturing drugs; and
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launching,
marketing and selling drugs.
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Our
competitors are likely to include companies with marketed products and/or an advanced research and development pipeline. The development
of different formulations or new chemical entities may remove any competitive advantage a product formulated with the Accordion
Pill platform technology may present. Other companies are engaged in research and development of gastric retention technologies
that may become competitive to or even superior to the capabilities of the Accordion Pill platform Technology.
There
is a substantial risk of product liability claims in our business. We currently do not maintain product liability insurance and
a product liability claim against us could adversely affect our business.
We
may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability
lawsuits, which may result in substantial losses.
Any
of our product candidates could cause adverse events, including injury, disease or adverse side effects. These adverse events
may or 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. We
do not have product liability insurance (and currently have insurance coverage for each specific clinical trial, which covers
a certain number of trial participants and which varies based on the particular clinical trial) and if 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. In addition, the existence of a product liability
claim could affect the market price of our ordinary shares.
We
face continuous technological change, and developments by competitors may render our products or technologies obsolete or non-competitive.
If our new or existing product candidates are rendered obsolete or non-competitive, our marketing and sales will suffer and we
may never be profitable.
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 could 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 potential 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:
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attract
parties for acquisitions, joint ventures or other collaborations;
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license
proprietary technology that is competitive with the technology we are developing;
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attract
and hire scientific talent and other qualified personnel.
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Our
competitors may succeed in developing and commercializing products earlier and obtaining regulatory approvals from the FDA 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 could suffer and we may never be profitable.
We
have reduced the size of our organization, and we may encounter difficulties in managing our business as a result of this reduction,
or the attrition that may occur following this reduction, which could disrupt our operations. In addition, we may not achieve
anticipated benefits and savings from the reduction.
Following
the negative outcome of the ACCORDANCE study, we reduced the size of our headcount by approximately 50%, designed to focus our
cash resources mainly on research and development and business development activities. The restructuring, and the attrition thereafter,
resulted in the loss of longer-term employees, the loss of institutional knowledge and expertise and the reallocation and combination
of certain roles and responsibilities across the organization, all of which could adversely affect our operations. The restructuring
and possible additional cost containment measures may yield unintended consequences, such as attrition beyond our intended reduction
in headcount and reduced employee morale. In addition, the restructuring may result in employees who were not affected by the
reduction in headcount seeking alternate employment, which would result in us seeking contract support at unplanned additional
expense. In addition, we may not achieve anticipated benefits from the restructuring. Due to our limited resources, we may not
be able to effectively manage our operations or recruit and retain qualified personnel, which may result in weaknesses in our
infrastructure and operations, risks that we may not be able to comply with legal and regulatory requirements, loss of business
opportunities, loss of employees and reduced productivity among remaining employees. We may also determine to take additional
measures to reduce costs, which could result in further disruptions to our operations and present additional challenges to the
effective management of our company. If our management is unable to effectively manage this transition and restructuring and additional
cost containment measures, our expenses may be more than expected, and we may not be able to implement our business strategy.
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.
If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers and
directors to manage our Company.
If
we acquire or license additional technologies or product candidates, we may incur a number of additional costs, have integration
difficulties and/or experience other risks that could harm our business and results of operations.
We
may acquire and in-license additional product candidates and technologies. Any product candidate or technologies we in-license
or acquire will likely require additional development efforts prior to commercial sale, including extensive preclinical 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 in-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 or competitive
in the marketplace. Moreover, integrating any newly acquired or in-licensed product candidates could be expensive and time-consuming.
If we cannot effectively manage these aspects of our business strategy, our business may not succeed.
A
security breach or disruption or failure in a computer or communications systems could adversely affect us.
Despite
the implementation of security measures, our internal computer systems, and those of our CROs and other third parties on which
we rely, are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, fire, terrorism,
war, and telecommunication and electrical failures. If such an event were to occur and interrupt our operations, it could result
in a material disruption of our drug development programs. For example, the loss of clinical trial data from ongoing or planned
clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce
the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, loss
of trade secrets or inappropriate disclosure of confidential or proprietary information, including protected health information
or personal data of employees or former employees, access to our clinical data, or disruption of the manufacturing process, we
could incur liability and the further development of our Accordion Pill 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.
Global
economic, capital market and political conditions could affect our ability to raise capital and could disrupt or delay the performance
of our third-party contractors and suppliers.
Our
ability to raise capital may be adversely affected by changes in global economic conditions and geopolitical risks, including
credit market conditions, levels of consumer and business confidence, exchange rates, levels of government spending and deficits,
trade policies, political conditions, actual or anticipated default on sovereign debt, emergence of a pandemic, or other widespread
health emergencies (or concerns over the possibility of such an emergency, including for example, the recent COVID-19 pandemic),
and other challenges that could affect the global economy. These economic conditions affect businesses such as ours in a number
of ways. Tightening of credit in financial markets could adversely affect our ability to obtain financing. Similarly, such tightening
of credit may adversely affect our supplier base and increase the potential for one or more of our suppliers to experience financial
distress or bankruptcy. Our global business is also adversely affected by decreases in the general level of economic activity,
such as decreases in business and consumer spending.
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.
The
disaster recovery and business continuity plan 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.
Risks
Related to the Clinical Development, Manufacturing and Regulatory Approval of Our Product Candidates
Our
product candidates are at various stages of development and may never be commercialized.
The
progress and results of any future preclinical testing or future clinical trials are uncertain, and the failure of our product
candidates and additional product candidates which we may license, acquire or develop in the future to receive regulatory approvals
could have a material adverse effect on our business, operating results and financial condition to the extent we are unable to
commercialize any such products. For example, the negative outcome of our ACCORDANCE study had a material adverse effect on our
business, operating results and financial condition. None of our product candidates have received regulatory approval for commercial
sale. In addition, we face the risks of failure inherent in developing therapeutic products. All our product candidates are not
expected to be commercially available for several years, if at all.
Our
product candidates are subject to extensive regulation and are at various stages of regulatory development and may never obtain
regulatory approval.
Our
product candidates must satisfy certain standards of safety and efficacy for a specific indication before they can be approved
for commercial use by the FDA or foreign regulatory authorities. The FDA and foreign regulatory authorities have full discretion
over this approval process. We will need to conduct significant additional research, including testing in animals and in humans,
before we can file applications for product approval. Typically, in the pharmaceutical industry, there is a high rate of attrition
for product candidates in preclinical testing and clinical trials. Also, even though we believe that some of our product candidates
may be eligible for FDA review under Section 505(b)(2) of the FDCA, the FDA may not agree with that assessment, and may require
us to submit the application under Section 505(b)(1) which usually requires more comprehensive clinical data than applications
submitted under Section 505(b)(2). Even under Section 505(b)(2), satisfying FDA’s requirements typically takes many years,
is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources. Success
in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. For example, a
number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced
clinical trials, even after promising results in earlier trials. In addition, delays or rejections may be encountered based upon
additional government regulation, including any changes in legislation or FDA policy, during the process of product development,
clinical trials and regulatory reviews. After clinical trials are completed, the FDA has substantial discretion in the drug approval
process and may require us to conduct additional preclinical and clinical testing or to perform post-marketing studies.
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 through preclinical testing and through 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 contradictions and other
limitations). We anticipate that some foreign regulatory agencies will have different testing and approval requirements from those
of the FDA. Even if we comply with all FDA requests, the FDA may ultimately reject or decline to approve one or more of our new
drug applications, or it may grant approval for a narrowly intended use that is not commercially feasible. We might not obtain
regulatory approval for our product candidates in a timely manner, if at all. Failure to obtain FDA approval of any of our product
candidates in a timely manner or at all could severely undermine our business by delaying or halting commercialization of our
products, imposing costly procedures, diminishing competitive advantages and reducing the number of saleable products and, therefore,
corresponding product revenues.
If
the FDA does not conclude that a given product candidate using our Accordion Pill technology satisfies the requirements for approval
under the Section 505(b)(2) regulatory approval pathway, or if the requirements for approval of our product candidates under Section
505(b)(2) are not as we expect, the approval pathway will likely take significantly longer, cost significantly more and entail
significantly greater complications and risks than anticipated, and in any case may not be successful.
We
intend to seek FDA approval for our product candidates implementing our Accordion Pill technology through the Section 505(b)(2)
regulatory pathway. Pursuant to Section 505(b)(2) of the FDCA, a NDA under Section 505(b)(2) is permitted to reference safety
and effectiveness data submitted by the sponsor of a previously approved drug as part of its NDA, or rely on FDA’s prior
conclusions regarding the safety and effectiveness of that previously approved drug, or rely in part on data in the public domain.
Reliance on data collected by others may expedite the development program for our product candidates by potentially decreasing
the amount of clinical data that we would need to generate in order to obtain FDA approval. If the FDA does not allow us to pursue
the Section 505(b)(2) regulatory pathway as anticipated, we may need to conduct additional clinical trials, provide additional
data and information, and meet additional standards for product approval. If this were to occur, the time and financial resources
required to obtain FDA approval, and complications and risks associated with regulatory approval of our product candidates, would
likely substantially increase. Moreover, our inability to pursue the Section 505(b)(2) regulatory pathway may result in new competitive
products reaching the market more quickly than our product, which would likely materially adversely impact our competitive position
and prospects. Even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this will ultimately
lead to accelerated product development or earlier approval. A 505(b)(2) applicant may rely on the FDA’s finding of safety
and effectiveness for a previously approved drug only to the extent that the proposed product in the Section 505(b)(2) application
shares characteristics (e.g., active ingredient, dosage form, route of administration, strength, indication, conditions of use)
in common with the previously approved drug. To the extent that the previously approved drug and the drug proposed in the Section
505(b)(2) application differ (e.g., a product with a different dosage form or route of administration), the Section 505(b)(2)
application must include sufficient data to support those differences.
In
addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed
to protect the patent rights of sponsors of previously approved drugs that may be referenced in a Section 505(b)(2) NDA. These
requirements may give rise to patent litigation and mandatory delays in approval of our NDA for up to 30 months or longer depending
on the outcome of any litigation. Further, it is not uncommon for a manufacturer of an approved product to file a citizen petition
with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful,
such petitions can significantly delay, or even prevent, the approval of a new product. Even if the FDA ultimately denies such
a petition, the FDA may substantially delay approval while it considers and responds to the petition. Amendments to the FDCA attempt
to limit the delay that can be caused by a citizen petition to 150 days, although court action by a dissatisfied petitioner is
a possibility and this could, in theory, adversely affect the approval process.
Moreover,
even if product candidates implementing our Accordion Pill technology are approved under Section 505(b)(2), the approval may be
subject to limitations on the indicated uses for which the products may be marketed or to other conditions of approval, or may
contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products.
We
might be unable to develop any of our product candidates to achieve commercial success in a timely and cost-effective manner,
or ever.
Even
if regulatory authorities approve any of our product candidates, they may not be commercially successful. Our product candidates
may not be commercially successful because government agencies or other third-party payors may not provide reimbursement for the
costs of the product or the reimbursement may be too low to be commercially successful. In addition, physicians and others may
not use or recommend our products candidates, even following regulatory approval. A product approval, even if issued, may limit
the uses for which such product may be distributed, which could adversely affect the commercial viability of the product. Moreover,
third parties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect
that our product candidates, if approved, will generally be more expensive than the non-Accordion Pill version of the same medication
available to patients. Physician and 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, competition, 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
such products. If physicians, government agencies and other third-party payors do not accept the use or efficacy of our products,
we will not be able to generate significant revenue, if any.
Our
product candidates and future 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 may not obtain such approvals or could lose those approvals that
have been obtained, and the sales of any approved commercial products could be suspended.
Even
if we receive regulatory approval to market a particular product candidate, any such product will remain subject to extensive
regulatory requirements, including requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage,
advertising, promotion, distribution and record keeping. 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 over time 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 FDA approval 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,
without limitation, the following:
suspension
or imposition of restrictions on the products, manufacturers or manufacturing processes, including costly new manufacturing requirements;
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civil
or criminal penalties, fines and/or injunctions;
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product
seizures or detentions;
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import
or export bans or restrictions;
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voluntary
or mandatory product recalls and related publicity requirements;
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suspension
or withdrawal of regulatory approvals;
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total
or partial suspension of production; and
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refusal
to approve pending applications for marketing approval of new products or supplements
to approved applications.
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If
we or our collaborators are slow to adapt, or are 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
business, financial condition or results of operations.
Clinical
trials are very expensive, time-consuming and difficult to design and implement, and, as a result, we may suffer delays or suspensions
to current or future trials, which would have a material adverse effect on our ability to advance products and 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 clinical trials from proceeding. Additionally, the clinical
trial process is time-consuming, failure can occur at any stage of the trial 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, but
not limited to:
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unforeseen
safety issues;
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clinical
holds or suspension of a clinical trial by the FDA, us, ethics committees, or the DSMB
to determine proper dosing;
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lack
of effectiveness or efficacy during clinical trials;
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failure
of our contract manufacturers to manufacture our product candidates in accordance with
cGMP;
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failure
of third party suppliers to perform final manufacturing steps for the drug substance;
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slower
than expected rates of patient recruitment and enrollment;
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lack
of healthy volunteers and patients to conduct trials;
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inability
to monitor patients adequately during or after treatment;
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failure
of third party contract research organizations to properly implement or monitor the clinical
trial protocols;
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failure
of IRBs to approve or renew approvals of our clinical trial protocols;
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inability
or unwillingness of medical investigators to follow our clinical trial protocols; and
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lack
of sufficient funding to finance the clinical trials.
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As
noted above, we, regulatory authorities, IRBs or DSMBs 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
conduct of these trials. Any suspension of clinical trials will delay possible regulatory approval, if any, and adversely impact
our ability to develop products and generate revenue.
We
may be forced to abandon development of certain products altogether, which will significantly impair our ability to generate product
revenues.
Upon
the completion of any clinical trial, if at all, the results of these trials might not support the claims sought by us. Further,
success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the
results of later clinical trials may not replicate the results of prior clinical trials and preclinical testing. For example,
our Phase III ACCORDANCE study failed to meet its target endpoints despite positive Phase II data. The clinical trial process
may fail to demonstrate that our product candidates are safe for humans and effective for its indicated uses. Any such failure
may cause us to abandon a product candidate and may delay development of other product candidates. Any delay in, or termination
or suspension of, our clinical trials will delay the requisite filings with the FDA and, ultimately, our ability to commercialize
our product candidates and generate product revenues. If the clinical trials do not support our drug product claims, the completion
of development of such product candidates may be significantly delayed or abandoned, which would significantly impair our ability
to generate product revenues and would materially adversely affect our business, financial condition or results of operations.
Positive
results in the previous clinical trials of one or more of our product candidates may not be replicated in future clinical trials
of such product candidate, which could result in development delays or a failure to obtain marketing approval.
Positive
results in the previous clinical trials of one or more of our product candidates may not be predictive of similar results in future
clinical trials for such product candidate. For example, our Phase III ACCORDANCE study failed to meet its target endpoints despite
positive Phase II data. Also, interim results during a clinical trial do not necessarily predict final results. We along with
a number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical
trials even after achieving promising results in early-stage development. Accordingly, the results from the completed preclinical
studies and clinical trials for our product candidates may not be predictive of the results we may obtain in later stage trials
of such product candidates. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators
may require us, to conduct additional clinical trials. Clinical trial results may be inconclusive, or contradicted by other clinical
trials, particularly larger clinical trials. Moreover, clinical data are often susceptible to varying interpretations and analyses,
and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials
have nonetheless failed to obtain FDA or European Medicines Agency, or other applicable regulatory agency, approval for their
products.
Our
product candidates are manufactured through a compounding, film casting and assembly process, and if we or one of our materials
suppliers encounters problems manufacturing our products or raw materials, our business could suffer.
We
and our contract manufacturers, if any, are, and will be, subject to extensive governmental regulation in connection with the
manufacture of any pharmaceutical products. The FDA and foreign regulators require manufacturers to register manufacturing facilities.
The FDA and foreign regulators also inspect these facilities to confirm compliance with cGMP or similar requirements that the
FDA or foreign regulators establish. 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. The FDA will likely condition grant of any marketing approval, if any,
on a satisfactory on-site inspection of our manufacturing facilities.
We
currently manufacture our product candidates used in clinical testing and we order certain materials from single-source suppliers.
If the supply of any of these single-sourced materials is delayed or ceases, we may not be able to produce the related product
in a timely manner or in sufficient quantities, if at all, causing us to be unable to further develop our product candidates or
bring them to market or continue to develop our technology, which could materially and adversely affect our business. In addition,
a single-source supplier of a key component of one or more of our product candidates could potentially exert significant bargaining
power over price, quality, warranty claims or other terms relating to the single-sourced materials. Our materials suppliers may
face manufacturing or quality control problems causing product production and shipment delays or a situation where the supplier
may not be able to maintain compliance with the FDA’s cGMP requirements, or those of foreign regulators, necessary to continue
manufacturing our drug substance or raw materials. Drug manufacturers are subject to ongoing periodic unannounced inspections
by the FDA, the DEA, and corresponding foreign regulatory agencies to ensure strict compliance with cGMP requirements and other
governmental regulations and corresponding foreign standards. Any failure by us or our suppliers to comply with DEA requirements
or FDA or foreign regulatory requirements could adversely affect our clinical research activities and our ability to market and
develop our products.
We
intend to rely on a third-party manufacturer to manufacture commercial quantities of AP-CD/LD, if approved, and we may rely on
other third-party manufacturers for other product candidates and any failure by a third-party manufacturer or supplier may delay
or impair our ability to commercialize our product candidates.
We
have manufactured our product candidates for our preclinical studies, Phase I clinical trials, Phase II clinical trials and Phase
III clinical trial in our own manufacturing facility. Completion of any future clinical trial and commercialization of our product
candidates will require access to, or development of, facilities to manufacture a sufficient supply of our product candidates.
Although we believe our facilities are sufficient to manufacture our product candidate needs for clinical trials, we may be incorrect
and we may not have the resources or facilities to manufacture our product candidates for clinical trials.
With
respect to any future commercialization of the AP-CD/LD, we have decided to rely on LTS, a third-party contract manufacturer.
LTS will be the sole source of production of AP-CD/LD and the establishment of a manufacturing facility to produce commercial
quantities of AP-CD/LD requires substantial investment. Producing products in commercial quantities requires developing and adhering
to complex manufacturing processes that are different from the manufacture of products in smaller quantities for clinical trials,
including adherence to regulatory standards. Although we believe that we have developed processes and protocols that will enable
LTS to manufacture commercial-scale quantities of products at acceptable costs, we cannot provide assurance that such processes
and protocols will enable us to manufacture in quantities that may be required for commercialization of AP-CD/LD with yields and
at costs that will be commercially attractive. If LTS is unable to establish or maintain commercial manufacture of AP-CD/LD or
are unable to do so at costs that we currently anticipate, our business could be adversely affected. Furthermore, if our current
and future manufacturing and supply strategies are unsuccessful, we may be unable to conduct and complete any future Phase III
clinical trials or commercialize our product candidates in a timely manner, if at all.
We
have relied, and we expect to continue to rely, on third-party manufacturers for certain raw materials (excipients, solvents and
active pharmaceutical ingredients, or APIs), and for the commercial manufacturing of our AP-CD/LD. Our reliance on third parties
for the manufacture of these items increases the risk that we will not have sufficient quantities of these items or will not be
able to obtain such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization
efforts. If the third-party manufacturers on whom we rely fail to supply these items and we need to enter into alternative arrangements
with a different supplier, it could delay our product development activities, as we would have to requalify the casting and assembly
processes pursuant to FDA requirements. If this failure of supply were to occur after we received approval for and commenced commercialization
of AP-CD/LD, we might be unable to meet the demand for this product and our business could be adversely affected. In addition,
because we do not have any control over the process or timing of the supply of the APIs used in AP-CD/LD, there is greater risk
that we will not have sufficient quantities of these APIs at an acceptable cost or quality, which could delay, prevent or impair
our development or commercialization efforts.
Manufacturing
our product candidates is subject to extensive governmental regulation. Our failure or the failure of these third parties in any
respect (including noncompliance with governmental regulations) could have a material adverse effect on our business, results
of operations and financial condition.
Manufacturing
our product candidates is subject to extensive governmental regulation. See “Item 1. Business - Government Regulation.”
Future FDA, state and foreign inspections may identify compliance issues at our facilities or at the facilities of our contract
manufacturers. Failure by our third-party manufacturers to pass such inspections and otherwise satisfactorily complete the FDA
or foreign regulatory agency approval regimen with respect to our product candidates may result in regulatory actions such as
the issuance of Form FDA 483 notices of observations or any foreign counterpart, warning letters or injunctions or the loss of
operating licenses. Based on the severity of the regulatory action, our clinical or commercial supply of the items manufactured
by third-party manufacturers could be interrupted or limited, which could have a material adverse effect on our business. In addition,
discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions
on a product, manufacturer or holder of an approved NDA, including withdrawal or recall of the product from the market or other
voluntary, FDA or foreign regulatory agency-initiated or judicial action that could delay or prohibit further marketing. Newly
discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the
addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also,
new government requirements, including those resulting from new legislation, may be established, or the FDA’s or foreign
regulatory agency’s policies may change, which could delay or prevent regulatory approval of our products under development.
The FDA will likely condition grant of any marketing approval, if any, on a satisfactory on-site inspection of our manufacturing
facilities.
If
we are unable to use our manufacturing facility for any reason, the manufacture of clinical supplies of our candidates would be
delayed, which would harm our business.
We
currently able to manufacture all clinical supply of all our product candidates at our own manufacturing facility. If we were
to lose the use of our facility or equipment, our manufacturing facility and manufacturing equipment would be difficult to replace
and could require substantial replacement lead time and substantial additional funds. Our facility may be affected by natural
disasters, such as floods or fire, or we may lose the use of our facility due to manufacturing issues that arise at our facility,
such as contamination or regulatory concerns following a regulatory inspection of our facility. We do not currently have back-up
capacity. In the event of a loss of the use of all or a portion of our facility or equipment for the reasons stated above or any
other reason, we would be unable to manufacture any of our product candidates until such time as our facility could be repaired,
rebuilt or we are able to address other manufacturing issues at our facility. Although we currently maintain property insurance
with personal property limits of up to NIS 40.0 million and business interruption insurance coverage of up to NIS 20.0 million
for damage to our property and the disruption of our business from fire and other casualties, such insurance may not cover all
occurrences of manufacturing disruption or be sufficient to cover all of our potential losses in the event of occurrences that
are covered and may not continue to be available to us on acceptable terms, or at all.
We
are subject to extensive and costly government regulation.
The
products we are developing and planning to develop in the future are subject to extensive and rigorous domestic government regulation,
including regulation by the FDA, the CMS, the HHS, including its Office of Inspector General, the Office of Civil Rights, which
administers the privacy provisions of HIPAA, the U.S. Department of Justice, the Departments of Defense and Veterans Affairs,
to the extent our products are paid for directly or indirectly by those departments, state and local governments, and their respective
foreign equivalents. The FDA regulates the research, development, preclinical and clinical testing, manufacture, safety, effectiveness,
record keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import and export of pharmaceutical
products under various regulatory provisions. If any drug products we develop are tested or marketed abroad, they will also be
subject to extensive regulation by foreign governments, whether or not we have obtained FDA approval for a given product and its
uses. Such foreign regulation may be equally or more demanding than corresponding U.S. regulation.
Government
regulation substantially increases the cost and risk of researching, developing, manufacturing, and selling our products. Our
failure to comply with these regulations could result in, by way of example, significant fines, criminal and civil liability,
product seizures, recalls, withdrawals, withdrawals of approvals, and exclusion and debarment from government programs. Any of
these actions, including the inability of our proposed products to obtain and maintain regulatory approval, would have a materially
adverse effect on our business, financial condition, results of operations and prospects.
In
addition to government regulation, rules and policies of professional and other quasi and non-governmental bodies and organizations
may impact the prescription of products, as well as the manner of their promotion, marketing, and education. Examples of such
bodies are the American Medical Association, the Accreditation Council of Continuing Medical Education, American College of Physicians
and the American Academy of Family Physicians.
Elections
in the United States could result in significant changes in, and uncertainty with respect to, legislation, regulation and government
policy. While it is not possible to predict whether and when any such changes will occur, changes at the federal level could significantly
impact our business and the health care industry; we are currently unable to predict whether any such changes would have a net
positive or negative impact on our business. To the extent that such changes have a negative impact on us or the health care industry,
including as a result of related uncertainty, these changes may materially and adversely impact our business, financial condition,
results of operations, cash flows and the trading price of our ordinary shares.
We
are subject to additional federal, state and local laws and regulations relating to our business, and our failure to comply with
those laws could have a material adverse effect on our results of operations and financial conditions.
In
the United States, our current and future activities with investigators, healthcare professionals, consultants, third-party payors,
patient organizations and customers are subject to healthcare regulation and enforcement by the federal government and the states
in which we conduct or will conduct our business. The laws that may affect our ability to operate include, but are not limited
to, the following:
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the
federal healthcare program Anti-Kickback Statute, which prohibits, among other things,
persons from knowingly and willfully soliciting, receiving, offering or paying remuneration,
directly or indirectly, in exchange for or to induce either the referral of an individual
for, or the purchase, order or recommendation of, any good, item, facility or service
for which payment may be made under government healthcare programs such as the Medicare
and Medicaid programs;
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the
Anti-Inducement Law, which prohibits persons from offering or paying remuneration to
Medicare and Medicaid beneficiaries to induce them to use items or services paid for
in whole or in part by the Medicare or Medicaid programs;
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the
Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, prohibits
physicians from referring Medicare or Medicaid patients for certain designated items
or services where that physician or family member has a financial interest in the entity
providing the designated item or service;
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federal
false claims laws, including the Federal False Claims Act, that prohibit, among other
things, individuals or entities from knowingly presenting, or causing to be presented,
claims for payment from Medicare, Medicaid or other government healthcare programs that
are false or fraudulent;
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federal
criminal laws that prohibit executing a scheme to defraud any healthcare benefit program
or making false statements relating to healthcare matters;
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HIPAA,
which imposes criminal and civil liability for executing a scheme to defraud any healthcare
benefit program and also imposes obligations, including mandatory contractual terms,
with respect to safeguarding the privacy, security and transmission of individually identifiable
health information;
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state
and local law equivalents of each of the above federal laws, such as anti-kickback and
false claims laws which may apply to items or services reimbursed by any third-party
payer, including commercial insurers; and
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federal,
state and local taxation laws applicable to the marketing and sale of our products.
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Further,
the PPACA, among other things, amended the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud
statutes. A person or entity can now be found guilty of fraud or false claims under PPACA without actual knowledge of the statute
or specific intent to violate it. In addition, PPACA provides that the government may assert that a claim including items or services
resulting from a violation of the federal Anti-Kickback Statue constitutes a false or fraudulent claim for purposes of the false
claims statutes. Possible sanctions for violation of these anti-kickback laws include monetary fines, civil and criminal penalties,
exclusion from Medicare, Medicaid and other government programs, imprisonment, and forfeiture of amounts collected in violation
of such prohibitions. Any violations of these laws, or any action against us for violation of these laws, even if we successfully
defend against it, could result in a material adverse effect on our reputation, business, results of operations and financial
condition.
PPACA
also contains legislation commonly known as the Physician Payments Sunshine Act, or Sunshine Act, which requires applicable drug
and device manufacturers of covered pharmaceutical, biological, device and medical supplies to annually report to CMS information
regarding payments and transfers of value made to physicians and teaching hospitals and certain ownership and investment interests
held by physicians and their immediate family members, and for CMS to annually collect and display information reported by device
and pharmaceutical manufacturers. Pursuant to the Sunshine Act, CMS created the federal Open Payments Program, under which data
collected for each calendar year is published by CMS in June of the following calendar year. For example, data that was submitted
by applicable manufacturers for the 2019 calendar year was published on June 30, 2020. Failure to submit required information
may result in civil monetary penalties for all payments, transfers of value or ownership or investment interests that are not
reported.
Since
its enactment, there have been judicial and Congressional challenges to certain aspects of the PPACA. If a law is enacted, many
if not all, of the provisions of the PPACA 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 PPACA is unconstitutional as a result of the Tax Cuts and Jobs Act, 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 PPACA. 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 United States Supreme Court. The U.S. Supreme
Court declined to hear the appeal on an expedited basis and so no decision is expected until the next Supreme Court term in early
2021. We are not able to state with any certainty what will be the impact of this court decision on our business pending further
court action and possible appeals. 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, there has been a recent trend of increased federal, state and local regulation of payments made to physicians for marketing.
Some states, such as California, Massachusetts and Vermont, mandate implementation of corporate compliance programs, along with
the tracking and reporting of gifts, compensation and other remuneration to physicians, and some states limit or prohibit such
gifts. Various trade associations, such as the Advanced Medical Technology Association for devices and the Pharmaceutical Research
and Manufacturers of America for drugs, have adopted voluntary standards of ethical behavior that limit the amount of and circumstances
under which payments made be made to physicians. Additionally, there are state and local laws that require pharmaceutical sales
representatives to register or obtain a license with the state or locality and to disclose or report certain information about
their interactions with physicians.
The
scope and enforcement of these laws is uncertain and subject to change in the current environment of healthcare reform, especially
in light of the lack of applicable precedent and regulations. We cannot predict the impact on our business of any changes in these
laws. Federal or state regulatory authorities may challenge our current or future activities under these laws. Any such challenge
could have a material adverse effect on our reputation, business, results of operations, and financial condition. Any state or
federal regulatory review of us, regardless of the outcome, would be costly and time-consuming.
We
are subject to anti-kickback laws and regulations. Our failure to comply with these laws and regulations could have adverse consequences
to us.
There
are extensive U.S. federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result
in significant criminal and civil penalties. These federal laws include: the Anti-Kickback Statute, which prohibits certain business
practices and relationships, including the payment or receipt of compensation for the referral of patients whose care will be
paid by Medicare or other federal healthcare programs; the physician self-referral prohibition, commonly referred to as the Stark
Law; the anti-inducement law, which prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce
that beneficiary to use items or services covered by either program; the civil False Claims Act in 1986, or the False Claims Act,
which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment by the
federal government, including the Medicare and Medicaid programs; and the Civil Monetary Penalties Law, which authorizes the U.S.
Department of Health and Human Services to impose civil penalties administratively for fraudulent or abusive acts. In addition,
the Sunshine Act requires device and drug manufacturers to report to the government any payments to physicians for consulting
services, research activities, educational programs, travel, food, entertainment and the like.
Sanctions
for violating these federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments,
monetary penalties, imprisonment, integrity obligations and other oversight, denial of Medicare and Medicaid payments or exclusion
from the Medicare and Medicaid programs, or both, and debarment. As federal and state budget pressures continue, federal and state
administrative agencies may also continue to escalate investigation and enforcement efforts to reduce or eliminate waste and to
control fraud and abuse in governmental healthcare programs. Private enforcement of healthcare fraud has also increased, due in
large part to amendments to the False Claims Act that were designed to encourage private persons, known as relators, to file qui
tam actions on behalf of the government. The Fraud Enforcement and Recovery Act of 2009 further encouraged whistleblowers
to file suit under the qui tam provisions of the False Claims Act. A violation of any of these federal and state fraud
and abuse laws and regulations could have a material adverse effect on our liquidity and financial condition. An investigation
into the use by physicians of any of our products, if ever commercialized, may dissuade physicians from either purchasing or using
them, and could have a material adverse effect on our ability to commercialize those products.
In
addition, we are subject to analogous foreign laws and regulations, which may apply to sales or marketing arrangements and claims
involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; foreign
laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to
healthcare providers; foreign laws that require drug manufacturers to report information related to payments and other transfers
of value to physicians and other healthcare providers or marketing expenditures; and foreign laws governing the privacy and security
of health information in certain circumstances. Many of these laws differ from each other in significant ways and often are not
preempted by HIPAA, thus complicating compliance efforts.
Our
AP-CBD/THC, AP-THC and AP-CBD product candidates (collectively “AP-Cannabinoids”) use Cannabidiol and 9-Tetrahydrocannabinol
individually or in combination, which are subject to U.S. and international controlled substance laws and regulations; our ability
to commercialize any product containing these substances will depend, in part, on the ultimate classification of the product under
these laws and regulations.
Our
AP-Cannabinoids product candidates for treatment of various pain indications, use pharmaceutically pure CBD, and THC, the latter
of which is synthetically derived. These products are quite distinct from crude herbal “medical marijuana,” and we
intend to seek FDA approval for these products in accordance with the customary FDA approval process and based on adequate and
well-controlled clinical studies. However, the active ingredients in our products are defined as controlled substances under the
federal Controlled Substances Act. Under the CSA, the DEA may place each drug that has abuse potential into one of five categories.
The five categories, referred to as Schedules I-V, carry different degrees of restriction. Each schedule is associated with a
distinct set of controls that affect manufacturers, researchers, healthcare providers, and patients. The controls include registration
with the DEA, labeling and packaging, production quotas, security, recordkeeping, and dispensing. Schedule I is the most restrictive,
covering drugs that have “no accepted medical use” in the United States and that have high abuse potential.
If
and when any of our product candidates receive FDA approval, the DEA will make a scheduling determination and place the product
in a schedule other than Schedule I in order for it to be prescribed to patients in the United States. Accordingly, our ability
to ultimately commercialize the product will depend in part on the ultimate scheduling classification determination by DEA for
our product.
The
FDA has stated that it will continue to facilitate the work of companies interested in bringing safe, effective, and quality products
to market, including scientifically-based research concerning the medical uses of products derived from marijuana and the FDA
has approved synthetic compositions of the active ingredients found in marijuana. However, the use and abuse of controlled substances
is currently subject to political and social pressures from certain constituencies related to their usage which could result in
additional difficulty with respect to the approval of AP-Cannabinoids as a prescription pharmaceutical. For example, the FDA or
DEA may require us to generate more clinical data about the potential for abuse than that which is currently anticipated, which
could increase the cost and/or delay the launch of our product. In addition, DEA scheduling may limit our ability to achieve market
share in the United States due to restricted access and the disinclination of some physicians to prescribe more restrictive scheduled
controlled substances. For example, Schedule II drugs may not be refilled without a new prescription. These factors may limit
the commercial viability of AP-Cannabinoids in the United States.
Most
countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control
of narcotic substances, including the compounds in our AP-Cannabinoids product candidates. Countries may interpret and implement
their treaty obligations in a way that creates a legal obstacle to our obtaining approval to market our AP-Cannabinoids product
candidates. Approval to market in these countries could require amendments or modifications to existing laws and regulations that
such countries would be unwilling to undertake or may cause material delays in any marketing approval.
Reimbursement
may not be available for our products, which could make it difficult for us to sell our products profitably.
Market
acceptance and sales of our products will depend on coverage and reimbursement policies and may be affected by healthcare reform
measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations,
decide which products they will pay for and establish reimbursement levels. We cannot be sure that coverage and reimbursement
will be available for our products. We also cannot be sure that the amount of reimbursement available, if any, will not reduce
the demand for, or the price of, our products. If reimbursement is not available or is available only at limited levels, we may
not be able to successfully compete through sales of our proposed products.
Specifically,
in both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to
change the healthcare system in ways that could affect our ability to sell our products profitably. In the United States, MMA,
changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases
by the elderly and certain others. Prior to MMA, Medicare did not cover most outpatient prescription drugs. MMA created a new
voluntary Part D, which covers outpatient drugs for Medicare beneficiaries and is administered by private insurance plans that
operate partially at-risk under contract with the CMS. These private Part D plans have incentives to keep costs down. MMA also
introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislation
provided authority for limiting the number of certain outpatient drugs that will be covered in any therapeutic class. As a result
of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to
contain and reduce costs. These and future cost-reduction initiatives could decrease the coverage and price that we receive for
our products, if approved, and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries,
private payors often follow Medicare coverage policies and payment limitations in setting their own reimbursement rates, and any
reduction in reimbursement under Medicare may result in a similar reduction in payments from private payors.
In
March 2010, PPACA became law in the United States. The goal of PPACA is to reduce the cost of healthcare and substantially change
the way healthcare is financed by both governmental and private insurers. Among other measures, PPACA imposes increased rebates
on manufacturers for certain covered drug products reimbursed by state Medicaid programs. The PPACA remains subject to continuing
legislative scrutiny, including efforts by Congress to repeal and amend a number of its provisions, as well as administrative
actions delaying the effectiveness of key provisions. In addition, there have been lawsuits filed by various stakeholders pertaining
to certain portions of the PPACA that may have the effect of modifying or altering various parts of the law. Efforts to date to
amend or repeal the PPACA have generally been unsuccessful. We ultimately cannot predict with any assurance the ultimate effect
of the PPACA or changes to the PPACA on our Company, nor can we provide any assurance that its provisions will not have a material
adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our ordinary shares.
In addition, we cannot predict whether new proposals will be made or adopted, when they may be adopted or what impact they may
have on us if they are adopted.
We
expect to experience pricing pressures in connection with the sale of our products generally due to the trend toward managed healthcare,
the increasing influence of health maintenance organizations, and additional legislative proposals. If we fail to successfully
secure and maintain adequate coverage and reimbursement for our future products or are significantly delayed in doing so, we will
have difficulty achieving market acceptance of our products and our business will be harmed.
We
expect the healthcare industry to face increased limitations on reimbursement, rebates and other payments 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
the United States, the MMA changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare
coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered
drugs. In recent years, Congress has considered further reductions in Medicare reimbursement for drugs administered by physicians.
CMS has issued and will continue to issue regulations to implement the law which will affect Medicare, Medicaid and other third-party
payors. Medicare, which is the single largest third-party payment program and which is administered by CMS, covers prescription
drugs in one of two ways. Medicare part B covers outpatient prescription drugs that are administered by physicians and Medicare
part D covers other outpatient prescription drugs, but through private insurers. Medicaid, a health insurance program for the
poor, is funded jointly by CMS and the states, but is administered by the states; states are authorized to cover outpatient prescription
drugs, but that coverage is subject to caps and to substantial rebates. CMS also has the authority to revise reimbursement rates
and to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through
legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect
the price we can receive for those products. While the MMA and implementing regulations apply primarily to drug benefits for Medicare
beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement
rates. Therefore, any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction
in payments from private payors.
In
March 2010, President Obama signed into law the PPACA, a sweeping law intended to broaden access to health insurance, reduce or
constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare
and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers and impose additional
health policy reforms. As amended, the PPACA expanded manufacturers’ rebate liability to include covered drugs dispensed
to individuals who are enrolled in Medicaid managed care organizations, increased the minimum rebate due for innovator drugs (both
single source drugs and innovator multiple source drugs) from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP or
the difference between the AMP and best price, whichever is greater. The total rebate amount for innovator drugs is capped at
100.0% of AMP. The PPACA and subsequent legislation also narrowed the definition of AMP. Furthermore, the PPACA imposes a significant
annual, nondeductible fee on companies that manufacture or import certain branded prescription drug products. Substantial new
provisions affecting compliance have also been enacted, which may affect our business practices with healthcare practitioners,
and a significant number of provisions are not yet, or have only recently become, effective. The PPACA likely will continue to
put pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and
operating costs. We ultimately cannot predict with any assurance the ultimate effect of the PPACA or changes to the PPACA on our
Company, nor can we provide any assurance that its provisions will not have a material adverse effect on our business, financial
condition, results of operations, cash flows and the trading price of our ordinary shares. In addition, we cannot predict whether
new proposals will be made or adopted, when they may be adopted or what impact they may have on us if they are adopted.
In
addition, other legislative changes have been proposed and adopted since the PPACA was enacted. In August 2011, then President
Obama signed into law the Budget Control Act of 2011, which, among other things, creates 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. The Bipartisan Budget
Act of 2015, signed into law on November 2, 2015, increased the rebates that generic drug manufacturers are obligated to pay under
the Medicaid program by applying an inflation-based rebate formula to generic drugs that previously only applied to brand name
drugs. If we ever obtain regulatory approval and commercialization of any of our product candidates, these new 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 or to lower prices 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 product candidates may be.
In
November 2020, Joseph Biden was elected President and, in January 2021, the Democratic Party obtained control of the Senate. We
are not able to state with certainty what the impact of potential legislation will be on our business.
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 PPACA or the enactment
of additional legislation pursuant to healthcare and other legislative reform, we believe that legislation or regulations that
would 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. 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 product sales.
Governments
outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.
In
some countries, particularly the countries comprising the EU, the pricing of pharmaceuticals and certain other therapeutics is
subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable
time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we
may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies.
If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels,
our business could be materially harmed.
Changes
in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, which may result in necessary
changes to clinical trial protocols, which could result in increased costs to us, delay our development timeline or reduce the
likelihood of successful completion of our clinical trials.
Changes
in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, as a result of which we
may need to amend clinical trial protocols. Amendments may require us to resubmit our clinical trial protocols to IRBs for review
and approval, which may adversely affect the cost, timing and successful completion of a clinical trial. If we experience delays
in the completion of, or if we terminate, any of our clinical trials, the commercial prospects for our affected product candidates
would be harmed and our ability to generate product revenue would be delayed, possibly materially.
We
may be subject to extensive environmental, health and safety, and other laws and regulations in multiple jurisdictions.
Our
business involves the controlled use, directly or indirectly through our service providers, of hazardous materials, various biological
compounds and chemicals; therefore, we, our agents and our service providers may be subject to various environmental, health and
safety laws and regulations, including those governing air emissions, water and wastewater discharges, noise emissions, the use,
management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. The
risk of accidental contamination or injury from these materials cannot be eliminated. If an accident, spill or release of any
regulated chemicals or substances occurs, we could be held liable for resulting damages, including for investigation, remediation
and monitoring of the contamination, including natural resource damages, the costs of which could be substantial. We are also
subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures,
exposure to blood-borne pathogens and the handling of biohazardous materials and chemicals. Although we maintain workers’
compensation insurance to cover the costs and expenses that may be incurred because of injuries to our employees resulting from
the use of these materials, this insurance may not provide adequate coverage against potential liabilities. Additional or more
stringent federal, state, local or foreign laws and regulations affecting our operations may be adopted in the future. We may
incur substantial capital costs and operating expenses and may be required to obtain consents to comply with any of these or certain
other laws or regulations and the terms and conditions of any permits or licenses required pursuant to such laws and regulations,
including costs to install new or updated pollution control equipment, modify our operations or perform other corrective actions
at our respective facilities or the facilities of our service providers. For instance, we have undergone inspections and obtained
approvals from various governmental agencies. We hold a business license with respect to testing, developing, storing and manufacturing
pharmaceutical products at our current location from the municipality of Jerusalem, which is accompanied by additional terms and
conditions approved by the Israeli Ministry of Environmental Protection, or the Ministry of Environmental Protection. Our business
license is valid until December 31, 2023 and we also hold a toxic substances permit from the Ministry of Environmental Protection
(the Hazardous Material Division) and a Certificate of GMP Compliance of a Manufacturer from the Israeli Ministry of Health –
Pharmaceutical Administration. Failure to renew any of the foregoing licenses and permits may harm our on-going and future operations.
In addition, fines and penalties may be imposed for noncompliance with environmental, health and safety and other laws and regulations
or for the failure to have, or comply with the terms and conditions of our business license or, required environmental or other
permits or consents.
Risks
Related to Our Intellectual Property
If
we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties
or these agreements are terminated or we otherwise experience disruptions to our business relationships with our licensors, we
could lose intellectual property rights that are important to our business.
We
license our core intellectual property from Yissum, an affiliate of Hebrew University and may need to obtain additional licenses
from others to advance our research and development activities or allow the commercialization of the Accordion Pill. We initially
entered into an exclusive license agreement with Yissum in 2000 and, in 2004 and 2005, we amended the license, which we refer
to, as amended, as the License Agreement. According to the License Agreement, we hold an exclusive license for developing, manufacturing
and/or world marketing of products that are directly or indirectly based on the patent owned by Yissum and/or other related intellectual
property (including any information, research results and related know-how). Yissum is not permitted to transfer such intellectual
property to third parties without our prior written consent. Yissum may obtain future financing from other entities for its research,
provided that such entities will not be granted rights in its results (including other intellectual property rights) in a way
prejudicing the rights granted to us in accordance with the License Agreement. We are entitled to grant perpetual sublicenses
of this intellectual property to third parties, and such third parties will not be required to assume any undertaking towards
Yissum. We are obligated to research and develop products that are based on the intellectual property of Yissum and to pay Yissum
from the date of first sale an amount equal to 3% of our net sales of products based on the intellectual property and 15% from
all other payments or benefits received from any such sublicense. In addition, also in consideration of the exclusive license
granted to us pursuant to the License Agreement, we issued 5,618 ordinary shares to Yissum. As of the date of this Annual Report,
no payments were paid and/or are due under the License Agreement. The License Agreement will be in effect until 15 years from
the date of the first commercial sale. We also contracted with Yissum for laboratory services. In January 2008, we signed an addendum
to the License Agreement to conduct an additional joint development and study regarding a technology, different from the Accordion
Pill, for GR, of a drug. This addendum provides that the intellectual property rights produced as a result of the joint development
and study will be jointly owned and we are entitled to receive a license for Yissum’s share in these rights in return for
payment of royalties. One patent application has been filed by Yissum and us as a result of the development related to that joint
project, but this patent application was abandoned.
The
License Agreement imposes certain payment, reporting, confidentiality and other obligations on us. In the event that we were to
breach any of our obligations under the License Agreement and fail to cure such breach, Yissum would have the right to terminate
the License Agreement upon 30 days’ notice. In addition, Yissum has the right to terminate the License Agreement upon our
bankruptcy or receivership.
In
spite of our efforts, Yissum or any future licensor might conclude that we have materially breached our obligations under such
license agreements and might therefore terminate the license agreements, thereby removing or limiting our ability to develop and
commercialize products and technology covered by these license agreements. Most of our current product candidates are partly based
on the intellectual property licensed under the License Agreement, and therefore if the License Agreement with Yissum was terminated,
we may be required to cease our development and commercialization of the Accordion Pill. Any of the foregoing could have a material
adverse effect on our business, financial condition or results of operations.
Moreover,
disputes may arise regarding intellectual property subject to a licensing agreement, including:
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the
scope of rights granted under the license agreement and other interpretation-related
issues;
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the
extent to which our product candidates, technology and processes infringe on intellectual
property of the licensor that is not subject to the licensing agreement;
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the
sublicensing of patent and other rights under our collaborative development relationships;
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our
diligence obligations under the license agreement and what activities satisfy those diligence
obligations;
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the
inventorship and ownership of inventions and know-how resulting from the joint creation
or use of intellectual property by our licensors and us and our partners; and
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the
priority of invention of patented technology.
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If
we fail to adequately protect, enforce or secure rights to the patents which were licensed to us or any patents we own or may
own in the future, the value of our intellectual property rights would diminish and our business and competitive position would
suffer.
Our
success, competitive position and future revenues, if any, depend in part on our ability to obtain and successfully leverage intellectual
property covering our products and product candidates, know-how, methods, processes and other technologies, to protect our trade
secrets, to prevent others from using our intellectual property and to operate without infringing the intellectual property rights
of third parties.
The
risks and uncertainties that we face with respect to our intellectual property rights include, but are not limited to, the following:
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the
degree and range of protection any patents will afford us against competitors;
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if
and when patents will be issued;
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whether
or not others will obtain patents claiming aspects similar to those covered by our own
or licensed patents and patent applications;
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we
may be subject to interference proceedings;
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we
may be subject to opposition or post-grant proceedings in foreign countries;
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any
patents that are issued may not provide sufficient protection;
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we
may not be able to develop additional proprietary technologies that are patentable;
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other
companies may challenge patents licensed or issued to us or our customers;
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other
companies may independently develop similar or alternative technologies, or duplicate
our technologies;
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other
companies may design around technologies we have licensed or developed;
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enforcement
of patents is complex, uncertain and expensive; and
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we
may need to initiate litigation or administrative proceedings that may be costly whether
we win or lose.
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If
patent rights covering our products and methods are not sufficiently broad, they may not provide us with any 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 or to 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 or patents licensed from Yissum (or any other third party in the future), will give us adequate protection from
competing products. For example, issued patents, including the patents 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 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 also 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.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance
with these requirements.
Periodic
maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime
of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,
fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be
cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights
in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application
include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and
failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market,
which could have a material adverse effect on our business.
Costly
litigation may be necessary to protect our intellectual property rights, and we may be subject to claims alleging the breach of
license or other agreements that we have entered into with third parties or 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 ours and 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.
We
have entered into license and collaboration agreements with other parties, including other pharmaceutical companies, and intend
to continue to do so in the future. We and our counterparties to these agreements have granted and may grant each other, and have
or may claim against each other, certain rights with respect to the other party’s intellectual property and the intellectual
property that we have or may jointly develop, including rights of co-ownership and rights of first refusal in the event that we
or our counterparties seek to subsequently license or sell such intellectual property. For instance, a former partner under a
terminated collaboration agreement previously indicated to us after the termination of such agreement that it believed it had
a right of first offer with respect to a future license by us of certain intellectual property that existed in 2008 and is contained
in AP-CD/LD. We do not believe that this party has any such right. However, the cost to us of any litigation or other proceeding
relating to our license and collaboration agreements, our licensed patents or patent applications or other intellectual property,
even if resolved in our favor, could be substantial, divert management’s resources and attention and delay or impair our
ability to license or sell such intellectual property. Our ability to enforce our intellectual property protection could be limited
by our financial resources, and may be subject to lengthy delays. A third party may claim that we are using inventions claimed
by their intellectual property 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 intellectual property and will order us to
stop the activities claimed by the intellectual property, redesign our products or processes to avoid infringement or obtain licenses
(which may not be available on commercially reasonable terms or at all). In addition, there is a risk that a court will order
us to pay the other party damages for having infringed their patents. Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings,
motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative,
it could have a material adverse effect on the price of our ordinary shares.
Moreover,
there is no guarantee that any prevailing patent or other intellectual property owner would offer us a license so that we could
continue to engage in activities claimed by the patent or other intellectual property, 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. Any claims of infringement
or other breach of license or collaboration agreement asserted against us, whether or not successful, may have a material adverse
effect on us.
Third-party
claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our
commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. However,
our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents
or other intellectual property rights owned or controlled by third parties. There is a substantial amount of litigation, both
within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical
industries, including patent infringement lawsuits, interferences, oppositions and inter parties re-examination proceedings before
the USPTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications,
which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and
pharmaceutical industries expand and more patents are issued, the risk increases that the Accordion Pill or our product candidates
may be subject to claims of infringement of the patent rights of third parties.
Third
parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents
or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the
use or manufacture of the Accordion Pill or our product candidates. Because patent applications can take many years to issue,
there may be currently pending patent applications which may later result in issued patents that the Accordion Pill or our product
candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes
upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the patents protecting
the Accordion Pill or our product candidates, the holders of any such patents may be able to block our ability to commercialize
such product candidate unless we obtained a license under the applicable patents, or until such patents expire.
Similarly,
if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for
manufacture or methods of use, including combination therapy, the holders of any such patents may be able to block our ability
to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either
case, such a license may not be available on commercially reasonable terms or at all, or it may be non-exclusive, which could
result in our competitors gaining access to the same intellectual property.
Parties
making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further
develop and commercialize the Accordion Pill or our product candidates. Defense of these claims, regardless of their merit, would
involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event
of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’
fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties,
which may be impossible or require substantial time and monetary expenditure.
Parties
making claims against us may be able to sustain the costs of complex patent litigation more effectively than we can because they
have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with
intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could
be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation
could have material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our
business, results of operations, financial condition and prospects.
Patent
terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents
have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is
generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a
patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent
life has expired, we may be open to competition from competitive products, including generics or biosimilars. Given the amount
of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates
might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio
may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. For example,
the patent family, IN-1, which we exclusively license from Yissum (i.e., Gastroretentive Controlled Release Pharmaceutical Dosage
Forms), has expired in November 2020. This patent family relates to the foldable pharmaceutical gastroretentive drug delivery
system for the controlled release of an active agent in the GI tract, which can be folded into a single capsule.
If
we are not able to obtain patent term extension or non-patent exclusivity in the United States under the Hatch-Waxman Act and
in foreign countries under similar legislation, thereby potentially extending the term of our marketing exclusivity for the Accordion
Pill or any product candidates, our business may be materially harmed.
Depending
upon the timing, duration and specifics of FDA marketing approval, one of the U.S. patents covering our product candidates or
the use thereof may be eligible for up to five years of patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act
allows a maximum of one patent to be extended per FDA approved product as compensation for the patent term lost during the FDA
regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from
the date of product approval and only those claims covering such approved drug product, a method for using it or a method for
manufacturing it may be extended. Patent term extension also may be available in certain foreign countries upon regulatory approval
of our product candidates. Nevertheless, we may not be granted patent term extension either in the United States or in any foreign
country because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing
to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy
applicable requirements. Moreover, the term of extension, as well as the scope of patent protection during any such extension,
afforded by the governmental authority could be less than we request.
If
we are unable to obtain patent term extension or restoration, or the term of any such extension is less than we request, the period
during which we will have the right to exclusively market our product may be shortened and our competitors may obtain approval
of competing products following our patent expiration sooner, and our revenue could be reduced, possibly materially.
It
is possible that we will not obtain patent term extension under the Hatch-Waxman Act for a U.S. patent covering any of our product
candidates even where that patent is eligible for patent term extension, or if we obtain such an extension, it may be for a shorter
period than we had sought. Further, for our licensed patents, we do not have the right to control prosecution, including filing
with the USPTO, a petition for patent term extension under the Hatch-Waxman Act. Thus, if one of our licensed patents is eligible
for patent term extension under the Hatch-Waxman Act, we may not be able to control whether a petition to obtain a patent term
extension is filed, or obtained, from the USPTO.
Also,
there are detailed rules and requirements regarding the patents that may be submitted to the FDA for listing in the Approved Drug
Products with Therapeutic Equivalence Evaluations, or the Orange Book. We may be unable to obtain patents covering our product
candidates that contain one or more claims that satisfy the requirements for listing in the Orange Book. Even if we submit a patent
for listing in the Orange Book, the FDA may decline to list the patent, or a manufacturer of generic drugs may challenge the listing.
If one of our product candidates is approved and a patent covering that product candidate is not listed in the Orange Book, a
manufacturer of generic drugs would not have to provide advance notice to us of any abbreviated new drug application filed with
the FDA to obtain permission to sell a generic version of such product candidate.
Issued
patents covering our product candidates could be found invalid or unenforceable if challenged in court.
If
we or one of our licensing partners initiated legal proceedings against a third party to enforce a patent covering the Accordion
Pill or our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or
unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability
are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including
lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone
connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during
prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside
the context of litigation. Such mechanisms include re-examination, post grant review, and equivalent proceedings in foreign jurisdictions
(e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our patents in such a way that they
no longer cover the Accordion Pill or our product candidates. The outcome following legal assertions of invalidity and unenforceability
is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior
art, of which we and the patent examiner were unaware of during prosecution. If a defendant were to prevail on a legal assertion
of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates.
Such a loss of patent protection would have a material adverse impact on our business.
We
may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential
information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As
is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at universities
or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure
that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their
work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or
otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s
former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any
such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could
adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial
costs and be a distraction to management and other employees.
We
may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could
result in litigation and adversely affect our business.
A
significant portion of our intellectual property has been developed by our employees in the course of their employment for us.
Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee in the course and as a result
of or arising from his or her employment with a company are regarded as “service inventions,” which belong to the
employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent
Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties
Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration
for his inventions. Case law clarifies that the right to receive consideration for “service inventions” can be waived
by the employee and that in certain circumstances, such waiver does not necessarily have to be explicit. The Committee will examine,
on a case-by-case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli
contract laws. Further, the Committee has not yet determined one specific formula for calculating this remuneration (but rather
uses the criteria specified in the Patent Law). Although we generally enter into assignment-of-invention agreements with our employees
pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement
with us, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims,
we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate
such claims, which could negatively affect our business. Further, litigation may be necessary to defend against these and other
claims challenging inventorship of our or of our licensors’ ownership of our owned or in-licensed patents, trade secrets
or other intellectual property. If we or our licensors 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, intellectual property that
is important to our product candidates. Even if we are successful in defending against such claims, litigation could result in
substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect
on our business, financial condition and results of operations.
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, we cannot be certain that such agreements have been entered
into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information
will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially
equivalent information and techniques. Furthermore, 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. We also rely on trade secrets
and proprietary know-how that we seek to protect in part by confidentiality agreements with our employees, contractors, consultants,
advisors or others. Despite the protective measures we employ, we still face the risk that:
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these
agreements may be breached;
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these
agreements may not provide adequate remedies for the applicable type of breach;
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our
trade secrets or proprietary know-how will otherwise become known; or
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our
competitors will independently develop similar technology or proprietary information.
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We
also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security
of our premises and physical and electronic security of our information technology systems, but it is possible that these security
measures could be breached. If any of our confidential proprietary information were to be lawfully obtained or independently developed
by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us,
which could harm our competitive position.
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.
Filing,
prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive,
and our intellectual property rights in some countries outside the United States can be less extensive than those in the United
States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal
and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions
in all countries outside the United States, or from selling or importing products made using our inventions in and into the United
States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection
to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement
is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual
property rights may not be effective or sufficient to prevent them from competing.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade
secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it
difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights
generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial
costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated
or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against
us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially
meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain
a significant commercial advantage from the intellectual property that we develop or license.
Changes
in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
Changes
in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs
surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements
for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to
the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013,
under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the United States transitioned
to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to
file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to
invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before us could
therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third
party. This will require us to be cognizant of the time from invention to filing of a patent application. Since patent applications
in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot
be certain that we or our licensors were the first to either (i) file any patent application related to our product candidates
or (ii) invent any of the inventions claimed in our or our licensor’s patents or patent applications.
The
America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and
also may affect patent litigation. These include allowing third party submission of prior art to the USPTO during patent prosecution
and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant
review, inter parties review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared
to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially
provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be
insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to
use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third
party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the
uncertainties and costs surrounding the prosecution of our owned or in-licensed patent applications and the enforcement or defense
of our owned or in-licensed issued patents, all of which could have a material adverse effect on our business, financial condition,
results of operations, and prospects.
In
addition, the patent positions of companies in the development and commercialization of pharmaceuticals are particularly uncertain.
Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened
the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity
and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO,
the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our
existing patent portfolio and our ability to protect and enforce our intellectual property in the future.
Risks
Related to Ownership of Our Ordinary Shares
The
market price of our ordinary shares is volatile and you may sustain a complete loss of your investment.
Our
ordinary shares currently trade on the Nasdaq Capital Market. The market price of our ordinary shares has been, and is likely
to continue to be, volatile. The market price of our ordinary shares may fluctuate significantly in response to numerous factors,
some of which are beyond our control, such as:
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the
successful completion of the Merger;
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inability
to obtain the approvals necessary to commence further clinical trials;
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results
of clinical and preclinical studies;
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announcements
of regulatory approval or the failure to obtain it, or specific label indications or
patient populations for its use, or changes or delays in the regulatory review process;
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announcements
of technological innovations, new products or product enhancements by us or others;
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adverse
actions taken by regulatory agencies with respect to our clinical trials, manufacturing
supply chain or sales and marketing activities;
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changes
or developments in laws, regulations or decisions applicable to our product candidates
or patents;
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any
adverse changes to our relationship with manufacturers, suppliers or partners;
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announcements
concerning our competitors or the pharmaceutical or biotechnology industries in general;
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achievement
of expected product sales and profitability or our failure to meet expectations;
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our
commencement of or results of, or involvement in, litigation, including, but not limited
to, any product liability actions or intellectual property infringement actions;
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any
major changes in our board of directors, management or other key personnel;
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legislation
in the United States, Europe and other foreign countries relating to the sale or pricing
of pharmaceuticals;
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announcements
by us of significant strategic partnerships, out-licensing, in-licensing, joint ventures,
acquisitions or capital commitments;
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expiration
or terminations of licenses, research contracts or other collaboration agreements;
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public
concern as to the safety of therapeutics we, our licensees or others develop;
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success
of research and development projects;
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developments
concerning intellectual property rights or regulatory approvals;
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variations
in our and our competitors’ results of operations;
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changes
in earnings estimates or recommendations by securities analysts, if our ordinary shares
are covered by analysts;
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future
issuances of ordinary shares or other securities;
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general
market conditions, including the volatility of market prices for shares of biotechnology
companies generally, and other factors, including factors unrelated to our operating
performance;
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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 recent COVID-19 pandemic); and
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the
other factors described in this “Risk Factors” section.
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These
factors and any corresponding price fluctuations may materially and adversely affect the market price of our ordinary shares,
which would result in substantial losses by our investors.
Further,
the stock market in general, the Nasdaq Capital Market and the market for biotechnology companies in particular, have experienced
extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies
like ours. Broad market and industry factors may negatively affect the market price of our ordinary shares regardless of our actual
operating performance. In addition, a systemic decline in the financial markets and related factors beyond our control may cause
our share price to decline rapidly and unexpectedly. Price volatility of our ordinary shares might be worse if the trading volume
of our ordinary shares is low. In the past, following periods of market volatility, shareholders have often instituted securities
class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and
attention of management from our business, even if we are successful. Future sales of our ordinary shares could also reduce the
market price of such shares.
Moreover,
the liquidity of our ordinary shares will be limited, not only in terms of the number of ordinary shares that can be bought and
sold at a given price, but by potential delays in the timing of executing transactions in our ordinary shares and a reduction
in security analyst and media’s coverage of our Company, if any. These factors may result in lower prices for our ordinary
shares than might otherwise be obtained and could also result in a larger spread between the bid and ask prices for our ordinary
shares. In addition, without a large float, our ordinary shares will be less liquid than the stock of companies with broader public
ownership and, as a result, the trading prices of our ordinary shares may be more volatile. In the absence of an active public
trading market, an investor may be unable to liquidate its investment in our ordinary shares. Trading of a relatively small volume
of our ordinary shares may have a greater impact on the trading price of our ordinary shares than would be the case if our public
float were larger. We cannot predict the prices at which our ordinary shares will trade in the future.
If
securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or
if they adversely change their recommendations or publish negative reports regarding our business or our ordinary shares, our
share price and trading volume could be negatively impacted.
The
trading market for our ordinary shares could be influenced by the research and reports that industry or securities analysts may
publish about us, our business, our market or our competitors. We do not have any control over these analysts, and we cannot provide
any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change
their recommendation regarding our ordinary shares, or provide more favorable relative recommendations about our competitors,
our share price would likely decline. If any analyst who may cover us were to cease coverage of our Company or fail to regularly
publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact our share price
or trading volume.
We
have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our ordinary shares appreciate
in value, our investors may not benefit from holding our ordinary shares.
We
have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our
ordinary shares in the foreseeable future. Moreover, the Israeli Companies Law, 5759-1999, or the Companies Law, imposes certain
restrictions on our ability to declare and pay dividends. As a result, investors in our ordinary shares will not be able to benefit
from owning our ordinary shares unless the market price of our ordinary shares becomes greater than the price paid for the shares
by such investors and they are able to sell such shares. We cannot assure you that you will ever be able to resell our ordinary
shares at a price in excess of the price paid for the shares.
It
may be difficult for you to sell your ordinary shares at or above the purchase price therefor or at all.
Although
our ordinary shares now trade on the Nasdaq Capital Market, an active trading market for our ordinary shares may not be sustained.
The market price of our ordinary shares is highly volatile and could be subject to wide fluctuations in price as a result of various
factors, some of which are beyond our control. It may be difficult for you to sell your ordinary shares without depressing the
market price for the ordinary shares or at all. As a result of these and other factors, you may not be able to sell your ordinary
shares at current market price or at all. Further, an inactive market may also impair our ability to raise capital by selling
our ordinary shares and may impair our ability to enter into strategic partnerships or acquire companies or products by using
our ordinary shares as consideration.
The
tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced in the
future, which could increase our costs and taxes.
We
have obtained a tax ruling from the Israeli Tax Authority according to which our activity has been qualified as an “industrial
activity,” as defined in the Law for the Encouragement of Capital Investments, 1959, generally referred to as the Investment
Law, and is eligible for tax benefits as a “Benefited Enterprise,” which will apply to the turnover attributed to
such enterprise, for a period of up to ten years from the first year in which we generated taxable income. The tax benefits under
the Benefited Enterprise status are scheduled to expire at the end of 2023.
In
order to remain eligible for the tax benefits of a Benefited Enterprise, we must continue to meet certain conditions stipulated
in the Investment Law and its regulations, as amended. In addition, in order to remain eligible for the tax benefits available
to the Benefited Enterprise, we must also comply with the conditions set forth in the tax ruling. These conditions include, among
other things, that the production, directly or through subcontractors, of all our products should be performed within certain
regions of Israel. If we do not meet these requirements, the tax benefits would be reduced or canceled.
There
is no assurance that our future taxable income will qualify as Benefited Enterprise income or that the benefits described above
will be available to us in the future.
Future
changes to tax laws could have a material adverse effect on us and reduce net returns to our shareholders.
Our
tax treatment is subject to changes in tax laws, regulations and treaties, or the interpretation thereof, tax policy initiatives
and reforms under consideration and the practices of tax authorities in jurisdictions in which we operate, as well as tax policy
initiatives and reforms related to the Organization for Economic Co-Operation and Development’s, or OECD, Base Erosion and
Profit Shifting, or BEPS Project, the European Commission’s state aid investigations and other initiatives.
Such
changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or, in the
specific context of withholding tax, dividends paid. We are unable to predict what tax reform may be proposed or enacted in the
future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation,
regulations, policies or practices, could affect our financial position and overall or effective tax rates in the future in countries
where we have operations, reduce post-tax returns to our shareholders, and increase the complexity, burden and cost of tax compliance.
In
addition, on December 22, 2017, U.S. federal income tax legislation was signed into law (H.R. 1, “An Act to provide for
reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”), informally
titled the Tax Cuts and Jobs Act, that significantly revised the U.S. Internal Revenue Code of 1986, as amended, or the Code.
The Tax Cuts and Jobs Act, among other things, contains significant changes to U.S. corporate income taxation, including the reduction
of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for business
interest expense to business interest income plus 30% of adjusted taxable income (except with respect to certain small businesses),
limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss
carrybacks, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and the
modification or repealing of many business deductions and credits. Recent changes in the political makeup of the Senate and House
of Representatives in the U.S. Congress could result in modifications to some or all of the effects of the Tax Cuts and Jobs Act.
The overall impact of the Tax Cuts and Jobs Act, including possible modification thereto, is uncertain, and our business and financial
condition could be adversely affected. The impact on holders of our ordinary shares is also uncertain and could be adverse.
We
urge you to consult with your legal and tax advisors with respect to the potential tax consequences of investing in or holding
our ordinary shares, including those stemming from recent and anticipated changes to tax laws.
Tax
authorities may disagree with our positions and conclusions regarding certain tax positions, resulting in unanticipated costs,
taxes or non-realization of expected benefits.
A
tax authority may disagree with tax positions that we have taken, which could result in increased tax liabilities. For example,
the U.S. Internal Revenue Service or another tax authority could challenge our allocation of income by tax jurisdiction and the
amounts paid between our affiliated companies pursuant to our intercompany arrangements and transfer pricing policies, including
amounts paid with respect to our intellectual property development. Similarly, a tax authority could assert that we are subject
to tax in a jurisdiction where we believe we have not established a taxable nexus, often referred to as a “permanent establishment”
under international tax treaties, and such an assertion, if successful, could increase our expected tax liability in one or more
jurisdictions. A tax authority may take the position that material income tax liabilities, interest and penalties are payable
by us, in which case, we expect that we might contest such assessment. Contesting such an assessment may be lengthy and costly
and if we were unsuccessful in disputing the assessment, the implications could increase our anticipated effective tax rate, where
applicable.
We
expect to be characterized as a passive foreign investment company for the taxable years ending December 31, 2020 and, as such,
our U.S. shareholders may suffer adverse tax consequences.
Generally,
if for any taxable year 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production
of, or produce, passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income
tax purposes. For the taxable year ending December 31, 2020, we believe that we were a PFIC. If the Merger is not completed, we
also expect to be classified as a PFIC for 2021. Furthermore, because PFIC status is determined annually and is based on our income,
assets and activities for the entire taxable year, it is not possible to determine with certainty whether we will be characterized
as a PFIC for the 2021 taxable year until after the close of the year, and there can be no assurance that we will not be classified
as a PFIC in any future 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. Holder owns ordinary shares, such U.S. Holder could face adverse U.S. federal income tax consequences, including
having gains realized on the sale of our ordinary shares classified as ordinary income, rather than as capital gain, the loss
of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Holders, and having
interest charges apply to distributions by us and the proceeds of share sales. Certain elections exist that may alleviate some
adverse consequences of PFIC status and would result in an alternative treatment (such as “qualified electing fund”
and “mark-to-market” treatment) of our ordinary shares. Upon request, we expect to provide the information necessary
for U.S. Holders to make “qualified electing fund elections” if we are classified as a PFIC. Each investor is urged
to consult its tax advisor with respect to the application of the PFIC rules.
For
purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ordinary shares that, for U.S. federal income
tax purposes, is or is treated as any of the following: (a) an individual who is a citizen or resident of the United States; (b)
a corporation, or entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of
the United States, any state thereof, or the District of Columbia; (c) an estate, the income of which is subject to U.S. federal
income tax regardless of its source; or (d) a trust that (1) is subject to the supervision of a U.S. court and the control of
one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election
in effect to be treated as a United States person for U.S. federal income tax purposes.
U.S.
persons who own 10% or more of our ordinary shares may be subject to adverse U.S. tax consequences under the U.S. controlled foreign
corporation rules.
If
we are or become a controlled foreign corporation, or “CFC,” “10% U.S. Shareholders” (as defined below)
may be taxed on their pro rata share of certain of our earnings, even if those earnings are not distributed by us. A non-U.S.
corporation is a “CFC” if more than 50% of its shares (by vote or value) are owned by “10% U.S. Shareholders.”
A U.S. person is a “10% U.S. Shareholder” if such person owns (directly, indirectly and/or constructively) 10% or
more of the total combined voting power of all classes of shares entitled to vote of such corporation or 10% or more of the total
value of shares of all classes of stock of such corporation.
In
general, if a U.S. person sells or exchanges stock in a foreign corporation and such person is a “10% U.S. Shareholder”
at any time during the 5-year period ending on the date of the sale or exchange when such foreign corporation was a CFC, any gain
from such sale or exchange may be treated as a dividend to the extent of the corporation’s earnings and profits attributable
to such shares that were accumulated during the period that the shareholder held the shares while the corporation was a CFC (with
certain adjustments).
The
CFC rules are complex. The foregoing is merely a summary of certain potential applications of these rules. No assurances can be
given that we are not or will not become a CFC, and certain changes to the CFC constructive ownership rules introduced by the
Tax Cuts and Jobs Act could, under certain circumstances, cause us to be classified as a CFC. Each investor is urged to consult
its tax advisor with respect to the possible application of the CFC rules.
Your
percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters
on which shareholders vote.
Our
board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our
authorized but unissued shares, including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances
of additional shares would reduce your influence over matters on which our shareholders vote.
The
sale of a substantial number of our ordinary shares may cause the market price of our ordinary shares to decline.
Sales
of a substantial number of ordinary shares in the public market, or the perception that these sales could occur, could cause the
market price of our ordinary shares to decline. We had 4,502,578 ordinary shares outstanding as of March 1, 2021. All of our ordinary
shares outstanding as of December 31, 2020 are freely tradable, without restriction, in the public market in the United States.
Any sales of our ordinary shares or any perception in the market that such sales may occur could cause the trading price of our
ordinary shares to decline.
In
addition, as of March 1, 2021, up to 908,601 ordinary shares are issuable upon exercise of outstanding registered warrants. Furthermore,
as of March 1, 2021 and up to 444,107 ordinary shares that are subject to outstanding options and reserved options for future
issuance under our 2015 Incentive Compensation Plan, or the 2015 Plan, will be eligible for sale in the public market. We have
filed registration statements on Form S-8 under the Securities Act to register such ordinary shares under the 2015 Plan.
If
these additional ordinary shares are sold, or if it is perceived that they will be sold, in the public market, the trading price
of our ordinary shares could decline.
Raising
additional capital would cause dilution to our existing shareholders, and may restrict our operations or require us to relinquish
rights.
We
may seek additional capital through a combination of private and public equity offerings, “at-the-market” issuances,
equity-linked and structured transactions, debt (straight, convertible, or otherwise) financings, collaborations and licensing
arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership
interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder.
Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants
limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring
dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties,
we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses
on terms that are not favorable to us. Depending upon market liquidity at the time, additional sales of shares registered at any
given time could cause the trading price of our ordinary shares to decline.
Because
our ordinary shares may be, or become, a “penny stock,” it may be more difficult for investors to sell their ordinary
shares, and the market price of our ordinary shares may be adversely affected.
Our
ordinary shares may be, or become, a “penny stock” if, among other things, the share price is below $5.00 per share,
they are not listed on a national securities exchange or they have not met certain net tangible asset or average revenue requirements.
Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared
by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the
penny-stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding
broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser,
and obtain the purchaser’s written agreement to the purchase. Broker-dealers must also provide customers that hold penny
stock in their accounts with such broker-dealer a monthly statement containing price and market information relating to the penny
stock. If a penny stock is sold to an investor in violation of the penny stock rules, the investor may be able to cancel its purchase
and get its money back.
If
applicable, the penny stock rules may make it difficult for investors to sell their ordinary shares. Because of the rules and
restrictions applicable to a penny stock, there is less trading in penny stocks and the market price of our ordinary shares may
be adversely affected. Also, many brokers choose not to participate in penny stock transactions. Accordingly, investors may not
always be able to resell their ordinary shares publicly at times and prices that they feel are appropriate and the market price
of our ordinary shares may be adversely affected.
We
must meet the Nasdaq Capital Market’s continued listing requirements and comply with the other Nasdaq rules, or we may risk
delisting. Delisting could negatively affect the price of our ordinary shares, which could make it more difficult for us to sell
securities in a financing and for you to sell your ordinary shares.
We
are required to meet the continued listing requirements of the Nasdaq Capital Market and comply with the other Nasdaq rules, including
those regarding director independence and independent committee requirements, minimum shareholders’ equity, minimum share
price and certain other corporate governance requirements. If we do not meet these continued listing requirements of the Nasdaq
Capital Market, our ordinary shares may be delisted and the price of our ordinary shares and our ability to access the capital
markets could be negatively impacted. On September 3, 2019, we were notified by Nasdaq that we were not in compliance with the
minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on the Nasdaq Capital Market.
Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing
Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a
period of 30 consecutive business days. The notification provided that we had 180 calendar days, or until March 2, 2020, to regain
compliance with Nasdaq Listing Rule 5550(a)(2). On March 3, 2020, we were notified by Nasdaq that we are eligible for an additional
180 calendar day period, or until August 31, 2020, to regain compliance. On April 17, 2020, we were notified by Nasdaq that as
a result of tolling of compliance periods by Nasdaq, our term to regain compliance was extended until November 13, 2020. Following
a 1-for-20 reverse share split of our ordinary shares which was effective for Nasdaq marketplace purposes at the open of business
on October 30, 2020, we regained compliance with the minimum bid price requirement. In any event, other factors unrelated to the
number of ordinary shares outstanding, such as negative financial or operational results, could adversely affect the market price
of our ordinary share to fall below the minimum $1.00 bid price again and could result in a delisting of our ordinary shares.
Delisting of our ordinary shares from the Nasdaq Capital Market would cause us to pursue eligibility for trading on other markets
or exchanges, or on the pink sheets. In such case, our shareholders’ ability to trade, or obtain quotations of the market
value of, our ordinary shares would be severely limited because of lower trading volumes and transaction delays. These factors
could contribute to lower prices and larger spreads in the bid and ask prices for our securities. There can be no assurance that
our ordinary shares, if delisted from the Nasdaq Capital Market in the future, would be listed on a national securities exchange
or quoted on a national quotation service, the OTCQB or OTC Pink. Delisting from the Nasdaq Capital Market, or even the issuance
of a notice of potential delisting, would also result in negative publicity, make it more difficult for us to raise additional
capital, adversely affect the market liquidity of our ordinary shares, reduce security analysts’ coverage of us and diminish
investor, supplier and employee confidence. In addition, as a consequence of any such delisting, our share price could be negatively
affected and our shareholders would likely find it more difficult to sell, or to obtain accurate quotations as to the prices of,
our ordinary shares.
We
incur significant costs as a result of the listing of our ordinary shares for trading on the Nasdaq Capital Market and thereby
being a public company in the United States, and our management is required to devote substantial additional time to new compliance
initiatives as well as to compliance with ongoing U.S. reporting requirements.
As
a public company in the U.S., we incur significant accounting, legal and other expenses in order to comply with requirements of
the SEC, and the Nasdaq Capital Market, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act.
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. Any future changes
in the laws and regulations affecting public companies in the United States, including Section 404 and other provisions of the
Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the Nasdaq Capital Market, for so long as they apply to us,
will result in increased costs to us as we respond to such changes.
Failure
to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse
effect on our business, results of operation or financial condition. In addition, current and potential shareholders could lose
confidence in our financial reporting, which could have a material adverse effect on the price of our ordinary shares.
Effective
internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We are required to
document and test our internal control procedures in order to satisfy the requirements of Section 404, which requires annual management
assessments of the effectiveness of our internal controls over financial reporting. If we fail to maintain the adequacy of our
internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that
we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section
404. Disclosing deficiencies or weaknesses in our internal controls, failing to remediate these deficiencies or weaknesses in
a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence
in our reported financial information, which could have a material adverse effect on the price of our ordinary shares. If we cannot
provide reliable financial reports or prevent fraud, our operating results could be harmed.
We
are a smaller reporting company and, as a result of the reduced disclosure and governance requirements applicable to such companies,
our ordinary shares may be less attractive to investors.
We
are a smaller reporting company, (i.e. a company with “public float” held by non-affiliates with a market value of
less than $250 million) and we are eligible to take advantage of certain exemptions from various reporting requirements applicable
to other public companies. We have elected to adopt these reduced disclosure requirements. We cannot predict if investors will
find our ordinary shares less attractive as a result of our taking advantage of these exemptions. If some investors find our ordinary
shares less attractive as a result of our choices, there may be a less active trading market for our ordinary shares and our stock
price may be more volatile.
Risks
Related to Our Operations in Israel
Potential
political, economic and military instability in the State of Israel, where some of our senior management, our head executive office,
research and development, and manufacturing facilities are located, may adversely affect our results of operations.
Our
head executive office, our research and development facilities, our current manufacturing facility, as well as some of our clinical
sites are located in Israel. Some of our officers and directors are residents of Israel. Accordingly, political, economic and
military conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment
of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, as
well as terrorist acts committed within Israel by hostile elements. Any hostilities involving Israel or the interruption or curtailment
of trade between Israel and its trading partners could adversely affect our operations and results of operations. During November
2012 and from July through August 2014, Israel was engaged in an armed conflict with a militia group and political party who controls
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. In December 2008 and January 2009 there was an escalation in violence among Israel, Hamas,
the Palestinian Authority and other groups, as well as extensive hostilities along Israel’s border with the Gaza Strip,
which resulted in missiles being fired from the Gaza Strip into Southern Israel. Similar hostilities accompanied by missiles being
fired from the Gaza Strip into Southern Israel, as well at areas more centrally located near Tel Aviv and at areas surrounding
Jerusalem, occurred during November 2012 and July through August 2014. These conflicts involved missile strikes against civilian
targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively
affected business conditions in Israel.
Since
February 2011, Egypt has experienced political turbulence and an increase in terrorist activity in the Sinai Peninsula following
the resignation of Hosni Mubarak as president. This included protests throughout Egypt, and the appointment of a military regime
in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been
previously outlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence
and violence may damage peaceful and diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar
civil unrest and political turbulence has occurred in other countries in the region, including Syria which shares a common border
with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflict in Syria has escalated,
and evidence indicates that chemical weapons have been used in the region. Intervention may be contemplated by outside parties
in order to prevent further chemical weapon use. This instability and any intervention may lead to deterioration of the political
and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for
additional conflicts in the region. In addition, Iran has threatened to attack Israel and may be developing nuclear weapons. Iran
is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon,
and various rebel militia groups in Syria. These situations may potentially escalate in the future to more violent events which
may affect Israel and us. Any armed conflicts, terrorist activities or political instability in the region could adversely affect
business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties
with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us
to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political
and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that
they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.
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 or that it will sufficiently cover
our potential damages. 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 economic boycotts. Several countries still restrict
business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on
our operating results, financial condition or the expansion of our business. A campaign of boycotts, divestment and sanctions
has been undertaken against Israel, which could also adversely impact 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. Israel’s most recent general elections were held on April 9, 2019,
September 17, 2019 and March 2, 2020, following which a process of composing and approving a new government has commenced. This
uncertainty surrounding future elections and/or the results of such elections in Israel may continue and the political situation
in Israel may further deteriorate. 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 are obligated to perform up to 36 days, and in some cases more, of annual military reserve duty each year until
they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event
of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods
of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future.
Our operations could be disrupted by such call-ups, which may include the call-up of members of our management. Such disruption
could materially adversely affect our business, financial condition and results of operations.
Investors
may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal
securities laws against us, or our executive officers and directors or asserting U.S. securities laws claims in Israel.
Not
all of our directors or officers are residents of the United States. Most of our assets and those of our non-U.S. directors and
officers are located outside the United States. Service of process upon us or our non-U.S. resident directors and officers and
enforcement of judgments obtained in the United States against us or our non-U.S. directors and executive officers may be difficult
to obtain within the United States. We have been informed by our legal counsel in Israel that it may be difficult to assert claims
under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions
of U.S. federal securities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against
us or our non-U.S. officers and directors because Israel may not be the most appropriate forum to bring such a claim. In addition,
even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim.
If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming
and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel
addressing the matters described above. Israeli courts might not enforce judgments rendered outside Israel, which may make it
difficult to collect on judgments rendered against us or our non-U.S. officers and directors.
Moreover,
among other reasons, including but not limited to, fraud or absence of due process, or the existence of a judgment which is at
variance with another judgment that was given in the same matter if a suit in the same matter between the same parties was pending
before a court or tribunal in Israel, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws
do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely
to prejudice the sovereignty or security of the State of Israel.
Under
current Israeli law, we may not be able to enforce employees’ covenants not to compete and therefore may be unable to prevent
our competitors from benefiting from the expertise of some of our former employees.
We
generally enter into non-competition agreements with our key employees, in most cases within the framework of their employment
agreements. These agreements prohibit our key employees, if they cease working for us, from competing directly with us or working
for our competitors for a limited period. Under applicable Israeli law, we may be unable to enforce these agreements or any part
thereof. If we cannot enforce our non-competition agreements with our employees, then we may be unable to prevent our competitors
from benefiting from the expertise of our former employees, which could materially adversely affect our business, results of operations
and ability to capitalize on our proprietary information.
Your
rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the rights
and responsibilities of shareholders of U.S. corporations.
We
are incorporated under Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our articles
of association and the Companies Law. These rights and responsibilities differ in some respects from the rights and responsibilities
of shareholders in typical U.S. corporations. In particular, pursuant to the Companies Law, each shareholder of an Israeli company
has to act in good faith in exercising his or her rights and fulfilling his or her obligations toward the Company and other shareholders
and to refrain from abusing his or her power in the Company, including, among other things, in voting at the general meeting of
shareholders and class meetings, on amendments to a company’s articles of association, increases in a company’s authorized
share capital, mergers, and transactions requiring shareholders’ approval under the Companies Law. In addition, a controlling
shareholder of an Israeli company or a shareholder who knows that it possesses the power to determine the outcome of a shareholder
vote or who has the power to appoint or prevent the appointment of a director or officer in the Company, or has other powers toward
the Company has a duty of fairness toward the Company. However, Israeli law does not define the substance of this duty of fairness.
There is little case law available to assist in understanding the implications of these provisions that govern shareholder behavior.
Provisions
of Israeli law and our articles of association may delay, prevent or make undesirable an acquisition of all or a significant portion
of our shares or assets.
Certain
provisions of Israeli law and our articles of association could have the effect of delaying or preventing a change in control
and may make it more difficult for a third party to acquire us or for our shareholders to elect different individuals to our board
of directors, even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing
to pay in the future for our ordinary shares. For example, Israeli corporate law regulates mergers and requires that a tender
offer be effected when more than a specified percentage of shares in a company are purchased. Further, Israeli tax considerations
may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax
treaty with Israel granting tax relief to such shareholders from Israeli tax. With respect to certain mergers, Israeli tax law
may impose certain restrictions on future transactions, including with respect to dispositions of shares received as consideration,
for a period of two years from the date of the merger.
Furthermore,
under the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984 and the regulations
guidelines, rules, procedures and benefit tracks thereunder, or the Innovation Law, to which we are subject due to our receipt
of grants from the Israel Innovation Authority, or IIA (formerly known as the Office of the Chief Scientist of the Ministry of
Economy and Industry, or the OCS), a recipient of IIA grants such as us must report to IIA regarding any change of control or
any change in the holding of its means of control of our Company which transforms any non-Israeli citizen or resident into an
“interested party”, as defined in the Israeli Securities Law 5728-1968, or the Israeli Securities Law, and in the
latter event, the non-Israeli citizen or resident shall execute an undertaking in favor of IIA, in a form prescribed by IIA.
We
have received Israeli government grants for certain of our research and development activities. The terms of these grants may
require us to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel. We may
be required to pay penalties in addition to the repayment of the grants. Such grants may be terminated or reduced in the future,
which would increase our costs.
Under
the Innovation Law, research and development programs that meet specified criteria and are approved by a committee of the IIA
are eligible for grants. The grants awarded are typically up to 50% of the project’s expenditures, as determined by the
IIA committee and subject to the benefit track under which the grant was awarded. A company that receives a grant from the IIA,
or a Participating Company, is typically required to pay royalties to IIA on income generated from products incorporating know-how
developed using such grants (including income derived from services associated with such products), until 100% of the U.S. dollar-linked
grant plus annual LIBOR interest (or any other interest rate that the IIA may choose to apply in the future) is repaid. The rate
of royalties to be paid may vary between different benefits tracks, as shall be determined by IIA. In general, the rate of royalties
varies between 3% to 5% of the income generated from the IIA supported products.
The
obligation to pay royalties is contingent on actual income generated from such products and services. In the absence of such income,
no payment of royalties is required. It should be noted that the restrictions under the Innovation Law will continue to apply
even after the repayment of such royalties in full by the Participating Company, including restrictions on the sale, transfer
or assignment outside of Israel of know-how developed as part of the programs under which the grants were given.
The
terms of the grants under the Innovation Law also (generally) require that the products developed as part of the programs under
which the grants were given be manufactured in Israel and that the know-how developed thereunder may not be transferred outside
of Israel, unless prior written approval is received from the IIA (such approval is not required for the transfer of a portion
of the manufacturing capacity which does not exceed, in the aggregate, 10% of the portion declared to be manufactured outside
of Israel in the applications for funding (in which case only notification is required), and additional payments are required
to be made to IIA, as described below. It should be noted that this does not restrict the export of products that incorporate
the funded know-how.
Ordinarily,
as a condition to obtaining approval to manufacture outside Israel, we may be required to pay royalties at an increased rate and
up to an increased cap amount of three times the total amount of the IIA grants, plus interest accrued thereon, depending on the
manufacturing volume to be performed outside Israel. The IIA approved our request to transfer 100% of the manufacturing rights
of our AP-CD/LD product candidate that was developed under the IIA funded program to a non-Israeli manufacturer. As a result,
we will be required to pay the IIA royalties from revenue generated from the AP-CD/LD product candidate at an increased rate,
and up to an increased cap amount. The IIA noted that the approval granted was exceptional and that the IIA will not approve manufacturing
of additional product candidates out of Israel.
The
Innovation Law restricts the ability to transfer know-how funded by IIA outside of Israel. Transfer of IIA-funded know-how outside
of Israel requires prior approval of the IIA and is subject to payment of a redemption fee to the IIA calculated according to
a formula provided under the Innovation Law. A transfer for the purpose of the Innovation Law is generally interpreted very broadly
and includes, inter alia, any actual sale of the IIA-funded know-how, any license to develop the IIA-funded know-how or the products
resulting from such IIA-funded know-how or any other transaction, which, in essence, constitutes a transfer of the IIA-funded
know-how. Generally, a mere license solely to market products resulting from the IIA-funded know-how would not be deemed a transfer
for the purpose of the Innovation Law.
The
IIA approval to transfer know-how created, in whole or in part, in connection with an IIA-funded project, to a third party outside
Israel, is subject to payment of a redemption fee to IIA calculated according to a formula provided under the Innovation Law that
is based, in general, on the ratio between the aggregate IIA grants received by the company (including the accrued interest) and
the company’s aggregate investments in the project that was funded by these IIA grants, multiplied by the transaction consideration
(taking into account any depreciation in accordance with a formula set forth in the Innovation Law) less any royalties already
paid to the IIA. The Innovation Law establishes a maximum payment amount of the redemption fee paid to the IIA under the above
mentioned formulas and differentiates between two situations: (i) in the event that the company sells its IIA-funded know-how,
in whole or in part, or is sold as part of certain merger and acquisition transactions, and subsequently ceases to conduct business
in Israel, the maximum redemption fee under the above mentioned formulas shall be no more than six times the amount of grants
received (plus accrued interest) for the applicable know-how being transferred; and (ii) in the event that following the transactions
described above (i.e., asset sale of IIA-funded know-how or transfer as part of certain merger and acquisition transactions),
the company continues to conduct its research activity in Israel (for at least three years following such transfer, keeps on staff
at least 75% of the number of research and development employees it had for the six months before the know-how was transferred
and keeps the same scope of employment of such research and development staff), then the company is eligible for a reduced cap
of the redemption fee of no more than three times the amounts of grants received (plus accrued interest) for the applicable know-how
being transferred. The obligation to pay royalties mentioned above will no longer apply following the payment of the redemption
fee, as described above.
Subject
to prior approval of the IIA, the Company may transfer the IIA-funded know-how to another Israeli company. If the IIA-funded know-how
is transferred to another Israeli entity, the transfer would still require IIA approval but will not be subject to the payment
of the redemption fee (although there will be an obligation to pay royalties to the IIA from the income of such sale transaction
as part of the royalty payment obligation). In such case, the acquiring company would have to assume all of the selling company’s
restrictions and obligations towards the IIA (including the restrictions on the transfer of know-how and manufacturing capacity
outside of Israel) as a condition to IIA approval.
Our
research and development efforts have been financed, partially, through grants that we have received from the IIA. We therefore
must comply with the requirements of the Innovation Law and related regulations. As of December 31, 2020, we received approximately
NIS 42.3 million of such grants for research and development programs in the years 2009 through 2016. We did not apply for any
grants from the IIA since January 1, 2017. For more information see note 6c in our consolidated financial statements for the year
ended December 31, 2020. The Innovation Law restricts the ability to transfer know-how funded by the IIA outside of Israel. Transfer
of IIA-funded know-how outside of Israel requires the prior approval of the IIA and, under certain circumstances, is subject to
significant payments to IIA (calculated according to a formula set forth under the Innovation Law), as further described above.
Therefore, the discretionary approval of an IIA committee will be required for any transfer to third parties outside of Israel
of rights related to our Accordion Pill, which has been developed with IIA-funding. The restrictions under the Innovation Law
may impair our ability to enter into agreements which involve IIA-funded products or know-how without the approval of IIA. We
cannot be certain that any approval of IIA will be obtained on terms that are acceptable to us, or at all. We may not receive
the required approvals should we wish to transfer IIA-funded know-how, manufacturing and/or development outside of Israel in the
future. Furthermore, in the event that we undertake a transaction involving the transfer to a non-Israeli entity of know-how developed
with IIA-funding pursuant to a merger or similar transaction, the consideration available to our shareholders may be reduced by
the amounts we are required to pay to IIA. Any approval, if given, will generally be subject to additional financial obligations.
Failure to comply with the requirements under the Innovation Law may subject us to mandatory repayment of grants received by us
(together with interest and penalties), as well as expose us to criminal proceedings. In addition, IIA may from time to time conduct
royalties audits and such audits may lead to additional royalties being payable on additional products. Such grants may be terminated
or reduced in the future, which would increase our costs. IIA approval is not required for the marketing of products resulting
from the IIA-funded research or development in the ordinary course of business.