QUESTIONS
AND ANSWERS ABOUT THE PROPOSALS FOR CHAC stockholders
Q: What
is the purpose of this document?
A: Chardan Healthcare Acquisition Corp., a Delaware corporation (“CHAC”), BiomX Ltd., an Israeli
company (“BiomX”), and CHAC Merger Sub Ltd., an Israeli company and wholly-owned subsidiary of CHAC (the “Merger
Sub”), have agreed to a Business Combination under the terms of a Merger Agreement, dated as of July 16, 2019, by and among
CHAC, the Merger Sub and BiomX. The consummation of the transactions contemplated by the Merger Agreement are referred to collectively
as the Business Combination and the proposal to approve the Business Combination is referred to as the Business Combination Proposal.
The Merger Agreement is attached to this proxy statement as
Annex A
, and is incorporated into this proxy statement by reference.
You are encouraged to read this proxy statement, including “Risk Factors” and all the annexes hereto.
CHAC
stockholders are being asked to consider and vote upon a proposal to adopt the Merger Agreement, pursuant to which CHAC will acquire
all of the issued and outstanding shares and other equity interests of BiomX, which will merge with (and survive following its
merger with), the Merger Sub, and related Proposals.
The units (the “CHAC Units”) that were issued in
CHAC’s initial public offering (“Initial Public Offering”) each consist of one share of common stock of CHAC,
par value $0.0001 per share (the “CHAC Shares”), and one redeemable warrant to purchase one-half of a CHAC Share, with
every two redeemable warrants entitling the holder thereof to purchase one CHAC Share for $11.50 per full share (the “CHAC
Warrants”). CHAC stockholders (except for Chardan Investments, LLC, CHAC’s Initial Public Offering sponsor (the “Sponsor”)
and CHAC’s officers and directors) will be entitled to redeem their CHAC Shares for a pro rata share of the trust account
(currently anticipated to be no less than approximately $10.00 per share for stockholders) net of taxes payable.
The
CHAC Units, CHAC Shares, and CHAC Warrants are currently listed on the NYSE American Stock Exchange.
This
proxy statement contains important information about the proposed Business Combination and the other matters to be acted upon
at the special meeting of CHAC stockholders. You should read it carefully.
Q: What
is being voted on?
A: Below
are the proposals on which CHAC stockholders are being asked to vote:
● To approve the Merger Agreement, dated as of July 16, 2019 (the “Merger Agreement”) by and
among CHAC, BiomX and the Merger Sub, and the transactions contemplated thereby, (collectively referred to as the “Business
Combination”). This proposal is referred to as the “Business Combination Proposal” or “Proposal No. 1.”
● To
approve the amendment of the Amended and Restated Certificate of Incorporation of CHAC to increase the number of authorized shares
of common stock from 30,000,000 to _________________. This proposal is referred to as the “Amendment Proposal” or
“Proposal No. 2.”
● To
approve the issuance of more than 20% of the issued and outstanding common stock of CHAC pursuant to the terms of the Merger Agreement,
as required by NYSE American Listed Company Guide Sections 712 and 713. This proposal is referred to as the “NYSE Proposal”
or “Proposal No. 3.”
● To
approve the adjournment of the special meeting, if necessary or advisable, in the event CHAC does not receive the requisite stockholder
vote to approve the Business Combination. This proposal is called the “Business Combination Adjournment Proposal”
or “Proposal No. 4.”
Q: Do
any of CHAC’s directors or officers have interests that may conflict with my interests with respect to the Business Combination?
A: CHAC’s
directors and officers have interests in the Business Combination that are different from your interests as a stockholder. You
should keep in mind the following interests of CHAC’s directors and officers:
In March 2018, CHAC issued an aggregate of 1,437,500 shares
of common stock to the Sponsor (“Founder Shares”) for an aggregate purchase price of $25,000, an aggregate of 37,500
of which were subsequently sold to our independent directors for the same amount that our Sponsor paid for them. On September 14,
2018, CHAC effectuated a 1.4-for-1 stock dividend resulting in an aggregate of 2,012,500 Founder Shares outstanding. The Founder
Shares included an aggregate of up to 262,500 shares subject to forfeiture by the Sponsor to the extent that the underwriters’
over-allotment was not exercised in full or in part, so that the Sponsor would own 20% of the CHAC’s issued and outstanding
shares after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering).
The underwriters’ over-allotment option expired unexercised on February 4, 2019. As such, 262,500 Founder Shares were forfeited
resulting in 1,750,000 Founder Shares being issued and outstanding. In addition, in conjunction with the closing of the Initial
Public Offering, an affiliate of the Sponsor purchased 2,900,000 warrants, each warrant to purchase one CHAC Share, at a price
of $0.40 per warrant. Each of our officers has a pecuniary interest in the shares held by the Sponsor. Therefore, in light of the
amount of consideration paid for the foregoing securities, CHAC’s directors and officers will likely benefit from the completion
of the Business Combination even if the Business Combination causes the market price of CHAC’s securities to significantly
decrease. The likely benefit to CHAC’s directors and officers may influence their motivation for promoting the Business Combination
and/or soliciting proxies for the approval of the Business Combination Proposal. See “
Risk Factors—Risks Related
to CHAC’s Business—CHAC’s directors and officers may have certain conflicts in determining to recommend the Business
Combination with BiomX, since certain of their interests, and certain interests of their affiliates and associates, are different
from, or in addition to, your interests as a stockholder
.”
If
CHAC does not consummate the Business Combination by the date that is 24 months from the closing of the Initial Public Offering,
or December 18, 2020, CHAC will be required to dissolve and liquidate and the securities held by CHAC’s insiders will be
worthless because such holders have agreed to waive their rights to any liquidation distributions.
In addition, the exercise of CHAC’s directors’ and
officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict
of interest when determining whether such changes or waivers are appropriate and in CHAC stockholders’ best interests. See
“
Risk Factors— Risks Related to CHAC’s Business—Because CHAC’s Sponsor and all of CHAC’s officers and
directors own CHAC Shares and CHAC Warrants which will not participate in liquidation distributions and, therefore, they may have
a conflict of interest in determining whether the Business Combination is appropriate
.”
Q: When
and where is the special meeting of CHAC’s stockholders?
A: The
special meeting of CHAC stockholders will take place at [●] on [●], 2019, at [●] a.m.
Q: Who
may vote at the special meeting of stockholders?
A: Only
holders of record of CHAC Shares as of the close of business on [●], 2019 may vote at the special meeting of stockholders.
As of [●], 2019, there were 8,750,000 shares of CHAC Shares outstanding and entitled to vote. Please see “
Special
Meeting of CHAC Stockholders —Record Date; Who is Entitled to Vote
” for further information.
Q: What
is the quorum requirement for the special meeting of stockholders?
A: Stockholders
representing a majority of the common stock issued and outstanding as of the record date and entitled to vote at the special meeting
must be present in person or represented by proxy in order to hold the special meeting and conduct business. This is called a
quorum. CHAC Shares will be counted for purposes of determining whether there is a quorum if the stockholder (i) is present and
entitled to vote at the meeting, or (ii) has properly submitted a proxy card. In the absence of a quorum, stockholders representing
a majority of the votes present in person or represented by proxy at such meeting, may adjourn the meeting until a quorum is present.
Q: What
vote is required to approve the Proposals?
A: Approval of the Business Combination Proposal, the NYSE Proposal,
and the Business Combination Adjournment Proposal will each require the affirmative vote of the holders of a majority of the issued
and outstanding common stock of CHAC present and entitled to vote at the special meeting. Approval of the Amendment Proposal will
require the approval of the holders of a majority of the CHAC Shares entitled to vote at the special meeting. Attending the special
meeting either in person or by proxy and abstaining from voting will have the same effect as voting against all the proposals and,
assuming a quorum is present, broker non-votes will have no effect on the Proposals, except that a broker non-vote will have the
same effect as voting against the Amendment Proposal.
Q: How
will the initial stockholders vote?
A: CHAC’s
Sponsor and other initial stockholders, who as of March 31, 2019 owned 1,750,000 Founder Shares, or approximately 20% of the
outstanding CHAC Shares, have agreed to vote their respective shares of common stock acquired by them prior to the Initial Public
Offering in favor of the Business Combination Proposal and related Proposals. CHAC’s Sponsor and other initial stockholders
have also agreed that they will vote any shares they purchase in the open market in or after the Initial Public Offering in favor
of each of the Proposals.
Q: Am
I required to vote against the Business Combination Proposal in order to have my common stock redeemed?
A: No.
You are not required to vote against the Business Combination Proposal in order to have the right to demand that CHAC redeem your
common stock for cash equal to your pro rata share of the aggregate amount then on deposit in the trust account (before payment
of deferred underwriting commissions and including interest earned on their pro rata portion of the trust account, net of taxes
payable). These rights to demand redemption of CHAC Shares for cash are sometimes referred to herein as redemption rights. If
the Business Combination is not completed, then holders of CHAC Shares electing to exercise their redemption rights will not be
entitled to receive such payments.
Q: Do
I have redemption rights?
A: Yes.
The units (the “CHAC Units”) that were issued in CHAC’s Initial Public Offering, each consist of one share of
common stock of CHAC, par value $0.0001 per share (the “CHAC Shares”), and one redeemable warrant to purchase one-half
of a CHAC Share, with every two redeemable warrants entitling the holder thereof to purchase one CHAC Share for $11.50 per full
share (the “CHAC Warrants”). CHAC stockholders (except for the Sponsor or CHAC’s officers and directors) will
be entitled to redeem their CHAC Shares for a pro rata share of the trust account (currently anticipated to be no less than approximately
$10.00 per share for stockholders) net of taxes payable.
Q: How
do I exercise my redemption rights?
A:
If
you are a public shareholder and you seek to have your shares redeemed, you must (i) demand, no later than 5:00 p.m., Eastern
time on [_______], 2019 (two (2) business days before the special meeting), that CHAC redeem your shares into cash; and
(ii) submit your request in writing to CHAC’s transfer agent, at the address listed at the end of this section and deliver
your shares to CHAC’s transfer agent physically or electronically using the DWAC system at least two (2) business days prior
to the vote at the meeting.
Any
corrected or changed written demand of redemption rights must be received by CHAC’s transfer agent two (2) business days
prior to the special meeting. No demand for redemption will be honored unless the holder’s shares have been delivered
(either physically or electronically) to the transfer agent at least two (2) business days prior to the vote at the meeting.
Public shareholders may seek to have their shares redeemed regardless
of whether they vote for or against the Business Combination and whether or not they are holders of CHAC Shares as of the Record
Date. Any public shareholder who holds shares of CHAC Shares on or before [_________], 2019 (two (2) business days before the special meeting) will have the right to demand that his, her or its shares be redeemed for a pro rata share of the aggregate amount
then on deposit in the trust account, less any taxes then due but not yet paid, at the consummation of the Business Combination).
Any
request for redemption, once made, may be withdrawn at any time up to the date of the special meeting of CHAC stockholders. The
actual per share redemption price will be equal to the aggregate amount then on deposit in the trust account (before payment of
deferred underwriting commissions and including interest earned on their pro rata portion of the trust account, net of taxes payable),
divided by the number of shares of common stock sold in the Initial Public Offering. Please see the section entitled “
Special
Meeting of CHAC Stockholders—Redemption Rights
” for more information on the procedures to be followed if you wish
to redeem your CHAC Shares for cash.
Q: How
can I vote?
A: If
you were a holder of record CHAC Shares on [●], 2019, the record date for the special meeting of CHAC stockholders, you
may vote with respect to the applicable Proposals in person at the special meeting of CHAC stockholders, or by submitting a proxy
by mail so that it is received prior to 9:00 a.m. on [●], 2019, in accordance with the instructions provided to you under
“
Special Meeting of CHAC Stockholders
.” If you hold your shares in “street name,” which means your
shares are held of record by a broker, bank or other nominee, your broker or bank or other nominee may provide voting instructions
(including any telephone or Internet voting instructions). You should contact your bank, broker or other nominee in advance of
the special meeting to ensure that votes related to the shares you beneficially own will be properly counted. In this regard,
you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the special
meeting of CHAC stockholders and vote in person, obtain a proxy from your bank, broker or other nominee.
Q: If
my shares are held in “street name” by my bank, broker or other nominee, will they automatically vote my shares for
me?
A: No.
Under the rules of various national securities exchanges, your bank, broker or other nominee cannot vote your shares with respect
to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures
provided to you by your bank, broker or other nominee. CHAC believes the Proposals other than the adjournment proposal are non-discretionary
and, therefore, your bank, broker or other nominee cannot vote your shares without your instruction. Broker non-votes will not
be considered present for the purposes of establishing a quorum and will have no effect on the Proposals, except that a broker
non-vote will have the same effect as voting against the Amendment Proposal. If you do not provide instructions with your proxy,
your bank, broker or other nominee may submit a proxy card expressly indicating that it is NOT voting your shares; this indication
that a bank, broker or other nominee is not voting your shares is referred to as a “broker non-vote.” Your bank, broker
or other nominee can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote
your CHAC Shares in accordance with directions you provide.
Q: What
if I abstain from voting or fail to instruct my bank, broker or other nominee on how to vote my shares?
A: CHAC
will count a properly executed proxy marked “ABSTAIN” with respect to a particular Proposal as present for the purposes
of determining whether a quorum is present at the special meeting of CHAC stockholders. For purposes of approval, an abstention
on any Proposals will have the same effect as a vote “AGAINST” such Proposal. Additionally, failure to elect to exercise
your redemption rights will preclude you from having your common stock redeemed for cash. In order to exercise your redemption
rights, you must make an election on the applicable proxy card to redeem such CHAC Shares or submit a request in writing to CHAC’s
transfer agent at the address listed on page [●], and deliver your shares to CHAC’s transfer agent physically or electronically
through DTC prior to the special meeting of CHAC stockholders.
Q: Can
I change my vote after I have mailed my proxy card?
A: Yes.
You may change your vote at any time before your proxy is voted at the special meeting. You may revoke your proxy by executing
and returning a proxy card dated later than the previous one, or by attending the special meeting in person and casting your vote
by ballot or by submitting a written revocation that is received by us before we take the vote at the special meeting stating
that you would like to revoke your proxy that we receive prior to the special meeting. If you hold your shares through a bank,
broker or other nominee, you should follow the instructions of your bank, broker or other nominee regarding the revocation of
proxies. If you are a record holder, you should send any notice of revocation or your completed new proxy card, as the case may
be, to:
Chardan
Healthcare Acquisition Corp.
17 State St., Floor 21
New
York, NY 10004
Attn: _______________
Telephone: (646) 465-9000
Q: Should
I send in my share certificates now?
A: CHAC stockholders who intend to have their common stock redeemed
should send their certificates two (2) business days before the special meeting. Please see “
Special Meeting of CHAC Stockholders
— Redemption Rights
” for the procedures to be followed if you wish to redeem your ordinary shares for cash.
Q: When
is the Business Combination expected to occur?
A: Assuming the requisite stockholder approvals are received
and all other conditions to closing satisfied, CHAC expects that the Business Combination will occur no later than October 2019.
Q: May
I seek statutory appraisal rights or dissenter rights with respect to my shares?
A: No. Appraisal rights are not available to holders of CHAC
Shares in connection with the proposed Business Combination. For additional information, see the sections entitled “
Special
Meeting of CHAC Stockholders—Appraisal Rights.
”
Q: What
happens if the Business Combination is not consummated?
A: If
CHAC does not consummate a business combination by the date that is 24 months from the closing of the Initial Public Offering,
or December 18, 2020, then pursuant to Article Sixth of its Amended and Restated Certificate of Incorporation, CHAC’s officers
must take all actions necessary in accordance with the Delaware General Corporation Law (referred to herein as the “DGCL”)
to dissolve and liquidate CHAC as soon as reasonably practicable. Following dissolution, CHAC will no longer exist as a company.
In any liquidation, the funds held in the trust account, plus any interest earned thereon (net of taxes payable), together with
any remaining out-of-trust net assets will be distributed pro-rata to holders of CHAC Shares who acquired such common stock in
CHAC’s Initial Public Offering or in the aftermarket. The estimated consideration that each CHAC share would be paid at
liquidation would be approximately $[●] per share for stockholders based on amounts on deposit in the trust account as of
[●], 2019. The closing price of CHAC’s common stock on the NYSE American Stock Exchange as of [●], 2019 was
$[●]. CHAC’s Sponsor and other initial stockholders waived the right to any liquidation distribution with respect
to any CHAC Shares held by them.
Q: What
happens to the funds deposited in the trust account following the Business Combination?
A: Following
the closing of the Business Combination, funds in the trust account will be released to CHAC. Holders of CHAC Shares exercising
redemption rights will receive their per share redemption price. The balance of the funds will be utilized to fund the Business
Combination. As of June 30, 2019, there was approximately $70,881,150 in CHAC’s trust account. Approximately $[●]
per outstanding share issued in CHAC’s Initial Public Offering will be paid to the public investors. Any funds remaining
in the trust account after such uses will be used for future working capital and other corporate purposes of the combined entity.
DELIVERY
OF DOCUMENTS TO CHAC’s stockholders
Pursuant
to the rules of the Securities and Exchange Commission (“SEC”), CHAC and services that it employs to deliver communications
to its stockholders are permitted to deliver to two or more stockholders sharing the same address a single copy of the proxy statement,
unless CHAC has received contrary instructions from one or more of such stockholders. Upon written or oral request, CHAC will
deliver a separate copy of the proxy statement to any stockholder at a shared address to which a single copy of the proxy statement
was delivered and who wishes to receive separate copies in the future. Stockholders receiving multiple copies of the proxy statement
may likewise request that CHAC deliver single copies of the proxy statement in the future. Stockholders may notify CHAC of their
requests by contacting CHAC as follows:
Chardan
Healthcare Acquisition Corp.
17 State St., Floor 21
New
York, NY 10004
Attn: _______________
Telephone: (646) 465-9000
SUMMARY
OF THE PROXY STATEMENT
This
summary highlights selected information from this proxy statement but may not contain all of the information that may be important
to you. Accordingly, we encourage you to read carefully this entire proxy statement, including the Merger Agreement attached as
Annex A
. Please read these documents carefully as they are the legal documents that govern the Business Combination and
your rights in the Business Combination.
Unless
otherwise specified, all share calculations assume no exercise of the redemption rights by CHAC’s stockholders.
The
Parties to the Business Combination
Chardan
Healthcare Acquisition Corp.
Chardan
Healthcare Acquisition Corp. (“CHAC”), was incorporated as a blank check company on November 1, 2017, under the laws
of the State of Delaware, for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization,
reorganization or similar business combination with one or more businesses or entities, which we refer to as a “target business.”
CHAC’s efforts to identify a prospective target business were not limited to any particular industry or geographic location.
CHAC’s mailing address is 17 State Street, 21
st
Floor, New York, New York, 10004.
On
December 18, 2018, CHAC consummated its Initial Public Offering of 7,000,000 CHAC Units. The CHAC Units sold in the Initial Public
Offering were sold at an offering price of $10.00 per CHAC Unit, generating total gross proceeds of $70,000,000. We granted the
underwriters a 45-day option to purchase up to 1,050,000 additional CHAC Units to cover over-allotments at the Initial Public
Offering price, less the underwriting discounts and commissions. The overallotment option expired unexercised on February 4, 2019.
Simultaneous
with the consummation of the Initial Public Offering, we consummated the private placement of an aggregate of 2,900,000 CHAC
Warrants, each exercisable to purchase one CHAC Share for $11.50 per share, to Mountain Wood,
LLC, an affiliate of the Sponsor at a price of $0.40 per CHAC Warrant, generating total proceeds of $1,160,000. The issuance
was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. These CHAC Warrants
are identical to the warrants underlying the CHAC Units sold in the Initial Public Offering, except that the these warrants
are not transferable, assignable or salable until after the completion of a business combination, subject to certain limited
exceptions. Additionally, these warrants are exercisable on a cashless basis and are non-redeemable so long as they are
held by the initial purchasers or their permitted transferees.
After
deducting the underwriting discounts, offering expenses, and commissions from the Initial Public Offering and the sale of the
CHAC Warrants, a total of $70,000,000 was deposited into a trust account established for the benefit of CHAC’s public stockholders,
and the remaining proceeds became available to be used to provide for business, legal and accounting due diligence on prospective
business combinations and continuing general and administrative expenses.
As of June 30, 2019, we have approximately
[●] of unused net proceeds that were not deposited into the trust fund to pay future general and administrative expenses.
The net proceeds deposited into the trust fund remain on deposit in the trust fund earning interest. As of June 30, 2019 there
was $70,881,150 held in the trust fund (including $881,150 of accrued interest which we can withdraw to pay taxes).
The CHAC Units, CHAC Shares and CHAC Warrants
are each quoted on the NYSE American Stock Exchange, under the symbols “CHACU,” “CHAC” and “CHACW”
respectively. Each of CHAC Units consists of one CHAC Share and one CHAC Warrant to purchase one half of a CHAC Share. CHAC Units
commenced trading on the NYSE American Stock Exchange on December 14, 2018. CHAC Shares and CHAC Warrants commenced trading on
the NYSE American Stock Exchange on March 13, 2019.
Merger
Sub
CHAC Merger Sub Ltd. is an Israeli company
and wholly owned subsidiary of CHAC, registered by CHAC on July 1, 2019 to consummate the Business Combination. The Merger Sub
will merge with and into BiomX with BiomX continuing as the surviving entity.
BiomX
Ltd.
BiomX Ltd. (“BiomX”) is an Israeli
company formed on March 3, 2015. BiomX is a preclinical stage microbiome product discovery company developing products using both
natural and engineered phage technologies designed to target and destroy bacteria that affect the appearance of skin, as well as
harmful bacteria in chronic diseases, such as inflammatory bowel disease, liver disease and cancer. Bacteriophage or phage are
viruses that target bacteria and are considered inert to mammalian cells. By developing proprietary combinations of naturally occurring
phage and by creating novel phage using synthetic biology, BiomX develops phage-based therapies intended to address large-market
and orphan diseases. For more information on BiomX, please see the sections entitled “
BiomX Ltd.’s Business
,”
“
Management’s Discussion and Analysis of Financial Condition and Results of Operations of BiomX Ltd.
,”
and “
Directors, Executive Officers, Executive Compensation and Corporate Governance—Directors and Executive Officers
After the Business Combination
,” and “
Directors, Executive Officers, Executive Compensation and Corporate Governance—Compensation
of Officers and Directors of BiomX
.”
BiomX’s
mailing address is 7 Pinhas Sapir St., Floor 2, Ness Ziona 7414002, Israel.
The
Merger Agreement
On July 16, 2019, CHAC, Merger Sub, and
BiomX entered into the Merger Agreement pursuant to which, subject to the satisfaction or waiver of certain conditions set forth
therein, BiomX will merge with Merger Sub with BiomX surviving the merger in accordance with the Israeli Companies Law, 5759-1999
(the “Israeli Companies Law”) as a wholly owned direct subsidiary of CHAC.
For more information about the Business
Combination, please see the section entitled “
The Business Combination Proposal.
” A copy of the Merger Agreement
is attached to this proxy statement as
Annex A
.
Consideration
to BiomX Security Holders
Upon the closing of the transactions contemplated
in the Merger Agreement (the “Closing”), Merger Sub will merge with and into BiomX, resulting in BiomX becoming a
wholly owned subsidiary of CHAC. The securityholders of BiomX that hold shares of BiomX or vested options or warrants exercisable
for shares of BiomX will receive an aggregate of 16,625,000 CHAC Shares or options or warrants to purchase CHAC Shares, respectively,
subject to reduction for indemnification claims as described in the section entitled “
The Merger Agreement
.”
Additional CHAC Shares will be reserved for issuance in respect of options to purchase shares of BiomX capital stock that are
issued, outstanding and unvested as of immediately prior to the Closing.
The
parties agreed that immediately following the closing of the Business Combination, CHAC’s Board of Directors will consist
of no more than seven directors, two of which will be designated by Chardan Investments, LLC and five of which will be designated
by BiomX.
For more information about the consideration
to the BiomX securityholders, please see the section entitled “
The Business Combination Proposal
.”
Management
and Board of Directors Following the Business Combination
Effective as of the closing date, the Board
of Directors of CHAC will consist of seven members. The members designated by BiomX will include Jonathan Solomon, Yaron Breski,
Erez Chimovitz, Robbie Woodman and an additional director, whose identity is yet to be determined, and the members designated by
CHAC will include Gbola Amusa and Jonas Grossman. Jonathan Solomon will be the Chief Executive Officer of CHAC after the consummation
of the Business Combination. See “
Directors and Executive Officers after the Business Combination
” for additional
information.
Other
Agreements Relating to the Business Combination
Registration
Rights Agreement
At the closing of the Business Combination,
CHAC will enter into a Registration Rights Agreement, substantially in the form attached as
Annex B
to this proxy statement,
with the BiomX security holders, which provides certain demand and piggy-back registration rights to the BiomX security holders.
The demand registration rights may not be exercised until six months after the closing of the Business Combination. Subject to
certain exceptions, the Company will bear all Registration Expenses (as defined in the Registration Rights Agreement).
Voting
Agreement
At the closing of the Business Combination,
CHAC will enter into a Voting Agreement, substantially in the form attached as
Annex C
to this proxy statement, with certain
of the CHAC founders and BiomX security holders, which provides that the parties to the agreement agree to vote:
|
●
|
in
favor of two members of the CHAC Board of Directors selected by the Sponsor.
|
|
●
|
in
favor of five members of the CHAC Board of Directors selected by Shareholder’s
Representative Services LLC, the representative of the BiomX shareholders.
|
|
●
|
In
favor of maintaining the size of the CHAC Board of Directors at seven.
|
Shareholder
Agreements
In
addition:
|
1.
|
The Sponsor, entered into an agreement with BiomX pursuant to which if the Aggregate Investment Amount
(as defined in the Merger Agreement), is less than $70,000,000, the Sponsor has agreed to forfeit a number of whole CHAC Shares
equal to: (a) 500,000 CHAC Shares; multiplied by (b) the quotient of: (i) the absolute value of the difference between $70,000,000
minus the Aggregate Investment Amount; divided by (ii) $20,000,000, rounded to the nearest whole share; provided, however, that
in no event will the Sponsor be required to forfeit more than 500,000 CHAC Shares.
|
|
2.
|
Chardan Securities, LLC entered into an agreement with BiomX pursuant to which it agreed to purchase
up to $2.5 million of shares of CHAC’s common stock (either directly from CHAC (at a price of $10.00 per share) or from
public stockholders (at prices no greater than the redemption amount per share) at the closing of the Business Combination
in the event that the Aggregate Investment Amount would be less than $50 million but greater than $47,499,999.
|
|
3.
|
CHAC entered into voting agreements with holders of 1,000,000 shares of its common stock
pursuant to which such stockholders agreed to vote in favor of the transactions contemplated by the Merger Agreement and to
not redeem or sell their shares.
|
|
4.
|
CHAC and certain current CHAC public shareholders entered into agreements with certain of
BiomX’s current shareholders pursuant to which such BiomX shareholders agreed to purchase an aggregate of 1,879,075
shares of CHAC’s common stock at Closing from such CHAC public stockholders at a price of $10.00 per share. In
addition, CHAC agreed to pay such selling CHAC public shareholders an amount equal to the difference between the redemption
price per share at the Closing minus $10.00 per share. In addition, CHAC also agreed to issue such BiomX shareholders the
following number of additional shares in the aggregate subject to the achievement of the conditions specified below:
|
|
a.
|
Following the Closing, if the daily volume weighted
average price of a share of CHAC common stock in any 20 trading days within a 30 trading day period prior to January 1, 2022 is
greater than or equal to $16.50 per share, then CHAC shall issue 2,000,000 CHAC Shares.
|
|
b.
|
Following the Closing, if the daily volume weighted
average price of a share of CHAC common stock in any 20 trading days within a 30 trading day period prior to January 1, 2024 is
greater than or equal to $22.75 per share, then CHAC shall issue 2,000,000 CHAC Shares.
|
|
c.
|
Following the Closing, if the daily volume weighted
average price of a share of CHAC common stock in any 20 trading days within a 30 trading day period prior to January 1, 2026 is
greater than or equal to $29.00 per share, then CHAC shall issue 2,000,000 CHAC Shares.
|
|
5.
|
CHAC entered into a letter agreement with certain BiomX shareholders to sell additional CHAC Shares to
them in the event that certain events occur.
|
|
6.
|
CHAC entered into agreements with investors that agreed
to purchase up to 810,000 CHAC Shares at CHAC’s request and not to redeem such CHAC Shares in connection with the
Closing.
|
|
7.
|
Certain third parties entered into agreements to purchase 1,234,908 shares of CHAC’s
common stock from certain of its current public stockholders at the Closing. The existing stockholders agreed to vote in
favor of the transactions contemplated by the Merger Agreement and not to redeem or sell their CHAC Shares.
|
|
8.
|
BiomX shareholders owning 86% of the voting power in BiomX entered into support agreements with
CHAC pursuant to which such shareholders agreed to vote in favor of the transactions contemplated by the Merger Agreement at
each meeting of the shareholders of BiomX.
|
Except as described above, no consideration was paid by CHAC
in connection with the agreements described above.
Impact
of the Business Combination on the Company’s Public Float
Assuming there are no redemptions of our
public shares, and giving effect to the purchase and sale agreements referred to above, it is anticipated that upon completion
of the Business Combination, the ownership of the outstanding shares of the post-combination company will be as follows:
|
●
|
CHAC
public stockholders will own approximately 21%, excluding shares beneficially owned
by our Sponsor,
|
|
●
|
Our
Sponsor will own approximately 7%, and
|
|
●
|
BiomX shareholders will own approximately 72%.
|
The ownership percentages with respect to
the post-combination company following the Business Combination set forth above do not take into account (a) warrants to purchase
CHAC Shares that will remain outstanding immediately following the Business Combination; (b) stock options that will be issued
to holders of BiomX stock options and warrants, outstanding and unexercised as of immediately prior to the effective time of the
Business Combination; or (c) the issuance of any shares upon completion of the Business Combination, but does include Founder Shares,
which will be converted into shares of common stock at the Closing on a one-for-one basis. If the actual facts are different than
these assumptions, the percentage ownership retained by our public stockholders following the Business Combination will be different.
The CHAC public warrants and private placement warrants will become exercisable 30 days after the completion of the Business Combination
and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation.
For
more information, please see the section entitled “
Unaudited Pro Forma Condensed Combined Financial Information.
”
The
Proposals
At
the special meeting, stockholders of the Company will be asked to vote:
● To approve the Merger Agreement, dated as of July 16, 2019 (the “Merger Agreement”) by and
among CHAC, BiomX and the Merger Sub, and the transactions contemplated thereby, (collectively referred to as the “Business
Combination”). This proposal is referred to as the “Business Combination Proposal” or “Proposal No. 1.”
● To
approve the amendment of the Amended and Restated Certificate of Incorporation of CHAC to increase the number of authorized shares
of common stock from 30,000,000 to _________________. This proposal is referred to as the “Amendment Proposal” or
“Proposal No. 2.”
● To
approve the issuance of more than 20% of the issued and outstanding common stock of CHAC pursuant to the terms of the Merger Agreement,
as required by NYSE American Listed Company Guide Sections 712 and 713. This proposal is referred to as the “NYSE Proposal”
or “Proposal No. 3.”
● To
approve the adjournment of the special meeting, if necessary or advisable, in the event CHAC does not receive the requisite stockholder
vote to approve the Business Combination. This proposal is called the “Business Combination Adjournment Proposal”
or “Proposal No. 4.”
Please see the sections entitled “
The
Business Combinaton Proposal
”, “
The Amendment Proposal
”, “
The NYSE Proposal
”, and
“
The Business Combination Adjournment Proposal
”. for more information on Proposals 1 through 4.
Voting
Securities, Record Date
As of [●], 2019, there were 8,750,000
shares of common stock of CHAC issued and outstanding. Only CHAC stockholders who hold common stock of record as of the close of
business on [●], 2019 are entitled to vote at the special meeting of stockholders or any adjournment of the special meeting.
Approval of the Business Combination Proposal, the NYSE Proposal, and the Business Combination Adjournment Proposal will each require
the affirmative vote of the holders of a majority of the issued and outstanding common stock of CHAC present and entitled to vote
at the special meeting. Approval of the Amendment Proposal will require the approval of the holders of a majority of the CHAC Shares
entitled to vote at the special meeting. Attending the special meeting either in person or by proxy and abstaining from voting
will have the same effect as voting against all the proposals and, assuming a quorum is present, broker non-votes will have no
effect on the Proposals, except that a broker non-vote will have the same effect as voting against the Amendment Proposal.
As of [●], 2019, CHAC’s Sponsor
and other initial stockholders owned, either directly or beneficially, and were entitled to vote 1,750,000 CHAC Shares, or approximately
20% of CHAC’s outstanding common stock. With respect to the Business Combination, CHAC’s Sponsor and other initial
stockholders have agreed to vote their respective CHAC Shares in favor of the Business Combination Proposal and related Proposals.
Anticipated
Accounting Treatment
The Business Combination will be treated by CHAC as a “reverse merger” in accordance with
accounting principles generally accepted in the United States of America (“GAAP”). For accounting purposes, BiomX is
considered to be acquiring CHAC in this transaction. Therefore, for accounting purposes, the Business Combination will be treated
as the equivalent of a capital transaction in which BiomX is issuing stock for the net assets of CHAC. The net assets of CHAC will
be stated at historical cost, with no goodwill or other intangible assets recorded. The post-acquisition financial statements of
CHAC will show the consolidated balances and transactions of CHAC and BiomX as well as comparative financial information of BiomX
(the acquirer for accounting purposes).
Regulatory
Approvals
The Business Combination and the other transactions
contemplated by the Merger Agreement are not subject to any additional federal or state regulatory requirements or approvals, including
the Hart-Scott Rodino Antitrust Improvements Act of 1976, except for a filing with the Israeli Registrar of Companies necessary
to effectuate the transactions contemplated by the Merger Agreement.
Appraisal
Rights
Holders
of CHAC Shares are not entitled to appraisal rights under Delaware law.
Stockholder
Interests of Certain Persons in the Business Combination
When
you consider the recommendation of CHAC’s Board of Directors in favor of adoption of the Business Combination Proposal and
other Proposals, you should keep in mind that CHAC’s directors and officers have interests in the Business Combination that
are different from, or in addition to, your interests as a stockholder, including:
|
●
|
If
the proposed Business Combination is not completed by the date that is 24 months from
the closing of the Initial Public Offering, or December 18, 2020, CHAC will be required
to liquidate. In such event, the 1,750,000 Founder Shares held by CHAC’s Sponsor
and other initial stockholders, which were acquired prior to the Initial Public Offering
for an aggregate purchase price of $25,000 will be worthless. Such common stock had an
aggregate market value of approximately $[●] based on the closing price of CHAC’s
common stock of $[●] on the NYSE American Stock Exchange as of [●], 2019.
|
|
●
|
If
the proposed Business Combination is not completed by the date that is 24 months from
the closing of the Initial Public Offering, or December 18, 2020, the 2,900,000 private
warrants purchase by Mountain Wood, LLC, an affiliate of our Sponsor, for a total purchase
price of $1,160,000, will be worthless. Such warrants had an aggregate market value of
approximately [$●] based on the closing price of CHAC’s warrants of $[●]
on the NYSE American Stock Exchange as of [●], 2019.
|
|
●
|
The
exercise of CHAC’s directors’ and officers’ discretion in agreeing
to changes or waivers in the terms of the transaction may result in a conflict of interest
when determining whether such changes or waivers are appropriate and in CHAC stockholders’
best interest.
|
|
●
|
If
the Business Combination is completed, CHAC will designate two members to the Board of
Directors of the Merger Sub, some of whom may be current officers or directors of CHAC.
|
Recommendations
of the Boards of Directors to Stockholders
After
careful consideration of the terms and conditions of the Merger Agreement, the Board of Directors of CHAC has determined that
the Business Combination and the transactions contemplated thereby are fair to and in the best interests of CHAC and its stockholders.
In reaching its decision with respect to the Business Combination and the transactions contemplated thereby, the Board of Directors
of CHAC reviewed various industry and financial data and the due diligence and evaluation materials provided by BiomX. The Board
of Directors did not obtain a fairness opinion on which to base its assessment. CHAC’s Board of Directors recommends that
CHAC stockholders vote:
|
●
|
FOR
the Business Combination Proposal;
|
|
●
|
FOR
the Amendment Proposal;
|
|
●
|
FOR
the NYSE Proposal; and
|
|
●
|
FOR
the Business Combination Adjournment Proposal.
|
Risk
Factors
In
evaluating the Business Combination and the proposals to be considered and voted on at the special meeting, you should carefully
review and consider the risk factors set forth under the section entitled “Risk Factors” beginning on page 14
of this proxy statement. The occurrence of one or more of the events or circumstances described in that section, alone or in combination
with other events or circumstances, may have a material adverse effect on (i) the ability of CHAC and BiomX to complete the Business
Combination, and (ii) the business, cash flows, financial condition and results of operations of the company following consummation
of the Business Combination.
BIOMX
LTD. SUMMARY FINANCIAL INFORMATION
The data below as of December 31, 2018 and
2017 and for the three years in the period ended December 31, 2018 has been derived from BiomX’s audited consolidated financial
statements for such years, which are included in this proxy statement.
The information presented below should be
read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of
BiomX Ltd.” and BiomX’s audited financial statements and notes thereto included elsewhere in this proxy statement.
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
USD In thousands
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
|
9,135
|
|
|
|
4,176
|
|
|
|
1,149
|
|
General and administrative expenses
|
|
|
3,360
|
|
|
|
2,536
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
12,495
|
|
|
|
6,712
|
|
|
|
1,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation of convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
133
|
|
Financial expenses, net
|
|
|
225
|
|
|
|
(279
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
12,720
|
|
|
|
6,433
|
|
|
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per Ordinary Shares and Ordinary A Shares(1)
|
|
|
22.80
|
|
|
|
10.24
|
|
|
|
2.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Ordinary Shares and Ordinary A Shares outstanding, basic and diluted
|
|
|
749,361
|
|
|
|
733,902
|
|
|
|
732,000
|
|
|
(1)
|
See Note 14 to BiomX’s audited consolidated financial
statements appearing at the end of this proxy statement for further details on the calculation of basic and diluted net loss per
share.
|
Consolidated Balance Sheet Data, USD In thousands:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Cash and cash equivalents
|
|
|
8,604
|
|
|
|
6,898
|
|
Short term deposits
|
|
|
31,055
|
|
|
|
1,154
|
|
Working capital(1)
|
|
|
38,249
|
|
|
|
7,015
|
|
Total assets
|
|
|
45,331
|
|
|
|
13,990
|
|
Current liabilities
|
|
|
1,639
|
|
|
|
1,459
|
|
Accumulated deficit
|
|
|
(21,609
|
)
|
|
|
(8,889
|
)
|
Total Shareholders’ equity
|
|
|
42,803
|
|
|
|
11,530
|
|
|
(1)
|
Working capital is defined as current assets less current
liabilities.
|
TRADING
MARKET AND DIVIDENDS
The CHAC Units, CHAC Shares and CHAC Warrants
are each quoted on the NYSE American Stock Exchange, under the symbols “CHACU,” “CHAC” and “CHACW,”
respectively. Each of the CHAC Units consists of one CHAC Share and CHAC Warrant to purchase one-half of a CHAC Share. The CHAC
Units commenced trading on December 14, 2018. The CHAC Shares and CHAC Warrants commenced trading on March 13 ,2019.
CHAC
has not paid any cash dividends on its common stock to date and does not intend to pay cash dividends prior to the completion
of a Business Combination. The payment of cash dividends in the future will depend upon CHAC’s revenues and earnings, if
any, capital requirements and general financial condition subsequent to completion of the Business Combination. The payment of
any dividends subsequent to the Business Combination will be within the discretion of its then Board of Directors. It is the present
intention of CHAC’s Board of Directors to retain all earnings, if any, for use in its business operations and, accordingly,
CHAC’s Board of Directors does not anticipate declaring any dividends in the foreseeable future.
BiomX’s
securities are not publicly traded.
RISK
FACTORS
You
should consider carefully the following risk factors, as well as the other information set forth in this proxy statement, before
making a decision on the Business Combination.
Risks
Related to BiomX’s Business, Technology and Industry
BiomX
is a development-stage company with limited operating history and has incurred losses since its inception. BiomX anticipates that
it will continue to incur increasing and significant losses for the foreseeable future.
BiomX
is a development-stage biopharmaceutical company with limited operating history. BiomX has incurred losses in each year since
its inception in 2015. As of December 31, 2018, BiomX’s accumulated deficit was $21.6 million, and BiomX expects to incur
increasingly significant losses for the foreseeable future. Preclinical development and clinical trials and activities are costly.
BiomX has devoted, and will continue to devote for the foreseeable future, substantially all of its resources to research and
development and clinical trials for its product candidates. BiomX does not expect to generate any revenue from the commercial
sales of its product candidates in the near term. For the years ended December 31, 2018 and 2017, BiomX had losses from operations
of $12.5 million and $6.7 million, respectively. BiomX anticipate that its expenses will increase substantially if and as it:
|
●
|
continues
to develop and conduct clinical trials with respect to its lead product candidate, BX001, and other product candidates in
its pipeline;
|
|
●
|
initiates
and continues research, preclinical and clinical development efforts for any future product candidates;
|
|
●
|
seeks
to discover and develop additional product candidates and further expand its clinical product pipeline;
|
|
●
|
seeks
marketing and regulatory approvals for any product candidates that successfully complete clinical trials;
|
|
●
|
requires
the manufacture of larger quantities of product candidates for clinical development and, potentially, commercialization;
|
|
●
|
maintains,
expands and protects its intellectual property portfolio;
|
|
●
|
expands
its research and development infrastructure, including hiring and retaining additional personnel, such as clinical, quality
control and scientific personnel;
|
|
●
|
establishes
sales, marketing, distribution and other commercial infrastructure in the future to commercialize products for which it obtains
marketing approval, if any; and
|
|
●
|
adds
operational, financial and management information systems and personnel, including personnel to support its product development
and commercialization and help it comply with its obligations as a subsidiary of a public company.
|
BiomX
will need to raise additional capital to support its operations.
At December 31, 2018, BiomX had cash and
cash equivalents of $39.7 million, and it has had recurring losses from operations and negative operating cash flows since inception
in 2015. BiomX may need to raise additional capital to support its operations and product development activities. In the near term,
BiomX expects to continue to fund its operations and other development activities relating to additional product candidates from
the cash at CHAC, governmental grants and through equity and debt financings in the future. BiomX may also seek funds through arrangements
with collaborators or others that may require it to relinquish rights to the product candidates that it might otherwise seek to
develop or commercialize independently. If BiomX enters into a collaboration for one or more of its current or future product candidates
at an earlier development stage, the terms of such a collaboration will likely be less favorable than if BiomX were to enter the
collaboration in later stages or if BiomX commercialized the product independently. If BiomX raises additional funds through equity
offerings, the terms of these securities may include liquidation or other preferences that adversely affect its stockholders’
rights, or cause significant dilution to BiomX’s stockholders. If BiomX raises additional capital through debt financing,
it would be subject to fixed payment obligations and may be subject to covenants limiting or restricting its ability to take specific
actions, such as incurring additional debt, making capital expenditures, declaring dividends or acquiring or licensing intellectual
property rights.
If additional capital is not available to
BiomX when needed or on acceptable terms, BiomX may not be able to continue to operate its business pursuant to its business plan
and may be required to delay its clinical development. While BiomX believes that its existing cash and cash equivalents, together
with CHAC’s existing resources will be sufficient to fund its planned operations for at least the next 24 months, BiomX cannot
provide assurances that its estimates are accurate, that its plans will not change or that changed circumstances will not result
in the depletion of BiomX’s capital resources more rapidly than it currently anticipates.
Developing
drugs and conducting clinical trials is expensive. BiomX’s future funding requirements will depend on many factors, including:
|
●
|
the
costs, timing and progress of BiomX’s research and development and clinical activities;
|
|
●
|
manufacturing
costs associated with BiomX’s targeted bacteriophage, or phage, therapies strategy and other research and development
activities;
|
|
●
|
the
terms and timing of any collaborative, licensing, acquisition or other arrangements that BiomX may establish;
|
|
●
|
employee-related
expenses, as well as external costs such as fees paid to outside consultants;
|
|
●
|
the
costs and timing of seeking regulatory approvals and related to compliance with regulatory requirements; and
|
|
●
|
the
costs of filing, prosecuting, defending and enforcing any patent applications, claims, patents and other intellectual property
rights;
|
There
can be no assurance that sufficient funds will be available to BiomX when required or on acceptable terms, if at all. BiomX’s
inability to obtain additional funds could have a material adverse effect on its business, financial condition and results of
operations. Moreover, if BiomX is unable to obtain additional funds on a timely basis, there will be substantial doubt about BiomX’s
ability to continue as a going concern and increased risk of insolvency and up to a total loss of investment by BiomX’s
stockholders.
BiomX’s
limited operating history may make it difficult to evaluate the success of its business to date and to assess its future viability.
Since
inception in 2015, BiomX has devoted substantially all of its resources to developing product candidates with phage technology
through its preclinical programs, building its intellectual property portfolio, developing its supply chain, planning its business,
raising capital and providing general and administrative support for these operations. BiomX has not yet demonstrated its ability
to successfully complete any clinical study or other pivotal clinical trials, obtain regulatory approvals, manufacture a commercial-scale
product, or arrange for a third-party to do so on BiomX’s behalf, or conduct sales and marketing activities necessary for
successful product commercialization. Additionally, BiomX expects its financial condition and operating results to fluctuate significantly
from quarter to quarter and year to year due to a variety of factors, many of which are beyond BiomX’s control. Consequently,
any predictions made about BiomX’s future success or viability may not be as accurate as they could be if BiomX had a longer
operating history.
In
addition, as an early-stage company, BiomX may encounter unforeseen expenses, difficulties, complications, delays and other known
and unknown circumstances. As BiomX advances its product candidates, it will need to transition from a company with a research
focus to a company capable of supporting clinical development and if successful, commercial activities. BiomX may not be successful
in such a transition.
BiomX
has never generated any revenue from product sales and may never be profitable or, if achieved, may not sustain profitability.
BiomX’s
ability to generate meaningful revenue and achieve profitability depends on its ability, and the ability of any third party with
which BiomX may partner, to successfully complete the development of, and meet regulatory requirements, including (but not limited
to) obtaining any necessary regulatory approvals, to commercialize BiomX’s product candidates. BiomX does not currently
meet regulatory requirements and/or have the required approvals to market its product candidates and may never meet or receive
them. BiomX does not anticipate generating revenue from product sales for the foreseeable future, if ever. If any of BiomX’s
product candidates fail in clinical trials or if any of BiomX’s product candidates do not meet regulatory requirements,
including gaining regulatory approval when needed, or if any of BiomX’s product candidates, if marketed, fail to achieve
market acceptance, BiomX may never become profitable. Even if BiomX achieves profitability in the future, it may not be able to
sustain profitability in subsequent periods. BiomX’s ability to generate future revenue from product sales depends heavily
on its success in:
|
●
|
completing
research and preclinical and clinical development of its product candidates;
|
|
●
|
seeking
and obtaining regulatory and marketing approvals for product candidates for which it completes clinical trials;
|
|
●
|
meeting
regulatory requirements for marketing the products;
|
|
●
|
developing
a sustainable, scalable, reproducible, and transferable manufacturing process for its product candidates;
|
|
●
|
launching
and commercializing product candidates for which it obtains regulatory and marketing approval or is otherwise permitted to
market, either by establishing a sales force, marketing and distribution infrastructure or by collaborating with a partner;
|
|
●
|
obtaining
market acceptance of any approved products;
|
|
●
|
addressing
any competing technological and market developments;
|
|
●
|
implementing
additional internal systems and infrastructure, as needed;
|
|
●
|
identifying
and validating new product candidates;
|
|
●
|
negotiating
favorable terms in any collaboration, licensing or other arrangements into which it may enter;
|
|
●
|
maintaining,
protecting and expanding its portfolio of intellectual property rights, including patents, trade secrets and know-how; and
|
|
●
|
attracting,
hiring and retaining qualified personnel.
|
Even if one or more of the product candidates
that BiomX develops is approved for commercial sale or otherwise permitted for marketing, BiomX anticipates incurring significant
costs associated with commercializing any approved product. BiomX’s expenses could increase beyond expectations if it is
required by the U.S. Food and Drug Administration (“FDA”), the European Medicines Agency (“EMA”) or other
equivalent foreign regulatory agencies to perform clinical trials and other studies in addition to those that it currently anticipates.
Even if BiomX is able to generate revenue from the sale of any approved products, BiomX may not become profitable and may need
to obtain additional funding to continue operations. If BiomX fails to become profitable, or if BiomX is unable to fund its continuing
losses, its business, financial condition and results of operations may be materially adversely impacted.
BiomX
is seeking to develop product candidates using phage technology, an approach for which is difficult to predict the time and cost
of development. To BiomX’s knowledge, no bacteriophage has thus far been sold as a cosmetic or approved as a drug in the
United States or in the European Union.
BiomX is developing its product candidates
with phage technology. BiomX has not, nor to BiomX’s knowledge has any other company, sold its product candidates as cosmetics
or received regulatory approval from the FDA or equivalent foreign regulatory agencies for a product based on this approach. While
in vitro
and
in vivo
studies have characterized the behavior of phage in cell cultures and animal models and there
exists a body of literature regarding the use of phage therapy in humans, the safety and efficacy of phage therapy in humans has
not been extensively studied in well-controlled modern clinical trials. Most of the prior research on phage-based therapy
was conducted in the former Soviet Union prior to and immediately after World War II and lacked appropriate control group design
or lacked control groups at all. Furthermore, the standard of care has changed substantially during the ensuing decades since those
studies were performed, diminishing the relevance of prior claims of improved cure rates. Any product candidates that BiomX develops
may not demonstrate in patients the therapeutic properties ascribed to them in laboratory and other preclinical studies, and they
may interact with human biological systems in unforeseen, ineffective or even harmful ways. BiomX cannot be certain that its approach
will lead to the development of approvable or marketable products. Furthermore, the bacterial targets of phage may develop resistance
to BiomX’s product candidates over time, which BiomX may or may not be able to overcome with the development of new phage
cocktails or BiomX may not be able to construct a cocktail with sufficient coverage of its target pathogen universe.
If BiomX’s product candidates receive
regulatory approval but do not achieve an adequate level of acceptance by physicians, healthcare payors and patients, BiomX may
not generate product revenue sufficient to attain profitability. BiomX’s success will depend upon physicians who specialize
in the treatment of diseases targeted by BiomX’s product candidates that it pursue as drugs, prescribing potential treatments
that involve the use of BiomX’s product candidates in lieu of, or in addition to, existing treatments with which they are
more familiar and for which greater clinical data may be available. BiomX’s access will also depend on consumer acceptance
and adoption of its products that it commercializes. Adverse events in preclinical studies and clinical trials of BiomX’s
product candidates or in clinical trials of others developing similar products and the resulting publicity, as well as any other
adverse events in the field of phage therapeutics, could result in a decrease in demand for any product that BiomX may develop.
The degree of market acceptance of any approved products will depend on a number of factors, including:
|
●
|
the
effectiveness of the product;
|
|
●
|
the
prevalence and severity of any side effects;
|
|
●
|
potential
advantages or disadvantages over alternative treatments;
|
|
●
|
relative
convenience and ease of administration;
|
|
●
|
the
strength of marketing and distribution support;
|
|
●
|
the
price of the product, both in absolute terms and relative to alternative treatments; and
|
|
●
|
sufficient
third-party coverage or reimbursement.
|
Developing
BiomX’s product candidates on a commercial scale will require substantial technical, financial and human resources. BiomX
and its third-party collaborators may experience delays in developing manufacturing capabilities for BiomX’s product candidates,
and may not be able to do so at the scale required to efficiently conduct the clinical trials required to obtain regulatory approval
of BiomX’s product candidates that require it, or to manufacture commercial quantities of BiomX’s products, if approved
or otherwise permitted to be marketed.
BiomX
is considering marketing its lead candidate product—BX001—as a cosmetic, although this positioning also presents some
challenges, as explained in the risk factors below.
Depending
in part on how BX001 is marketed, it may be classified as a cosmetic or a drug or as something else by the FDA or equivalent foreign
regulatory agencies. There are fewer requirements to market cosmetics in the United States; however, if BiomX attempts to market
as a cosmetic and the FDA disagrees with its classification, BiomX may be required to stop marketing the product and pursue approval
as a drug, and not market the product again until BiomX has such an approval, which it may not receive.
The FDA and equivalent foreign regulatory
agencies regulate products largely by their intended uses, but may also consider the ingredients of the product. At the current
time, such agencies have not approved a new drug application (“NDA”) or a Biologics License Application (“BLA”)
for a phage product. Products intended to beautify, moisturize, cleanse, or change one’s appearance may be regulated as cosmetics.
Products intended to diagnose, prevent, cure or mitigate a disease or condition are regulated as drugs (or in some cases, as medical
devices). A premarket approval process is not required for cosmetic products. Manufacturers of cosmetics must test for and assure
that finished products and all ingredients are safe prior to marketing them in the United States or the European Union, and claims
may not be made that the product prevents, mitigates or cures a condition or disease. Products that claim to treat acne are generally
regulated as drugs in the United States and the European Union. In the United States, drug products must either be approved through
one of several FDA drug approval pathways or, in the case of some over-the-counter (“OTC”) drugs, meet the monograph
criteria established by U.S. regulation. Similarly, in the European Union, drugs must be approved by the national regulatory authority
or the European Commission before being placed on the national or European market.
If BiomX markets BX001 as a cosmetic, BiomX
will not be able to promote the product for treating acne and its main claims would be limited to those that are consistent with
permitted cosmetic claims, to beautify, moisturize, cleanse or change the appearance of the skin such as “for beautiful,
bright skin” and similar claims. If BiomX markets the product as a cosmetic, it is possible that the FDA or equivalent foreign
regulatory agencies will disagree with BiomX and find that the product should be marketed as a drug. Although the FDA or equivalent
foreign regulatory agencies have not affirmatively decided the regulatory status of phages, given that their function is antibacterial,
it is possible that the such agencies will decide that products containing phages are drugs regardless of the claims presented
on the product or any other considerations. If the FDA evaluates BX001 and determines that the product is a drug and marketing
it as a cosmetic is a prohibited act under the Food, Drug, and Cosmetic Act, it may issue a Warning Letter and demand that BiomX
stop marketing the product unless and until the product is approved as a drug. If the FDA issues a Warning Letter, it will be made
available on the FDA’s web site, and BiomX may suffer reputational damage. The same applies to the national competent authorities
in the European Union. There is the risk that if BiomX goes to market with BX001 as a cosmetic, potential competitors will bring
the FDA’s or equivalent foreign regulatory authorities’ attention to the marketing of BX001 as a cosmetic to encourage
the FDA or equivalent foreign regulatory authorities to take this very type of enforcement action against it.
It
is possible that the regulatory requirements or framework will change by the time BiomX is ready to market its product and these
changes may eliminate the possibility of marketing BX001 as a cosmetic. For example, the FDA could affirmatively determine that
phages are regulated as drugs and are not permitted in cosmetic products. If this were the case, then BX001 would need to be approved
as a drug in order to be marketed in the United States, and would need to be approved as an OTC drug rather than a prescription
drug in order to be sold in products that are also cosmetics. The same applies in the European Union.
Depending
on the regulatory environment and requirements at the time BX001 is ready for market, BiomX may decide that pursuing a drug approval
(either prescription or OTC) is the better pathway to market, in which case, it will take longer to bring BX001 to market in the
United States and in other countries. And in this case, all other risks generally related to approval pathways would also be applicable
to BX001.
Finally,
even if BiomX is permitted to market BX001 as a cosmetic in one country, this does not guarantee that BiomX will be permitted
to market BX001 as a cosmetic in other countries. Each country has its own distinct requirements for marketing products as cosmetics
and BX001 would need to independently meet each jurisdiction’s requirements.
Regulatory requirements for development of BiomX’s
lead product candidate, BX001, are uncertain and evolving. Changes in these laws or the current interpretation or application of
these laws would have a significant adverse impact on BiomX’s ability to develop and commercialize BX001.
BiomX intends to develop its lead product
candidate, BX001 initially as a cosmetic gel designed to improve the appearance of acne-prone skin. BX001 contains known cosmetic
ingredients combined with phages that are designed to help control the growth of
P. acnes
, and thereby help improve the
appearance of acne-prone skin.
In the European Union, a product candidate
is considered to be a cosmetic if it is intended to and presented as protecting the skin, maintaining the skin in good condition
or improving the appearance of the skin, provided that it is not a medicinal product due to its composition. With regard to the
ingredients, in the European Union, the composition of a cosmetic may not be such that it has a significant effect on the body
through a pharmacological, immunological or metabolic mode of action. No test has been determined yet for the significance of the
effect. By contrast, a product candidate is a drug if it is intended to or presented as treating or preventing a disease or restoring,
correcting or modifying significantly physiological functions by a pharmacological, immunological or metabolic action. However,
in the European Union, medical or biocidal (i.e. antibacterial) claims may be made for cosmetics, provided that they are ancillary
to the cosmetic claims. As a result, BiomX believes that it may develop BX001 as a cosmetic, including conducting non-IND human
clinical studies in order to evaluate safety, tolerability and biomarkers for non-drug applications.
Some countries also regulate other categories
of products that could be relevant such as biocides in the European Union.
Unlike medicinal products, cosmetic products
are generally not subject to premarket approval by regulatory agencies. They however must not contain certain ingredients or concentrations
of ingredients and must be safe and properly labeled in relation to their cosmetic purpose. It remains unclear whether phages are
authorized for use in cosmetic products, in the United States, the European Union and other countries.
Moreover, the FDA or equivalent foreign
regulatory agencies may determine that BX001 is not governed by cosmetics regulations but by pharmaceutical regulations and, therefore
may classify BX001 as being ineligible for use in clinical studies without a regulatory approval. A determination that BX001 does
not meet the regulatory cosmetic requirements of the FDA or equivalent foreign regulatory agencies could cause a delay in the commercialization
of BX001, which may lead to reduced acceptance by the public or others. Any such determination could prevent BiomX’s reliance
on existing regulatory frameworks to conduct non-IND human clinical studies for BX001 and could significantly increase the cost
of and delay the commercialization of BX001.
Should BiomX choose to develop and commercialize
BX001 as a cosmetic and if the FDA or equivalent foreign regulatory agencies determine BX001 falls outside the cosmetics regulations,
the agency could ask BiomX to withdraw BX001 from the market. In addition, if new safety issues are raised by cosmetic clinical
studies for BX001, then BiomX’s ability to seek an IND to conduct clinical trials intended to lead toward approval of the
product as a drug, if pursued, could be adversely affected, for example the FDA or equivalent foreign regulatory agencies could
ask BiomX to modify approved labeling for or withdraw BX001 from the market.
BiomX
is seeking to develop product candidates to improve the appearance of acne-prone skin and treat medical conditions related to
the presence of certain bacteria. BiomX’s success is largely dependent on a broad degree of market acceptance, and in the
case of drug products, physician adoption and use, which are necessary for commercial success.
Even
if Biomx obtains FDA or foreign regulatory approvals for our drug product candidates, or BX001 is permitted to be marketed as
a cosmetic, the commercial success of BiomX’s product candidates will depend on consumer acceptance and adoption of products
that BiomX commercializes. Adverse events in preclinical studies and clinical trials of BiomX’s product candidates or in
clinical trials of others developing similar products and the resulting publicity could result in a decrease in demand for any
product that BiomX may develop.
In
addition, the commercial success of BiomX’s drug product candidates will depend significantly on their broad adoption and
use by dermatologists, pediatricians and other physicians for approved therapeutic indications, as well as any other indications
for which BiomX may seek approval. Biomx cannot be certain that its approach will lead to the development of approvable or marketable
products.
Obtaining
high titers for specific phage cocktails necessary for BiomX’s preclinical and clinical testing may be difficult and time-consuming.
BiomX’s
product candidates are phage cocktails that it has designed to meet specific characteristics. BiomX and BiomX’s contract
manufacturers produce a cocktail of multiple phage and it may be difficult or time-consuming to achieve high titers, or levels,
of phage sufficient for BiomX’s preclinical and clinical testing. In some cases, it may require multiple product runs in
order for BiomX to obtain the amounts necessary for its clinical testing. This may result in delays in BiomX’s clinical
trial timelines, and it may increase production costs and associated expenses. Also, it may be difficult to reproduce the manufacturing
process to the extent that more significant quantities are required as BiomX’s product candidates advance through the clinical
development process.
BiomX’s
product candidates must undergo clinical testing which may fail to demonstrate the requisite safety and tolerability for cosmetics,
safety and efficacy for drug products, or safety, purity, and potency for biologics, and any of BiomX’s product candidates
could cause adverse effects, which would substantially delay or prevent regulatory approval and/or commercialization.
Before BiomX can obtain regulatory approval
for a product candidate or otherwise obtain evidence allowing BiomX to market the product, it must undertake extensive preclinical
and clinical testing in humans to demonstrate safety and efficacy to the satisfaction of the FDA or other regulatory agencies.
Clinical trials of product candidates sufficient to obtain regulatory marketing approval or otherwise demonstrate safety prior
to marketing, are expensive and take years to complete, especially for the product candidate designed to treat colorectal cancer
as the phage will be genetically modified, which could make the conduct of clinical trials more complex. Furthermore, results from
these clinical trials may not show safety or efficacy of BiomX’s product candidates sufficient to lead to approval of, or
to warrant further development of BiomX’s product candidates. For example, BiomX’s approach is intended to design phage
combinations, or cocktails, to target specific strains of pathogenic bacteria in order to alter microbiome composition and confer
potential therapeutic or cosmetic benefit to patients. However, there can be no assurance that the eradication of the targets BiomX
selects will result in a clinically meaningful effect on the underlying disease, such as in cases where the pathology of the disease
is not well-defined. In addition, the bacteria that BiomX targets may be associated with the disease, but may not be causative
or contributive to the pathology of the disease, or there may be other bacteria that BiomX’s product candidates do not target
that are more meaningful drivers of the underlying disease. In addition, BiomX’s product candidates require the use of effective
delivery vehicles to reach the target organ or tissue, and there can be no assurance that BiomX’s intended delivery systems
will allow it product candidates to reach the desired locations in a patient. Safety must first be established through preclinical
testing and early clinical trials, before efficacy can be evaluated and established and thereby lead to FDA or other regulatory
agencies marketing approval. BiomX’s clinical trials may produce undesirable side effects or negative or inconclusive results,
and BiomX may decide, or regulators may require it, to conduct additional clinical and/or preclinical testing or to abandon programs.
If
BiomX is not able to obtain, or if there are delays in obtaining, required regulatory approvals for its product candidates for
therapeutic indications, BiomX will not be able to commercialize, or will be delayed in commercializing, its product candidates,
and its future ability to generate revenue will be materially impaired.
BiomX’s
product candidates and the activities associated with their development and commercialization for therapeutic indications, including
their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale,
distribution, import and export are subject to regulation by the FDA and other regulatory agencies in the United States and by
equivalent foreign regulatory authorities. Before BiomX can commercialize any of its product candidates for therapeutic indications,
BiomX must obtain marketing approval. BiomX has not received approval to market any of its product candidates from regulatory
authorities in any jurisdiction, and it is possible that none of BiomX’s product candidates or any product candidates it
may seek to develop in the future will ever obtain regulatory approval.
The
process of obtaining regulatory approvals for therapeutic indications, both in the United States and in other countries, is expensive,
may take many years if additional clinical trials are required, and can vary substantially based upon a variety of factors, including
the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development
period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted
IND, NDA or equivalent application types, may cause delays in the approval or rejection of an application. The FDA and equivalent
foreign regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or
may decide that BiomX’s data is insufficient for approval and require additional preclinical, clinical or other studies.
BiomX’s product candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including
the following:
|
●
|
the
FDA or equivalent foreign regulatory authorities may disagree with the design, including
study population, dose level, dose regimen, and bioanalytical assay methods, or implementation
of BiomX’s clinical trials;
|
|
●
|
BiomX
may be unable to demonstrate to the satisfaction of the FDA or equivalent foreign regulatory
authorities that a drug candidate is safe and effective for its proposed indication or
a related companion diagnostic is suitable to identify appropriate patient populations;
|
|
●
|
the
results of clinical trials may not meet the level of statistical significance required
by the FDA or equivalent foreign regulatory authorities for approval;
|
|
●
|
BiomX
may be unable to demonstrate that a drug product candidate’s clinical and other
benefits outweigh its safety risks;
|
|
●
|
the
FDA or equivalent foreign regulatory authorities may disagree with BiomX’s interpretation
of data from preclinical studies, non-IND human clinical studies or clinical trials;
|
|
●
|
the
data collected from clinical trials of BiomX’s product candidates may not be sufficient
to support the submission of an NDA or other submission or to obtain regulatory approval
in the United States or elsewhere;
|
|
●
|
the
FDA or equivalent foreign regulatory authorities may fail to approve the manufacturing
processes or facilities of third-party manufacturers with which BiomX contracts for clinical
and commercial supplies; and
|
|
●
|
the
approval policies or regulations of the FDA or equivalent foreign regulatory authorities
may significantly change in a manner rendering BiomX’s clinical data insufficient
for approval.
|
Of
the large number of drugs in development, only a small percentage successfully complete the FDA or equivalent foreign regulatory
approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial
results may result in BiomX failing to obtain regulatory approval to market its product candidates, which would significantly
harm BiomX’s business, results of operations and prospects.
The
FDA may also require a panel of experts, referred to as an Advisory Committee, to deliberate on the adequacy of the safety
and efficacy data to support approval for therapeutic indications. The opinion of the Advisory Committee, although not
binding, may have a significant impact on our ability to obtain approval of any product candidates that we develop based on
the completed clinical trials. In the European Union, the safety and efficacy data of BiomX’s product candidate for
treatment of colorectal cancer will be reviewed by the EMA’s Committee for Advanced Therapies (“CAT”), a
group of experts in advanced therapy medicinal products. BiomX’s other product candidates would be reviewed by
CAT as well if the EMA were to consider that they also qualify as advanced therapy medicinal products.
Moreover,
under the Pediatric Research Equity Act (“PREA”), in the United States, and the Paediatric Regulation, in the European
Union, the FDA or equivalent foreign regulatory authority could require mandatory testing in the pediatric population. Applications
for approval in the United States or in the European Union must contain data to assess the safety and efficacy of the biologic
for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric
subpopulation for which the product is safe and effective. The FDA or equivalent foreign regulatory authority may, in its discretion,
grant full or partial waivers, or deferrals, for submission of data in pediatric subjects. If the FDA requires data in pediatric
patients, significantly more capital will have to be invested in order to conduct the (mandatory) pediatric clinical trials and
studies, but the approval of the medicinal products for the adult population should normally not be affected. If the results of
such pediatric studies are not positive, BiomX’s product candidates will not be approved for children.
In
addition, even if BiomX were to obtain approval, regulatory authorities may approve any of its product candidates for fewer or
more limited therapeutic indications than BiomX requests, may include limitations for use or contraindications that limit the
suitable patient population, may not approve the price BiomX intends to charge for its products, may grant approval contingent
on the performance of costly post-marketing clinical trials or may approve a product candidate with a label that does not include
the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing
scenarios could materially harm the commercial prospects for BiomX’s product candidates.
If
BiomX experiences delays in obtaining approval or if it fails to obtain approval of its product candidates, the commercial prospects
for its product candidates may be harmed and its future ability to generate revenues will be materially impaired.
Results
from preclinical studies of BiomX’s product candidates BX001 and BX002 may not be predictive of the results of clinical
trials or later stage clinical development.
Preclinical
studies of BiomX’s product candidates BX001 and BX002, including studies in animal disease models in the case of BX002 may
not accurately predict the safety of the product candidate such that further human clinical trials would be allowed to proceed.
In particular, promising preclinical testing suggesting the potential efficacy of prototype phage products may not predict the
ability of these products to address conditions in the human clinical settings. For example, while BiomX has studied phage activity
in vitro and in vivo, in the case of BX002, these results may not be replicated when BiomX’s phage cocktails are administered
to human subjects. Despite promising data in any preclinical studies, BiomX’s phage technology may be found not to be efficacious
when studied in clinical trials.
To
satisfy FDA or equivalent foreign regulatory approval standards, BiomX must demonstrate safety for any cosmetic product, and it
must demonstrate in adequate and well controlled clinical trials that its drug product candidates are safe and effective for their
intended use. Success in preclinical testing and early-stage clinical trials does not ensure that later clinical trials will be
successful. BiomX’s initial results from preclinical testing also may not be confirmed by later analysis or subsequent larger
clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical
trials, even after obtaining promising results in earlier clinical trials, and most product candidates that commence clinical
trials are never approved for commercial sale.
For
products that require regulatory approvals, BiomX is subject to significant regulatory approval requirements, which could delay,
prevent or limit BiomX’s ability to market its product candidates.
BiomX’s
research and development activities, preclinical studies, clinical trials and the anticipated manufacturing and marketing of its
drug product candidates are subject to extensive regulation by the FDA and other regulatory agencies in the United States and
by comparable authorities in Europe and elsewhere. To satisfy FDA or equivalent foreign regulatory approval standards, BiomX must
demonstrate in adequate and well controlled clinical trials that its drug product candidates are safe and effective for their
intended use. The regulatory approval process is expensive and time-consuming, and the timing of receipt of regulatory approval
is difficult to predict. Given the uncertainties around phage therapy, BiomX’s product candidates could require a significantly
longer time to gain regulatory approval than expected, or may never gain approval. This is especially so for the product candidate
designed to treat colorectal cancer as the phage will be genetically modified, which adds potential complexity to the process,
particularly in the European Union. BiomX cannot be certain that, even after expending substantial time and financial resources,
it will obtain regulatory approval for any of its product candidates. A delay or denial of regulatory approval could delay or
prevent BiomX’s ability to generate product revenue and to achieve profitability.
The
legal and regulatory status of phage therapy remains unclear in many countries, including the European Union. Changes in regulatory
approval policies during the development period of any of BiomX’s product candidates, changes in, or the enactment of, additional
regulations or statutes, or changes in regulatory review practices for a submitted product application may cause a delay in obtaining
approval or result in the rejection of an application for regulatory approval.
Regulatory
approval, if obtained, may be made subject to limitations on the indicated uses for which BiomX may market a product, as well
as the approved labeling for the product. These limitations could adversely affect BiomX’s potential product revenue. Regulatory
approval may also be conditioned on costly post-marketing follow-up studies. In addition, the labeling, packaging, adverse event
reporting, storage, advertising, promotion and recordkeeping related to the product will be subject to extensive ongoing regulatory
requirements. Furthermore, for any marketed product, its manufacturer and its manufacturing facilities will be subject to registration
and listing requirements and continual review and periodic inspections by the FDA or other regulatory authorities. Failure to
comply with applicable regulatory requirements may, among other things, result in fines, suspensions of regulatory approvals,
product recalls, product seizures, operating restrictions and criminal prosecution.
If
BiomX encounters difficulties enrolling patients in its clinical trials, BiomX’s clinical development activities could be
delayed or otherwise adversely affected.
Completion
of clinical trials depends, among other things, on BiomX’s ability to enroll a sufficient number of patients, which is a
function of many factors, including:
|
●
|
the
therapeutic endpoints chosen for evaluation;
|
|
●
|
the
eligibility criteria defined in the protocol;
|
|
●
|
the
perceived benefit of the product candidate under study;
|
|
●
|
the
size of the patient population required for analysis of the clinical trial’s therapeutic endpoints;
|
|
●
|
BiomX’s
ability to recruit clinical trial investigators and sites with the appropriate competencies and experience;
|
|
●
|
BiomX’s
ability to obtain and maintain patient consents; and
|
|
●
|
competition
for patients from clinical trials for other treatments.
|
BiomX
may experience difficulties in enrolling patients in its clinical trials, which could increase the costs or affect the timing
or outcome of these clinical trials. This is particularly true with respect to diseases with relatively small patient populations.
In addition, potential patients for BiomX’s trials may not be adequately diagnosed or identified with the diseases that
BiomX is targeting or may not meet the entry criteria for BiomX’s studies.
BiomX
may not be able to initiate or continue clinical trials if it is unable to locate a sufficient number of eligible patients to
participate in the clinical trials required by the FDA or equivalent foreign regulatory agencies. In addition, the process of
finding and diagnosing patients may prove costly. BiomX’s inability to enroll a sufficient number of patients for any of
its clinical trials would result in significant delays or may require BiomX to abandon one or more clinical trials.
Delays
in BiomX’s clinical trials could result in BiomX not achieving anticipated developmental milestones when expected, increased
costs and delays in BiomX’s ability to obtain regulatory approval for and commercialization of BiomX’s product candidates.
Delays
in BiomX’s ability to commence its clinical trials could result in BiomX not meeting anticipated clinical milestones and
could materially impact BiomX’s product development costs and delay regulatory approval of BiomX’s product candidates.
For example, BiomX plans to initiate Phase 1 clinical trials to explore the safety and tolerability of BX002 in 2020. However,
planned clinical trials may not be commenced or completed on schedule, or at all.
Clinical
trials can be delayed for a variety of reasons, including:
|
●
|
delays
in the development of manufacturing capabilities for BiomX’s product candidates to enable their consistent production
at clinical trial scale;
|
|
●
|
failures
in BiomX’s internal manufacturing operations that result in BiomX’s inability to consistently and timely produce
bacteriophages in sufficient quantities to support BiomX’s clinical trials;
|
|
●
|
the
availability of financial resources to commence and complete BiomX’s planned clinical trials;
|
|
●
|
delays
in reaching a consensus with clinical investigators on study design;
|
|
●
|
delays
in reaching a consensus with regulatory agencies on trial design or in obtaining regulatory approval to commence a trial;
|
|
●
|
delays
in obtaining clinical materials;
|
|
●
|
slower
than expected patient recruitment for participation in clinical trials;
|
|
●
|
regulatory
constraints or injunctions (for example, from supervisory authorities in case of non-compliance with cybersecurity and data
privacy laws);
|
|
●
|
failure
by clinical trial sites, other third parties or BiomX to adhere to clinical trial agreements;
|
|
●
|
delays
in reaching agreement on acceptable clinical trial agreement terms with prospective sites or obtaining institutional review
board approval; and
|
|
●
|
adverse
safety events experienced during BiomX’s clinical trials.
|
If
BiomX does not successfully commence or complete its clinical trials on schedule, the price of BiomX’s common stock may
decline. Significant preclinical or clinical trial delays could shorten any periods during which BiomX may have the exclusive
right to commercialize BiomX’s product candidates or allow BiomX’s competitors to bring products to market before
it does, potentially impairing BiomX’s ability to successfully commercialize its product candidates and harming its business
and results of operations.
BiomX’s
current or future product candidates may cause adverse effects that could halt their clinical development, prevent their approval
or marketing, limit their commercial potential or result in significant negative consequences.
Adverse
effects could occur and cause BiomX or regulatory authorities to interrupt, delay or halt clinical trials and could result in
a more restrictive label or the delay or denial of marketing approval by the FDA or equivalent foreign regulatory agencies. Similarly,
such adverse effects would prevent marketing BX001 as a cosmetic. Results of BiomX’s trials could reveal a high and unacceptable
severity and prevalence of side effects or unexpected characteristics.
If
adverse effects arise in the development of BiomX’s product candidates, BiomX, the FDA or equivalent foreign regulatory
agencies, the Institutional Review Boards (“IRBs”) or independent ethics committees at the institutions in which BiomX’s
studies are conducted, or the Data Safety Monitoring Board (“DSMB”) could suspend or terminate BiomX’s clinical
trials or the FDA or equivalent foreign regulatory agencies could deny approval of BiomX’s product candidates for any or
all targeted indications. Adverse events in studies with BX001 as a cosmetic may lead BiomX to stop its marketing.
BiomX
intends to evaluate its product candidates for safety and tolerability in the form of Phase 1 clinical trials. None of BiomX’s
product candidates have completed this testing to date, and BiomX intends to initiate the first human studies of BX001 in 2019.
While BiomX’s current and future product candidates will undergo safety testing to the extent possible and, where applicable,
under such conditions discussed with regulatory authorities, not all adverse effects of drugs can be predicted or anticipated.
Unforeseen adverse effects could arise either during clinical development or, if such adverse effects are more rare, after BiomX’s
products have been approved by regulatory authorities and the approved product has been marketed, resulting in the exposure of
additional patients. For example, while BiomX screens its phages in attempts to minimize safety issues, there can be no assurance
that BiomX will eliminate the risk of the appearance of virulence genes, antibiotic resistance genes, lysogenic genes, integrase
genes, or other toxic genes in BiomX’s phages, or of adverse reactions to BiomX’s phages in a patient’s immune
system. So far, BiomX has not demonstrated, and BiomX cannot predict, if ongoing or future clinical trials will demonstrate that
any of its product candidates are safe in humans. Moreover, clinical trials of BiomX’s product candidates are conducted
in carefully defined sets of patients who have agreed to enter into clinical trials. Consequently, it is possible that BiomX’s
clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect,
if any, or alternatively fail to identify undesirable adverse effects.
Ultimately,
some or all of BiomX’s product candidates may prove to be unsafe for human use. Moreover, BiomX could be subject to significant
liability if any volunteer or patient suffers, or appears to suffer, adverse health effects as a result of participating in its
clinical trials. Any of these events could prevent BiomX from achieving or maintaining market acceptance of its product candidates
and could substantially increase commercialization costs.
BiomX
has not completed composition development of its product candidates.
The
development of BiomX’s product candidates requires that BiomX isolate, select, optimize and combine a number of phages that
target the desired bacteria for that product candidate. The selection of phages for any of BiomX’s product candidates is
based on a variety of factors, including, without limitation, the ability of the selected phages, in combination, to successfully
kill the targeted bacteria, the degree of cross-reactivity of the individual phages with the same part of the bacterial targets,
the ability of the combined phages to satisfy regulatory requirements, BiomX’s ability to manufacture sufficient quantities
of the phages, intellectual property rights of third parties, and other factors. While BiomX has selected initial formulations
of BX001 and BX002, there can be no assurance that these initial formulations will be the final formulations of these product
candidates for commercialization if approved. If BiomX is unable to complete formulation development of its product candidates
in the time frame that it has anticipated, then BiomX’s product development time lines, and the regulatory approval of BiomX’s
product candidates, could be delayed.
BiomX
must continue to develop manufacturing processes for its product candidates, and any delay in doing so, or BiomX’s inability
to do so, would result in delays in BiomX’s clinical trials.
The
manufacturing processes for BiomX’s product candidates, and the scale-up of such processes for clinical trials, may present
challenges, and there can be no assurance that BiomX will be able to complete this work in a timely manner, if at all. Any delay
in the development or scale-up of these manufacturing processes could delay the start of clinical trials and harm BiomX’s
business. In order to scale-up BiomX’s manufacturing capacity, BiomX needs to either build additional internal manufacturing
capacity, contract with one or more partners, or both. BiomX’s technology and the production process for BiomX’s equipment
and tools are complex and BiomX may encounter unexpected difficulties in manufacturing its product candidates. For example, the
manufacturing hosts that BiomX use to produce BiomX’s phages may contain one or more integrated phages in their genomes
that, if BiomX are unable to remove, can present challenges in manufacturing of the produced phages. There is no assurance that
BiomX will be able to continue to build manufacturing capacity internally or find one or more suitable partners, or both, to meet
the necessary volume and quality requirements. Manufacturing and product quality issues may arise as BiomX increases the scale
of itsproduction. Any delay or inability in establishing or expanding BiomX’s manufacturing capacity could diminish BiomX’s
ability to develop its product candidates.
In the third quarter of 2019, BiomX plans
to open its own current Good Manufacturing Process (“cGMP”) manufacturing facility at its headquarters in Ness Ziona,
Israel. BiomX’s facility must undergo ongoing inspections for compliance with cGMP regulations before the respective product
candidates can be approved for use in clinical trials or commercialization. In the event this facility does not receive a satisfactory
cGMP inspection for the manufacture of BiomX’s product candidates, BiomX may need to fund additional modifications to its
manufacturing process, conduct additional validation studies or find alternative manufacturing facilities, any of which would result
in significant cost to BiomX as well as a delay of up to several years in obtaining approval for such product candidate.
Even
if BiomX opens its manufacturing facility on the intended timeline, it will be subject to ongoing periodic inspection for compliance
with European, FDA and cGMP regulations. Compliance with these regulations and standards is complex and costly, and there can
be no assurance that BiomX will be able to comply. Any failure to comply with applicable regulations could result in sanctions
being imposed (including fines, injunctions and civil penalties), failure of regulatory authorities to grant marketing approval
of BiomX’s product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of
product candidates or products, operating restrictions and criminal prosecution.
If
BiomX’s competitors are able to develop and market products that are more effective, safer or more affordable than BiomX’s,
or obtain marketing approval before BiomX does, BiomX’s commercial opportunities may be limited.
Competition
in the biotechnology and pharmaceutical industries is intense and continues to increase. Some companies that are larger and have
significantly more resources than BiomX are aggressively pursuing development programs for indications that BiomX is pursuing,
including traditional therapies and therapies with novel mechanisms of action. In addition, other companies are developing phage-based
products for therapeutic and non-therapeutic uses, and may elect to use their expertise in phage development and manufacturing
to try to develop products that would compete with ours.
BiomX
also faces potential competition from academic institutions, government agencies and private and public research institutions
engaged in the discovery and development of drugs and therapies. Many of BiomX’s competitors have significantly greater
financial resources and expertise in research and development, preclinical testing, conducting clinical trials, obtaining regulatory
approvals, manufacturing, sales and marketing than BiomX does. Smaller or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large and established pharmaceutical companies.
In
the European Union, potential competition also comes from medicinal preparations made by hospitals or pharmacists and administered
without marketing authorizations, generally referred to as “compounding.” In some member states, national authorities
generally promote compounding in order to reduce healthcare expenses.
BiomX’s
competitors may succeed in developing products that are more effective, have fewer side effects and are safer or more affordable
than BiomX’s product candidates, which would render BiomX’s product candidates less competitive or noncompetitive
and would prevent the granting or maintenance of an orphan designation. These competitors also compete with BiomX to recruit and
retain qualified scientific and management personnel, establish clinical trial sites and patient registration for clinical trials,
as well as to acquire technology and technology licenses complementary to BiomX’s programs or advantageous to BiomX’s
business. Moreover, competitors that are able to achieve patent protection, obtain regulatory approvals and commence commercial
sales of their products before BiomX does, and competitors that have already done so may enjoy a significant competitive advantage.
BX001
faces significant competition in the market.
The
facial aesthetic market is highly competitive and dynamic, and is characterized by rapid and substantial technological development
and product innovations. If BX001 can be marketed as a cosmetic, it may face significant competition from other facial aesthetic
products. Due to less stringent regulatory requirements, there are many more possibilities for marketing cosmetics in international
markets than there are in the United States. There are also fewer limitations on the claims that BiomX’s competitors in
international markets can make about the effectiveness of their products and the manner in which they can market them. As a result,
if BiomX partners with other companies in these markets and launches its products, it may face more competition in these markets
than in the United States.
Legal
requirements as well as ethical and social concerns about synthetic biology and genetic engineering could limit or prevent the
use of BiomX’s technologies and limit BiomX’s revenues.
BiomX’s
technology may include the use of synthetic biology and genetic engineering. In some countries, drugs made using genetically modified
organisms may be subject to a more stringent legal regime, which could prove to be complex and very challenging, especially for
a small life sciences company. For example, in the European Union, the rules on genetically modified organisms would apply in
addition to the general rules on medicinal products or cosmetic products. The rules on advanced therapy medicinal products may
also apply.
Additionally,
public perception about the safety and environmental hazards of, and ethical concerns over, synthetic biology and genetic engineering
could influence public acceptance of BiomX’s technologies, product candidates and processes. If BiomX and its collaborators
are not able to overcome the legal challenges as well as the ethical and social concerns relating to synthetic biology and genetic
engineering, BiomX’s technologies, product candidates and processes may not be accepted. These challenges and concerns could
result in increased expenses, regulatory scrutiny and increased regulation, trade restrictions on imports of BiomX’s product
candidates, delays or other impediments to BiomX’s programs or the public acceptance and commercialization of BiomX’s
products. BiomX designs and produces product candidates with characteristics comparable or superior to those found in naturally
occurring organisms or enzymes in a controlled laboratory; however, the release of such organisms into uncontrolled environments
could have unintended consequences. Any adverse effect resulting from such a release could have a material adverse effect on BiomX’s
business, financial condition or results of operations, and BiomX may have exposure to liability for any resulting harm.
BiomX
may not be successful in its efforts to identify or discover additional product candidates.
Although
BiomX intends to utilize its technology to evaluate other therapeutic opportunities in addition to the product candidates that
BiomX is currently developing, BiomX may fail to identify other product candidates for clinical development for a number of reasons.
For example, BiomX’s research methodology may not be successful in identifying potential product candidates, or those BiomX
identify may be shown to have harmful side effects or other characteristics that make them unmarketable or unlikely to receive
regulatory approval. In addition, BiomX may not be able to identify phages that eradicate the target bacteria, including due to
sourcing difficulties such as lack of diversity, inability to obtain samples in a timely manner or at all, or contamination in
the samples. BiomX may also encounter difficulties in designing phage cocktails that meet the requirements of an investigational
therapy, including due to the build-up of resistances in bacteria to BiomX’s phages, the range of host bacteria that are
affected by BiomX’s phages, the variety of activity on different bacteria growth states, issues with toxicity in BiomX’s
phages, and the stability, robustness and ease of manufacturing of BiomX’s product candidates. In addition, the designing
of synthetically engineered phages may fail to result in the development of phages with the desired characteristics or behaviors
that are suitable for use as viable therapies, or may result in phages that contain undesired features such as immunogenicity,
toxicity and other safety concerns.
A
key part of BiomX’s strategy is to utilize its screening technology to identify product candidates to pursue in clinical
development. If BiomX fails to identify and develop additional potential product candidates, BiomX may be unable to grow its business
and its results of operations could be materially harmed. Such product candidates will require additional, time-consuming development
efforts prior to commercial sale, including preclinical studies, clinical trials and approval by the FDA and/or applicable foreign
regulatory agencies. All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development.
BiomX
may expend its limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates
or indications that may be more profitable or for which there is a greater likelihood of success.
Because
BiomX has limited financial and managerial resources, BiomX intends to focus on developing product candidates for specific indications
that BiomX identifies as most likely to succeed, in terms of both their potential for marketing approval and commercialization.
As a result, BiomX may forego or delay pursuit of opportunities with other product candidates or for other indications that may
prove to have greater commercial potential.
BiomX’s
resource allocation decisions may cause it to fail to capitalize on viable commercial products or profitable market opportunities.
BiomX’s spending on current and future research and development programs and product candidates for specific indications
may not yield any commercially viable product candidates. If BiomX does not accurately evaluate the commercial potential or target
market for a particular product candidate, BiomX may relinquish valuable rights to that product candidate through collaboration,
licensing or other royalty arrangements in cases in which it would have been more advantageous for BiomX to retain sole development
and commercialization rights to the product candidate.
BiomX’s
success depends, in part, on its ability to retain key executives and to attract, retain and motivate qualified personnel.
BiomX
is highly dependent on Jonathan Solomon, its CEO, as well as the other principal members of BiomX’s management, scientific
and clinical team. Although BiomX has entered into employment agreements with its executive officers, each of them may terminate
their employment with BiomX at any time. BiomX does not maintain “key person” insurance for any of its executives
or other employees. The loss of the services of any of BiomX’s executive officers, other key employees, and other scientific
and medical advisors, and BiomX’s inability to find suitable replacements could result in delays in product development
and harm BiomX’s business.
BiomX’s
continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and BiomX’s
ability to develop and maintain important relationships with leading academic institutions, clinicians and scientists is critical
to BiomX’s success. Competition for qualified personnel in the biotechnology field is intense, particularly in Israel where
BiomX’s headquarters are located. BiomX faces competition for personnel from other biotechnology and pharmaceutical companies,
universities, public and private research institutions and other organizations. BiomX also faces competition from other more well-funded
and well-established businesses and BiomX may also be viewed as a riskier choice from a job stability perspective due to BiomX’s
relatively newer status than longer existing biotech and pharmaceutical companies. BiomX may not be able to attract and retain qualified
personnel on acceptable terms given the competition for such personnel. If BiomX is unsuccessful in BiomX’s retention, motivation
and recruitment efforts, BiomX may be unable to execute its business strategy.
There
is a substantial risk of product liability claims in BiomX’s business. If BiomX does not obtain sufficient liability insurance,
a product liability claim could result in substantial liabilities to it.
BiomX’s
business exposes it to significant potential product liability risks that are inherent in the development, manufacturing and marketing
of human therapeutic products. Regardless of merit or eventual outcome, product liability claims may result in:
|
●
|
delay
or failure to complete BiomX’s clinical trials;
|
|
●
|
withdrawal
of clinical trial participants;
|
|
●
|
decreased
demand for BiomX’s product candidates;
|
|
●
|
injury
to BiomX’s reputation;
|
|
●
|
litigation
costs;
|
|
●
|
substantial
monetary awards against BiomX; and
|
|
●
|
diversion
of management or other resources from key aspects of BiomX’s operations.
|
If
BiomX succeeds in marketing products, product liability claims could result in an FDA or equivalent foreign regulatory agency
investigation of the safety or efficacy of BiomX’s products, BiomX’s manufacturing processes and facilities or BiomX’s
marketing programs. Such investigation could also potentially lead to a recall of BiomX’s products or more serious enforcement
actions, or limitations on the indications, for which they may be used, or suspension or withdrawal of approval.
BiomX
has clinical trial insurance that covers its clinical trial for up to a $3.0 million annual per claim and aggregate limit. BiomX
intends to expand its insurance coverage to include the sale of commercial products if marketing approval is obtained for BiomX’s
product candidates or any other compound that BiomX may develop. However, insurance coverage is expensive and BiomX may not be
able to maintain insurance coverage at a reasonable cost or at all, and the insurance coverage that BiomX obtain may not be adequate
to cover potential claims or losses.
Failure
to comply with health and data protection laws and regulations could lead to claims, government enforcement actions (which could
include civil or criminal penalties), regulatory actions, private litigation and/or adverse publicity and could negatively affect
BiomX’s operating results and business.
BiomX
may be subject to federal, state and foreign data protection laws and regulations (i.e., laws and regulations that address privacy
and security). In the United States, numerous federal and state laws and regulations, including federal health information privacy
laws, state consumer privacy laws, state data breach notification laws, state health information privacy laws and federal and
state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), that govern the collection, use, disclosure
and protection of health-related and other personal information could apply to BiomX’s operations or the operations of BiomX’s
collaborators. In addition, BiomX may obtain health information from third parties (including research institutions from which
BiomX obtains clinical trial data) that are subject to privacy and security requirements under the HIPAA (as defined below), as
amended by HITECH (as defined below). Depending on the facts and circumstances, BiomX could be subject to criminal penalties if
BiomX knowingly obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in
a manner that is not authorized or permitted by HIPAA.
Additional requirements may also be imposed
by international data protection laws. In this context, Regulation 2016/679, the General Data Protection Regulation (the “GDPR”)
may (in addition to many other international data protection laws) may have an impact on BiomX’s operations when it collects
and/or process personal data of individuals located in the European Union. The GDPR has applied since May 25, 2018 (replacing
previously applicable data protection frameworks) and has an extraterritorial reach. The GDPR allows members states to introduce
specific requirements in relation to certain areas, including processing of special categories of data, and BiomX may face further
restrictions and non-compliance risks under such national frameworks. BiomX has not yet assessed whether its activities might be
caught by the GDPR.
Because of the types of data BiomX collects
and processes, which may involve health, biometric and genetic data, BiomX may face high risks for non-compliance with the GDPR
rules (or local declinations of GDPR-rules across the different European Union Member States), as these types of data are considered
as special categories of data and are granted higher protection. The risks are further increased considering the diverging approach
in the European Union as to the rules, requirements and frameworks in relation to the processing of personal data in clinical trials
(in matters such as the choice of the legal basis for the processing of data, the possible uses of the personal data collected,
etc.) and the interplay with other relevant frameworks. The GDPR introduced stringent data protection requirements in the European
Union, as well as potential fines for non-compliant companies of up to the greater of €20 million or 4% of annual worldwide
turnover. Supervisory authorities also have the ability to restrict BiomX’s processing activities if those are deemed not
to be in compliance with the GDPR (or local declinations); this may significantly impact the way BiomX conducts its activities.
The GDPR imposes numerous requirements for the collection, use and disclosure of personal data, including high standards for consent
to be valid, and specific information to be provided to individuals about how their personal data is used, the obligation to notify
regulators and (in some cases) to communicate to affected individuals of personal data breaches, extensive new internal privacy
governance requirements and obligations to allow individuals to exercise their strengthened privacy rights (e.g., the right to
access, correct and delete their personal data, to withdraw their consent, etc.), and obligations when contracting with third parties
such as service provides, CROs, etc. In addition, the GDPR includes restrictions on data transfers outside the European Economic
Area (“EEA”) . The actual mechanisms made available under GDPR to transfer such personal data have recently received
heightened regulatory and judicial scrutiny. If BiomX cannot rely on existing mechanisms for transferring personal data from the
EEA, the United Kingdom, or other jurisdictions, BiomX may be unable to transfer personal data in those regions. Further, the United
Kingdom’s vote in favor of exiting the European Union, often referred to as “Brexit,” has created uncertainty
as to whether or not the United Kingdom data protection legislation will depart from the GDPR and how data transfers to and from
the United Kingdom will be regulated.
Compliance
with U.S. and international data protection laws and regulations could require BiomX to take on more onerous obligations in BiomX’s
contracts, restrict BiomX’s ability to collect, use and disclose data, or in some cases, impact BiomX’s ability to
operate in certain jurisdictions. Such laws and regulations could limit BiomX’s ability to use and share personal or other
data, thereby increasing BiomX’s costs and harming BiomX’s business and financial condition. Failure to comply with
U.S. and international data protection laws and regulations could result in claims, government enforcement actions (which could
include civil or criminal penalties), regulatory actions, private litigation and/or adverse publicity and could negatively affect
BiomX’s operating results and business. Moreover, clinical trial subjects about whom BiomX or BiomX’s potential collaborators
obtain information, as well as the providers who share this information with us, may contractually limit BiomX’s ability
to use and disclose the information. Claims that BiomX has violated individuals’ privacy rights, failed to comply with data
protection laws, or breached BiomX’s contractual obligations, even if it is not found liable, could be expensive and time
consuming to defend and could result in adverse publicity that could harm BiomX’s business. Finally, BiomX may be required
to disclose personal data pursuant to demands from government agencies, from law enforcement agencies, and from intelligence agencies.
This disclosure may result in a failure or perceived failure by BiomX to comply with data privacy laws, rules, and regulations
and could result in proceedings or actions against BiomX in the same or other jurisdictions, and could have an adverse impact
on BiomX’s reputation and brand.
BiomX’s
business and operations might be adversely affected by security breaches, including any cybersecurity incidents.
BiomX
depends on the efficient and uninterrupted operation of BiomX’s computer and communications systems, and those of its consultants,
contractors and vendors, which BiomX uses for, among other things, sensitive company data, including BiomX’s intellectual
property, financial data and other proprietary business information.
While
certain of BiomX’s operations have business continuity and disaster recovery plans and other security measures intended
to prevent and minimize the impact of IT-related interruptions, BiomX’s IT infrastructure and the IT infrastructure of BiomX’s
consultants, contractors and vendors are vulnerable to damage from cyberattacks, computer viruses, unauthorized access, electrical
failures and natural disasters or other catastrophic events. BiomX could experience failures in its information systems and computer
servers, which could result in an interruption of BiomX’s normal business operations and require substantial expenditure
of financial and administrative resources to remedy. System failures, accidents or security breaches can cause interruptions in
BiomX’s operations and can result in a material disruption of BiomX’s targeted phage therapies, bacteriophage product
candidates and other business operations. The loss of data from completed or future studies or clinical trials could result in
delays in BiomX’s research, development or regulatory approval efforts and significantly increase BiomX’s costs to
recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to,
BiomX’s data or applications, or inappropriate disclosure of confidential or proprietary information, BiomX could incur
regulatory investigations and redresses, penalties and liabilities and the development of BiomX’s product candidates could
be delayed or otherwise adversely affected.
Even
though BiomX believes it carries commercially reasonable business interruption and liability insurance, BiomX might suffer losses
as a result of business interruptions that exceeds the coverage available under BiomX’s insurance policies or for which
BiomX does not have coverage. For example, BiomX is not insured against terrorist attacks or cyberattacks. Any natural disaster
or catastrophic event could have a significant negative impact on BiomX’s operations and financial results. Moreover, any
such event could delay the development of BiomX’s product candidates.
BiomX’s
employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements.
BiomX
is exposed to the risk of employee fraud or other illegal activity by its employees, independent contractors, consultants, commercial
partners and vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to comply
with the laws of the FDA and other similar foreign regulatory bodies, provide true, complete and accurate information to the FDA
and other similar foreign regulatory bodies, comply with manufacturing standards BiomX has established, comply with healthcare
fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws or report financial information or data
accurately or to disclose unauthorized activities to BiomX. If BiomX obtains FDA approval of any of its product candidates and
begins commercializing those products in the United States, BiomX’s potential exposure under such laws will increase significantly,
and BiomX’s costs associated with compliance with such laws are also likely to increase. These laws may impact, among other
things, BiomX’s current activities with principal investigators and research patients, as well as proposed and future sales,
marketing and education programs.
BiomX’s
relationships with healthcare providers and physicians and third-party payors will be subject to applicable anti-kickback, fraud
and abuse and other healthcare laws and regulations, which could expose BiomX to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party
payors in the United States and elsewhere play a primary role in the recommendation and prescription of pharmaceutical products.
Arrangements with third-party payors and customers can expose pharmaceutical manufacturers to broadly applicable fraud and abuse
and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False
Claims Act (“FCA”) and the foreign equivalent legislations, which may constrain the business or financial arrangements
and relationships through which such companies sell, market and distribute pharmaceutical products. In particular, the promotion,
sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are
subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations
may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain
customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper
use of information obtained in the course of patient recruitment for clinical trials. The applicable federal, state and foreign
healthcare laws and regulations laws that may affect BiomX’s ability to operate include, but are not limited to:
|
●
|
the
federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering
or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash
or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation
of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program,
such as the Medicare and Medicaid programs. A person or entity can be found guilty of violating the statute without actual
knowledge of the statute or specific intent to violate it. In addition, a claim including items or services resulting from
a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. The Anti-Kickback
Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers,
purchasers and formulary managers on the other hand. There are a number of statutory exceptions and regulatory safe harbors
protecting some common activities from prosecution;
|
|
●
|
federal
civil and criminal false claims laws and civil monetary penalty laws, including the FCA, which prohibit, among other things,
individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to,
or approval by Medicare, Medicaid or other federal healthcare programs, knowingly making, using or causing to be made or used
a false record or statement material to a false or fraudulent claim or an obligation to pay or transmit money to the federal
government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay
money to the federal government. Manufacturers can be held liable under the FCA even when they do not submit claims directly
to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also
permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government
alleging violations of the FCA and to share in any monetary recovery;
|
|
●
|
the
federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created new federal criminal
statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit
program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned
by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private)
and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially
false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare
matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual
knowledge of the statute or specific intent to violate it;
|
|
●
|
HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”) and their
respective implementing regulations, which impose, among other things, requirements on certain covered healthcare providers,
health plans and healthcare clearinghouses, as well as their respective business associates that perform services for them
that involve the use, or disclosure of, individually identifiable health information relating to the privacy, security and
transmission of individually identifiable health information without appropriate authorization. HITECH also created new tiers
of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates
and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce
the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;
|
|
●
|
the
federal Physician Payment Sunshine Act, created under the Patient Protection and Affordable Care Act and its implementing
regulations, which require manufacturers of drugs, devices, biologicals and medical supplies for which payment is available
under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to
the United States Department of Health and Human Services information related to payments or other transfers of value made
to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals,
as well as ownership and investment interests held by physicians and their immediate family members;
|
|
●
|
federal
consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially
harm consumers;
|
|
●
|
analogous
state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by nongovernmental third-party payors, including
private insurers, and may be broader in scope than their federal equivalents; state and 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; state and 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 state and foreign laws governing the privacy and security of
health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted
by HIPAA, thus complicating compliance efforts; and
|
|
●
|
European
Union and other ex-U.S. provisions.
|
The
distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive recordkeeping,
licensing, storage, security requirements intended to prevent the unauthorized sale of pharmaceutical products and, in some foreign
countries, including the European Union countries, mandatory anti-counterfeit features.
The
scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare
reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently
increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations,
prosecutions, convictions and settlements in the healthcare industry. Ensuring business arrangements comply with applicable healthcare
laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can
divert a company’s attention from the business.
The
failure to comply with any of these laws or regulatory requirements subjects entities to possible legal or regulatory action.
Depending on the circumstances, failure to meet applicable regulatory requirements can result in civil, criminal and administrative
penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from participation in federal and state funded
healthcare programs, contractual damages and the curtailment or restricting of BiomX’s operations, as well as additional
reporting obligations and oversight if BiomX becomes subject to a corporate integrity agreement or other agreement to resolve
allegations of noncompliance with these laws. Any action for violation of these laws, even if successfully defended, could cause
a pharmaceutical manufacturer to incur significant legal expenses and divert management’s attention from the operation of
the business. Prohibitions or restrictions on sales or withdrawal of future marketed products could materially affect business
in an adverse way.
The combined company will be subject to a
code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions
the combined company takes to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged
risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be
in compliance with such laws or regulations. Efforts to ensure that the combined company’s business arrangements will comply
with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will
conclude that the combined company’s business practices may not comply with current or future statutes, regulations or case
law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against
the combined company, and the combined company is not successful in defending itself or asserting its rights, those actions could
have a significant impact on its’s business, including the imposition of civil, criminal and administrative penalties, damages,
disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs,
contractual damages, reputational harm, diminished profits and future earnings, and curtailment of the combined company’s
operations, any of which could adversely affect its’s ability to operate its business and its results of operations. In addition,
the approval and commercialization of any of the combined company’s product candidates outside the United States will also
likely subject the combined company to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
The
FDA and other equivalent foreign regulatory agencies may implement additional regulations or restrictions on the development and
commercialization of products which act on the microbiome, which may be difficult to predict.
The
FDA and equivalent foreign regulatory agencies in other countries have each expressed interest in further regulating biotechnology
products and product candidates, such as those that act on the human microbiome. Agencies at both the federal and state level
in the United States, as well as the U.S. congressional committees and other governments or governing agencies, have also expressed
interest in further regulating the biotechnology industry. Such action may delay or prevent commercialization of some or all of
BiomX’s product candidates. Adverse developments in non-IND human clinical studies or clinical trials of microbiome products
conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of BiomX’s
product candidates. These regulatory review agencies and committees and the new requirements or guidelines they promulgate may
lengthen the regulatory review process, require BiomX to perform additional studies or trials, increase BiomX’s development
costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of BiomX’s
product candidates or lead to significant post-approval limitations or restrictions. As BiomX advances its product candidates,
BiomX will be required to consult with these regulatory agencies and comply with applicable requirements and guidelines. If BiomX
fails to do so, it may be required to delay or discontinue development of such product candidates. These additional processes
may result in a review and approval process that is longer than BiomX otherwise would have expected. Delays as a result of an
increased or lengthier regulatory approval process or further restrictions on the development of BiomX’s product candidates
can be costly and could negatively impact BiomX’s ability to complete clinical trials and commercialize BiomX’s current
and future product candidates in a timely manner if at all.
Exchange
rate fluctuations between the US Dollar, the New Israeli Shekel, the Euro and other foreign currencies, may negatively affect
BiomX’s future revenues.
BiomX’s
proceeds from sales of its securities are generally received in US Dollars. BiomX’s headquarters are located in Israel,
where the majority of BiomX’s general and administrative expenses and research and development costs are incurred in the
New Israeli Shekel (the “NIS”). Future expenses may be incurred in foreign currencies such as the Euro or British
Pound. As a result, BiomX’s financial results may be affected by fluctuations in the exchange rates of currencies in the
countries. For example, during 2017, BiomX witnessed a strengthening of the average exchange rate of the NIS against the US Dollar,
which increased the US Dollar value of Israeli expenses. If the NIS strengthens against the US Dollar, as it did in 2017, the
US Dollar value of BiomX’s Israeli expenses, mainly personnel and facility-related, will increase. To date, BiomX has not
entered into any foreign currency hedging contracts to mitigate its exposure to foreign currency exchange risk. Although exposure
to currency fluctuations to date has not had a material adverse effect on BiomX’s business, there can be no assurance that
fluctuations in the future will not have a material adverse effect on BiomX’s operating results and financial condition.
If
BiomX engages in future acquisitions or strategic partnerships, this may increase its capital requirements, dilute its stockholders,
cause it to incur debt or assume contingent liabilities, and subject it to other risks.
BiomX
may evaluate various acquisition opportunities and strategic partnerships, including licensing or acquiring complementary products,
intellectual property rights, technologies or businesses. Any potential acquisition or strategic partnership may entail numerous
risks, including:
|
●
|
increased
operating expenses and cash requirements;
|
|
●
|
the
assumption of additional indebtedness or contingent liabilities;
|
|
●
|
the
issuance of BiomX’s equity securities;
|
|
●
|
assimilation
of operations, intellectual property and products of an acquired company, including difficulties
associated with integrating new personnel;
|
|
●
|
the
diversion of BiomX’s management’s attention from BiomX’s existing product
programs and initiatives in pursuing such a strategic merger or acquisition;
|
|
●
|
retention
of key employees, the loss of key personnel and uncertainties in BiomX’s ability
to maintain key business relationships;
|
|
●
|
risks
and uncertainties associated with the other party to such a transaction, including the
prospects of that party and their existing products or product candidates and marketing
approvals; and
|
|
●
|
BiomX’s
inability to generate revenue from acquired technology and/or products sufficient to
meet its objectives in undertaking the acquisition or even to offset the associated acquisition
and maintenance costs.
|
Risks
Related to Government Regulation
Breakthrough
Therapy Designation or Fast Track Designation by the FDA, even if granted for any of BiomX’s product candidates developed
for therapeutic indications, may not lead to a faster development, regulatory review or approval process, and it does not increase
the likelihood that any of BiomX’s product candidates will receive marketing approval in the United States.
In
the United States, BiomX may seek a Breakthrough Therapy Designation for some of its product candidates, including BX002 and/or
BX003. A breakthrough therapy is defined as a therapy that is intended, alone or in combination with one or more other therapies,
to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the therapy may
demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial
treatment effects observed early in clinical development. For therapies that have been designated as breakthrough therapies, interaction
and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development
while minimizing the number of patients placed in ineffective control regimens. Therapies designated as breakthrough therapies
by the FDA may also be eligible for priority review and accelerated approval. Designation as a breakthrough therapy is within
the discretion of the FDA.
In
the European Union, the PRIME (PRIority MEdicines) status is similar to the Breakthrough Therapy Designation. The EMA has implemented
the PRIME status to support the development and accelerate the approval of complex, innovative medicinal products addressing an
unmet medical need. The PRIME status enables early dialogue with the relevant EMA scientific committees and, possibly, some payors
and thus reinforces the EMA’s scientific and regulatory support. The PRIME status, which is granted at the EMA’s discretion,
focuses on medicinal products the marketing authorization of which qualifies for accelerated assessment (medicinal products of
major interest from a public health perspective, in particular from a therapeutic innovation perspective).
Accordingly,
even if BiomX believes one of its product candidates meets the criteria for designation as a breakthrough therapy or for PRIME
status, the FDA or EMA, respectively, may disagree and instead determine not to make such designation. In any event, the receipt
of a Breakthrough Therapy Designation or PRIME status for a product candidate may not actually result in a faster development
process, review or approval compared to therapies considered for approval under conventional procedures and does not assure ultimate
approval. In addition, even if one or more of BiomX’s product candidates qualify as breakthrough therapies or is granted
PRIME status, the FDA or EMA, respectively, may later decide that such product candidates no longer meet the conditions for qualification
or decide that the time period for review or approval will not be shortened.
In
the United States, BiomX may seek Fast Track Designation for some of its product candidates for therapeutic indications. If a
therapy is intended for the treatment of a serious or life-threatening condition and the therapy demonstrates the potential to
address unmet medical needs for this condition, the therapy sponsor may apply for Fast Track Designation. The FDA has broad discretion
whether or not to grant this designation, so even if BiomX believes a particular product candidate is eligible for this designation;
BiomX cannot assure you that the FDA would decide to grant it. Even if BiomX does receive Fast Track Designation, BiomX may not
experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast
Track Designation if it believes that the designation is no longer supported by data from BiomX’s clinical development program.
Fast Track Designation alone does not guarantee qualification for the FDA’s priority review procedures.
Other
countries may have adopted schemes designed to ensure an accelerated approval of drugs that are especially important for patients.
For example, in the European Union, the EMA may agree to an accelerated assessment (150 days instead of 210 days) for medicinal
products of major interest from a public health perspective, in particular from a therapeutic innovation perspective). Furthermore,
competent regulatory authorities may grant market authorizations “under exceptional circumstances,” in cases where
all the required safety and efficacy data have not been and will not be collected, to medicinal products designed for unmet needs
or orphan medicinal products. Although a marketing authorization under exceptional circumstances is definitive, the risk-benefit
balance of the medicinal product must be reviewed annually and the marketing authorization is withdrawn if it becomes negative.
Moreover, under the centralized procedure, the European Commission may grant “conditional marketing authorizations”
in cases where all the required safety and efficacy data are not yet available. The conditional marketing authorization is subject
to conditions to be fulfilled for generating the missing data or ensuring increased safety measures. It is valid for one year
and has to be renewed annually until fulfillment of all the conditions. If the conditions are not fulfilled within the timeframe
set by the EMA, the marketing authorization ceases to be renewed. As with Fast Track Designation, the competent regulatory authorities
in the European Union have broad discretion whether or not to grant such an accelerated assessment or approval and, even if such
assessment or approval is granted, BiomX may not experience a faster development process, review or approval compared to conventional
procedures.
BiomX
may seek a priority review designation for one or more of its other product candidates for therapeutic indications, but BiomX
might not receive such designation, and even if it does, such designation may not lead to a faster development or regulatory review
or approval process.
If
the FDA determines that a product candidate offers a treatment for a serious condition and, if approved, the product would provide
a significant improvement in safety or effectiveness, the FDA may designate the product candidate for priority review. A priority
review designation means that the goal for the FDA to review an application is six months, rather than the standard review period
of ten months. BiomX may request priority review for BiomX’s product candidates. The FDA has broad discretion with respect
to whether or not to grant priority review status to a product candidate, so even if BiomX believe a particular product candidate
is eligible for such designation or status, the FDA may decide not to grant it. Moreover, a priority review designation does not
necessarily result in an expedited regulatory review or approval process or necessarily confer any advantage with respect to approval
compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within the six-month
review cycle or at all.
BiomX
may fail to obtain and maintain orphan drug designations from the FDA or equivalent foreign regulatory agencies for BiomX’s
current and future therapeutic product candidates, as applicable.
BiomX’s
strategy may include filing for the orphan drug designation where available for BiomX’s product candidates for therapeutic
indications. BiomX currently believes that BX003 may qualify for such a designation in the United States, the European Union,
and the other countries supporting the development and marketing of drugs for rare diseases.
In the United States, under the Orphan Drug
Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined
as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000
in the United States where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered
from sales in the United States. In the United States, the orphan drug designation entitles a party to financial incentives, such
as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers. In addition, if a product
that has the orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation,
the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including
an NDA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a
showing of clinical superiority to the product with orphan drug exclusivity or where the original manufacturer is unable to assure
sufficient product quantity.
In
addition, exclusive marketing rights in the United States may be limited if BiomX seeks approval for an indication broader than
the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective,
or if BiomX is unable to assure sufficient quantities of the product to meet the needs of patients with the orphan-designated
disease or condition. Further, even if BiomX obtains orphan drug exclusivity for a product, that exclusivity may not effectively
protect the product from competition because different drugs with different active moieties may receive and be approved for the
same condition, and only the first applicant to receive approval will receive the benefits of marketing exclusivity. Even after
an orphan-designated product is approved, the FDA can subsequently approve a later drug with the same active moiety for the same
condition if the FDA concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes
a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time
of a drug nor gives the drug any advantage in the regulatory review or approval process. In addition, while BiomX may seek the
orphan drug designation for its product candidates, BiomX may never receive such designation.
An
orphan drug legal regime also exists in the European Union. The EMA’s Committee for Orphan Medicinal Products (“COMP”)
gives opinions, and the European Commission takes decisions, on the granting of the orphan drug designation to the development
of products that are intended for the diagnosis, prevention or treatment of (i) a life-threatening or chronically debilitating
condition affecting not more than five in 10,000 persons in the European Economic Area (European Union plus Iceland, Liechtenstein
and Norway); or (ii) a life-threatening, seriously debilitating or serious and chronic condition when, without incentives, it
is unlikely that sales of the drug in the European Economic Area would be sufficient to justify the necessary investment in developing
the drug or biological product. The granting of the orphan designation requires that there is no satisfactory method of diagnosis,
prevention or treatment, or, if such a method exists, that the future medicine is to be of significant benefit to those affected
by the condition. The test for that later condition is stringent, because the future product must be compared with all existing
therapies for the rare condition, including surgical operations, already authorized medicinal products and compounded preparations
(subject to certain conditions). At the time of marketing authorization, the orphan designation is reviewed again by the COMP
in view of the maintenance of the orphan status. If the designation criteria are no longer met, the European Commission withdraws
the orphan designation. Maintenance of the orphan designation at the time of marketing authorization means that all the drugs/biologicals
authorized since the granting of the designation become relevant for determining the lack of satisfactory therapy or the significant
benefit.
The
orphan drug designation entitles the company to financial incentives, such as reductions of fees or fee waivers and 10 years of
market exclusivity. Market exclusivity precludes the EMA or the national competent authorities from validating an marketing authorization
application (“MAA”), and the European Commission or a national competent authority from granting a marketing authorization,
for a same or similar drug/biological and the same therapeutic indication. The 10-year period may be reduced to six years if the
orphan designation criteria are no longer met, including where it is shown that the product is not sufficiently profitable to
justify maintenance of market exclusivity. The orphan exclusivity may also be lost vis-à-vis another drug/biological in
cases where the manufacturer is unable to assure sufficient quantity of the drug to meet patient needs or if that other product
is proved to be clinically superior to the approved orphan product. A drug/biological is clinically superior if it is safer, more
effective or makes a major contribution to patient care.
Even
if BiomX receives regulatory approval of any product candidates for therapeutic indications, BiomX will be subject to ongoing
regulatory compliance obligations and continued regulatory review, which may result in significant additional expense. Additionally,
any of BiomX’s product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal,
and BiomX may be subject to penalties if BiomX fails to comply with regulatory requirements or experience unanticipated problems
with its product candidates.
If
any of BiomX’s product candidates is approved for therapeutic indications, it will be subject to ongoing regulatory requirements
for manufacturing, labeling, packaging, storage, distribution, advertising, promotion, sampling, recordkeeping, export, import,
conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including both federal
and state requirements in the United States and requirements of equivalent foreign regulatory agencies. In addition, BiomX will
be subject to continued compliance with cGMP and GCP requirements for any clinical trials that BiomX conducts post-approval.
Manufacturers
and manufacturers’ facilities are required to comply with extensive FDA and equivalent foreign regulatory agency requirements,
including ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such, BiomX and its contract
manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments
made in any NDA, other marketing applications and previous responses to inspection observations. Accordingly, BiomX and others
with whom BiomX work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing,
production and quality control.
The
FDA or equivalent foreign regulatory agencies have significant post-marketing authority, including, for example, the authority
to require labeling changes based on new safety information and to require post-marketing studies or clinical trials to evaluate
serious safety risks related to the use of a drug. Any regulatory approvals that BiomX receives for its product candidates may
be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval,
or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor
the safety and efficacy of the product candidate. The FDA or equivalent foreign regulatory agencies may also require a REMS program
as a condition of approval of BiomX’s product candidates, which could entail requirements for long-term patient follow-up,
a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods,
patient registries and other risk minimization tools. In addition, if the FDA or a equivalent foreign regulatory agency approves
BiomX’s product candidates, BiomX will have to comply with requirements, including submissions of safety and other post-marketing
information and reports and registration.
The
FDA or equivalent foreign regulatory agencies may impose consent decrees or withdraw approval if compliance with regulatory requirements
and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown
problems with BiomX’s product candidates, including adverse events of unanticipated severity or frequency, or with BiomX’s
third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements may result in revisions
to the approved labeling to add new safety information, the imposition of post-market studies or clinical trials to assess new
safety risks, or the imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences
include, among other things:
|
●
|
restrictions
on the marketing or manufacturing of BiomX’s products, withdrawal of products from the market, or voluntary or mandatory
product recalls;
|
|
●
|
fines,
warning or untitled enforcement letters, or holds on clinical trials;
|
|
●
|
refusal
by the FDA or equivalent foreign regulatory agencies to approve pending applications or supplements to approved applications
filed by BiomX or the suspension or revocation of license approvals;
|
|
●
|
product
seizure or detention or refusal to permit the import or export of BiomX’s product candidates; and
|
|
●
|
injunctions
or the imposition of civil or criminal penalties.
|
The
FDA or equivalent foreign regulatory agencies strictly regulate the marketing, labeling, advertising and promotion of drug products
that are placed on the market. Products may be promoted only for the approved indications and in accordance with the provisions
of the approved label or other regulatory marketing pathway. The FDA and equivalent foreign regulatory agencies actively enforce
the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted
off-label uses may be subject to significant liability. The policies of the FDA and equivalent foreign regulatory agencies may
change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of BiomX’s
product candidates. If BiomX is slow or unable to adapt to changes in existing requirements or the adoption of new requirements
or policies, or if BiomX are not able to maintain regulatory compliance, BiomX may lose any marketing approval that BiomX may
have obtained, which would adversely affect BiomX’s business, prospects and the ability to achieve or sustain profitability.
The
policies of the FDA or equivalent foreign regulatory agencies may change, and additional government regulations may be enacted
that could prevent, limit or delay regulatory approval of BiomX’s product candidates. BiomX also cannot predict the likelihood,
nature or extent of government regulation that may arise from future legislation or administrative or executive action, either
in the United States or abroad. For example, certain policies of the current administration may impact BiomX’s business
and industry. Namely, the current administration has taken several executive actions, including the issuance of a number of executive
orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine
regulatory and oversight activities, such as implementing statutes through rulemaking, the issuance of guidance, and the review
and approval of marketing applications. It is difficult to predict how these executive actions, including any executive orders,
will be implemented and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If
these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in
the normal course, BiomX’s business may be negatively impacted. In addition, if BiomX is slow or unable to adapt to changes
in existing requirements or the adoption of new requirements or policies, or if BiomX are not able to maintain regulatory compliance,
BiomX may lose any marketing approval that BiomX may have obtained, and BiomX may not achieve or sustain profitability.
Noncompliance
by BiomX or any future collaborator with regulatory requirements, including safety monitoring or pharmacovigilance requirements,
can also result in significant financial penalties.
BiomX
may conduct clinical trials for its product candidates outside the United States, and the FDA may not accept data from such trials.
Although
the FDA may accept data from clinical trials conducted outside the United States, acceptance of such study data by the FDA is
subject to certain conditions. For example, the study must be well designed and conducted and performed by qualified investigators
in accordance with ethical principles. The study population must also adequately represent the United States population, and the
data must be applicable to the United States population and United States medical practice in ways that the FDA deems clinically
meaningful. Generally, the patient population for any clinical studies conducted outside of the United States must be representative
of the population for whom BiomX intends to label the product in the United States. In addition, such studies would be subject
to the applicable local laws, and FDA acceptance of the data would be dependent upon its determination that the studies also complied
with all applicable United States laws and regulations. There can be no assurance the FDA will accept data from trials conducted
outside of the United States. If the FDA does not accept any such data, it would likely result in the need for additional trials,
which would be costly and time-consuming and may delay aspects of BiomX’s business plan.
Any
products that BiomX may develop may become subject to unfavorable pricing regulations, third-party reimbursement practices or
health care reform initiatives, which could make it difficult for BiomX to sell any product candidates or therapies profitably.
The
regulations that govern pricing for new medical products vary widely from country to country. As a result, BiomX might obtain
regulatory approval for a product in a particular country but then be subject to pricing regulations in that country that delay
the commercial launch of the product and negatively impact the revenue BiomX is able to generate from the sale of the product
in that country. In addition, BiomX’s ability to commercialize any approved products successfully will depend in part on
the extent to which reimbursement for these products will be available from government health administration authorities, private
health insurers and other organizations. Even if BiomX succeeds in bringing one or more therapeutic products to market, these
products may not be considered cost-effective, and the amount reimbursed for any products may be insufficient to allow BiomX to
sell them on a competitive basis. If the price BiomX is able to charge for therapeutic products is inadequate in light of BiomX’s
development and other costs, BiomX’s future profitability could be adversely affected.
Ongoing
health care legislative and regulatory reform measures may have a material adverse effect on BiomX’s business and results
of operations.
Changes
in regulations, statutes or the interpretation of existing regulations could impact BiomX’s business in the future by requiring,
for example, (i) changes to BiomX’s manufacturing arrangements, (ii) additions or modifications to product labeling,
(iii) the recall or discontinuation of BiomX’s products, or (iv) additional record-keeping requirements. If any
such changes were to be imposed, they could adversely affect the operation of BiomX’s business.
In
the United States, there have been and continue to be a number of legislative initiatives to contain health care costs. For example,
in March 2010, the Patient Protection and Affordable Care Act (the “ACA”), was passed, which substantially changed
the way health care is financed by both governmental and private insurers and significantly impacted the United States pharmaceutical
industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars; addresses
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that
are inhaled, infused, instilled, implanted or injected; increases the minimum Medicaid rebates owed by manufacturers under the
Medicaid Drug Rebate Program; and extends the rebate program to individuals enrolled in Medicaid managed care organizations. It
also establishes annual fees and taxes on manufacturers of certain branded prescription drugs and creates a new Medicare Part
D coverage gap discount program in which manufacturers must agree to offer 50% point of sale discounts off negotiated prices of
applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturer’s
outpatient drugs to be covered under Medicare Part D.
Some
of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional
challenges, as well as efforts by the current administration to repeal or replace certain aspects of the ACA.
These
laws and future state and federal health care reform measures may be adopted in the future, any of which may result in additional
reductions in Medicare and other health care funding and otherwise affect the prices BiomX may obtain for any of its product candidates
for which it may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.
A
similar movement is observed in the European Union countries. Criteria for pricing and reimbursement, which vary from country
to country, are regularly amended and tightened in order to reduce the draw on the budget allocated to national health insurance
systems. Moreover, the system of reference pricing (the price in a country calculated on the basis of prices in other countries
with typically lower prices) leads to price reductions in countries that traditionally granted high prices.
BiomX
is subject to certain U.S. and foreign anticorruption, anti-money laundering, export control, sanctions and other trade laws and
regulations. BiomX can face serious consequences for violations.
Among
other matters, U.S. and foreign anticorruption, anti-money laundering, export control, sanctions and other trade laws and regulations,
which are collectively referred to as Trade Laws, prohibit companies and their employees, agents, clinical research organizations,
legal counsel, accountants, consultants, contractors and other partners from authorizing, promising, offering, providing, soliciting
or receiving, directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public
or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss
of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.
BiomX has direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals,
universities and other organizations. BiomX also expects its non-U.S. activities to increase over time. BiomX plans to engage
third parties for clinical trials and/or to obtain necessary permits, licenses, patent registrations and other regulatory approvals,
and BiomX can be held liable for the corrupt or other illegal activities of BiomX’s personnel, agents or partners, even
if BiomX does not explicitly authorize or have prior knowledge of such activities.
Risks
Related to BiomX’s Licensed and Co-Owned Intellectual Property
The license agreements BiomX maintains, including the
Research and License Agreement (the “License Agreement”) dated as of June 22, 2015 with Yeda Research and Development
Company Limited (“Yeda”), are important to BiomX’s business. If BiomX or the other parties to its license agreements
fail to adequately perform under the license agreements, or if BiomX or they terminate the license agreements, the development,
testing, manufacture, production and sale of BiomX’s microbiome-based therapeutic product candidates would be delayed or
terminated, and BiomX’s business would be adversely affected.
Yeda undertakes to procure certain research
and development activities under the License Agreement, including the proof-of-concept studies testing in vivo phage eradication
against a model bacteria in germ-free mice, development of an IBD model in animals under germ-free conditions and establishing
in vivo method for measuring immune induction capability (Th1) of bacteria, followed by testing several candidate IBD-inducing
bacterial strains, during the research period, subject to the terms and conditions specified in the License Agreement. The License
Agreement with Yeda provides for an exclusive worldwide license to certain know-how and research information related to the development,
testing, manufacture, production and sale of microbiome-based therapeutic product candidates, including candidates specified in
the agreement, which are used in BiomX’s phage discovery platform, as well as patents, research and other rights to phage
product candidates resulting from the work of the consultants identified in the agreement and further research that BiomX funded.
The License Agreement terminates upon the later of the expiration of the last of the patents covered under the License Agreement
and the expiry of a continuous 15-year period during which there has not been a first commercial sale of any product in any country.
Yeda may also terminate the agreement if BiomX fails to observe certain diligence and development requirements and milestones as
described in the License Agreement. BiomX or Yeda may terminate the agreement for the material uncured breach of the other party
after a notice period or the other party’s winding up, bankruptcy, insolvency, dissolution or other similar discontinuation
of business. Upon termination of the agreement, other than due to the passage of time, BiomX is required to grant to Yeda a nonexclusive,
irrevocable, perpetual, fully paid-up, sublicenseable, worldwide license in respect of BiomX’s rights in know-how and research
results as described in this agreement, provided that, if Yeda subsequently grants a license to a third party that utilizes BiomX’s
rights, BiomX is entitled to share in the net proceeds actually received by Yeda arising out of that license, subject to a cap
based on the development expenses that BiomX incur in connection with this agreement.
BiomX also maintains additional license
agreements:
|
●
|
with the Massachusetts Institute of Technology (“MIT”), pursuant to which BiomX received an exclusive, royalty-bearing license to certain patents held by MIT covering methods to synthetically engineer phages in the field of treating, preventing or diagnosing inflammatory bowel disease, cancer in humans, or certain other specified indications or specific bacterial targets to utilize patents held by MIT;
|
|
●
|
with Keio University (“Keio”) and JSR Corporation (“JSR”), pursuant to which BiomX were granted an exclusive, royalty-bearing, worldwide, perpetual sublicense by JSR to certain patent rights related to BiomX’s inflammatory bowel disease program. Specifically, these patent rights relate to bacterial targets that have been observed to be related to inflammatory bowel disease and the phages that were observed to eradicate these bacterial targets; and
|
|
●
|
with Keio and JSR, pursuant to which BiomX was granted an exclusive, royalty-bearing, worldwide, perpetual sublicense by JSR to certain patent rights related to BiomX’s PSC program. Specifically, these patent rights relate to bacterial targets that have been observed to be related to PSC and the phages that were observed to eradicate these bacterial targets.
|
Termination of the license agreements could
cause significant delays in BiomX’s product and commercialization efforts that could prevent BiomX from commercializing its
product candidates, including its microbiome-based therapeutic product candidates, without first expanding its internal capabilities
or entering into other agreements with third parties. Any alternative collaboration or license could also be on less favorable
terms to BiomX.
BiomX
is highly dependent on intellectual property licensed from third parties, and termination or limitation of any of these licenses
could result in the loss of significant rights and materially harm BiomX’s business.
BiomX currently relies on licenses from third-party
collaborators for certain aspects of BiomX’s technology and for certain of BiomX’s existing programs. In particular,
BiomX received exclusive, royalty-bearing licenses to certain patents held by third parties, including Yeda, MIT, Keio and JSR.
BiomX’s license agreement with Yeda provides license to certain know-how and research information related to the development,
testing, manufacture, production and sale of microbiome-based therapeutic product candidates that are used in BiomX’s phage
discovery platform, as well as patents, research and other rights to phage product candidates resulting from the work of the consultants
identified in the agreement and further research that BiomX funded. BiomX’s license agreements with MIT, Keio and JSR provide licenses to patents related to, among other things, synthetic biology and BiomX’s inflammatory bowel disease, primary
sclerosing cholangitis and PSC programs. Pursuant to these license agreements, BiomX is required to pay annual license fees, as
well as a contingent consideration comprised of milestone and royalty payments, which depend on the achievement of future milestones
and potential revenue from products. More information on BiomX’s license agreements, see “
BiomX Ltd.’s Business—Material
Agreements.
”
If BiomX fails to comply with its obligations
under its license agreements, including payment terms, BiomX’s licensors may have the right to terminate BiomX’s license
agreements, in which event BiomX may not be able to develop, manufacture, market or sell the products covered by those license
agreements. BiomX may also face other penalties under its license agreements if it does not meet its contractual obligations. Such
an occurrence could materially adversely affect the value of the BiomX products being developed under any such license agreements.
Termination of one or more of BiomX’s license agreements, or reduction or elimination of BiomX’s rights under these
license agreements, may result in BiomX having to negotiate new or reinstated license agreements, which may not be available to
BiomX on equally favorable terms, or at all, which may mean BiomX is unable to commercialize the affected product candidates.
In
the future, BiomX may rely upon additional licenses to certain patent rights and proprietary technology from third parties that
are important or necessary to the development of BiomX’s product candidates and proprietary product platform. Patent rights
that BiomX in-licenses in the future may be subject to a reservation of rights by one or more third parties. As a result, any
such third party may have certain rights to such intellectual property.
In
addition, subject to the terms of any such license agreements, BiomX may not have the right to control the preparation, filing,
prosecution and maintenance, and BiomX may not have the right to control the enforcement and defense, of patents and patent applications
covering the technology that BiomX license from third parties. BiomX cannot be certain that its in-licensed patent applications
(and any patents issuing therefrom) that are controlled by its licensors will be prepared, filed, prosecuted, maintained, enforced
and defended in a manner consistent with the best interests of its business. If BiomX’s licensors fail to prosecute, maintain,
enforce and defend such patents rights, or lose rights to those patent applications (or any patents issuing therefrom), the rights
BiomX has licensed may be reduced or eliminated, BiomX’s right to develop and commercialize any of its product candidates
and proprietary product platform technology that are subject of such licensed rights could be adversely affected, and BiomX may
not be able to prevent competitors from making, using and selling competing products. Moreover, BiomX cannot be certain that such
activities by its potential future licensors will be conducted in compliance with applicable laws and regulations or will result
in valid and enforceable patents or other intellectual property rights. In addition, even where BiomX may have the right to control
the prosecution of patents and patent applications that BiomX may license to and from third parties, BiomX may still be adversely
affected or prejudiced by actions or inactions of BiomX’s potential future licensees, licensors and their counsel that took
place prior to the date of assumption of control over patent prosecution.
The
patent position of biopharmaceutical companies, including BiomX and its licensors, is generally uncertain and involves complex
legal and factual considerations and, therefore, validity and enforceability cannot be predicted with certainty. BiomX’s
licensed and co-owned intellectual property may be challenged, deemed unenforceable, invalidated or circumvented. BiomX and its
licensors will be able to protect their intellectual property rights from unauthorized use by third parties only to the extent
that these rights (and the products and services they cover) are protected by valid and enforceable patents, copyrights or trademarks,
or are effectively maintained as trade secrets.
Any patents obtained by BiomX’s licensors
or BiomX, may be challenged by re-examination or otherwise invalidated or eventually found unenforceable. Both the patent application
process and the process of managing patent disputes can be time consuming and expensive. If BiomX or one of its licensors was to
initiate legal proceedings against a third party to enforce a patent relating to one of its products, the defendant in such litigation
could counterclaim that the asserted patents are invalid and/or unenforceable. In patent litigation in the U.S., defendant counterclaims
alleging invalidity or unenforceability are common, as are validity challenges by the defendant against the subject patent or related
patents before the United States Patent and Trademark Office (“USPTO”). Grounds for a validity challenge could be an
alleged failure to meet any of several statutory patentability requirements, including lack of novelty, obviousness, non-enablement,
failure to meet the written description requirement, indefiniteness, and/or failure to claim patentable subject matter. Grounds
for an unenforceability assertion could be an allegation that someone connected to prosecution of the patent/s at issue intentionally
withheld material information from the USPTO or made a misleading statement during prosecution. Additional grounds for an unenforceability
assertion include an allegation of misuse or anticompetitive use of patent rights, and an allegation of incorrect inventorship
with deceptive intent. Third parties may also raise similar claims before the USPTO, even outside the context of litigation. The
outcome of any assertion of invalidty and/or unenforceability is unpredictable. If a defendant or third party were to prevail on
a legal assertion of invalidity and/or unenforceability, BiomX and its licensors would lose at least part, and perhaps all, of
the claims of the challenged patent/s. Such a loss of patent protection could have a material adverse impact on BiomX’s business.
BiomX
is dependent on patents and proprietary technology. If BiomX fails to adequately protect this intellectual property or if BiomX
otherwise does not have exclusivity for the marketing of its products, BiomX’s ability to commercialize products could suffer.
BiomX’s
commercial success will depend in part on BiomX’s ability to obtain and maintain patent protection sufficient to prevent
others from marketing BiomX’s product candidates, as well as to defend and enforce these patents against infringement and
to operate without infringing the proprietary rights of others. Protection of BiomX’s product candidates from unauthorized
use by third parties will depend on having valid and enforceable patents that cover BiomX’s product candidates or their
manufacture or use or on having effective trade secret protection. If BiomX’s patent applications do not result in issued
patents or if BiomX’s patents are found to be invalid, BiomX will lose the ability to exclude others from making, using
or selling the inventions claimed therein. BiomX has a limited number of patents and pending patent applications.
The
patent positions of biotechnology companies can be uncertain and involve complex legal and factual questions. This is due to inconsistent
application of policies and changes in policy relating to the examination and enforcement of biotechnology patents to date on
a global scale. The laws of some countries may not protect intellectual property rights to the same extent as the laws of countries
having well-established patent systems, and those countries may lack adequate rules and procedures for defending BiomX’s
intellectual property rights. Also, changes in either patent laws or in the interpretations of patent laws may diminish the value
of BiomX’s intellectual property. BiomX is not able to guarantee that all of its patent applications will result in the
issuance of patents, and BiomX cannot predict the breadth of claims that may be allowed in BiomX’s patent applications or
in the patent applications BiomX may license from others.
Central
provisions of The Leahy-Smith America Invents Act, or the America Invents Act, went into effect on September 16, 2012 and on March
16, 2013. The America Invents Act includes a number of significant changes to U.S. patent law. These changes include provisions
that affect the way patent applications are being filed, prosecuted and litigated. For example, the America Invents Act enacted
proceedings involving post-issuance patent review procedures, such as inter partes review, or IPR, and post-grant review, that
allow third parties to challenge the validity of an issued patent in front of the USPTO Patent Trial and Appeal Board. Each proceeding has different eligibility criteria and different patentability challenges that
can be raised. IPRs permit any person (except a party who has been litigating the patent for more than a year) to challenge the
validity of the patent on the grounds that it was anticipated or made obvious by prior art. Patents covering pharmaceutical products
have been subject to attack in IPRs from generic drug companies and from hedge funds. If it is within nine months of the issuance
of the challenged patent, a third party can petition the USPTO for post-grant review, which can be based on any invalidity grounds
and is not limited to prior art patents or printed publications.
In
post-issuance proceedings, USPTO rules and regulations generally tend to favor patent challengers over patent owners. For example,
unlike in district court litigation, claims challenged in post-issuance proceedings are given their broadest reasonable meaning,
which increases the chance a claim might be invalidated by prior art or lack support in the patent specification. As another example,
unlike in district court litigation, there is no presumption of validity for an issued patent, and thus a challenger’s burden
to prove invalidity is by a preponderance of the evidence, as opposed to the heightened clear and convincing evidence standard.
As a result of these rules and others, statistics released by the USPTO show a high percentage of claims being invalidated in
post-issuance proceedings. Moreover, with few exceptions, there is no standing requirement to petition the USPTO for inter partes
review or post-grant review. In other words, companies that have not been charged with infringement or that lack commercial interest
in the patented subject matter can still petition the USPTO for review of an issued patent. Thus, even where BiomX has issued
patents, BiomX’s rights under those patents may be challenged and ultimately not provide BiomX with sufficient protection
against competitive products or processes.
The
degree of future protection for BiomX’s proprietary rights is uncertain, because legal means afford only limited protection
and may not adequately protect BiomX’s rights or permit BiomX to gain or keep its competitive advantage. For example:
|
●
|
BiomX
might not be the first to file patent applications for its inventions;
|
|
●
|
others
may independently develop similar or alternative product candidates to any of BiomX’s product candidates that fall outside
the scope of BiomX’s patents;
|
|
●
|
BiomX’s
pending patent applications may not result in issued patents;
|
|
●
|
BiomX’s
issued patents may not provide a basis for commercially viable products or may not provide it with any competitive advantages
or may be challenged by third parties;
|
|
●
|
others
may design around BiomX’s patent claims to produce competitive products that fall outside the scope of its patents;
|
|
●
|
BiomX
may not develop additional patentable proprietary technology related to its product candidates; and
|
|
●
|
BiomX
is dependent upon the diligence of its appointed agents in national jurisdictions, acting for and on BiomX’s behalf,
which control the prosecution of pending domestic and foreign patent applications and maintain granted domestic and foreign
patents.
|
An
issued patent does not guarantee BiomX the right to practice the patented technology or commercialize the patented product. Third
parties may have blocking patents that could be used to prevent BiomX from commercializing its patented products and practicing
BiomX’s patented technology. BiomX’s issued patents and those that may be issued in the future may be challenged,
invalidated or circumvented, which could limit BiomX’s ability to prevent competitors from marketing the same or related
product candidates or could limit the length of the term of patent protection of BiomX’s product candidates. Moreover, because
of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before
any of BiomX’s product candidates 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. Patent term extensions may not be available
for these patents.
BiomX’s
rights to develop and commercialize its product candidates and proprietary product platform may be subject, in part, to the terms
and conditions of current and future licenses granted to BiomX by others.
Some
of BiomX’s licensed rights could provide BiomX with freedom to operate for aspects of BiomX’s products and services.
BiomX may need to obtain additional licenses from others to advance its research, development and commercialization activities.
Disputes may arise between BiomX and its
licensors regarding intellectual property subject to a license agreement, including:
|
●
|
the
scope of rights granted under the license agreement and other interpretation-related issues;
|
|
●
|
whether,
and the extent to which, BiomX’s products, services, technology and processes infringe on the intellectual property
of the licensor that is not subject to the license agreement;
|
|
●
|
BiomX’s
right to sublicense patent and other rights to third parties under collaborative development relationships;
|
|
●
|
BiomX’s
diligence obligations under the license agreement and what activities satisfy those diligence obligations;
|
|
●
|
the
inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property
by BiomX’s licensors and BiomX and its collaborators; and
|
|
●
|
the
priority of invention of patented technology.
|
If BiomX does not
prevail in such disputes, BiomX may lose any or all of its rights under such license agreements.
In
addition, the agreements under which BiomX currently licenses intellectual property or technology from third parties are complex,
and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation
disagreement that may arise could narrow what BiomX believes to be the scope of its rights to the relevant intellectual property
or technology or could increase what BiomX believes to be its financial or other obligations under the relevant agreement, either
of which could have a material adverse effect on BiomX’s business, financial condition, results of operations and prospects.
Moreover, if disputes over intellectual property that BiomX has licensed prevent or impair BiomX’s ability to maintain its
current licensing arrangements on commercially acceptable terms, BiomX may be unable to successfully develop and commercialize
any affected products or services, which could have a material adverse effect on BiomX’s business, financial conditions,
results of operations and prospects.
Absent
the license agreements, BiomX may infringe patents subject to those agreements, and, if the license agreements are terminated,
BiomX may be subject to litigation by the licensor. Litigation could result in substantial costs to BiomX and distract BiomX’s
management. If BiomX does not prevail, it may be required to pay damages, including treble damages, attorneys’ fees, costs
and expenses, and royalties. BiomX may also be enjoined from selling its products or services, which could adversely affect its
ability to offer products or services, its ability to continue operations, and its financial condition.
If
BiomX infringes the rights of third parties, it could be prevented from selling products, forced to pay damages and/or royalties,
and forced to defend against litigation.
BiomX
does not believe that the products it is currently developing infringe upon the rights of any third parties or are infringed upon
by third parties. However, there can be no assurance that our technology will not be found in the future to infringe upon the
rights of others or be infringed upon by others. Moreover, patent applications are in some cases maintained in secrecy until patents
are issued. The publication of discoveries in the scientific or patent literature frequently occurs much later than the date on
which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there
may be currently pending applications of which BiomX is unaware that may later result in issued patents that BiomX products or
product candidates infringe. For example, pending patent applications may exist that provide support or can be amended to provide
support for a claim that results in an issued patent that is infringed by one or more BiomX products. In such a case, others may
assert infringement claims against BiomX, and should BiomX be found to infringe these patents or impermissibly use their intellectual
property, BiomX might be forced to pay damages, potentially including treble damages, if BiomX is found to have willfully infringed
on such third parties’ patent rights.
In
addition to any damages BiomX might have to pay, BiomX may also be required to obtain licenses from the holders of this intellectual
property, enter into royalty agreements, or redesign its products so as not to use this intellectual property. Each of these penalties
may prove to be uneconomical or otherwise impossible. BiomX may fail to obtain any such licenses or intellectual property rights
on commercially reasonable terms. Even if BiomX is able to obtain a license, it may be non-exclusive, thereby giving BiomX’s
competitors access to the same licensed technologies. In that event, BiomX may be required to spend significant time and resources
to develop or license replacement technologies. If BiomX is unable to do so, BiomX may be unable to develop or commercialize the
affected products, which could materially harm our business. Conversely, BiomX may not be able to pursue claims against third
parties that infringe on BiomX’s licensed or co-owned technology. Thus, BiomX’s licensed and co-owned technology may
not provide adequate protection against competitors.
The
pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights. Moreover,
the cost to BiomX of any litigation or other proceeding relating to its licensed and/or co-owned intellectual property rights,
even if resolved in BiomX’s favor, could be substantial. Any such litigation would divert BiomX’s management efforts,
and BiomX may not have sufficient resources to bring any such action to a successful conclusion. Uncertainties resulting from
the initiation and continuation of any litigation could limit BiomX’s ability to continue operations.
Additionally,
because BiomX’s pipeline may involve additional development candidates that could require the use of proprietary rights
held by third parties, the growth of BiomX’s business could depend in part on BiomX’s ability to acquire, in-license or
use these proprietary rights. In addition, BiomX’s development candidates may require specific formulations to work effectively
and efficiently and these rights may be held by others. BiomX may be unable to acquire or in-license any compositions,
methods of use, processes or other third-party intellectual property rights from third parties that BiomX identifies. The licensing
and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies
are also pursuing strategies to license or acquire third-party intellectual property rights that BiomX may consider attractive.
These established companies may have a competitive advantage over BiomX due to their size, cash resources, and greater clinical
development and commercialization capabilities.
For
example, BiomX sometimes collaborates with U.S. and foreign academic institutions to accelerate its preclinical research or development
under written agreements with these institutions. Typically, these institutions provide BiomX with an option to negotiate a license
to any of the institution’s rights in technology resulting from the collaboration. Regardless of such right of first negotiation
for intellectual property, BiomX may be unable to negotiate a license within the specified time frame or under terms that are
acceptable to it. If BiomX is unable to do so, the institution may offer the intellectual property rights to other parties, potentially
blocking BiomX’s ability to pursue its program.
In
addition, companies that perceive BiomX to be a competitor may be unwilling to assign or license rights to BiomX. BiomX also may
be unable to license or acquire third-party intellectual property rights on terms that would allow BiomX to make an appropriate
return on its investment. If BiomX is unable to successfully obtain rights to required third-party intellectual property rights,
BiomX’s business, financial condition and prospects for growth could suffer.
BiomX
may not be successful in obtaining, through acquisitions, in-licenses or otherwise, necessary rights to its product
candidates, proprietary product platform technologies or other technologies.
BiomX
currently has rights to certain intellectual property, through licenses from third parties, to develop BiomX’s product candidates
and proprietary product platform technologies. Some health care companies and academic institutions are competing with BiomX in
the field of microbiome therapies and may have patents and/or have filed and are likely filing patent applications potentially
relevant to BiomX’s business. In order to avoid infringing these third-party patents, BiomX may find it necessary or prudent
to obtain licenses to such patents from such third-party intellectual property holders. BiomX may also require licenses from third
parties for certain technologies that BiomX may be evaluating for use with BiomX’s current or future product candidates.
However, BiomX may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of
use, processes or other intellectual property rights from third parties that BiomX identifies as necessary for BiomX’s current
or future product candidates and BiomX’s proprietary product platform at a reasonable cost or on reasonable terms, if at
all. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established
companies may pursue strategies to license or acquire third-party intellectual property rights that BiomX may consider attractive
or necessary. These established companies may have a competitive advantage over BiomX due to their size, capital resources and
greater clinical development and commercialization capabilities. In addition, companies that perceive BiomX to be a competitor
may be unwilling to assign or license rights to it. BiomX also may be unable to license or acquire third-party intellectual property
rights on terms that would allow BiomX to make an appropriate return on BiomX’s investment or at all.
In
the event that BiomX tries to obtain rights to required third-party intellectual property rights and is ultimately unsuccessful,
BiomX may be required to expend significant time and resources to redesign BiomX’s technology, product candidates or the
methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical
or commercial basis. If BiomX is unable to do so, BiomX may be unable to develop or commercialize the affected product candidates
or continue to utilize its existing proprietary product platform technology, which could harm its business, financial condition,
results of operations and prospects significantly.
BiomX
relies on its proprietary product platform to identify microbiome therapies. BiomX’s competitive position could be materially
harmed if BiomX’s competitors develop a similar platform and develop rival product candidates.
BiomX
relies on know-how, inventions and other proprietary information to strengthen its competitive position. BiomX considers know-how to
be its primary intellectual property with respect to its proprietary product platform. Its clinical trials allow it to collect
clinical data, which it uses as a feedback loop to make improvements to its proprietary product platform. In particular, BiomX
anticipates that, with respect to this proprietary product platform, this data may over time be disseminated within the industry
through independent development, the publication of journal articles describing the method and the movement of skilled personnel.
BiomX
cannot rule out that its competitors may have or obtain the knowledge necessary to analyze and characterize similar data to its
known data for the purpose of identifying and developing products that could compete with any of its product candidates. BiomX’s
competitors may also have significantly greater financial, product development, technical, and human resources access to date.
Further, BiomX’s competitors may have significantly greater experience in using translational science methods to identify
and develop product candidates.
BiomX
may not be able to prohibit its competitors from using technology or methods that are the same as or similar to its proprietary
product platform to develop their own product candidates. If BiomX’s competitors develop associated therapies, BiomX’s
ability to develop and market a promising product or product candidate may diminish substantially, which could have a material
adverse effect on its business, financial condition, prospects and results of operations.
BiomX
relies on trade secrets and other forms of non-patent intellectual property protection. If BiomX is unable to protect its trade
secrets, other companies may be able to compete more effectively against BiomX.
BiomX
relies on trade secrets to protect certain aspects of its technology, including its proprietary processes for manufacturing and
purifying bacteriophages. Trade secrets are difficult to protect, especially in the pharmaceutical industry, where much of the
information about a product must be made public during the regulatory approval process. Although BiomX uses reasonable efforts
to protect its trade secrets, its employees, consultants, contractors, outside scientific collaborators and other advisors may
unintentionally or willfully disclose its information to competitors. Enforcing a claim that a third party illegally obtained
and is using its trade secret information is expensive and time-consuming, and the outcome is unpredictable. In addition, courts
outside the United States may be less willing to or may not protect trade secrets. Moreover, BiomX’s competitors may independently
develop equivalent knowledge, methods and know-how.
If
BiomX is sued for infringing intellectual property rights of third parties or if BiomX is forced to engage in an interference
proceeding, it will be costly and time-consuming, and an unfavorable outcome in that litigation or interference would have a material
adverse effect on BiomX’s business.
BiomX’s
ability to commercialize its product candidates depends on BiomX’s ability to develop, manufacture, market and sell BiomX’s
product candidates without infringing the proprietary rights of third parties. Numerous U.S. and foreign patents and patent applications,
which are owned by third parties, exist in the general field of anti-infective products or in fields that otherwise may relate
to BiomX’s product candidates. If BiomX is shown to infringe, BiomX could be enjoined from the use or sale of the claimed
invention if it is unable to prove that the patent is invalid. In addition, because patent applications can take many years to
issue, there may be currently pending patent applications, unknown to us, that may later result in issued patents that BiomX’s
product candidates may infringe or that may trigger an interference proceeding regarding one of BiomX’s owned or licensed
patents or applications. There could also be existing patents of which BiomX are not aware that its product candidates may inadvertently
infringe or that may become involved in an interference proceeding.
The
biotechnology and pharmaceutical industries are characterized by the existence of a large number of patents and frequent litigation
based on allegations of patent infringement. For so long as BiomX’s product candidates are in clinical trials, BiomX believes
its clinical activities fall within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which
exempts from patent infringement liability activities reasonably related to the development and submission of information to the
FDA. As BiomX’s clinical investigational drug product candidates progress toward commercialization, the possibility of a
patent infringement claim against BiomX increases. While BiomX attempts to ensure that its active clinical investigational drugs
and the methods it employs to manufacture them, as well as the methods for their use it intends to promote, do not infringe other
parties’ patents and other proprietary rights, BiomX cannot be certain they do not, and competitors or other parties may
assert that BiomX infringe their proprietary rights in any event.
BiomX
may be exposed to future litigation based on claims that BiomX’s product candidates, the methods BiomX employs to manufacture
them or the uses for which BiomX intends to promote them infringe the intellectual property rights of others. BiomX’s ability
to manufacture and commercialize its product candidates may depend on BiomX’s ability to demonstrate that the manufacturing
processes it employs and the use of its product candidates do not infringe third-party patents. If third-party patents were found
to cover BiomX’s product candidates or their use or manufacture, BiomX could be required to pay damages or be enjoined and
therefore unable to commercialize its product candidates, unless BiomX obtained a license. A license may not be available to BiomX
on acceptable terms, if at all.
BiomX
may become subject to claims for remuneration or royalties for assigned service invention rights by BiomX’s employees, which
could result in litigation and adversely affect BiomX’s business.
A
significant portion of BiomX’s intellectual property has been developed by BiomX’s employees in the course of
their employment for it. Under the Israeli Patent Law, 5727-1967 (the “Patent Law”) inventions conceived by an employee
during the term and as part of the scope of 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 or her inventions. BiomX generally enters into
assignment of invention agreements with its employees pursuant to which such individuals assign to BiomX all rights to any
inventions created in the scope of their employment or engagement with it. Although BiomX’s employees have agreed to
assign to it service invention rights, BiomX may face claims demanding remuneration in consideration for assigned inventions.
As a consequence of such claims, BiomX could be required to pay additional remuneration or royalties to its current or former
employees or be forced to litigate such claims, which could negatively affect BiomX’s business.
Risks
Related to BiomX’s Reliance on Third Parties
BiomX
relies, and expect to continue to rely, on third parties to conduct its clinical trials, and those third parties may not perform
satisfactorily, including failing to meet deadlines for the completion of such trials.
BiomX
expects to continue to rely on third parties, such as contract research organizations (“CROs”), and clinical investigators,
to conduct and manage BiomX’s clinical trials.
BiomX’s
reliance on these third parties for research and development activities will reduce BiomX’s control over these activities
but does not relieve BiomX of its responsibilities. For example, BiomX remains responsible for ensuring that each of its clinical
trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires
BiomX to comply with regulatory standards, commonly referred to as good clinical practices, for conducting, recording and reporting
the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, safety
and welfare of trial participants are protected. Other countries’ regulatory agencies also have requirements for clinical
trials with which BiomX must comply. BiomX also is required to register ongoing clinical trials and post the results of completed
clinical trials in a government-sponsored database, clinicaltrials.gov, within specified time frames. Failure to do so can
result in fines, adverse publicity, and civil and criminal sanctions.
Furthermore,
these third parties may also have relationships with other entities, some of which may be BiomX’s competitors. If these
third parties do not successfully carry out their contractual duties, do not meet expected deadlines, experience work stoppages,
terminate their agreements with BiomX or need to be replaced, or do not conduct BiomX’s clinical trials in accordance with
regulatory requirements or BiomX’s stated protocols, BiomX may need to enter into new arrangements with alternative third
parties, which could be difficult, costly or impossible, and BiomX’s clinical trials may be extended, delayed, terminated
or need to be repeated. If any of the foregoing occurs, BiomX may not be able to obtain, or may be delayed in obtaining, marketing
approvals for its product candidates and may not be able to, or may be delayed in its efforts to, successfully commercialize its
product candidates.
BiomX
also expects to rely on other third parties to store and distribute drug supplies for its clinical trials. Any performance failure
on the part of BiomX’s distributors could delay clinical development or marketing approval of BiomX’s product
candidates or commercialization of BiomX’s products, producing additional losses and depriving BiomX of potential product
revenue.
Third-party
relationships are important to BiomX’s business. If BiomX is unable to maintain its collaborations or enter into new relationships,
or if these relationships are not successful, BiomX’s business could be adversely affected.
BiomX
has limited capabilities for product development and does not yet have any capability for sales, marketing or distribution. Accordingly,
BiomX enters into relationships with other companies and academic institutions to provide BiomX with important technology, and
BiomX may receive additional technology and funding under these and other collaborations in the future. The relationships BiomX
enters into may pose a number of risks, including the following:
|
●
|
third
parties have, and future third-party collaborators may have, significant discretion in determining the efforts and resources
that they will apply;
|
|
●
|
current
and future third parties may not perform their obligations as expected;
|
|
●
|
current
and future third parties may not pursue development and commercialization of any product candidates that achieve regulatory
approval or may elect not to continue or renew development or commercialization programs based on clinical trial results,
changes in the third parties’ strategic focus or available funding, or external factors, such as a strategic transaction
that may divert resources or create competing priorities;
|
|
●
|
third
parties may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon
a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical
testing;
|
|
●
|
current
and future third parties could independently develop, or develop with third parties, products that compete directly or indirectly
with BiomX’s products and product candidates if the third parties believe that the competitive products are more likely
to be successfully developed or can be commercialized under terms that are more economically attractive than BiomX’s;
|
|
●
|
product
candidates discovered in collaboration with BiomX may be viewed by BiomX’s current or future third parties as competitive
with their own product candidates or products, which may cause such third parties to cease to devote resources to the commercialization
of BiomX’s product candidates;
|
|
●
|
current
and future third parties may fail to comply with applicable regulatory requirements regarding the development, manufacture,
distribution or marketing of a product candidate or product;
|
|
●
|
current
and future third parties with marketing and distribution rights to one or more of BiomX’s product candidates that achieve
regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products;
|
|
●
|
disagreements
with current or future third parties, including disagreements over proprietary rights, contract interpretation or the preferred
course of development, might cause delays or terminations of the research, development or commercialization of product candidates,
might lead to additional responsibilities for BiomX with respect to product candidates, or might result in litigation or arbitration,
any of which would be time-consuming and expensive;
|
|
●
|
current
and future third parties may not properly maintain or defend BiomX’s intellectual property rights or may use BiomX’s
proprietary information in such a way as to invite litigation that could jeopardize or invalidate BiomX’s intellectual
property or proprietary information or expose BiomX to potential litigation;
|
|
●
|
current
and future third parties may infringe the intellectual property rights of others, which may expose BiomX to litigation and
potential liability;
|
|
●
|
current
and future third parties may infringe regulatory frameworks (such as but not limited to cybersecurity and/or privacy frameworks),
which may expose BiomX to litigation and potential liability or require or lead BiomX to terminate relationships with them;
|
|
●
|
if
a current or future third party of BiomX is involved in a business combination, the collaborator might deemphasize or terminate
the development or commercialization of any product candidate licensed to it by BiomX; and
|
|
●
|
current
and future relationships may be terminated by the collaborator, and, if terminated, BiomX could be required to raise additional
capital to pursue further development or commercialization of the applicable product candidates.
|
If
BiomX’s relationships do not result in the successful discovery, development and commercialization of products or if one
of BiomX’s third-party collaborators terminates its agreement with it, BiomX may not receive any future research funding
or milestone or royalty payments under the collaboration. If BiomX does not receive the funding it expects under these agreements,
BiomX’s development of its technology and product candidates could be delayed, and BiomX may need additional resources to
develop product candidates and its technology. Additionally, if any of BiomX’s current or future third-party collaborators
terminates its agreement with it, BiomX may find it more difficult to attract new collaborators, and BiomX’s reputation
in the business and financial communities could be adversely affected.
Relationships
are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business
combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. BiomX
faces significant competition in seeking appropriate collaborators. BiomX’s ability to reach a definitive agreement for
a collaboration will depend, among other things, upon BiomX’s assessment of a collaborator’s resources and expertise,
the terms and conditions of a proposed collaboration and a proposed collaborator’s evaluation of a number of factors
BiomX
may not be successful in maintaining or establishing collaborations, which could adversely affect BiomX’s ability to develop
and, if required regulatory approvals are obtained, commercialize BiomX’s product candidates.
In
the future, in order to advance BiomX’s clinical development, or in connection with any potential out-licensing of product
candidates or technologies, BiomX may seek to enter into collaboration agreements. In addition, BiomX may consider entering into
collaboration arrangements with medical technology, pharmaceutical or biotechnology companies and/or seek to establish strategic
relationships with marketing partners for the development, sale, marketing and/or distribution of BiomX’s product candidates
within or outside of the United States. If BiomX is unable to reach agreements with potential collaborators, then BiomX may fail
to meet its business objectives for the affected product candidates or programs. Collaboration arrangements are complex and time-consuming
to negotiate, document and implement, and BiomX may not be successful in its efforts, if any, to establish and implement collaborations
or other alternative arrangements. The terms of any collaboration or other arrangements that BiomX establish may not be favorable
to it, and the success of any such collaboration will depend heavily on the efforts and activities of BiomX’s collaborators.
Moreover, BiomX’s collaboration agreement could be terminated or not renewed by a third party at a time that is costly or
damaging to BiomX. Any failure to engage successful collaborators could cause delays in BiomX’s product development and/or
commercialization efforts, which could harm BiomX’s financial condition and operational results.
Risks
Related to BiomX’s Operations in Israel
BiomX
has received, and may continue to receive Israeli governmental grants to assist in the funding of its research and development
activities. If BiomX loses its funding from these research and development grants, BiomX may encounter difficulties in the funding
of future research and development projects and implementing technological improvements, which would harm BiomX’s operating
results.
Through December 31, 2018, BiomX had received
an aggregate of $1.87 million in the form of grants from the Israeli Innovation Authority (“IIA”). BiomX was formed
as an incubator company as part of the FuturX incubator, and, until 2017, the majority of BiomX’s funding was from IIA grants
and funding by the incubator, which is supported by the IIA. BiomX continued to apply for and receive IIA grants after BiomX left
the incubator. The requirements and restrictions for such grants are found in the Israel Encouragement of Research and Development
in Industries (the “Research Law”). Under the Research Law, royalties of 3% to 3.5% on the revenue derived from sales
of products or services developed in whole or in part using these IIA grants are payable to the Israeli government. BiomX developed
both of its platform technologies, at least in part, with funds from these grants, and, accordingly, BiomX would be obligated to
pay these royalties on sales of any of its product candidates that achieve regulatory approval. As long as the manufacturing of
BiomX’s product candidates takes place in Israel and no technology funded with IIA grants is sold or out licensed to a non-Israeli
entity, the maximum aggregate royalties paid generally would not exceed 100% of the grants made to us, plus annual interest equal
to the 12-month LIBOR rate applicable to dollar deposits, as published on the first business day of each calendar year. As of December
31, 2018, the balance of the principal and interest in respect of BiomX’s commitments for future payments to the IIA totaled
approximately $1.92 million. As part of funding BiomX’s current and planned product development activities, BiomX has submitted
follow-up grant applications for new grants.
These
grants have funded some of BiomX’s personnel, development activities with subcontractors, and other research and development
costs and expenses. However, if these awards are not funded in their entirety or if new grants are not awarded in the future,
due to, for example, IIA budget constraints or governmental policy decisions, BiomX’s ability to fund future research and
development and implement technological improvements would be impaired, which would negatively impact BiomX’s ability to
develop its product candidates.
The
Israeli government grants BiomX has received for research and development expenditures restrict BiomX’s ability to manufacture
products and transfer technology outside of Israel and requires BiomX to satisfy specified conditions. If BiomX fails to satisfy
these conditions, BiomX may be required to refund grants previously received, together with interest and penalties.
BiomX’s
research and development efforts have been financed, in part, through the grants that BiomX have received from the IIA. BiomX, therefore,
must comply with the requirements of the Research Law. For the years ended December 31, 2018, 2017 and 2016, BiomX recorded grants
totaling $0.6 million, $0.7 million and $0.3 million, from the IIA, respectively. The grants represented 6.6%, 13.6% and 20.8%
of BiomX’s gross research and development expenditures for the years ended December 31, 2018, 2017 and 2016, respectively.
Under
the Research Law, BiomX is required to manufacture the major portion of each of its products developed using these grants in the
State of Israel or otherwise ask for special approvals. BiomX may not receive the required approvals for any proposed transfer
of manufacturing activities. Even if BiomX does receive approval to manufacture products developed with government grants outside
of Israel, the royalty rate may be increased, and BiomX may be required to pay up to 300% of the grant amounts, plus interest,
depending on the manufacturing volume that is performed outside of Israel. This restriction may impair BiomX’s ability to
outsource manufacturing or engage in BiomX’s own manufacturing operations for those products or technology.
Additionally,
under the Research Law, BiomX is prohibited from transferring, including by way of license, the IIA-financed technology and related
intellectual property rights and know-how outside of the State of Israel, except under limited circumstances and only with the
approval of the IIA Research Committee. BiomX may not receive the required approvals for any proposed transfer, and, even if received,
BiomX may be required to pay the IIA a portion, to be set by the IIA, in its discretion and taking into account the circumstances,
upon its approval of such transaction, of the consideration or milestone and royalty payments that BiomX receives upon any sale
or out-licensing of such technology to a non-Israeli entity, up to 600% of the grant amounts plus interest.
These
restrictions may impair BiomX’s ability to sell its technology assets or to perform or outsource manufacturing outside of
Israel or otherwise transfer its know-how outside of Israel and may require it to obtain the approval of the IIA for certain actions
and transactions and pay additional royalties and other amounts to the IIA. In addition, any change of control and any change
of ownership of BiomX’s shares of common stock that would make a non-Israeli citizen or resident an “interested party,”
as defined in the Research Law, requires prior written notice to the IIA, and BiomX’s failure to comply with this requirement
could, under certain circumstances, result in criminal liability.
These
restrictions will continue to apply even after BiomX has repaid the full amount of royalties on the grants.
Potential
political, economic and military instability in the State of Israel, where the majority of BiomX’s senior management and
BiomX’s research and development facilities are located, may adversely affect BiomX’s results of operations.
BiomX’s
headquarters and principal offices and most of BiomX’s operations are located in the State of Israel. In addition, all but
one of BiomX’s key employees and officers and the majority of BiomX’s directors are residents of Israel. Accordingly,
political, economic and military conditions in Israel directly affect BiomX’s business. Since the State of Israel was established
in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries.
Any
hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or a
significant downturn in the economic or financial condition of Israel, could affect adversely BiomX’s operations. Ongoing
and revived hostilities or other Israeli political or economic factors could harm BiomX’s operations, product development
and results of operations.
Although
Israel has entered into various agreements with Egypt, Jordan and the Palestinian Authority, there has been an increase in unrest
and terrorist activity, which began in October 2000 and has continued with varying levels of severity. For instance, beginning
in July 2014, for approximately seven weeks, Israel experienced an armed conflict between Israel and Hamas, which included rocket
strikes against civilian targets in various parts of Israel and disrupted day-to-day civilian activity in southern and central
Israel. If renewed, such hostilities may negatively affect business conditions in Israel. In addition, Israel faces threats from
more distant neighbors, in particular, Iran. BiomX’s insurance policies do not cover it for the damages incurred in connection
with these conflicts or for any resulting disruption in its operations. The Israeli government, as a matter of law, provides coverage
for the reinstatement value of direct damages that are caused by terrorist attacks or acts of war; however, the government may
cease providing such coverage or the coverage might not be enough to cover potential damages. In the event that hostilities disrupt
the ongoing operation of BiomX’s facilities or the airports and seaports on which BiomX depend to import and export its
supplies and products, BiomX’s operations may be materially adversely affected.
In
addition, since the end of 2010, numerous acts of protest and civil unrest have taken place in several countries in the Middle
East and North Africa, many of which involved significant violence. The civil unrest in Egypt, which borders Israel, resulted
in the resignation of its president, Hosni Mubarak, and significant changes to the country’s government. In Syria, also
bordering Israel, a civil war continues to take place. The ultimate effect of these developments on the political and security
situation in the Middle East and on Israel’s position within the region is not clear at this time. Such instability may
lead to deterioration in the political and trade relationships that exist between the State of Israel and certain other countries.
Several
countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries
may impose restrictions on doing business with Israel and Israeli companies, whether as a result of hostilities in the region
or otherwise. In addition, there have been increased efforts by activists to cause companies, research institutions and consumers
to boycott Israeli goods and cooperation with Israeli-related entities based on Israeli government policies. Such actions, particularly
if they become more widespread, may adversely impact BiomX’s ability to cooperate with research institutions and collaborate
with other third parties. Any hostilities involving Israel, any interruption or curtailment of trade or scientific cooperation
between Israel and its present partners, or a significant downturn in the economic or financial condition of Israel could adversely
affect BiomX’s business, financial condition and results of operations. BiomX may also be targeted by cyber terrorists specifically
because BiomX is an Israeli-related company.
Under
applicable employment laws, BiomX may not be able to enforce covenants not to compete.
BiomX
generally enters into noncompetition agreements with BiomX’s employees. These agreements prohibit BiomX’s employees,
if they cease working for it, from competing directly with BiomX or working for BiomX’s competitors or clients for a limited
period. BiomX may be unable to enforce these agreements under the laws of the jurisdictions in which BiomX’s employees work,
and it may be difficult for BiomX to restrict its competitors from benefitting from the expertise BiomX’s former employees
or consultants developed while working for it. For example, Israeli labor courts have required employers seeking to enforce noncompete
undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited
number of material interests of the employer that have been recognized by the courts, such as the protection of a company’s
trade secrets or other intellectual property.
BiomX’s
operations may be disrupted by the obligations of personnel to perform military service.
Some
of BiomX’s employees based in Israel may be called upon to perform annual military reserve duty and, in emergency circumstances,
could be called to immediate and unlimited active duty. BiomX’s operations could be disrupted by the absence of a significant
number of BiomX’s employees related to military service or the absence for extended periods of one or more of BiomX’s
executive officers or other key employees. Such disruption could materially adversely affect BiomX’s business and results
of operations.
The
tax benefits that are available to BiomX if and when BiomX generates taxable income requires BiomX to meet various conditions
and may be prevented or reduced in the future, which could increase BiomX’s costs and taxes.
If
and when BiomX generates taxable income, BiomX would be eligible for certain tax benefits provided to “Technologic Preferred
Enterprise” and/or “Preferred Enterprise” as defined under the Encouragement of Capital Investment Law
-1959 (the “Law”) and its regulations, as amended and, accordingly, could be subject to a reduced corporate tax rate
on its income that will meet the provisions of the Law (ranging between 7.5%-16%). To the extent that BiomX is not be eligible
to obtain such statuses, BiomX’s Israeli taxable income would be subject to regular Israeli corporate tax rates. The standard
corporate tax rate for Israeli companies is 23%. The benefits available to BiomX in accordance to the Law and its regulations
are subject to the fulfillment of conditions stipulated in the Law and the regulations. Further, in the future, these tax benefits
may be reduced or discontinued.
It
may be difficult to enforce a U.S. judgment against BiomX or BiomX’s officers and directors named in this proxy statement
in Israel or the United States or to assert U.S. securities laws claims in Israel or serve process on BiomX’s officers and
directors.
Not
all of BiomX’s directors or officers are residents of the United States, and most of their and BiomX’s assets are
located outside the United States. Service of process upon BiomX or BiomX’s non-U.S. resident directors and officers may
be difficult to obtain within the United States. Israeli courts may refuse to hear a claim based on a violation of U.S. securities
laws against BiomX or BiomX’s 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. Additionally, Israeli courts might not enforce judgments
obtained in the United States against BiomX or BiomX’s non-U.S. directors and executive officers, which may make it difficult
to collect on judgments rendered against BiomX or BiomX’s non-U.S. officers and directors.
Moreover,
an Israeli court will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement
of judgments of Israeli courts (subject to exceptional cases), if its enforcement is likely to prejudice the sovereignty or security
of the State of Israel, if it was obtained by fraud or in the absence of due process, if it is at variance with another valid
judgment that was given in the same matter between the same parties, or if a suit in the same matter between the same parties
was pending before a court or tribunal in Israel at the time the foreign action was brought.
Risks
Related to Manufacturing and Supply
BiomX
expects to rely on third parties to manufacture its clinical supply of product candidates, and BiomX intends to rely on third
parties to produce and process its products, if approved.
BiomX
currently relies on outside vendors to supply raw materials and other important components, such as lab equipment. BiomX has not
yet caused any product candidates to be manufactured or processed on a commercial scale and may not be able to do so for any of
its product candidates. BiomX will make changes as it works to optimize the manufacturing process for its product candidates,
and BiomX cannot be sure that even minor changes in the process will result in therapies that are safe and effective.
The
facilities used to manufacture BiomX’s product candidates must be approved by the FDA or equivalent foreign regulatory agencies
pursuant to inspections that will be conducted after BiomX submits a marketing application to the FDA or equivalent foreign regulatory
agency. Additionally, any facilities used for the manufacture of product candidates commercialized for non-therapeutic uses will
be subject to inspection by the FDA and foreign regulatory agencies. BiomX does not currently control all aspects of the manufacturing
process of, and are currently largely dependent on, BiomX’s contract manufacturing partners for compliance with regulatory
requirements, known as cGMP requirements, for manufacture of its product candidates. If and when BiomX’s manufacturing facility
becomes operational, BiomX will be responsible for compliance with cGMP requirements. If BiomX or BiomX’s contract manufacturers
cannot successfully manufacture in conformance with BiomX’s specifications and the strict regulatory requirements of the
FDA or other regulatory authorities, BiomX and they will not be able to secure and/or maintain regulatory approval for their manufacturing
facilities with respect to the manufacture of BiomX’s product candidates. In addition, BiomX has no control over the ability
of its contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a
equivalent foreign regulatory agency does not approve these facilities for the manufacture of BiomX’s product candidates
or if it withdraws any such approval in the future, BiomX may need to find alternative manufacturing facilities, which would significantly
impact its ability to develop, obtain regulatory approval for or market its product candidates, if approved.
BiomX
has limited experience manufacturing its product candidates for purposes of clinical trials for therapeutic indications or for
non-therapeutic clinical studies or trials. BiomX plans to open its own cGMP manufacturing facility at its headquarters in Ness
Ziona, Israel in the third quarter of 2019. BiomX cannot assure you that it can manufacture its product candidates in compliance
with regulations at a cost or in quantities necessary to make them commercially viable.
BiomX’s
product candidates rely on the availability of specialty raw materials, which may not be available to BiomX on acceptable terms
or at all.
BiomX’s
product candidates require certain specialty raw materials, some of which BiomX obtains from small companies with limited resources
and experience to support a commercial product. These third-party suppliers may be ill-equipped to support BiomX’s needs,
especially in non-routine circumstances like an FDA inspection or medical crisis, such as widespread contamination. BiomX does
not currently have contracts in place with all of the suppliers that BiomX may need at any point in time and, if needed, may not
be able to contract with them on acceptable terms or at all. Accordingly, BiomX may experience delays in receiving key raw materials
to support clinical or commercial manufacturing.
Risks
Related to the Business Combination
The combined company expects to incur significant
costs as a result of operating as a public company.
As a public company, the combined compaby
will incur significant legal, accounting and other expenses. The combined company will be subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) which require, among other things, that it
file with the SEC annual, quarterly and current reports with respect to its business and financial condition. In addition, the
Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and the NYSE American Stock Exchange to implement provisions
of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and
the Public Company Accounting Oversight Board impose significant requirements on public companies, including requiring the establishment
and maintenance of effective disclosure and financial controls and changes in corporate governance practices. These expenses will
likely increase in the future, particularly after the combined company ceases to be an “emerging growth company” if
it is also no longer a “smaller reporting company” as a result of additional corporate governance and disclosure requirements
under the Sarbanes-Oxley Act, the Dodd-Frank Act, and SEC rules and regulations.
The combined company expects the rules and
regulations applicable to public companies to result in it continuing to incur substantial legal and financial compliance costs.
These costs will increase its net loss or decrease any net income and may require the combined company to reduce costs in other
areas of its business.
BiomX’s
management will be required to devote substantial time to maintaining and improving its internal controls over financial reporting
and the requirements of being a public company which may, among other things, strain its resources, divert management’s
attention and affect its ability to accurately report its financial results and prevent fraud.
Historically, BiomX has operated as a private
company. Following the Business Combination, the combined company will be subject to the reporting requirements of the Exchange
Act, the Sarbanes-Oxley Act and the rules of the NYSE American Stock Exchange. The Sarbanes-Oxley Act requires, among other things,
that a company maintain effective disclosure controls and procedures (“DCP”) and internal controls over financial reporting
(“ICFR”). BiomX’s management and other personnel have limited experience operating as a public company, which
may result in operational inefficiencies or errors, or a failure to improve or maintain effective ICFR and DCP necessary to ensure
timely and accurate reporting of operational and financial results. BiomX’s existing management team will need to devote
a substantial amount of time to these compliance initiatives, and may need to add personnel in areas such as accounting, financial
reporting, investor relations and legal in connection with operations as a public company. Ensuring that the combined company has
adequate internal financial and accounting controls and procedures in place is a costly and time-consuming effort that needs to
be re-evaluated frequently. The combined company’s compliance with existing and evolving regulatory requirements will result
in increased administrative expenses and a diversion of management’s time and attention.
Pursuant to Sections 302 and 404 of the Sarbanes-Oxley
Act (“Section 404”), the combined company will be required to furnish certain certifications and reports by its management
on its ICFR, which, after it is no longer an emerging growth company and if it becomes an accelerated or large accelerated filer
under SEC rules, must be accompanied by an attestation report on ICFR issued by its independent registered public accounting firm.
To achieve compliance with Section 404 within the prescribed period, the combined company will document and evaluate its ICFR,
which is both costly and challenging. Implementing any appropriate changes to its internal controls may require specific compliance
training for the combined company’s directors, officers and employees, entail substantial costs to modify its existing accounting
systems, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy
of its ICFR, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely
basis, could increase its operating costs and could materially impair its ability to operate its business. Moreover, effective
internal controls are necessary for the combined company to produce reliable and timely financial reports and are important to
help prevent fraud. Any failure by the combined company to file its periodic reports in a timely manner may cause investors to
lose confidence in its reported financial information and may lead to a decline in the price of our common stock.
In accordance with NYSE American Stock Exchange
rules, the combined company will be required to maintain a majority independent Board of Directors. The various rules and regulations
applicable to public companies make it more difficult and more expensive to maintain directors’ and officers’ liability
insurance, and the combined company may be required to accept reduced coverage or incur substantially higher costs to maintain
coverage. If the combined company is unable to maintain adequate directors’ and officers’ insurance, its ability to
recruit and retain qualified officers and directors will be significantly curtailed.
BiomX
will need to grow the size of its organization, and may experience difficulties in managing this growth.
As
BiomX’s research, development, manufacturing and commercialization plans and strategies develop, and as it transitions into
operating as a public company, BiomX expects to need additional managerial, operational, sales, marketing, financial and other
personnel. Future growth would impose significant added responsibilities on members of management, including:
|
●
|
identifying,
recruiting, compensating, integrating, maintaining and motivating additional employees;
|
|
●
|
managing
BiomX’s internal research and development efforts effectively, including identification of clinical candidates, scaling
its manufacturing process and navigating the clinical and FDA review process for its product candidates; and
|
|
●
|
improving
BiomX’s operational, financial and management controls, reporting systems and procedures.
|
BiomX’s
future financial performance and our ability to commercialize its product candidates will depend, in part, on its ability to effectively
manage any future growth, and BiomX’s management may also have to divert a disproportionate amount of its attention away
from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.
If
BiomX is not able to effectively expand its organization by hiring new employees and expanding its groups of consultants and contractors,
BiomX may not be able to successfully implement the tasks necessary to further develop and commercialize its product candidates
and, accordingly, may not achieve its research, development and commercialization goals.
The
unaudited pro forma financial information included in this proxy statement may not be representative of the combined company’s
results following the Business Combination.
The
unaudited pro forma financial information included in this proxy statement has been presented for informational purposes only
and is not necessarily indicative of the financial position or results of operations that actually would have occurred had the
Business Combination been completed as of the date indicated, nor is it indicative of the combined company’s future operating
results or financial position. The pro forma financial statements have been derived from the historical financial statements of
CHAC and BiomX and adjustments and assumptions have been made regarding the combined company after giving effect to the Business
Combination. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments
and assumptions are difficult to make with accuracy. Moreover, the pro forma financial statements do not reflect all costs that
are expected to be incurred by the combined company in connection with the Business Combination. As a result, the actual financial
condition of the combined company following the Business Combination may not be consistent with, or evident from, these pro forma
financial statements. The assumptions used in preparing the pro forma financial information may not prove to be accurate, and
other factors may affect the combined company’s financial condition following the Business Combination.
We
are an “emerging growth company,” and we cannot be certain if the reduced disclosure requirements applicable to “emerging
growth companies” will not make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined under the JOBS Act. For so long as we are an emerging growth company,
we intend to take advantage of certain exemptions from reporting requirements that are applicable to other public companies that
are not emerging growth companies, including, but not limited to, compliance with the auditor attestation requirements of Section
404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved.
We
could be an emerging growth company for up to five years, although we may lose such status earlier, depending on the occurrence
of certain events, including when we have generated total annual gross revenue of at least $1.07 billion or when we are deemed
to be a “large accelerated filer” under the Exchange Act, which means that the market value of our common stock that
is held by non-affiliates exceeds $700 million as of June 30 of the prior year, or when we have issued more than $1.0 billion
in nonconvertible debt securities during the prior three-year period.
We
cannot predict if investors will not find our common stock less attractive or our company less comparable to certain other public
companies because we rely on these exemptions. If some investors find our common stock less attractive as a result, there may
be a less active trading market for our common stock, and our stock price may be more volatile.
Under
the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment
of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves
of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting
standards as other public companies that are not emerging growth companies.
As
a “smaller reporting company” we are permitted to provide less disclosure than larger public companies which may make
our common stock less attractive to investors.
We
are currently a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act. As a smaller
reporting company, we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other
public companies. Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects
which may result in less investor confidence. Investors may find our common stock less attractive as a result of our smaller
reporting company status. If some investors find our common stock less attractive, there may be a less active trading market for
our common stock and our stock price may be more volatile.
CHAC
and BiomX have incurred and expect to incur significant costs associated with the Business Combination. Whether or not the Business
Combination is completed, the incurrence of these costs will reduce the amount of cash available to be used for other corporate
purposes by CHAC whether or not the Business Combination is completed.
CHAC
and BiomX expect to incur significant costs associated with the Business Combination. Whether or not the Business Combination
is completed, CHAC expects to incur approximately $[●] in expenses. These expenses will reduce the amount of cash available
to be used for other corporate purposes by CHAC whether or not the Business Combination is completed.
In
the event that a significant number of CHAC’s common stock are redeemed, its stock may become less liquid following the
Business Combination.
If
a significant number of CHAC’s common stock are redeemed, CHAC may be left with a significantly smaller number of stockholders.
As a result, trading in the shares of the surviving company following the Business Combination may be limited and your ability
to sell your shares in the market could be adversely affected. The NYSE American Stock Exchange may not list CHAC’s shares
on its exchange, which could limit investors’ ability to make transactions in CHAC’s securities and subject CHAC to
additional trading restrictions.
CHAC
will be required to meet the initial listing requirements to be listed on the NYSE American Stock Exchange following the Business
Combination. CHAC may not be able to meet those initial listing requirements. Even if CHAC’s securities are so listed, CHAC
may be unable to maintain the listing of its securities in the future.
If
CHAC fails to meet the initial listing requirements and the NYSE American Stock Exchange does not list its securities on its exchange,
CHAC could face significant material adverse consequences, including:
|
●
|
a
limited availability of market quotations for our securities;
|
|
●
|
reduced
liquidity with respect to our securities;
|
|
●
|
a
determination that our shares are a “penny stock,” which will require brokers
trading in our securities to adhere to more stringent rules, possibly resulting in a
reduced level of trading activity in the secondary trading market for our securities;
|
|
●
|
a
limited amount of news and analyst coverage for the post-transaction company; and
|
|
●
|
a
decreased ability to issue additional securities or obtain additional financing in the
future.
|
CHAC
may waive one or more of the conditions to the Business Combination without resoliciting stockholder approval for the Business
Combination.
CHAC
may agree to waive, in whole or in part, some of the conditions to its obligations to complete the Business Combination, to the
extent permitted by applicable laws. The Board of Directors of CHAC will evaluate the materiality of any waiver to determine whether
amendment of this proxy statement and resolicitation of proxies is warranted. In some instances, if the Board of Directors of
CHAC determines that a waiver is not sufficiently material to warrant resolicitation of stockholders, CHAC has the discretion
to complete the Business Combination without seeking further stockholder approval. For example, it is a condition to CHAC’s
obligations to close the Business Combination that there be no restraining order, injunction or other order restricting BiomX’s
conduct of its business, however, if the Board of Directors of CHAC determines that any such order or injunction is not material
to the business of BiomX, then the Board of Directors may elect to waive that condition and close the Business Combination.
CHAC’s
stockholders will experience immediate dilution as a consequence of the issuance of common stock as consideration in the Business
Combination. Having a minority share position may reduce the influence that CHAC’ current stockholders have on the management
of CHAC.
After the Business Combination,
assuming no redemptions of common stock for cash and giving effect to the purchase and sale agreements described above,
CHAC’s current public stockholders will own approximately 21% of the outstanding CHAC Shares, CHAC’s current
directors, officers and affiliates will own approximately 7% of the outstanding CHAC Shares, and the former stockholders of
BiomX will own approximately 72% of the outstanding CHAC Shares. Assuming redemption by holders of 2,033,709 CHAC’s
outstanding common stock, CHAC public stockholders will own approximately 13% of the outstanding CHAC Shares, CHAC’s
Sponsor and current directors, officers and affiliates will own approximately 5% of the outstanding CHAC Shares, and the
former stockholders of BiomX will own approximately 82% of the outstanding CHAC Shares. The minority position of the former
CHAC stockholders will give them limited influence over the management and operations of the post-Business
Combination company.
Risks
Related to CHAC’s Business
CHAC
will be forced to liquidate the trust account if it cannot consummate a business combination by the date that is 24 months from
the closing of the Initial Public Offering, or December 18, 2020. In the event of a liquidation, CHAC’s public stockholders
will receive $10.00 per share and the CHAC Warrants will expire worthless.
If
CHAC is unable to complete a business combination by the date that is 24 months from the closing of the Initial Public Offering,
or December 18, 2020, and is forced to liquidate, the per-share liquidation distribution will be $10.00, plus interest earned
on amounts held in trust that have not been used to pay for taxes. Furthermore, there will be no distribution with respect to
the CHAC Warrants, which will expire worthless as a result of CHAC’s failure to complete a business combination.
You
must tender your CHAC Shares in order to validly seek redemption at the special meeting of stockholders.
In
connection with tendering your shares for redemption, you must elect either to physically tender your share certificates to CHAC’s
transfer agent or to deliver your common stock to the transfer agent electronically using The Depository Trust Company’s
DWAC (Deposit/Withdrawal At Custodian) System, in each case by two (2) business days prior to the date of the special meeting.
The requirement for physical or electronic delivery ensures that a redeeming holder’s election to redeem is irrevocable
once the Business Combination is consummated. Any failure to observe these procedures will result in your loss of redemption rights
in connection with the vote on the Business Combination.
If
you or a “group” of stockholders are deemed to hold in excess of 20% of our shares of common stock, you will lose
the ability to redeem all such shares in excess of 20% of our shares of common stock.
Our
certificate of incorporation provides that a public stockholder, individually or together with any affiliate of such stockholder
or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of
the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 20% of the shares
sold in this offering. Your inability to redeem more than an aggregate of 20% of the shares sold in this offering will reduce
your influence over our ability to consummate our initial business combination and you could suffer a material loss on your investment
in us if you sell such excess shares in open market transactions. As a result, you will continue to hold that number of shares
exceeding 20% and, in order to dispose of such shares, you would be required to sell your shares in open market transaction, potentially
at a loss.
If
third parties bring claims against CHAC, the proceeds held in trust could be reduced and the per-share liquidation price received
by CHAC’s stockholders may be less than $10.00.
CHAC’s
placing of funds in trust may not protect those funds from third party claims against CHAC. Although CHAC has received from many
of the vendors, service providers (other than its independent accountants) and prospective target businesses with which it does
business executed agreements waiving any right, title, interest or claim of any kind in or to any monies held in the trust account
for the benefit of CHAC’s public stockholders, they may still seek recourse against the trust account. Additionally, a court
may not uphold the validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims which could
take priority over those of CHAC’s public stockholders. If CHAC liquidates the trust account before the completion of a
business combination and distributes the proceeds held therein to its public stockholders, our Sponsor has contractually agreed
that it will be liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or
claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us,
but only if such a vendor or prospective target business does not execute such a waiver. However, CHAC cannot assure you that
they will be able to meet such obligation. Therefore, the per-share distribution from the trust account for our stockholders may
be less than $10.00 due to such claims.
Additionally,
if CHAC is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it which is not dismissed, the
proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in CHAC’s bankruptcy
estate and subject to the claims of third parties with priority over the claims of its stockholders. To the extent any bankruptcy
claims deplete the trust account, CHAC may not be able to return $10.00 to our public stockholders.
CHAC’s
stockholders may be held liable for claims by third parties against CHAC to the extent of distributions received by them.
Under
the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received
by them in a dissolution. The pro rata portion of the trust account distributed to our public stockholders upon the redemption
of 100% of our public shares in the event we do not consummate an initial business combination by December 18, 2020 may be considered
a liquidation distribution under Delaware law. If a corporation complies with certain procedures set forth in Section 280 of the
DGCL intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during
which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any
claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability
of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share
of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third
anniversary of the dissolution. However, we intend to redeem our public shares as soon as reasonably possible following December
18, 2020 in the event we do not consummate an initial business combination and, therefore, we do not intend to comply with those
procedures.
Because
we will not be complying with Section 280 of the DGCL, Section 281(b) of the DGCL requires the Company to adopt a plan, based
on facts known to us at such time that will provide for the payment of all existing and pending claims or claims that may be potentially
brought against the Company within the 10 years following dissolution. However, because we are a blank check company, rather than
an operating company, and our operations have been limited to searching for prospective target businesses, the only likely claims
to arise would be from vendors (such as lawyers, investment bankers, and consultants) or prospective target businesses. If the
Company’s plan of distribution complies with Section 281(b) of the DGCL, any liability of our stockholders with respect
to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed
to the stockholder, and any liability of the stockholder would likely be barred after the third anniversary of the dissolution.
There can be no assurance that we will properly assess all claims that may be potentially brought against us. As such, our stockholders
could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of
its stockholders may extend beyond the third anniversary of such date. Furthermore, if the pro rata portion of the trust account
distributed to our public stockholders upon the redemption of 100% of our public shares in the event we do not consummate an initial
business combination within the required timeframe is not considered a liquidation distribution under Delaware law and such redemption
distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors
could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidation distribution.
If
we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions
received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential
transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received
by our stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account to our public stockholders
promptly after December 18, 2020 in the event we do not consummate an initial business combination, this may be viewed or interpreted
as giving preference to our stockholders over any potential creditors with respect to access to or distributions from the Company’s
assets. Furthermore, our board of directors may be viewed as having breached its fiduciary duties to the Company’s creditors
and/or may have acted in bad faith, thereby exposing itself and the Company to claims of punitive damages, by paying our stockholders
from the trust account prior to addressing the claims of creditors. There can be no assurance that claims will not be brought
against the Company for these reasons.
If
CHAC’s due diligence investigation of BiomX was inadequate, then stockholders of CHAC following the Business Combination
could lose some or all of their investment.
Even
though CHAC conducted a due diligence investigation of BiomX, it cannot be sure that this diligence uncovered all material issues
that may be present inside BiomX or its business, or that it would be possible to uncover all material issues through a customary
amount of due diligence, or that factors outside of BiomX and its business and outside of its control will not later arise.
Because
CHAC’s Sponsor and all of CHAC’s officers and directors own CHAC Shares and CHAC Warrants which will not participate
in liquidation distributions and, therefore, they will lose their entire investment in us and face other financial consequences
if the Business Combination is not completed, they may have a conflict of interest in determining whether the Business Combination
is appropriate.
CHAC’s
Sponsor and all of CHAC’s officers and directors own an aggregate of [●] shares and warrants to purchase [●]
shares of common stock of CHAC. Such individuals have waived their right to redeem these shares, or to receive distributions with
respect to these shares upon the liquidation of the trust account if CHAC is unable to consummate a business combination. Accordingly,
the CHAC Shares, as well as the CHAC Warrants purchased by an affiliate of our Sponsor, will be worthless if CHAC does not consummate
a business combination. Based on a market price of $[___] per share of common stock of CHAC on [_______], 2019 and $[___] per
warrant on [_______], 2019, the value of these shares and warrants was approximately $[___] million. The CHAC Shares acquired
prior to the Initial Public Offering, as well as the CHAC Warrants will be worthless if CHAC does not consummate a business combination.
Consequently, our directors’ and officers’ discretion in identifying and selecting BiomX as a suitable target business
may result in a conflict of interest when determining whether the terms, conditions and timing of the Business Combination are
appropriate and are fair to, and in the best interests of, CHAC and its stockholders.
In
addition, at the closing of the Business Combination, our Sponsor, executive officers and directors, or any of their respective
affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying
potential target businesses and performing due diligence on suitable business combinations. There is no cap or ceiling on the
reimbursement of out-of-pocket expenses incurred in connection with activities on our behalf. These financial interests of our
Sponsor, executive officers and directors may have influenced their motivation in identifying and selecting BiomX for the Business
Combination.
CHAC
is requiring stockholders who wish to redeem their common stock in connection with the Business Combination to comply with specific
requirements for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline
for exercising their rights.
CHAC
is requiring stockholders who wish to redeem their common stock to either tender their certificates to our transfer agent or to
deliver their shares to the transfer agent electronically using the Depository Trust Company’s, or DTC, DWAC (Deposit/Withdrawal
At Custodian) System by no later than two (2) business days prior to the Special Meeting. In order to obtain a physical certificate,
a stockholder’s broker and/or clearing broker, DTC and CHAC’s transfer agent will need to act to facilitate this request.
It is CHAC’s understanding that stockholders should generally allot at least two weeks to obtain physical certificates from
the transfer agent.
However,
because we do not have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks
to obtain a physical stock certificate. While we have been advised that it takes a short time to deliver shares through the DWAC
System, we cannot assure you of this fact. Accordingly, if it takes longer than CHAC anticipates for stockholders to deliver their
common stock, stockholders who wish to redeem may be unable to meet the deadline for exercising their redemption rights and thus
may be unable to redeem their common stock.
CHAC
will require its stockholders who wish to redeem their common stock in connection with the Business Combination to comply with
specific requirements for redemption described above, and such redeeming stockholders may be unable to sell their securities when
they wish to in the event that the Business Combination is not consummated.
CHAC
is requiring that public stockholders who wish to redeem their common stock in connection with the proposed Business Combination
to comply with specific requirements for redemption as described above. If the Business Combination is not consummated, investors
who attempted to redeem their common stock will be unable to sell their securities after the failed Business Combination until
CHAC has returned their securities to them. The market price for CHAC’s common stock may decline during this time and you
may not be able to sell your securities when you wish to, even while other stockholders that did not seek redemption may be able
to sell their securities.
CHAC’s
Sponsor and other initial stockholders, which include its officers and directors, control a substantial interest in CHAC and thus
may influence certain actions requiring a stockholder vote.
CHAC’s initial stockholders, including all of its officers and directors, collectively own approximately
20% of CHAC’s issued and outstanding common stock. CHAC’s Sponsor and other initial stockholders have agreed to vote
any shares they own in favor of the Business Combination. Therefore, we would need only 437,501 of our public shares (or approximately
6.3% of our public shares) to be voted in favor of the transaction in order to have such transaction approved (assuming that only
a quorum was present at the meeting).
If
CHAC’s security holders exercise their registration rights with respect to their securities, it may have an adverse effect
on the market price of CHAC’s securities.
CHAC’s
Sponsor and other initial stockholders are entitled to make a demand that it register the resale of their insider shares at any
time commencing three months prior to the date on which their shares may be released from escrow. Additionally, the purchasers
of the private placement CHAC Warrants and our initial stockholders, officers and directors are entitled to demand that we register
the resale of the shares underlying the CHAC Warrants and any securities our initial stockholders, officers, directors or their
affiliates may be issued in payment of working capital loans made to us at any time after we consummate a business combination.
If such persons exercise their registration rights with respect to all of their securities, then there will be an additional 4,650,000
CHAC Shares eligible for trading in the public market. The presence of these additional common stock trading in the public market
may have an adverse effect on the market price of CHAC’s securities.
CHAC
will not obtain an opinion from an unaffiliated third party as to the fairness of the Business Combination to its stockholders.
CHAC
is not required to obtain an opinion from an unaffiliated third party that the price it is paying is fair to its public stockholders
from a financial point of view. CHAC’s public stockholders therefore, must rely solely on the judgment of CHAC’s Board
of Directors, and our Board of Directors may not have properly valued such business. The lack of a third-party valuation or fairness
opinion may also lead an increased number of stockholders to vote against the Business Combination or demand redemption of their
shares into cash, which could potentially impact our ability to consummate the Business Combination.
CHAC’s
directors and officers may have certain conflicts in determining to recommend the acquisition of BiomX, since certain of their
interests, and certain interests of their affiliates and associates, are different from, or in addition to, your interests as
a stockholder.
CHAC’s
management and directors have interests in and arising from the Business Combination that are different from, or in addition to,
your interests as a stockholder, which could result in a real or perceived conflict of interest. These interests include the fact
that the CHAC Shares and CHAC Warrants owned by CHAC’s management and directors, or their affiliates and associates, would
become worthless if the Business Combination Proposal is not approved and CHAC otherwise fails to consummate a business combination
prior to its liquidation date.
Risks
Related to the Financial Projections
You should be aware that uncertainties are inherent in
prospective financial projections of any kind, and such uncertainties increase with the passage of time. None of CHAC or BiomX
or any of their respective affiliates, advisors, officers, directors, or representatives has made or makes any representation or
can give any assurance to any CHAC stockholders, or any other person, regarding the ultimate performance of BiomX compared to the
information set forth under “The Business Combination Proposal - Summary of CHAC Financial Analysis” or that any such
results will be achieved.
The
inclusion of CHAC’s projections relating to BiomX’s business in this proxy statement should not be regarded as an
indication that CHAC, BiomX or their respective advisors or other representatives considered or consider the projections to be
necessarily predictive of actual future performance or events, and the projections set forth under “
The Business Combination
Proposal
-
Summary of CHAC Financial Analysis
” should not be relied upon as such.
The
projections were prepared by management of CHAC based, in part, on certain information furnished by BiomX. The prospective financial
information was not prepared with a view toward public disclosure nor was it prepared with a view toward compliance with the guidelines
established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial
information, or GAAP. Neither the independent registered public accounting firm of CHAC or BiomX nor any other independent accounts
has audited, reviewed, compiled, examined or performed any procedures with respect to the accompanying unaudited prospective financial
information for the purpose of its inclusion herein, and accordingly, neither the independent registered public accounting firm
of CHAC or BiomX, nor any other independent accountant expresses an opinion or provides any form of assurance with respect thereto
for the purpose of this proxy statement. Due to inherent uncertainties in financial projections of any kind, stockholders are
cautioned not to place undue reliance, if any, on the projections.
The
projections are subjective in nature and may not be realized.
CHAC’s
projections are inherently subjective in nature and susceptible to interpretation and, accordingly, such projections may not
be achieved. The projections also reflect numerous assumptions made by CHAC management, including material assumptions
regarding, among other things, timing of clinical trials, patient enrollment, timing of receipt of regulatory approvals that
may be needed, characterization of the product candidates, the timing of, and amounts of, any royalty payments,
milestone payments or other payments due to third parties by BiomX, the entry by BiomX into license or collaboration
agreements, market size, commercial efforts, industry performance, general business and economic conditions and numerous
other matters that may not be realized and are subject to significant uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond the control of the preparing party. Accordingly, there can be no assurance
that the assumptions made in preparing the projections will be realized. There may be differences between actual and
projected results, and the differences may be material. The risk that these uncertainties and contingencies could cause the
assumptions to fail to be reflective of actual results is further increased by the length of time over which these
assumptions apply. The failure to achieve assumptions and projections in early periods could have a compounding effect on the
projections shown for the later periods. Thus, any such failure of an assumption or projection to be reflective of actual
results in an early period could have a greater effect on the projected results failing to be reflective of actual events in
later periods. BiomX is a preclinical stage company, without any product that has received regulatory or marketing approval,
and as discussed in this proxy statement, its business is subject to numerous risks. Moreover, 12-year projections in the
context of a preclinical stage company are inherently unrealizable given the many variables, especially in later years, that
may affect results.
All
of these assumptions involve variables making them difficult to predict, and some are beyond the control of BiomX and CHAC.
Although BiomX’s and CHAC’s management believes that there was a reasonable basis for the projections and
underlying assumptions, any assumptions for near-term projected cases remain uncertain, and such uncertainty increases with
the length of the projected period. The projections are forward-looking statements and are subject to risks and
uncertainties. See the section titled “
Special Note Regarding Forward-Looking Statements
” on page 71. For
a discussion of the CHAC projections, please see the section titled “
The Business Combination Proposal — Summary of
CHAC Financial Analysis
” beginning on page 88.
In
developing the CHAC projections provided to the CHAC Board of Directors, CHAC management made numerous material estimates with respect
to BiomX for the years ending December 31, 2019 through 2030.
The projections prepared by CHAC management
were based on estimates from both discussions with, and materials provided, by BiomX for the years from 2019 to 2022, which themselves
were based on numerous assumptions. Additionally, such estimates were then used by CHAC to extrapolate certain prospective financial
results based on CHAC management’s assessment of comparable companies and industry metrics. The selected summary of the adjusted
and unadjusted CHAC projections that were made available to the CHAC Board of Directors and which CHAC management’s estimates
were based upon can be found in the section titled “
The Business Combination Proposal - Summary of CHAC Financial Analysis
”
beginning on page 88. CHAC management did not consider ranges for various financial measures but rather considered in deriving
these measures, peak sales amounts, which may reduce the utility in later years of the prospective financial results.
Risks
Related to Our Common Stock
The
price of our common stock likely will be volatile like the stocks of other biotechnology companies.
The
stock markets in general and the markets for biotechnology stocks have experienced extreme volatility. The market for the common
stock of smaller companies such as ours is characterized by significant price volatility when compared to the shares of larger,
more established companies that trade on a national securities exchange and have large public floats, and we expect that our share
price will be more volatile than the shares of such larger, more established companies for the indefinite future.
In
addition to the factors discussed in this “Risk Factors” section, price declines in our common stock could also result
from general market and economic conditions and a variety of other factors, including:
|
●
|
adverse
results or delays in our clinical trials;
|
|
●
|
adverse
actions taken by regulatory agencies with respect to our product candidates, clinical trials or the manufacturing processes
of our product candidates;
|
|
●
|
announcements
of technological innovations, patents or new products by our competitors;
|
|
●
|
regulatory
developments in the United States and foreign countries;
|
|
●
|
any
lawsuit involving us or our product candidates;
|
|
●
|
announcements
concerning our competitors, or the biotechnology or pharmaceutical industries in general;
|
|
●
|
developments
concerning any strategic alliances or acquisitions we may enter into;
|
|
●
|
actual
or anticipated variations in our operating results;
|
|
●
|
changes
in recommendations by securities analysts or lack of analyst coverage;
|
|
●
|
deviations
in our operating results from the estimates of analysts;
|
|
●
|
our
inability, or the perception by investors that we will be unable, to continue to meet all applicable requirements for continued
listing of our common stock on the NYSE American Stock Exchange, and the possible delisting of our common stock;
|
|
●
|
sales
of our common stock by our executive officers, directors and principal stockholders or sales of substantial amounts of common
stock; and
|
|
●
|
loss
of any of our key scientific or management personnel.
|
In
the past, following periods of volatility in the market price of a particular company’s securities, litigation has often
been brought against that company. Any such lawsuit could consume resources and management time and attention, which could adversely
affect our business.
If
the Business Combination’s benefits do not meet the expectations of investors or securities analysts, the market price of
our securities may decline.
If
the benefits of the Business Combination do not meet the expectations of investors or securities analysts, the market price of
our securities may decline. The market values of our securities at the time of the Business Combination may vary significantly
from their prices on the date the Merger Agreement was executed, the date of this proxy statement, or the date on which our
stockholders vote on the Business Combination.
In
addition, following the Business Combination, fluctuations in the price of our securities could contribute to the loss of all
or part of your investment. Prior to the Business Combination, there has not been a public market for BiomX’s securities.
Accordingly, the valuation ascribed to BiomX’s ordinary shares in the Business Combination may not be indicative of the
actual price that will prevail in the trading market following the Business Combination. If an active market for our securities
develops and continues, the trading price of our securities following the Business Combination could be volatile and subject to
wide fluctuations in response to various factors, some of which are beyond our control. Our securities may trade at prices significantly
below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience
a further decline, which could have a material adverse effect on your investment in our securities.
If
securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and
trading volume could decline.
The
trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish
about us, our business, our market, or our competitors. Securities and industry analysts do not currently, and may never, publish
research on the company. Because the Business Combination will result in BiomX merging with a special purpose acquisition company (“SPAC”), research coverage from industry
analysts may be limited. If no securities or industry analysts commence coverage of our company, our stock price and trading volume
could be negatively impacted. If any of the analysts who may cover the company change their recommendation regarding our stock
adversely, provide more favorable relative recommendations about our competitors or publishes inaccurate or unfavorable research
about our business, our stock price would likely decline. If any analyst who may cover us ceases coverage of us or fails to publish
reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
We
may fail to realize any or all of the anticipated benefits of the Business Combination.
The
success of the Business Combination will depend, in part, on our ability to successfully manage and deploy the cash received upon
the consummation of the Business Combination. Although we intend to use the cash received upon the consummation of the Business
Combination for the continued development of our product candidates, there can be no assurance that we will be able to achieve
our intended objectives.
We
have broad discretion in the use of our existing cash, cash equivalents and the net proceeds from the Business Combination and
may not use them effectively.
Our
management will have broad discretion in the application of our existing cash, cash equivalents and the net proceeds from the
Business Combination, and you will not have the opportunity as part of your investment decision to assess whether such proceeds
are being used appropriately. Because of the number and variability of factors that will determine our use of our existing cash,
cash equivalents and the net proceeds from the Business Combination, their ultimate use may vary substantially from their currently
intended use. Our management might not apply our cash resources in ways that ultimately increase the value of your investment.
The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest our cash
resources in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to
our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we
may fail to achieve expected financial results, which could cause our stock price to decline.
The
price of our common stock may be subject to increased volatility and the Rule 144 resale exemption will be unavailable for our
securities because the Business Combination will result in a merger with a SPAC.
The
Business Combination will result in us merging with a SPAC, which can cause additional volatility in the price of our common stock.
We expect that the price of our common stock and of that of SPACs in general may be more volatile compared to the stock price
of an operating company.
Rule
144 of the Securities Act provides a safe harbor under which holders of restricted securities and affiliates of an issuer may
resell their securities into the public market. However, Rule 144 is unavailable for securities of former SPACs until, among other
things, twelve months have elapsed since the former SPAC has filed “Form 10 information” with the SEC. After the completion
of the Business Combination, our stockholders may not rely on Rule 144 for resales of their common stock for a minimum of one
year, which can impair the ability to resell our common stock at a favorable return.
The
current unavailability and potential future unavailability of the Rule 144 resale exemption for our common stock could have an
adverse effect on the market price of our common stock.
A
significant number of shares of our common stock are subject to issuance upon exercise of outstanding warrants and options, which
upon such exercise may result in dilution to our security holders.
Outstanding public warrants to purchase
an aggregate of 3,500,000 shares of our common stock will become exercisable on December 13, 2019, at a price of $11.50 per whole
share, subject to adjustment. Warrants may be exercised only for a whole number of shares of CHAC’s common stock. To the
extent such warrants are exercised, additional shares of our common stock will be issued, which will result in dilution to the
then existing holders of common stock of CHAC and increase the number of shares eligible for resale in the public market. Sales
of substantial numbers of such shares in the public market could adversely affect the market price of our common stock.
In addition, as of the date of this
proxy statement, BiomX had outstanding vested and unvested options to purchase 1,260,154 BiomX shares and vested and unvested
warrants to purchase 248,998 BiomX shares. The BiomX vested and unvested options and warrants outstanding immediately prior
to the closing of the Business Combination will be converted into options and warrants, respectively, to purchase CHAC Shares
upon the closing of the Business Combination. To the extent any of these options or warrants are exercised, additional CHAC
Shares will be issued that will generally be eligible for resale in the public market (subject to limitations under Rule 144
under the Securities Act with respect to shares held by our affiliates), which will result in dilution to our security
holders. The issuance of additional securities could also have an adverse effect on the market price of our common stock.
We
have never paid dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable
future.
We
have never declared or paid cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock
in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and
growth of our business. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source
of gain for the foreseeable future.
Sales
of a substantial number of shares of our common stock in the public market by our existing stockholders could cause our stock
price to decline.
Sales
of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could
depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity
securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
proxy statement contains forward-looking statements. Forward-looking statements provide our current expectations or forecasts
of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions,
assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,”
“continue,” “estimate,” “expect,” “intend,” “may,” “ongoing,”
“plan,” “potential,” “predict,” “project,” “will” or similar words
or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words
does not necessarily mean that a statement is not forward-looking. Examples of forward-looking statements in this proxy statement
include, but are not limited to, statements regarding our disclosure concerning BiomX’s operations, cash flows and financial
position.
Forward-looking
statements appear in a number of places in this proxy statement including, without limitation, in the sections entitled “Management’s
Discussion and Analysis of Financial Conditions and Results of Operations of BiomX Ltd.,” and “BiomX Ltd.’s
Business.” The risks and uncertainties include, but are not limited to:
|
●
|
BiomX’s
limited operating history;
|
|
●
|
the
ability to generate revenues, and raise sufficient financing to meet working capital
requirements;
|
|
●
|
the
unpredictable timing and cost associated with BiomX’s approach to developing product
candidates using phage technology;
|
|
●
|
the
FDA’s classification of BiomX’s BX001 product candidate as a drug or cosmetic
and the impact of changing regulatory requirements on BiomX’s ability to develop
and commercialize BX001;
|
|
●
|
obtaining
FDA acceptance of any non-U.S. clinical trials of product candidates;
|
|
●
|
the ability
to pursue and effectively develop new product opportunities and acquisitions and to obtain
value from such product opportunities and acquisitions;
|
|
●
|
penalties
and market withdrawal associated with any unanticipated problems with product candidates
and failure to comply with labeling and other restrictions;
|
|
●
|
expenses
associated with BiomX’s compliance with ongoing regulatory obligations and successful
continuing regulatory review;
|
|
●
|
market
acceptance of BiomX’s product candidates and ability to identify or discover additional
product candidates;
|
|
●
|
BiomX’s
ability to obtain high titers for specific phage cocktails necessary for preclinical
and clinical testing;
|
|
●
|
the availability
of specialty raw materials;
|
|
●
|
the ability
of BiomX’s product candidates to demonstrate requisite safety and tolerability
for cosmetics, safety and efficacy for drug products, or safety, purity and potency for
biologics without causing adverse effects;
|
|
●
|
the success
of expected future advanced clinical trials of BiomX’s product candidates;
|
|
●
|
the ability
to obtain required regulatory approvals;
|
|
●
|
the ability
to enroll patients in clinical trials and achieve anticipated development milestones
when expected;
|
|
●
|
delays
in developing manufacturing processes for BiomX’s product candidates;
|
|
●
|
competition
from similar technologies, products that are more effective, safer or more affordable
than BiomX’s product candidates or products that obtain marketing approval before
BiomX’s product candidates;
|
|
●
|
the impact
of unfavorable pricing regulations, third-party reimbursement practices or health care
reform initiatives on BiomX’s ability to sell product candidates or therapies profitably;
|
|
●
|
protection
of BiomX’s intellectual property rights and compliance with the terms and conditions
of current and future licenses with third parties;
|
|
●
|
infringement
on the intellectual property rights of third parties and claims for remuneration or royalties
for assigned service invention rights;
|
|
●
|
the ability
to acquire, in-license or use proprietary rights held by third parties necessary
to BiomX’s product candidates or future development candidates;
|
|
●
|
ethical,
legal and social concerns about synthetic biology and genetic engineering that may adversely
affect market acceptance of BiomX’s product candidates;
|
|
●
|
reliance
on third-party collaborators;
|
|
●
|
the ability
to manage the growth of the business;
|
|
●
|
the ability
to attract and retain key employees or to enforce the terms of noncompetition agreements
with employees;
|
|
●
|
the failure
to comply with applicable laws and regulations;
|
|
●
|
potential
security breaches, including cybersecurity incidents;
|
|
●
|
political,
economic and military instability in the State of Israel;
|
|
●
|
costs
associated with being a public company; and
|
|
●
|
other
factors discussed in the section of this proxy statement entitled “Risk Factors”
beginning on page 14.
|
Forward-looking
statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could
cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results could
differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in “Risk
Factors” in this proxy statement. Accordingly, you should not rely on these forward-looking statements, which speak only
as of the date of this proxy statement. We undertake no obligation to publicly revise any forward-looking statement to reflect
circumstances or events after the date of this proxy statement or to reflect the occurrence of unanticipated events. You should,
however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this proxy statement.
Special
meeting OF CHAC STOCKHOLDERS
General
We
are furnishing this proxy statement to the CHAC stockholders as part of the solicitation of proxies by our Board of Directors
for use at the special meeting of CHAC stockholders to be held on [●], 2019 and at any adjournment or postponement thereof.
This proxy statement is first being furnished to our stockholders on or about [●], 2019 in connection with the vote on the
Business Combination Proposal, the Amendment Proposal, the NYSE Proposal and the Business Combination Adjournment Proposal. This
document provides you with the information you need to know to be able to vote or instruct your vote to be cast at the special
meeting.
Date,
Time and Place
The
special meeting of stockholders will be held on [●], 2019 at [●] a.m., at [●], or such other date, time and
place to which such meeting may be adjourned or postponed.
Purpose
of the Special Meeting of CHAC Stockholders
At
the special meeting of stockholders, we are asking holders of CHAC Shares to approve the following proposals:
● To approve the Merger Agreement, dated as of July 16, 2019 (the “Merger Agreement”) by and
among CHAC, BiomX Ltd. (“BiomX”) and CHAC Merger Sub Ltd., an Israeli company and wholly-owned subsidiary of CHAC (the
“Merger Sub”), and the transactions contemplated thereby, (collectively referred to as the “Business Combination”).
This proposal is referred to as the “Business Combination Proposal” or “Proposal No. 1.”
● To
approve the amendment of the Amended and Restated Certificate of Incorporation of CHAC to increase the number of authorized shares
of common stock from 30,000,000 to _________________. This proposal is referred to as the “Amendment Proposal” or
“Proposal No. 2.”
● To
approve the issuance of more than 20% of the issued and outstanding common stock of CHAC pursuant to the terms of the Merger Agreement,
as required by NYSE American Listed Company Guide Sections 712 and 713. This proposal is referred to as the “NYSE Proposal”
or “Proposal No. 3.”
● To
approve the adjournment of the special meeting, if necessary or advisable, in the event CHAC does not receive the requisite stockholder
vote to approve the Business Combination. This proposal is called the “Business Combination Adjournment Proposal”
or “Proposal No. 4.”
Recommendation of the CHAC Board of Directors to Stockholders
After careful consideration of the terms
and conditions of the Merger Agreement, the Board of Directors of CHAC has determined that the Business Combination and the transactions
contemplated thereby are fair to and in the best interests of CHAC and its stockholders. In reaching its decision with respect
to the Business Combination and the transactions contemplated thereby, the Board of Directors of CHAC reviewed various industry
and financial data and the due diligence and evaluation materials provided by BiomX. The Board of Directors did not obtain a fairness
opinion on which to base its assessment. CHAC’s Board of Directors recommends that CHAC stockholders vote:
|
●
|
FOR the Business Combination Proposal;
|
|
●
|
FOR the Amendment Proposal;
|
|
●
|
FOR the NYSE Proposal; and
|
|
●
|
FOR the Business Combination Adjournment Proposal.
|
CHAC’s
Board of Directors have interests that may be different from or in addition to your interests as a stockholder. See “
The
Business Combination Proposal — Interests of Certain Persons in the Business Combination
” in this proxy statement
for further information.
Record
Date; Who Is Entitled to Vote
We
have fixed the close of business on [●], 2019, as the “record date” for determining those CHAC stockholders
entitled to notice of and to vote at the special meeting. As of the close of business on [●], 2019, there were 8,750,000
shares of common stock of CHAC outstanding and entitled to vote. Each holder of CHAC Shares is entitled to one vote per share
on each of the Business Combination Proposal, the Amendment Proposal, the NYSE Proposal and the Business Combination Adjournment
Proposal.
As
of [●], 2019, CHAC’s Sponsor and other initial stockholders, either directly or beneficially, owned and were entitled
to vote 1,750,000 shares of common stock, or approximately 20% of CHAC’s outstanding common stock. With respect
to the Business Combination, CHAC’s Sponsor and other initial stockholders have agreed to vote their respective shares of
common stock acquired by them in favor of the Business Combination Proposal and related Proposals.
Quorum
and Required Vote for Stockholder Proposals
A
quorum of CHAC stockholders is necessary to hold a valid meeting. A quorum will be present at the special meeting of CHAC stockholders
if a majority of the CHAC Shares issued and outstanding and entitled to vote at the special meeting is represented in person or
by proxy. Abstentions present in person and by proxy will count as present for the purposes of establishing a quorum but broker
non-votes will not.
Approval
of the Business Combination Proposal, the NYSE Proposal, and the Business Combination Adjournment Proposal will require the affirmative
vote of the holders of a majority of the issued and outstanding common stock of CHAC present and entitled to vote at the special
meeting. Approval of the Amendment Proposal will require the approval of the holders of a majority of the CHAC Shares entitled
to vote at the special meeting. Attending the special meeting either in person or by proxy and abstaining from voting will have
the same effect as voting against all the proposals and, assuming a quorum is present, broker non-votes will have no effect on
the Proposals, except that a broker non-vote will have the same effect as voting against the Amendment Proposal.
Voting
Your Shares
Each
CHAC share of common stock that you own in your name entitles you to one vote for each proposal on which such shares are entitled
to vote at the special meeting. Your proxy card shows the number of common stock that you own.
There
are two ways to ensure that your CHAC Shares are voted at the special meeting:
|
●
|
You
can cause your shares to be voted by signing and returning the enclosed proxy card. If
you submit your proxy card, your “proxy,” whose name is listed on the proxy
card, will vote your shares as you instruct on the proxy card. If you sign and return
the proxy card but do not give instructions on how to vote your shares, your shares will
be voted, as recommended by our Board of Directors, “FOR” the Business Combination
Proposal, the Amendment Proposal, the NYSE Proposal and the Business Combination Adjournment
Proposal. Votes received after a matter has been voted upon at the special meeting will
not be counted.
|
|
●
|
You
can attend the special meeting and vote in person. We will give you a ballot when you
arrive. However, if your shares are held in the name of your bank, broker or other nominee,
you must get a proxy from the bank, broker or other nominee. That is the only way we
can be sure that the bank, broker or other nominee has not already voted your shares.
|
IF YOU RETURN YOUR PROXY CARD WITHOUT AN
INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF THE BUSINESS COMBINATION PROPOSAL (AS WELL AS THE OTHER
PROPOSALS). IN ORDER TO REDEEM YOUR SHARES, YOU MUST CONTINUE TO HOLD YOUR SHARES THROUGH THE CLOSING DATE OF THE BUSINESS COMBINATION
AND TENDER YOUR PHYSICAL STOCK CERTIFICATE TO OUR TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE DATE OF THE SPECIAL MEETING.
IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL NOT BE REDEEMED FOR CASH. IF YOU HOLD THE SHARES IN STREET
NAME, YOU WILL NEED TO ELECTRONICALLY TRANSFER YOUR SHARES TO THE DTC ACCOUNT OF CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
OUR TRANSFER AGENT, AT LEAST TWO DAYS PRIOR TO THE DATE OF THE SPECIAL MEETING.
Revoking
Your Proxy
If
you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:
|
●
|
you
may send another proxy card with a later date;
|
|
●
|
if
you are a record holder, you may notify our corporate secretary in writing before the
special meeting that you have revoked your proxy at Chardan Healthcare Acquisition Corp.,
17 State St., Floor 21, New York, NY 10004, Attn: Corporate Secrtary; or
|
|
●
|
you
may attend the special meeting, revoke your proxy, and vote in person, as indicated above.
|
Who
Can Answer Your Questions About Voting Your Shares
If
you have any questions about how to vote or direct a vote in respect of your common stock, you may call CHAC at 646-465-9000.
No
Additional Matters May Be Presented at the Special meeting
This
special meeting has been called only to consider the approval of the Business Combination. Under CHAC’s Amended and Restated
Certificate of Incorporation, other than procedural matters incident to the conduct of the special meeting, no other matters may
be considered at the special meeting if they are not included in the notice of the special meeting.
Redemption
Rights
Pursuant
to CHAC’s Amended and Restated Certificate of Incorporation, a holder of CHAC Shares may demand that CHAC redeem such common
stock for cash.
If
you are a public shareholder and you seek to have your shares redeemed, you must (i) demand, no later than 5:00 p.m., Eastern
time on [_________], 2019 (two (2) business days before the special meeting), that CHAC redeem your shares into cash; and
(ii) submit your request in writing to CHAC’s transfer agent, at the address listed at the end of this section and delivering
your shares to CHAC’s transfer agent physically or electronically using the DWAC system at least two (2) business days prior
to the vote at the meeting.
You may tender the CHAC Shares for which
you are electing redemption by two (2) business days before special meeting by either:
|
●
|
Delivering
certificates representing CHAC’s Shares to CHAC’s transfer agent, or
|
|
●
|
Delivering
the CHAC Shares electronically through the DWAC system.
|
CHAC
shareholders will be entitled to redeem their CHAC Shares for a full pro rata share of the trust account (currently anticipated
to be no less than approximately $10.[___] per share) net of taxes payable.
Any
corrected or changed written demand of redemption rights must be received by CHAC’s transfer agent two (2) business days
prior to the special meeting. No demand for redemption will be honored unless the holder’s shares have been delivered
(either physically or electronically) to the transfer agent at least two (2) business days prior to the vote at the meeting.
Public shareholders may seek to have their
shares redeemed regardless of whether they vote for or against the Business Combination and whether or not they are holders of
CHAC shares as of the Record Date. Any public shareholder who holds shares of CHAC on or before [_____], 2019 (two (2) business
days before the special meeting) will have the right to demand that his, her or its shares be redeemed for a pro rata share of
the aggregate amount then on deposit in the trust account, less any taxes then due but not yet paid, at the consummation of the
Business Combination.
In
connection with tendering your shares for redemption, you must elect either to physically tender your share certificates to CHAC’s
transfer agent or deliver your shares to the transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal
At Custodian) System, in each case, by the business day prior to the special meeting.
Through the DWAC system, this electronic
delivery process can be accomplished by contacting your broker and requesting delivery of your shares through the DWAC system.
Delivering shares physically may take significantly longer. In order to obtain a physical stock certificate, a shareholder’s
broker and/or clearing broker, DTC, and CHAC’s transfer agent will need to act together to facilitate this request. There
is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering
them through the DWAC system. The transfer agent will typically charge the tendering broker $45 and the broker would determine
whether or not to pass this cost on to the redeeming holder. It is CHAC’s understanding that shareholders should generally
allot at least two weeks to obtain physical certificates from the transfer agent. CHAC does not have any control over this process
or over the brokers or DTC, and it may take longer than two weeks to obtain a physical stock certificate. Shareholders who request
physical stock certificates and wish to redeem may be unable to meet the deadline for tendering their CHAC Shares before exercising
their redemption rights and thus will be unable to redeem their CHAC Shares.
In the event that a shareholder tenders
its CHAC Shares and decides prior to the consummation of the Business Combination that it does not want to redeem its CHAC Shares,
the shareholder may withdraw the tender. In the event that a shareholder tenders CHAC Shares and the business combination is not
completed, these CHAC Shares will not be redeemed for cash and the physical certificates representing these CHAC Shares will be
returned to the shareholder promptly following the determination that the Business Combination will not be consummated. CHAC anticipates
that a shareholder who tenders CHAC Shares for redemption in connection with the vote to approve the Business Combination would
receive payment of the redemption price for such CHAC Shares soon after the completion of the Business Combination.
If properly demanded by CHAC’s public
shareholders, CHAC will redeem each share into a pro rata portion of the funds available in the Trust Account, calculated as of
two business days prior to the anticipated consummation of the Business Combination. As of the record date, this would amount to
approximately $10.[___] per share. If you exercise your redemption rights, you will be exchanging your CHAC Shares for cash and
will no longer own the CHAC Shares.
Notwithstanding the foregoing, a holder
of the public shares, together with any affiliate of his or her or any other person with whom he or she is acting in concert or
as a “group” (as defined in Section 13(d)-(3) of the Securities Exchange Act of 1934 (the “Exchange Act”)
will be restricted from seeking redemption rights with respect to more than 20% of the CHAC Shares.
If
too many public stockholders exercise their redemption rights, we may not be able to meet certain condition, and as a result,
would not be able to proceed with the Business Combination.
Tendering
Common Stock Share Certificates in connection with Redemption Rights
CHAC is requiring the CHAC public stockholders
seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,”
to either tender their certificates to CHAC’s transfer agent, or to deliver their shares to the transfer agent electronically
using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option at least two
(2) business days prior to the special meeting. There is a nominal cost associated with the above-referenced tendering process
and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the
tendering broker $45.00 and it would be up to the broker whether to pass this cost on to the redeeming holder. However, this fee
would be incurred regardless of whether CHAC requires holders seeking to exercise redemption rights to tender their CHAC Shares.
The need to deliver CHAC Shares is a requirement of exercising redemption rights regardless of the timing of when such delivery
must be effectuated.
Any
request for redemption, once made, may be withdrawn at any time up to the business day immediately preceding the consummation
of the proposed Business Combination. Furthermore, if a stockholder delivered his certificate for redemption and subsequently
decided prior to the date immediately preceding the consummation of the proposed Business Combination not to elect redemption,
he may simply request that the transfer agent return the certificate (physically or electronically).
A
redemption payment will only be made in the event that the proposed Business Combination is consummated. If the proposed Business
Combination is not completed for any reason, then public stockholders who exercised their redemption rights would not be entitled
to receive the redemption payment. In such case, CHAC will promptly return the share certificates to the public stockholder.
Appraisal
Rights
Appraisal
rights are not available to holders of CHAC Shares in connection with the proposed Business Combination.
Proxies
and Proxy Solicitation Costs
We
are soliciting proxies on behalf of our Board of Directors. This solicitation is being made by mail but also may be made by telephone
or in person. CHAC and its directors, officers and employees may also solicit proxies in person, by telephone or by other electronic
means. Any solicitation made and information provided in such a solicitation will be consistent with the written proxy statement
and proxy card.
CHAC
will ask banks, brokers and other nominees to forward its proxy materials to their principals and to obtain their authority to
execute proxies and voting instructions. CHAC will reimburse them for their reasonable expenses.
If
you send in your completed proxy card, you may still vote your shares in person if you revoke your proxy before it is exercised
at the special meeting.
CHAC
Initial Stockholders
In
March 2018, CHAC issued an aggregate of 1,437,500 CHAC Shares for an aggregate purchase price of $25,000. On September 14, 2018,
the Company effectuated a 1.4-for-1 stock dividend resulting in an aggregate of 2,012,500 Founder Shares outstanding. The Founder Shares included an aggregate of up to 262,500 shares subject to forfeiture by the Sponsor to the extent that the underwriters’
over-allotment was not exercised in full or in part, so that the Sponsor would own 20% of CHAC’s issued and outstanding
shares after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering).
The underwriters’ over-allotment option expired unexercised on February 4, 2019. As such, 262,500 CHAC Shares were forfeited
resulting in 1,750,000 Founder Shares issued and outstanding. In addition, in conjunction with the closing of the Initial Public
Offering, an affiliate of the Sponsor purchased 2,900,000 warrants, each warrant to purchase one CHAC Share, at a price of $0.40
per warrant. Each of our officers has a pecuniary interest in the shares held by the Sponsor.
Pursuant
to a registration rights agreement between us and our initial stockholders, those stockholders are entitled to certain registration
rights with respect to the CHAC Shares and CHAC Warrants held by them, as well as the underlying securities. The holders of these
securities are entitled to make up to two demands that CHAC register the sale of such securities. The holders of the initial shares
can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of
common stock are to be released from escrow. In addition, the holders have certain “piggy-back” registration rights
with respect to registration statements filed subsequent to the consummation of a business combination. CHAC will bear the expenses
incurred in connection with the filing of any such registration statements.
THE
BUSINESS COMBINATION PROPOSAL
The
discussion in this proxy statement of the Business Combination and the principal terms of the Merger Agreement, is subject to,
and is qualified in its entirety by reference to, the Merger Agreement. The full text of the Merger Agreement is attached hereto
as
Annex A
, which is incorporated by reference herein.
General
Description of the Business Combination
Business
Combination with BiomX; Business Combination Consideration
On the closing date of
the transactions contemplated by the Merger Agreement, the Merger Sub will merge with and into BiomX, with BiomX surviving
the merger as a wholly-owned subsidiary of CHAC. All of the issued and outstanding shares and other equity interests in and
of BiomX immediately prior to the merger will be canceled, and, in consideration therefor, CHAC will issue (or reserve
for issuance) 16,625,000 CHAC Shares or options or warrants to purchase CHAC Shares to BiomX security holders. Additional
CHAC Shares will be reserved for issuance in respect of options to purchase shares of BiomX capital stock that are
issued, outstanding and unvested as of immediately prior to the effective time of the Business Combination. The issuance of
CHAC securities to the securityholders of BiomX is being consummated on a private placement basis, pursuant to Section
4(a)(2) of the Securities Act. As a result of the Business Combination, an aggregate of 16,625,000 shares of CHAC common
stock will be issued (or reserved for issuance) in respect of shares of BiomX capital stock, and vested options and vested
warrants to purchase shares of BiomX capital stock, issued and outstanding immediately prior to the effective time of the
Business Combination. Additional shares of CHAC common stock will be reserved for issuance in respect of options or warrants
to purchase shares of BiomX capital stock that are issued, outstanding and unvested as of immediately prior to the effective
time of the Business Combination.
CHAC
currently has authorized share capital of 31,000,000 shares consisting of 30,000,000 shares of common stock with a par value of
$0.0001 per share and 1,000,000 shares of preferred stock with a par value of $0.0001 per share.
After the Business Combination,
assuming no redemptions of common stock for cash, CHAC’s current public stockholders will own approximately 21% of the
outstanding CHAC Shares, CHAC’s current directors, officers and affiliates will own approximately 7% of the outstanding
CHAC Shares, and the former stockholders of BiomX will own approximately 72% of the outstanding CHAC Shares. Assuming
redemption by holders of 2,033,709 shares of CHAC’s common stock, CHAC public stockholders will own approximately 13%
of the outstanding CHAC Shares, CHAC’s Sponsor and current directors, officers and affiliates will own approximately
5% of the outstanding CHAC Shares, and the former shareholders of BiomX will own approximately 82% of the
outstanding CHAC Shares. Upon consummation of the Business Combination, BiomX will be a wholly-owned subsidiary of CHAC.
Assuming
the Business Combination Proposal is approved, the parties to the transaction expect to close the Business Combination in October
2019.
Background
of the Business Combination
CHAC was incorporated as a blank check company
on November 1, 2017, under the laws of the state of Delaware, for the purpose of entering into a merger, share exchange, asset
acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities,
which we refer to as a “target business.” CHAC’s efforts to identify a prospective target business were not limited
to any particular industry or geographic location.
On
December 18, 2018, we consummated the Initial Public Offering of 7,000,000 Units. The Units sold in the Initial Public Offering
were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $70,000,000. Chardan Capital Markets LLC.
acted as sole book-running manager of the Initial Public Offering. The securities in the offering were registered under the Securities
Act on a registration statement on
Form S-1
(No. 333-228533). The SEC declared the registration statement effective on December
13, 2018. We granted the underwriters a 45-day option to purchase up to 1,050,000 additional Units to cover over-allotments at
the Initial Public Offering price, less the underwriting discounts and commissions. The over-allotment option expired unexercised
on February 4, 2019.
Simultaneous with the consummation of
the Initial Public Offering, we consummated the private placement of an aggregate of 2,900,000 CHAC Warrants, each
exercisable to purchase one CHAC Share for $11.50 per share, to Mountain Wood, LLC, an
affiliate of the Sponsor at a price of $0.40 per CHAC Warrant, generating total proceeds of $1,160,000. The issuance was made
pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. These CHAC Warrants are
identical to the warrants underlying the Units sold in the Initial Public Offering, except that these warrants are not
transferable, assignable or salable until after the completion of a business combination, subject to certain limited
exceptions. Additionally, these warrants are exercisable on a cashless basis and are non-redeemable so long as they are held
by the initial purchasers or their permitted transferees.
After
deducting the underwriting discounts, offering expenses, and commissions from the Initial Public Offering and the sale of the
private placement CHAC Warrants, a total of $70,000,000 was deposited into a trust account established for the benefit of CHAC’s
public stockholders, and the remaining proceeds became available to be used to provide for business, legal and accounting due
diligence on prospective business combinations and continuing general and administrative expenses.
Of
the gross proceeds received from the Initial Public Offering and the Private Placement Warrants, $70,000,000 was placed in a trust
account. We paid a total of $500,000 in underwriting discounts and commissions and $283,566 for other costs and expenses related
to the Initial Public Offering.
In
accordance with CHAC’s Amended and Restated Certificate of Incorporation, the amounts held in the trust account may only
be used by CHAC upon the consummation of a business combination, except that there can be released to CHAC, from time to time,
any interest earned on the funds in the trust account that it may need to pay its tax obligations. The remaining interest earned
on the funds in the trust account will not be released until the earlier of the completion of a business combination and CHAC’s
liquidation. CHAC executed a definitive agreement on [●] and it must liquidate unless a business combination is consummated
by the date that is 24 months from the closing of the Initial Public Offering, or December 18, 2020.
Immediately
after closing the Initial Public Offering on December 18, 2018, the officers and directors of CHAC began to contact potential
candidates for a business combination. In addition, we were contacted by a number of individuals and entities with respect to
business combination opportunities.
We
believe our management team has a unique combination of experience as an underwriter, sponsor and advisor to SPACs and a wide
and active network of relationships and experiences as an investment bank to emerging growth healthcare companies with particular
focus on the biotechnology sector. Because of this combination of strengths, we were able rapidly and efficiently to evaluate
a wide range of potential business combination candidates, to determine which ones met our transaction criteria, and then quickly
to submit to proposals for a business combination to each of those finalist candidates.
Between
December 20, 2018 and May 31, 2019, CHAC reviewed 69 potential business combination candidates and submitted nine preliminary
proposals to certain of these potential targets, including its initial proposal to BiomX. The CHAC management team held frequent
discussion regarding the various targets during this period both internally and with a wide range of management teams at potential
targets.
With
regard to those eight targets with which CHAC did not pursue a business combination:
Candidate
One: On December 21, 2018, Mr. Grossman was introduced to the chief business officer of Candidate One by a third party. Candidate
One focuses on innovative treatments for liver and metabolic diseases. On December 26, 2018, the companies held a conference call
which was followed by a series of emails and telephone calls and a meeting at Candidate One’s headquarters involving Messrs.
Grossman, Amusa, Kaufman and the senior management team of Candidate One. An initial proposal was presented to Candidate One’s
management during the meeting at Candidate One’s offices on January 3, 2019. Discussions continued during the next week.
However, Candidate One informed CHAC on January 11, 2019 that it had decided to pursue a traditional initial public offering,
ending discussions between the companies regarding a business combination.
Candidate
Two: On January 7, 2019, CHAC was initially introduced to Candidate Two by a third party. Candidate Two is focused on gene-based
therapies for certain rare diseases. Subsequently, the companies held a series of calls, emails and a meeting at Candidate 2’s
headquarters and manufacturing facilities. On January 22, 2019, CHAC submitted an initial proposal to Candidate Two that was followed
by a series of conference calls to discuss the structure and valuation of that proposal and its advantages relative to other alternative
under consideration by Candidate Two. Discussion with Candidate Two came to an end on February 26, 2019 when the company’s
CEO informed CHAC management that Candidate Two would pursue alternative funding plans.
Candidate Three: On January 17, 2019, Mr. Grossman
was introduced to the CEO of Candidate Three via email by a third party. Candidate Three is a biopharmaceutical company focused
on treatments for diseases of the kidney and gastrointestinal tract. Between January 18, 2019 and February 10, 2019, CHAC and Candidate
Three held a series of conversations regarding the scientific, clinical, and commercial status of Candidate Three’s business.
On February 11, 2019, CHAC submitted an initial proposal to Candidate Three. On February 21, 2019, Messrs. Grossman and Amusa held
a conference call with a leading shareholder of Candidate Three. A draft proposal was sent to the CEO of Candidate Three on March
6, 2019. Subsequently, the CEO of Candidate Three reported to Mr. Grossman that the company would be pursuing alternative funding
strategies and withdrew Candidate Three from discussion.
Candidate
Four: On February 21, 2019, Mr. Jonas Grossman was introduced by a third party to the Chairman of the Board of Candidate Four
via email. Candidate Four is engaged in the development of gene-based therapies focused on the oncology market. CHAC and Candidate
Four entered into a nondisclosure agreement enabling CHAC to evaluate certain proprietary clinical and commercial information
regarding Candidate Four. Between March 13, 2019 and early April 2019, Messrs. Grossman and Amusa held a series of telephone conversations
with the CEO and research leadership of Candidate 4 and with certain institutional investors of that company. During April 2019,
as discussions with BiomX advanced, the frequency of interaction with Candidate Four decreased and no further interaction regarding
the initial proposal took place.
Candidate
Five: Because of CHAC’s investment banking and research coverage of genetic medicine companies, Candidate Five was known
to the principals of CHAC as a leading private gene therapy company. Candidate Five is focused on gene-based therapies for bleeding
disorders and other chronic conditions. Subsequent to CHAC’s Initial Public Offering, Candidate 5 emerged as a priority
target for a potential business combination. No discussions regarding a potential business combination with Candidate 5 or any
other candidate were held prior to CHAC’s Initial Public Offering. On March 1, 2019, Mr. Grossman discussed a potential
transaction with the CEO of Candidate Five. Mr. Amusa had a follow-up call with Candidate Five’s CEO and CFO and other members
of the management team on March 5,
,
2019. CHAC submitted an initial proposal to Candidate Five on March 28, 2019. CHAC
did not receive any substantive response and, as discussions with BiomX advanced, CHAC did not pursue this opportunity further.
Candidate
Six: On March 10, 2019, CHAC was introduced to the CEO of Candidate Six by a third party. Candidate Six is a company engaged in
the development of gene-based therapies focused on the oncology market. During the two weeks following the initial introduction,
discussions continued between CHAC and Candidate Six through conference calls between Messrs. Grossman and Amusa and the CEO and
CFO of Candidate Six. Based on this dialogue, an initial proposal was sent to Candidate Six on March 25, 2019. No substantive
response was received, and as discussion with BiomX advanced, CHAC ended substantive discussions with Candidate Six.
Candidate Seven: Messrs. Grossman and Amusa met initially with Candidate Seven at an industry conference
during early April 2019. Candidate Seven is focused on immune system-based therapies for a variety of diseases. Subsequent to this
meeting, CHAC held a series of conference calls and meetings with the senior leadership of Candidate Seven. As a result of these
interactions, CHAC submitted an initial proposal. Because discussions with BiomX accelerated and CHAC did not receive a reply from
Candidate Seven, CHAC ended substantive discussions with Candidate Seven.
Candidate
Eight: CHAC was introduced to Candidate Eight in early April 2019 via email by a third party. Candidate Eight focuses on immune
system-based therapies for infectious diseases and cancer. Based on subsequent discussions and meetings between Messrs. Grossman
and Amusa and Candidate Eight’s leadership team, an initial proposal outlining a potential transaction between Candidate
Eight and CHAC was delivered on a preliminary basis, subject to further discussions. However, discussions with BiomX accelerated
at this time. As a result, CHAC ended substantive discussions with Candidate Eight.
The
background of CHAC’s interaction with BiomX is as follows:
On January 15, 2019, CHAC management held an internal meeting to discuss the microbiome sector as a focus
for the search for a suitable target company. The current clinical programs and prospects for growth were discussed for several
companies, including BiomX. Management commenced outreach both directly and to third parties regarding certain of these potential
candidates, including BiomX.
On
January 21, 2019, Mr. George Kaufman, CFO of CHAC, was introduced via email by a current investor in BiomX to Mr. Assaf Oron,
the Chief Business Officer of BiomX. This investor was aware of BiomX’s capital-raising plans and also of CHAC’s Initial
Public Offering and strategic goal to enter into a business combination with an innovative biotechnology company.
|
–
|
On
January 22, 2019 CHAC and BiomX entered into a nondisclosure agreement that allowed CHAC
to be able to evaluate detailed financial and clinical information concerning BiomX.
|
|
–
|
Between
January 23, 2019 and March 5, 2019, a series of email and conference calls took place
between Messrs. Amusa, Grossman, and Kaufman and BiomX management, including Jonathan
Solomon, BiomX’s CEO, Mr. Oron, and Sigal Fattal, BiomX’s CFO, to discuss
BiomX’s technical, strategic, commercial and capital-raising plans and the prospects
for a business combination with CHAC. Messrs. Grossman and Amusa also had calls with
certain of BiomX’s investors, including certain biotechnology-oriented funds and
family offices to discuss a range of strategic factors that could affect a business combination
between CHAC and BiomX, including the background for those investors’ interest
and valuations, their willingness to roll their equity forward or to increase their investments
in a possible business combination.
|
|
–
|
On
March 6, 2019, CHAC sent to BiomX a letter of intent (“LOI”) regarding a
potential business combination.
|
|
–
|
On
March 7, 2019, Messrs. Solomon and Oron presented at Chardan’s Microbiome Summit
in New York. During the conference, Messrs. Grossman and Amusa and Messrs. Solomon and
Oron met with several biotechnology sector investors in attendance at the conference
to introduce BiomX, discuss the company’s commercial and scientific strategies,
and establish dialogues with those investors about their potential interest in BiomX.
|
|
–
|
On
March 14, 2019, BiomX responded via email to the initial LOI with questions regarding
certain terms of the proposal, including the valuation range, post-transaction corporate
governance, and timing and the organization schedule and related tasks necessary to complete
due diligence.
|
|
–
|
On
March 20, 2019, George Kaufman and Jonas Grossman had a conference call with Mr. Solomon
and Mr. Oron to discuss the proposed LOI, including valuation ranges and the treatment
of various tiers of the BiomX capital structure.
|
|
–
|
On
March 24, 2019, Messrs. Grossman, Kaufman, and Taylor traveled to Israel for meetings
at BiomX’s offices. The CHAC management team met with the BiomX management team
and researchers. CHAC managers visited BiomX’s facilities. The respective teams
reviewed the status of the proposed LOI as well as BiomX scientific, operational, and
commercial strategies and the company’s readiness for a business combination with
CHAC.
|
|
–
|
Between
March 25, 2019 and April 4, 2019, the parties held a series of conference calls and meetings
regarding both BiomX technology and the terms of a proposed business combination. Negotiations
regarding the terms of the LOI took place between the CHAC’s management, CHAC’s
counsel at Loeb & Loeb LLP, BiomX, and BiomX’s counsel Goodwin Proctor LLP.
|
|
–
|
On
April 5, 2019, CHAC and BiomX executed the LOI.
|
|
–
|
Between
April 8, 2019 and June 14, 2019, Messrs. Solomon and Oron and other members of the BiomX
management and scientific advisory teams, along with Messrs. Grossman, Amusa, and Kaufman
met in various combinations and confidentially in the United States and Europe with fund
managers, including certain stockholders of CHAC, to discuss BiomX and the proposed business
combination with CHAC to determine the potential level of market interest in a transaction
between BiomX and CHAC.
|
|
–
|
On
May 9, 2019, during a Board of Directors conference call meeting to review CHAC’s
quarterly financial disclosure and Form 10-Q filing, CHAC management briefed the CHAC
Board of Directors on the progress of a search for a business combination target and
provided an update on the status of talks with BiomX.
|
|
–
|
On
May 21, 2019, a conference call took place to discuss timing and plans for continuing
due diligence between BiomX and CHAC. The conference call was attended by Messrs. Grossman,
Kaufman, Amusa, and support staff from Chardan; Messrs. Solomon, Oron, Fattal and support
staff from BiomX; Loeb & Loeb LLP; and Goodwin Proctor LLP. Later on that same date,
a conference call was held between Loeb & Loeb LLP, Goodwin Proctor LLP, and partners
from Marcum LLP and Brightman Almagor Zohar & Co. (the Israel member firm of Deloitte
Touche Tohmatsu Limited, “Deloitte Israel”), CHAC’s and BiomX’s
auditors, respectively, to discuss required review, audit, disclosure, ongoing diligence
procedures, and timing of tasks to be undertaken by all parties.
|
|
–
|
On
May 23, 2019, CHAC provided an initial draft merger agreement to BiomX.
|
|
–
|
Between
May 22, 2019 and July 16, 2019, CHAC continued its review of due diligence materials.
|
|
–
|
On
June 20, 2019, Mr. Amusa held a telephone call with one of BiomX’s commercial partners
to discuss the status and progress of BiomX’s cooperation with that partner and
to review the prospects for continued clinical cooperation in the future.
|
|
–
|
In
May and June 2019, the various deal teams negotiated the terms of a definitive agreement
between CHAC and BiomX. During those negotiations the parties narrowed the valuation
range being discussed, finalized the post-closing composition of the new Board of Directors,
discussed a minimum cash condition for closing, and reviewed a range of potential structures
for the transaction, among other deal terms. With regard to the transaction structure,
the parties analyzed and discussed the legal, financial, operational, tax, and strategic
impact of different structures on the investors of both BiomX and CHAC before agreeing
on final terms.
|
|
–
|
On
June 24, 2019, Mr. Grossman traveled to Israel to conduct negotiations on remaining business
terms for a business combination between CHAC and BiomX. He returned to New York on June
25, 2019.
|
|
–
|
On
June 26, 2019, CHAC held a special meeting of its Board of Directors. Attending the meeting
were Messrs. Grossman, Amusa, and Kaufman along with independent directors Messrs. Rossen,
Kusseluk, Rice, Gnedy, and Giroux. Also attending the meeting was Loeb & Loeb LLP.
Mr. Grossman presented a review of the overall search process and a summary of the status
of negotiations with BiomX including the remaining business issues that had yet to be
resolved. He informed the Board of Directors that the talks were either going to conclude
shortly and that the Board of Directors would be called on to review a proposed merger
agreement and related document or that CHAC would move on to consideration a new round
of potential merger candidates that had been identified but with whom discussion had
been discontinued pending resolution of negotiations with BiomX.
|
|
–
|
On
June 27, 2019, Mr. Grossman and Messrs. Solomon and Oron held a conference call and discussed
certain negotiation points, including CHAC’s willingness to forego certain amounts
of Founder Shares in the event minimum levels of cash did not remain in CHAC’s trust account at the time of the potential business combination, and BiomX’s
willingness to exclude certain vested or unvested employee warrants and options from
inclusion in merger consideration at the time of the potential business combination.
The parties agreed to certain final business terms and informed their respective counsels
that an agreement in principal had been reached, pending final documentation and respective
Board of Directors’ approvals.
|
|
–
|
Later
in the day on June 27, 2019, a conference call was held attended by the respective working
group members including Mr. Grossman from CHAC, Messrs. Solomon, Oron, Fattal from BiomX,
Loeb & Loeb LLP and Goodwin Proctor LLP, Deloitte Israel, and certain other advisors
to both CHAC and BiomX. The group reviewed the general agreement in principal on certain
terms and discussed plans to finalize transaction documents, including the merger agreement
and ancillary required documents and regulatory filings, and the timeline for all parties
to complete their work prior to a public announcement and subsequent schedule of events
prior to a proposed closing of the business combination.
|
|
–
|
On July 10, 2019 the CHAC Board of Directors held a special meeting to review the transaction with BiomX. At this meeting, CHAC’s Board of Directors approved the transaction and authorized CHAC to enter into the definitive agreement with BiomX to effect the business combination between BiomX and CHAC subject to there being no material changes in the business terms of the Merger Agreement between that date and the approval of the transaction by the BiomX Board of Directors.
|
|
–
|
On July 15, 2019 the BiomX Board of Directors approved the Merger Agreement and related agreements to
effect the business combination between BiomX and CHAC.
|
|
–
|
On
July 16, 2019, the signing of the Merger Agreement by CHAC and BiomX was announced to
the public.
|
|
|
|
|
–
|
On
July 17, 2019, CHAC filed a Current Report on Form 8-K including a press release, a copy
of the Merger Agreement, and a presentation for investors.
|
CHAC’s
Board of Directors’ Reasons for the Approval of the Business Combination
CHAC’s
Board of Directors considered a number of factors pertaining to the Business Combination as generally supporting its decision
to enter into the Merger Agreement and the Business Combination, including but not limited to, the following material factors:
|
●
|
Phage
represents a potentially disruptive and emerging technology
. BiomX is a preclinical
stage microbiome product discovery company developing customized, precision phage products
and therapies to improve the appearance of acne-prone skin and treat medical conditions
related to the presence of specific strains of harmful bacteria that emerging science
suggests may be causative agents in acne-prone skin and chronic diseases such as inflammatory
bowel disease (IBD), primary sclerosing cholangitis (PSC), and colorectal cancer. BiomX
discovers and validates proprietary bacterial targets and customizes natural and engineered
phage cocktails against these specific targets, to overcome the limitations of antibiotic
therapies, such as drug resistance and the lack of precision in antibiotic antibacterial
activity which may lead to dysbiosis. Emerging preclinical science is showing harmful
bacterial may play a role in acne (
P. acnes
), IBD (
K. pneumoniae
), PSC
(
K. pneumoniae
), and/or colorectal cancer (
F. nucleatum
); and, phage technology
may be a precision tool to reduce or eliminate specific strains of harmful bacteria without
exposing patients to risks of eliminating beneficial bacteria through the use of antibiotics.
|
|
●
|
The
safety of phage therapies has been acknowledged at the US FDA.
Human exposure to
phages occurs every day. Certain bacteriophage cocktails are generally recognized as
safe (GRAS) under U.S. food laws and have been approved as food additives. During a July
10, 2017 session at the FDA (
“Bateriophage Therapy:
Scientific and Regulatory Issues Public Workshop”
), Doran Fink, MD, PhD, of
the Center for Biologics Evaluation and Research at the FDA stated that phage target
specific bacteria and are presumed not to affect human cells and tissue. Indeed, as discussed
in the same workshop, the FDA has not had requirements for general GLP toxicology studies
for phage therapies. Potentially disruptive biotechnologies associated with safety have
increased likelihood to meet unmet medical needs in large chronic disease markets given
desires for wide safety margins.
|
|
●
|
BiomX targets large market opportunities with potentially safe phage cocktails
. Due to the safety of phage technologies so far, BiomX is applying its technologies in larger, more-attractive chronic disease markets. EvaluatePharma estimates the global IBD and colorectal cancer markets, respectively, generated $17.7 billion and over $8.4 billion in prescription sales in 2018. We estimate that the prevalence of PSC in the United States is approximately 30,000 patients. For example, a rare disease drug price for PSC of $125,000 or more annually would provide for a total addressable US PSC market opportunity of over $3.5 billion in sales. BiomX is also targeting the potentially lower-risk cosmetic market for the product candidate that may improve the appearance of acne-prone skin. Due to the potential safety of phage, commercialization of a cosmetic product to improve the appearance of acne-prone skin with BiomX’s global partner may occur without the need for FDA approval. WiseGuy Reports estimates the market for cosmetic treatments for acne-prone skin in developed markets during 2018 to exceed approximately $4 billion.
|
|
●
|
Multiple
clinical readouts could create value inflection points in the years ahead
. BiomX
targets to generate proof-of-concept results in its first clinical trial in acne-prone
skin by the first quarter of 2020, with results from the second clinical trial by the
end of 2020. BiomX targets generating Phase 1 data in IBD by the end of 2020. PSC Phase
1/2 data are targeted by the end of 2021. If one or more of the clinical datasets results
in positive results, the potential for BiomX to see future commercial successes may be
enhanced.
|
|
●
|
BiomX
has diversified paths to future revenues and profits
. BiomX’s therapeutic programs
target a diversified set of markets cited above, enabling potential future commercial
successes to not be entirely dependent on the success of a single product candidate or
on the patient populations, reimbursement policies, or competing therapeutic agents associated
with a particular commercial market. Given BiomX’s platform technologies, the possibility
of expanding the uses of BiomX’s technologies into new indications may create strategic
options that further diversify potential future revenue and profit streams.
|
|
●
|
High
scientific barriers to entry exist to replicate BiomX’s capabilities
. BiomX’s
technologies are notable for microbiome (bacterial) biology, phage (viral) biology, computational
biology (through the December, 2017 acquisition of RondinX Ltd.), and synthetic biology capabilities
generated in house and from the research of pre-eminent thought leaders at the Weizmann Institute and MIT. Replicating
competencies in microbiome biology, phage biology, computational biology, and synthetic
biology is a significant barrier, which potentially attracted the interest of BiomX’s
large cap strategic investors.
|
|
●
|
Support
exists from preeminent scientific sponsors and founders
. BiomX’s technology
is based on the research and continuing work of Profs. Rotem Sorek, Ph.D., Eran Elinav,
M.D., Ph.D., and Eran Segal, Ph.D., of The Weizmann Institute; and Professor
Timothy K. Lu, M.D., Ph.D., of MIT. The scientific
founders lead microbiome, phage, and synthetic biology research that has seen widespread
publication in respected peer-reviewed articles. The quality and credibility of BiomX’s
sponsors is a meaningful differentiator and a competitive advantage as BiomX develops
its therapeutic portfolio. For example, due to the relationships of the scientific founders,
BiomX has been able to obtain access to a potentially pathological strain of
Klebsiella
pneumoniae
for the IBD program.
|
|
●
|
BiomX has intellectual property that is intended to generate important barriers to entry
. BiomX seeks to protect its programs with intellectual property related to: phage combinations and cocktails that create new therapeutic functionality, engineering to create synthetic phage cocktails, bacterial targets for eradication and therapies targeting such bacteria, proprietary target discovery tools including the use of data analytic techniques, new formulations including novel topical gels, and innovative manufacturing techniques. BiomX’s intellectual property may represent a strategic advantage in general but particularly at the early phases of microbiome-targeted medicines where BiomX’s technology may serve as a valuable foundation for broader use in an emerging industry where BiomX may capture economic benefits.
|
|
●
|
BiomX
has an experienced and proven management team
. The BiomX management team has a successful
track record managing emerging growth biotechnology companies from early stages through
commercialization. Prior to joining BiomX, CEO Jonathan Solomon was co-founder, president,
and CEO of ProClara (formerly NeuroPhage) where the company raised more than $100 million
and launched clinical trials during his tenure. Chief Business Officer Assaf Oron held
various positions including executive vice president of corporate development and executive
vice president of strategy at Evogene, an agricultural biotechnology company, and served
as CEO of ChondroSite, a biotechnology company. Chief Medical Officer Dr. Sailaja Puttagunta
was most recently Vice President, Development at Iterum Therapeutics, a clinical-stage
pharmaceutical company developing antibiotics against multi-drug resistant pathogens.
Prior to Iterum, Dr. Puttagunta served as VP, Medical Affairs for Anti-infectives at
Allergan from early 2015 and was the VP of Development and Medical Affairs at Durata
Therapeutics, Inc. prior to its acquisition by Actavis plc. Prior to Durata, Dr. Puttagunta
led teams within clinical development and medical affairs on various antibiotic compounds
at Pfizer Inc.
|
|
●
|
BiomX
has support and validation from leading global commercial partners
. BiomX has entered
into a collaboration with a leading global cosmetic company with respect to its acne-prone
skin product candidate. The Company is working with Janssen, a unit of Johnson & Johnson, on biomarker discovery
for its IBD treatment. The interest and support of these commercial partners enhances
BiomX’s research and commercialization potential.
|
|
●
|
Continued
participation by leading biotech private investors
. BiomX shareholders include OrbiMed
Healthcare Fund Management, Johnson & Johnson, Takeda Pharmaceuticals, Seventure,
and 8VC. No current investors are selling shares during the Business Combination and
all have agreed to vote in favor of the transaction. We believe the research and due
diligence done by these investors represents a validation of BiomX’s technology,
strategies, and management.
|
|
●
|
Industry
Trends and the Business and Financial Condition and Prospects of BiomX.
The board
is knowledgeable about the biotechnology industry and considered BiomX’s business,
financial condition, results of operations (including BiomX’s favorable cash burn
profile) and future growth prospects. The Board discussed BiomX’s current prospects
for growth in executing upon and achieving BiomX’s business plans.
|
|
●
|
Other
Alternatives
. The Board’s belief is that the proposed Business Combination
represents the best potential business combination for the Company based upon the process
utilized to evaluate and assess other potential acquisition targets, and the Board’s
and management’s belief that such processes had not presented a better alternative.
|
|
●
|
Terms
of the Merger Agreement
. The Board considered the terms and conditions of the Merger
Agreement and the transactions contemplated thereby.
|
CHAC’s
Board of Directors also considered a variety of uncertainties and risks and other potentially negative factors concerning the
Business Combination, including, but not limited to, the following:
|
●
|
Benefits
Not Achieved
. The risk that the potential benefits of the Business Combination may
not be fully achieved, or may not be achieved within the expected timeframe.
|
|
●
|
Liquidation
of CHAC
. The risks and costs to CHAC if the Business Combination is not completed,
including the risk of diverting management focus and resources from other businesses
combination opportunities, which could result in CHAC being unable to effect a business
combination by December 2020 and force CHAC to liquidate and the warrants to expire worthless.
|
|
●
|
Stockholder
Vote
. The risk that CHAC’s stockholders may fail to provide the votes necessary
to effect the Business Combination.
|
|
●
|
Closing
Conditions
. The fact that completion of the Business Combination is conditioned on
the satisfaction of certain closing conditions that are not within the Company’s
control.
|
|
●
|
Litigation
.
The possibility of litigation challenging the Business Combination or that an adverse
judgment granting permanent injunctive relief could indefinitely enjoin consummation
of the Business Combination.
|
|
●
|
Fees
and Expenses
. The fees and expenses associated with completing the Business Combination.
|
|
●
|
Other
Risks
. Various other risks associated with the Business Combination, the business of the Company and the business of BiomX
described under the section entitled
“Risk Factors.”
|
In
addition to considering the factors described above, the Board of Directors also considered that:
|
●
|
Interests of Certain
Persons
. Some officers and directors of the Company may have interests in the Business Combination as individuals that
are in addition to, and that may be different from, the interests of the Company’s stockholders (see
The Business
Combination Proposal — Interests of Certain Persons in the Business Combination
”). Our independent directors
reviewed and considered these interests during the negotiation of the Business Combination and in evaluating and unanimously
approving, as members of the Board, the Merger Agreement and the Business Combination.
|
The
Board of Directors concluded that the potential benefits that it expected CHAC and its stockholders to achieve as a result of
the Business Combination outweighed the potentially negative factors associated with the Business Combination. Accordingly, the
Board of Directors unanimously determined that the Merger Agreement and the Business Combination were advisable, fair to, and
in the best interests of, CHAC and its stockholders.
Summary
of CHAC Financial Analysis
The
following is a summary of the material financial analyses prepared and reviewed by CHAC in connection with the valuation of BiomX.
The summary set forth below does not purport to be a complete description of the financial analyses performed or factors considered
by us nor does the order of the financial analyses described represent the relative importance or weight given to those financial
analyses by the Board of Directors. We may have deemed various assumptions more or less probable than other assumptions, so the
reference ranges resulting from any particular portion of the analyses summarized below should not be taken to be our view of
the actual value of BiomX. Some of the summaries of the financial analyses set forth below include information presented in tabular
format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary, as
the tables alone do not constitute a complete description of the financial analyses performed by us. Considering the data in the
tables below without considering all financial analyses or factors or the full narrative description of such analyses or factors,
including the methodologies and assumptions underlying such analyses or factors, could create a misleading or incomplete view
of the processes underlying our financial analyses and our Board of Directors’ recommendation.
In performing our analyses, we made numerous
material assumptions with respect to, among other things, timing of clinical trials, patient enrollment, timing of receipt of regulatory
approvals that may be needed, characterization of the product candidates, the timing of, and amounts of, any royalty payments,
milestone payments or other payments due to third parties by BiomX, the entry by BiomX into license or collaboration agreements,
market size, commercial efforts, industry performance, general business and economic conditions and numerous other matters, many
of which are beyond the control of CHAC, BiomX or any other parties to the Business Combination. None of BiomX, CHAC, or any other
person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly
more or less favorable than as set forth below. In addition, analyses relating to the value of BiomX do not purport to be appraisals
or reflect the prices at which BiomX shares may actually be valued. Accordingly, the assumptions and estimates used in, and the
results derived from, the financial analyses are inherently subject to substantial uncertainty. Except as otherwise noted, the
following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or
before July 15, 2019 (the last trading day before the public announcement of the Business Combination) and is not necessarily indicative
of current market conditions.
Selected
Initial Public Offering Market Analysis
CHAC
reviewed certain financial information of BiomX and the structure of the proposed Business Combination and compared it to corresponding
financial information of certain recent initial public offerings (in this section) and certain publicly trading companies (in
the next section) that CHAC selected based on CHAC’s experience and professional judgment. Although none of the selected
companies is directly comparable to BiomX, the companies listed below were chosen by CHAC, among other reasons, because they successfully
completed initial public offerings and they were microbiome and related companies with comparable clinical stage assets and with
certain operational, business and/or financial characteristics that, for purposes of CHAC’s analysis, may be considered
similar to those of BiomX.
However,
because none of the selected companies is exactly the same as BiomX, CHAC believed that it was inappropriate to, and therefore
did not rely solely on the quantitative results of the selected initial public offering analysis. Accordingly, CHAC also made qualitative
judgments, based on its experience and professional judgment, concerning differences between the operational, business and/or
financial characteristics of BiomX and the selected companies to provide a context in which to consider the results of the quantitative
analysis.
CHAC
reviewed and compared pre-money and post-money equity values for the initial public offerings of selected companies based on information
obtained from public filings, publicly available information, and available research. Based on this analysis of microbiome initial public offerings, which CHAC deemed relevant based on its professional judgment and expertise,
CHAC applied a band of plus or minus 25% to the mean post-money valuation of these transactions.
The
selected companies’ Initial Public Offering Market Analysis is set forth below:
Date
|
|
Issuer
|
|
Lead Asset
Stage at Initial
Public
Offering
|
|
Size
($MM)
|
|
|
Pre-
Money
($MM)
|
|
|
Post-
Money
($MM)
|
|
02/28/19
|
|
Kaleido BioSciences
|
|
Pre-Phase 2
|
|
$
|
75
|
|
|
$
|
369
|
|
|
$
|
444
|
|
05/08/18
|
|
Evelo Biosciences
|
|
Phase 1
|
|
$
|
85
|
|
|
$
|
425
|
|
|
$
|
510
|
|
06/25/15
|
|
Seres Therapeutics
|
|
Phase 2
|
|
$
|
134
|
|
|
$
|
547
|
|
|
$
|
681
|
|
Mean
|
|
|
|
|
|
$
|
98
|
|
|
$
|
447
|
|
|
$
|
545
|
|
Median
|
|
|
|
|
|
$
|
85
|
|
|
$
|
425
|
|
|
$
|
510
|
|
This
analysis resulted in the following implied per share equity value ranges for the BiomX shares:
Scenario
|
|
Implied Per Share Equity Value Range
|
|
Mean minus 25%
|
|
$
|
16.11
|
|
Mean
|
|
$
|
21.48
|
|
Mean plus 25%
|
|
$
|
26.85
|
|
CHAC
compared these ranges to the $10.00 valuation per CHAC Share proposed to be paid to the holders of the BiomX shares in the form
of newly issued CHAC Shares pursuant to the Merger Agreement.
Selected
Microbiome Public Comparable Company Analysis
CHAC
reviewed certain financial information of BiomX and compared it to certain publicly
traded companies, selected based on CHAC’s experience and professional judgment.
Because
none of the selected companies is exactly the same as BiomX, CHAC believed that it was inappropriate to, and therefore did not
rely solely on the quantitative results of the selected public company analysis. Accordingly, CHAC also made qualitative judgments,
based on its experience and professional judgment, concerning differences between the operational, business and/or financial characteristics
of BiomX and the selected companies to provide a context in which to consider the results of the quantitative analysis.
CHAC
considered certain financial and operating data for publicly traded microbiome and related genetic medicine-oriented companies
that CHAC deemed relevant for analysis. The selected companies were:
|
●
|
Kaleido
Biosciences, Inc.
|
|
●
|
Evelo
Biosciences, Inc.
|
|
●
|
Seres
Therapeutics, Inc.
|
None
of the selected companies have characteristics identical to BiomX. These companies have greater resources than does BiomX and their product candidates may be more advanced
than BiomX. However, CHAC selected these companies based on its experience and professional
judgment. An analysis of selected publicly traded companies is not purely quantitative; rather it involves complex consideration
and judgements concerning differences in financial and operating characteristics of the selected companies and other factors that
could affect the public trading values of the companies reviewed. CHAC believed that it was inappropriate to, and therefore did
not, rely solely on the quantitative results of the selected public company analysis. Accordingly, CHAC also made qualitative
judgments, based on its experience and professional judgment, concerning differences between the operational, business and/or
financial characteristics of BiomX and the selected companies to provide a context in which to consider the results of the quantitative
analysis.
CHAC
calculated and compared forward revenue multiples for the selected companies based on information it obtained from public filings
and Chardan Equity Research.
The
selected company analysis indicated an implied per share reference ranges shown in the table below for each of the Case A, Case
B, and Case C Forecasts as set forth in the section entitled “
Certain Forecasts
” below.
Scenario
|
|
Low end
|
|
|
High End
|
|
Case A
|
|
$
|
10.52
|
|
|
$
|
12.30
|
|
Case B
|
|
$
|
14.64
|
|
|
$
|
17.55
|
|
Case C
|
|
$
|
21.49
|
|
|
$
|
26.24
|
|
CHAC
compared these ranges to the $10.00 valuation per CHAC Share proposed to be paid to the holders of the BiomX shares in the form
of newly issued CHAC Shares pursuant to the Merger Agreement.
Discounted
Cash Flow Analysis
CHAC
performed discounted cash flow analyses of BiomX based on Case A Forecasts, Case B Forecasts and Case C Forecasts as set forth
below, all of which forecasts were produced by CHAC based on information provided by BiomX. A discounted cash flow analysis is
an established valuation method used to estimate the “present value” of future cash inflows of an asset or investment
in order to estimate the attractiveness of the investment opportunity. The “present value” can be calculated by discounting
the future cash flows at a discount rate (weighted average cost of capital, or “WACC”) that considers opportunity
costs of capital, the return that investors expect, and the investment’s exposure to macroeconomic or systemic risks, and
other appropriate factors. A discounted cash flow analysis can also be adapted to fit the specifics of a certain sector like the
microbiome sector. However, it should be understood that the microbiome sector is still a new area of focus, the regulatory approval
pathway for novel and engineered phage is uncertain, and it is inherently unreliable to predict the cash flows for a preclinical
stage company. Moreover, the analysis assumes that BiomX will be treated as a cosmetic product and there can be
no assurance, as discussed in “Risk Factors” that regulators will not object to this approach.
In conducting discounted cash flow analyses
across the cases presented, CHAC calculated ranges of BiomX equity per share values by calculating, using the mid-year convention,
present values as of June 30, 2019 using WACCs ranging from 13.4% to 15.4%. CHAC additionally considered or generated (a) risk-adjusted
sales estimates for BiomX’s products in acne-prone skin, IBD, PSC, and colorectal cancer, (b) a full income statement, a
full cash flow statement, and a full balance sheet, (c) BiomX’s estimated net cash balance as of June 30, 2019 of approximately
$40 million, based on the internal data provided by BiomX management, (c) an assumed $70 million equity financing in
2019 at $10 per share net proceeds to support the development of products in acne-prone skin, IBD, PSC, and colorectal cancer.
CHAC divided the BiomX enterprise value by the pro forma fully diluted BiomX shares as at the estimated close of the Business Combination
to derive equity value per share ranges listed below.
This
analysis resulted in the following implied per share equity value ranges for the BiomX shares:
Case
|
|
Implied Per BiomX
Share
Equity Value Range
|
|
Case A Forecasts
|
|
$
|
16.81 – $22.99
|
|
Case B Forecasts
|
|
$
|
27.55 – $37.81
|
|
Case C Forecasts
|
|
$
|
45.38 – $62.37
|
|
CHAC
compared these ranges to the $10.00 valuation per CHAC Share proposed to be paid to the holders of the BiomX shares in the form
of newly issued CHAC Shares pursuant to the Merger Agreement.
General
In
arriving at BiomX valuations under various scenarios and cases, CHAC made assumptions and determinations on the basis of its professional
judgment and experiences, independently of BiomX, after reviewing the results of various financial analyses and other diligence.
The financial analyses above and other diligence should not be considered determinative as to perspectives or views of the BiomX
management or Board, as relates to whether the current or a different consideration is fair. The ultimate consideration for the
Business Combination was established through arm’s-length negotiations between BiomX and CHAC prior to approval by the BiomX
and CHAC boards.
Certain
CHAC Forecasts
BiomX is a preclinical stage microbiome
company expecting to start a first clinical trial by the end of 2019, and as such does not yet have any revenue-generating products,
and thus does not make public its long-term financial forecasts driven by the potential of its phage products. In connection with
BiomX’s Board of Directors’ evaluation of the Business Combination, BiomX’s management did not prepare long-range,
risk-adjusted revenue projections but did provide expense estimates for the years 2019 through 2022, which were based on numerous
assumptions and qualifications believed by BiomX to be reasonable. The expense forecasts were provided to the BiomX Board of Directors
and to CHAC. CHAC conducted additional analyses, independently of BiomX, to assess the risk-adjusted revenue prospects of acne (assuming
the product candidate will be marketed as a cosmetic), IBD, PSC, and colorectal cancer products by relying on assumptions, none
of which were approved by BiomX, about the robustness of BiomX’s technologies, the likelihood of the emergence of phage as
a therapeutic platform, regulatory postures around phage technology, and individual product probabilities of success, launch timing,
pricing, pricing growth, market growth, phage market penetration, BiomX product candidates’ market share, effects from competition
and certain other factors affecting the commercial prospects of BiomX’s product candidates. Factors considered and assumptions
made by CHAC are extremely uncertain and difficult to predict, with many being beyond the control of BiomX or its competitors as
discussed in the section titled “Risk Factors.” CHAC thought it appropriate to prepare forecasts representing three
cases (A, B, and C) reflecting a range of risk-adjusted commercial outcomes on BiomX’s portfolio of product candidates, none
of which has received any regulatory or marketing approvals. As such, there can be no certainty that the forecasts presented will
be realized or that BiomX will ever receive regulatory approval required in connection with any product candidate or achieve profitability.
CHAC’s management has prepared the
prospective financial information set forth below to present three cases (A, B, and C) reflecting a range of risk-adjusted
commercial outcomes on BiomX’s portfolio of product candidates, none of which has received any regulatory or marketing approvals.
The accompanying prospective financial information was not prepared with a view toward public disclosure or with a view toward
complying with the guidelines established by the SEC, nor for GAAP or other foreign or international accounting standards respect
to prospective financial information, but, in the view of CHAC’s management, was prepared on a reasonable basis, reflects the
best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected
course of action and the expected future financial performance of the Company. However, this information is not fact and should
not be relied upon as being necessarily indicative of future results, and readers of this proxy statement are cautioned
not to place undue reliance on the prospective financial information.
Neither CHAC’s independent auditors,
nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial
information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability,
and assume no responsibility for, and disclaim any association with, the prospective financial information.
The combined company does
not intend to update or otherwise revise the prospective financial information to reflect circumstances existing since its preparation
or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown
to be in error. Furthermore, the combined company does not intend to update or revise the prospective financial information to
reflect changes in general economic or industry conditions.
Case
A Forecasts
|
|
Fiscal years
ended December 31, ($ in millions)
|
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
|
2030E
|
|
Total Revenues (1)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
12
|
|
|
|
23
|
|
|
|
52
|
|
|
|
114
|
|
|
|
245
|
|
|
|
468
|
|
|
|
646
|
|
Gross Profit (2)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
12
|
|
|
|
23
|
|
|
|
41
|
|
|
|
90
|
|
|
|
194
|
|
|
|
371
|
|
|
|
514
|
|
Operating Income (Loss)
(3)
|
|
|
(19
|
)
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(30
|
)
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(24
|
)
|
|
|
(15
|
)
|
|
|
23
|
|
|
|
72
|
|
|
|
179
|
|
|
|
305
|
|
Unlevered Free Cash Flow (4)
|
|
|
(10
|
)
|
|
|
(21
|
)
|
|
|
(26
|
)
|
|
|
(31
|
)
|
|
|
(35
|
)
|
|
|
(28
|
)
|
|
|
(25
|
)
|
|
|
(22
|
)
|
|
|
19
|
|
|
|
53
|
|
|
|
131
|
|
|
|
239
|
|
(1)
|
Total
Revenues, as presented herein, reflects company revenues, inclusive of royalty revenues.
|
(2)
|
Gross
Profit, as presented herein, reflects Total Revenues, less product cost of goods sold,
less royalty payments, and less milestone payments.
|
(3)
|
Operating
Income, as presented herein, reflects Gross Profit, less research and development expenses,
less sales and marketing expenses, less general and administrative expenses, and less
other operating income and expenses.
|
(4)
|
Unlevered
Free Cash Flow, as presented herein, reflects Operating Income, less tax expenses, plus
depreciation and amortization, less capital expenditures, less changes in working capital,
plus deferred taxes, and plus other non-cash items. Unlevered free cash flow is a non-GAAP
financial measure. Non-GAAP financial measures should not be considered a substitute
for, or superior to, financial measures determined or calculated in accordance with GAAP.
Additionally, non-GAAP financial measures as presented in this document may not be comparable
to similarly titled measures reported by other companies.
|
Case
B Forecasts
|
|
Fiscal
years ended December 31, ($ in millions)
|
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
|
2030E
|
|
Total Revenues (1)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7
|
|
|
|
18
|
|
|
|
34
|
|
|
|
78
|
|
|
|
177
|
|
|
|
391
|
|
|
|
762
|
|
|
|
1058
|
|
Gross Profit (2)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7
|
|
|
|
18
|
|
|
|
34
|
|
|
|
62
|
|
|
|
139
|
|
|
|
310
|
|
|
|
604
|
|
|
|
841
|
|
Operating Income (3)
|
|
|
(19
|
)
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(30
|
)
|
|
|
(30
|
)
|
|
|
(28
|
)
|
|
|
(26
|
)
|
|
|
(17
|
)
|
|
|
36
|
|
|
|
115
|
|
|
|
291
|
|
|
|
499
|
|
Unlevered Free Cash Flow (4)
|
|
|
(10
|
)
|
|
|
(21
|
)
|
|
|
(26
|
)
|
|
|
(31
|
)
|
|
|
(36
|
)
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(28
|
)
|
|
|
30
|
|
|
|
84
|
|
|
|
214
|
|
|
|
392
|
|
|
(1)
|
Total
Revenues, as presented herein, reflects company revenues, inclusive of royalty revenues.
|
|
(2)
|
Gross
Profit, as presented herein, reflects Total Revenues, less product cost of goods sold,
less royalty payments, and less milestone payments.
|
|
(3)
|
Operating
Income, as presented herein, reflects Gross Profit, less research and development expenses,
less sales and marketing expenses, less general and administrative expenses, and less
other operating income and expenses.
|
|
(4)
|
Unlevered
Free Cash Flow, as presented herein, reflects Operating Income, less tax expenses, plus
depreciation and amortization, less capital expenditures, less changes in working capital,
plus deferred taxes, and plus other non-cash items. Unlevered free cash flow is a non-GAAP
financial measure. Non-GAAP financial measures should not be considered a substitute
for, or superior to, financial measures determined or calculated in accordance with GAAP.
Additionally, non-GAAP financial measures as presented in this document may not be comparable
to similarly titled measures reported by other companies.
|
Case
C Forecasts
|
|
Fiscal
years ended December 31, ($ in millions)
|
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
|
2030E
|
|
Total Revenues (1)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12
|
|
|
|
31
|
|
|
|
57
|
|
|
|
130
|
|
|
|
291
|
|
|
|
642
|
|
|
|
1247
|
|
|
|
1730
|
|
Gross Profit (2)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12
|
|
|
|
31
|
|
|
|
57
|
|
|
|
102
|
|
|
|
230
|
|
|
|
508
|
|
|
|
989
|
|
|
|
1375
|
|
Operating Income (3)
|
|
|
(19
|
)
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(30
|
)
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(25
|
)
|
|
|
(14
|
)
|
|
|
59
|
|
|
|
188
|
|
|
|
477
|
|
|
|
817
|
|
Unlevered Free Cash Flow (4)
|
|
|
(10
|
)
|
|
|
(21
|
)
|
|
|
(26
|
)
|
|
|
(31
|
)
|
|
|
(35
|
)
|
|
|
(27
|
)
|
|
|
(25
|
)
|
|
|
(35
|
)
|
|
|
51
|
|
|
|
136
|
|
|
|
353
|
|
|
|
642
|
|
|
(1)
|
Total
Revenues, as presented herein, reflects company revenues, inclusive of royalty revenues.
|
|
(2)
|
Gross
Profit, as presented herein, reflects Total Revenues, less product cost of goods sold,
less royalty payments, and less milestone payments.
|
|
(3)
|
Operating
Income, as presented herein, reflects Gross Profit, less research and development expenses,
less sales and marketing expenses, less general and administrative expenses, and less
other operating income and expenses.
|
|
(4)
|
Unlevered
Free Cash Flow, as presented herein, reflects Operating Income, less tax expenses, plus
depreciation and amortization, less capital expenditures, less changes in working capital,
plus deferred taxes, and plus other non-cash items. Unlevered free cash flow is a non-GAAP
financial measure. Non-GAAP financial measures should not be considered a substitute
for, or superior to, financial measures determined or calculated in accordance with GAAP.
Additionally, non-GAAP financial measures as presented in this document may not be comparable
to similarly titled measures reported by other companies.
|
Cautionary
Statement Regarding the CHAC Forecasts
The
inclusion in this proxy statement of the CHAC forecasts and of certain analysis referencing such forecasts should not be seen
as an indication that BiomX, CHAC or their respective boards of directors, management, affiliates, advisors, or any other related
parties consider the forecasts predictive of actual future financial performance or events, and such forecasts should not be relied
upon as such. All such parties cannot provide any assurance whatsoever that actual results will be consistent or even partially
consistent with the forecasts provided. Indeed, actual results may differ profoundly from projections due to various uncertainties,
and none of aforementioned parties undertakes any obligation to update, revise, reconcile, or confirm or disconfirm any forecasts
based on circumstances arising after the date at which listed forecasts were generated, based on future events or any other factors.
None of BiomX or CHAC or any of their respective affiliated parties intends to make publicly available any updates to the forecasts
in this document, except as required by law.
The
financial forecasts prepared by management of CHAC were not prepared with a view toward public disclosure nor prepared with a
view toward compliance with the guidelines established by the American Institute of Certified Public Accountants for preparation
and presentation of prospective financial information, or in accordance with GAAP. Neither the independent registered public accounting
firm of BiomX nor of CHAC nor any other independent accountant has audited, reviewed, compiled, examined or performed any procedures
with respect to the unaudited prospective financial information for the purpose of its inclusion in this proxy statement, and
accordingly, neither independent registered public accounting firm nor any other independent accountant expresses an opinion or
provides any form of assurance with respect thereto. Due to inherent uncertainties in financial projections of any kind, stockholders
are cautioned not to place undue reliance, if any, on the forecasts. Forecasts are subjective in nature and may not be realized,
and reflect numerous assumptions made by management, including material assumptions regarding, among other things, timing of clinical
trials, patient enrollment, timing of receipt of regulatory approvals that may be needed, characterization of the product candidates,
the timing of, and amounts of, any royalty payments, milestone payments or other payments due to third parties by BiomX, the entry
by BiomX into license or collaboration agreements, market size, commercial efforts, industry performance, general business and
economic conditions and numerous other matters that may not be realized and are subject to significant uncertainties and contingencies,
all of which are difficult to predict and many of which are beyond the control of the preparing party.
There
may be differences between actual and projected results, and the differences may be material. The risk that these uncertainties
and contingencies could cause the assumptions to fail to be reflective of actual results is further increased by the length of
time over which these assumptions apply. The failure to achieve assumptions and projections in early periods could have a compounding
effect on the projections shown for the later periods. Thus, any such failure of an assumption or projection to be reflective
of actual results in an early period could have a greater effect on the projected results failing to be reflective of actual events
in later periods. BiomX is a preclinical stage company, without a regulatorily-approved product, and as discussed elsewhere in
this proxy statement, its business is subject to numerous risks. In the context of a preclinical stage company projections
are inherently unreliable given the many variables, especially in later years, that may affect results.
All
financial forecasts are “forward-looking statements” within the meaning of the “safe harbor” provisions
of the US Private Securities Litigation Reform Act of 1995. See “
Special Note Regarding Forward-Looking Statements
.”
In
light of the foregoing factors and the uncertainties inherent in these projections, stockholders are cautioned not to place undue,
if any, reliance on these projections.
Other
CHAC Considerations
The
Board of Directors focused its analysis on whether the Business Combination is likely to generate a return for CHAC’s stockholders
that is greater than if the trust were to be liquidated. Our Board of Directors unanimously concluded that the Merger Agreement
with BiomX is fair to and in the best interests of the CHAC stockholders. The Board of Directors did not obtain a fairness opinion
on which to base its assessment. Because of the financial skills and background of its members, the Board of Directors believes
it was qualified to perform the analysis discussed in this section.
Recommendation
of CHAC’s Board of Directors
After
careful consideration, CHAC’s Board of Directors determined that the Business Combination with BiomX is fair to, and in
the best interests of, CHAC and its stockholders. On the basis of the foregoing, CHAC’s Board of Directors has approved
and declared advisable the Business Combination and recommends that you vote or give instructions to vote “FOR” each
of the Business Combination Proposal and the other proposals.
CHAC’s Board of Directors
have interests that may be different from, or in addition to your interests as a stockholder. See “
The Business Combination
Proposal— Interests of Certain Persons in the Business Combination
” for further information.
Interests
of Certain Persons in the Business Combination
When
you consider the recommendation of CHAC’s Board of Directors in favor of adoption of the Business Combination Proposal and
other proposals, you should keep in mind that CHAC’s directors and officers have interests in the Business Combination that
are different from, or in addition to, your interests as a stockholder, including:
|
●
|
If
the proposed Business Combination is not completed by the date that is 24 months from
the closing of the Initial Public Offering, or December 18, 2020, the 1,750,000 Founder
Shares held by CHAC’s Sponsor and other initial stockholders, which were acquired
prior to the Initial Public Offering for an aggregate purchase price of $25,000, will
be worthless. Such common stock had an aggregate market value of approximately [$●]
based on the closing price of CHAC’s common stock of [$●] on the NYSE American
Stock Exchange as of [●], 2019.
|
|
●
|
If
the proposed Business Combination is not completed by the date that is 24 months from
the closing of the Initial Public Offering, or December 18, 2020, the 2,900,000 Private
Warrants purchase by Mountain Wood, LLC, an affiliate of our Sponsor, for a total purchase
price of $1,160,000, will be worthless. Such warrants had an aggregate market value of
approximately [$●] based on the closing price of CHAC’s warrants of $[●]
on the NYSE American Stock Exchange as of [●], 2019.
|
|
●
|
The
exercise of CHAC’s directors’ and officers’ discretion in agreeing
to changes or waivers in the terms of the transaction may result in a conflict of interest
when determining whether such changes or waivers are appropriate and in our stockholders’
best interest.
|
|
●
|
If the Business Combination with BiomX is completed, CHAC will designate two members to the Board of Directors
of the Merger Sub, some of whom may be current officers or directors of CHAC.
|
Anticipated
Accounting Treatment
The Business Combination will be treated by CHAC as a “reverse merger” in accordance with
GAAP. For accounting purposes, BiomX is considered to be acquiring CHAC in this transaction. Therefore, for accounting purposes,
the Business Combination will be treated as the equivalent of a capital transaction in which BiomX is issuing stock for the
net assets of CHAC. The net assets of CHAC will be stated at historical cost, with no goodwill or other intangible assets recorded.
The post-acquisition financial statements of CHAC will show the consolidated balances and transactions of CHAC and BiomX as well
as comparative financial information of BiomX (the acquirer for accounting purposes).
Regulatory
Approvals
The Business Combination and
the other transactions contemplated by the Merger Agreement are not subject to any additional federal or state regulatory requirements
or approvals, including the Hart-Scott Rodino Antitrust Improvements Act of 1976, except for a filing with the Israeli Registrar
of Companies necessary to effectuate the transactions contemplated by the Merger Agreement.
THE
MERGER AGREEMENT
The
following is a summary of the material provisions of the Merger Agreement, a copy of which is attached as
Annex A
to this
proxy statement. You are encouraged to read the Merger Agreement in its entirety for a more complete description of the terms
and conditions of the Business Combination.
Acquisition of BiomX; Consideration
Upon the closing of the transactions contemplated
in the Merger Agreement (the “Closing”), Merger Sub will merge (the “Merger”) with and into BiomX, resulting
in BiomX becoming a wholly owned subsidiary of CHAC.
As a result of the
Business Combination, subject to reduction for indemnification claims as described below, an aggregate of 16,625,000 shares
of CHAC common stock will be issued (or reserved for issuance pursuant to currently exercisable options or warrants) in
respect of shares of BiomX capital stock, and vested options and vested warrants to purchase shares of BiomX capital stock,
in each case, issued and outstanding immediately prior to the Closing. Additional shares of CHAC common stock will
be reserved for issuance in respect of options or warrants to purchase shares of BiomX capital stock that are
issued, outstanding and unvested as of immediately prior to the Closing.
The parties agreed that immediately following
the closing of the Business Combination, CHAC’s board of directors will consist of no more than seven directors, two of which
will be designated by the Sponsor and five of which will be designated by BiomX.
Stockholder Approval
Prior to the consummation of the Business
Combination, the holders of a majority of CHAC’s common stock attending a stockholder’s meeting (at which there is
a quorum) must approve the transactions contemplated by the Merger Agreement (the “Stockholder Approval”). In connection
with obtaining the Stockholder Approval, CHAC must call a special meeting of its common stockholders and must prepare and file
with the SEC a Proxy Statement on Schedule 14A, which will be mailed to all stockholders entitled to vote at the meeting.
Representations and Warranties
In the Merger Agreement, BiomX makes certain
representations and warranties (with certain exceptions set forth in the disclosure schedule to the Merger Agreement) relating
to, among other things: (a) proper corporate organization of BiomX and its subsidiaries and similar corporate matters; (b) authorization,
execution, delivery and enforceability of the Merger Agreement and other transaction documents; (c) absence of conflicts; (d)
capital structure; (e) accuracy of charter and governing documents; (f) affiliate transactions; (g) required consents and approvals;
(h) financial information; (i) absence of certain changes or events; (j) title to assets and properties; (k) material contracts;
(l) insurance; (m) licenses and permits; (n) compliance with laws, including those relating to foreign corrupt practices and money
laundering; (o) ownership of intellectual property; (p) employment and labor matters; (q) taxes and audits; (r) environmental
matters; (s) brokers and finders; and (t) other customary representations and warranties.
In the Merger Agreement, CHAC makes certain
representations and warranties relating to, among other things: (a) proper corporate organization and similar corporate matters;
(b) authorization, execution, delivery and enforceability of the Merger Agreement and other transaction documents; (c) brokers
and finders; (d) capital structure; (e) validity of share issuance; (f) minimum trust fund amount; (g) Nasdaq listing; and (h)
SEC filing requirements.
Conduct Prior to Closing; Covenants
The Merger Agreement contains certain customary
covenants of CHAC and BiomX, including, among others, the following:
|
●
|
BiomX has agreed to operate its business in the ordinary course prior to the closing of the Business Combination
(with certain exceptions) and not to take certain specified actions without the prior written consent of CHAC.
|
|
●
|
CHAC has agreed to operate its business in the ordinary course prior to the closing of the Business Combination
(with certain exceptions) and not to take certain specified actions without the prior written consent of BiomX.
|
In addition, the parties agreed to take
the following actions, among others, before the completion of the Business Combination:
|
●
|
CHAC
and BiomX shall use their commercially reasonable efforts to cause:
|
|
●
|
the immediately available funds contained in CHAC’s trust account (net of any redemption amounts)
available for release to CHAC immediately following the closing of the Business Combination (but prior to the payment of any expenses
of CHAC), plus the immediately available funds deposited by third party investors into an escrow account established for the purposes
of holding the cash proceeds paid by such third party investors to purchase CHAC Shares from current CHAC public stockholders to
equal or exceed $30,000,000; and
|
|
●
|
the
immediately available funds deposited by certain BiomX shareholders into an escrow account
established for the purposes of holding the cash proceeds paid by such BiomX shareholders
to purchase CHAC Shares from current CHAC public stockholders, to equal or exceed $20,000,000.
|
|
●
|
Prior to the Closing, BiomX will amend its existing equity
incentive plan (or adopt a new equity incentive plan having the same effect that will be assumed by CHAC as of the Closing),
to include: (a) an “evergreen” provision that will provide for an automatic increase on an annual basis in the
number of shares available for issuance under BiomX’s existing equity incentive plan (or such new equity incentive
plan) equal to an amount as determined by the compensation committee, not to exceed on an annual basis four percent (4%) of
the total number of shares of CHAC common stock then-issued and outstanding; and (b) such other terms as are customary for a
company whose securities are traded on the NYSE American Stock Exchange or any similar exchange in the United States of
America.
|
Conditions
to Closing
General
Conditions
The obligation of CHAC and BiomX to
consummate the Business Combination is conditioned on, among other things, (a) the absence of any order, stay, judgment or
decree by any government agency restraining or prohibiting or imposing any condition on the closing of the Business
Combination; (b) at least 50 days shall have elapsed after the filing of a merger proposal with the Registrar of Companies of
the State of Israel (the “Registrar of Companies”), and at least 30 days shall have elapsed after the approval of
the Business Combination by the shareholders of each of BiomX and Merger Sub, and the certificate of merger shall have been
received from the Registrar of Companies; (c) all necessary governmental approvals having been obtained; (d) the absence of
any litigation brought by a governmental agency seeking to enjoin or otherwise restrict the consummation of the Business
Combination; (e) CHAC’s initial listing application with the NYSE American Stock Exchange in connection with the
transactions contemplated by the Merger Agreement shall have been approved, immediately following the Closing CHAC shall
satisfy any applicable initial and continuing listing requirements of the NYSE American Stock Exchange and CHAC shall not
have received any notice of non-compliance therewith, and the CHAC common stock shall have been approved for listing on the
NYSE American Stock Exchange, subject to completion of the Business Combination; and (f) each of CHAC and BiomX shall have obtained the
approval of its stockholders.
BiomX’s
Conditions to Closing
The
obligations of BiomX to consummate the transactions contemplated by the Merger Agreement, in addition to the conditions described
above, are conditioned upon, among other things, each of the following:
|
●
|
CHAC
complying in all material respects with all of its obligations required to be performed
pursuant to the covenants in the Merger Agreement.
|
|
●
|
The
Aggregate Investment Amount shall equal or exceed $50,000,000.
|
|
●
|
The
aggregate amount of indebtedness, expenses and other liabilities of CHAC that remain
unpaid as of immediately prior to the Closing is less than $1,000,000.
|
|
●
|
The
daily volume weighted average price of a share of CHAC common Stock for the 10 trading
days immediately preceding the Closing date shall equal at least $9.50.
|
|
●
|
The
immediately available funds deposited by certain BiomX shareholders into an escrow account
established for the purposes of holding the cash proceeds paid by such BiomX shareholders
to purchase CHAC Shares from current CHAC public stockholders, shall equal or exceed
$20,000,000.
|
CHAC’s
Conditions to Closing
The
obligations of CHAC to consummate the transactions contemplated by the Merger Agreement, in addition to the conditions described
above in the first paragraph of this section, are conditioned upon, among other things, each of the following:
|
●
|
There
shall have been no continuing event, change or occurrence which individually or together
with any other event, change or occurrence, would reasonably be expected to have a material
adverse effect on BiomX.
|
|
●
|
The
immediately available funds deposited by certain BiomX shareholders into an escrow account
established for the purposes of holding the cash proceeds paid by such BiomX shareholders
to purchase CHAC Shares from current CHAC public stockholders, shall equal or exceed
$20,000,000.
|
Indemnification
From
and after the Closing, holders of shares of BiomX capital stock and vested warrants to purchase shares of BiomX capital stock
(collectively, the “Escrow Participants”) have agreed to indemnify and hold harmless CHAC against and in respect
of specified actual and direct out-of-pocket losses incurred or sustained by CHAC as a result of: (a) any breach or inaccuracy
of any of the representations, warranties set forth in Article V of the Merger Agreement (as modified by the schedules of the
Merger Agreement) or in a specified certificate delivered by BiomX to CHAC at closing, in each case as of the Closing Date,
and (b) any breach or nonfulfillment of any covenants of BiomX contained in the Merger Agreement to be performed prior to the
Closing Date.
Ten
percent of the CHAC Shares issuable to (or reserved for issuance for) the Escrow Participants at the Closing shall be deposited
into a third party escrow account (the “Escrow Shares”) to serve as CHAC’s sole and exclusive security for the
Escrow Participant’s obligation to indemnify CHAC under the Merger Agreement.
Notwithstanding
anything in the Merger Agreement to the contrary:
|
●
|
CHAC’s
sole and exclusive remedy for all indemnifiable losses under the Merger Agreement shall
be the recovery of a number of CHAC Shares from the Escrow Shares having a value equal
to the losses that have been finally determined to be owing to CHAC in accordance with
the Merger Agreement (at an assumed value equal to the greater of: (i) $10.00 per share;
or (ii) the total amount payable to the stockholders of CHAC holding units or common
stock of CHAC who shall have validly redeemed such units or common stock upon acceptance
by CHAC of such units or common stock (the “Escrow Share Value”)), in each
case, subject to the Indemnifiable Loss Limit (as defined below).
|
|
●
|
The
maximum liability of the Escrow Participants under the Merger Agreement or otherwise
in connection with the transactions contemplated by the Merger Agreement shall in no
event exceed an amount equal to: (i) the Escrow Share Value, multiplied by (ii) the Escrow
Shares (the “Indemnifiable Loss Limit”).
|
|
●
|
CHAC
shall not be entitled to indemnification pursuant to Section 11.1 of the Merger Agreement
unless and until the aggregate amount of losses to CHAC equals at least $1,246,875 (the
“Basket”), at which time, subject to the other limitations set forth in the
Merger Agreement, CHAC shall be entitled to indemnification for any losses above the
Basket, less $124,687.50 per loss.
|
|
●
|
The
Escrow Participants shall have no liability or obligation to indemnify CHAC under the
Merger Agreement with respect to the breach or inaccuracy of any representation, warranty,
covenant or agreement based on any matter, fact or circumstance known to CHAC or any
of its representatives or disclosed in the information set out in any schedule to the
Merger Agreement.
|
|
●
|
Nothing
in the Merger Agreement (i) limits the parties’ rights to seek injunctive relief
or other equitable remedies, (ii) would prevent CHAC from bringing an action for fraud
(with scienter) against the Person who committed such fraud (with scienter) or (iv) limit
the right of any person or entity to pursue remedies under any other agreement entered
into in connection with the transactions contemplated by the Merger Agreement against
the parties thereto.
|
The
indemnification to which CHAC is entitled from the Escrow Participants pursuant to Section 11.1 of the Merger Agreement for losses
shall be effective so long as it is asserted prior to the expiration of the six (6) month anniversary of the Closing date (the
“Survival Period”); provided, that in the event that any indemnification notice shall have been given by CHAC in accordance
with the provisions of the Merger Agreement (each, an “Indemnification Notice”) prior to the expiration of the Survival
Period and such claim has not been finally resolved by the expiration of the Survival Period, the representations, warranties,
covenants, agreements or obligations that are the subject of such Indemnification Notice shall survive solely for purposes of
resolving such claim until such matters are finally resolved.
Termination
The
Merger Agreement may be terminated and/or abandoned at any time prior to the closing by:
|
●
|
the
mutual written agreement of BiomX and CHAC;
|
|
●
|
CHAC
or BiomX, in the event a governmental authority shall have issued an order, having the
effect of permanently restraining, enjoining or otherwise prohibiting the Merger, which
order is final and non-appealable.
|
|
●
|
CHAC,
if the closing has not occurred on or prior to October 31, 2019 (the “Outside Closing
Date”); provided, that if the SEC has not declared CHAC’s proxy statement
effective on or prior to September 30, 2019, the Outside Closing Date shall be automatically
extended to November 30, 2019; provided, further, that CHAC is not in material breach
of any of its obligations under the Merger Agreement; or
|
|
●
|
BiomX,
if the closing has not occurred on or prior to the Outside Closing Date; provided, further,
that BiomX is not in material breach of any of its obligations under the Merger Agreement.
|
|
●
|
CHAC,
if: (i) BiomX shall have breached any representation, warranty, agreement or covenant
contained in the Merger Agreement to be performed on or prior to the Closing Date, which
has rendered the satisfaction of any of the conditions set forth in Section 10.2 of the
Merger Agreement impossible; and (ii) such breach shall not be cured by the earlier of
the Outside Closing Date and thirty (30) days following receipt by BiomX of a written
notice from CHAC describing in reasonable detail the nature of such breach.
|
|
●
|
BiomX,
if: (i) CHAC shall have breached any of its covenants, agreements, representations, and
warranties contained herein to be performed on or prior to the Closing Date, which has
rendered the satisfaction of any of the conditions set forth in Section 10.3 of the Merger
Agreement impossible; and (ii) such breach shall not be cured by the earlier of the Outside
Closing Date and thirty (30) days following receipt by CHAC of a written notice from
BiomX describing in reasonable detail the nature of such breach.
|
The foregoing summary of the Merger Agreement does not purport
to be complete and is qualified in its entirety by reference to the actual Merger Agreement, which is filed as
Annex A
hereto,
and which is incorporated by reference in this report. Terms used herein as defined terms and not otherwise defined herein shall
have the meanings ascribed to them in the Merger Agreement.
Additional Agreements
In addition to the Merger Agreement:
|
1.
|
The Sponsor, entered into an agreement with BiomX pursuant to which if the Aggregate Investment Amount (as defined in the Merger Agreement), is less than $70,000,000, the Sponsor has agreed to forfeit a number of whole CHAC Shares equal to: (a) 500,000 CHAC Shares; multiplied by (b) the quotient of: (i) the absolute value of the difference between $70,000,000 minus the Aggregate Investment Amount; divided by (ii) $20,000,000, rounded to the nearest whole share; provided, however, that in no event will the Sponsor be required to forfeit more than 500,000 CHAC Shares.
|
|
2.
|
Chardan Securities, LLC entered into an agreement with BiomX
pursuant to which it agreed to purchase up to $2.5 million of shares of CHAC’s common stock (either directly from CHAC
(at a price of $10.00 per share) or from public stockholders (at prices no greater than the redemption amount per share) at
the closing of the Business Combination in the event that the Aggregate Investment Amount would be less than $50 million but
greater than $47,499,999.
|
|
3.
|
CHAC entered into voting agreements with holders of 1,000,000 shares of its common stock pursuant to which such
stockholders agreed to vote in favor of the transactions contemplated by the Merger
Agreement and to not redeem or sell their shares.
|
|
4.
|
CHAC and certain current CHAC public shareholders entered into agreements with
certain of BiomX’s current shareholders pursuant to which such BiomX
shareholders agreed to purchase an aggregate of 1,879,075 shares of CHAC’s
common stock at Closing from such CHAC public stockholders at a price of $10.00 per share.
In addition, CHAC agreed to pay such selling CHAC public shareholders an amount equal
to the difference between the redemption price per share at the Closing minus $10.00
per share. The selling CHAC public shareholders agreed to vote in favor of the transactions contemplated by the
Merger Agreement and not to redeem or sell to third parties such shares of CHAC common stock. In addition, CHAC also agreed
to issue such BiomX shareholders the following
number of additional shares in the aggregate subject to the achievement of the conditions
specified below:
|
|
a.
|
Following the Closing, if the daily volume weighted average
price of a share of CHAC common stock in any 20 trading days within a 30 trading day
period prior to January 1, 2022 is greater than or equal to $16.50 per share, then CHAC
shall issue 2,000,000 CHAC Shares.
|
|
b.
|
Following the Closing, if the daily volume weighted average
price of a share of CHAC common stock in any 20 trading days within a 30 trading day
period prior to January 1, 2024 is greater than or equal to $22.75 per share, then CHAC
shall issue 2,000,000 CHAC Shares.
|
|
c.
|
Following the Closing, if the daily volume weighted average
price of a share of CHAC common stock in any 20 trading days within a 30 trading day
period prior to January 1, 2026 is greater than or equal to $29.00 per share, then CHAC
shall issue 2,000,000 CHAC Shares.
|
|
5.
|
CHAC entered into a letter agreement with certain BiomX shareholders to sell additional CHAC Shares to
them in the event that certain events occur.
|
|
6.
|
CHAC entered into agreements with investors that agreed to
purchase up to 810,000 CHAC Shares at CHAC’s request and not to redeem such
CHAC Shares in connection with the Closing.
|
|
7.
|
Certain third parties entered into agreements to purchase 1,234,908 shares of CHAC’s common stock from certain of
its current public stockholders
at the Closing. The selling CHAC stockholders agreed to vote in
favor of the transactions contemplated by the Merger Agreement and not to redeem or
sell to third parties such CHAC Shares.
|
|
8.
|
BiomX shareholders owning 86% of the voting power in BiomX entered into support
agreements with CHAC pursuant to which such shareholders agreed to vote in favor of
the transactions contemplated by the Merger Agreement at each meeting of the
shareholders of BiomX.
|
Except as described above, no consideration was paid by CHAC
in connection with the agreements described above.
THE
AMENDMENT PROPOSAL
Purpose
of the Amendment Proposal
In connection with the transactions contemplated
by the Merger Agreement, CHAC is amending its Amended and Restated Certificate of Incorporation to increase the number of authorized
shares of common stock from 30,000,000 to _________________. Without amending its Amended and Restated Certificate of Incorporation,
CHAC would not have sufficient shares authorized to consummate the Business Combination and have sufficient shares authorized for
all outstanding options and warrants. There would also be approximately ________________ authorized, unreserved and unissued shares
available for issuance by the combined company’s Board of Directors.
Required
Vote
Approval
of the Amendment Proposal will require the affirmative vote of a majority of the issued and outstanding common stock entitled
to vote at the special meeting.
Board
of Director’s Recommendation
The
Board of Directors recommends a vote “FOR” adoption of the Amendment Proposal.
THE
NYSE PROPOSAL
Background
and Overview
Under
the terms of the Merger Agreement, CHAC is required to issue more than 20% of its issued and outstanding common stock to the shareholders
of BiomX in a private placement transaction. Because of the issuance of in excess of 20% of the outstanding common stock of CHAC,
we are required to obtain stockholder approval in order to comply with NYSE American Listed Company Guide Sections 712 and 713.
Under
NYSE American Listed Company Guide Section 712, stockholder approval is required prior to the issuance of securities as sole or
partial consideration for an acquisition of the stock or assets of another company where the present or potential issuance of
common stock, or securities convertible into common stock, could result in an increase in outstanding common shares of 20% or
more.
Under
NYSE American Listed Company Guide Section 713, stockholder approval is required prior to the issuance of securities if such securities
are not issued in a public offering and (a) the sale, issuance, or potential issuance by the issuer of common stock (or securities
convertible into common stock) is equal to 20% or more of presently outstanding stock for less than market value of the stock,
and (b) the issuance or potential issuance of additional shares will result in a change of control of the issuer, including, but
not limited to, those issuances that constitute a reverse merger.
Effect
of Proposal on Current Stockholders
If
the NYSE Proposal is adopted, CHAC would issue shares representing more than 20% of its outstanding common stock in connection
with the Business Combination. The issuance of such shares would result in significant dilution to the CHAC stockholders and would
afford such stockholders a smaller percentage interest in the voting power, liquidation value and aggregate book value of CHAC.
If
the NYSE Proposal is not approved and we consummate the Business Combination on its current terms, CHAC would be in violation
of NYSE American Listed Company Guide Sections 712 and 713 , which could result in the delisting of our securities from the NYSE
American Stock Exchange. If the NYSE American Stock Exchange delists our securities from trading on its exchange, we could face
significant material adverse consequences, including:
|
●
|
a
limited availability of market quotations for our securities;
|
|
●
|
reduced
liquidity with respect to our securities;
|
|
●
|
a
determination that our shares are a “penny stock,” which will require brokers trading in our securities to adhere
to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our
securities;
|
|
●
|
a
limited amount of news and research analyst coverage for the post-transaction company; and
|
|
●
|
a
decreased ability to issue additional securities or obtain additional financing in the future.
|
It
is a condition to the obligations of the Merger Sub and BiomX to close the Business Combination that CHAC’s common stock
remain listed on the NYSE American Stock Exchange. As a result, if the NYSE Proposal is not adopted, the Business Combination
may not be completed.
Required
Vote
Approval
of the NYSE Proposal requires the affirmative vote of the holders of a majority of CHAC Shares represented in person or by proxy
at the special meeting of CHAC stockholders and entitled to vote thereon.
Board
of Directors’ Recommendation
The
Board of Directors recommends a vote “FOR” adoption of the NYSE Proposal.
THE
BUSINESS COMBINATION ADJOURNMENT PROPOSAL
Purpose
of the Business Combination Adjournment Proposal
In
the event there are not sufficient votes for, or otherwise in connection with, the adoption of the Merger Agreement and the transactions
contemplated thereby, the CHAC Board of Directors may adjourn the special meeting to a later date, or dates, if necessary, to
permit further solicitation of proxies. In no event will CHAC seek adjournment which would result in soliciting of proxies, having
a stockholder vote, or otherwise consummating a business combination after the date that is 24 months from the closing of the
Initial Public Offering, or December 18, 2020.
Required
Vote
Approval
of the Business Combination Adjournment Proposal requires the affirmative vote of the holders of a majority of the CHAC Shares
as of the record date represented in person or by proxy at the special meeting of CHAC stockholders and entitled to vote thereon.
Adoption of the Business Combination Adjournment Proposal is not conditioned upon the adoption of any of the other proposals.
Board
of Directors’ Recommendation
The
Board of Directors recommends a vote “FOR” adoption of the Business Combination Adjournment Proposal.
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF BIOMX LTD.
The
following tables set forth selected historical financial information derived from BiomX’s audited consolidated financial
statements as of December 31, 2018 and 2017 and for the three years in the period ended December 31, 2018, which are included
elsewhere in this proxy statement.
The information is only a
summary and should be read in conjunction with BiomX’s consolidated financial statements and related notes, and “
Management’s
Discussion and Analysis of Financial Condition and Results of Operations of BiomX Ltd.
” contained elsewhere herein.
The historical results included below and elsewhere in this proxy statement are not indicative of the future performance of BiomX.
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
BiomX Ltd. Consolidated Income Statement Data:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Research and development (“R&D”)
expenses, net
|
|
$
|
9,135
|
|
|
$
|
4,176
|
|
|
$
|
1,149
|
|
Operating loss
|
|
|
12,495
|
|
|
|
6,712
|
|
|
|
1,769
|
|
Net loss
|
|
|
12,720
|
|
|
|
6,433
|
|
|
|
1,900
|
|
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
BiomX Ltd. Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,604
|
|
|
$
|
6,898
|
|
Total assets
|
|
|
45,331
|
|
|
|
13,990
|
|
Total current liabilities
|
|
|
1,639
|
|
|
|
1,459
|
|
Total non-current liabilities
|
|
|
889
|
|
|
|
1,001
|
|
Total liabilities
|
|
|
2,528
|
|
|
|
2,460
|
|
Shareholders’ equity
|
|
|
42,803
|
|
|
|
11,530
|
|
COMPARATIVE
SHARE INFORMATION
The following table sets forth
the historical comparative share information for BiomX and CHAC on a stand-alone basis and the unaudited pro forma combined per
share information after giving effect to the Business Combination, (1) assuming no CHAC stockholders exercise redemption rights
with respect to their common stock upon the consummation of the Business Combination; and (2) assuming that CHAC stockholders
exercise their redemption rights with respect to a maximum of 2,033,709 shares of common stock upon consummation of the Business
Combination.
The
historical information should be read in conjunction with the information in the sections entitled “
Selected Historical
Financial Information of CHAC
” and “
Selected Historical Consolidated Financial and Other Data of BiomX
”
and the historical financial statements of CHAC and BiomX incorporated by reference in or included elsewhere in this proxy
statement. The unaudited pro forma condensed combined per share information is derived from, and should be read in conjunction
with, the information contained in the section of this proxy statement entitled “
Unaudited Pro Forma Combined Financial
Information
.”
The
unaudited pro forma combined share information below does not purport to represent what the actual results of operations or the
earnings per share would been had the companies been combined during the periods presented, nor to project the Company’s
results of operations or earnings per share for any future date or period. The unaudited pro forma combined stockholders’
equity per share information below does not purport to represent what the value of CHAC and BiomX would have been had the companies
been combined during the periods presented.
(in
thousands, except share and per share data)
|
|
BiomX
|
|
|
CHAC
|
|
|
Pro
Forma
Combined
Assuming
No
Redemptions
into
Cash
|
|
|
Pro
Forma
Combined
Assuming
Maximum
Redemptions
into
Cash
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (income)
|
|
$
|
3,261
|
|
|
$
|
(281
|
)
|
|
$
|
3,352
|
|
|
$
|
3,352
|
|
Stockholders’ equity
|
|
|
41,664
|
|
|
|
4,999
|
|
|
|
111,054
|
|
|
|
90,579
|
|
Weighted average shares outstanding—basic and diluted
|
|
|
|
|
|
|
2,210,914
|
|
|
|
25,375,000
|
|
|
|
22,841,291
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
(0.13
|
)
|
|
|
(0.15
|
)
|
Stockholders’ equity per share—basic and
diluted
|
|
|
|
|
|
|
2.26
|
|
|
|
4.38
|
|
|
|
3.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018 (BiomX) and Twelve Months
Ended December 31, 2018 (CHAC)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,720
|
|
|
$
|
(9
|
)
|
|
$
|
12,737
|
|
|
$
|
12,737
|
|
Weighted average shares outstanding—basic and diluted
|
|
|
|
|
|
|
1,782,502
|
|
|
|
25,375,000
|
|
|
|
22,841,291
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
0.50
|
|
|
|
0.56
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BIOMX LTD.
You
should read the following discussion and analysis of BiomX’s financial condition and results of operations together with
its consolidated financial statements and the related notes. Some of the information contained in this discussion and analysis
or set forth elsewhere, including information with respect to its plans and strategy for its business and related financing, includes
forward-looking statements that involve risks, uncertainties and assumptions. You should read the “Special Note Regarding
Forward-Looking Statements” and “Risk Factors” for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by the forward-looking statements contained in the following
discussion and analysis.
Overview
BiomX
is a preclinical stage microbiome product discovery company developing products using both natural and engineered phage technologies
designed to target and destroy bacteria that affect the appearance of skin, as well as harmful bacteria in chronic diseases, such
as inflammatory bowel disease (“IBD”), liver disease and cancer. Bacteriophage or phage are viruses that target bacteria
and are considered inert to mammalian cells. By developing proprietary combinations of naturally occurring phage and by creating
novel phage using synthetic biology, BiomX develops phage-based therapies intended to address large-market and orphan diseases.
Since
inception in 2015, BiomX has devoted substantially all of its resources to organizing and staffing its company, raising capital,
acquiring rights to or discovering product candidates, developing its technology platforms, securing related intellectual property
rights, and conducting discovery, research and development activities for its product candidates. It does not have any products
approved for sale, its products are still in the preclinical development stage, and it has not generated any revenue from product
sales. As BiomX moves from its product candidates from preclinical to clinical stage, it expects its expenses to increase. To
date, it has funded its operations with proceeds from sales of common and preferred shares. Through December 31, 2018, BiomX had
received gross proceeds of $58.3 million from sales of its common and preferred shares. BiomX received an additional $1.8
million of gross proceeds from the sale of preferred shares in 2019. In addition, BiomX received approximately $100 thousand from
its collaboration agreements in 2018, which amounts were recognized in 2019 and will be reflected in BiomX’s financial statements
for 2019.
Since
inception, BiomX has incurred significant operating losses. BiomX’s ability to generate product revenue sufficient to achieve
profitability will depend on the successful development of, the receipt of regulatory approval for, and eventual commercialization
of one or more of BiomX’s product candidates. BiomX’s net losses were $12.7 million, $6.4 million and $1.9 million
for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, BiomX had an accumulated
deficit of $21.6 million and expects that for the foreseeable future it will continue to incur significant expenses as BiomX
advances its product candidates from discovery through preclinical development and clinical trials and seeks regulatory approval
of its product candidates. In addition, if BiomX obtains regulatory approval for any of its product candidates, it would expect
to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.
BiomX
may also incur expenses in connection with in-licensing or acquiring additional product candidates. In November 2017, BiomX entered
into a share purchase agreement to acquire all of the outstanding share capital of RondinX Ltd., a company organized under the
laws of Israel. BiomX may incur expenses in the future in connection with similar acquisitions.
As
a result, BiomX will need substantial additional funding to support its continuing operations and pursue the clinical development
process. Until such time as it can generate revenue from product sales, if ever, BiomX expects to finance its operations with
proceeds from outside sources, including sales of its securities, milestone payments from collaboration and licensing deals it
may enter into and other outside funding sources. It may be unable to raise additional funds or enter into such other agreements
or arrangements when needed on favorable terms, or at all. If it fails to raise capital or enter into such agreements as, and
when, needed, BiomX may have to significantly delay, scale back or discontinue the clinical development of one or more of its
product candidates.
Because
of the numerous risks and uncertainties associated with product development, BiomX is unable to predict the timing or amount of
increased expenses or when or if it will be able to achieve or maintain profitability. BiomX anticipates that its general and
administrative expenses will increase following the completion of the Business Combination because of the increased costs associated
with being a public company, including significant legal, accounting, investor relations and other expenses that it did not incur
as a private company. Even if it is able to generate product sales, it may not become profitable. If it fails to become profitable
or is unable to sustain profitability on a continuing basis, BiomX may be unable to continue its operations at planned levels
and be forced to reduce or terminate its operations.
At December 31, 2018, it had
cash and cash equivalents and short-term deposits of $39.7 million. BiomX believes that its existing cash and cash equivalents,
together with those from CHAC, will enable it to fund its operating expenses and capital expenditure requirements for at least
the next 24 months, as discussed further below under “—Liquidity and Capital Resources.”
Components
of BiomX’s Consolidated Results of Operations
Revenue
To
date, BiomX has not generated any revenue from product sales and does not expect to generate any revenue from product sales in
the near future. If development efforts for BiomX’s product candidates are successful and result in any necessary regulatory
approvals or otherwise lead to any commercialized products or additional license agreements with third parties, it may generate
revenue in the future from product sales.
Operating
Expenses
Research
and Development Expenses, net
Research
and development expenses consist primarily of costs incurred in connection with the discovery and development of BiomX’s
product candidates. It expenses research and development costs as incurred, offset by IIA grants. These expenses include:
|
●
|
license
maintenance fees and milestone fees incurred in connection with various license agreements;
|
|
●
|
expenses
incurred under agreements with CROs, CMOs, as well as investigative sites and consultants
that conduct BiomX’s clinical trials, preclinical studies and other scientific
development services;
|
|
●
|
manufacturing
scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical
trial materials;
|
|
●
|
employee-related
expenses, including salaries, related benefits, travel and share-based compensation expenses
for employees engaged in research and development functions, as well as external costs,
such as fees paid to outside consultants engaged in such activities;
|
|
●
|
costs
related to compliance with regulatory requirements; and
|
|
●
|
depreciation
and other expenses.
|
BiomX
recognizes external development costs based on an evaluation of the progress to completion of specific tasks using information
provided to it by its service providers.
BiomX
does not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because
these costs are deployed across multiple programs and, as such, are not separately classified. It uses internal resources primarily
to oversee the research and discovery as well as for managing BiomX’s preclinical development, process development, manufacturing
and clinical development activities. These employees work across multiple programs and, therefore, it does not track their costs
by program.
The
table below summarizes BiomX’s research and development expenses incurred by program:
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
BX001
|
|
$
|
1,708
|
|
|
$
|
821
|
|
|
$
|
745
|
|
BX002
|
|
|
1,430
|
|
|
|
480
|
|
|
|
-
|
|
BX003
|
|
|
436
|
|
|
|
-
|
|
|
|
-
|
|
Colorectal cancer
|
|
|
175
|
|
|
|
17
|
|
|
|
-
|
|
Salaries and related benefits
|
|
|
4,595
|
|
|
|
2,817
|
|
|
|
675
|
|
Depreciation
|
|
|
210
|
|
|
|
95
|
|
|
|
27
|
|
Infrastructure & other unallocated R&D expenses
|
|
|
1,227
|
|
|
|
606
|
|
|
|
4
|
|
Less grants from the IIA
|
|
|
(646
|
)
|
|
|
(660
|
)
|
|
|
(302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
9,135
|
|
|
$
|
4,176
|
|
|
$
|
1,149
|
|
Research
and development activities are central to BiomX’s business. Product candidates in later stages of clinical development generally
have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration
of later-stage clinical trials. As a result, BiomX expects that its research and development expenses will increase substantially
over the next several years, particularly as it increases personnel costs, including share-based compensation, contractor costs
and facilities costs, as it continues to advance the development of its product candidates. BiomX also expects to incur additional
expenses related to milestone and royalty payments payable to third parties with whom it has entered into license agreements to
acquire the rights to its product candidates.
General
and Administrative Expenses
General
and administrative expenses consist primarily of salaries, related benefits, travel and share-based compensation expenses for
personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees
for legal, consulting, accounting and audit services.
BiomX
anticipates that its general and administrative expenses will increase in the future as BiomX increases its headcount to support
its continued research activities and development of its product candidates. It also anticipates that it will incur increased
accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations
expenses associated with being a public company. BiomX anticipates the additional costs for these services will substantially
increase its general and administrative expenses. Additionally, if and when it believes a regulatory approval of a product candidate
appears likely, BiomX anticipates an increase in payroll and expenses as a result of BiomX’s preparation for commercial
operations, especially as it relates to the sales and marketing of BiomX’s product candidate.
Financial
expenses, net
Financial
expenses, net consist primarily of income or expenses related to revaluation of foreign currencies and interest income on BiomX’s
bank deposits.
Consolidated
Results of Operations
Comparison
of the Years Ended December 31, 2018 and 2017
The
following table summarizes BiomX’s consolidated results of operations for the years ended December 31, 2018 and 2017:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
In thousands
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
$
|
9,135
|
|
|
$
|
4,176
|
|
General and administrative expenses
|
|
|
3,360
|
|
|
|
2,536
|
|
Operating Loss
|
|
|
12,495
|
|
|
|
6,712
|
|
|
|
|
|
|
|
|
|
|
Revaluation of convertible security
|
|
|
-
|
|
|
|
-
|
|
Financial expenses, net
|
|
|
225
|
|
|
|
(279
|
)
|
|
|
|
|
|
|
|
|
|
Loss for the Year
|
|
$
|
12,720
|
|
|
$
|
6,433
|
|
Research
and Development Expenses, net
Research
and development expenses were $9.1 million for the year ended December 31, 2018, compared to $4.2 million for the
year ended December 31, 2017. The increase of $4.9 million, or 119%, in the year ended December 31, 2018, compared
to the prior year is primarily due to significant expansion of BiomX’s BX002 and BX001 programs in 2018, and launch of its
BX003 and colorectal cancer programs, as well as an increase of $2.1 million in salaries and related expenses, as a result of
BiomX increasing research and development headcount significantly in 2018.
General
and Administrative Expenses
General
and administrative expenses were $3.4 million for the year ended December 31, 2018, compared to $2.5 million for
the year ended December 31, 2017. The increase of $0.9 million, or 32.5%, primarily reflected an increase of $0.5 million
in personnel-related costs and an increase of $0.1 million in facilities related costs. These increases were mainly due to
the hiring of additional personnel in BiomX’s general and administrative, operations and business development functions.
Comparison
of the Years Ended December 31, 2017 and 2016
The
following table summarizes BiomX’s consolidated results of operations for the years ended December 31, 2017 and 2016:
|
|
Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
In thousands
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
$
|
4,176
|
|
|
$
|
1,149
|
|
General and administrative expenses
|
|
|
2,536
|
|
|
|
620
|
|
Operating Loss
|
|
|
6,712
|
|
|
|
1,769
|
|
|
|
|
|
|
|
|
|
|
Revaluation of convertible security
|
|
|
-
|
|
|
|
133
|
|
Financial expenses, net
|
|
|
(279
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Loss for the Year
|
|
$
|
6,433
|
|
|
$
|
1,900
|
|
Research
and Development Expenses, net
Research
and development expenses were $4.2 million for the year ended December 31, 2017, compared to $1.1 million for the
year ended December 31, 2016. The increase of $3.1 million, or 263%, in the year ended December 31, 2017 compared
to the prior year, is primarily due to launch of BiomX’s BX002 program in 2017, and advancing and expanding its BX001 program,
including manufacturing activities, as well as an increase of $1.4 million in employee–related expenses and an increase
of $ 0.6 million in other unallocated discovery and platform-related expense.
General
and Administrative Expenses
General
and administrative expenses were $2.5 million for the year ended December 31, 2017, compared to $0.6 million for
the year ended December 31, 2016. The increase of $1.9 million, or 309%, primarily reflected increases of $0.6 million
in personnel related costs, $0.2 million for non-cash share-based payments, $0.2 million in facilities related costs, $0.2
million for recruitment expenses and $0.3 million in professional fees. These increases were due to the hiring of additional
personnel in BiomX’s general and administrative, operation and business development functions, as well as the lease of office
and lab space.
Liquidity
and Capital Resources
Since
inception, BiomX has not generated any revenue and has incurred significant operating losses and negative cash flows from its
operations. BiomX has funded its operations to date primarily with proceeds from the sale of its common and preferred shares.
Through December 31, 2018, BiomX had received gross cash proceeds of $58.3 million from sales of its common and preferred
shares. BiomX received an additional $1.8 million of gross proceeds from the sale of preferred shares in 2019. In addition, BiomX
received approximately $100 thousand from its collaboration agreements in 2018, which amounts were recognized in 2019 and will
be reflected in BiomX’s financial statements for 2019.
Cash
in excess of immediate requirements is invested primarily with a view to liquidity and capital preservation.
Cash
Flows
The
following table summarizes BiomX’s cash flows for each of the periods presented:
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Net cash used in operating activities
|
|
$
|
(11,304
|
)
|
|
$
|
(4,100
|
)
|
|
$
|
(1,336
|
)
|
Net cash used in investing activities
|
|
|
(30,038
|
)
|
|
|
(2,116
|
)
|
|
|
(98
|
)
|
Net cash provided by financing
activities
|
|
|
43,042
|
|
|
|
12,953
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
1,700
|
|
|
$
|
6,737
|
|
|
$
|
(234
|
)
|
Operating
Activities
Net cash used in operating
activities for the year ended December 31, 2018 included BiomX’s net loss of $12.7 million, net cash used by changes
in BiomX’s operating assets and liabilities of $0.4 million and non-cash charges of $1.2 million, which included share-based
compensation expenses of $1.0 million and depreciation of $0.2 million, offset by non-cash revaluation of contingent
liabilities expenses of $0.1 million. Net changes in BiomX’s operating assets and liabilities for the year ended December 31,
2018 consisted primarily of an increase in other account payables of $0.4 million and a decrease of $0.2 million in
other receivables, offset by a decrease of $0.2 million in trade account payables.
Net cash used in operating
activities for the year ended December 31, 2017 included BiomX’s net loss of $6.4 million, net cash used by changes
in BiomX’s operating assets and liabilities of $0.9 million and non-cash charges of $1.4 million, which included
share-based compensation expenses of $1.3 million and depreciation of $0.1 million. Net changes in BiomX’s operating
assets and liabilities for the year ended December 31, 2017 consisted primarily of an increase in other account payables
of $0.8 million, mainly due to increase in payables to employees and related institutions, and an increase in trade account
payables of $0.4 million, mainly due to the increase in BiomX’s activity and expenses, offset by an increase of $0.2 million
in other receivables.
Net
cash used in operating activities for the year ended December 31, 2016 included BiomX’s net loss of $1.9 million,
net cash provided by changes in BiomX’s operating assets and liabilities of $0.2 million and net non-cash charges of
$0.3 million, which included share-based compensation expenses of $0.2 million and a non-cash revaluation of convertible
security income of $0.1 million. Net changes in BiomX’s operating assets and liabilities for the year ended December 31,
2016 consisted primarily of an increase of $0.1 million in other account payables and a decrease of $0.1 million in
other receivables.
Investing
Activities
During the year ended December
31, 2018, net cash used by investing activities was $30.0 million, mainly as a result of investment in short-term deposits of
$29.9 million and purchases of property and equipment of $0.1 million, which consisted primarily of laboratory and office equipment.
During the year ended December
31, 2017, net cash used by investing activities was $2.1 million, mainly as a result of investment in short-term deposits of $1.2
million and purchases of property and equipment of $0.9 million, which consisted primarily of laboratory and office equipment
and leasehold improvements.
During the year ended December
31, 2016, net cash used by investing activities was $0.1 million for purchases of property and equipment consisting primarily
of laboratory equipment.
Financing
Activities
During
the year ended December 31, 2018, net cash provided by financing activities was $43.0 million, consisting of net proceeds
from the sale of BiomX’s Series A preferred shares in February 2018 and the sale of BiomX’s Series B preferred shares
in November and December 2018.
During
the year ended December 31, 2017, net cash provided by financing activities was $12.9 million, consisting of net proceeds
from the sale of BiomX’s Series A preferred shares in February 2017 and December 2017.
During
the year ended December 31, 2016, net cash provided by financing activities was $1.2 million, consisting of issuances
of convertible securities.
Funding
Requirements
BiomX expects its expenses to increase substantially
in connection with its ongoing activities, particularly as it advances the preclinical activities and clinical trials of its product
candidates. In addition, it expects to incur additional costs associated with operating as the subsidiary of a public company.
BiomX’s expenses will also increase as it:
|
●
|
continues
development of its product candidates, including its lead product candidate, BX001;
|
|
●
|
completes
IND-enabling activities and prepares to initiate clinical trials for BiomX’s other product candidates;
|
|
●
|
initiates
additional clinical trials and preclinical studies for BiomX’s product candidates
in its pipeline;
|
|
●
|
seeks
to identify and develop or in-license or acquire additional product candidates and technologies;
|
|
●
|
seeks
regulatory approvals for BiomX’s product candidates that successfully complete
clinical trials, if any;
|
|
●
|
establishes
a sales, marketing and distribution infrastructure to commercialize any product candidates
for which it may obtain regulatory approval;
|
|
●
|
hires
and retains additional personnel, such as clinical, quality control, commercial and scientific
personnel;
|
|
●
|
expands
BiomX’s infrastructure and facilities to accommodate its growing employee base,
including adding equipment and physical infrastructure to support its research and development;
and
|
|
●
|
transitions to operating as a subsidiary of a public company.
|
BiomX believes that its existing cash and
cash equivalents, together with CHAC’s existing resources, will enable it to fund its operating expenses and capital expenditure
requirements for at least the next 24 months. It has based these estimates on assumptions that may prove to be wrong, and it could
utilize BiomX’s available capital resources sooner than it expects. If it receives regulatory approval for BiomX’s
product candidates, it expects to incur significant commercialization expenses related to product manufacturing, sales, marketing
and distribution, depending on where it chooses to commercialize.
Until
such time, if ever, that BiomX can generate product revenue sufficient to achieve profitability, BiomX expects to finance its
cash needs through the sales of its securities, milestone payments and other outside funding sources. Debt financing and preferred
equity financing, if available, may involve agreements that include covenants limiting or restricting its ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends. If it raises additional funds
through government and other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing
and distribution arrangements, BiomX may have to relinquish valuable rights to its technologies, future revenue streams, research
programs or product candidates or grant licenses on terms that may not be favorable to it. If it is unable to raise additional
funds through equity or debt financings when needed, BiomX may be required to delay, limit, reduce or terminate its product development
or future commercialization efforts or grant rights to develop and market products or product candidates that it would otherwise
prefer to develop and market by itself.
Contractual
Obligations and Commitments
The
following table summarizes BiomX’s contractual obligations as of December 31, 2018 and the effects that such obligations
are expected to have on BiomX’s liquidity and cash flows in future periods:
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
Less than
1 Year
|
|
|
1 to 3
Years
|
|
|
4 to 5
Years
|
|
|
More than
5 Years
|
|
|
|
(in thousands)
|
|
Operating lease commitments
|
|
$
|
2,084
|
|
|
$
|
244
|
|
|
$
|
488
|
|
|
$
|
488
|
|
|
$
|
864
|
|
License fee commitments
|
|
$
|
3,885
|
|
|
$
|
115
|
|
|
$
|
360
|
|
|
$
|
400
|
|
|
$
|
3,010
|
|
Consultancy fee commitments
|
|
$
|
231
|
|
|
$
|
155
|
|
|
$
|
76
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
6,200
|
|
|
$
|
514
|
|
|
$
|
924
|
|
|
$
|
888
|
|
|
$
|
3,874
|
|
In addition, pursuant to BiomX’s
research and license agreements, it is required to make certain milestone and royalty payments to its licensors and collaborators.
See “
BiomX Ltd.’s Business—Material Agreements—License Agreements
” and Financial Statements—Note
8—Commitments and Contingent Liabilities for additional details regarding its payment obligations to these licensors.
Pursuant
to the Share Purchase Agreement of RondinX, dated November 19, 2017 (the “RondinX SPA”), BiomX is required to issue
its shares and/or cash, and/or the combination of cash and shares to the former shareholders of RondinX who are party to the RondinX
SPA, upon the occurrence of certain milestones.
BiomX
received grants from the IIA. According to the terms of such grants, it will pay royalties of 3% of future sales up to the accumulated
grant received including annual interest of LIBOR linked to the US Dollar, provided however, that it shall not be obligated to
repay such grants if no sales were generated. As of December 31, 2018, no sales were generated. BiomX may be obligated to pay
additional royalties upon the occurrence of certain events as determined by the IIA that are within the control of BiomX.
Critical
Accounting Policies and Significant Judgments and Estimates
BiomX’s
consolidated financial statements are prepared in accordance with GAAP in the United States. The preparation of BiomX’s
consolidated financial statements and related disclosures requires it to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in BiomX’s
financial statements. BiomX bases its estimates on historical experience, known trends and events and various other factors that
it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. BiomX evaluates its estimates and assumptions
on an ongoing basis. BiomX’s actual results may differ from these estimates under different assumptions or conditions.
While
BiomX’s significant accounting policies are described in more detail in Note 2 to BiomX’s consolidated financial
statements, BiomX believes that the following accounting policies are those most critical to the judgments and estimates used
in the preparation of its consolidated financial statements.
Share-Based
Compensation
BiomX
applies ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expenses
for all share-based payment awards made to employees and directors, including employee stock options under BiomX’s stock
plans based on estimated fair values.
ASC 718-10 requires that BiomX estimate
the fair value of equity-based payment awards on the date of grant using an option-pricing model. The fair value of the award is
recognized as an expense over the requisite service periods in BiomX’s statements of comprehensive loss. BiomX recognizes
share-based award forfeitures as they occur, rather than estimate by applying a forfeiture rate.
BiomX
accounts for share-based compensation awards to non-employees in accordance with FASB ASC 505-50, “Equity-Based Payments
to Non-Employees” (“FASB ASC 505-50”). Under FASB ASC 505-50, BiomX determines the fair value of the warrants
or share-based compensation awards granted as either the fair value of the consideration received, or the fair value of the equity
instruments issued, whichever is more reliably measurable.
All
issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by BiomX
are accounted for based on the fair value of the equity instruments issued. Non-employee equity-based payments are recorded as
an expense over the service period, as if BiomX had paid cash for the services. At the end of each financial reporting period,
prior to vesting or prior to the completion of the services, the fair value of the equity-based payments are re-measured and the
non-cash expenses recognized during the period is adjusted accordingly. Since the fair value of equity-based payments granted
to non-employees is subject to change in the future, the amount of the future expenses will include fair value re-measurements
until the equity-based payments are fully vested or the service completed.
BiomX
recognizes compensation expenses for the fair value of non-employee awards over the requisite service period of each award.
BiomX estimates the fair value of stock
options granted as equity awards using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions,
of which the most significant are share price, expected volatility and the expected option term (the time from the grant date until
the options are exercised or expire). BiomX determines the fair value per share of the underlying stock by taking into consideration
its most recent sales of stock as well as additional factors that BiomX deems relevant. BiomX has historically been a private company
and lacks company-specific historical and implied volatility information of its stock. Expected volatility is estimated based on
volatility of similar companies in the biotechnology sector. See Note 10 to the BiomX Ltd. Consolidated Financial Statement for
more information on the assumptions used by the company in estimating the fair value of options. BiomX has historically not paid
dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from governmental
zero-coupon bonds with an equivalent term. The expected option term is calculated for options granted to employees and directors
using the “simplified” method. Grants to non-employees are based on the contractual term. Changes in the determination
of each of the inputs can affect the fair value of the options granted and the results of operations of BiomX.
The
following table sets forth by grant date the number of shares subject to options granted between November 2015 and the date hereof,
the per share exercise price of the options, the fair value of stock per share on each grant date, and the per share estimated
fair value of the options:
Grant Date
|
|
Number of Shares Subject to Options Granted
|
|
|
Per Share Exercise Price of Options
|
|
|
Fair Value of Ordinary Shares on Grant Date
|
|
|
Per Share Estimated Fair Value of Options
|
|
November 22, 2015
|
|
|
145,539
|
|
|
|
0.003
|
|
|
|
1.337
|
|
|
|
1.33
|
|
November 22, 2015
|
|
|
34,600
|
|
|
|
1.300
|
|
|
|
1.337
|
|
|
|
0.98
|
|
August 29, 2016
|
|
|
31,300
|
|
|
|
0.003
|
|
|
|
1.337
|
|
|
|
1.33
|
|
August 29, 2016
|
|
|
6,926
|
|
|
|
4.100
|
|
|
|
1.337
|
|
|
|
0.73
|
|
November 13, 2016
|
|
|
69,257
|
|
|
|
1.300
|
|
|
|
1.337
|
|
|
|
0.98
|
|
December 27, 2016
|
|
|
20,777
|
|
|
|
1.337
|
|
|
|
1.300
|
|
|
|
0.98
|
|
March 26, 2017
|
|
|
319,611
|
|
|
|
4.089
|
|
|
|
4.089
|
|
|
|
3.02
|
|
March 26, 2017
|
|
|
46,244
|
|
|
|
0.003
|
|
|
|
4.089
|
|
|
|
4.08
|
|
May 17, 2017
|
|
|
40,165
|
|
|
|
4.089
|
|
|
|
4.089
|
|
|
|
3.02
|
|
June 25, 2017
|
|
|
16,066
|
|
|
|
4.089
|
|
|
|
4.089
|
|
|
|
3.07
|
|
September 18, 2017
|
|
|
26,689
|
|
|
|
4.089
|
|
|
|
4.089
|
|
|
|
3.02
|
|
January 18, 2018
|
|
|
44,984
|
|
|
|
4.089
|
|
|
|
4.089
|
|
|
|
2.94
|
|
May 25, 2018
|
|
|
173,971
|
|
|
|
4.771
|
|
|
|
4.771
|
|
|
|
3.56
|
|
June 27, 2018
|
|
|
52,367
|
|
|
|
4.771
|
|
|
|
4.771
|
|
|
|
3.55
|
|
September 4, 2018
|
|
|
25,891
|
|
|
|
4.771
|
|
|
|
4.771
|
|
|
|
3.56
|
|
December 5, 2018
|
|
|
110,326
|
|
|
|
4.909
|
|
|
|
4.909
|
|
|
|
3.54
|
|
Business
Combination
BiomX
accounted for the acquisition of RondinX Ltd. using the acquisition method of accounting, which required it to estimate the fair
values of the assets acquired and liabilities assumed. This included acquired in-process research and development and contingent
consideration. Significant changes in assumptions and estimates subsequent to completing the allocation of the purchase price
to the assets and liabilities acquired, as well as differences in actual and estimated results, could impact BiomX’s financial
results. Adjustments to the fair value of contingent consideration are recorded in earnings.
In-process
research and development
In-process
research and development acquired in a business combination were recognized at fair value as of the acquisition date and subsequently
accounted for as indefinite-lived intangible assets until completion or abandonment of the associated R&D efforts.
BiomX
reviews these intangible assets at least annually for impairment, or whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.
Quantitative
and Qualitative Disclosures about Market Risks
Interest
Rate Risk
As of December 31, 2018, BiomX had cash
and cash equivalents, restricted cash and short term bank deposits of $39.7 million, which consisted of cash, restricted cash
and short term bank deposits.
Foreign
Currency Exchange Risk
BiomX
is exposed to foreign exchange rate risk. BiomX’s headquarters are located in Israel, where the majority of its general
and administrative expenses and research and development costs are incurred in Israeli new shekels. During each of the years ended
December 31, 2018, 2017 and 2016, BiomX recognized foreign currency transaction income (loss) of $(0.3), $0.3 and $0 million,
respectively. BiomX’s functional currency is the US Dollar. These foreign currency transaction gains and losses were recorded
in financial expenses, net in its consolidated statements of comprehensive loss. BiomX believes that a 10% change in the exchange
rate between the US Dollar and Israeli new shekel would not have a material impact on its financial position or results of operations.
As
BiomX continues to grow its business, its results of operations and cash flows will be subject to fluctuations due to changes
in foreign currency exchange rates, which could adversely impact BiomX’s results of operations. To date, it has not entered
into any foreign currency hedging contracts to mitigate BiomX’s exposure to foreign currency exchange risk.
Emerging
Growth Company Status
BiomX
is, and the post-combination company will be, an “emerging growth company,” as defined in the Jumpstart Our Business
Startups Act of 2012, or the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that
are applicable to other public companies that are not emerging growth companies. BiomX may take advantage of these exemptions
until it is no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can
take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting
standards. BiomX has irrevocably elected not to avail itself of this extended transition period and, as a result, it will adopt
new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
BiomX may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of BiomX’s
first registration statement filed under the United States Securities Act of 1933, as amended, or such earlier time that it is
no longer an emerging growth company. BiomX would cease to be an emerging growth company if it has more than $1.07 billion
in annual revenue, it has more than $700.0 million in market value of its shares held by non-affiliates (and it has been
a public company for at least 12 months and have filed one annual report on Form 10-K) or it issues more than $1.0 billion
of non-convertible debt securities over a three-year period.
Off-Balance
Sheet Arrangements
BiomX
did not have, during the periods presented, and it does not currently have, any off-balance sheet arrangements, as defined in
the rules and regulations of the Securities and Exchange Commission.
Recently
Issued Accounting Pronouncements
A
description of recently issued accounting pronouncements that may potentially impact BiomX’s financial position and results
of operations is disclosed in Note 2 to BiomX’s audited consolidated financial statements.
SELECTED
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Introduction
CHAC is
providing the following unaudited pro forma combined financial information to aid you in your analysis of the financial aspects
of the Business Combination.
The unaudited pro forma combined balance
sheet as of March 31, 2019 gives pro forma effect to the Business Combination as if it had been consummated as of that date. The
unaudited pro forma combined statements of operations for the three months ended March 31, 2019 and the twelve months ended
December 31, 2018 gives pro forma effect to the Business Combination as if it had occurred as of January 1, 2018. This information
should be read together with BiomX’s audited financial statements and related notes and CHAC’s respective unaudited
and audited financial statements and related notes, “
Management’s Discussion and Analysis of Financial Condition
and Results of Operations of BiomX Ltd.
,” “
Management’s Discussion and Analysis of Financial Condition
and Results of Operations of CHAC
” and other financial information included elsewhere in this proxy statement.
The
unaudited pro forma combined balance sheet as of March 31, 2019 has been prepared using the following:
|
●
|
BiomX’s
unaudited historical condensed consolidated balance sheet as of March 31, 2019
|
|
●
|
CHAC’s
unaudited historical condensed balance sheet as of March 31, 2019, incorporated by reference into this proxy statement
|
The
unaudited pro forma combined statement of operations for the three months ended March 31, 2019 has been prepared using the following:
|
●
|
BiomX’s
unaudited historical consolidated statement of comprehensive loss for the three months ended March 31, 2019
|
|
●
|
CHAC’s
unaudited historical condensed statement of operations for the three months ended March 31, 2019, incorporated by reference into this proxy statement
|
The
unaudited pro forma combined statement of operations for the twelve months ended December 31, 2018 has been prepared using the
following:
|
●
|
BiomX’s
audited historical consolidated statement of comprehensive loss for the year ended December
31, 2018, as included elsewhere in this proxy statement
|
|
●
|
CHAC’s
unaudited historical condensed statements of operations for the twelve months ended December 31, 2018 incorporated by reference into this proxy statement
|
Description
of the Transaction
On July 16, 2019, CHAC, Merger Sub, and
BiomX entered into the Merger Agreement pursuant to which, subject to the satisfaction or waiver of certain conditions set forth
therein, BiomX will merge with the Merger Sub with BiomX surviving the merger in accordance with the Israeli Companies Law as a
wholly owned direct subsidiary of CHAC.
For more information about the Business Combination, please see the section entitled
“
The Business Combination Proposal
.” A copy of the Merger Agreement is attached to this proxy statement as
Annex
A
.
Accounting
for the Business Combination
The Business Combination will be accounted for as a “reverse merger” in accordance with GAAP.
Under this method of accounting, CHAC will be treated as the “acquired” company for financial reporting purposes. This
determination was primarily based on the assumption that BiomX’s shareholders will hold a majority of the voting power of
the combined company, BiomX’s operations comprising the ongoing operations of the combined entity, BiomX’s designees
comprising a majority of the governing body of the combined company, and BiomX’s senior management comprising the senior
management of the combined company. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent
of a capital transaction in which BiomX is issuing stock for the net assets of CHAC. The net assets of CHAC will be stated at historical
cost, with no goodwill or other intangible assets recorded. The post-acquisition financial statements of CHAC will show the consolidated
balances and transactions of CHAC and BiomX as well as comparative financial information of BiomX (the acquirer for accounting
purposes).
Basis
of Pro Forma Presentation
The historical financial information has
been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination,
are factually supportable and are expected to have a continuing impact on the results of operations of the combined company. The
adjustments presented on the unaudited pro forma combined financial statements have been identified and presented to provide
an understanding of the combined company upon consummation of the Business Combination for illustrative purposes.
The unaudited pro forma combined financial
information is for illustrative purposes only. The financial results may have been different had the companies always been combined.
You should not rely on the unaudited pro forma combined financial information as being indicative of the historical results
that would have been achieved had the companies always been combined or the future results that the combined company will experience.
BiomX and CHAC have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments
were required to eliminate activities between the companies.
There
is no historical activity with respect to Merger Sub, and accordingly, no adjustments were required with respect to this entity
in the pro forma combined financial statements.
The unaudited pro forma combined financial
information has been prepared assuming two alternative levels of redemption into cash of CHAC Shares:
|
●
|
Scenario 1 – Assuming no redemptions for cash:
This presentation assumes that no CHAC stockholders exercise redemption rights with respect to their common stock upon consummation of the Business Combination; and
|
|
●
|
Scenario 2 – Assuming redemptions of 2,033,709 shares of CHAC common stock for cash:
This presentation assumes that CHAC stockholders exercise their redemption rights with respect to a maximum of 2,033,709 shares of common stock upon consummation of the Business Combination at a redemption price of approximately $10.07 per share. The maximum redemption amount is derived so that there is a minimum remaining in our trust account of $50,000,000, after giving effect to the payments to redeeming stockholders.
|
Included
in the shares outstanding and weighted average shares outstanding as presented in the pro forma combined financial statements
are an aggregate of 16,625,000 CHAC shares to be issued to BionmX shareholders, comprised of 15,027,781 CHAC shares to be issued
to BiomX shareholders and 1,597,218 vested options and warrants to be issued to BiomX shareholders to purchase CHAC shares. The
Company included the vested options and warrants in the presentation of CHAC shares issued as the Company assumed the shareholders
would exercise their options and warrants since the exercise price is lower than the fair value and are therefore deemed to be
in the money.
After the Business
Combination, assuming no redemptions of common stock for cash, CHAC’s current public stockholders will own
approximately 20% of the outstanding CHAC Shares, CHAC’s current directors, officers and affiliates will own
approximately 7% of the outstanding CHAC Shares, and the former stockholders of BiomX will own approximately 73% of
the outstanding CHAC Shares. Assuming redemption by holders of 2,033,709 CHAC’s outstanding common stock, CHAC public
stockholders will own approximately 13% of the outstanding CHAC Shares, CHAC’s Sponsor and current directors,
officers and affiliates will own approximately 5% of the outstanding CHAC Shares, and the former stockholders of BiomX
will own approximately 82% of the outstanding CHAC Shares. The above numbers (i) include the Escrow Shares and (ii) assume
that there are no purchase price adjustments or indemnification payments.
PRO
FORMA COMBINED BALANCE SHEET
AS
OF MARCH 31, 2019
(in
thousands)
(UNAUDITED)
|
|
|
|
|
|
|
|
Scenario
1
Assuming No
Redemptions into Cash
|
|
|
Scenario
2
Assuming Maximum
Redemptions into Cash
|
|
|
|
(A)
BiomX
|
|
|
(B)
CHAC
|
|
|
Pro
Forma Adjustments
|
|
|
Pro
Forma Balance Sheet
|
|
|
Pro
Forma Adjustments
|
|
|
Pro
Forma Balance Sheet
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,661
|
|
|
$
|
820
|
|
|
$
|
70,475
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,300
|
)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
(3)
|
|
$
|
71,156
|
|
|
|
(20,475
|
)
(4)
|
|
$
|
50,681
|
|
Restricted
cash
|
|
|
91
|
|
|
|
-
|
|
|
|
-
|
|
|
|
91
|
|
|
|
-
|
|
|
|
91
|
|
Short-term
deposits
|
|
|
36,618
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,618
|
|
|
|
-
|
|
|
|
36,618
|
|
Other
receivables
|
|
|
242
|
|
|
|
-
|
|
|
|
-
|
|
|
|
242
|
|
|
|
-
|
|
|
|
242
|
|
Prepaid
expenses and other current assets
|
|
|
-
|
|
|
|
55
|
|
|
|
-
|
|
|
|
55
|
|
|
|
-
|
|
|
|
55
|
|
Total
Current Assets
|
|
|
38,612
|
|
|
|
875
|
|
|
|
68,675
|
|
|
|
108,162
|
|
|
|
(20,475
|
)
|
|
|
87,687
|
|
Marketable
securities held in Trust Account
|
|
|
-
|
|
|
|
70,475
|
|
|
|
(70,475
|
)
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating
lease right-of-use asset
|
|
|
624
|
|
|
|
-
|
|
|
|
-
|
|
|
|
624
|
|
|
|
-
|
|
|
|
624
|
|
Property
and equipment, net
|
|
|
972
|
|
|
|
-
|
|
|
|
-
|
|
|
|
972
|
|
|
|
-
|
|
|
|
972
|
|
In-process
research and development
|
|
|
4,561
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,561
|
|
|
|
-
|
|
|
|
4,561
|
|
Total
Assets
|
|
$
|
44,769
|
|
|
$
|
71,350
|
|
|
$
|
(1,800
|
)
|
|
$
|
114,319
|
|
|
$
|
(20,475
|
)
|
|
$
|
93,844
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,735
|
|
|
$
|
82
|
|
|
$
|
-
|
|
|
$
|
1,817
|
|
|
$
|
-
|
|
|
$
|
1,817
|
|
Taxes
payable
|
|
|
-
|
|
|
|
77
|
|
|
|
-
|
|
|
|
77
|
|
|
|
-
|
|
|
|
77
|
|
Related
parties
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50
|
|
|
|
-
|
|
|
|
50
|
|
Total
Current Liabilities
|
|
|
1,785
|
|
|
|
159
|
|
|
|
-
|
|
|
|
1,944
|
|
|
|
-
|
|
|
|
1,944
|
|
Promissory
note - related party
|
|
|
-
|
|
|
|
500
|
|
|
|
(500
|
)
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Contingent
liabilities
|
|
|
895
|
|
|
|
-
|
|
|
|
-
|
|
|
|
895
|
|
|
|
-
|
|
|
|
895
|
|
Other
liabilities
|
|
|
425
|
|
|
|
1
|
|
|
|
-
|
|
|
|
426
|
|
|
|
-
|
|
|
|
426
|
|
Total
Liabilities
|
|
|
3,105
|
|
|
|
660
|
|
|
|
(500
|
)
|
|
|
3,265
|
|
|
|
-
|
|
|
|
3,265
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock subject to redemption
|
|
|
-
|
|
|
|
65,691
|
|
|
|
(65,691
|
)
(4)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares
|
|
|
3
|
|
|
|
-
|
|
|
|
(3
|
)
(5)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred
shares
|
|
|
9
|
|
|
|
-
|
|
|
|
(9
|
)
(5)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
(5)
|
|
|
3
|
|
|
|
(1
|
)
(4)
|
|
|
2
|
|
Additional
paid-in capital
|
|
|
66,522
|
|
|
|
4,710
|
|
|
|
65,690
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299
|
(5)
|
|
|
137,221
|
|
|
|
(20,474
|
)
(4)
|
|
116,747
|
|
Retained
earnings (Accumulated deficit)
|
|
|
(24,870
|
)
|
|
|
289
|
|
|
|
(1,300
|
)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(289
|
)
(4)
|
|
|
(26,170
|
)
|
|
|
-
|
|
|
|
(26,170
|
)
|
Total
Stockholders’ Equity
|
|
|
41,664
|
|
|
|
4,999
|
|
|
|
64,391
|
|
|
|
111,054
|
|
|
|
(20,475
|
)
|
|
|
90,579
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
44,769
|
|
|
$
|
71,350
|
|
|
$
|
(1,800
|
)
|
|
$
|
114,319
|
|
|
$
|
(20,475
|
)
|
|
$
|
93,844
|
|
Pro
Forma Adjustments to the Unaudited Combined Balance Sheet
(A)
|
Derived
from the unaudited condensed consolidated balance sheet of BiomX as of March 31, 2019.
|
(B)
|
Derived
from the unaudited condensed balance sheet of CHAC as of March 31, 2019.
|
(1)
|
To
reflect the release of cash from marketable securities held in the trust account.
|
(2)
|
To
reflect the payment of estimated legal, financial advisory and other professional fees
related to the Business Combination.
|
(3)
|
To
reflect the repayment of promissory notes to related party.
|
(4)
|
In Scenario 1, which assumes no CHAC stockholders exercise their redemption rights, the common stock subject to redemption for cash amounting to $65,691would be transferred to permanent equity. In Scenario 2, which assumes the same facts as described in Items 1, 2 and 3 above, but also assumes the maximum number of shares are redeemed for cash by the CHAC stockholders, $20,475 would be paid out in cash. The $20,475, or 2,033,709, shares of common stock, represents the maximum redemption amount providing for a minimum of $50,000 remaining in the trust account, after giving effect to payments to redeeming stockholders based on a consummation of the Business Combination on March 31, 2019.
|
(5)
|
To reflect the recapitalization of BiomX through (a) the contribution of all the share capital in BiomX
to CHAC, (b) the issuance of 16,625,000 CHAC Shares and (c) the elimination of the historical accumulated deficit of
CHAC, the accounting acquiree.
|
Under
Scenario 2, as a result of having a minimum of $50,000 remaining in the trust account, 500,000 shares of CHAC common stock
would be forfeited by the Sponsor. No entry is reflected in the above pro forma adjustments due to rounding.
PRO
FORMA COMBINED STATEMENT OF OPERATIONS
THREE
MONTHS ENDED MARCH 31, 2019
(in
thousands, except share and per share data)
(UNAUDITED)
|
|
|
|
|
|
|
|
Scenario 1
Assuming No
Redemptions into Cash
|
|
|
Scenario 2
Assuming Maximum
Redemptions into Cash
|
|
|
|
(A)
BiomX
|
|
|
(B)
CHAC
|
|
|
Pro
Forma
Adjustments
|
|
|
Pro
Forma Income
Statement
|
|
|
Pro Forma
Adjustments
|
|
|
Pro
Forma Income
Statement
|
|
Research and development
|
|
$
|
2,760
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,760
|
|
|
$
|
-
|
|
|
$
|
2,760
|
|
General and administrative expenses
|
|
|
1,005
|
|
|
|
93
|
|
|
|
-
|
|
|
|
1,098
|
|
|
|
-
|
|
|
|
1,098
|
|
Operating
loss
|
|
|
3,765
|
|
|
|
93
|
|
|
|
-
|
|
|
|
3,858
|
|
|
|
-
|
|
|
|
3,858
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
-
|
|
|
|
(417
|
)
|
|
|
417
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unrealized gain on marketable securities
|
|
|
-
|
|
|
|
(24
|
)
|
|
|
24
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other income, net
|
|
|
(504
|
)
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(506
|
)
|
|
|
-
|
|
|
|
(506
|
)
|
Loss (income) before income taxes
|
|
|
3,261
|
|
|
|
(350
|
)
|
|
|
441
|
|
|
|
3,352
|
|
|
|
-
|
|
|
|
3,352
|
|
Provision for income taxes
|
|
|
|
|
|
|
69
|
|
|
|
(69
|
)
(2)
|
|
|
-
|
|
|
|
-
|
(2)
|
|
|
-
|
|
Net loss (income)
|
|
$
|
3,261
|
|
|
$
|
(281
|
)
|
|
$
|
372
|
|
|
$
|
3,352
|
|
|
$
|
-
|
|
|
$
|
3,352
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
|
|
|
|
2,210,914
|
|
|
|
23,164,086
|
(3)
|
|
|
25,375,000
|
|
|
|
(2,533,709
|
)
(3)
|
|
|
22,841,291
|
|
Basic and diluted net loss per
share
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
$
|
(0.15
|
)
|
PRO
FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE
MONTHS ENDED DECEMBER 31, 2018
(in
thousands, except share and per share data)
(UNAUDITED)
|
|
|
|
|
|
|
|
Scenario 1
Assuming No
Redemptions into Cash
|
|
|
Scenario 2
Assuming Maximum Redemptions into Cash
|
|
|
|
(C)
BiomX
|
|
|
(D)
CHAC
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma Income Statement
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma Income Statement
|
|
Research and development
|
|
$
|
9,135
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,135
|
|
|
$
|
-
|
|
|
$
|
9,135
|
|
General and administrative expenses
|
|
|
3,360
|
|
|
|
17
|
|
|
|
-
|
|
|
|
3,360
|
|
|
|
-
|
|
|
|
3,360
|
|
Operating loss
|
|
|
12,495
|
|
|
|
17
|
|
|
|
-
|
|
|
|
12,512
|
|
|
|
-
|
|
|
|
12,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
-
|
|
|
|
(55
|
)
|
|
|
55
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unrealized loss on marketable securities
|
|
|
-
|
|
|
|
21
|
|
|
|
(21
|
)(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other expense, net
|
|
|
225
|
|
|
|
-
|
|
|
|
-
|
|
|
|
225
|
|
|
|
-
|
|
|
|
225
|
|
Loss (income) before income taxes
|
|
|
12,720
|
|
|
|
(17
|
)
|
|
|
34
|
|
|
|
12,737
|
|
|
|
-
|
|
|
|
12,737
|
|
Provision for income taxes
|
|
|
|
|
|
|
8
|
|
|
|
(8
|
)(2)
|
|
|
-
|
|
|
|
-
|
(2)
|
|
|
-
|
|
Net loss (income)
|
|
$
|
12,720
|
|
|
$
|
(9
|
)
|
|
$
|
26
|
|
|
$
|
12,737
|
|
|
$
|
-
|
|
|
$
|
12,737
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
|
|
|
|
1,782,502
|
|
|
|
23,592,498
|
(3)
|
|
|
25,375,000
|
|
|
|
(2,533,709
|
)(3)
|
|
|
22,841,291
|
|
Basic and diluted net loss (income) per share
|
|
|
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
$
|
0.50
|
|
|
|
|
|
|
$
|
0.56
|
|
Pro
Forma Adjustments to the Unaudited Combined Statements of Operations
(A)
|
Derived
from the unaudited condensed consolidated statement of comprehensive loss of BiomX for the three months ended March 31, 2019.
|
(B)
|
Derived
from the unaudited statement of operations of CHAC for the three months ended March 31, 2019.
|
(C)
|
Derived
from the audited consolidated statement of comprehensive loss of BiomX for the year ended December 31, 2018.
|
(D)
|
Derived
from the unaudited statements of operations of CHAC for the twelve months ended December 31, 2018.
|
(1)
|
Represents
an adjustment to eliminate interest income and unrealized gains/losses on marketable securities held in the trust account
as of the beginning of the period.
|
(2)
|
To
record normalized blended statutory income tax benefit rate of 23% for pro forma financial presentation purposes resulting
in the recognition of an income tax benefit, which however, has been offset by a full valuation allowance as the combined
company expects to incur continuing losses.
|
(5)
|
The calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that CHAC’s Initial Public Offering occurred as of the earliest period presented. In addition, as the Business Combination is being reflected as if it had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares have been outstanding for the entire periods presented. This calculation is retroactively adjusted to eliminate the number of shares redeemed for the entire period.
|
The
following presents the calculation of basic and diluted weighted average common shares outstanding. The computation of diluted
loss per share excludes the effect of warrants to purchase 6,400,000 shares of common stock because the inclusion of any of these
securities would be anti-dilutive.
|
|
Scenario 1
Combined
(Assuming No
Redemptions
Into Cash)
|
|
|
Scenario 2
Combined
(Assuming
Maximum
Redemptions
Into Cash)
|
|
Weighted average shares calculation, basic and diluted
|
|
|
|
|
|
|
CHAC public shares
|
|
|
5,000,000
|
|
|
|
2,966,291
|
|
CHAC Sponsor shares
|
|
|
1,750,000
|
|
|
|
1,250,000
|
|
CHAC shares purchased by BiomX shareholders from public shareholders
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
CHAC shares issued in Business Combination
|
|
|
16,625,000
|
|
|
|
16,625,000
|
|
Weighted average shares outstanding
|
|
|
25,375,000
|
|
|
|
22,841,291
|
|
Percent of shares owned by BiomX holders
|
|
|
73.4
|
%
|
|
|
81.5
|
%
|
Percent of shares owned by CHAC
|
|
|
26.6
|
%
|
|
|
18.5
|
%
|
BIOMX
LTD.’S BUSINESS
Overview
BiomX
is a preclinical stage microbiome product discovery company developing products using both natural and engineered phage technologies
designed to target and destroy bacteria that affect the appearance of skin, as well as harmful bacteria in chronic diseases, such
as inflammatory bowel disease (“IBD”), liver disease and cancer. Bacteriophage or phage are viruses that target bacteria
and are considered inert to mammalian cells. By developing proprietary combinations of naturally occurring phage and by creating
novel phage using synthetic biology, BiomX develops phage-based therapies intended to address large-market and orphan diseases.
BiomX’s approach is driven by the convergence of several factors: rapidly increasing understanding of phage, including the
links between phage–behaviors and their genomes; growing evidence that harmful bacteria are present and involved in chronic
diseases, such as IBD, that could, in principle, be treated with phage; as well as by a growing number of anecdotal reports from
different academic centers of successful compassionate use administration of phages to seriously ill patients who were unresponsive
to other therapies. BiomX believes its phage therapeutic product candidates have the ability to treat conditions and diseases
by precisely targeting pathogenic bacteria without disrupting other bacteria or the healthy microbiota.
BiomX
is developing BX001, its lead product candidate, in collaboration with a leading global cosmetics company to modify the appearance
of skin in a range of skin types, including in oily and acne-prone skin. Its lead product candidate, BX001, is a topical gel that
includes a combination of naturally occurring phage that specifically target
Proprionibacterium acnes
or
P. acnes
on the skin.
P. acnes
is thought to be associated with acne vulgaris (“acne”), and the local inflammation of
cells surrounding hair follicles in this condition. In 2019, BiomX will be initiating clinical testing to demonstrate the safety
and tolerability of BX001 in 30 healthy adults and in 75 individuals with acne. BiomX will also be examining exploratory endpoints
of reduction of
P. acnes
and effects on the skin microbiome. BiomX expects results from this trial in the first quarter
of 2020.
BX002
is BiomX’s therapeutic phage product candidate designed to treat IBD, targeting bacterial strains isolated from IBD patients
that were shown to be pro-inflammatory in animal models and may have a role in the onset and aggravation of the disease. BX002
is a therapeutic phage cocktail product candidate targeting strains of
Klebsiella pneumoniae
, (“
K. pneumoniae
”),
that are associated with the development of IBD. In BiomX’s BMX-IBD-006 study, BX002 led to rapid reductions in levels of
these
K. pneumoniae
strains in a mouse model colonized with high titers (“levels”) of
K. pneumoniae
.
There are up to 1.6 million patients in the United States with IBD. While there are multiple therapies that can relieve symptoms
and induce remission in IBD, not all patients respond, and most of those who do respond experience periods of disease flares.
BiomX expects to file an IND for BX002 in 2020.
BX003
is BiomX’s therapeutic phage product candidate targeting bacteria associated with primary sclerosing cholangitis (“PSC”),
a rare inflammatory liver disease. BX003 is a therapeutic phage cocktail product candidate that targets
K. pneumoniae
strains
associated with the development of PSC, which is characterized by chronic inflammation leading to scarring of the bile ducts both
inside and outside the liver and the accumulation of toxic levels of bile acids. PSC is a progressive disease for which there
are no approved therapies, and which often eventually leads to liver failure. PSC is an underdiagnosed orphan disease with an
estimated prevalence in the United States of approximately 30,000. BiomX expects to file an IND for BX003 in 2021.
BiomX
is also developing synthetically engineered phage designed to target strains of bacteria found in colorectal cancer (“CRC”)
tumors.
BiomX’s
CRC program incorporates its expertise in identifying and validating associations of specific strains of bacteria with human disease
with BiomX’s synthetic biology capabilities designed to deliver phage with therapeutic potential to tumors. Only a small
percentage of the 141,000 new cases of CRC in the United States each year respond to immunotherapy. This lack of response is believed
to be due to the lack of novel tumor antigens and scarcity of immune cells in colorectal tumors. BiomX has observed
in vitro
and
in vivo
that it can use phage to target strains of
Fusobacterium nucleatum
, a bacterial species that is
highly enriched in colorectal tumors and is believed to be pathogenic. BiomX plans to use phage to deliver payload genes, such
as those encoding immunostimulatory proteins, directly to tumors while also leading to eradication of these bacteria. BiomX plans
to optimize the insertion and expression of these genes using synthetic engineering. BiomX then intends to examine the activity
of the engineered phage in preclinical models. BiomX believes that this approach of using phage to deliver therapeutic payloads
has the potential to deliver therapeutic benefit in additional cancer types as well as in a broad range of other diseases.
All
of BiomX’s therapeutic product candidates derive from its proprietary platform, which is first used to discover and validate
the association of specific bacterial strains with human disease and is then used to develop rationally designed phage combinations
(“cocktails”), that target these pathogenic bacteria. In BiomX’s therapeutic discovery efforts, BiomX uses its
proprietary platform both to identify naturally occurring phage and to create synthetically engineered phage that target pathogenic
bacteria. BiomX then designs cocktails containing multiple phage with complementary functions and test these product candidates
in vitro
and
in vivo
. The use of specific combinations of phage is a critical and proprietary aspect of BiomX’s
approach which is designed to maximize efficacy while minimizing the potential emergence of resistant bacterial strains. BiomX
has observed that these therapeutic product candidates are able to selectively kill specific strains of bacteria, leading to alterations
in the microbiome composition that BiomX believes will confer therapeutic benefit by impacting the patient’s inflammatory
response. BiomX believes that with appropriate and stringent phage selection and testing, BiomX can endow its therapeutic product
candidates with disease-fighting properties that go well beyond those of any individual phage.
According
to published studies, between 10 and 100 trillion symbiotic microorganisms, including bacteria and viruses, collectively referred
to as the microbiome, are essential components of the human body. The microbiome contributes to metabolism, protects against pathogens
and interacts with the immune system. Imbalance of the microbiome on the skin is associated with effects on the appearance of
skin. Imbalance of the microbiome within the body is associated with multiple diseases. BiomX seeks to become a leader in restoring
health to the microbiome by deploying phage to remove potentially harmful bacteria.
BiomX
combines multiple technologies developed by its scientific founders and described in leading scientific journals. BiomX’s
scientific founder Rotem Sorek, a Professor in the Department of Molecular Genetics at the Weizmann Institute of Science, is a
world leader in phage genomics and bacterial defense mechanisms. BiomX’s scientific founder Eran Elinav, a Professor in
the Department of Immunology at the Weizmann Institute of Science, is an expert in investigating the link between the microbiome
and human health and disease. BiomX’s scientific founder Timothy K. Lu is a world leader in synthetic biology approaches
to engineering gene circuits and phage, leading the Synthetic Biology Group in the Department of Electrical Engineering and Computer
Science and the Department of Biological Engineering at the Massachusetts Institute of Technology. In addition, through the acquisition
of the privately held Israel-based company RondinX in 2017, BiomX gained access to high throughput genomic analyses techniques
developed by Eran Segal, a leading computational biologist from the Department of Computer Science and Applied Mathematics at
the Weizmann Institute of Science. The combination of the technologies and expertise from these leaders in each of their respective
fields is critical in enabling BiomX to focus on treating complex human diseases and conditions by precise manipulation of the
microbiome.
As
of December 31, 2018, BiomX had an accumulated deficit of $21.6 million and expects that for the foreseeable future BiomX
will continue to incur significant expenses as BiomX advances its product candidates from discovery through preclinical development
and clinical trials and seek regulatory approval of BiomX’s product candidates. BiomX does not have any products approved
or available for sale, BiomX’s products are still in the preclinical development stage, and BiomX has not generated any
revenue from product sales.
BiomX’s
Strategy
BiomX’s
goal is to develop multiple products based on the ability of phage to precisely target components of the microbiome and on BiomX’s
ability to screen, identify and combine different phage, both naturally occurring and created using synthetic engineering, to
develop these treatments. BiomX intends to:
|
●
|
Investigate
the safety, tolerability and effect of BX001 and advance BX001 through clinical testing
and commercialization in collaboration with a leading global cosmetics company using
the available regulatory pathways in the relevant jurisdictions.
|
|
●
|
Develop
BX002 and BX003 for the treatment of microbiome-related gastrointestinal immune disorders
like IBD and PSC.
|
|
●
|
Evaluate
the preclinical efficacy of BiomX’s synthetic engineering approach for delivering
therapeutic payloads to bacteria that are resident within tumors.
|
|
●
|
Identify
new targets for the indications BiomX is pursuing by expanding its internal database
of clinical microbiome samples and its bioinformatics capabilities.
|
|
●
|
Develop
and partner microbiome-based biomarker tests, based on BiomX’s proprietary XMarker
platform, that can be used for disease diagnosis or as companion diagnostics.
|
Pipeline
The
chart below identifies each of product candidates and BiomX’s biomarker test and their current status.
The
microbiome and human disease
The
microbiome refers to the collection of microorganisms, including phage, that reside on the skin, line the gastrointestinal tract,
and reside elsewhere in the body. The vast majority of these microorganisms are not pathogenic and instead exist in a symbiotic
state, enabling the body to function normally by protecting against proliferation of pathogenic strains, educating the immune
system and assisting in digestion. Imbalances in the composition of the microbiome have been found in multiple diseases. Many
therapeutic and non-therapeutic approaches are designed to restore this balance. In some cases, these approaches involve supplementation
with beneficial strains of bacteria. In others, treatments are being developed based on substances that are intended to shift
the composition of the microbiome by restricting the growth of some microorganisms or promoting the growth of others or both.
Skin
conditions including acne, changes such as hormonal changes, increased secretion of oil from sebaceous glands, or changes in the
immune system result in imbalances in the skin microbiome. Changes in microbiome composition also have been linked to multiple
diseases, including IBD; PSC; CRC; autoimmune diseases such as diabetes; nervous system diseases, such as autism and multiple
sclerosis; and cardiovascular disease. While the importance of the microbiome in initiating or exacerbating some of these diseases
has not been firmly established, there are a number of diseases in which inducing changes in microbiome composition has been observed
to be associated with reductions in disease symptoms.
BiomX’s
approach in its therapeutic programs is based on targeting those specific strains of pathogenic bacteria in the microbiome that
are strongly associated with disease while leaving the rest of the microbiome untouched. BiomX’s goal is to restore the
natural, healthy balance of the microbiome with rationally designed phage cocktails. Using BiomX’s proprietary methods,
BiomX can generate and screen large libraries of phage, prioritizing potential candidates based on selectivity and potency as
well as a number of other parameters which, BiomX believes, are important for drug development such as safety, stability and manufacturability.
History
of uses of phage
Bacteriophage
or phage are viruses that infect bacteria. They were discovered in 1915 and used widely to treat infections in the early 1900s,
a decade before antibiotics were discovered. Descriptions of the use of phage therapy in thousands of individuals, mostly in the
former Soviet Union and Eastern Europe, have been published, but the effectiveness and safety of these therapies have not been
definitively determined due, in part, to the lack of rigorously controlled clinical trials.
These
early uses of phage were limited by the state of translational and clinical development at that time. Bacterial resistance quickly
emerged to early phage therapies because of the limited ability to formulate effective cocktails. In turn, this limitation was
due to a lack of know-how, such as the lack of a deep understanding of phage genomic composition. At the time, there were no known
methods to control phage that had the propensity to infect bacteria without causing immediate lysis, a process now known as lysogeny.
There were also technical hurdles to manufacturing phage of sufficient purity and stability to assure consistent results when
put to therapeutic use. A consistent theme from these early trials, more recent, well-controlled trials, and cases of compassionate
use is that phage therapy is generally well-tolerated, with a general lack of reports of serious adverse events. Phage have already
been approved as both agricultural bacterial pest treatments by the USDA, as well as for use in cleaning food facilities and as
a food additive for human consumption by the FDA and EMA. Phage have been approved in the past in food or food contact surface
categories, and in these categories have met the criteria to be considered as “generally recognized as safe” (“GRAS”).
With
the advent of antibiotics, the high selectivity of phage was seen as a disadvantage, especially for the empiric treatment of acute
infections where the causative pathogen has not yet been identified. With the current understanding of the limitations and potential
undesired effects of antibiotics, and with the advent of modern molecular biology tools, high throughput genomic sequencing and
computational capabilities, BiomX seeks to convert endogenous properties of phage into product candidates that confer potential
advantages and use genetic and process engineering to overcome historical hurdles, opening up a new era in the development of
phage.
BX001
for the improvement of skin appearance
BX001
is BiomX’s topically administered product candidate intended to improve the appearance of oily and acne-prone skin. It contains
a cocktail of phage that helps balance the skin microbiome by targeting
Propionibacterium acnes
(“
P. acnes
”),
a bacteria associated with acne. BiomX has observed that BX001 is effective on more than 96 percent of clinical bacterial isolates
tested
in vitro
, including variants that are resistant to antibiotics. In 2019, BiomX plans to initiate clinical testing:
a safety patch test study enrolling 30 healthy volunteers and a study enrolling 75 individuals with acne. The endpoint of both
studies is safety and tolerability of BX001. Exploratory endpoints to evaluate the effect of BX001 on
P. acnes
, overall
skin microflora and on skin appearance will also be assessed. BiomX anticipates data from these trials to be available in the
first quarter of 2020.
Background
BiomX
believes that potential users of BX001 include individuals with oily skin, or those with skin conditions. One such condition is
acne. Acne is one of the most common skin conditions in the world and is a chronic inflammatory condition characterized by the
clogging of skin pores and associated local skin lesions. Acne lesions are believed to result from an interaction of multiple
pathogenic factors, all of which can be associated with dysregulation of the skin microbiome resulting in the overgrowth of certain
bacteria, in particular strains of
P. acnes
. Excessive proliferation of
P. acnes
along with excessive production
of oily secretions and clogging, leads to inflammation of skin structures known as the pilosebaceous units that consist of a hair
shaft, hair follicle, sebaceous gland, and pili muscle as shown below.
Figure
1. Structure of the pilosebaceous unit.
P.
acnes
induces inflammation through a number of mechanisms:
|
●
|
Secretion
of enzymes that degrade lipids in the hair follicle;
|
|
●
|
Expression
of surface proteins and secretion of lipid metabolites that promote inflammation;
|
|
●
|
Expression
of heat shock proteins that promote the innate immune system;
|
|
●
|
Production
of porphyrins that contribute to tissue damage and inflammation;
|
|
●
|
Induction
of T helper cells, stimulating the production of IL-17 and other inflammatory cytokines;
and
|
|
●
|
Formation
of biofilms which increases bacterial adherence and contribute to antimicrobial resistance.
|
According
to market studies, acne is estimated to affect 9.4 percent of the global population, making it the eighth most prevalent disease
worldwide. There are an estimated 50 million people in the United States who suffer from acne each year, 85 percent of whom are
between the ages of 12 to 24 years.
Depending
on the regulatory framework in its jurisdiction, cosmetic or personal care products may be available to improve the appearance
of blemishes and skin. In recent years, new cosmetic and personal care products are being introduced that contain skin microbiome
modifying agents, such as probiotics or live organisms, that help promote the balance of the microbiome on, and thus the appearance
of, the skin.
BX001
for acne prone skin
BX001
is a topically administered gel, containing natural phage, intended to improve the appearance of skin by helping to control
P.
acnes
overgrowth and thus modulating the skin microbiome. Each of the natural bacteriophage in the formulation is strictly
lytic in nature, has been isolated and purified from the environment and thoroughly characterized. BX001 has been shown to be
active on antibiotic resistant
P. acnes
strains and does not target other bacteria on the skin. Furthermore, it has been
observed to penetrate biofilms, a matrix secreted by the bacteria which surrounds them and makes them less accessible to substances
such as antibiotics. Biofilms exist in the pilosebaceous unit, where undesirable bacteria such as
P. acnes
are found. These
natural bacteriophage have been observed to be well-tolerated using accepted methods in internationally recognized models of human
skin.
Development
plan
In
2019, BiomX intends to initiate clinical testing of BX001 consisting of a single application patch test study in healthy
adults and a multiple application study in individuals with acne. In the patch test study, patches containing each of the two
doses of BX001 or a control comprised of the gel formulation alone (without the phage cocktail) will be
applied for 48 hours on the backs of study volunteers. Main readouts will be safety and tolerability as assessed by a
dermatologist.
The
multiple application study is a four-week randomized, double-blind, dose-finding, placebo controlled single center trial in which
BiomX expects to enroll 75 individuals with mild to moderate acne. These individuals will be divided into three cohorts: a placebo
cohort and two cohorts with BX001, each receiving a different amount of phage. The primary endpoints are safety and tolerability
and the exploratory endpoints will examine the reduction in
P. acnes
levels and changes in the skin microbiome. BiomX anticipates
data from these trials to be available in the first quarter of 2020.
If
BiomX observes promising results from its initial clinical testing, BiomX intends to conduct an eight-week placebo-controlled
clinical test of BX001 in which BiomX expects to enroll 100 patients divided into a placebo cohort and a cohort with BX001. The
primary endpoints are safety and efficacy, as measured by parameters related to changes in the skin microbiome. BiomX expects
to initiate this clinical test in the second quarter of 2020, with results available by the end of 2020.
Preclinical
data
BiomX
conducted preclinical studies on
in vitro
and
ex vivo
systems. First, BiomX assembled a panel of
P. acnes
bacterial isolates that BiomX used to screen a library of phage isolates obtained from clinical and environmental sources. Using
this method, tens of phages that could inhibit the growth of strains of
P. acnes
in BiomX’s panel were identified.
BiomX made two important observations in these initial screens. First, although all the tested bacterial strains were variants
of
P. acnes
, there was sufficient variation among them to prevent any individual phage from having equal potency against
all the bacterial strains. Second, there was sufficient variation among naturally occurring phage such that there was at least
one phage with high potency against each strain of bacteria. The table below shows relevant data.
Figure
2. Example of data from screening of a library of phage against a panel of
P. acnes
strains measuring the level of sensitivity
to exposure to phage.
Together
these results suggest that a phage product with the potential for broad efficacy would require the use of more than one phage
and that a limited number of phage may be sufficient to address the variation in
P. acnes
sensitivity. BiomX incorporated
three different phage into BiomX’s BX001 topical product candidate after extensive qualification of individual phage for
factors including potency across different
P. acnes
strains, ability to penetrate biofilm, manufacturability and stability.
In addition, BiomX assessed the ability of these phage to function in combination without interfering with each other. The combination
of phage BiomX chose was found to exhibit activity across an independent panel of clinical isolates of
P. acnes
. In extended
in vitro
assays, treatment with BX001 was associated with the complete eradication of one
P. acnes
strain with no
appearance of resistant mutant strains. Following exposure of an additional
P. acnes
strain
in vitro,
initial eradication
was followed by the appearance only of growth compromised resistant strains with very low growth potential.
Figure
3. BX001 was associated with eradication of
P. acnes
and no resistant strains emerged on the target strain PA1. The figure
shows the growth of
P. acnes
bacteria, as measured by optical density or OD, in a liquid
in vitro
culture with and
without addition of the BX001 cocktail. Without BX001, the number of bacteria increases with time (higher OD density) while, in
the presence of BX001, initial growth is observed followed by immediate killing and then no recovery of growth for the length
of the study.
A
critical challenge for any microbiome balancing product is the need to penetrate biofilms. BiomX has observed that
P. acnes
phage are able to penetrate the biofilm secreted by
P. acnes
. In
in vitro
experiments, phage reduced the number
of viable bacteria within biofilm by 100,000 fold within 24 hours resulting in undetectable levels after 48 hours. Under the same
conditions, erythromycin, a common antibiotic, reduced bacterial levels by approximately 100 fold after 48 hours.
Figure
4. Phage show potent antibacterial activity even in the presence of biofilms.
BX001
showed microbiome balancing activity when exposed to clinical isolates of
P. acnes
strains showing that 96 percent of these
strains were highly sensitive, including strains that were resistant to antibiotics. BiomX then tested the ability of BX001 to
inhibit proliferation of
P. acnes
in an
ex vivo
model of artificial human skin infected with the bacteria. In this
model, applying BX001 gel topically resulted in significant reduction of bacterial counts following one application and the complete
elimination of
P. acnes
following two applications.
Figure
5. BX001 was effective in reducing the level of
P. acnes
colonized on human skin.
The
safety of BX001 has been evaluated using OECD-recognized models of irritation, currently used in the cosmetics and pharmaceutical
industry for topical products. In the EpiDerm™ model of human skin and the EpiOcular™ eye irritation test, no irritation
occurred even when BX001 was applied at very high concentration, or approximately 100-fold the maximal planned dose, suggesting
that BX001 is not likely to be an irritant to the skin or eyes. The studies were carried out under strict Good Laboratory Practice
(“GLP”) procedures. A GLP permeation study using human skin tissue showed a very low amount of phage, 0.0039% of the
total amount applied, apparently penetrated the skin. An additional study with a synthetic membrane accepted in the industry as
representative of human epidermis, showed no permeation through this layer.
BX002
for the treatment of IBD
BX002
is a therapeutic phage cocktail product candidate BiomX is developing for the treatment of IBD, a disease that is strongly linked
to specific alterations in the microbiome. In BiomX’s BMX-IBD-006 study, BX002 led to sustained reductions in levels of
pathogenic target bacteria in mouse models. BiomX plans to conduct a pre-IND meeting with the FDA and anticipate filing an IND
for BX002 in 2020. Following initiation of a Phase 1 clinical trial of BX002, BiomX expects to receive results in the second half
of 2020. If BiomX observes promising results from Phase 1 clinical testing, BiomX plans to initiate a Phase 2 clinical trial of
BX002 in the first half of 2021, with interim results from this trial expected in the second half of 2021.
IBD
disease background
IBD
is a group of chronic autoimmune and inflammatory conditions of the colon and small intestine, which is characterized by abdominal
pain, diarrhea, weight loss, fatigue and anemia. Ulcerative colitis (“UC”) and Crohn’s disease (“CD”)
are the principal sub-types of IBD. Both UC and CD can have periods of varying intensity ranging from severe inflammation or flares
causing patients to be symptomatic, to periods of remission where patients are free of most symptoms. According to a report by
the Crohn’s and Colitis Foundation, IBD affects as many as 1.6 million people in the United States, most of whom are diagnosed
before the age of 30.
Current
treatment of IBD consists mainly of immunosuppressive therapies. Treatment options depend on the patient’s disease severity
and responsiveness to therapy. Medications that treat mild to moderate IBD are generally well tolerated. However, as the severity
of IBD increases, the potential toxicities of the medications required to manage the disease also increase. For example, treatment
of mild-to-moderate patients typically starts with topical agents, such as 5-aminosalicylic acid (“5-ASA”). For those
IBD patients who do not respond to 5-ASAs, or those with more severe disease, corticosteroids are generally used to induce clinical
remission. However, studies report that sustained remissions are only obtained by approximately 40% of patients receiving corticosteroids.
Long-term treatment with corticosteroids is associated with multiple adverse effects. Patients with moderately to severely active
IBD who become nonresponsive or intolerant to corticosteroids are treated with either biologics such as anti-TNF antibodies or
small molecule immunomodulators such as 6-mercaptopurine or azathioprine. Immunomodulators generally show a delay in onset of
action of one to three months, and can result in neutropenia, pancreatitis, nephrotoxicity and hepatotoxicity. The treatment of
IBD patients with moderately to severely active inflammation is dominated by anti-TNF biologics given their improved efficacy
and side effect profile relative to immunomodulators.
The
microbiome’s role in IBD
Conventional
medical wisdom defines IBD as purely an inflammatory disease. However, similar to other indications such as gastric ulcers where
both a bacterial cause and an anti-bacterial solution were found, scientific attention is turning to infection of the gut or dysfunction
in gut bacteria as potential causes for IBD. The hypothesis that IBD was a result of a gastrointestinal infection started in the
early 20
th
century, when IBD patients were sometimes treated with early anti-infective compounds such as potassium
permanganate. After the discovery of antibiotics, broad antibacterial therapies were used until further studies identified IBD
as an inflammatory disease. The hypothesis that the development of IBD was related to changes in the gut microbiome, however,
continued. A recent development in the treatment of IBD and related disorders is the use of therapies directed against the gastrointestinal
microbiome, such as fecal transplants, which induce a significant increase in remission in UC. While the effectiveness of fecal
transplants may be variable, in one trial published in the
Journal of the American Medical Association
in 2019, 32 percent
of patients receiving pooled fecal transplants from healthy individuals were in steroid-free remission three months post-treatment
compared to 9 percent of controls who received autologous fecal transplants. Over 40 percent of the initial pooled transplant
responders were still in steroid-free remission after twelve months. BiomX believes these results support the hypothesis that
targeting the microbiome can result in therapeutic benefit in patients with IBD while highlighting the opportunity to develop
improved microbiome-directed therapies.
Recent
studies have identified specific strains as potential pathogenic organisms leading to IBD. Among them, specific strains of
Klebsiella
bacteria stand out. Elevated levels of
Klebsiella
are associated with IBD in microbiome samples from patients compared
to healthy controls. In an analysis of two cohorts of IBD patient registries, one from Massachusetts General Hospital (“MGH”),
Prospective Registry in IBD Study at MGH (“PRISM”) and the other from the University of Pennsylvania (“UPenn”),
prospective cohort of pediatric Crohn’s disease patients, the aggregated relative abundance of
Klebsiella
strains
was significantly higher in patients with IBD than healthy controls as shown in the table below.
Figure
6. The relative abundance of strains of
Klebsiella
were shown to be elevated in the microbiome of patients with either
CD or UC compared to patients without IBD.
Since
the early 1990s, researchers have been reporting elevated levels of antibodies to
Klebsiella
in IBD patients. Furthermore,
patients with IBD have levels of circulating Immunoglobulin G (“IgG”) antibodies against
K.
pneumoniae
that are significantly higher than those found in healthy controls. Pointing the finger even more
strongly at
K.
pneumoniae
as a potential causative factor in IBD,
similar analyses have failed to identify significant differences in IgG antibody levels between healthy controls and IBD patients
for other bacterial strains commonly found in the gastrointestinal tract, including
E. coli
,
E faecalis
and
B.
fragilis
.
Figure
7. Increased titers of high affinity anti-microbiota antibodies that bind to Klebsiella have been detected in patients with IBD.
In
a study published in the journal
Science
in 2017, germ-free mice inoculated with bacteria from a patient with CD had approximately
three-fold higher levels of Th1 immune response as measured by an elevated population of CD4 T-cells producing interferon gamma.
Imbalances of T cell subsets including Th1 in the intestinal mucosa are hallmarks of IBD. Other experiments reported in this publication
identified a particular strain of
K. pneumoniae
as a key pathogenic bacteria in these patient samples.
Figure
8. Microbiome samples from IBD patients with either a 7 bacteria mix (left) or only the single
K. pneumoniae
strain causing
TH1 cell proliferation in germ free mice.
K.
pneumoniae
is a species of bacteria that colonizes the mucosal layer of the gastrointestinal system in mammals and may be
pathogenic. There are multiple variants of
K. pneumoniae
with some estimates of up to 82 types that can be distinguished
by their surface antigens. Different characteristics of
K. pneumoniae
may be associated with their pathogenic potential.
These include surface antigens and virulence factors, factors that enhance bacterial strains’ ability to survive and thrive,
due to their role in allowing the bacteria to escape destruction by the immune system, or the ability to secrete a genotoxic molecule,
such as colibactin, upon colonization of the gastrointestinal tract.
BX002,
BiomX’s IBD solution
BiomX
is developing BX002, a cocktail of phage that target specific strains of
K. pneumoniae
that were observed to induce a Th1
response in animal models, as a means of directly and specifically altering the gut microbiome in patients with IBD. BiomX believes
that reducing the levels of these pathogenic bacteria may lower the levels of inflammatory signals that propagate the disease.
As
part of BiomX’s evidence supporting the link between
K. pneumoniae
and IBD BiomX analyzed microbiome samples from
approximately 250 patients with IBD across multiple geographies. BiomX found that the prevalence of the specific pathogenic
K.
pneumoniae
was approximately 30 percent in IBD patients across three different geographies. In a subset of French patients
for which clinical metadata was available, higher abundance of the pathogenic
K. pneumoniae
was found in IBD patients in
flare versus remission. BiomX corroborated the results shown in the
Science
paper from 2017 by assessing the ability of
specific
K. pneumoniae
strains to cause gastrointestinal inflammation by transplanting germ-free mice with strains of
K.
pneumoniae
isolated from IBD patients. Mice receiving these strains of bacteria had statistically significant higher levels
of IFN-gamma expressing CD4 expressing Th1 cells than those receiving placebo.
Figure
9. A
K. pneumoniae
strain displaying induced IFN-gamma producing T cells. ***P<0.001
BiomX
screened a broad library of phage sources derived from environmental and clinical samples for phage capable of targeting patient-derived
strains of
K. pneumoniae
that are related to the strain shown to induce a pro-inflammatory response in the germ-free animal
model. BiomX examined the potency of each phage that was isolated on all clinical bacterial isolates and also ranked the lead
candidate phage from these screens based on stability, manufacturability and lack of potential safety concerns. BiomX then further
characterized combinations of these phage for their lack of interference while prioritizing diversity. BiomX observed that when
used in animal models, combinations of phage were associated with the rapid reduction of the bacterial load of the pathogenic
K. pneumoniae
strains, though, in some cases, resistant strains emerge after several days. Combining phage that recognize
the bacteria by different mechanisms of action is designed to impair this development of resistance, resulting in sustained reductions
in the level of bacteria which fall below the level of detection after three doses of BX002. Bacteria are eliminated both from
the fecal material and from the mucosal lining where they usually reside.
Figure
10. Combinations of phage was associated with sustained antibacterial activity in mouse models.
BX003
for the treatment of PSC
BX003
is a phage cocktail that BiomX is developing for the treatment of PSC. A majority of PSC patients also suffer from IBD and it
has been found that the development of PSC is associated with a subset of strains of
K. pneumoniae
. BiomX has identified
phage that target these strains and anticipate holding a pre-IND meeting with the FDA in the first half of 2020, with an anticipated
IND filing for BX003 in 2021. Following initiation of a Phase 1/2 clinical trial of BX003, BiomX expects to receive interim results
in 2021. BiomX anticipates initiating clinical-scale manufacturing for BX003 in the second half of 2020.
PSC
background
PSC
is a rare progressive liver disorder affecting approximately 30,000 patients in the United States according to published studies.
PSC is characterized by inflammation and fibrosis within the bile ducts, which transport bile within the liver and from the liver
to the intestines. This fibrosis often results in the obstruction or interruption of bile flow from the liver, a condition known
as cholestasis. Symptoms associated with PSC include fatigue and itching, or pruritus, followed by jaundice, characterized by
yellowing of the skin, mucous membranes, and whites of the eyes. In some cases, the liver may also become abnormally enlarged.
Scarring of the liver, or cirrhosis, eventually develops and many individuals will ultimately require a liver transplant. PSC
patients suffer from increased risk of cancer in the bile ducts and colon. Over 70 percent of individuals with PSC also have UC,
a form of IBD.
Without
a liver transplant, patients with PSC have a median survival after diagnosis of nine to eighteen years. There is currently no
FDA-approved treatment. A number of immunosuppressive and anti-inflammatory agents have been studied in patients with PSC, but
none has been conclusively proven to alter the natural history of this disorder. Liver transplantation is the treatment of choice
for PSC patients with advanced liver disease with forty percent of PSC patients eventually receiving a transplant. Between 1988
and 2015, six percent of all liver transplantations in the United States were due to PSC, a number BiomX believes to be remarkable
given the rarity of this disease. However, in up to twenty percent of patients, even a liver transplant is not curative and PSC
reoccurs.
Role of the microbiome in PSC
The
strong linkage between the microbiome and IBD and the overlap in patients with both PSC and IBD suggest that the microbiome may
also influence the development of PSC, especially given that most of the blood leaving the intestine flows immediately to the
liver. Compromises in the intestinal barrier caused by alterations in the microbiome may expose the liver to altered levels of
toxins, metabolites, and bacteria, which in turn may trigger aberrant bile duct responses.
Figure
11. Schematic representation the gut–liver axis in the pathogensis of PSC. Left, PSC is a chronic inflammatory and progressive
liver disease, which primarily affects large- and medium-sized bile ducts with strictures and dilatations (bile ducts shown in
green) due to inflammatory cells invading the portal system (top right). Pore-forming
K. pneumoniae
increase gut permeability
(bottom right) and trigger an inflammatory response in the liver.
Additional
evidence to support the role of the microbiome comes from experiments done in germ-free mice. These mice were transplanted with
three groups of human fecal samples: from healthy controls; from PSC patients who also had UC; and from patients who had UC without
having PSC. Mice transplanted with samples from PSC+UC patients had significant increases in the number of IL17 expressing CD4
T cells in the liver. Fecal samples from UC patients or healthy controls failed to induce Th17 response in the liver.
Figure
12. Fecal samples from PSC patients (P), but not healthy controls (H) or UC patients without PSC (U), transplanted into mice increased
the number of IL-17-expressing CD4 cells.
Specific
strains of
K. pneumoniae
were identified and cultured from the mesenteric lymph-nodes of the colonized mice, confirming
their capability to migrate through the epithelial wall of the gut, resulting in gut barrier disfunction. Further analysis of
human PSC fecal samples showed that strains of
K. pneumoniae
were enriched in samples from PSC patients. These results
indicated that
K. pneumoniae
may be a pathogen in the development of PSC.
Figure
13.
K. pneumoniae
was found to be enriched in fecal samples from PSC patients.
In
the same study, using a human primary intestinal organoid culture system,
K. pneumoniae
administered on the apical epithelial
surface induced the formation of pores through the monolayer culture. These pores were only formed by strains of
K. pneumoniae
isolated from PSC patients. Similar pores were shown to be responsible for the breakdown of the epithelial barrier in animal
models and were linked to activation of Th17 cells.
BX003,
BiomX’s PSC solution
BiomX
has analyzed over 200 human fecal samples from patients with PSC across multiple geographies, as well as healthy controls and
patients with UC from the same regions – in all, over 600 samples. Through this analysis BiomX confirmed the high prevalence
of
K. pneumoniae
in PSC patients and discovered an association of
K. pneumoniae
with the disease severity and duration.
Certain clinical
K. pneumoniae
isolates BiomX cultured from human PSC fecal samples confirmed that these strains induce
Th17 immune responses and are able to induce epithelial permeability in cellular monolayers and in animals. BiomX believes that
its findings support the development of a phage therapy for PSC.
BX003
is a cocktail of
K. pneumoniae
specific phage that BiomX is optimizing for their ability to function together to eliminate
specific pathogenic strains in PSC, while limiting the ability of resistance mutants to emerge.
Figure
14. Different phage cocktails tested in the development of BX003. The figure shows the growth of
K. pneumoniae
strains
isolated from PSC patients, as measured by optical density or OD, in a liquid
in vitro
culture with and without addition
of different phage cocktails.
CRC
Program
BiomX
is developing phage designed to target specific strains of bacteria that are believed to be pathogenic and that are found in the
tumors of patients with CRC. BiomX’s goal is not only to use these phage to eliminate these bacteria, but also to have these
destroyed bacteria serve as immunostimulators, becoming beacons to help activate a tumor-directed immune response. In contrast
to other therapeutic product candidates in BiomX’s pipeline that primarily consist of naturally occurring phage or evolved
variants, BiomX’s CRC phage program is highly dependent on its synthetic engineering expertise to engineer phage genomes
to both increase the antibacterial potency of naturally occurring bacterial strains as well as to potentially deliver immunostimulatory
payloads to tumors.
Turning
immunologically cold tumors into hot tumors
Tumors
enriched in mutations and immune cells, such as melanoma and non-small cell lung cancer (“NSCLC”), are considered
“hot” tumors, while those with few mutations and little immune infiltration, such as pancreatic, prostate cancer,
and the majority of CRC are called “cold” tumors. Hot tumors are considered good candidates for immuno-oncology therapies
because these tumors are populated with immune cells that have the potential to have anti-tumor activity if it were not for the
presence of various immunosuppressive impediments. There are many approaches that have been approved and are under development
for addressing these impediments and activating tumor destruction through immunological attack.
Cold
tumors have poor responses to most immuno-oncology therapies because these tumors are largely devoid of immune cells. Various
methods are being investigated with the intent of turning cold tumors into hot tumors. The underlying premise behind most of these
methods is to both induce inflammation in the tumor and expose tumor antigens that can be recognized by the immune system. The
most direct ways of accomplishing this is through direct injection of immunostimulatory molecules and oncolytic viruses into tumors.
Unfortunately, not all tumors are easily accessible for these direct injection methods.
BiomX
believes that it can use phage to convert cold tumors into hot tumors by targeting bacteria that are naturally resident in these
tumors and releasing an immunostimulatory payload. BiomX’s hypothesis is that, by attacking these bacteria with phage, it
can expose bacterial proteins and other components brought by the phage to the human immune system, triggering an influx of immune
cells. Two factors encourage BiomX to believe that this will be successful: First, the presence of specific strains of bacteria
in the tumors; and second, the high specificity of phage for their target bacterial strains. Together, these factors suggest to
BiomX that phage administered intravenously can target the bacteria resident in tumors throughout the body, including those tumors
that are invisible to imaging or otherwise inaccessible for direct injection. The antibacterial activity of the phage has the
potential to have a direct impact especially on those tumors in which the bacteria is believed to support tumor proliferation
or help it to evade the immune system. The lysis or destruction of these bacteria by the phage can serve as an immunostimulatory
event, helping to recruit components of the immune system, thus turning these tumors into immunologically hot tumors. In principle,
BiomX believes that these phage also have the potential to serve as gene delivery vectors capable of delivering genes encoding
various immunostimulatory molecules.
Figure
15. Design of BiomX’s therapeutic product candidates in CRC and potentially in other cancers. We believe that phage can
target bacteria in cold tumors and deliver payloads capable of activating an immune response.
BiomX
believes that phage can provide many of the potential immuno-oncology benefits of oncolytic viruses via a more convenient and
efficient route of administration. Rather than relying on intratumoral injection, phage may be able to efficiently target tumors
via systemic intravenous administration. While some oncoviruses also have the possibility to be administered systemically, their
ability to specifically target tumors is limited, leading to sequestration in non-tumor tissues such as the liver and spleen,
reducing the effective dose and potentially introducing undesired toxicity.
CRC Overview
CRC
is the second leading cause of cancer deaths in the United States. The Centers for Disease Control and Prevention (“CDC”) estimates
that there were 141,270 new cases of CRC and 52,286 CRC related deaths in the United States in 2016. Over 30 percent of the patients
with a new diagnosis of CRC will die within five years. The risk of CRC increases with age; 90 percent of cases are diagnosed
in individuals 50 years of age or older. Despite effective screening, leading to a reduction in the mortality from CRC, the number
of cases remains high and is expected to increase worldwide to 2.2 million by the year 2030.
Treatment
of CRC typically involves the use of cytotoxic chemotherapy and radiation with or without surgery. Treatment with anti-epidermal
growth factor receptor or EGFR antibodies as monotherapy or in combination with chemotherapy has been shown to be effective in
a subset of CRC patients, however over 40 percent of patients do not respond to anti-EGFR antibody therapies and of those that
do, resistance often develops. To date immuno-oncology therapy has had a limited impact in CRC. The majority of colorectal tumors
are not associated with high numbers of mutations and thus have a limited number of immunologically active tumor antigens. Only
15 percent of colorectal tumors have mutations in mismatch repair genes and microsatellite instability (“MSI”), capable
of generating neoantigens and attracting immune cells. These tumors have been shown to be responsive to treatment with PD-1 checkpoint
inhibitors.
Targeting
the tumor microbiome in CRC
Although
cancer is generally considered to be a disease caused by genetic mutations or by environmental factors, such as exposure to ionizing
radiation, environmental carcinogens and so forth, microorganisms are implicated in approximately twenty percent of cases, with
one of the most well-known cases being the direct association of
Helicobacter pylori
and gastric cancer. In some cases,
these microorganisms can become integral parts of the tumor, aiding its propagation. In other cases, they serve an indirect role
by causing inflammation that drives proliferation of cells leading to the development of cancer.
Colorectal
tumors have been found to be enriched in the levels of a bacteria species known as
Fusobacterium nucleatum
or
F. nucleatum
.
The levels of this bacterium can be hundreds of times higher in tumors than in adjacent non-tumor tissues.
Figure
16. Levels of
F. nucleatum
are elevated in tumors compared to normal tissue.
Direct
observation of
F. nucleatum
in CRC tumor samples show that these bacteria appear to be integrally associated with tumor
cells and not simply passively attached to the tumor surface. Published studies have shown that
F. nucleatum
bind to tumors
via specific interactions between molecules on tumor cells and bacterial proteins.
Figure
17.
F. nucleatum
are a bacteria species that reside within colon cancer tumors.
Comparisons
of survival rates for CRC patients show that patients with high levels of
F. nucleatum
have a poor prognosis with less
than half surviving more than 20 months. In contrast, more than 60 percent of patients with low
F. nucleatum
levels survive
beyond 60 months.
Figure
18. High levels of
F. nucleatum
have been associated with a poor prognosis in patients with CRC tumors.
These
findings suggest that
F. nucleatum
is not only associated with colorectal tumors, but that it may also have a pathologic
role. Other studies have implicated
F. nucleatum
in stimulating CRC initiation and proliferation, protection from immune
attack by binding checkpoint inhibitors, and promoting resistance to chemotherapy. Combined, these results provide justification
for the development of therapies designed to eradicate
F. nucleatum
in CRC.
BiomX
believes that targeting
F. nucleatum
may provide clinical benefit in CRC through three mechanisms:
|
●
|
Reductions
in the levels of the pathogenic bacteria, thereby lowering its contribution to the propagation
of CRC;
|
|
●
|
Induction
of an inflammatory response due to lysis of the bacteria, which may lead to infiltration
of the tumor with immune cells; and
|
|
●
|
Ability
to deliver gene payloads encoding immunostimulatory genes designed to specifically activate
the immune response to the tumor.
|
Preclinical
proof of concept
A
panel of phage against
F. nucleatum
were obtained from clinically isolated samples. BiomX sequenced and characterized these
phage, some of which were lytic phage and others which were temperate phage, or phage that are capable of infecting bacteria without
causing immediate cell lysis or rupturing.
BiomX
tested the ability of the phage BiomX isolated to target
F. nucleatum
resident in colorectal tumors by first inducing the
formation of tumors in mice by implanting them with CT26 tumor cells. After twelve days of tumor formation,
F. nucleatum
bacteria were added and shown to be present in the tumors. After another twenty-four hours, phage were administered by intravenous
infusion. BiomX showed by quantitative PCR that these phage were capable of infecting tumor-associated
F. nucleatum
.
Figure
19. Intravenous administration of phage able to target bacteria in tumors.
BiomX
believes that these results support its therapeutic hypothesis that phage can be used to target bacteria resident in tumors. BiomX
is currently using synthetic engineering to add genes encoding immunostimulatory payloads which BiomX believes will enhance the
ability of these phage to serve as immuno-oncology stimulatory agents capable of turning cold tumors into hot tumors.
Technology
platform
Target
and biomarker discovery and validation
BiomX
accesses microbiome sample collections from both patients and healthy people collected globally. BiomX uses its proprietary computational
platform to identify or corroborate potential bacterial targets associated with disease. Candidate targets undergo a robust process
of target validation that includes analysis of patient cohorts as well as
in vitro
,
ex vivo
and animal validation
models. BiomX then advances valid targets to phage discovery, where BiomX seeks a phage cocktail that can target and destroy these
disease-causing bacteria.
The
ongoing reduction in sequencing costs is enabling an exponential growth in sequence data that can be generated from the collection
of microorganisms in a microbiome, or metagenomic sequences. The microbiome is extremely varied between individuals and even between
samples from the same individual taken at multiple sites or at different times. BiomX’s target and biomarker discovery technologies
have been designed to specifically handle the vast amount of complex data that arises from analyses of patient microbiomes in
order to derive specific information. Analyses of the composition of the microbiome and discovering bacterial targets is a problem
of high dimensionality difficult to solve with traditional methods.
BiomX
has developed the ability to effectively mine metagenomic data from patient and healthy cohorts that BiomX collects itself, access
from public sources or license from third parties. BiomX is constantly improving its computational methods to address this vast
quantity of complex data, thereby increasing the amount of data that BiomX can process. BiomX has developed high-scale bioinformatic
analysis tools that can process data at the scale of petabytes at what BiomX believes to be a reasonable cost and in a reasonable
amount of time.
Classical
approaches to metagenomics analyses are based on using sequence data of bacterial strains that have been isolated and sequenced
to determine the abundance of individual strains and species of bacteria in a given sample. This approach has inherent limitations:
it requires that there is a reference sequence available for many strains of each bacterial species and does not refer to the
contributions of individual genes to the pathology. Sequences for novel or less abundant strains of bacteria are not available
in reference databases and thus these strains become invisible to the analysis.
BiomX’s
methods are able to perform higher resolution analyses that use all the available sequence data to produce disease-specific sequence
signatures. These signatures can then be used to map the importance of individual genes or pathways in the pathology.
BiomX’s
target and biomarker discovery platforms focus on two classes of data: microbiome composition and microbiome dynamics. Microbiome
composition refers to the characterization of the microbiome to determine the prevalence and relative abundance of strains and
genes between groups. Dynamics refers to the changes in microbiome composition, such as bacteria growth rate, and gene expression
that are induced upon various potential treatments. BiomX believes that identification of therapeutically relevant targets and
signatures requires both an understanding of the microbiome composition and changes that a given therapeutic is likely to induce.
To
date BiomX has focused on diseases for which strong associations with specific microbiome changes were available from pioneering
work of leading academic laboratories. For each of BiomX’s programs, however, BiomX has made significant investments in
acquiring clinical samples from diverse demographics and geographies to validate that the published findings are applicable to
a broad set of patients. To this end, BiomX has assembled collections of hundreds of samples from patients with IBD and PSC.
Microbiome based biomarkers – BiomX’s
XMarker platform
In
addition to using BiomX’s computational platform to discover and validate targets, BiomX has applied its signature identifying
technology towards identifying microbiome-derived biomarkers for disease diagnoses and as a means of developing diagnostic tests
to identify responders to non-responders to drugs. BiomX has established a collaboration with Janssen Research & Development,
LLC (“Janssen”) to use BiomX’s diagnostic platform, which BiomX calls XMarker, to identify a biomarker signature
to stratify responders and non-responders to a key Johnson & Johnson IBD therapeutic. BiomX is using BiomX’s computational
tools to analyze sequences in the stool microbiome of patients being treated by Janssen with the intent of identifying sequence
variations between responders and non-responders. BiomX believes that sequence variations identified through its XMarker platform
can be used to develop PCR-based or other molecular tests for screening patients and identifying those most likely to benefit
from treatment.
Figure
20. A reference free approach for biomarker discovery versus a classical reference based approach.
Phage
discovery and optimization
BiomX
has chosen to develop therapies based on phage because of their high specificity for specific bacterial strains; their strong
intrinsic safety profile in certain non-therapeutic applications, including in food or food contact surface categories; and the
potential to use genetic engineering to bring synthetic biology approaches to the development of novel therapies. Phage are self-replicating
which means that broad antibacterial activity can be obtained using low doses. This replication is also self-limiting –
once the target bacteria has been eliminated, the phage are unable to replicate and are thought to be eliminated from the body.
Phage
hunting
BiomX’s
phage discovery process begins with a process BiomX calls phage hunting in which BiomX extracts phage from a broad array of clinical
and environmental samples. BiomX isolates both lytic phage and temperate phage, which are capable of both lytic and lysogenic
replication, to increase the spectrum of potential phage. Although BiomX’s current topical and therapeutic product candidate
cocktails are all lytic phage BiomX has developed synthetic biology engineering tools that allow conversion of temperate phage
into a strictly lytic form.
Figure
21. Overview of BiomX’s phage platform.
BiomX
then screens phage for the ability to selectively and potently infect the target bacterial strains of interest. Phage that pass
BiomX’s initial screens undergo extensive in silico and laboratory characterization. BiomX sequences the genomes of all
phage candidates and rank them based on sequence diversity and lack of undesirable features, such as antibiotic resistance genes
or toxins. BiomX then analyzes the phage for bacterial strain specificity and their ability to cause bacterial cell lysis rather
than entering a lysogenic phase in which the phage become resident within the bacteria. Phage candidates are prioritized for various
characteristics that will be important during manufacturing such as ease of production and stability. BiomX carries out whole
genome analyses of bacteria that have developed resistance to specific phage in order to identify the bacterial receptors used
by each phage to infect their target bacteria.
Phage
engineering
BiomX’s
phage selection process usually begins with screening for naturally occurring phage, but it is not always possible to find phage
that exactly match the desired profile. If needed, BiomX modifies the genomes of its phage to create synthetic phage with properties
which are not found in nature, but that BiomX believes will be beneficial to BiomX’s use as therapeutic agents. Examples
of the types of genetic changes BiomX has introduced into phage include:
|
●
|
Alteration
of their target specificity by modifying genes encoding phage tail fibers, which are
typically responsible for recognition of bacterial receptor proteins. This allows to
develop phage with expanded bacterial host range.
|
|
●
|
Conversion
of temperate phage to lytic phage by disabling genes required for lysogeny.
|
|
●
|
Addition
of payload genes that are intended to be delivered by the phage and lead to expression
of proteins with therapeutic or diagnostic potential.
|
Changing
the target specificity of phage
BiomX
has applied two methods to change the target-recognition specificity of phage. One method is to introduce selective mutations
directly into the genes encoding the phage tail fibers, the portions of the phage typically responsible for binding to bacterial
cell receptors. The second method involves swapping the genes encoding tail fibers that specifically bind to one target receptor
with those of a phage that binds to another receptor. BiomX can also create phage with parts of two different types of tail fibers,
thus expanding the strains of bacteria that they can target.
Figure
22. A schematic example of a phage created to have multiple tail fibers.
A
published example from one of BiomX’s founders demonstrates the ability of tail fiber gene swapping to alter phage specificity.
In this experiment T7 phage that were not able to inhibit the growth of
Klebsiella
were engineered to contain the genes
for the tail fibers of K11 phage, a potent inhibitor of
Klebsiella
. After swapping the tail fiber genes, the synthetic
T7 phage assumed the species specificity of the K11 phage and became potent inhibitors of
Klebsiella
.
Conversion
of temperate to lytic phage
Naturally
occurring phage can exist either as lytic phage which replicate, creating many copies of themselves and quickly leading to bacterial
lysis, or as temperate phage which have the ability to enter into a lysogenic phase and become resident in the bacterial host
by integrating into the bacterial chromosome. BiomX can engineer phage that BiomX discovers to disable their ability to enter
the lysogenic state by inactivating key lysogenic genes such as regulatory genes or enzymes required for chromosomal integration.
For example, the deletion of a repressor required for lysogeny results in the creation of phage that, in contrast to their naturally
occurring precursors, are able to induce complete lysis of their target bacteria and suppress bacterial regrowth.
Figure
23. Deletion of a repressor converted a temperate phage (red) into a lytic phage (green) having similar ability to inhibit bacterial
growth as a naturally occurring lytic phage (blue).
Addition of payloads to phage
BiomX
has extensive experience modifying phage to carry and express gene payloads for a variety of proteins. BiomX has developed a luciferase-based
rapid test for
K. pneumoniae
in IBD based on phage used to create BX002. BiomX is now evaluating the introduction of various
immunostimulatory genes into phage in BiomX’s CRC product candidate. Through this process BiomX has gained proprietary
insights enabling BiomX to insert genes in specific areas of the phage genome to maximize expression and limit disruption of phage
function.
Cocktail
optimization
BiomX’s
topical and therapeutic product candidates are cocktails of phage which are chosen based on various characteristics including
target host range, ability to avoid resistance, stability, ease of manufacturing and biofilm penetration. BiomX employs various
techniques to prioritize and enrich for the selection of phage that target different receptors. BiomX conducts extensive computational
and laboratory tests to optimize the selection of phage components of BiomX’s cocktails to maximize their antibacterial
activity and the durability of their antibacterial effect.
BiomX’s
primary strategy to prevent or minimize the emergence of viable bacteria with mutations that allow them to overcome infection
by the candidate therapeutic is to always use a cocktail of multiple phage, including those which infect by different receptors,
in BiomX’s topical and therapeutic product candidates. BiomX hypothesizes that the ability of a bacterium to escape infection
by all members of the set of distinct phage in BiomX’s cocktail would require simultaneous mutations in multiple genes –
a very unlikely event. In practice, this is what BiomX has observed in its preclinical studies. Resistance can emerge when bacteria
are treated with single phage or suboptimal cocktails, but it is less likely when a cocktail of diverse phage are used.
Figure
24. Cocktails of diverse phage prevent emergence of resistant bacteria.
BiomX
and a CRO have jointly developed a manufacturing process that utilizes state of the art industrial methods for the manufacture
of BiomX’s product candidates. This cGMP compliant process is designed
to be scalable to meet BiomX’s clinical study needs, and to fulfill the requirements of regulators for human studies. BiomX
currently operates a manufacturing model that combines an in-house process development & manufacturing suite with outsourced
third-party manufacturing services for the large scale production of BiomX’s therapeutic phage cocktails for clinical use.
As such, for BX001, BiomX has engaged one vendor to provide purified active ingredients (bacteriophages) and another to provide
formulation and fill-finish services of BiomX’s product candidates for clinical testing. For BX002, BiomX has also engaged
an additional third-party provider to supplement BiomX’s in house process development activities. BiomX has selected these
organizations based on their experience, capability, capacity and regulatory status. Projects are managed by a specialist team
of BiomX’s internal staff, which is designed to promote compliance with the technical aspects and regulatory requirements
of the manufacturing process.
BiomX
maintains services agreements with multiple manufacturers. These services agreements generally are short-term in nature and capable
of being extended or renewed. The production amounts identified in BiomX’s current services agreements are sufficient to
support BiomX’s current clinical study needs.
In
the third quarter of 2019, BiomX plans to open its own cGMP manufacturing facility at its headquarters in Ness Ziona, Israel.
This facility has been designed with the capacity to produce clinical quantities of BiomX’s product candidates required
for future early stage clinical development of BX001 and BX002.
While
BiomX does not have a current need for commercial scale manufacturing capacity, at the appropriate time BiomX intends to evaluate
building large scale cGMP internal manufacturing capabilities, which may include expansion of its operations.
Intellectual
Property
BiomX
strives to protect the proprietary technology that BiomX believes is important to its business, including seeking and maintaining
patent protection in the United States and internationally for its product candidates and discovery platform. BiomX also relies
on trademarks, trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain
its proprietary position.
BiomX
seeks to obtain U.S. and international patent protection, and endeavors to promptly file patent applications for new commercially
valuable inventions. BiomX also relies on trade secrets and know-how to protect aspects of its business that are not amenable
to, or that BiomX does not consider appropriate for, patent protection. BiomX plans to continue to expand its intellectual property
estate by filing patent applications directed to formulations, related methods of treatment, methods of manufacture or identified
from BiomX’s ongoing development of its product candidates, as well as discovery based on BiomX’s proprietary product
platform. BiomX’s success will depend on its ability to obtain and maintain patent and other proprietary protection for
commercially important technology, inventions and know-how related to its business, defend and enforce any patents that BiomX
may obtain, preserve the confidentiality of its trade secrets and know-how and operate without infringing the valid and enforceable
patents and proprietary rights of third parties. The patent positions of life sciences companies like BiomX’s are generally
uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent may be challenged
in courts after issuance. Moreover, many jurisdictions permit third parties to challenge issued patents in administrative proceedings,
which may result in further narrowing or even cancellation of patent claims. BiomX cannot guarantee that its pending patent applications,
or any patent applications that BiomX may in the future file or license from third parties, will result in the issuance of patents.
BiomX cannot predict whether the patent applications it is currently pursuing will issue as patents in any particular jurisdiction
or at all, whether the claims of any patent applications, should they issue, will cover its product candidates, or whether the
claims of any issued patents will provide sufficient protection from competitors or otherwise provide any competitive advantage.
BiomX cannot predict the scope of claims that may be allowed or enforced in its patents. In addition, the coverage claimed in
a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance.
Consequently, BiomX may not obtain or maintain adequate patent protection for any of its programs and product candidates.
Because
patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months or potentially
even longer, and because publication of discoveries in the scientific or patent literature often lags behind actual discoveries
and patent application filings, BiomX cannot be certain of the priority of inventions covered by pending patent applications.
Accordingly, BiomX may not have been the first to invent the subject matter disclosed in some of its patent applications or the
first to file patent applications covering such subject matter, and BiomX may have to participate in interference proceedings
or derivation proceedings declared by the USPTO, to determine priority of invention. For more information regarding the risks
related to BiomX’s intellectual property, see “
Risk Factors— Risks Related to BiomX’s Licensed and
Co-Owned Intellectual Property.
”
BiomX’s
licensed and co-owned technology is focused on microbiome product discovery to develop phage therapies to target and destroy harmful
bacteria involved with chronic diseases. BiomX uses its licensed and proprietary platform technology to develop phage therapies
that incorporate both naturally occurring phage and novel engineered phage created using synthetic biology. These phage therapies
are directed to acne, IBD, PSC and CRC. BiomX then designs cocktails containing multiple phage (both naturally occurring and synthetic)
with complementary functions.
Patent
portfolio
BiomX’s
patent portfolio consists of both licensed and co-owned patent applications (that are also licensed). For some of these applications,
prosecution has not started and others are in the early stages of prosecution in the United States and in selected jurisdictions
outside of the United States. BiomX co-owns one U.S. provisional patent application with Keio University (“Keio”),
one U.S. provisional and one PCT application with Yeda Research and Development Co. Ltd. (“Yeda”), and one U.S. provisional
application and one PCT application with both Keio and Yeda. BiomX has an exclusive license from Yeda and Keio for these co-owned
applications. BiomX has exclusive licenses from Yeda, Keio, or the Massachusetts Institute of Technology (“MIT”) for
the rest of the patents and patent applications in its portfolio.
A
significant portion of BiomX’s portfolio is directed to its key product candidates, specifically: acne, IBD, and PSC, as
well as to BiomX’s bacterial target discovery and bacteriophage discovery technology platforms. Prosecution has yet to commence
for most the pending patent applications covering BiomX’s product candidates. Prosecution is a lengthy process, during which
the scope of the claims initially submitted for examination by the USPTO are often significantly narrowed by the time they issue,
if they issue at all. BiomX expects this to be the case with respect to its licensed and co-owned patent applications, described
briefly below.
Acne
BiomX
co-owns with Yeda one U.S. provisional and one PCT application containing claims directed to pharmaceutical compositions and formulations
comprising combinations of bacteriophage useful to treat acne, methods of use for these bacteriophage combinations, and methods
of identifying patients who will respond to these bacteriophage combinations. Any U.S. patents issuing from the pending application
covering BiomX’s lead bacteriophage combination in this program are expected to expire in 2038. Patent term adjustments
or patent term extensions could result in later expiration dates.
IBD
BiomX
co-owns with Keio and Yeda one U.S. provisional application and one PCT application containing claims directed to pharmaceutical
compositions comprising combinations of bacteriophage useful to treat IBD and other diseases of the gastrointestinal tract, methods
of use for these bacteriophage combinations, methods of identifying patients who will respond to these bacteriophage combinations,
and methods of treating IBD by targeting a bacterial strain discovered to cause or contribute to that disease. BiomX co-owns,
solely with Keio, one U.S. provisional application with similar claims.
BiomX
also has an exclusive license from Keio for one US provisional application, one PCT application and five foreign patent applications
(Australia, Canada, China, Europe and Japan). These applications are directed to methods of use for these bacteriophage combinations,
methods of identifying patients who will respond to these bacteriophage combinations, and methods of treating IBD by targeting
a bacterial strain discovered to cause or contribute to that disease. Any U.S. patents issuing from the pending applications covering
BiomX’s lead bacteriophage combination in this program are expected to expire in 2037 or 2038. Patent term adjustments or
patent term extensions could result in later expiration dates.
PSC
BiomX
has an exclusive license to one U.S. non-provisional two U.S. provisional applications and two Japanese patent applications with
claims directed to pharmaceutical compositions comprising bacterial strains discovered to be beneficial in the treatment of PSC
and methods of using the same, and to methods of treating PSC by reducing the level of certain bacterial strains discovered to
contribute to PSC. Any U.S. patents issuing from the pending applications in this program are expected to expire in 2038 or 2039.
Patent term adjustments or patent term extensions could result in later expiration dates.
Technology
Platform
BiomX
is exclusively licensed to one U.S. issued patent, five U.S. non-provisional applications, one PCT application, and seven foreign
patent applications (Canada, China, Europe, and Israel). These licensed patent families include one issued U.S. Patent and multiple
pending patent applications, with claims directed to methods of analyzing the composition of the microbiome in a subject, polynucleotides
that are useful as transcription terminators in bacteria and methods of identifying the same, methods of producing recombinant
bacteriophage in yeast cells, recombinant bacteriophage with broader or altered host range than the parent strains from which
they are derived, and recombinant methods for increasing the lytic efficiency of a bacteriophage. The patents issuing from the
pending applications in the U.S. directed to BiomX’s platform are expected to expire between 2034 and 2038. Patent term
adjustments or patent term extensions could result in later expiration dates. For more information regarding the risks related
to BiomX’s intellectual property, see “
Risk Factors—Risks Related to BiomX’s Licensed and Co-Owned
Intellectual Property.
”
Patent
term
The
term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries
in which BiomX files, including the United States, the base term is 20 years from the filing date of the earliest-filed non-provisional patent
application from which the patent claims priority. The term of a U.S. patent can be lengthened by patent term adjustment, which
compensates the owner of the patent for administrative delays at the USPTO. In some cases, the term of a U.S. patent is shortened
by terminal disclaimer that reduces its term to that of an earlier-expiring patent. The term of a U.S. patent may be eligible
for patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman
Act, to account for at least some of the time the drug is under development and regulatory review after the patent is granted.
With regard to a drug for which FDA approval is the first permitted marketing of the active ingredient, the Hatch-Waxman Act allows
for extension of the term of one U.S. patent that includes at least one claim covering the composition of matter of such an FDA-approved drug,
an FDA-approved method of treatment using the drug and/or a method of manufacturing the FDA-approved drug.
The extended patent term cannot exceed the shorter of five years beyond the non-extended expiration of the patent or
fourteen years from the date of the FDA approval of the drug, and a patent cannot be extended more than once or for more than
a single product. During the period of extension, if granted, the scope of exclusivity is limited to the approved product for
approved uses. Some foreign jurisdictions, including Europe and Japan, have analogous patent term extension provisions, which
allow for extension of the term of a patent that covers a drug approved by the applicable foreign regulatory agency.
In
the future, if and when BiomX’s product candidates receive FDA approval, BiomX expects to apply, if appropriate, for patent
term extension on patents directed to those product candidates, their methods of use and/or methods of manufacture. However, there
is no guarantee that the applicable authorities, including the FDA in the United States, will agree with BiomX’s assessment
of whether such extensions should be granted, and if granted, the length of such extensions. For more information regarding the
risks related to BiomX’s intellectual property, see “
Risk Factors—Risks Related to BiomX’s Licensed
and Co-Owned Intellectual Property
.”
Trade
secrets and know-how
In
addition to patents, BiomX relies on trade secrets and know-how to develop and maintain its competitive position. BiomX
typically relies on trade secrets to protect aspects of its business that are not amenable to, or that BiomX does not consider
appropriate for, patent protection. BiomX protects trade secrets and know-how by establishing confidentiality agreements
and invention assignment agreements with BiomX’s employees, consultants, scientific advisors, contractors and collaborators.
These agreements provide that all confidential information developed or made known during the course of an individual or entities’
relationship with BiomX must be kept confidential during and after the relationship. These agreements also provide that all inventions
resulting from work performed for BiomX or relating to BiomX’s business and conceived or completed during the period of
employment or assignment, as applicable, shall be BiomX’s exclusive property. In addition, BiomX takes other appropriate
precautions, such as physical and technological security measures, to guard against misappropriation of its proprietary information
by third parties.
Although
BiomX takes steps to protect its proprietary information and trade secrets, including through contractual means with BiomX’s
employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques
or otherwise gain access to BiomX’s trade secrets or disclose BiomX’s technology. Thus, BiomX may not be able to meaningfully
protect its trade secrets. For more information regarding the risks related to BiomX’s intellectual property, see “
Risk
Factors — Risks Related to BiomX’s Licensed and Co-Owned Intellectual Property
.”
The
biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, strong competition and an emphasis
on proprietary products. While BiomX believes that its technology, knowledge and experience provide BiomX with competitive advantages,
BiomX faces substantial competition from many different sources, including larger pharmaceutical companies with more resources.
Specialty biotechnology companies, academic research institutions, governmental agencies, as well as public and private institutions
are also potential sources of competitive products and technologies. BiomX believes that the key competitive factors affecting
the success of any of its product candidates will include efficacy, safety profile, method of administration, cost, level of promotional
activity and intellectual property protection.
BiomX
is aware of a number biotechnology companies developing bacteriophage products to treat human diseases. To BiomX’s knowledge,
several biotechnology companies, as well as academic institutions, have discovery stage or clinical programs utilizing naturally
occurring phages or synthetic biology approaches. In addition, BiomX is aware of several investigational and marketed products
to treat the indications that BiomX is targeting with its product candidates, including, but not limited to:
|
●
|
P.
acne
: Adapalene, Epiduo, Zineryt, erythromycin and Acnecide
|
|
●
|
Inflammatory
bowel disease
: Humira, Stelara, Entyvio, Inflectra and Cimzia
|
|
●
|
Primary
sclerosing cholangitis
: Obeticholic acid (Intercept clinical candidate), GS-9674
(Gilead clinical candidate), BTT1023, (Acorda Therapeutics candidate) and PLN-74809 (Pliant
clinical candidate)
|
Many
of BiomX’s competitors, either alone or with their strategic partners, have substantially greater financial, technical and
human resources than BiomX does and significantly greater experience in the discovery and development of product candidates, obtaining
FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, BiomX’s competitors
may be more successful than BiomX may be in discovering product candidates, obtaining approval for such product candidates and
achieving widespread market acceptance. BiomX’s competitors’ products may be more effective, or more effectively marketed
and sold, than any product BiomX may commercialize and may render BiomX’s product candidates obsolete or non-competitive
before BiomX can recover the expenses of developing and commercializing any of BiomX’s product candidates. BiomX anticipates
that BiomX will face intense and increasing competition as new drugs enter the market and advanced technologies become available.
These
third parties compete with BiomX in recruiting and retaining qualified scientific, clinical, manufacturing sales and marketing
and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring
technologies complementary to, or necessary for, BiomX’s program.
In
addition, for any cosmetics products that BiomX introduces, BiomX will face intense competition from a broader range of cosmetics
companies with more resources than BiomX’s.
Sales
and Marketing
BiomX
intends to pursue the commercialization of its drug product candidates either by building internal sales and marketing capabilities
or through opportunistic collaborations with others if and when BiomX receives the requisite regulatory approvals.
BiomX
currently intends to distribute BX001 in collaboration with a leading global cosmetics company rather than rely on its own sales
and marketing capabilities, subject to negotiation and agreement of mutually acceptable terms and the possibility that BiomX may
select an alternate method for distribution.
Material
Agreements
License
Agreements
Research
and License Agreement with Yeda Research and Development Company Limited
BiomX
entered into a Research and License Agreement with Yeda, the technology
transfer office of the Weizmann Institute of Science, dated as of June 22, 2015, as amended, pursuant to which BiomX received
an exclusive worldwide license to certain know-how and research information related to the development, testing, manufacture,
production and sale of microbiome-based therapeutic product candidates, including candidates specified in the agreement, which
are used in BiomX’s phage discovery platform, as well as patents, research and other rights to phage product candidates
resulting from the work of the consultants identified in the agreement and further research which BiomX funded.
In connection with this license, BiomX is
obligated to pay a non-refundable license fee of $10,000 per year. In addition, BiomX contributed an aggregate of approximately
$1.8 million to the research budget agreed upon in the license agreement. In addition, BiomX is required to pay tiered royalties
in the low single digits on net sales of products and diagnostic kits covered by the license agreement, subject to reductions as
described therein. The products and diagnostic kits covered by the license agreement include those directed to inflammatory bowel
disease, colorectal cancer, and any other indications that may be treated by phage-based therapies, as well as related technology
platforms. If BiomX sublicenses its rights under this agreement BiomX will be obligated to pay Yeda additional sublicense royalties
expressed as a percentage of the sublicensing receipts described in the agreement received ranging from the mid-teens to the mid-twenties.
BiomX is obligated pay filing and maintenance expenses in respect of patents licensed under this license agreements. In connection
with this license agreement, BiomX also issued an aggregate of 80,000 ordinary shares to Yeda. In the event of certain mergers
and acquisitions by BiomX, BiomX is obligated to pay Yeda an amount equivalent to 1% of the consideration received under such transaction
(the “exit fee”). Upon the closing of the Business Combination, the provisions of the Yeda license agreement related
to the exit fee will be amended so that, instead of the exit fee provided for in the prior sentence, in the event of any merger
or acquisition involving CHAC after the Business Combination, CHAC is obliged to pay Yeda a one-time payment as described in the
amendment which will not exceed 1% of the consideration received under such transaction.
Unless
terminated earlier by either party, the license granted will remain in effect in each country and for each product developed based
on the license until the later of the expiration of the last licensed patent (which is expected to be in 2039) in such country
for such product, and eleven years from the date of first commercial sale of such product in such country for such product. The
agreement terminates upon the later of the expiration of the last of the patents covered under the agreement, and the expiry of
a continuous 15-year period during which there has not been a first commercial sale of any product in any country. Yeda may also
terminate the agreement if BiomX fails to observe certain diligence and development requirements and milestones as described in
the agreement. BiomX or Yeda may terminate the agreement for the material uncured breach of the other party after a notice period,
or the other party’s winding up, bankruptcy, insolvency, dissolution or other similar discontinuation of business. Upon
termination of the agreement, other than due to the passage of time, BiomX is required to grant to Yeda a non-exclusive, irrevocable,
perpetual, fully paid-up, sublicenseable, worldwide license in respect of BiomX’s rights in know-how and research results
as described in this agreement, provided that if Yeda subsequently grants a license to a third party that utilizes BiomX’s
rights, BiomX is entitled to share in the net proceeds actually received by Yeda arising out of that license, subject to a cap
based on the development expenses that BiomX incurs in connection with this agreement.
BiomX
consults with Yeda with respect to patent prosecution and maintenance decisions. Yeda is primarily responsible for prosecution
and maintenance with respect to Licensed Information and BiomX is responsible for prosecution and maintenance with respect to
Subsequent Results. BiomX and Yeda are both entitled to consultation rights. BiomX is responsible for costs associated with prosecution
and maintenance of all patents and applications.
BiomX
is entitled to enforce the patent rights under the license upon approval by Yeda. Yeda may elect to join the lawsuit, but BiomX
is responsible for all litigation-related expenses. Yeda reserves the right to bring its own actions if BiomX does not notify
Yeda of BiomX’s intent to enforce a right or bring an action after BiomX initially notified Yeda of the potential action.
Exclusive
Patent License Agreement with the Massachusetts Institute of Technology
On
April 25, 2017, BiomX entered into an Exclusive Patent License Agreement with MIT,
pursuant to which BiomX received an exclusive, royalty-bearing license to certain patents held by MIT covering methods to synthetically
engineer phage in the field of treating, preventing or diagnosing inflammatory bowel disease, cancer in humans, including colorectal
cancer, or certain other specified indications, to utilize patents held by MIT. One of the inventors of the patents has an equity
ownership in BiomX. Under this agreement, BiomX is required to expend minimum amounts on the research and development of the products
that require the licensed patents or are manufactured by a licensed process until the first commercial sale of any product covered
by this agreement. These minimum amounts start at $50,000 for the first year of the agreement term and increase up to $2.0 million
per year after the fourth year. BiomX is also required to meet certain clinical and development milestones over the course of
the agreement.
Under
the terms of the agreement, BiomX paid MIT an initial license fee of $25,000 and is obligated to pay certain license maintenance
fees of up to $250,000 in each subsequent year and following the commercial sale of licensed products. BiomX is also required
to make payments to MIT upon the satisfaction of development and commercialization milestones totaling up to $2.4 million in aggregate.
BiomX is also required to pay MIT tiered royalties on a percentage of annual net sales of licensed products in the low single
digits. In addition, BiomX is required to pay tiered royalties on a percentage of annual net sales of identified products ranging
between approximately one-half percent and in the low single digits. If BiomX sublicenses its rights under this agreement, BiomX
will be obligated to pay MIT sublicense royalties expressed as a percentage of sublicense income received as described in the
agreement, including milestone payments and other payments, ranging between the low teens and the low twenties. BiomX’s
payments to MIT are subject to reductions as set forth in the agreement.
Unless
earlier terminated, the agreement will continue until the expiration or abandonment of all issued patents or patent applications
with the licensed patent rights, which is expected to be in 2038. BiomX may also terminate the agreement at any time with 90 days
prior written notice and payment of all amounts due to MIT through the date of such termination. MIT may also terminate the agreement
if BiomX ceases to carry on BiomX’s business or if BiomX fails to pay any amounts due to MIT under the agreement. Either
party may terminate the agreement upon material breach by the other party that is uncured.
MIT
is responsible for prosecution and maintenance of the patents that fall under the patent rights. BiomX shares the costs of such
prosecution and maintenance.
BiomX
is entitled to enforce the patent rights under BiomX’s own control and at its own expense, unless MIT is legally required
to allow the action to be brought in its name. BiomX must consult with MIT before commencing any such action and cannot enter
into settlements, consent judgments, or other dispositions that would adversely affect the patent rights without prior written
consent of MIT. MIT reserves the right to bring its own enforcement actions if BiomX fails to do so within a reasonable time.
Exclusive
Patent License Agreement with Keio University and JSR Corporation for IBD
BiomX has entered into an Exclusive Patent
License Agreement with Keio, and JSR, on December 15, 2017, as amended, pursuant to which BiomX was granted an exclusive, royalty-bearing,
worldwide, perpetual sublicense by JSR to certain patent rights related to BiomX’s inflammatory bowel disease program. Specifically,
these patent rights relate to bacterial targets that have been observed to be related to inflammatory bowel disease and the phage
that were observed to eradicate these bacterial targets.
BiomX
paid JSR a license issue fee of $10,000 and has agreed to pay annual fees ranging from $15,000 to $25,000 in each subsequent year.
In addition to the license fees, BiomX has agreed to make payments upon the satisfaction of certain clinical and regulatory milestones
up to an aggregate of $3.2 million. BiomX is also required to pay tiered royalties expressed as a percentage of annual net sales
of products developed under the agreement in the low single digits. If BiomX sublicenses BiomX’s rights under this agreement,
BiomX will be obligated to pay sublicense royalties expressed as a percentage of sublicense income received, including any license
signing fee, license maintenance fee, distribution or joint marketing fee and milestone payments, ranging in the high single digits
to the low teens. BiomX’s payments under this agreement are subject to reductions as set forth therein.
Unless
earlier terminated, this agreement will expire on the later of the date on which all issued patents and filed patent applications
have expired (which is expected to be in 2039), or been abandoned, withdrawn, rejected, revoked or invalidated, and five years
from the date of first commercial sale of a product developed the agreement in any country or, if later, when the product ceases
to be covered by a valid claim in the United States, European Union or Japan. The counterparties may terminate this agreement
if BiomX fails to pay the amounts due under this agreement, or upon BiomX’s winding up, bankruptcy, insolvency, dissolution
or other similar discontinuation of business, or if BiomX breaches the material terms of this agreement and such breach is uncured.
BiomX may terminate this agreement at any time upon three months’ advance written notice to JSR.
BiomX
and other joint owners are responsible for maintenance and prosecution of patents that fall under Joint Patent Rights. JSR is
entitled to the opportunity to advise and approve decisions that would have a material adverse impact on the scope of the claims.
JSR is responsible for patents that fall under Patent Rights and BiomX is entitled to advise with respect to patent counsel, scope
of claims, and other matters. BiomX is entitled to bring enforcement actions (in BiomX’s name alone and at BiomX’s
own expense). BiomX is required to obtain JSR’s prior written consent for each action BiomX brings with respect to the Patent
Rights only.
Exclusive
Patent License Agreement with Keio University and JSR Corporation for PSC
BiomX
has entered into an Exclusive Patent License Agreement with Keio and JSR on April 22, 2019, pursuant to which BiomX was granted
an exclusive, royalty-bearing, worldwide, perpetual sublicense by JSR to certain patent rights related to BiomX’s PSC program.
Specifically, these patent rights relate to bacterial targets that have been observed to be related to PSC and the phage that
were observed to eradicate these bacterial targets.
BiomX
paid JSR a license issue fee of $20,000 and has agreed to pay annual fees ranging from $15,000 to $25,000 in each subsequent year.
In addition to the license fees, BiomX has agreed to make payments upon the satisfaction of certain clinical and regulatory milestones
up to an aggregate of $3.2 million. BiomX is also required to pay tiered royalties expressed as a percentage of annual net sales
of products developed under the agreement in the low single digits. If BiomX sublicenses BiomX’s rights under this agreement,
BiomX will be obligated to pay sublicense royalties expressed as a percentage of sublicense income received, including any license
signing fee, license maintenance fee, distribution or joint marketing fee and milestone payments, ranging in the high single digits
to the low teens. BiomX’s payments under this agreement are subject to reductions as set forth therein.
Unless
earlier terminated, this agreement will expire on the later of the date on which all issued patents and filed patent applications
have expired (which is expected to be in 2039), or been abandoned, withdrawn, rejected, revoked or invalidated, and five years
from the date of first commercial sale of a product developed the agreement in any country or, if later, when the product ceases
to be covered by a valid claim in the United States, European Union or Japan. The counterparties may terminate this agreement
if BiomX fails to pay the amounts due under this agreement, or upon BiomX’s winding up, bankruptcy, insolvency, dissolution
or other similar discontinuation of business, or if BiomX breaches the material terms of this agreement and such breach is uncured.
BiomX may terminate this agreement at any time upon three months’ advance written notice to JSR.
BiomX
and other joint owners are responsible for maintenance and prosecution of patents that fall under Joint Patent Rights. JSR is
entitled to the opportunity to advise and approve decisions that would have a material adverse impact on the scope of the claims.
JSR is responsible for patents that fall under Patent Rights and BiomX is entitled to advise with respect to patent counsel, scope
of claims, and other matters. BiomX is entitled to bring enforcement actions (in BiomX’s name alone and at BiomX’s
own expense). BiomX is required to obtain JSR’s prior written consent for each action BiomX brings with respect to the Patent
Rights only.
Acquisition
Agreement
RondinX
Acquisition
In
November 2017, BiomX entered into a share purchase agreement to acquire all of the outstanding share capital of RondinX Ltd.,
a company organized under the laws of Israel (“RondinX”). Under this agreement, BiomX issued to the shareholders of
RondinX an aggregate of 250,023 Series A-1 preferred shares upon the closing of the acquisition. In addition, BiomX issued to
warrantholders of RondinX warrants to purchase an aggregate of 4,380 Series A-1 preferred shares, which are exercisable for no
additional consideration, as well as additional cash consideration.
In
addition, BiomX is required to issue up to an additional 234,834 ordinary shares to the former securityholders of RondinX upon
the achievement of certain milestones, including clinical, developmental, regulatory, commercial or strategic milestones relating
to product candidates for treatment of PSC or entry into qualifying collaboration agreements with certain third parties. Furthermore,
upon the achievement of such milestones, BiomX will be required to make payments of contingent consideration of up to $32 million
in the aggregate. Such contingent consideration may be made in cash, or in the most senior class of BiomX’s shares authorized
or outstanding as of the time the payment is due, or a combination of both. If BiomX issues shares for the payment of such contingent
consideration, these shares will be issued based on the lowest price per share paid by any holder of such shares. In the event
that any of BiomX’s shares are traded on a public market, then the price per share calculated as part of such payment will
be calculated as follows: (i) if the securities are then traded on a national securities exchange or the Nasdaq Stock Market (or
similar national quotation system), then the value of the securities shall be deemed to be the average of the closing prices of
the securities on such exchange or system over the thirty (30) trading-day period ending five (5) trading days prior to the distribution;
or (ii) if the securities are actively traded over-the-counter, then the value of the securities shall be deemed to be the average
of the closing bid prices of the securities over the thirty (30) trading-day period ending five (5) trading days prior to the
distribution.
Employees
As
of July 1, 2019, BiomX has 60 full-time employees and consultants and 11 part time employees. Twenty-six of BiomX’s employees
have Ph.D. or M.D. degrees and 63 of BiomX’s employees are currently engaged in research and preclinical development activities.
None of BiomX’s employees is represented by labor unions or covered by collective bargaining agreements. BiomX considers
its relationship with its employees to be very strong.
Facilities
BiomX’s
corporate headquarters are located in Ness Ziona, Israel, where BiomX currently leases 10,760 square feet of laboratory and office
space. The lease expires in 2022, subject to an option to extend for an additional five years starting on July 14, 2022.
Legal
Proceedings
As
of the date of this proxy statement, BiomX is not subject to any material legal proceedings.
GOVERNMENT
REGULATION
Government
authorities in the United States and other countries regulate, among other things, the research, development, testing, manufacture,
quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring
and reporting, marketing and export and import of drug and biological products. Generally, before a new drug or biologic can be
marketed, considerable data demonstrating its quality, safety, efficacy, purity, and/or potency must be obtained, organized into
a format specific for each regulatory authority, submitted for review and approved by the regulatory authority where the product
is intended to be marketed. In addition, in certain countries, cosmetics are subject to a specific regulatory framework.
U.S.
Biological Product Development Process
In
the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”) and its implementing
regulations under the FDCA, the Public Health Service Act (the “PHSA”) and their implementing regulations. Both drugs
and biologics are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory
approvals and the subsequent compliance with appropriate federal, state and local statutes and regulations requires the expenditure
of substantial time and financial resources. Failure to comply with applicable U.S. requirements at any time during the product
development, approval, or post-marketing process may subject an applicant to administrative or judicial sanctions. These sanctions
could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval or license
revocation, a clinical hold, untitled or warning letters, product recalls or market withdrawals, product seizures, total or partial
suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and
civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
Certain
of our current product candidates and future product candidates must be approved by the FDA through a Biologics License Application
(“BLA”) process before they may be legally marketed in the United States. The process generally involves the following:
|
●
|
Completion
of extensive preclinical studies in accordance with applicable regulations, including
studies conducted in accordance with good laboratory practice (“GLP”) requirements;
|
|
●
|
Submission
to the FDA of an Investigational New Drug (“IND”) application, which must
become effective before human clinical trials may begin;
|
|
●
|
Approval
by an institutional review board (“IRB”) at each clinical trial site before
each trial may be initiated;
|
|
●
|
Performance
of adequate and well-controlled human clinical trials in accordance with applicable IND
regulations, good clinical practice (“GCP”) requirements and other clinical
trial-related regulations to establish the safety and efficacy of the investigational
product for each proposed indication;
|
|
●
|
Submission
to the FDA of a BLA;
|
|
●
|
A
determination by the FDA within 60 days of its receipt of a BLA to accept the filing
for review;
|
|
●
|
Satisfactory
completion of an FDA pre-approval inspection of the manufacturing facility or facilities
where the biologic will be produced to assess compliance with current good manufacturing
practice (“cGMP”) requirements to assure that the facilities, methods and
controls are adequate to preserve the biologic’s identity, strength, quality and
purity;
|
|
●
|
Potential
FDA audit of the clinical trial sites that generated the data in support of the BLA;
|
|
●
|
Payment
of user fees for FDA review of the BLA (unless a fee waiver applies); and
|
|
●
|
FDA
review and approval of the BLA, including consideration of the views of any FDA advisory
committee, prior to any commercial marketing or sale of the biologic in the United States.
|
The
preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot
be certain that any approvals for our product candidates subject to this process will be granted on a timely basis, or at all.
The
strategies, nature, and technologies associated with bacteriophage products are different from those of conventional biological
products. From the regulatory requirements established in order to ensure the safety, efficacy and quality of bacteriophage preparations,
there are several matters to consider during the development, manufacturing, characterization, preclinical study and clinical
trials of bacteriophage, including:
|
●
|
Preparation
and design of bacteriophage cocktails (phage mixes) with individual phage characterization
to ensure that they are strictly lytic and devoid of any antibiotic resistance or virulent
sequences; wild-type phage versus genetically engineered phage;
|
|
●
|
Proof
of concept in development of bacteriophage products in the treatment of chronic diseases;
|
|
●
|
Ability
to deliver an adequate dose of bacteriophage formulation to target bacteria;
|
|
●
|
Relevant
animal models in preclinical studies; and
|
|
●
|
Clinical
safety and effectiveness on individuals that carry the bacterial strain.
|
Preclinical
Studies and IND
Preclinical
studies include laboratory evaluation of product chemistry and formulation, as well as
in vitro
and animal studies to establish
a rationale for therapeutic use and in some cases to assess the potential for adverse events. The conduct of preclinical studies
is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies. An IND sponsor must
submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical
data or literature and plans for clinical trials, among other things, to the FDA as part of an IND. An IND is a request for authorization
from the FDA to administer an investigational product to humans, and, must become effective before human clinical trials may begin.
Some long-term preclinical testing may continue after the IND is submitted. An IND automatically becomes effective 30 days after
receipt by the FDA, unless before that time, the FDA raises concerns or questions related to one or more proposed clinical trials
and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before
the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.
Clinical
Trials
Clinical
trials involve the administration of the biological product candidate to healthy volunteers or disease-affected patients under
the supervision of qualified investigators, generally physicians not employed by, or under, the trial sponsor’s control.
Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures,
subject selection and exclusion criteria, and the parameters to be used to monitor subject safety and efficacy, including stopping
rules that assure a clinical trial will be stopped if certain adverse events should occur. Each protocol and any amendments to
the protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted and monitored in accordance with
the FDA’s regulations comprising the GCP requirements, including the requirement that all research subjects provide informed
consent. Further, each clinical trial must be reviewed and approved by an IRB at or servicing each institution at which the clinical
trial will be conducted. An IRB is charged with protecting the welfare and rights of study participants and considers such items
as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated
benefits. The IRB also approves the form and content of the informed consent that must be signed by each clinical trial subject
or his or her legal representative and must monitor the clinical trial until completed. There are also requirements governing
the reporting of ongoing clinical trials and completed clinical trial results to public registries. Information about certain
clinical trials, including clinical trial results, must be submitted within specific timeframes for publication on the www.clinicaltrials.gov
website.
Clinical
trials generally are conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3, and may overlap.
|
●
|
Phase
1 clinical trials generally involve a small number of healthy volunteers or disease-affected
patients who are initially exposed to a single dose and then multiple doses of the product
candidate. The primary purpose of these clinical trials is to assess the metabolism,
pharmacologic action, side effect tolerability and safety of the product candidate.
|
|
●
|
Phase
2 clinical trials generally involve studies in disease-affected patients to evaluate
proof of concept and/or determine the dosing regimen(s) for subsequent investigations.
At the same time, safety and sometimes further pharmacokinetic and pharmacodynamic information
is collected, possible adverse effects and safety risks are identified and a preliminary
evaluation of efficacy is conducted.
|
|
●
|
Phase
3 clinical trials generally involve a large number of patients at multiple sites and
are designed to provide the data necessary to demonstrate the effectiveness of the product
for its intended use, its safety in use and to establish the overall benefit/risk relationship
of the product and provide an adequate basis for labeling for new drugs.
|
Post-approval
trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are
conducted to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances,
the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of a BLA.
Progress
reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA
and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse
events, findings from other studies or animal or
in vitro
testing that suggest a significant risk for human subjects and
any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator
brochure.
It
is possible for Phase 1, Phase 2, Phase 3 and other types of clinical trials not to be completed successfully within a specified
period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including
a finding that the patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval
of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements
or if the biologic has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen
by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board
or committee. This group provides authorization for whether a trial may move forward at designated check points based on access
to certain data from the trial.
Concurrent
with clinical trials, companies may complete additional animal studies and also must develop additional information about the
chemistry and physical characteristics of the biologic as well as finalize a process for manufacturing the product in commercial
quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches
of the product and, among other things, companies must develop methods for testing the identity, strength, quality and purity
of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted
to demonstrate that the product candidates do not undergo unacceptable deterioration over their shelf life.
FDA
Review Process
Following
completion of the clinical trials, data are analyzed to assess whether the investigational product is safe and effective for the
proposed indicated use or uses, and also meets the regulatory requirements for potency and purity. The results of preclinical
studies and clinical trials are then submitted to the FDA as part of a BLA, along with proposed labeling, chemistry and manufacturing
information to ensure product quality and other relevant data. The BLA is a request for approval to market the biologic for one
or more specified indications and must contain proof of safety, purity and potency. The application may include both negative
and ambiguous results of preclinical studies and clinical trials, as well as positive findings. Data may come from company-sponsored
clinical trials intended to test the safety and efficacy of a product’s use or from a number of alternative sources, including
studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity
to establish the safety and efficacy in the intended indication, purity and potency of the investigational product to the satisfaction
of the FDA. FDA approval of a BLA must be obtained before a biologic may be marketed in the United States. Under the Prescription
Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a user fee. The FDA adjusts the PDUFA user fees on an
annual basis. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for
the first application filed by a small business. Additionally, no user fees are assessed on BLAs for products designated as orphan
drugs, unless the product also includes a non-orphan indication.
The
FDA reviews all submitted BLAs before it accepts them for filing and may request additional information rather than accept the
BLA for filing. The FDA must make a decision on accepting a BLA for filing within 60 days of receipt, and such a decision could
include a refusal to file by the FDA. Once the submission is accepted for filing, the FDA begins an in-depth review of the BLA.
Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months, from the filing date, in which to complete
its initial review of an original BLA and respond to the applicant, and six months from the filing date of an original BLA designated
for priority review. The FDA does not always meet its PDUFA goal dates for standard and priority BLAs, and the review process
is often extended by FDA requests for additional information or clarification.
Before
approving a BLA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine
whether they comply with cGMP requirements. The FDA will not approve the product unless it determines that the manufacturing processes
and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required
specifications. The FDA also may audit data from clinical trials to ensure compliance with GCP requirements. Additionally, the
FDA may refer applications for novel products or products which present difficult questions of safety or efficacy to an advisory
committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether
the application should be approved and under what conditions, if any. The FDA is not bound by recommendations of an advisory committee,
but it considers such recommendations when making decisions on approval. The FDA likely will reanalyze the clinical trial data,
which could result in extensive discussions between the FDA and the applicant during the review process.
After
the FDA evaluates a BLA, it will issue an approval letter (“Complete Response Letter”). An approval letter authorizes
commercial marketing of the biologic with specific prescribing information for specific indications. A Complete Response Letter
indicates that the review cycle of the application is complete and the application will not be approved in its present form. A
Complete Response Letter usually describes all the specific deficiencies in the BLA identified by the FDA. The Complete Response
Letter may require additional clinical data and/or other significant and time-consuming requirements related to clinical trials,
preclinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the BLA, addressing
all the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the
FDA may decide that the BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive
and the FDA may interpret data differently than the sponsor’s interpretation of the same data.
Orphan
Drug Designation
Under
the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or
condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more
than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and
making the product available in the United States for this type of disease or condition will be recovered from sales of the product.
Orphan drug designation for a biologic must be requested before submitting a BLA. After the FDA grants orphan drug designation,
the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation
does not convey any advantage in or shorten the duration of the regulatory review and approval process.
Orphan
drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs,
tax advantages and user-fee waivers. If a product that has orphan designation subsequently receives the first FDA approval for
the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that
the FDA may not approve any other applications to market the same drug for the same indication for seven years from the date of
such approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity
by means of greater effectiveness, greater safety or providing a major contribution to patient care, or in instances of drug supply
issues. Competitors, however, may receive approval of either a different product for the same indication or the same product for
a different indication but that could be used off-label in the orphan indication. Orphan drug exclusivity also could block the
approval of one of our products for seven years if a competitor obtains approval before we do for the same product, as defined
by the FDA, for the same indication we are seeking approval, or if our product is determined to be contained within the scope
of the competitor’s product for the same indication or disease. If one of our products designated as an orphan drug receives
marketing approval for an indication broader than that which is designated, it may not be entitled to orphan drug exclusivity.
Orphan drug status in the European Union has similar, but not identical, requirements and benefits.
Expedited
Development and Review Programs
The
FDA has a fast track program that is intended to expedite or facilitate the process for reviewing new drugs and biologics that
meet certain criteria. Specifically, new drugs and biologics are eligible for fast track designation if they are intended to treat
a serious or life threatening condition and preclinical or clinical data demonstrate the potential to address unmet medical needs
for the condition. Fast track designation applies to both the product and the specific indication for which it is being studied.
The sponsor of a biologic can request the FDA to designate the product for fast track status any time before receiving BLA approval,
but ideally no later than the pre-BLA meeting. Any product submitted to the FDA for marketing, including under a fast track program,
may be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated
approval. A product is eligible for priority review if it treats a serious or life-threatening condition and, if approved, would
provide a significant improvement in safety and effectiveness compared to available therapies. The FDA will attempt to direct
additional resources to the evaluation of an application for a new drug or biologic designated for priority review in an effort
to facilitate the review.
A
product may also be eligible for accelerated approval if it treats a serious or life-threatening condition and generally provides
a meaningful advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably
likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality
(“IMM”) that is reasonably likely to predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA may
require that a sponsor of a drug or biologic receiving accelerated approval perform adequate and well-controlled post-marketing
clinical trials. If the FDA concludes that a drug or biologic shown to be effective can be safely used only if distribution or
use is restricted, it will require such post-marketing restrictions, as it deems necessary to assure safe use of the product.
If the FDA determines that the conditions of approval are not being met, the FDA can withdraw its accelerated approval for such
drug or biologic.
Additionally,
a drug or biologic may be eligible for designation as a breakthrough therapy if the product is intended, alone or in combination
with one or more other drugs or biologics, to treat a serious or life-threatening condition and preliminary clinical evidence
indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically
significant endpoints. The benefits of breakthrough therapy designation include the same benefits as fast track designation, plus
intensive guidance from the FDA to ensure an efficient drug development program.
Even
if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions
for qualification or the time period for FDA review or approval may not be shortened. Furthermore, fast track designation, priority
review, accelerated approval and breakthrough therapy designation do not change the standards for approval, but may expedite the
development or approval process.
Pediatric
Information
Under
the Pediatric Research Equity Act (“PREA”), a BLA or supplement to a BLA must contain data to assess the safety and
efficacy of the biologic for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration
for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of pediatric
data or full or partial waivers. A sponsor who is planning to submit a marketing application for a drug that includes a new active
ingredient, new indication, new dosage form, new dosing regimen or new route of administration must submit an initial Pediatric
Study Plan (“PSP”) within 60 days of an end-of-Phase 2 meeting or, if there is no such meeting, as early as practicable before
the initiation of the Phase 3 or Phase 2/3 study. The initial PSP must include an outline of the pediatric study or studies that
the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach,
or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full
or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the
sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes
to the pediatric plan need to be considered based on data collected from preclinical studies, early phase clinical trials and/or
other clinical development programs.
Post-marketing
Requirements
Following
approval of a new product, the manufacturer and the approved product are subject to continuing regulation by the FDA, including,
among other things, monitoring and record-keeping activities, reporting of adverse experiences, complying with promotion and advertising
requirements, which include restrictions on promoting products for unapproved uses or patient populations (known as “off-label
use”) and limitations on industry-sponsored scientific and educational activities. Although physicians may prescribe legally
available products for off-label uses, manufacturers may not market or promote such uses. Prescription drug and biologic promotional
materials must be submitted to the FDA in conjunction with their first use. Further, if there are any modifications to the biologic,
including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and
obtain FDA approval of a new BLA or BLA supplement, which may require the development of additional data or preclinical studies
and clinical trials.
The
FDA may also place other conditions on approvals including the requirement for a Risk Evaluation and Mitigation Strategy (“REMS”)
to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS.
The FDA will not approve the BLA without an approved REMS, if required. A REMS 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. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or
dispensing of products. 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, including a REMS or the conduct of post-marketing studies to assess a newly discovered safety issue. Product
approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.
FDA regulations require that products be
manufactured in specific approved facilities and in accordance with cGMP regulations. While BiomX plans to open its own cGMP manufacturing
facility in the third quarter of 2019, it has historically relied, and expects to continue to rely, on third parties for the production
of certain clinical and commercial quantities of its products in accordance with cGMP regulations. BiomX and these manufacturers
must comply with cGMP regulations that require, among other things, quality control and quality assurance, the maintenance of records
and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities involved
in the manufacture and distribution of approved drugs or biologics are required to register their establishments with the FDA and
certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance
with cGMP requirements and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of
production and quality control to maintain cGMP compliance. The discovery of violative conditions, including failure to conform
to cGMP regulations, could result in enforcement actions, and the discovery of problems with a product after approval may result
in restrictions on a product, manufacturer or holder of an approved BLA, including recall.
U.S.
Patent Term Restoration and Marketing Exclusivity
Depending
upon the timing, duration and specifics of FDA approval of our product candidates and any future product candidates, some of our
U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act
of 1984, commonly referred to as the Hatch Waxman Amendments. The Hatch Waxman Amendments permit restoration of the patent term
of up to five years as compensation for patent term lost during product development and FDA regulatory review process. Patent
term restoration, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval
date. The patent term restoration period is generally one half the time between the effective date of an IND and the submission
date of a BLA plus the time between the submission date of a BLA and the approval of that application, except that the review
period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved
biologic is eligible for the extension and the application for the extension must be submitted prior to the expiration of the
patent.
The
USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the
future, we may apply for restoration of patent term for our currently owned or licensed patents to add patent life beyond its
current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the
relevant BLA.
An
abbreviated approval pathway for biological products shown to be biosimilar to, or interchangeable with, an FDA licensed reference
biological product was created by the Biologics Price Competition and Innovation Act of 2009 (the “BPCI Act”). This
amendment to the PHSA, in part, attempts to minimize duplicative testing. Biosimilarity, which requires that the biological product
be highly similar to the reference product notwithstanding minor differences in clinically inactive components and that there
be no clinically meaningful differences between the product and the reference product in terms of safety, purity and potency,
can be shown through analytical studies, animal studies and a clinical trial or trials.
Interchangeability
requires that a biological product be biosimilar to the reference product and that the product can be expected to produce the
same clinical results as the reference product in any given patient and, for products administered multiple times to an individual,
that the product and the reference product may be alternated or switched after one has been previously administered without increasing
safety risks or risks of diminished efficacy relative to exclusive use of the reference biological product without such alternation
or switch.
A
reference biological product is granted 12 years of data exclusivity from the time of first licensure of the product, and the
FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until
four years after the date of first licensure of the reference product. “First licensure” typically means the initial
date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of licensure
of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological
product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor
in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that
results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength,
or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency.
Pediatric
exclusivity is another type of regulatory market exclusivity in the United States, available under the Best Phamraceuticals for
Children Act by way of its application to biologics through the Biologics Price Competition and Innovation Act. Pediatric exclusivity,
if granted, adds six months to existing regulatory exclusivity periods, which must be in place in order for pediatric exclusivity
to apply. This six month exclusivity may be granted based on the voluntary completion of a pediatric trial in accordance with
an FDA issued “Written Request” for such a trial, although FDA may issue such a Written Request at the request of
the sponsor.
Companion
Diagnostics
BiomX may employ companion diagnostics to
help it to more accurately identify patients within a particular bacterial strain, both during its clinical trials and in connection
with the commercialization of its product candidates that it is developing or may in the future develop. Companion diagnostics
can identify patients who are most likely to benefit from a particular therapeutic product; identify patients likely to be at increased
risk for serious side effects as a result of treatment with a particular therapeutic product; or monitor response to treatment
with a particular therapeutic product for the purpose of adjusting treatment to achieve improved safety or effectiveness. Companion
diagnostics are regulated as medical devices by the FDA and, as such, require either clearance or approval prior to commercialization.
The level of risk combined with available controls to mitigate risk determines whether a companion diagnostic device requires Premarket
Approval Application (“PMA”) approval or is cleared through the 510(k) premarket notification process. For a novel
therapeutic product for which a companion diagnostic device is essential for the safe and effective use of the product, the companion
diagnostic device should be developed and approved or 510(k)-cleared contemporaneously with the therapeutic. The use of the companion
diagnostic device will be stipulated in the labeling of the therapeutic product.
Government
Regulation Outside of the United States
In
addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing,
among other things, clinical trials of drug products as well as the approval, manufacture and distribution of our product candidates.
Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries.
Whether or not we obtain FDA approval for a product candidate, we must obtain the requisite approvals from regulatory authorities
in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. If we fail to
comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal
of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Clinical
Trials
Certain
countries outside of the United States have a regulatory process similar to the U.S process that requires the submission of a
clinical trial application much like the IND prior to the commencement of human clinical trials. In the European Union, for example,
a clinical trial application (“CTA”) must be submitted for each clinical trial to the national health authority and
an independent ethics committee in each country in which the trial is to be conducted, much like the FDA and an IRB, respectively.
Clinical trial application must be accompanied by an investigational medicinal product dossier with supporting information prescribed
by the Clinical Trials Directive (and corresponding national laws of the member states) and further detailed in applicable guidance
documents. Once the CTA is approved in accordance with a country’s requirements, the clinical trial may proceed. A similar
process to the one described for the European Union is required in Israel for initiation of clinical trials. The requirements
and process governing the conduct of clinical trials vary from country to country. In all cases, the clinical trials must be conducted
in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration
of Helsinki.
Approval
Process
In
order to market our products, we must obtain a marketing approval for each product and comply with numerous and varying regulatory
requirements. The approval procedure varies among countries and can involve additional testing in comparison to the testing carried
out for the U.S. approval. The time required to obtain approval in foreign countries may differ substantially from that required
to obtain FDA approval. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries.
The regulatory approval process outside the United States generally is subject to all of the same risks associated with obtaining
FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement
before the product can be approved for sale in that country.
To obtain marketing approval of a medicinal
product under the European Union regulatory system, an applicant must submit a marketing authorization application (“MAA”),
under either a centralized or a decentralized procedure. The decentralized procedure is based on a collaboration among the member
states selected by the applicant. In essence, the applicant chooses a ‘lead’ member state that will carry out the scientific
assessment of the MAA and review the product information. The other member states must recognize the outcome of such assessment
and review except in case of a “serious potential risk to public health.” The decentralized procedure results in the
grant of a national marketing authorization in each selected country. That procedure is available for all medicinal products unless
they fall into the mandatory scope of the centralized procedure. In practice, it is used for OTC, not highly innovative products,
generic products and, increasingly, for biosimilars.
The centralized procedure provides for the
grant of a single marketing authorization by the European Commission that is valid for all European Union member states. The centralized
procedure is compulsory for certain medicinal products, including for medicinal products produced by certain biotechnological processes,
products designated as orphan medicinal products, advanced therapy medicinal products (“ATMPs”) and products with a
new active substance and indicated for the treatment of certain diseases. For products with a new active substance and indicated
for the treatment of other diseases, products that are highly innovative or for which a centralized process is in the interest
of patients, the centralized procedure is optional.
Under
the centralized procedure, the Committee for Medicinal Products for Human Use (“CHMP”), the main scientific committee
established at the European Medicines Agency (“EMA)”, is responsible for conducting the scientific assessment of the
future medicinal product. The CHMP is also responsible for several post-authorization and maintenance activities, such as the
assessment of modifications or extensions to an existing marketing authorization. The maximum timeframe for the evaluation of
an MAA is 210 days, excluding clock stops. The European Commission grants or refuses the marketing authorization, following
a procedure that involves representatives of the member states. The European Commission’s decision is in accordance with
the CHMP scientific assessment except in very rare cases.
Pursuant
to Regulation (EC) 1394/2007, specific rules apply to ATMPs, a category that is comprised of gene therapy medical products, somatic
cell therapy medicinal products, and tissue-engineered medicinal products. Those rules have triggered the adoption of guidelines
on manufacturing, clinical trials and pharmacovigilance that adapt the general regulatory requirements to the specific characteristics
of ATMPs. Regulation (EC) 1394/2007 introduced a “hospital exemption.” which authorizes hospitals to develop ATMP
for their internal use without having obtained a marketing authorization and to complying with European Union pharmaceutical law.
The hospital exemption, which is in essence a compounded ATMP, has been transposed in all Member States, sometimes in such a way
that the ATMPs under the hospital exemption are competitive alternatives to ATMPs with marketing authorization. The broad use
of the hospital exemption by national hospitals led the European Commission to discuss with the Member States a more reasonable
application of the hospital exemption that would not undermine the common legal regime for ATMP.
Marketing
authorization is valid for five years in principle and the marketing authorization may be renewed after five years on
the basis of a re-evaluation of the risk-benefit balance by the EMA or the competent authority of the authorizing member state.
To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of
the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was
granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization
is valid for an unlimited period, unless the European Commission or the national competent authority decides, on justified grounds
relating to pharmacovigilance, to proceed with one additional renewal. Any authorization which is not followed by the actual placing
of the medicinal product on the European Union market (in case of centralized procedure) or on the market of the authorizing member
state within three years after authorization ceases to be valid (the so-called sunset clause).
Orphan
Designation
Countries
other than the United States have adopted a specific legal regime to support the development and marketing of drugs and biologics
for rare diseases.
For
example, in the European Union, Regulation 141/2000 organizes the grant of orphan drug designations to promote the development
of products that are intended for the diagnosis, prevention or treatment of life threatening or chronically debilitating conditions
affecting not more than five in 10,000 persons in the European Economic Area (the European Union, plus Iceland, Liechtenstein
and Norway) (or where it is unlikely that the development of the medicine would generate sufficient return to justify the investment)
and for which no satisfactory method of diagnosis, prevention or treatment has been authorized or, if a method exists, the product
would be of significant benefit to those affected. The EMA’s Committee for Orphan Medicinal Products (“COMP”)
examines if the orphan criteria are met and gives opinions thereon, and the orphan status is granted by the European Commission.
The meeting of the criteria for orphan designation is examined again by the COMP at the time of approval of the medicinal product,
which typically occurs several years after the grant of the orphan designation. If the criteria for orphan designation are no
longer met at that time, the European Commission withdraws the orphan status.
In
the European Union, orphan drug designation entitles the sponsor to financial incentives such as reduction of fees or fee waivers
and to ten years of market exclusivity granted following medicinal product approval. Market exclusivity precludes the EMA or a
national regulatory authority from validating another MAA, and the European Commission or a national regulatory authority from
granting another marketing authorization, for a same or similar medicinal product and a same therapeutic indication, for that
time period. This 10-year period may be reduced to six years if the orphan drug designation criteria are no longer met, including
where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. The orphan exclusivity
may be lost vis-à-vis another medicinal product in cases the manufacturer is unable to assure sufficient quantity of the
medicinal product to meet patient needs or if that other product is proved to be clinically superior to the approved orphan product.
A drug is clinically superior if it is safer, more effective or makes a major contribution to patient care. Orphan drug designation
must be requested before submitting a MAA. Orphan drug designation does not convey any advantage in, or shorten the duration of,
the regulatory review and approval process, and it does not afford any regulatory exclusivity until a marketing authorization
is granted.
Expedited
Development and Approval
Mechanisms
are in place in many jurisdictions that allow an earlier approval of the drug so that it reaches patients with unmet medical needs
earlier. The European Union, for example, has instituted several expedited approval mechanisms including two mechanisms that are
specific to the centralized procedure:
|
●
|
the
accelerated approval: the EMA may reduce the maximum timeframe for the evaluation of
an MAA from 210 days to 150 days when the future medicinal product is of major interest
from the point of view of public health, in particular from the viewpoint of therapeutic
innovation.
|
|
●
|
the
conditional marketing authorization: as part of its marketing authorization process,
the European Commission may grant marketing authorizations on the basis of less complete
data than is normally required.
|
A
conditional marketing authorization may be granted when the CHMP finds that, although comprehensive clinical data referring to
the safety and efficacy of the medicinal product have not been supplied, all the following requirements are met:
|
○
|
the
risk/benefit balance of the medicinal product is positive;
|
|
○
|
it
is likely that the applicant will be in a position to provide the comprehensive clinical
data;
|
|
○
|
unmet
medical needs will be addressed; and
|
|
○
|
the
benefit to public health of the immediate availability on the market of the medicinal
product concerned outweighs the risk inherent in the fact that additional data is still
required.
|
The
granting of a conditional marketing authorization is typically restricted to situations in which only the clinical part of the
application is not yet fully complete. Incomplete preclinical or quality data may however be accepted if duly justified and only
in the case of a product intended to be used in emergency situations in response to public health threats.
Conditional
marketing authorizations are valid for one year, on a renewable basis. The conditions to which approval is subject will typically
require the holder to complete ongoing trials or to conduct new trials with a view to confirming that the benefit-risk balance
is positive and to collect pharmacovigilance data. Once the conditions to which the marketing authorization is subject are fulfilled,
the conditional marketing authorization is transformed into a regular marketing authorization. If, however, the conditions are
not fulfilled with the timeframe set by EMA, the conditional marketing authorization ceases to be renewed.
The
EMA has also implemented the so-called “PRIME” (PRIority MEdicines) status in order support the development and accelerate
the approval of complex innovative medicinal products addressing an unmet medical need. PRIME status enables early dialogue with
the relevant EMA scientific committees and, possibly, some payors and thus reinforces the EMA’s scientific and regulatory
support. It also opens accelerated assessment of the MAA as PRIME status, is normally reserved for medicinal products that may
benefit from accelerated assessment, i.e., medicines of major interest from a public health perspective, in particular from a
therapeutic innovation perspective.
Finally,
all medicinal products (i.e. decentralized and centralized procedures) may benefit from an MA “under exceptional circumstances.”
This marketing authorization is close to the conditional marketing authorization as it is reserved to medicinal products to be
approved for severe diseases or unmet medical needs and the applicant does not hold the complete data set legally required for
the grant of a marketing authorization. However, unlike the conditional marketing authorization, the applicant does not have to
provide the missing data and will never have to. The risk-benefit of the medicinal product is reviewed annually. As a result,
although the MA “under exceptional circumstances” is granted definitively, the risk-benefit balance of the medicinal
product is reviewed annually and the marketing authorization is withdrawn in case the risk-benefit ratio is no longer favorable.
Pediatrics
Mandatory
testing in the pediatric population is required in more and more jurisdictions. The European Union has enacted a complex and very
stringent system that has inspired other jurisdictions, including the United States and Switzerland. Any application for approval
of (i) a medicinal product containing a new active substance or (ii) a new therapeutic indication, pharmaceutical form or route
of administration of an already authorized medicinal product which contains an active substance still protected by a supplementary
protection certificate (“SPC”) or a patent that qualifies for an SPC, must include pediatric data. Otherwise, the
application is not validated by the competent regulatory authority. The submission of pediatric data is mandatory in those cases,
even if the application concerns an adult use. Submission of pediatric data is not required or fully required if the EMA granted,
respectively, a full or partial waiver to pediatric development. Moreover, that submission can be postponed if the EMA grants
a deferral in order not to delay the submission of the MAA for the adult population.
The
pediatric data are generated through the implementation of a pediatric investigation plan (“PIP”) that is proposed
by the company after completion of the PK studies in adults and agreed upon by the EMA, typically after some modifications. The
PIP lists all the studies to conduct and measures to take in order to prove the safety and efficacy of the future medicinal product
when used in children. The EMA may agree to modify the PIP at the company’s request. The scope of the PIP is the adult therapeutic
indication or the condition of which the adult application is part or even the mechanism of action of the active substance, at
the EMA’s quasi-discretion. This very broad discretion enables the EMA to require companies to develop children indications
that are different from the adult indications.
Completion
of a PIP renders the company eligible for a pediatric reward, which can be six-month extension of the term of the SPC or, in the
cases of orphan medicinal products, two additional years of market exclusivity. The reward is subject, among other conditions,
to the PIP being fully completed, to the pediatric medicinal product being approved in all the member states, and to the results
of the pediatric studies being mentioned, in one way or another (for example, the approval of a pediatric indication), in the
summary of product characteristics of the product.
Post-Marketing
Requirements
Many
countries impose post-marketing requirements similar to those imposed in the United States, in particular safety monitoring or
pharmacovigilance. In the European Union, pharmacovigilance data are the basis for the competent regulatory authorities imposing
the conduct of post-approval safety or efficacy study, including on off-label use. Non-compliance with those requirements can
result in significant financial penalties as well as the suspension or withdrawal of the marketing authorization.
Supplementary
Protection Certificate and Regulatory Exclusivities
In
some countries other than the United States, some of our patents may be eligible for limited patent term extension, depending
upon the timing, duration and specifics of the regulatory approval of our product candidates and any future product candidates.
Furthermore, authorized drugs and biologics may benefit from regulatory exclusivities (in additional to patent protection resulting
from patents).
In the European Union, Regulation (EC) 469/2009
institutes SPCs. An SPC is an extension of the term of a patent that compensates for the patent protection lost because of the
legal requirements to conduct safety and efficacy tests and to obtain a marketing authorization before placing a medicinal product
on the market. An SPC may be applied for any active substance that is protected by a “basic patent” (a patent chosen
by the patent holder, which can be a product, process or application patent) and has not been placed on the market as a medicinal
product before having obtained a marketing authorization in accordance with European Union pharmaceutical law. The term of the
SPC is maxiumum five years, and the combined patent and SPC protection may not exceed fifteen years from the date of the first
marketing authorization in the European Economic Area (“EEA”). SPC rights are restricted by both the basic patent and
the marketing authorization, i.e., the SPC grants the same rights as those conferred by the basic patent but limited to the active
substance covered by the marketing authorization (and any use as medicinal product approved afterwards).
While
SPC are regulated at the European level, they are granted by the national patent offices. The grant of an SPC requires a basic
patent granted by the national patent office and a marketing authorization, which is the first marketing authorization for the
active substance as a medicinal product in the country. Furthermore, no SPC must have already been granted to the active substance,
and the application for the SPC must be filed with the national patent office within six months of the first marketing authorization
in the EEA or the grant of the basic patent, whichever is the latest.
In
the future, we may apply for an SPC for one or more of our currently owned or licensed European patents to add patent life beyond
their current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing
of the relevant MAA.
Furthermore,
in the European Union, medicinal products may benefit from the following regulatory exclusivities: data exclusivity, market protection,
market exclusivity, and pediatric reward.
A medicinal product that contains a new active
substance (reference medicinal product) is granted eight years of data exclusivity followed by two years of market protection.
Data exclusivity prevents other companies from referring to the non-clinical and clinical data in marketing authorization dossier
of the reference medicinal product for submission of generic MAA purposes, and market protection prevents other companies from
placing generics on the market. Pursuant to the concept of global marketing authorization, any further development of that medicinal
product (e.g., new indication, new form, change to the active substance) by the marketing authorization holder does not trigger
any new or additional protection. The authorization of any new development is considered as “falling” into the initial
marketing authorization with regard to regulatory protection; hence, the new development only benefits from the regulatory protection
that remains when it is authorized. The only exception is a new therapeutic indication that is considered as bringing a significant
clinical benefit in comparison to the existing therapies. Such new indication will add one-year of market protection to the global
marketing authorization, provided that it is authorized within the first eight years of authorization (i.e., during the data exclusivity
period). Moreover, a new therapeutic indication of a “well-established substance” benefits from one-year data exclusivity
but limited to the non-clinical and clinical data supporting the new indication. Any active substance approved for at least ten
years in the EEA qualifies as well-established substance.
Biosimilars
may be approved through an abbreviated approval pathway after the expiration of the eight-year data exclusivity period and may
be marketed after the 10 or 11-year market protection period. The approval of biosimilars requires the applicant to demonstrate
similarity between the biosimilar and the biologicial medicinal product and to submit the non-clinical and clinical data defined
by the EMA. The biosimilar legal regime has been mainly developed through EMA’s scientific guidelines applicable to categories
of biological active substances. Unlike in the United States, interchangeability is regulated by each member state.
Market
exclusivity is a regulatory protection exclusively afforded to medicinal products with an orphan status. Market exclusivity precludes
the EMA or a national regulatory authority from validating another MAA, and the European Commission or a national regulatory authority
from granting another marketing authorization, for a same or similar medicinal product and a same therapeutic indication, for
a period of ten years from approval (see above).
Pediatric
reward is another regulatory exclusivity. Completion of a PIP renders the company eligible for a pediatric reward, which can be
six-month extension of the term of the SPC or, in the cases of orphan medicinal products, two additional years of market exclusivity
(see above). In case a PIP is completed on a voluntary basis, i.e., for an approved medicinal product that is not or no longer
protected by an SPC or a basic patent, the pediatric reward takes the form of a “pediatric use marketing authorization”
(“PUMA”). That special authorization does not fall into the global marketing authorization and thus benefits from
eight years of data exclusivity followed by two or three years of market protection.
U.S.
Cosmetics Regulations
In
the United States, cosmetics are regulated by the FDA under the FDCA. The FDCA defines cosmetics as “(1) articles intended
to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body or any part thereof for
cleansing, beautifying, promoting attractiveness, or altering the appearance, and (2) “articles intended for use as a component
of any such articles; except that such term shall not include soap.” The FDA clarifies that cosmetics “are intended
to beautify, promote attractiveness, alter appearance or cleanse” and explicitly states that cosmetics are “not …
intended to effect structure or function of the body.” Manufacturers must ensure that cosmetics are safe for use as intended
prior to marketing. To determine the safety of cosmetics, the FDA considers the ingredient safety, trace chemicals contamination
and microbiological safety. Even “good” microbes may only be present at certain levels to meet the FDA’s microbiologic
safety standards for cosmetics. Product labeling must be truthful and not misleading and present all required labeling elements
(including statement of identity, net weight, ingredients, and any relevant warnings).
In
some cases, products that are intended for cosmetic use, but also have a drug application, are classified as both a cosmetic and
a drug. Under the FDCA, a “drug” is defined an article “intended for use in the diagnosis, cure, mitigation,
treatment, or prevention of disease,” an article “(other than food) intended to affect the structure or any function
of the body,” and article intended as a component of any of the previously listed articles. Although product claims inform
FDA’s and the consumer’s understanding of a product’s intended use, FDA will also consider ingredients and the
mode of action to make a final determination as to the actual intended use of a product. Biological products, more commonly referred
to as biologics, are defined by the PHSA. Biologics also meet the definition of drug
under the FDCA and FDA and include therapeutic products containing microorganisms. All drug products, regardless if they are also
cosmetics, must meet all FDA requirements, including premarket approval. As part of the approval process, manufacturers must demonstrate
that drugs are safe and effective for their intended uses and develop labeling, which also must be approved. If a substance has
an open drug application with the FDA or it is an already approved drug, it cannot be a cosmetic.
A
product claiming to impart activity to the skin may fall under either one or both definitions described above, according to the
intended use that the manufacturer establishes for the product. That is, a product that claims only to alter the appearance of
the skin would be regulated solely as a cosmetic, while a product that claims to induce a change in the structure or function
of the body (skin included) would be regulated as a drug. Under the FDCA, a product that makes both types of claims would be considered
both a cosmetic and a drug. This system of classification, however, in the context of the FDCA, does not make the product’s
composition irrelevant. Even though the classification of the product primarily depends on the claims associated with the product,
the mention of drug substances on the product label (i.e. in the ingredient declaration) can be construed as implied drug claims.
From
a practical point of view, and presuming that safety has been substantiated, the manufacturers of skin care products that could
potentially affect the structure or function of the skin are confronted with a dilemma: if the product is marketed as a cosmetic,
no claims may be made about any “active” ingredients that may alter the skin; if a physiological effect is claimed,
on the other hand, the manufacturer would be faced with a lengthy and costly NDA process
or a possible enforcement action by the FDA.
Violations
of the FDCA are generally fall under at least one of two provisions: Products that contain substances that may be injurious to
health or are otherwise impermissible (including the presence of a drug substances without proper labeling) are adulterated, and
products that are not properly labeled (including claims) are misbranded. The presence of drug substances in a product that is
solely being marketed as a cosmetic (and not also as an approved drug) would likely render the product adulterated in the eyes
of FDA.
The
FDCA requires that every cosmetic product and its individual ingredients be substantiated for safety and that product labeling
be truthful and not misleading. Cosmetic manufacturers are responsible for ensuring that products comply with the law before they
are marketed. If FDA determines that a cosmetic product does not meet the requirements established by law or is otherwise adulterated
or misbranded under the FDCA, FDA has the authority to:
|
●
|
Ban
or restrict cosmetic ingredients for safety reasons
|
|
●
|
Refuse
importation of cosmetics that may be adulterated or misbranded
|
|
●
|
Inspect
manufacturing facilities
|
|
●
|
Seize
unsafe or misbranded products
|
|
●
|
Enjoin
unlawful activities
|
|
●
|
Prosecute
and jail violators
|
|
●
|
Work
with cosmetic manufacturers in implementing nationwide product recalls
|
|
●
|
Collect
samples for examination and analysis as part of cosmetic plant inspections, import inspections,
and follow-up to complaints of adverse reactions
|
|
●
|
Conduct
research on cosmetic and personal care products and ingredients to address safety concerns
|
Cosmetic
products must be labeled in accordance with the Fair Packaging and Labeling Act (the “FPLA”) and FDCA, including ingredient
labeling. Cosmetic product advertising is also subject to regulation. Any claims made with regards to product efficacy to the
extent such claims may affect a consumer’s choice whether to purchase a product or not, are regulated by the Federal Trade
Commission under the authority of the Federal Trade Commission Act (“FTCA”).
European
Union Cosmetics Regulation
Regulation (EC) No. 1223/2009 (the “Cosmetic
Regulation”) is the key European legislation governing finished cosmetics products in the European Union. The European Union’s
framework of cosmetics regulations are binding on all member states and is enforced at the national level. Over the years, the
European Union cosmetics legal regime has been adopted by many countries around the world.
Under
the Cosmetic Regulation, a “cosmetic product” means any substance or mixture intended to be placed in contact with
external parts of the human body (epidermis, hair system, nails, lips and external genital organs) or with the teeth and the mucous
membranes of the oral cavity with a view exclusively or mainly to cleaning them, perfuming them, changing their appearance, protecting
them, keeping them in good condition or correcting body odors. A substance or mixture intended to be ingested, inhaled, injected
or implanted into the human body shall not be considered to be a cosmetic product, nor shall a product (i) the composition of
which is such that it has a significant action on the body through a pharmacological, immunologicalor metabolic action; or (ii)
for which medical claims are made. Legally, such a product is a medicinal product, not a cosmetic.
The
company that is ‘responsible’ for placing a cosmetic product on the European Union market is subject to a series of
obligations. In particular:
|
●
|
Manufacture
cosmetic products in compliance with good manufacturing practice.
|
|
●
|
Create
for each cosmetic product a product information file (“PIF”) that contains, among
other information, “proof of the effect claimed for the cosmetic product, where
justified by the nature of the effect or product” and the test results that demonstrate
the claimed effects for the cosmetics product.
|
|
●
|
Submit
information on every product through the Cosmetic Products Notification Portal (“CPNP”).
|
|
●
|
Comply
with Regulation (EU) No. 655/2013 that lists common criteria for claims.
|
|
●
|
Report
adverse experiences or keep them available for inspection by the competent authorities.
Poison control centers have information available on standard formulations for medical
emergency treatment.
|
The
European Union legal regime is a risk-based legislation, with consumer safety as the main goal. As such, proof of the safety of
the finished cosmetic product and each of its ingredients is the responsibility of the manufacturer or the importer in the European
Union. The safety assessment report is a key part of the PIF.
With
the exception of color additives, sunscreen active ingredients and preservatives, no pre-market approval is needed for cosmetics.
However, the Cosmetic Regulation includes a list of ingredients that are prohibited and a list of ingredients that are restricted
in cosmetic products. Nano-materials are authorized, provided that their presence is disclosed on the label. Moreover, animal
testing is prohibited for finished cosmetic products and their ingredients.
Each
member state appoints a competent authority to enforce the Cosmetic Regulation in its territory and to cooperate with each other
and the European Commission. The European Commission is responsible for driving consistency in the way the Cosmetic Regulation
is enforced.
Other
U.S. Healthcare Laws and Compliance Requirements
In
addition to FDA restrictions on the marketing of pharmaceutical products, we may be subject to various federal and state laws
targeting fraud and abuse in the healthcare industry. These laws may impact, among other things, our business or financial
arrangements and relationships through which we market, sell and distribute the products, if any, for which we obtain approval.
In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct
our business. The laws that may affect our ability to operate include:
|
●
|
the
federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully
soliciting, receiving, offering or paying any remuneration (including any kickback, bribe,
or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce,
or in return for, either the referral of an individual, or the purchase, lease, order
or recommendation of any good, facility, item or service for which payment may be made,
in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid
programs; a person or entity does not need to have actual knowledge of the federal Anti-Kickback
Statute or specific intent to violate it to have committed a violation. In addition,
the government may assert that a claim including items or services resulting from a violation
of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes
of the federal False Claims Act or federal civil money penalties statute;
|
|
●
|
federal
civil and criminal false claims laws and civil monetary penalties laws, such as the federal
False Claims Act, which impose criminal and civil penalties and authorize civil whistleblower
or qui tam actions, against individuals or entities for, among other things: knowingly
presenting, or causing to be presented, to the federal government, claims for payment
that are false or fraudulent; making, using or causing to be made or used, a false statement
or record material to a false or fraudulent claim or obligation to pay or transmit money
or property to the federal government; or knowingly concealing or knowingly and improperly
avoiding or decreasing an obligation to pay money to the federal government;
|
|
●
|
the
anti-inducement law, which prohibits, among other things, the offering or giving of remuneration,
which includes, without limitation, any transfer of items or services for free or for
less than fair market value (with limited exceptions), to a Medicare or Medicaid beneficiary
that the person knows or should know is likely to influence the beneficiary’s selection
of a particular supplier of items or services reimbursable by a federal or state governmental
program;
|
|
●
|
the
federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”),
which created new federal criminal statutes that prohibit knowingly and willfully executing,
or attempting to execute, a scheme to defraud any healthcare benefit program or obtain,
by means of false or fraudulent pretenses, representations, or promises, any of the money
or property owned by, or under the custody or control of, any healthcare benefit program,
regardless of the payor (e.g., public or private) and knowingly and willfully falsifying,
concealing or covering up by any trick or device a material fact or making any materially
false statements in connection with the delivery of, or payment for, healthcare benefits,
items or services relating to healthcare matters; similar to the federal Anti-Kickback
Statute, a person or entity does not need to have actual knowledge of the statute or
specific intent to violate it in order to have committed a violation;
|
|
●
|
HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act
of 2009, and their respective implementing regulations, which impose requirements on
certain covered healthcare providers, health plans, and healthcare clearinghouses as
well as their respective business associates that perform services for them that involve
the use, or disclosure of, individually identifiable health information, relating to
the privacy, security and transmission of individually identifiable health information;
|
|
●
|
the
federal transparency requirements under the Affordable Care Act, including the provision
commonly referred to as the Physician Payments Sunshine Act, which requires manufacturers
of drugs, devices, biologics and medical supplies for which payment is available under
Medicare, Medicaid or the Children’s Health Insurance Program to report annually
to the U.S. Department of Health and Human Services information related to payments or
other transfers of value made to physicians (defined to include doctors, dentists, optometrists,
podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment
interests held by the physicians described above and their immediate family members;
|
|
●
|
federal
government price reporting laws, which require us to calculate and report complex pricing
metrics in an accurate and timely manner to government programs; and
|
|
●
|
federal
consumer protection and unfair competition laws, which broadly regulate marketplace activities
and activities that potentially harm consumers.
|
Additionally,
we are subject to state and foreign equivalents of each of the healthcare laws described above, among others, some of which may
be broader in scope and may apply regardless of the payor. Many U.S. states have adopted laws similar to the federal Anti-Kickback
Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental
payors, including private insurers. In addition, some states have passed laws that require pharmaceutical companies to comply
with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical
Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also impose other
marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities
as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement
we could be subject to penalties. Finally, there are state and foreign laws governing the privacy and security of health
information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating
compliance efforts.
Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some
of our business activities could be subject to challenge under one or more of such laws.
Violations
of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including penalties, fines, imprisonment and/or
exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting
with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the U.S. government
under the federal False Claims Act as well as under the false claims laws of several states.
Law
enforcement authorities are increasingly focused on enforcing fraud and abuse laws, and it is possible that some of our practices
may be challenged under these laws. Efforts to ensure that our current and future business arrangements with third parties, and
our business generally, will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible
that governmental authorities will conclude that our business practices, including our arrangements with physicians and other
healthcare providers, some of whom receive stock options as compensation for services provided, may not comply with current or
future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations.
If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those
actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties,
damages, disgorgement, monetary fines, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal
healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations,
any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval
and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents
of the healthcare laws mentioned above, among other foreign laws.
If
any of the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance
with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government
funded healthcare programs, which may also adversely affect our business.
Much
like the Anti-Kickback Statute prohibition in the United States, the provision of benefits or advantages to physicians to induce
or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited
in the European Union. The provision of benefits or advantages to physicians is mainly governed by the national anti-bribery laws
of the member states, such as the UK Bribery Act 2010, or national anti-kickback provisions (France, Belgium, etc). Infringement
of these laws could result in substantial fines and imprisonment. In certain member states, payments made to physicians must be
publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s
employer, his or her competent professional organization and/or the regulatory authorities of the individual member states. These
requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the member states.
Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines
or imprisonment.
Additional
Regulation
In
addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational
Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect our business. These
and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes
generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous
substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable
environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot
predict, however, how changes in these laws may affect our future operations.
U.S.
Foreign Corrupt Practices Act
The
U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits corporations and individuals from engaging in certain activities
to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize
the payment of anything of value to any foreign government official, government staff member, political party or political candidate
in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. Similar rules apply
to many other countries worldwide such as France (“
Loi Sapin”
) or the United Kingdom (UK Bribery Act).
U.S.
Healthcare Reform
A
primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party
payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products. For
example, in March 2010, the Affordable Care Act was enacted, which, among other things, increased the minimum Medicaid rebates
owed by most manufacturers under the Medicaid Drug Rebate Program; introduced a new methodology by which rebates owed by manufacturers
under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; extended
the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans; imposed
mandatory discounts for certain Medicare Part D beneficiaries as a condition for manufacturers’ outpatient drugs coverage
under Medicare Part D; subjected drug manufacturers to new annual fees based on pharmaceutical companies’ share of sales
to federal healthcare programs; imposed a new federal excise tax on the sale of certain medical devices; created a new Patient
Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research,
along with funding for such research; and established the Center for Medicare Innovation at the CMS to test innovative payment
and service delivery models to lower Medicare and Medicaid spending.
Since
its enactment, there have been a number of significant changes to the Affordable Care Act (the “ACA”). On October 13,
2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse insurers under the Affordable
Care Act. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request
for a restraining order was denied by a federal judge in California on October 25, 2017. In addition, CMS has recently
proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small
group marketplaces, which may have the effect of relaxing the essential health benefits required under the Affordable Care Act
for plans sold through such marketplaces. In January 2017, President Trump signed an Executive Order directing federal agencies
with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation
of any provision of the Affordable Care Act that would impose a fiscal or regulatory burden on states, individuals, healthcare
providers, health insurers, or manufacturers of pharmaceuticals or medical devices.
The
Tax Cuts and Jobs Act of 2017 (“TCJA”), includes a provision repealing, effective January 1, 2019, the tax-based
shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all
or part of a year that is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018,
President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain
ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plan,
the annual fee imposed on certain health insurance providers based on market share, and the medical device exercise tax on non-exempt
medical devices. Further, the Bipartisan Budget Act of 2018, among other things, amends the ACA, effective January 1,
2019, to reduce the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” Congress will
likely consider other legislation to replace or modify elements of the Affordable Care Act. We continue to evaluate the effect
that the Affordable Care Act and its possible repeal, replacement or further modification could have on our business. It is uncertain
the extent to which any such changes may impact our business or financial condition.
In
addition, the Budget Control Act of 2011 and the Bipartisan Budget Act of 2015 led to aggregate reductions of Medicare payments
to providers of up to 2% per fiscal year that will remain in effect through 2027 unless additional Congressional action is
taken. Further, on January 2, 2013, the American Taxpayer Relief Act was signed into law, which, among other things, reduced
Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased
the statute of limitations period for the government to recover overpayments to providers from three to five years. More recently,
there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products,
which have resulted in several recent Congressional inquiries and proposed bills designed to, among other things, bring more transparency
to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement
methodologies for pharmaceutical products. Individual states in the United States have also become increasingly active in passing
legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in
some cases, designed to encourage importation from other countries and bulk purchasing.
We
expect that additional foreign, federal and state healthcare reform measures will be adopted in the future, any of which could
limit the amounts that federal and state governments will pay for healthcare products and services, which could result in limited
coverage and reimbursement and reduced demand for our products, once approved, or additional pricing pressures.
Coverage
and Reimbursement
Significant
uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. In the
United Sates, cosmetics are not generally eligible for coverage and reimbursement and thus any products that are marketed as cosmetics
will not be covered or reimbursed. In the United States and markets in other countries, sales of any products for which we receive
regulatory approval for commercial sale will depend, in part, on the availability of coverage and reimbursement from third-party
payors. Third-party payors include government authorities, managed care providers, private health insurers and other organizations.
The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the
reimbursement rate that the payor will pay for the product. Third-party payors may limit coverage to specific products on an approved
list, or formulary, which might not include all of the FDA-approved products for a particular indication. A decision by a third-party
payor not to cover our products could reduce physician utilization of our products once approved and have a material adverse effect
on our sales, results of operations and financial condition. Moreover, a payor’s decision to provide coverage for a product
does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to
enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
In
addition, coverage and reimbursement for products can differ significantly from payor to payor. One third-party payor’s
decision to cover a particular medical product or service does not ensure that other payors will also provide coverage for the
medical product or service, or will provide coverage at an adequate reimbursement rate.
As
a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products
to each payor separately and will be a time-consuming process.
Third-party
payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and
services, in addition to their safety and efficacy. In order to obtain and maintain coverage and reimbursement for any product,
we may need to conduct expensive clinical trials in order to demonstrate the medical necessity and cost-effectiveness of such
product, in addition to the costs required to obtain regulatory approvals. If third-party payors do not consider a product to
be cost-effective compared to other available therapies, they may not cover the product as a benefit under their plans or, if
they do, the level of payment may not be sufficient to allow a company to sell its products at a profit.
Outside
of the United States, the pricing of pharmaceutical products is subject to governmental control in many countries. For example,
in the European Union, pricing and reimbursement schemes vary widely from member state to member state. Some countries provide
that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional
studies that compare the cost-effectiveness of a particular therapy to currently available therapies or so-called health technology
assessments, in order to obtain reimbursement or pricing approval. Other countries may allow companies to fix their own prices
for products, but monitor and control product volumes and issue guidance to physicians to limit prescriptions. Efforts to control
prices and utilization of pharmaceutical products and medical devices will likely continue as countries attempt to manage healthcare
expenditures.
SELECTED
HISTORICAL FINANCIAL INFORMATION OF CHAC
The
following tables summarize the relevant financial data for CHAC’s business and should be read in conjunction
with “
Management’s Discussion and Analysis of Financial Condition and Results of Operations of CHAC
”
and its audited and unaudited interim financial statements, and the notes and schedules related thereto, which are
incorporated by reference in or included elsewhere in this proxy statement.
CHAC’s
condensed balance sheet data as of March 31, 2019 and condensed statement of operations data for the nine months ended March 31,
2019 are derived from CHAC’s unaudited financial statements included elsewhere in this proxy statement. CHAC’s
balance sheet data as of June 30, 2018 and statement of operations data for the period from November 1, 2017 (inception) through
June 30, 2018 are derived from CHAC’s audited financial statements included elsewhere in this proxy statement.
The
historical results presented below are not necessarily indicative of the results to be expected for any future period. You should
read the following selected financial information in conjunction with CHAC’s financial statements and related notes and
“Management’s Discussion and Analysis of Financial Condition and Results of Operation of CHAC
” contained
elsewhere herein.
(in
thousands, except share and per share data)
|
|
Nine Months
Ended
March 31,
2019
|
|
|
For the
Period from
November 1, 2017 (inception)
through
June 30,
2018
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
Loss from operations
|
|
|
(110
|
)
|
|
|
(1
|
)
|
Interest income on marketable securities
|
|
|
472
|
|
|
|
—
|
|
Interest income – other
|
|
|
2
|
|
|
|
—
|
|
Unrealized gain on marketable securities
|
|
|
3
|
|
|
|
—
|
|
Provision for income taxes
|
|
|
(77
|
)
|
|
|
—
|
|
Net income (loss)
|
|
|
290
|
|
|
|
(1
|
)
|
Basic and diluted net loss per share
|
|
|
(0.03
|
)
|
|
|
(0.00
|
)
|
Weighted average shares outstanding — basic and diluted
|
|
|
1,923,221
|
|
|
|
1,750,000
|
|
Balance Sheet Data:
|
|
As of
March 31, 2019
|
|
|
As of
June 30, 2018
|
|
Working capital (deficit)
|
|
$
|
738
|
|
|
$
|
(41
|
)
|
Trust account
|
|
|
70,475
|
|
|
|
—
|
|
Total assets
|
|
|
71,350
|
|
|
|
65
|
|
Total liabilities
|
|
|
660
|
|
|
|
41
|
|
Value of common stock subject to redemption
|
|
|
65,691
|
|
|
|
—
|
|
Stockholders’ equity
|
|
|
5,000
|
|
|
|
24
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS OF CHAC
The
following discussion should be read in conjunction with our financial statements and footnotes thereto incorporated by reference
into this proxy statement.
Overview
CHAC
was incorporated as a blank check company on November 1, 2017, as a Delaware corporation, for the purpose of entering into a merger,
share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or
more businesses or entities, which we refer to as a “target business.”
We
presently have no revenue, have had losses since inception from incurring formation costs and have no other operations other than
the active solicitation of a target business with which to complete a business combination. We have relied upon the sale of our
securities and loans from our officers and directors to fund our operations.
Offering
Proceeds Held in Trust
On
December 18, 2018, CHAC consummated its Initial Public Offering of 7,000,000 Units. The Units sold in the Initial Public Offering
were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $70,000,000. We granted the underwriters
a 45-day option to purchase up to 1,050,000 additional Units to cover over-allotments at the Initial Public Offering price, less
the underwriting discounts and commissions. The overallotment option expired unexercised on February 4, 2019.
Simultaneous
with the consummation of the Initial Public Offering, we consummated the private placement of an aggregate of 2,900,000 CHAC Warrants,
each exercisable to purchase one share of the Company’s common stock for $11.50 per share, to Mountain Wood, LLC, an affiliate
of the Sponsor at a price of $0.40 per CHAC Warrant, generating total proceeds of $1,160,000. The issuance was made pursuant to
the exemption from registration contained in Section 4(a)(2) of the Securities Act. These CHAC Warrants are identical to the warrants
underlying the Units sold in the Initial Public Offering, except that the these warrants are not transferable, assignable or salable
until after the completion of a business combination, subject to certain limited exceptions. Additionally, the these warrants
are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted
transferees.
After
deducting the underwriting discounts, offering expenses, and commissions from the Initial Public Offering and the sale of the
private placement CHAC Warrants, a total of $70,000,000 was deposited into a trust account established for the benefit of CHAC’s
public stockholders, and the remaining proceeds became available to be used to provide for business, legal and accounting due
diligence on prospective business combinations and continuing general and administrative expenses.
As of June 30, 2019, a total of $70,881,150
was in the trust account established for the benefit of our public stockholders.
Our
management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and
the private placement, although substantially all of the net proceeds are intended to be applied generally towards consummating
a business combination successfully.
Results
of Operations
Our
entire activity from inception up to December 18, 2018 was in preparation for the Initial Public Offering. Since the Initial Public
Offering, our activity has been limited to the evaluation of business combination candidates, and we will not be generating any
operating revenues until the closing and completion of our initial business combination. We expect to generate small amounts of
non-operating income in the form of interest income on cash and cash equivalents. Interest income is not expected to be significant
in view of current low interest rates on risk-free investments (treasury securities). We expect to incur increased expenses as
a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence
expenses. We expect our expenses to increase substantially after this period.
For
the three and nine months ended March 31, 2019, we had net income of $280,608 and $290,416, respectively, which consists of interest
income on marketable securities held in the trust account of $416,594 and $472,140, respectively, unrealized gain on marketable
securities held in our trust account of $24,075 and $2,988, respectively, and interest income from mutual funds of $2,301 and
$2,301, respectively, offset by operating costs of $93,106 and $109,545, respectively, and a provision for income taxes of $69,256
and $77,468, respectively.
For
the three months ended March 31, 2018 and for the period from November 1, 2017 (inception) through March 31, 2018, we had net
loss of $1,000, which consists of operating costs of $1,000.
Liquidity
and Capital Resources
As
of March 31, 2019, we had marketable securities held in the trust account of $70,475,128 (including approximately $475,000 of
interest income and unrealized gains) consisting of U.S. Treasury Bills with a maturity of 180 days or less. Interest income on
the balance in the trust account may be used by us to pay taxes. Through March 31, 2019, we had not withdrawn any interest earned
on the trust account.
For
the nine months ended March 31, 2019, cash and cash equivalents used in operating activities was $102,063. Net income of $290,416
was attributable to interest earned on marketable securities held in the trust account of $472,140, an unrealized gain on marketable
securities held in our trust account of $2,988 and changes in operating assets and liabilities, which provided $82,022 of cash
and cash equivalents offset by a deferred tax provision of $627.
We
intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on
the trust account (which interest shall be net of amounts withdrawn to pay our taxes) to complete a business combination. To the
extent that our capital stock or debt is used, in whole or in part, as consideration to complete a business combination, the remaining
proceeds held in the trust account will be used as working capital to finance the operations of the target business.
As
of March 31, 2019, we had cash and cash equivalents of $820,438 held outside the trust account. We intend to use the funds held
outside the trust account primarily to identify and evaluate prospective acquisition candidates, perform business due diligence
on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses,
review corporate documents and material agreements of prospective target businesses, select the target business to acquire and
structure, negotiate and complete a business combination.
In
order to fund working capital deficiencies or finance transaction costs in connection with a business combination, our initial
stockholders, officers and directors or their affiliates may, but are not obligated to, loan us funds from time to time or at
any time, as may be required. If we complete a business combination, we would repay such loaned amounts out of the proceeds of
the trust account released to us. In the event that a business combination does not close, we may use a portion of the working
capital held outside the trust account to repay such loaned amounts, but no proceeds from our trust account would be used to repay
such loaned amounts. Up to $500,000 of such loans may be convertible into CHAC Warrants at a price of $0.40 per private warrant
at the option of the lender.
We
do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However,
if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a business combination
are less than the actual amounts necessary to do so, we may have insufficient funds available to operate our business prior to
our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or
because we become obligated to redeem a significant number of our public shares upon completion of our Business Combination, in
which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance
with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination.
If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced
to cease operations and liquidate the trust account. In addition, following our Business Combination, if cash on hand is insufficient,
we may need to obtain additional financing in order to meet our obligations.
Off-Balance
Sheet Arrangements
We
have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2019. We
do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred
to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any
debt or commitments of other entities, or purchased any non-financial assets.
Contractual
obligations
We
do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
Critical
Accounting Policies
The
preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical
accounting policies:
Common
stock subject to possible redemption
We
account for our common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification
(“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption
is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common
stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence
of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified
as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our control
and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at
redemption value as temporary equity, outside of the stockholders’ equity section of our condensed balance sheets.
CHAC’S
BUSINESS
Overview
CHAC
was incorporated as a Delaware corporation on November 1, 2017, for the purpose of entering into a merger, share exchange, asset
acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities,
which we refer to as a “target business.”
CHAC’s
Amended and Restated Certificate of Incorporation provides that its corporate existence will cease and it will liquidate the trust
account (described herein) and distribute the funds included therein to the holders of common stock sold in its Initial Public
Offering if it does not consummate a business combination by the date that is 24 months from the closing of the Initial Public
Offering, or December 18, 2020.
Offering
Proceeds Held in Trust
On
December 18, 2018, we consummated the Initial Public Offering of 7,000,000 Units. The Units sold in the Initial Public Offering
were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $70,000,000. Chardan Capital Markets LLC.
acted as sole book-running manager of the Initial Public Offering. The securities in the offering were registered under the Securities
Act on a registration statement on
Form S-1
(No. 333-228533). The SEC declared the registration statement effective on December
13, 2018. We granted the underwriters a 45-day option to purchase up to 1,050,000 additional Units to cover over-allotments at
the Initial Public Offering price, less the underwriting discounts and commissions. The over-allotment option expired unexercised
on February 4, 2019.
Simultaneous
with the consummation of the Initial Public Offering, we consummated the private placement of an aggregate of 2,900,000 CHAC Warrants,
each exercisable to purchase one share of the Company’s common stock for $11.50 per share, to Mountain Wood, LLC, an affiliate
of the Sponsor at a price of $0.40 per CHAC Warrant, generating total proceeds of $1,160,000. The issuance was made pursuant to
the exemption from registration contained in Section 4(a)(2) of the Securities Act. These CHAC Warrants are identical to the warrants
underlying the Units sold in the Initial Public Offering, except that the these warrants are not transferable, assignable or salable
until after the completion of a business combination, subject to certain limited exceptions. Additionally, the these warrants
are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted
transferees.
Of
the gross proceeds received from the Initial Public Offering and the private placement CHAC Warrants, $70,000,000 was placed in
a trust account. We paid a total of $500,000 in underwriting discounts and commissions and $283,566 for other costs and expenses
related to the Initial Public Offering.
Business
Combination Activities
On July 16, 2019, CHAC entered into the Merger Agreement, pursuant to which Merger Sub will merge with
and into BiomX, resulting in CHAC owning all of the issued and outstanding shares and other equity interests of BiomX and BiomX
becoming a wholly-owned subsidiary of CHAC. In the event that the Business Combination is not consummated by December 18, 2020,
CHAC’s corporate existence will cease and CHAC will distribute the proceeds held in the trust account to its public stockholders.
See “
The Merger Agreement
” for more information.
Redemption
Rights
Pursuant
to CHAC’s Amended and Restated Certificate of Incorporation, CHAC stockholders (except the initial stockholders and the
officers and directors of CHAC) will be entitled to redeem their CHAC Shares for a pro rata share of the trust account (currently
anticipated to be no less than approximately $10.[___] per share of common stock for stockholders) net of taxes payable.
CHAC’s
Sponsor and other initial stockholders do not have redemption rights with respect to any common stock owned by them, directly
or indirectly (nor will they seek appraisal rights with respect to such common stock if appraisal rights would be available to
them).
Automatic
Dissolution and Subsequent Liquidation of trust account if No Business Combination
If
we do not complete a business combination within 24 months from the consummation of the Initial Public Offering, it will trigger
our automatic winding up, dissolution and liquidation pursuant to the terms of our Amended and Restated Certificate of Incorporation.
As a result, this has the same effect as if we had formally gone through a voluntary liquidation procedure under the Israeli Companies
Law. Accordingly, no vote would be required from our stockholders to commence such a voluntary winding up, dissolution and liquidation.
If we are unable to consummate our initial Business Combination within such time period, we will, as promptly as possible but
not more than ten business days thereafter, redeem 100% of our outstanding public shares for a pro rata portion of the funds held
in the trust account, including a pro rata portion of any interest earned on the funds held in the trust account and not necessary
to pay our taxes, and then seek to liquidate and dissolve. However, we may not be able to distribute such amounts as a result
of claims of creditors which may take priority over the claims of our public stockholders. In the event of our dissolution and
liquidation, the public rights will expire and will be worthless.
If
we are forced to liquidate the trust account, we anticipate that we would distribute to our public stockholders the amount in
the trust account calculated as of the date that is two days prior to the distribution date (including any accrued interest).
Prior to such distribution, we would be required to assess all claims that may be potentially brought against us by our creditors
for amounts they are actually owed and make provision for such amounts, as creditors take priority over our public stockholders
with respect to amounts that are owed to them. We cannot assure you that we will properly assess all claims that may be potentially
brought against us. As such, our stockholders could potentially be liable for any claims of creditors to the extent of distributions
received by them as an unlawful payment in the event we enter an insolvent liquidation. Furthermore, while we will seek to have
all vendors and service providers (which would include any third parties we engaged to assist us in any way in connection with
our search for a target business) and prospective target businesses execute agreements with us waiving any right, title, interest
or claim of any kind they may have in or to any monies held in the trust account, there is no guarantee that they will execute
such agreements. Nor is there any guarantee that, even if such entities execute such agreements with us, they will not seek recourse
against the trust account or that a court would conclude that such agreements are legally enforceable.
Each
of our initial stockholders and our Sponsor has agreed to waive its rights to participate in any liquidation of our trust account
or other assets with respect to the CHAC Shares and CHAC Warrants purchased in private placements and to vote their CHAC Shares
in favor of any dissolution and plan of distribution which we submit to a vote of stockholders. There will be no distribution
from the trust account with respect to our warrants or rights, which will expire worthless.
If
we are unable to complete an initial business combination and expend all of the net proceeds of the Initial Public Offering, other
than the proceeds deposited in the trust account, and without taking into account interest, if any, earned on the trust account,
the initial per-share distribution from the trust account would be $10.00.
The
proceeds deposited in the trust account could, however, become subject to the claims of our creditors which would be prior to
the claims of our public stockholders. Although we will seek to have all vendors, including lenders for money borrowed, prospective
target businesses or other entities we engage execute agreements with us waiving any right, title, interest or claim of any kind
in or to any monies held in the trust account for the benefit of our public stockholders, there is no guarantee that they will
execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the
trust account, including but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims,
as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with a claim against
our assets, including the funds held in the trust account. If any third party refused to execute an agreement waiving such claims
to the monies held in the trust account, we would perform an analysis of the alternatives available to us if we chose not to engage
such third party and evaluate if such engagement would be in the best interest of our stockholders if such third party refused
to waive such claims. Examples of possible instances where we may engage a third party that refused to execute a waiver include
the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly
superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a provider
of required services willing to provide the waiver. In any event, our management would perform an analysis of the alternatives
available to it and would only enter into an agreement with a third party that did not execute a waiver if management believed
that such third party’s engagement would be significantly more beneficial to us than any alternative. In addition, there
is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of,
any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason.
Our
Sponsor has agreed that, if we liquidate the trust account prior to the consummation of a business combination, he will be liable
to pay debts and obligations to target businesses or vendors or other entities that are owed money by us for services rendered
or contracted for or products sold to us in excess of the net proceeds of the Initial Public Offering not held in the trust account,
but only to the extent necessary to ensure that such debts or obligations do not reduce the amounts in the trust account and only
if such parties have not executed a waiver agreement. However, we cannot assure you that he will be able to satisfy those obligations
if he is required to do so. Accordingly, the actual per-share distribution could be less than $10.00 due to claims of creditors.
Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed,
the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate
and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims
deplete the trust account, we cannot assure you we will be able to return to our public stockholders at least $10.00 per share.
Facilities
We
maintain our principal executive offices at 17 State St, 21st Floor, New York, NY 10004. Our Sponsor is providing us this space
free of charge. We consider our current office space adequate for our current operations.
Employees
We
have three executive officers. These individuals are not obligated to devote any specific number of hours to our matters and intend
to devote only as much time as they deem necessary to our affairs. The amount of time they will devote in any time period will
vary based on whether a target business has been selected for the business combination and the stage of the business combination
process the company is in. Accordingly, once management locates a suitable target business to acquire, they will spend more time
investigating such target business and negotiating and processing the business combination (and consequently spend more time to
our affairs) than they would prior to locating a suitable target business. We presently expect our executive officers to devote
such amount of time as they reasonably believe is necessary to our business (which could range from only a few hours a week while
we are trying to locate a potential target business to a majority of their time as we move into serious negotiations with a target
business for a business combination). We do not intend to have any full time employees prior to the consummation of a business
combination.