PART
I
Item
1. Identity of Directors, Senior Management and Advisers
Not
applicable.
Item
2. Offer Statistics and Expected Timetable
Not
applicable.
Item
3. Key Information
A.
Selected Financial Data
The
following table summarizes our financial data. We have derived the summary statements of operations data for the years ended December
31, 2017, 2016, and 2015, and the balance sheet data as of December 31, 2017 and 2016 from our audited financial statements included
elsewhere in this Annual Report. The statements of operations data for the years ended December 31, 2014 and 2013, and the balance
sheet data as of December 31, 2015, 2014 and 2013 is derived from audited financial statements not included in this Annual Report.
The
summary of our financial data set forth below should be read together with our audited financial statements and the related notes,
as well as the section entitled “Item 5. Operating and Financial Review and Prospects,” included elsewhere in this
Annual Report.
|
|
For
the year ended December 31,
|
|
(in
thousands, except share and per-share data)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Statements
of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
13,864
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost
of revenues
|
|
|
(340
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gross
Profit
|
|
$
|
13,524
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Research
and development expenses, net
|
|
$
|
17,770
|
|
|
$
|
12,447
|
|
|
$
|
11,198
|
|
|
$
|
10,974
|
|
|
$
|
13,508
|
|
Marketing
expenses
|
|
|
562
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
General
and administrative expenses
|
|
|
5,847
|
|
|
|
3,828
|
|
|
|
3,673
|
|
|
|
3,804
|
*
|
|
|
2,452
|
|
Operating
loss
|
|
|
10,655
|
|
|
|
16,275
|
|
|
|
14,871
|
|
|
|
14,778
|
|
|
|
15,960
|
|
Financial
income
|
|
|
(544
|
)
|
|
|
(285
|
)
|
|
|
(100
|
)
|
|
|
(15
|
)
|
|
|
(240
|
)
|
Financial
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from change in fair value of convertible loan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,342
|
|
|
|
1,638
|
|
Other
financial expenses
|
|
|
27
|
|
|
|
12
|
|
|
|
117
|
|
|
|
302
|
|
|
|
12
|
|
Financial
(income) expenses, net
|
|
|
(517
|
)
|
|
|
(273
|
)
|
|
|
17
|
|
|
|
2,629
|
|
|
|
1,410
|
|
Other
comprehensive loss (income)
|
|
|
24
|
|
|
|
5
|
|
|
|
(6
|
)
|
|
|
(10
|
)
|
|
|
(22
|
)
|
Comprehensive
loss
|
|
$
|
10,162
|
|
|
$
|
16,007
|
|
|
|
14,882
|
|
|
$
|
17,397
|
|
|
$
|
17,348
|
|
Loss
per ordinary share, basic and diluted
|
|
$
|
0.37
|
|
|
$
|
0.64
|
|
|
$
|
0.73
|
|
|
$
|
3.09
|
|
|
$
|
15.82
|
|
Weighted
average ordinary shares outstanding, basic and diluted
|
|
|
27,398,169
|
|
|
|
24,970,585
|
|
|
|
20,309,596
|
|
|
|
5,627,324
|
|
|
|
1,098,248
|
|
*
|
Includes
a one-time expense related to the IPO grant of options to our Chief Executive Officer of $2.2 million.
|
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in
thousands)
|
|
Statements
of financial position data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents and short-term bank deposits
|
|
$
|
54,729
|
|
|
$
|
45,254
|
|
|
$
|
37,146
|
|
|
$
|
36,783
|
|
|
$
|
10,871
|
|
Total
assets
|
|
|
65,689
|
|
|
|
47,274
|
|
|
|
39,238
|
|
|
|
38,138
|
|
|
|
11,827
|
|
Total
liabilities
|
|
|
9,789
|
|
|
|
4,874
|
|
|
|
4,231
|
|
|
|
3,036
|
|
|
|
35,410
|
|
Total
equity (capital deficiency)
|
|
|
55,900
|
|
|
|
42,400
|
|
|
|
35,007
|
|
|
|
35,102
|
|
|
|
(23,583
|
)
|
B.
Capitalization and Indebtedness
Not
applicable.
C.
Reasons for the Offer and Use of Proceeds
Not
applicable.
D.
Risk Factors
You
should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual
Report, including the financial statements and the related notes included elsewhere in this Annual Report. The risks and uncertainties
described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently
believe are not material, may also become important factors that adversely affect our business. If any of the following risks
actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely
affected.
Risks
Related to Our Financial Condition and Capital Requirements
We
have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the
foreseeable future.
We
are a clinical-stage biotechnology company, and we have not yet generated any regular revenue streams. We have incurred
losses in each year since our inception in 2000, including net losses of $10.1 million, $16.0 million and $14.9 million for the
years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, we had an accumulated deficit of $168.2 million.
We
have devoted most of our financial resources to research and development, including our clinical and pre-clinical development
activities. To date, we have financed our operations primarily through the sale of equity securities
and convertible debt and, to a lesser extent, through grants from governmental agencies. The amount of our future net losses will
depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic
collaborations or additional grants. We have completed only a single pivotal clinical trial for our product candidates and it
will be a few years, if ever, before we have a product candidate ready for commercialization. Even if we obtain regulatory approval
to market a product candidate, our future revenues will depend upon the size of any markets in which our product candidates have
received approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate
market share for our product candidates in those markets.
We
expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that
our expenses will increase subst
antially if and
as we:
|
●
|
continue our
research and pre-clinical and clinical development of our product candidates;
|
|
|
|
|
●
|
expand the
scope of our current clinical trials for our product candidates;
|
|
|
|
|
●
|
initiate additional
pre-clinical, clinical or other studies for our product candidates;
|
|
|
|
|
●
|
seek regulatory
and marketing approvals for any of our product candidates that successfully complete clinical trials;
|
|
|
|
|
●
|
further develop
the manufacturing process for our product candidates;
|
|
|
|
|
●
|
Operate and
possibly expand our new, commercial scale manufacturing facility;
|
|
|
|
|
●
|
change or
add additional manufacturers or suppliers;
|
|
●
|
establish
a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;
|
|
|
|
|
●
|
seek
to identify and validate additional product candidates;
|
|
|
|
|
●
|
acquire
or in-license other product candidates and technologies;
|
|
|
|
|
●
|
make
milestone or other payments under any in-license or other intellectual property related agreements, including our agreement
with Tel Hashomer—Medical Research, Infrastructure and Services Ltd. and our license from Crucell Holland B.V., or Crucell,
and any other licensing arrangements we may enter into the future;
|
|
|
|
|
●
|
maintain,
protect and expand our intellectual property portfolio;
|
|
|
|
|
●
|
attract
and retain skilled personnel;
|
|
|
|
|
●
|
create
additional infrastructure to support our operations as a public company; and
|
|
|
|
|
●
|
experience
any delays or encounter issues with any of the above.
|
The
net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison
of our results of operations may not be a good indication of our future performance. In any particular quarter or quarters, our
operating results could be below the expectations of securities analysts or investors, which could cause our share price to decline.
We
have never generated any revenue from product sales and may never be profitable.
Our
ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners,
to successfully complete the development of, obtain the regulatory approvals of, and commercialize our product candidates. We
do not anticipate generating revenues from product sales for the foreseeable future, if ever. Our ability to generate future
revenues from product sales depends heavily on our success in:
|
●
|
completing
research and pre-clinical and clinical development of our product candidates;
|
|
|
|
|
●
|
seeking
and obtaining regulatory and marketing approvals for product candidates for which we complete clinical trials;
|
|
|
|
|
●
|
developing
a sustainable, scalable, reproducible, and transferable manufacturing process for our product candidates;
|
|
|
|
|
●
|
establishing
and maintaining supply and manufacturing relationships with third parties that can provide products and services adequate,
in amount and quality, to support clinical development and the market demand for our product candidates, if approved;
|
|
|
|
|
●
|
And/or
successfully establishing, validating and operating our own manufacturing facilities to produce our products in amount and
quality, to support clinical development and the market demand for our product candidates, if approved, as well as gaining
the health authorities, such as the FDA and EMEA, approval for our manufacturing facility and product.
|
|
|
|
|
●
|
launching
and commercializing any product candidates for which we obtain regulatory and marketing approval, either by collaborating
with a partner or, if launched independently, by establishing a sales, marketing and distribution infrastructure;
|
|
|
|
|
●
|
obtaining
market acceptance of any product candidates that receive regulatory approval as viable treatment options;
|
|
|
|
|
●
|
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 we may enter;
|
|
|
|
|
●
|
maintaining,
protecting and expanding our 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 our product candidates is approved for commercial sale, we anticipate incurring significant costs associated
with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the
FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign, to perform clinical and other
studies in addition to those that we currently anticipate. Even if we are able to generate revenues from the sale of any approved
products, we may not become profitable and may need to obtain additional funding to continue operations.
We
will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary
capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
We
are currently advancing VB-111 for solid cancer indications. We intend to advance this current clinical product candidate
through clinical development and other product candidates through pre-clinical and clinical development. Developing pharmaceutical
products is expensive, and we expect our research and development expenses to increase substantially in connection with our ongoing
activities, particularly as we advance our product candidates in clinical trials.
As
of December 31, 2017, our cash and cash equivalents and short-term bank deposits were $54.7 million. As of December 31, 2017,
we estimate that our existing cash, cash equivalents and short-term bank deposits will be sufficient to fund our operations through
2020. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek
additional funds sooner than planned through public or private equity or debt financings, government or other third-party funding,
marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination
of these approaches. In any event, we might require additional capital to obtain regulatory approval for our product candidates,
and to commercialize any that receive regulatory approval. Raising funds in the current economic environment may present additional
challenges. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital
if market conditions are favorable or if we have specific strategic considerations.
Any
additional fundraising efforts may divert our management from their day-to-day activities, which may compromise our ability to
develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in
sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings
or the rights of our shareholders, and the issuance of additional securities, whether equity or debt, by us, or the possibility
of such issuance, may cause the market price of our ordinary shares to decline. The sale of additional equity or convertible securities
would dilute all of our shareholders. The incurrence of indebtedness would result in increased fixed payment obligations and we
may be required to agree to certain restrictive covenants such as limitations on our ability to incur additional debt, limitations
on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely
impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners
or otherwise at an earlier stage than otherwise would be desirable, and we may be required to relinquish rights to some of our
technologies or product candidates or otherwise agree to terms unfavorable to us.
If
we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more
of our research or development programs or the commercialization of any product candidates, and we may be unable to expand our
operations or otherwise capitalize on our business opportunities, as desired.
We
have received and may continue to receive Israeli governmental grants to assist in the funding of our research and development
activities. If we lose our funding from these research and development grants, we may encounter difficulties in the funding of
future research and development projects and implementing technological improvements, which would harm our operating results.
Through
December 31, 2017 we had received an aggregate of $22.0 million in the form of grants from the Israeli Office of the Chief Scientist,
or OCS, which has later transformed to the Israeli Innovation Authority, or IIA. The requirements and restrictions for such grants
are found in the Israel Encouragement of Research and Development in Industries, or the Research Law. Under the Research Law,
royalties of 3% to 3.5% on the revenues derived from sales of products or services developed in whole or in part using these IIA
grants are payable to the Israeli government. We developed both of our platform technologies, at least in part, with funds from
these grants, and accordingly we would be obligated to pay these royalties on sales of any of our product candidates that achieve
regulatory approval. The maximum aggregate royalties paid generally cannot exceed 100% of the grants made to us, plus annual interest
equal to the 12-month LIBOR applicable to dollar deposits, as published on the first business day of each calendar year. As of
December 31, 2017, the balance of the principal and interest in respect of our commitments for future payments to the IIA totaled
approximately $26.9 million. As of December 31, 2017, we have incurred a $510 thousand royalty payment to the IIA derived from
an upfront and a milestone payment. As part of funding our current and planned product development activities, we submitted follow-up
grant application. Following the recent results in our Phase 3 study in rGBM, we might fail to gain an IIA grant for our development
activities in 2018.
These
grants have funded some of our 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, our ability to fund future research and development and
implement technological improvements would be impaired, which would negatively impact our ability to develop our product candidates.
The
Israeli government grants we have received for research and development expenditures restrict our ability to manufacture products
and transfer technologies outside of Israel and require us to satisfy specified conditions. If we fail to satisfy these conditions,
we may be required to refund grants previously received together with interest and penalties.
Our
research and development efforts have been financed, in part, through the grants that we have received from the IIA. We, therefore,
must comply with the requirements of the Research Law.
Under
the Research Law, we are required to manufacture the major portion of each of our products developed using these grants in the
State of Israel or otherwise ask for special approvals. We may not receive the required approvals for any proposed transfer of
manufacturing activities. Even if we do receive approval to manufacture products developed with government grants outside of Israel,
the royalty rate may be increased and we 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 our ability to outsource manufacturing or
engage in our own manufacturing operations for those products or technologies. See “Item 5. Operating and Financial Review
and Prospects—Financial Overview—Research and Development Expenses” for additional information.
Additionally,
under the Research Law, we are prohibited from transferring, including by way of license, the IIA-financed technologies 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. We may not receive the required approvals for any proposed transfer and, even if received,
we may be required to pay the IIA a portion of the consideration that we receive upon any sale of such technology to a non-Israeli
entity up to 600% of the grant amounts plus interest. The scope of the support received, the royalties that we have already paid
to the IIA, the amount of time that has elapsed between the date on which the know-how or the related intellectual property rights
were transferred and the date on which the IIA grants were received and the sale price and the form of transaction will be taken
into account in order to calculate the amount of the payment to the IIA. Approval of the transfer of technology to residents of
the State of Israel is required, and may be granted in specific circumstances only if the recipient abides by the provisions of
applicable laws, including the restrictions on the transfer of know-how and the obligation to pay royalties. No assurance can
be made that approval to any such transfer, if requested, will be granted.
These
restrictions may impair our ability to sell our technology assets or to perform or outsource manufacturing outside of Israel,
engage in change of control transactions or otherwise transfer our know-how outside of Israel and may require us 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 our ordinary shares 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 our failure to comply
with this requirement could result in criminal liability.
These
restrictions will continue to apply even after we have repaid the full amount of royalties on the grants. For the years ended
December 31, 2017, 2016 and, 2015, we recorded grants totaling $2.7 million, $1.7 million, and $1.9 million from the IIA, respectively.
The grants represented 14%, 12%, and 14% respectively, of our gross research and development expenditures for the years ended
December 31, 2017, 2016 and, 2015. If we fail to satisfy the conditions of the Research Law, we may be required to refund certain
grants previously received together with interest and penalties, and may become subject to criminal charges.
Risks
Related to the Discovery and Development of Our Product Candidates
We
have planned on the future success of our lead product candidate, VB-111, that missed the primary end points in the
Phase 3 study and continue to advance it for other indications. Any failure to successfully develop, obtain regulatory approval
for and commercialize VB-111 for cancer indications, independently or in cooperation with a third party collaborator, or
the experience of significant delays in doing so, would compromise our ability to generate revenue and become profitable.
We
have invested a significant portion of our efforts and financial resources in the development of VB-111 for rGBM and VB-201 for
psoriasis and ulcerative colitis for which we have completed clinical trials in which they did not meet their primary
endpoints. Our ability to generate product revenue from our product candidate depends heavily on the successful development and
commercialization of our products, which, in turn, depends on several factors, including the following:
|
●
|
our
ability to continue and support the VTS platform technology and its lead candidate VB-111;
|
|
|
|
|
●
|
successfully
completing our ongoing and future trials of VB-111;
|
|
|
|
|
●
|
our
ability to raise additional funding sufficient to conduct future clinical trials;
|
|
|
|
|
●
|
demonstrating
that VB-111 for cancer indications is safe and effective at a sufficient level of statistical or clinical significance
and otherwise obtaining marketing approvals from regulatory authorities;
|
|
|
|
|
●
|
establishing
successful manufacturing arrangements with third-party manufacturers that are compliant with current good manufacturing practices,
or cGMP, and which will ensure the development of a large scale manufacturing process and adequate facilities or being able
to conduct such manufacturing ourselves;
|
|
●
|
operating
our facility for the manufacture of commercial quantities of our candidate products, if approved;
|
|
|
|
|
●
|
establishing
successful sales and marketing arrangements for our products, if approved;
|
|
|
|
|
●
|
maintaining
an acceptable safety and efficacy profile for our products;
|
|
|
|
|
●
|
the
availability of coverage and reimbursement to patients from healthcare payors for our products, if approved; and
|
|
|
|
|
●
|
other
risks described in these “Risk Factors.”
|
Our
product candidates are based on novel technologies, which makes it difficult to predict the time and cost of product candidate
development and potential regulatory approval.
We
have concentrated our product research and development efforts on our two distinct platform technologies, and our future success
depends on the successful development of these technologies. We could experience development problems in the future related to
our technologies, which could cause significant delays or unanticipated costs, and we may not be able to solve such development
problems. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring
that process to commercial partners, if we decide to do so, which may prevent us from completing our clinical trials or commercializing
our products on a timely or profitable basis, if at all.
In
addition, the clinical trial requirements of the FDA, the EMA and other regulatory agencies and the criteria these regulators
use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty
and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours
can be more expensive and take longer than for other, better known or extensively studied pharmaceutical or other product candidates.
Approvals by the FDA may not be indicative of what the EMA or other regulatory agencies may require for approval, and vice versa.
Regulatory
requirements governing pharmaceutical products have changed frequently and may continue to change in the future. Also, before
a clinical trial can begin at an institution funded by the U.S. National Institutes of Health, or the NIH, that institution’s
institutional review board, or IRB, and its Institutional Biosafety Committee will have to review the proposed clinical trial
to assess the safety of the trial. In addition, adverse developments in clinical trials of pharmaceutical products conducted by
others may cause the FDA or other regulatory bodies to change the requirements for approval of any of our product candidates.
These
regulatory agencies and review committees and the new requirements and guidelines they promulgate may lengthen the regulatory
review process, require us to perform additional studies, increase our development costs, lead to changes in regulatory positions
and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval
limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory groups,
and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay or discontinue development
of our product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to
bring a potential product candidate to market could impair our ability to generate product revenue and to become profitable.
We
may find it difficult to enroll patients in our clinical trials, and patients could discontinue their participation in our clinical
trials, which could delay or prevent clinical trials of our product candidates.
Identifying
and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of
our clinical trials depends on the speed at which we can recruit patients to participate in testing our product candidates. We
have experienced delays in some of our clinical trials, and we may experience similar delays in the future. If patients are unwilling
to participate in our clinical trials because of negative publicity from adverse events in the biotechnology or pharmaceutical
industries or for other reasons, including competitive clinical trials for similar patient populations, the timeline for recruiting
patients, conducting trials and obtaining regulatory approval of potential products may be delayed. These delays could result
in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination
of the clinical trials altogether.
We
may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics
to achieve diversity in a trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by factors
including:
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severity
of the disease under investigation;
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design
of the trial protocol;
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size
of the patient population;
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eligibility
criteria for the trial in question;
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perceived
risks and benefits of the product candidate under study, and specifically in reference to studies in other indications, with
the same product;
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proximity
and availability of clinical trial sites for prospective patients;
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availability
of competing therapies and clinical trials;
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efforts
to facilitate timely enrollment in clinical trials;
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patient
referral practices of physicians; and
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ability
to monitor patients adequately during and after treatment.
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In
particular, VB-111 for ovarian cancer is intended for a rare disorder with limited patient pools from which to draw for clinical
trials. The eligibility criteria of our clinical trials will further limit the pool of available trial participants. Additionally,
the process of finding and diagnosing patients may prove costly.
We
plan to seek initial marketing approval in Europe in addition to the United States. We may not be able to initiate or continue
clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by
the EMA or other foreign regulatory agencies. Our ability to successfully initiate, enroll and complete a clinical trial in any
foreign country is subject to numerous risks unique to conducting business in foreign countries, including:
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difficulty
in establishing or managing relationships with contract research organizations, or CROs, and physicians;
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different
standards for the conduct of clinical trials;
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our
inability to locate qualified local consultants, physicians and partners; and
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the
potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the
regulation of pharmaceutical and biotechnology products and treatment.
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If
we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay,
limit or terminate ongoing or planned clinical trials.
In
addition, patients enrolled in our clinical trials may discontinue their participation at any time during the trial as a result
of a number of factors, including withdrawing their consent or experiencing adverse clinical events, which may or may not be judged
related to our product candidates under evaluation. The discontinuation of patients in any one of our trials may cause us to delay
or abandon our clinical trial, or cause the results from that trial not to be positive or sufficient to support a filing for regulatory
approval of the applicable product candidate.
We
may encounter substantial delays in our clinical trials or we may fail to demonstrate safety and efficacy to the satisfaction
of applicable regulatory authorities.
We
are currently in Phase 3 clinical trial for VB-111 for ovarian cancer and plan a Phase 1/2 clinical trials for VB-111 for lung
cancer in combination with immune-oncology drug. We intend to revisit the scope of these studies as soon as we complete our
analysis and conclusions from the recent results of the GLOBE study. Before obtaining marketing approval from regulatory authorities
for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the
product candidates in humans. Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that
any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials
can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:
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delays
in reaching a consensus with regulatory agencies on trial design;
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delays
in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
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delays
in obtaining required IRB approval at each clinical trial site;
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delays
in recruiting suitable patients to participate in our clinical trials including in particular for those trials for rare diseases
such as ovarian cancer;
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imposition
of a clinical hold by regulatory agencies, including after an inspection of our clinical trial operations or trial sites;
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failure
by our CROs, other third parties or us to adhere to clinical trial requirements;
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failure
to perform in accordance with the FDA’s good clinical practices, or GCP, or applicable regulatory requirements in other
countries;
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delays
in the testing, validation, manufacturing and delivery of our product candidates to the clinical sites;
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delays
in having patients complete participation in a trial or return for post-treatment follow-up;
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clinical
trial sites or patients dropping out of a trial;
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occurrence
of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits; or
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changes
in regulatory requirements and guidance that require amending or submitting new clinical trial protocols.
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Any
inability to successfully complete pre-clinical and clinical development could result in additional costs to us or impair our
ability to generate revenue from product sales. In addition, if we make manufacturing or formulation changes to our product candidates,
we may need to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical trial delays
could also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our
competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product
candidates.
If
the results of our clinical trials are inconclusive or if there are safety concerns or adverse events associated with our product
candidates, we may:
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fail
to obtain, or be delayed in obtaining, marketing approval for our product candidates;
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obtain
approval for indications or patient populations that are not as broad as intended or desired;
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obtain
approval with labeling that includes significant use or distribution restrictions or safety warnings;
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need
to change the way the product is administered;
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be
required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;
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have
regulatory authorities withdraw their approval of the product or impose restrictions on its distribution in the form of a
risk evaluation and mitigation strategy, or REMS, or modified REMS;
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be
subject to the addition of labeling statements, such as warnings or contraindications;
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be
sued; or
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experience
damage to our reputation.
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Any
of these events could prevent us from achieving or maintaining market acceptance of our product candidates and impair our ability
to commercialize our product candidates.
Side
effects may occur following treatment with our product candidates, which could make it more difficult for our product candidates
to receive regulatory approval.
Treatment
with our product candidates may cause side effects or adverse events. In addition, since our product candidates are in some cases
administered in combination with other therapies, patients or clinical trial participants may experience side effects or other
adverse events that are unrelated to our product candidate, but may still impact the success of our clinical trials. Additionally,
our product candidates could potentially cause other adverse events that have not yet been predicted. The inclusion of critically
ill patients in our clinical trials may result in deaths or other adverse medical events due to other therapies or medications
that such patients may be using or the severity of the medical condition treated. The experience of side effects and adverse events
in our clinical trials could make it more difficult to achieve regulatory approval of our product candidates or, if approved,
could negatively impact the market acceptance of such products.
Success
in early and prior clinical trials may not be indicative of results obtained in later trials.
There
is a high failure rate for drugs and biologics proceeding through clinical trials. A number of companies in the pharmaceutical
and biotechnology industries have suffered significant setbacks in later stage clinical trials even after achieving promising
results in earlier stage and prior clinical trials. Data obtained from pre-clinical and clinical activities are subject to varying
interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered
as a result of many factors, including changes in regulatory policy during the period of product development.
The
results from our clinical trials may not be sufficiently robust to support the submission for marketing approval for our product
candidates. Before we submit our product candidates for marketing approval, the FDA and the EMA may require us to conduct additional
clinical trials, or evaluate subjects for an additional follow-up period.
It
is possible that, even if we achieve favorable results in our clinical trials, the FDA may require us to conduct additional clinical
trials, possibly involving a larger sample size or a different clinical trial design, particularly if the FDA does not find the
results from our completed clinical trials to be sufficiently persuasive to support a Biologics License Application, or BLA, or
a New Drug Application, or NDA. For example, because the dose we used in our Phase 2 trial was limited by our production capacity,
the dose of VB-111 that we intend to use in our Phase 3 potential registration trial may not be the maximum efficacious
dose. The FDA might require data on higher doses of VB-111, this will likely delay development. The FDA may also
require that we conduct a longer follow-up period of subjects treated with our product candidates prior to accepting our BLA or
NDA.
It
is possible that the FDA or the EMA may not consider the results of our clinical trials to be sufficient for approval of our product
candidates for their target indications. If the FDA or the EMA requires additional studies for any reason, we would incur increased
costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition,
it is possible that the FDA and the EMA may have divergent opinions on the elements necessary for a successful BLA or NDA and
Marketing Authorization Application, which is the equivalent of a BLA, respectively, which may cause us to alter our development,
regulatory or commercialization strategies.
Even
if we complete the necessary pre-clinical studies and clinical trials, we cannot predict when or if we will obtain regulatory
approval to commercialize a product candidate or the approval may be for a more narrow indication than we expect.
We
cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product candidate.
Even if our product candidates demonstrate safety and efficacy in clinical trials, the regulatory agencies may not complete their
review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA
Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience
delays or rejections based upon additional government regulation from future legislation or administrative action, or changes
in regulatory agency policy during the period of product development, clinical trials and the review process. Regulatory agencies
also may approve a treatment candidate for fewer or more limited indications than requested or may grant approval subject to the
performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary
or desirable for the successful commercialization of our treatment candidates.
A
fast track designation by the FDA may not actually lead to a faster development or regulatory review or approval process.
If
a drug is intended for the treatment of a serious or life-threatening disease or condition and the drug demonstrates the potential
to address unmet medical needs for this disease or condition, the drug sponsor may apply for FDA fast track designation. If fast
track designation is obtained, the FDA may initiate review of sections of a new drug application, or NDA, before the application
is complete. This “rolling review” is available if the applicant provides, and the FDA approves, a schedule for submission
of the individual sections of the application.
We
have received fast track designation from the FDA for VB-111 for prolongation of survival in patients with glioblastoma that has
recurred following treatment with temozolomide, a chemotherapeutic agent commonly used to treat newly diagnosed glioblastoma,
and radiation. We may seek fast track designation for other product candidates and other indications. Even though we have received
fast track designation, we 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 our clinical
development program. Our fast track designation does not guarantee that we will qualify for or be able to take advantage of the
expedited review procedures or that we will ultimately obtain regulatory approval of VB-111.
Even
though we have obtained orphan drug designation for VB-111 for treatment of malignant glioma in the United States and glioma in
Europe, and for the treatment of ovarian cancer in Europe, we may not be able to obtain orphan drug exclusivity for this drug
or for any of our other product candidates.
Regulatory
authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations
as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat
a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in
the United States. For VB-111, we have obtained orphan drug designation from the FDA for the treatment of malignant glioma and
the EMA for the treatment of glioma and ovarian cancer, and we may seek orphan drug designation for other drug candidates.
Generally,
if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it
has such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving
another marketing application for the same drug for the same use or indication for that time period. The applicable period is
seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a drug
no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity
is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was
materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients
with the rare disease or condition.
Even
if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition
because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently
approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown
to be safer, more effective or makes a major contribution to patient care.
Even
if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.
Even
if we obtain regulatory approval in a jurisdiction, the regulatory authority may still impose significant restrictions on the
indicated uses or marketing of our product candidates, or impose ongoing requirements for potentially costly post-approval studies
or post-market surveillance. For example, the holder of an approved BLA is obligated to monitor and report adverse events and
any failure of a product to meet the specifications in the BLA. The holder of an approved BLA must also submit new or supplemental
applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising
and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable
federal and state laws.
In
addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections
by the FDA and other regulatory authorities for compliance with cGMP, and adherence to commitments made in the BLA or NDA as the
case may be. If we or a regulatory agency discover previously unknown problems with a product such as adverse events of unanticipated
severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions
relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market
or suspension of manufacturing.
If
we fail to comply with applicable regulatory requirements following approval of any of our product candidates, a regulatory agency
may:
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issue
a warning letter asserting that we are in violation of the law;
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seek
an injunction or impose civil or criminal penalties or monetary fines;
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suspend
or withdraw regulatory approval;
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suspend
any ongoing clinical trials;
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refuse
to approve a pending BLA or NDA or supplements to a BLA or NDA submitted by us for other indications or new drug products;
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seize
our product; or
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refuse
to allow us to enter into supply contracts, including government contracts.
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Any
government investigation of alleged violations of law could require us to expend significant time and resources in response and
could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize
our product candidates and generate revenues.
We
have only limited experience in regulatory affairs and intend to rely on consultants and other third parties for regulatory matters,
which may affect our ability or the time we require to obtain necessary regulatory approvals.
We
have limited experience in filing and prosecuting the applications necessary to gain regulatory approvals for drug and biologics
candidates. Moreover, the product candidates that are likely to result from our development programs are based on new technologies
that have not been extensively tested in humans. The regulatory requirements governing these types of product candidates may be
less well defined or more rigorous than for conventional products. As a result, we may experience a longer regulatory process
in connection with obtaining regulatory approvals of any products that we develop. We intend to rely on independent consultants
for purposes of our regulatory compliance and product development and approvals in the United States and elsewhere. Any failure
by our consultants to properly advise us regarding, or properly perform tasks related to, regulatory compliance requirements could
compromise our ability to develop and seek regulatory approval of our product candidates.
In
addition to the level of commercial success of our product candidates, if approved, our future prospects are also dependent on
our ability to successfully develop a pipeline of additional product candidates, and we may not be successful in our efforts in
using our platform technologies to identify or discover additional product candidates.
The
success of our business depends primarily upon our ability to identify, develop and commercialize products based on our two platform
technologies. Our research programs may fail to identify other potential product candidates for clinical development for a number
of reasons. Our research methodology may be unsuccessful in identifying potential product candidates or our potential product
candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable
or unlikely to receive marketing approval.
If
any of these events occur, we may be forced to abandon our development efforts for a program or programs. Research programs to
identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources
on potential programs or product candidates that ultimately prove to be unsuccessful.
Risks
Related to Our Reliance on Third Parties
We
expect to rely on third parties to conduct some or all aspects of our product manufacturing, protocol development, research and
pre-clinical and clinical testing, and these third parties may not perform satisfactorily.
We
do not expect to independently conduct all aspects of our product manufacturing, protocol development, research and pre-clinical
and clinical testing. We currently rely, and expect to continue to rely, on third parties with respect to these items. In addition,
we may pursue further clinical development of VB-111 for thyroid cancer or other indications with a strategic partner.
Any
of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements,
it could delay our product development activities. Our reliance on these third parties for research and development activities
will reduce our control over these activities but will not relieve us of our responsibility to ensure compliance with all required
regulations and study protocols. For example, for product candidates that we develop and commercialize on our own, we will remain
responsible for ensuring that each of our Investigational New Drug, or IND, enabling studies and clinical trials are conducted
in accordance with the study plan and protocols.
If
these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in
accordance with regulatory requirements or our stated study plans and protocols, we will not be able to complete, or may be delayed
in completing, the pre-clinical studies and clinical trials required to support future IND submissions and approval of our product
candidates.
Reliance
on third-party manufacturers entails risks to which we would not be subject if we manufactured the product candidates ourselves,
including:
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the
inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;
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reduced
control as a result of using third-party manufacturers for all aspects of manufacturing activities;
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termination
or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; and
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disruptions
to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations,
including the bankruptcy of the manufacturer or supplier.
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Any
of these events could lead to clinical trial delays or failure to obtain regulatory approval, or impact our ability to successfully
commercialize future products. Some of these events could be the basis for FDA action, including injunction, recall, seizure or
total or partial suspension of production.
We
and our contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The
manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.
We
currently have relationships with a limited number of suppliers for the manufacturing of our product candidates. Each supplier
may require licenses to manufacture components of our product candidates or to utilize certain processes for the manufacture of
our product candidates. If such components or licenses are not owned by the supplier or in the public domain, we may be unable
to transfer or sublicense the intellectual property rights we may have with respect to such activities.
All
entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers
for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial
sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing
processes and procedures (including record keeping) and the implementation and operation of systems to control and assure the
quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction
of contaminants, or to inadvertent changes in the properties or stability of our product candidates that may not be detectable
in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA or NDA,
as applicable, on a timely basis and must adhere to the FDA’s good laboratory practices, or GLP, and cGMP regulations enforced
by the FDA through its facilities inspection program. Our contract manufacturer for VB-111 has not produced a commercially approved
product based on viral vectors and therefore has not yet obtained the requisite FDA approvals to do so. Our facilities and controls
and the facilities and controls of some or all of our third-party contractors must pass a pre-approval inspection for compliance
with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential
products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the
preparation of our product candidates or our other potential products or the associated controls for compliance with the regulations
applicable to the activities being conducted. If these facilities do not pass a pre-approval plant inspection, FDA approval of
the products will not be granted.
The
regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those
of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or
our product specifications or if a violation of applicable regulations, including a failure to comply with the product specifications,
occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that
may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension
of a clinical trial or commercial sales or the temporary or permanent closure of a facility.
If
we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including,
among other things, refusal to approve a pending application for a new drug product or biologic product, or revocation of a pre-existing
approval.
Additionally,
if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. An alternative
manufacturer would need to be qualified through a BLA or NDA supplement which could result in further delay. The regulatory agencies
may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may
involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
These
factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our product
candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our
suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production
at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
We
expect to rely on third parties to conduct, supervise and monitor our clinical trials, and if these third parties perform in an
unsatisfactory manner, it may harm our business.
We
expect to rely on CROs and clinical trial sites to ensure our clinical trials are conducted properly and on time. While we will
have agreements governing their activities, we will have limited influence over their actual performance. We will control only
some aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our clinical trials
is conducted in accordance with the applicable protocol, legal, regulatory and scientific requirements and standards, and our
reliance on the CROs does not relieve us of our regulatory responsibilities.
We
and our CROs are required to comply with the FDA’s GCPs for conducting, recording and reporting the results of IND-enabling
studies and clinical trials to assure that the data and reported results are credible and accurate and that the rights, integrity
and confidentiality of clinical trial participants are protected. The FDA enforces these GCPs through periodic inspections of
study sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical
data generated in our future clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical
trials before approving any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply
with GCPs. In addition, our future clinical trials will require a sufficient number of test subjects to evaluate the safety and
effectiveness of our product candidates. Recruitment may be challenging in the event of rare diseases and may require the performance
of trials in a significant number of sites which may be harder to monitor. Accordingly, if our CROs fail to comply with these
regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would
delay the regulatory approval process.
Our
CROs are not our employees, and we are therefore unable to directly monitor whether or not they devote sufficient time and resources
to our clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including parties
developing potentially competitive products, for whom they may also be conducting clinical trials or other drug development activities
that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail
to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to
adhere to our clinical protocols or regulatory requirements, or for any other reason, our clinical trials may be extended, delayed
or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates.
As a result, the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to
generate revenues could be delayed.
We
also expect to rely on other third parties to store and distribute our product candidates for any clinical trials that we may
conduct. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our
product candidates or commercialization of our products, if approved, producing additional losses and depriving us of potential
product revenue.
Our
reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover
them or that our trade secrets will be misappropriated or disclosed.
Because
we rely on third parties to manufacture our product candidates, and because we collaborate with various organizations and academic
institutions on the advancement of our technology, we must, at times, share trade secrets with them. We seek to protect our proprietary
technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative
research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants
prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties
to use or disclose our confidential information, such as trade secrets. Despite these contractual provisions, the need to share
trade secrets and other confidential information increases the risk that such trade secrets become known by potential competitors,
are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given
that our proprietary position is based, in part, on our know-how and trade secrets, discovery by a third party of our trade secrets
or other unauthorized use or disclosure would impair our intellectual property rights and protections in our product candidates.
In
addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish
data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that
we are notified in advance and may delay publication for a specified time in order to secure our intellectual property rights
arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we
may share these rights with other parties. Despite our efforts to protect our trade secrets, our competitors may discover our
trade secrets, either through breach of these agreements, independent development or publication of information including our
trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication.
Risks
Related to Commercialization of Our Product Candidates
We
intend to partially rely on third-party manufacturers to produce commercial quantities of any of our product candidates that receives
regulatory approval, but we have not entered into binding agreements with any such manufacturers to support commercialization.
Additionally, these manufacturers do not have experience producing our product candidates at commercial levels and may not achieve
the necessary regulatory approvals or produce our product candidates at the quality, quantities, locations and timing needed to
support commercialization.
We
have not yet secured manufacturing capabilities for commercial quantities of our product candidates to support commercialization
of our product candidates. Although we intend to partially rely on third-party manufacturers for commercialization, we have only
entered into agreements with such manufacturers to assist in the scaling up of the manufacturing process of VB-111. We may be
unable to negotiate binding agreements with the manufacturers to support our commercialization activities on commercially reasonable
terms, which agreements will further be required to comply with the restrictions imposed under the Research Law.
We
may encounter technical or scientific issues related to manufacturing or development that we may be unable to resolve in a timely
manner or with available funds. Although we have established a site in which we are planning to apply a commercial scale manufacturing,
the available capacity to manufacture our product candidates on a commercial scale is still limited. In addition, our product
candidates are novel, and no manufacturer currently has the experience or ability to produce our product candidates at commercial
levels. If we are unable to produce or engage manufacturing partners to produce our product candidates on a larger scale on reasonable
terms, our commercialization efforts will be harmed.
Even
if we timely complete the development of a manufacturing process and successfully transfer it to the third- party manufacturers
of our product candidates, if we or such third-party manufacturers are unable to produce the necessary quantities of our product
candidates, or in compliance with cGMP or with pertinent regulatory requirements, and within our planned time frame and cost parameters,
the development and sales of our product candidates, if approved, may be impaired.
In
addition, any significant disruption in our supplier relationships could harm our business. We source key materials from third
parties, either directly through agreements with suppliers or indirectly through our manufacturers who have agreements with suppliers.
There are a small number of suppliers for certain key materials that are used to manufacture our product candidates. Such suppliers
may not sell these key materials to our manufacturers at the times we need them or on commercially reasonable terms. We do not
have any control over the process or timing of the acquisition of these key materials by our manufacturers. Moreover, we currently
do not have any agreements for the commercial production of these key materials.
If
we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell any
of our product candidates that obtain regulatory approval, we may be unable to generate any revenue.
We
have no experience selling and marketing our product candidates or any other products. To successfully commercialize any products
that may result from our development programs and obtain regulatory approval, we will need to develop these capabilities, either
on our own or with others. We may seek to enter into collaborations with other entities to utilize their marketing and distribution
capabilities, but we may be unable to do so on favorable terms, if at all. If any future collaborative partners do not commit
sufficient resources to commercialize our future products, if any, and we are unable to develop the necessary marketing capabilities
on our own, we will be unable to generate sufficient product revenue to sustain our business. We will be competing with many companies
that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third
party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies
or successfully commercialize any of our product candidates.
We
face intense competition and rapid technological change and the possibility that our competitors may develop therapies that are
more advanced or effective than ours, which could impair our ability to successfully commercialize our product candidates.
We
are engaged in pharmaceutical development, which is a rapidly changing field. We have competitors both in the United States and
internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research
institutions.
Many
of our potential competitors have substantially greater financial, technical and other resources, such as larger research and
development staff and experienced marketing and manufacturing organizations. Competition may increase further as a result of advances
in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our potential
competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less
costly than any product candidate that we may develop, or achieve earlier patent protection, regulatory approval, product commercialization
and market penetration than us. Additionally, technologies developed by others may render our potential product candidates uneconomical
or obsolete, and we may not be successful in marketing our product candidates against competitors.
In
particular, VB-111 may face competition from currently approved drugs and drug candidates under development by others to treat
rGBM or ovarian cancer. In May 2009, the FDA granted accelerated approval to Avastin (bevacizumab), which is an angiogenesis inhibitor,
to treat patients with rGBM at progression after standard first-line therapy. In addition to bevacizumab, a number of companies
are conducting late-stage clinical trials to test targeted drugs focused on angiogenesis inhibition for the treatment of ovarian
cancer, including, among others, Amgen’s trebananib, Boehringer Ingelheim’s nintedanib, AstraZeneca’s cediranib
and Novartis’s Votrient. The expansion of PARP inhibitors (such as olaparib) for ovarian cancer, and clinical studies evaluating
the potential use of checkpoint inhibitors for ovarian cancer may also affect the prior lines of therapy, or the segment of patient
population who will seek treatment with VB-111.
Even
if we are successful in achieving regulatory approval to commercialize a product candidate faster than our competitors, we may
face competition from biosimilars. In the United States, the Biologics Price Competition and Innovation Act of 2009 created an
abbreviated approval pathway for biological products that are demonstrated to be “highly similar,” or biosimilar,
to or “interchangeable” with an FDA-approved biological product. This pathway could allow competitors to reference
data from biological products already approved after 12 years from the time of approval. In Europe, the European Commission has
granted marketing authorizations for several biosimilars pursuant to a set of general and product class-specific guidelines for
biosimilar approvals issued over the past few years. In Europe, a competitor may reference data from biological products already
approved, but will not be able to market a biosimilar until ten years after the time of approval. This 10-year period will be
extended to 11 years if, during the first eight of those 10 years, the marketing authorization holder obtains an approval for
one or more new therapeutic indications that bring significant clinical benefits compared with existing therapies. In addition,
companies may be developing biosimilars in other countries that could compete with our products. If competitors are able to obtain
marketing approval for biosimilars referencing our products, our products may become subject to competition from such biosimilars,
with the attendant competitive pressure and consequences. Expiration or successful challenge of our applicable patent rights could
also trigger competition from other products, assuming any relevant exclusivity period has expired.
In
addition, although VB-111 has been granted orphan drug status by the FDA and EMA for a specified indication, there are limitations
to the exclusivity. In the United States, the exclusivity period for orphan drugs is seven years, while pediatric exclusivity
adds six months to any existing patents or exclusivity periods. In Europe, orphan drugs may be able to obtain 10 years of marketing
exclusivity and up to an additional two years on the basis of qualifying pediatric studies. However, orphan exclusivity may be
reduced to six years if the drug no longer satisfies the original designation criteria. Additionally, a marketing authorization
holder may lose its orphan exclusivity if it consents to a second orphan drug application or cannot supply enough drug. Orphan
drug exclusivity also can be lost when a second applicant demonstrates its drug is “clinically superior” to the original
orphan drug.
Finally,
as a result of the expiration or successful challenge of our patent rights, we could face more litigation with respect to the
validity or scope of patents relating to other parties’ products. The availability of other parties’ products could
limit the demand, and the price we are able to charge, for any products that we may develop and commercialize.
Since
some of our product candidates are aimed for rare diseases, loss of exclusivity or competition as described above may be very
significant in light of the limited size of the relevant market.
The
commercial success of any current or future product candidate, if approved, will depend upon the degree of market acceptance by
physicians, patients, third-party payors and others in the medical community.
Even
if we obtain the requisite regulatory approvals, the commercial success of our product candidates will depend in part on the medical
community, patients, and third-party payors accepting our product candidates as medically useful, cost-effective, and safe. Any
product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the
medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue
and may not become profitable. The degree of market acceptance of these product candidates, if approved for commercial sale, will
depend on a number of factors, including:
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the
potential efficacy and potential advantages over alternative treatments;
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the
prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved
labeling;
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the
prevalence and severity of any side effects resulting from the procedure by which our product candidates are administered;
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relative
convenience and ease of administration;
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the
willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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the
strength of marketing and distribution support and timing of market introduction of competitive products;
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publicity
concerning our products or competing products and treatments; and
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sufficient
third-party insurance coverage or reimbursement.
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Even
if a potential product displays a favorable efficacy and safety profile in pre-clinical studies and clinical trials, market acceptance
of the product will not be known until after it is launched. Our efforts to educate the medical community and third-party payors
on the benefits of the product candidates may require significant resources and may never be successful. Such efforts to educate
the marketplace may require more resources than are required by conventional technologies.
A
variety of risks associated with international operations could hurt our business.
If
any of our product candidates are approved for commercialization, it is our current intention to market them on a worldwide basis,
either alone or in collaboration with others. In addition, we conduct development activities in various jurisdictions throughout
the world. We expect that we will be subject to additional risks related to engaging in international operations, including:
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different
regulatory requirements for approval of drugs and biologics in foreign countries;
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reduced
protection for intellectual property rights;
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unexpected
changes in tariffs, trade barriers and regulatory requirements;
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economic
weakness, including inflation, or political instability in particular foreign economies and markets;
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compliance
with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign
currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident
to doing business in another country;
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workforce
uncertainty in countries where labor unrest is more common than in the United States and Israel;
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production
shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business
interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes,
typhoons, floods and fires.
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The
insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage
and reimbursement for any of our product candidates that are approved could limit our ability to market those products and compromise
our ability to generate revenue.
The
availability of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive
treatments. Sales of our product candidates will depend substantially, both in the U.S. and abroad, on the extent to which the
costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management
organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party
payors. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize
our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to
establish or maintain pricing sufficient to realize a sufficient return on our investment.
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States,
the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services,
or CMS, an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new medicine
will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree. It is difficult to predict
what CMS will decide with respect to reimbursement for fundamentally novel products such as ours, as there is no body of established
practices and precedents for these new products. Reimbursement agencies in Europe may be more conservative than CMS. For example,
a number of cancer drugs have been approved for reimbursement in the United States and have not been approved for reimbursement
in certain European countries.
The
intended use of a drug product by a physician can also affect pricing. For example, CMS could initiate a National Coverage Determination
administrative procedure, by which the agency determines which uses of a therapeutic product would and would not be reimbursable
under Medicare. This determination process can be lengthy, thereby creating a long period during which the future reimbursement
for a particular product may be uncertain.
Outside
the United States, international operations are generally subject to extensive governmental price controls and other market regulations,
and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries is likely to put
pressure on the pricing and usage of any of our product candidates that are approved for marketing. In many countries, the prices
of medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices
of medicines under such systems are substantially lower than in the United States. Other countries allow companies to fix their
own prices for medicines, but monitor and control company profits. Additional foreign price controls or other changes in pricing
regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the
United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate
commercially reasonable revenue and profits.
Moreover,
increasing efforts by governmental and third-party payors, in the United States and abroad, to cap or reduce healthcare costs,
resulting in legislation and reforms such as the Patient Protection and Affordable Care Act of 2010, may cause such organizations
to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate
payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product
candidates, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional
legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures
and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
The
prescription for or promotion of off-label uses of our products by physicians could adversely affect our business.
Any
regulatory approval of our products is limited to those specific diseases and indications for which our products have been deemed
safe and effective by the FDA or similar authorities in other jurisdictions. In addition, any new indication for an approved product
also requires regulatory approval. If we produce an approved therapeutic product, we will rely on physicians to prescribe and
administer it as we have directed and for the indications described on the labeling. It is not, however, uncommon for physicians
to prescribe medication for unapproved, or “off-label,” uses or in a manner that is inconsistent with the manufacturer’s
directions. To the extent such off-label uses and departures from our administration directions become pervasive and produce results
such as reduced efficacy or other adverse effects, the reputation of our products in the marketplace may suffer. In addition,
off-label uses may cause a decline in our revenue or potential revenue, to the extent that there is a difference between the prices
of our product for different indications.
Furthermore,
while physicians may choose to prescribe our drugs for off-label uses, our ability to promote the products is limited to those
indications that are specifically approved by the FDA or other regulators. Although regulatory authorities generally do not regulate
the behavior of physicians, they do restrict communications by companies with respect to off-label use. If our promotional activities
fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities.
In addition, failure to follow FDA rules and guidelines relating to promotion and advertising can result in the FDA’s refusal
to approve a product, the suspension or withdrawal of an approved product from the market, product recalls, fines, disgorgement
of money, operating restrictions, injunctions or criminal prosecution.
Due
to the small target patient populations for some of our product candidates, we face uncertainty related to pricing and reimbursement
for these product candidates.
Some
of our target patient populations for our initial product candidates are relatively small, as a result of which the pricing and
reimbursement of our product candidates, if approved, must be adequate to support commercial infrastructure. If we are unable
to obtain adequate levels of reimbursement, our ability to successfully market and sell our product candidates will be adversely
affected. Inadequate reimbursement for such services may lead to physician resistance and adversely affect our ability to market
or sell our products.
Risks
Related to Our Business Operations
Our
future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified
personnel.
We
are highly dependent on principal members of our executive team listed under “Management” in this report, including
Prof. Dror Harats, our chief executive officer, the loss of whose services may adversely impact the achievement of our objectives.
While we have entered into employment agreements with each of our executive officers, any of them could leave our employment at
any time, as all of our employees are “at will” employees. Recruiting and retaining other qualified employees, consultants
and advisors for our business, including scientific and technical personnel, will also be critical to our success. There is currently
a shortage of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel
is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the
competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets. In addition, failure
to succeed in pre-clinical studies or clinical trials may make it more challenging to recruit and retain qualified personnel.
The inability to recruit or loss of the services of any executive, key employee, consultant or advisor may impede the progress
of our research, development and commercialization objectives.
Our
collaborations with outside scientists and consultants may be subject to restriction and change.
We
work with medical experts, chemists, biologists and other scientists at academic and other institutions, and consultants who assist
us in our research, development and regulatory efforts, including the members of our scientific advisory board. In addition, these
scientists and consultants have provided, and we expect that they will continue to provide, valuable advice regarding our programs
and regulatory approval processes. These scientists and consultants are not our employees and may have other commitments that
would limit their future availability to us. If a conflict of interest arises between their work for us and their work for another
entity, we may lose their services. In addition, we are limited in our ability to prevent them from establishing competing businesses
or developing competing products. For example, if a key scientist acting as a principal investigator in any of our clinical trials
identifies a potential product or compound that is more scientifically interesting to his or her professional interests, his or
her availability to remain involved in our clinical trials could be restricted or eliminated.
We
will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.
As
of March 1, 2018, we had 37 employees. As we mature and undertake the activities required to advance our product candidates into
later stage clinical development and to operate as a public company, we expect to expand our full-time employee base and to hire
more consultants and contractors. Our management may need to divert a disproportionate amount of its attention away from our day-to-day
activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage
the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business
opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant
capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates.
If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate
or grow revenue could be compromised, and we may not be able to implement our business strategy. Our future financial performance
and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively
manage any future growth.
Our
employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities,
including non-compliance with regulatory standards and requirements and insider trading.
We
are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners.
Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators,
provide accurate information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in
the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular,
sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to
prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit
a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business
arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical trials, which
could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to
all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to
detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us
from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or 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 significant fines or other sanctions.
We
face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs.
If the use of our product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to our
product candidates, our regulatory approvals could be revoked or otherwise negatively impacted and we could be subject to costly
and damaging product liability claims.
The
use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval exposes us
to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers,
pharmaceutical companies or others selling or otherwise coming into contact with our product candidates. There is a risk that
our product candidates may induce adverse events. If we cannot successfully defend against product liability claims, we could
incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result
in:
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impairment
of our business reputation;
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withdrawal
of clinical trial participants;
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costs
due to related litigation;
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distraction
of management’s attention from our primary business;
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substantial
monetary awards to patients or other claimants;
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the
inability to commercialize our product candidates;
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decreased
demand for our product candidates, if approved for commercial sale; and
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impairment
of our ability to obtain product liability insurance coverage.
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We
carry combined public and products liability (including human clinical trials extension) insurance of $5.0 million per occurrence
and $5.0 million aggregate limit, with extension to $10.0 for the Phase 3 study in rGBM and for the Phase 3 study in ovarian cancer.
We believe our product liability insurance coverage is sufficient in light of our current clinical programs; however, we may not
be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability.
If we obtain marketing approval for any product candidates, we intend to expand our insurance coverage to include the sale of
commercial products, but we may not be able to obtain product liability insurance on commercially reasonable terms or in adequate
amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had
unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause our share
price to decline and, if judgments exceed our insurance coverage, could materially and adversely affect our financial position.
Patients
with the diseases targeted by some of our product candidates are often already in severe and advanced stages of disease and have
both known and unknown significant pre- existing and potentially life-threatening health risks. During the course of treatment,
patients may suffer adverse events, including death, for reasons that may be related to our product candidates. Such events could
subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact
or end our opportunity to receive or maintain regulatory approval to market our products, or require us to suspend or abandon
our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is related to our product
candidate, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may harm our reputation,
delay our regulatory approval process, limit the type of regulatory approvals our product candidates receive or maintain, and
compromise the market acceptance of any of our product candidates that receive regulatory approval. As a result of these factors,
a product liability claim, even if successfully defended, could hurt our business and impair our ability to generate revenue.
If
our existing or future manufacturing facility is damaged or destroyed, or production at any of those facilities is otherwise interrupted,
our business and prospects would be negatively affected.
We
have a manufacturing facility for commercial scale production. If our existing or future manufacturing facilities, or the equipment
in it, is damaged or destroyed, we likely would not be able to quickly or inexpensively replace our manufacturing capacity and
possibly would not be able to replace it at all. Any new facility needed to replace our existing or future manufacturing facility
would need to comply with the necessary regulatory requirements, and be tailored to our manufacturing requirements and processes.
We would need FDA approval before using any product candidates manufactured at a new facility in clinical trials or selling any
products that are ultimately approved. Such an event could delay our clinical trials or, if any of our product candidates are
approved by the FDA, reduce or eliminate our product sales.
If
we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or
incur costs that could have a material adverse effect on the success of our business.
We
are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous
and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We
generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination
or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could
be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs
associated with civil or criminal fines and penalties.
Although
we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees
resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage
against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental,
health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production
efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
If
our shipping capabilities become unavailable due to an accident, an act of terrorism, a labor strike or other similar event, our
supply, production and distribution processes could be disrupted.
Some
of our raw materials for the manufacturing of VB-111, and VB-111 itself, must be transported at a temperature controlled cold
chain at temperatures varying between -4 degrees Celsius to -70 degrees Celsius (25 to -94 degrees Fahrenheit) to ensure their
quality and vitality. Not all shipping or distribution channels are equipped to transport at these temperatures. If any of our
shipping or distribution channels become inaccessible because of a serious accident, an act of terrorism, a labor strike or other
similar event, we may experience disruptions in our continued supply of raw materials, delays in our production process or a reduction
in our ability to distribute our therapeutics to our customers.
We
may use our financial and human resources to pursue a particular research program or product candidate and fail to capitalize
on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.
Because
we have limited resources, we may forego or delay pursuit of opportunities with certain programs or product candidates or for
indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize
on viable commercial products or profitable market opportunities. Our spending on current and future research and development
programs for product candidates may not yield any commercially viable products. If we do not accurately evaluate the commercial
potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through
strategic collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us
to retain sole development and commercialization rights to such product candidate, or we may allocate internal resources to a
product candidate in a therapeutic area in which it would have been more advantageous to enter into a collaboration arrangement.
We
will continue to incur significant increased costs as a result of operating as a public company, and our management will continue
to be required to devote substantial time to new compliance initiatives.
As
a public company, we will continue to incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley
Act, as well as rules subsequently implemented by the Securities and Exchange Commission, or SEC, and The NASDAQ Global Market
have imposed various requirements on public companies. Recent legislation permits smaller “emerging growth companies”
to implement many of these requirements over a longer period and up to five years from the pricing of our offering. We intend
to take advantage of this new legislation but cannot guarantee that we will not be required to implement these requirements sooner
than budgeted or planned and thereby incur unexpected expenses. Shareholder activism, the current political environment and the
current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations,
which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently
anticipate. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives.
Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more
time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for
us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain our current
levels of such coverage. While compliance with these additional requirements will result in increased costs to us, we cannot accurately
predict or estimate at this time the amount of additional costs we may incur as a public company under both U.S. and Israeli laws.
We
are subject to foreign currency exchange risk, and fluctuations between the U.S. dollar and the NIS, the Euro and other non-U.S.
currencies may negatively affect our earnings and results of operations.
We
operate in a number of different currencies. While the dollar is our functional and reporting currency and investments in our
share capital have been denominated in dollars, our financial results may be adversely affected by fluctuations in currency exchange
rates as a significant portion of our operating expenses, including our salary-related and manufacturing expenses are denominated
in the NIS, and a significant portion of our clinical trials and manufacturing expenses are denominated in euros.
We
are exposed to the risks that the NIS may appreciate relative to the dollar, or, if the NIS instead devalues relative to the dollar,
that the inflation rate in Israel may exceed such rate of devaluation of the NIS, or that the timing of such devaluation may lag
behind inflation in Israel. In any such event, the dollar cost of our operations in Israel would increase and our dollar- denominated
results of operations would be adversely affected. We cannot predict any future trends in the rate of inflation in Israel or the
rate of devaluation (if any) of the NIS against the dollar. For example, the average exchange rate of the dollar against the NIS
decreased in 2017 and in 2016 and increased in 2015. Market volatility and currency fluctuations may limit our ability to cost-
effectively hedge against our foreign currency exposure and, in addition, our ability to hedge our exposure to currency fluctuations
in certain emerging markets may be limited. Hedging strategies may not eliminate our exposure to foreign exchange rate fluctuations
and may involve costs and risks of their own, such as devotion of management time, external costs to implement the strategies
and potential accounting implications. Foreign currency fluctuations, independent of the performance of our underlying business,
could lead to materially adverse results or could lead to positive results that are not repeated in future periods.
Risks
Related to Our Intellectual Property
We
depend on our license agreement with Crucell and if we cannot meet requirements under such license agreement, we could lose the
rights to our products, which could have a material adverse effect on our business.
VB-111
incorporates an adenoviral vector as the delivery vehicle based on our rights under a license agreement with Crucell. If we fail
to meet our obligations under this license agreement, including various diligence, milestone payment, royalty and other obligations,
Crucell has the right to terminate our license, and upon the effective date of such termination, our right to use the licensed
technology would terminate. We may enter into additional agreements in the future with Crucell that may impose similar obligations
on us. While we would expect to exercise all rights and remedies available to us, including attempting to cure any breach by us,
and otherwise seek to preserve our rights under the patents and other technology licensed to us, we may not be able to do so in
a timely manner, at an acceptable cost or at all. Any uncured, material breach under the license agreement could result in our
loss of rights and may lead to a complete termination of our product development and any commercialization efforts for the applicable
product candidates since there are currently no significant similar alternatives on the market.
If
we are unable to obtain or protect intellectual property rights related to our product candidates, we may not be able to obtain
exclusivity for our product candidates or prevent others from developing similar competitive products.
We
rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property
related to our product candidates. The strength of patents in the biotechnology and pharmaceutical field involves complex legal
and scientific questions and can be uncertain. The patent applications that we own or in-license may fail to result in issued
patents with claims that cover our product candidates in the United States or in other foreign countries. There is no assurance
that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate
a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue and even if
such patents cover our product candidates, third parties may challenge their validity, enforceability or scope, which may result
in the patent claims being narrowed or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications
may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing
around our claims. Any of these outcomes could impair our ability to prevent competition from third parties.
If
the patent applications we hold or have in-licensed with respect to our programs or product candidates fail to issue, if the breadth
or strength of our patent protection is threatened, or if our patent portfolio fails to provide meaningful exclusivity for our
product candidates, it could dissuade companies from collaborating with us to develop product candidates and threaten our ability
to commercialize future products. Several patent applications covering our product candidates have been filed recently. We cannot
offer any assurances about which, if any, applications will issue as patents, the breadth of any such issued patent claims or
whether any issued claims will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition
to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization
of any product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during
which we could market a product candidate under patent protection could be reduced. Since patent applications in the United States
and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain
that we or our licensors were the first to file any patent application related to a product candidate. Furthermore, if third parties
have filed such patent applications, an interference proceeding in the United States can be initiated by a third party to determine
who was the first to invent any of the subject matter covered by the patent claims of our applications. In addition, patents have
a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various
extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our
product candidates are obtained, once the patent life has expired for a product, we may be open to competition from generic medications.
This risk is material in light of the length of the development process of our products and lifespan of our current patent portfolio.
In
addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary
know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other
elements of our product candidate discovery and development processes that involve proprietary know- how, information or technology
that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology
and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors.
We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our
premises and physical and electronic security of our information technology systems. Security measures may be breached, and we
may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered
by competitors. Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees,
consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into
confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade
secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access
to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized
disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business.
Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against
third parties for misappropriating the trade secret. In addition, others may independently discover our trade secrets and proprietary
information. For example, the FDA, as part of its Transparency Initiative, is currently considering whether to make additional
information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary
information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all.
Further,
the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the
United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in
the United States and abroad. If we are unable to prevent material disclosure of the non-patented intellectual property related
to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection,
we may not be able to establish or maintain a competitive advantage in our market.
Third-party
claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our
commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There
is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property
rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions
and inter partes review proceedings before the U.S. Patent and Trademark Office, or U.S. PTO, and corresponding foreign patent
offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in
the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more
patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights
of third parties.
Third
parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents
or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the
use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently
pending patent applications which may later result in issued patents that our product candidates may be accused of infringing.
In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents.
If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product
candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents
may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents,
or until such patents expire. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects
of our formulations, processes for manufacture or methods of use, the holders of any such patents may be able to block our ability
to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either
case, such a license may not be available on commercially reasonable terms or at all.
Parties
making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further
develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve
substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a
successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’
fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties,
which may be impossible or require substantial time and monetary expenditure.
We
may not be successful in obtaining or maintaining necessary rights to pharmaceutical product components and processes for our
development pipeline through acquisitions and in- licenses.
Presently
we have rights to the intellectual property, through licenses from Crucell and under patents that we own, to develop our product
candidates. Because our programs may involve additional product candidates that may require the use of proprietary rights held
by third parties, the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary
rights. In addition, our product candidates may require specific formulations to work effectively and efficiently and these rights
may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third- party
intellectual property rights from third parties that we identify. The licensing and acquisition of third-party intellectual property
rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party
intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over
us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies
that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire
third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment.
We
may enter into license agreements with third parties, and if we fail to comply with our obligations in such agreements under which
we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with
our licensors, we could lose license rights that are important to our business.
We
may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and
we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if
at all. In that event, we may be required to expend significant time and resources to develop or license replacement technology.
If we are unable to do so, we may be unable to develop or commercialize the affected product candidates.
In
many cases, patent prosecution of our in-licensed technology is controlled solely by the licensor. If our licensors fail to obtain
and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights
to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products
using the intellectual property. In some cases, we control the prosecution of patents resulting from licensed technology. In the
event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners.
Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific
issues and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual
property subject to a licensing agreement, including:
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the
scope of rights granted under the license agreement and other interpretation-related issues;
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the
extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
licensing agreement;
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the
sublicensing of patent and other rights under any collaboration relationships we might enter into in the future;
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our
diligence obligations under the license agreement and what activities satisfy those diligence obligations;
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the
ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and
us and our partners; and
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the
priority of invention of patented technology.
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If
disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements
on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
We
may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming
and unsuccessful.
Competitors
may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file
infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide
that a patent of ours or our licensors is not valid, is unenforceable or is not infringed, or may refuse to stop the other party
from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result
in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly
and could put our patent applications at risk of not issuing.
Interference
proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to
our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related
technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party
does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and,
even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent,
alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may
not protect those rights as fully as in the United States.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that
some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors
perceive these results to be negative, it could have a material adverse effect on the trading price of our ordinary shares.
Recent
patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and
the enforcement or defense of our issued patents.
Patent
reform legislation (the Leahy-Smith Act) enacted in 2013 continues to increase the uncertainties and costs surrounding the prosecution
of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith Act introduced a number of significant
changes to U.S. patent law, including provisions that affect the way patent applications are prosecuted and patent litigation
is conducted. The U.S. PTO continues to develop regulations and procedures to govern administration of the Leahy-Smith Act, and
many of the substantive changes to patent law associated with the Act, in particular, the Inter Partes Review (IPR) proceedings.
It remains to be seen what impact the Leahy-Smith Act will have on the operation of our business. However, the Act and its implementation
increases the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of
our issued patents, all of which could have a material adverse effect on our business and financial condition.
We
may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential
information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Certain
of our key employees and personnel are or were previously employed at universities, medical institutions or other biotechnology
or pharmaceutical companies, including our competitors or potential competitors.
Although
we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how
of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have
inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information,
of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these claims.
If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights
or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be
a distraction to management and other employees. Furthermore, universities or medical institutions who employ some of our key
employees and personnel in parallel to their engagement by us may claim that intellectual property developed by such person is
owned by the respective academic or medical institution under the respective institution intellectual property policy or applicable
law.
We
may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could
result in litigation and adversely affect our business.
A
significant portion of our intellectual property has been developed by our employees in the course of their employment for us.
Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee 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 inventions. Recent decisions by the Committee (which have been upheld by the Israeli Supreme Court on appeal) have created
uncertainty in this area, as it held that employees may be entitled to remuneration for their service inventions despite having
specifically waived any such rights. Further, the Committee has not yet determined the method for calculating this remuneration
nor the criteria or circumstances under which an employee’s waiver of his right to remuneration will be disregarded. We
generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all
rights to any inventions created in the scope of their employment or engagement with us. Although our employees have agreed to
assign to us service invention rights, we may face claims demanding remuneration in consideration for assigned inventions. As
a consequence of such claims, we could be required to pay additional remuneration or royalties to our current or former employees,
or be forced to litigate such claims, which could negatively affect our business.
We
may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We
may be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents
or other intellectual property. We may have to in the future, ownership disputes arising, for example, from conflicting obligations
of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against
these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual
property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against
such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance
with these requirements.
Periodic
maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications will be due to be
paid to the U.S. PTO and various governmental patent agencies outside of the United States in several stages over the lifetime
of the patents and applications. The U.S. PTO and various non-U.S. governmental patent agencies require compliance with a number
of procedural, documentary, fee payment and other similar provisions during the patent application process. There are situations
in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete
loss of patent rights in the relevant jurisdiction.
Issued
patents covering our product candidates could be found invalid or unenforceable if challenged in court.
If
we or one of our licensing partners initiated legal proceedings against a third party to enforce a patent covering one of our
product candidates, the defendant may contend that the patent covering our product candidate is invalid, unenforceable or fails
to cover the product candidate or the infringing product. In patent litigation in the United States, defendants commonly allege
that asserted patent claims are invalid and unenforceable. Grounds for a validity challenge could be an alleged failure to meet
one or more of several statutory requirements, including lack of novelty, obviousness, lack of written description, indefiniteness
and non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of
the patent withheld relevant information from the U.S. PTO, or made a misleading statement, during prosecution. Third parties
may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation.
Such mechanisms include re-examination, post grant review, and equivalent proceedings in foreign jurisdictions, such as opposition
proceedings. Such proceedings could result in revocation, amendments to our patent claims or statements being made on the record
such that our claims may no longer be construed to cover our product candidates. The outcome following legal assertions of invalidity
and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is
no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail
on a legal assertion of invalidity, unenforceability or non-infringement, we would lose at least part, and perhaps all, of the
patent protection on our product candidates. Even if resolved in our favor, litigation or other legal proceedings relating to
intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel
from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other
interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have
a substantial adverse effect on the market price of our ordinary shares. Such litigation or proceedings could substantially increase
our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution
activities.
Changes
in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As
is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and is therefore
is costly, time- consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing
wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available
in certain circumstances and weakened the rights of patent owners in some situations. In addition to increasing uncertainty with
regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the
value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. PTO, the laws and
regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce
our existing patents and patents that we might obtain in the future.
We
have not yet registered trademarks for a commercial trade name for our product candidates and failure to secure such registrations
could adversely affect our business.
We
have not yet registered trademarks for a commercial trade name for our product candidates. During trademark registration proceedings,
we may receive rejections. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome
such rejections. In addition, in the U.S. PTO and in comparable agencies in many foreign jurisdictions, third parties are given
an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation
proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. Moreover, any name we propose
to use with our product candidates in the United States must be approved by the FDA, regardless of whether we have registered
it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation
of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may
be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify
under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive,
and our intellectual property rights in some countries outside the United States can be less extensive than those in the United
States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal
and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions
in all countries outside the United States, or from selling or importing products made using our inventions in and into the United
States or other jurisdictions. Potential competitors may use our technologies in jurisdictions where we have not obtained patent
protection to develop their own products and further, may export otherwise infringing products to territories where we have patent
protection, but enforcement is not as strong as that in the United States. These products may compete with our product candidates,
if approved, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade
secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it
difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights
generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly
and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail
in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly,
our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial
advantage from the intellectual property that we develop or license.
Under
applicable employment laws, we may not be able to enforce covenants not to compete.
We
generally enter into non-competition agreements with our employees. These agreements prohibit our employees, if they cease working
for us, from competing directly with us or working for our competitors or clients for a limited period. We may be unable to enforce
these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our
competitors from benefitting from the expertise our former employees or consultants developed while working for us. For example,
Israeli labor courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that
the competitive activities of the former employee will harm one of a limited number of material interests of the employer which
have been recognized by the courts, such as the protection of a company’s trade secrets or other intellectual property.
Risks
Related to Ownership of Our Ordinary Shares
The
market price of our ordinary shares may be highly volatile, and you may not be able to resell your shares at the purchase price.
An
active trading market for our ordinary shares may not be available. You may not be able to sell your shares quickly or at the
market price if trading in our ordinary shares is not active.
The
market price of our ordinary shares has been and is likely to remain volatile. Our share price could be subject to wide fluctuations
in response to a variety of factors, including the following:
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adverse
results or delays in pre-clinical studies or clinical trials, and resulting changes in our clinical development programs;
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reports
of adverse events in other similar products or clinical trials of such products;
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inability
to obtain additional funding;
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any
delay in filing an IND or BLA for any of our product candidates and any adverse development or perceived adverse development
with respect to the FDA’s review of that IND or BLA;
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failure
to develop successfully and commercialize our product candidates for the proposed indications and future product candidates
for other indications or new candidates;
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failure
to maintain our licensing arrangements or enter into strategic collaborations;
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failure
by us or our licensors and strategic collaboration partners to prosecute, maintain or enforce our intellectual property rights;
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changes
in laws or regulations applicable to future products;
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inability
to scale up our manufacturing capabilities (including in Israel), inability to obtain adequate product supply for our product
candidates or the inability to do so at acceptable prices;
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adverse
regulatory decisions, including by the IIA under the Research Law;
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introduction
of new products, services or technologies by our competitors;
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failure
to meet or exceed financial projections we may provide to the public;
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failure
to meet or exceed the financial expectations of the investment community;
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the
perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
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announcements
of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
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disputes
or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent
protection for our technologies;
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additions
or departures of key scientific or management personnel;
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significant
lawsuits, including patent or shareholder litigation;
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changes
in the market valuations of similar companies;
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sales
of our ordinary shares by us or our shareholders in the future; and
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trading
volume of our ordinary shares.
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addition, companies trading in the stock market in general, and biopharmaceutical companies in particular, have experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.
Broad market and industry factors may negatively affect the market price of our ordinary shares, regardless of our actual operating
performance.
There
has been limited trading volume for our ordinary shares.
Even
though our ordinary shares have been listed on the NASDAQ Global Market, there has been limited liquidity in the market for the
ordinary shares, which could make it more difficult for holders to sell their ordinary shares. There can be no assurance that
an active trading market for our ordinary shares will be sustained. In addition, the stock market generally has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies.
Broad market and industry factors may negatively affect the market price of our ordinary shares, regardless of our actual operating
performance. The market price and liquidity of the market for our ordinary shares that will prevail in the market may be higher
or lower than the price you pay and may be significantly affected by numerous factors, some of which are beyond our control.
Our
principal shareholders and management own a significant percentage of our shares and will be able to exert significant control
over matters subject to shareholder approval.
As
of December 31, 2017, our executive officers, directors, five percent shareholders and their affiliates beneficially owned approximately
47.0% of our voting shares. Therefore, these shareholders have the ability to control us through their ownership positions. These
shareholders may be able to determine all matters requiring shareholder approval. For example, these shareholders, if they were
to act together, may be able to control elections of directors, amendments of our organizational documents, or approval of any
merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals
or offers for our ordinary shares that you may believe are in your best interest as one of our shareholders.
We
are an “emerging growth company” and a “foreign private issuer,” and we cannot be certain if the reduced
reporting requirements applicable to emerging growth companies and foreign private issuers will make our ordinary shares less
attractive to investors.
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.
For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies, including not being required to comply with
the auditor attestation requirements of Section 404 of the Sarbanes- Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute
payments not previously approved. We could be an emerging growth company for up to five years, although circumstances could cause
us to lose that status earlier, including if the market value of our ordinary shares held by non-affiliates exceeds $700.0 million
as of any June 30 before that time or if we have total annual gross revenue of $1.07 billion or more during any fiscal year before
that time, in which cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more
than $1.0 billion in non-convertible debt during any three-year period before that time, we would cease to be an emerging growth
company immediately.
Furthermore,
as a foreign private issuer, we are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC.
Under the Securities Exchange Act of 1934, or the Exchange Act, we will be subject to reporting obligations that, in certain respects,
are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue
quarterly reports, proxy statements that comply with the requirements applicable to U.S. domestic reporting companies, or individual
executive compensation information that is as detailed as that required of U.S. domestic reporting companies. We will also have
four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current
reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders
will be exempt from the requirements to report transactions in our equity securities and from the short-swing profit liability
provisions contained in Section 16 of the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of
information and protections to which you may otherwise have been eligible in relation to a U.S. domestic reporting companies.
See “Item 16G. Corporate Governance” for more information.
We
cannot predict if investors will find our ordinary shares less attractive because we may rely on these reduced requirements. If
some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary
shares and our share price may be more volatile.
Under
the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards
apply to private companies. We are electing to not take advantage of the extended transition period afforded by the JOBS Act for
the implementation of new or revised accounting standards, and as a result, we will comply with new or revised accounting standards
on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS
Act provides that our decision to not take advantage of the extended transition period for complying with new or revised accounting
standards is irrevocable.
Our
ordinary shares are subject to substantial dilution in their book value.
As
of December 31, 2017, options and warrants to purchase 5,286,095 ordinary shares at a weighted average exercise price of $4.74
per share were outstanding. The exercise of any of these options and warrants would result in additional dilution.
Sales
of a substantial number of our ordinary shares in the public market could cause our share price to fall.
If
our existing shareholders sell, indicate an intention to sell or the market perceives that they intend to sell, substantial amounts
of our ordinary shares in the public market, the market price of our ordinary shares could decline significantly. As of December
31, 2017, we had outstanding a total of 29,879,323 ordinary shares. Substantially all of the shares are available for sale in
the public market.
As of
December 31, 2017, 12,461,588 ordinary shares are held by directors, executive officers and other affiliates and are subject
to Rule 144 under the Securities Act of 1933, as amended, or the Securities Act.
In addition,
as of March 1, 2018, an aggregate of 6,693,581 ordinary shares that are either subject to outstanding options, reserved
for future issuance under our 2014 Plan or subject to outstanding warrants will or may become eligible for sale in the public
market to the extent permitted by the provisions of various vesting schedules and Rule 144 and Rule 701 under the Securities Act.
If these additional ordinary shares are sold, or if it is perceived that they will be sold, in the public market, the market price
of our ordinary shares could decline.
Future
sales and issuances of our ordinary shares or rights to purchase ordinary shares, including pursuant to our equity incentive plans,
could result in additional dilution of the percentage ownership of our shareholders and could cause our share price to fall.
Additional
capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing
equity securities, our shareholders may experience substantial dilution. We may sell ordinary shares, convertible securities or
other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell ordinary
shares, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by
subsequent sales. These sales may also result in material dilution to our existing shareholders, and new investors could gain
rights superior to our existing shareholders.
Pursuant
to our Employee Share Ownership and Option Plan (2014), or the 2014 Plan, our management is authorized to grant share options
and other equity-based awards to our employees, directors and consultants. Currently, we plan to register the increased number
of shares available for issuance under the 2014 Plan each year. If our board of directors elects to increase the number of shares
available for future grant by the maximum amount each year, our shareholders may experience additional dilution, which could cause
our share price to fall.
We
could be subject to securities class action litigation.
In
the past, securities class action litigation has often been brought against a company following a decline in the market price
of its securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant share
price volatility in recent years. For example, the price of our ordinary shares, which reached its high record of $17.02 per share
at the close of the trading on January 27, 2015, decreased as low as $2.8 per share at the close of the trading on February 1,
2016 a drop of about 84%. If we face such litigation, it could result in substantial costs and a diversion of management’s
attention and resources, which could harm our business.
We
do not intend to pay dividends on our ordinary shares, so any returns will be limited to the value of our shares.
We
have never declared or paid any cash dividends on our share capital. We currently anticipate that we will retain future earnings
for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for
the foreseeable future. Any return to shareholders will therefore be limited to the appreciation of their shares. In addition,
Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding taxes. Furthermore,
our payment of dividends (out of tax- exempt income) may retroactively subject us to certain Israeli corporate income taxes, to
which we would not otherwise be subject.
If
equity research analysts do not publish research reports about our business or if they issue unfavorable commentary or downgrade
our ordinary shares, the price of our ordinary shares could decline.
The
trading market for our ordinary shares relies in part on the research and reports that equity research analysts publish about
us and our business. The price of our ordinary shares could decline if we do not obtain research analyst coverage, or one or more
securities analysts downgrade our ordinary shares or if those analysts issue other unfavorable commentary or cease publishing
reports about us or our business.
Risks
Related to Our Incorporation and Operations in Israel
We
are a “foreign private issuer” and intend to follow certain home country corporate governance practices, and our shareholders
may not have the same protections afforded to shareholders of companies that are subject to all NASDAQ corporate governance requirements.
As
a foreign private issuer, we are permitted, and intend, to follow certain home country corporate governance practices instead
of those otherwise required under the NASDAQ Stock Market for domestic U.S. issuers. For instance, we intend to follow home country
practice in Israel with regard to the quorum requirement for shareholder meetings. As permitted under the Israeli Companies Law,
5759-1999, or the Companies Law, our articles of association provide that the quorum for any meeting of shareholders shall be
the presence of at least two shareholders present in person, by proxy or by a voting instrument, who hold at least 25% of the
voting power of our shares instead of the 33 1/3% of the issued share capital requirement. We may in the future elect to follow
home country practices in Israel (and consequently avoid the requirements that would otherwise apply to a U.S. company listed
on The NASDAQ Global Market) with regard to other matters, as well, such as the formation of compensation, nominating and governance
committees, separate executive sessions of independent directors and non-management directors and the requirement to obtain shareholder
approval for certain dilutive events (such as for the establishment or amendment of certain equity-based compensation plans, issuances
that will result in a change of control of the company, certain transactions other than a public offering involving issuances
of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company). Following our home
country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on The NASDAQ
Global Market may provide less protection to you than what is accorded to investors under the NASDAQ Stock Market rules applicable
to domestic U.S. issuers. See “Item 16G. Corporate Governance” for more information.
In
addition, as a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing
and content of proxy statements, including the requirement for an emerging growth company to disclose the compensation of the
chief executive officer and other two highest compensated executive officers on an individual, rather than aggregate, basis. A
recent amendment to regulations under the Israeli Companies Law requires us to disclose in the notice for our annual meeting of
shareholders, the annual compensation of our five most highly compensated officers on an individual, rather than aggregate, basis.
However, this disclosure is not as extensive as that required of a U.S. domestic issuer.
We
would lose our foreign private issuer status if a majority of our directors or executive officers are U.S. citizens or residents
and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although we have elected
to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory.
The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic reporting company may be significantly
higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S.
domestic reporting company forms with the SEC, which are more detailed and extensive than the forms available to a foreign private
issuer. We may also be required to modify certain of our policies to comply with accepted governance practices associated with
U.S. domestic reporting companies. Such conversion and modifications will involve additional costs. In addition, we may lose our
ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign
private issuers.
Potential
political, economic and military instability in the State of Israel, where the majority of our senior management and our research
and development facilities are located, may adversely affect our results of operations.
We
are incorporated under Israeli law and our offices and operations are located in the State of Israel. In addition, our key employees,
officers and all but two of our directors are residents of Israel. Accordingly, political, economic and military conditions in
Israel directly affect our business. Since the State of Israel was established in 1948, a number of armed conflicts have occurred
between Israel and its 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 our operations. Since October 2000,
there have been increasing occurrences of terrorist violence. Ongoing and revived hostilities or other Israeli political or economic
factors could harm our 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. The establishment in 2006
of a government in the Palestinian Authority by representatives of the Hamas militant group has created additional unrest and
uncertainty in the region. In 2006, a conflict between Israel and the Hezbollah in Lebanon resulted in thousands of rockets being
fired from Lebanon up to 50 miles into Israel. Starting in December 2008, for approximately three weeks, Israel engaged in an
armed conflict with Hamas in the Gaza Strip, which involved missile strikes against civilian targets in various parts of Israel
and negatively affected business conditions in Israel. In November 2012, for approximately one week, Israel experienced a similar
armed conflict, resulting in hundreds of rockets being fired from the Gaza Strip and disrupting most day-to-day civilian activity
in southern Israel. Beginning in July 2014, for approximately seven weeks, Israel experienced additional armed conflict between
Israel and Hamas, which included rocket strikes against civilian targets in various parts of Israel. If renewed, these hostilities
may negatively affect business conditions in Israel. In addition, Israel faces threats from more distant neighbors, in particular,
Iran. Our insurance policies do not cover us for the damages incurred in connection with these conflicts or for any resulting
disruption in our 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 our facilities
or the airports and seaports on which we depend to import and export our supplies and products, our 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 to significant changes to the country’s government. In Syria, also
bordering Israel, a civil war is continuing 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.
Popular
uprisings in various countries in the Middle East and North Africa are affecting the political stability of those countries. Such
instability may lead to deterioration in the political and trade relationships that exist between the State of Israel and these
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 if hostilities in Israel
or political instability in the region continues or increases. Any hostilities involving Israel or the interruption or curtailment
of trade between Israel and its present trading partners, or significant downturns in the economic or financial condition of Israel,
could adversely affect our operations and product development and adversely affect our share price. Similarly, Israeli companies
are limited in conducting business with entities from several countries. For instance, in 2008, the Israeli legislature passed
a law forbidding any investments in entities that transact business with Iran.
Our
operations may be disrupted by the obligations of personnel to perform military service.
As
of March 1, 2018, we had 37 employees, all of whom were based in Israel. Some of our employees may be called upon to perform up
to 36 days (and in some cases more) of annual military reserve duty until they reach the age of 40 (and in some cases, up to 45
or older) and, in emergency circumstances, could be called to immediate and unlimited active duty. In the event of severe unrest
or other conflict, individuals could be required to serve in the military for extended periods of time. Since September 2000,
in response to increased tension and hostilities, there have been occasional call-ups of military reservists, including in connection
with the 2006 conflict in Lebanon, and the December 2008 and November 2012 conflicts with Hamas, and it is possible that there
will be additional call-ups in the future. Our operations could be disrupted by the absence of a significant number of our employees
related to military service or the absence for extended periods of one or more of our key employees for military service. Such
disruption could materially adversely affect our business and results of operations. Additionally, the absence of a significant
number of the employees of our Israeli suppliers and contractors related to military service or the absence for extended periods
of one or more of their key employees for military service may disrupt their operations.
The
tax benefits that are available to us if and when we generate taxable income require us to meet various conditions and may be
prevented or reduced in the future, which could increase our costs and taxes.
If
and when we generate taxable income, we would be eligible for certain tax benefits provided to “Benefited Enterprises”
under the Israeli Law for the Encouragement of Capital Investments, 1959, as amended, or the Investment Law. In order to remain
eligible for the tax benefits for “Benefited Enterprises” we must continue to meet certain conditions stipulated in
the Investment Law and its regulations, as amended. In addition, we informed the Israeli Tax Authority of our choice of 2012 as
a “Benefited Enterprise” election year, all under the Investment Law. The benefits available to us under this tax
regulation are subject to the fulfillment of conditions stipulated in the regulation. Further, in the future these tax benefits
may be reduced or discontinued. If these tax benefits are reduced, cancelled or discontinued, our Israeli taxable income would
be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies is 25% for 2016, 24%
for 2017 and 23% for 2018 and thereafter. Additionally, if we increase our activities outside of Israel through acquisitions,
for example, our expanded activities might not be eligible for inclusion in future Israeli tax benefit programs. See “Item
10E. Taxation—Israeli Tax Considerations and Government Programs—Law for the Encouragement of Capital Investments,
5719-1959.”
It
may be difficult to enforce a U.S. judgment against us, our officers and directors and the Israeli experts named in this prospectus
in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors
and these experts.
We
were incorporated in Israel, and our corporate headquarters and substantially all of our operations are located in Israel. All
of our executive officers and all but two of our directors, and the Israeli experts named in this prospectus, are located in Israel.
The majority of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult
for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of
the U.S. federal securities laws against us or any of these persons in a U.S. or Israeli court, or to effect service of process
upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to
assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on
an alleged violation of U.S. securities laws against us or our officers and directors on the grounds that Israel is not the most
appropriate forum in which to bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine that Israeli
law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must
be proved as a fact, 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.
Your
rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the rights
and responsibilities of shareholders of U.S. corporations.
Since
we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association
and Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders
of U.S. corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner
in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing
its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters,
such as an amendment to the company’s articles of association, an increase of the company’s authorized share capital,
a merger of the company and approval of related party transactions that require shareholder approval. A shareholder also has a
general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder
who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment
of an officer of the company has a duty to act in fairness towards the company with regard to such vote or appointment. However,
Israeli law does not define the substance of this duty of fairness. There is limited case law available to assist us in understanding
the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations
and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations. See “Item 6. Directors,
Senior Management and Employees—Approval of Related Party Transactions Under Israeli Law—Shareholders’ Duties.”
Provisions
of Israeli law and our amended and restated articles of association could make it more difficult for a third party to acquire
us or increase the cost of acquiring us, even if doing so would benefit our shareholders.
Israeli
law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals
for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to
such types of transactions. For example, a tender offer for all of a company’s issued and outstanding shares can only be
completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion
of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer,
unless at least 98% of the company’s outstanding shares are tendered. Furthermore, the shareholders, including those who
indicated their acceptance of the tender offer (unless the acquirer stipulated in its tender offer that a shareholder that accepts
the offer may not seek appraisal rights), may, at any time within six months following the completion of the tender offer, petition
an Israeli court to alter the consideration for the acquisition. See “Item 10B. Memorandum and Articles of Association—Acquisitions
under Israeli Law” for additional information.
Further,
Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence
does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. For example, Israeli tax law
does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows
for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including,
in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of
the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the
tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has
occurred.
Certain
U.S. shareholders may be subject to adverse tax consequences if we are characterized as “Controlled Foreign Corporation.”
Each
“Ten Percent Shareholder” in a non-U.S. corporation that is classified as a “controlled foreign corporation,”
or a CFC, for U.S. federal income tax purposes generally is required to include in income for U.S. federal tax purposes such Ten
Percent Shareholder’s pro rata share of the CFC’s “Subpart F income” and investment of earnings in U.S.
property, even if the CFC has made no distributions to its shareholders. A non-U.S. corporation generally will be classified as
a CFC for U.S. federal income tax purposes if Ten Percent Shareholders own, directly or indirectly, more than 50% of either the
total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of
such corporation. A “Ten Percent Shareholder” is a U.S. person (as defined by the U.S. Internal Revenue Code of 1986,
as amended), who owns or is considered to own 10% or more of the total combined voting power of all classes of stock entitled
to vote of such corporation. The determination of CFC status is complex and includes attribution rules, the application of which
is not entirely certain.
We
do not believe that we were a CFC for the taxable year ended December 31, 2017 or that we are currently a CFC. It is possible,
however, that a shareholder treated as a U.S. person for U.S. federal income tax purposes will acquire, directly or indirectly,
enough shares to be treated as a Ten Percent Shareholder after application of the constructive ownership rules and, together with
any other Ten Percent Shareholders of our company, cause us to be treated as a CFC for U.S. federal income tax purposes. We believe
that certain of our shareholders are Ten Percent Shareholders for U.S. federal income tax purposes. Holders should consult their
own tax advisors with respect to the potential adverse U.S. federal income tax consequences of becoming a Ten Percent Shareholder
in a CFC.
We
expect to be classified as a passive foreign investment company in future years, and our U.S. shareholders may suffer adverse
tax consequences as a result.
Generally,
if, for any taxable year, at least 75% of our gross income is passive income, or at least 50% of the value of our assets is attributable
to assets that produce passive income or are held for the production of passive income, including cash, we would be characterized
as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. For purposes of these tests, passive income
includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents
and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. If we are
characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale
of our ordinary shares treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends
received on our ordinary shares by individuals who are U.S. holders, and having interest charges apply to distributions by us
and the proceeds of share sales. See “Item 10E. Taxation—Certain Material U.S. Federal Income Tax Considerations—Passive
Foreign Investment Company Considerations.”
Since
PFIC status depends on the composition of our income and the composition and value of our assets (which may be determined in large
part by reference to the market value of our ordinary shares, which may be volatile) from time to time, there can be no assurance
that we will not be considered a PFIC for any taxable year. We had no revenue-producing operations until and including table year
2016. We believe that we were not a PFIC for our 2017 taxable year. In addition, unless and until we generate sufficient revenue
from active licensing and other non-passive sources and otherwise satisfy the asset test above, we expect to be treated as a PFIC
in future taxable years.
Item
4. Information on the Company
Corporate
Information
The
legal name of our company is Vascular Biogenics Ltd. and we conduct business under the name VBL Therapeutics. We were incorporated
in Israel on January 27, 2000 as a company limited by shares under the name Medicard Ltd. In January 2003, we changed our name
to Vascular Biogenics Ltd. Our registered and principal office is located 8 HaSatat St., Modi’in, Israel 7178106. Our service
agent in the United States is located at c/o CT Corporation System, 111 8th Avenue, New York, New York 10011 and our telephone
number is 972-8-9935000. Throughout this prospectus, we refer to various trademarks, service marks and trade names that we use
in our business. The “Vascular Biogenics” design logo, “VBL Therapeutics,” “Vascular Targeting System,”
“VTS,” “Lecinoxoids,” “VB-111,” “VB-201,” the “GLOBE” design logo
and other trademarks or service marks of Vascular Biogenics Ltd. appearing in this prospectus are the property of Vascular Biogenics
Ltd. We have several other registered trademarks, service marks and pending applications relating to our products. Although we
have omitted the “
®
” and “™” trademark designations for such marks in this prospectus,
all rights to such trademarks are nevertheless reserved. Other trademarks and service marks appearing in this prospectus are the
property of their respective holders.
Emerging
Growth Company
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. Thus, we
may take advantage of certain exemptions from various reporting requirements that are applicable to public companies generally.
For example, we have elected not to have our independent registered public accounting firm provide an attestation report on the
effectiveness of our internal control over financial reporting, as would otherwise be required by Section 404(b) of the Sarbanes-Oxley
Act, or SOX.
We
will cease to be an “emerging growth company” upon the earliest of:
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December
31, 2019, which is the last day of the fiscal year in which the fifth anniversary of our initial public offering in the United
States has occurred;
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the
last day of the fiscal year in which our annual gross revenues are $1.07 billion or more;
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the
date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities;
or
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the
last day of any fiscal year in which the market value of our ordinary shares held by non-affiliates exceeded $700.0 million
as of the end of the second quarter of that fiscal year.
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The
JOBS Act also provides that an “emerging growth company” can utilize the extended transition period provided in Section
7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. However, we have chosen to “opt
out” of such extended transition period, and, as a result, we will comply with new or revised accounting standards on the
relevant dates on which adoption of such standards is required for companies that are not “emerging growth companies.”
Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or
revised accounting standards is irrevocable.
Capital
Expenditures
For
a discussion of our capital expenditures, see “Item 5. Operating and Financial Review and Prospects—Liquidity and
Capital Resources.”
Business
Overview
We are
a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of first-in-class treatments
for cancer. Our program is based on our proprietary Vascular
Targeting System, or VTS, platform
technology, which utilizes genetically targeted therapy to destroy newly formed, or angiogenic, blood vessels, and which we believe
will allow us to develop product candidates for multiple oncology indications.
Our
lead product candidate, VB-111 (ofranergene obadenovec), is a gene-based biologic that we are developing for solid tumor indications,
and which we have advanced to programs for recurrent glioblastoma, or rGBM, an aggressive form of brain cancer,
ovarian cancer and thyroid cancer. We have obtained fast track designation for VB-111 in the United States for prolongation
of survival in patients with glioblastoma that has recurred following treatment with standard chemotherapy and radiation. We have
also received orphan drug designation for GBM in both the United States and Europe. VB-111 has also received an orphan designation
for the treatment of ovarian cancer by the European Medicines Agency. In September 2015, we reported complete results from our
Phase 2 trial of VB-111 in rGBM, demonstrating a statistically-significant benefit in overall survival and favorable response
rate in patients treated with VB-111 in combination with bevacizumab. Our pivotal Phase 3 GLOBE study in rGBM began in August
2015 and was comparing a combination of VB-111 and bevacizumab to bevacizumab alone. The study, which enrolled a total
of 256 patients in the US, Canada and Israel was conducted under a special protocol assessment, or SPA, agreement with the
U.S. Food and Drug Administration, or FDA, with full endorsement by the Canadian Brain Tumor Consortium (CBTC). On March 8,
2018, we announced top-line results from the GLOBE study, which showed that the study did not meet its pre-specified primary endpoint
of overall survival (OS). No new safety concerns associated with VB-111 have been identified in the GLOBE study. Once we receive
the full and final data set, we will conduct an in-depth analysis in order to better understand the outcome of the GLOBE study
and the potential activity of VB-111 in rGBM. We do not think that results of the GLOBE study in rGBM will necessarily have implications
on the prospects for VB-111 in other tumor types. Our OVAL phase 3 potential registration study of VB-111 in platinum resistant ovarian cancer
was launched in December 2017 and is conducted in collaboration with the GOG Foundation, Inc., a leading organization for research
excellence in the field of gynecologic malignancies
.
We
also have been conducting a program targeting anti-inflammatory diseases, based on the use of our Lecinoxoid platform technology.
Lecinoxoids are a novel class of small molecules we developed that are structurally and functionally similar to naturally occurring
molecules known to modulate inflammation. The lead product candidate from this program, VB-201, is a Phase 2-ready molecule that
demonstrated efficacy in reducing vascular inflammation in a Phase 2 sub-study in psoriatic patients with cardiovascular risk.
Due to business limitations associated with the heavy burden of developing medications for cardiovascular diseases, we chose to
test it in psoriasis and ulcerative colitis; however, as we reported in February 2015, VB-201 failed to meet the primary endpoint
in Phase 2 clinical trials for psoriasis and for ulcerative colitis. As a result, we have terminated our development of VB-201
in those indications. Nevertheless, based on recent pre-clinical studies, we believe that VB-201 and some second generation molecules
such as VB-703 may be applicable for NASH and renal fibrosis, and we may seek a clinical proof of concept in NASH patients through
an exploratory Phase 2 study for VB-201. Since the company intends to focus its efforts and resources on advancing our oncology
program, we will seek to advance our Lecinoxoid assets via strategic deals.
We
are also conducting a research program exploring the potential of targeting of MOSPD2 for immuno-oncology applications. In January
2017, we reported that targeting of MOSPD2 inhibits chemotaxis of monocytes and neuropils, and that unpublished VBL data also
show MOSPD2 expression on certain tumor cells. We believe that targeting of MOSPD2 may have several therapeutic applications,
including inhibition of monocyte migration in chronic inflammatory conditions, inhibition of tumor cell metastases and targeting
of MOSPD2-expressing tumor cells. We are developing our “VB-600 series” of pipeline candidates towards these applications.
We
are developing our lead oncology product candidate, VB-111, for solid tumor indications, with current clinical programs in rGBM,
thyroid cancer and ovarian cancer. In interim analyses of data from our ongoing open-label Phase 2 clinical trial of VB-111 in
rGBM, we observed dose-dependent attenuation of tumor growth and an increase in median overall survival, which is the time interval
from initiation of treatment to the patient’s death. The U.S. Food and Drug Administration, or FDA, has granted VB-111 fast
track designation for prolongation of survival in patients with glioblastoma that has recurred following treatment with temozolomide,
a chemotherapeutic agent commonly used to treat newly diagnosed glioblastoma, and radiation. On July 1, 2014, the FDA concurred
with the design and planned analyses of our Phase 3 pivotal trial of VB-111 in rGBM pursuant to an SPA. At the time, commencement
of the trial was subject to our providing the agency with more information regarding our potency release assay for the trial.
We developed this assay and submitted initial information to the FDA on May 26, 2014. On February 5, 2015 the FDA has found our
data satisfactory and removed the partial hold.
We
began our Phase 3 pivotal trial of VB-111 in rGBM in August 2015 and completed patient enrollment for the study in December 2016,
five months ahead of our initial plan. Following positive safety reviews announced in December 2016, in April 2017 and the third
and final safety review that was announced in October 2017, the GLOBE trial continued to completion. On March 8, 2018, we announced
top-line results from the GLOBE study, which showed that the study did not meet its pre-specified primary endpoint of overall
survival (OS).
VB-111
was also being studied in a Phase 2 trial for recurrent platinum-resistant Ovarian Cancer and in a Phase 2 study in recurrent,
iodine-resistant differentiated Thyroid Cancer. In a Phase 2 trial for recurrent platinum-resistant ovarian cancer, VB-111 demonstrated
a statistically significant increase in overall survival and 60% durable response rate (as measured by reduction in CA-125), approximately
twice the historical response with bevacizumab plus chemotherapy in ovarian cancer. In December 2016, we had an end-of-Phase-2
meeting with the FDA, in which we received approval from the FDA to advance VB-111 for a Phase 3 study in platinum-resistant ovarian
cancer, which we launched in December 2017. The OVAL study is conducted in collaboration with the Gynecologic Oncology Group (GOG)
Foundation, Inc., a leading organization for research excellence in the field of gynecologic malignancies.
In
February 2017, we reported full data from our exploratory Phase 2 study of VB-111 in recurrent, iodine-resistant differentiated
thyroid cancer. The primary endpoint of the trial, defined as 6-month progression-free-survival (PFS-6) of 25%, was met with a
dose response. Forty-seven percent of patients in the therapeutic-dose cohort reached PFS-6, versus 25% in the sub-therapeutic
cohort, both groups meeting the primary endpoint. An overall survival benefit was seen, with a tail of more than 40% at 3.7 years
for the therapeutic-dose cohort, similar to historical data for pazopanib (Votrient
®
), a tyrosine kinase inhibitor;
however, most patients in the VB-111 study had tumors that previously had progressed on pazopanib or other kinase inhibitors.
As of December 31, 2016, we had studied VB-111 in over 200 patients and have observed it to be well-tolerated. In December 2015,
we have been granted a US composition of matter patents that provides intellectual property protection for VB-111 in the US until
October 2033 before any patent term extension.
In June
2017, at the BIO international conference we provided an update on the long-term status and survival of patients from three completed
Phase 2 trials with VB-111. In the Phase 2 study in rGBM patients, 12-month survival was 54% in patients who were treated with
VB-111 through progression, including a rGBM patient who remains alive with complete response after >50 months, compared
to 23% of patients who had limited exposure of a therapeutic dose of VB-111. According to a meta-analysis, the 12-month survival
on Avastin (bevacizumab) is only 24%. In the Phase 2 study in recurrent platinum-resistant and refractory ovarian cancer, 53%
of patients treated with a therapeutic dose of VB-111 in combination with paclitaxel were alive at 15 months. No patients in the
sub-therapeutic dose were alive at the 15-month time point. In the Phase 2 study in radioiodine refractory differentiated thyroid
cancer, 53% of those who received multiple therapeutic doses of VB-111 were alive at 24 months, compared to 33% of those who received
a single, sub-therapeutic dose of VB-111.
In October
2017, we announced the opening of our new gene therapy manufacturing plant in Modiin, Israel. This plant can be the commercial
facility for production of VB-111, if approved. The Modiin facility is the first commercial-scale gene therapy manufacturing facility
in Israel and currently one of the largest gene-therapy designated ones in the world (20,000 sq. ft.). It is capable of manufacturing
in large-scale capacity of 1,000 liters and is scalable to 2,000 liters.
In
November 2017, we signed an exclusive license agreement with NanoCarrier Co., Ltd. (TSE Mothers:4571) for the development, commercialization,
and supply of VB-111 in Japan. VBL retains rights to VB-111 in the rest of the world. Under terms of the agreement, VBL has granted
NanoCarrier an exclusive license to develop and commercialize VB-111 in Japan for all indications. VBL will supply NanoCarrier
with VB-111, and NanoCarrier will be responsible for all regulatory and other clinical activities necessary for commercialization
in Japan. In exchange, we received an up-front payment of $15 million, and are entitled to receive greater than $100 million in
development and commercial milestone payments. VBL will also receive tiered royalties on net sales in the high-teens.
Based
on support from pre-clinical data, which we presented at the American Society of Gene & Cell Therapy (ASGCT) conference in
May 2017, we planned to launch an exploratory study for VB-111 in combination with nivolumab, a checkpoint inhibitor,
in non-small cell lung cancer. However, given the readout of the GLOBE trial, before we launch such study, or studies, we intend
to conduct additional data analyses and revisit our clinical plans regarding new indications to seek the best way to advance VB-111
towards commercialization.
Our
Strategy
Our
goal is to become a leading biopharmaceutical company focused on discovering, developing and commercializing innovative therapeutics
that leverage our proprietary technologies for oncology indications. We intend to achieve this goal by pursuing the following
strategies:
|
●
|
Pursue
regulatory approval for our lead oncology compound, VB-111
|
We
believe VB-111 has the potential for applications in various solid tumors, and that the outcome of the GLOBE study in
rGBM will not necessarily have implications on the prospects for VB-111 in other tumor types.
We
have conducted Phase 2 clinical trials of VB-111 in both ovarian and thyroid cancer, with positive results. We intend to continue
development of VB-111 for platinum-resistant ovarian cancer, and launched a Phase 3 study for this indication in December 2017.
Recently we have strengthened our balance sheet to support our development plans through a follow-on offering of $18 million on
November 2017, and through a licensing deal for VB-111 in Japan, injecting a $15.0 million upfront payment in November 2017. We
may choose to advance VB-111 to additional cancer indications, either independently or through investigator-sponsored studies
or strategic collaborations.
|
●
|
Selectively
enter into licensing and collaboration arrangements to supplement our internal development capabilities
|
As
we advance our pipeline of anti-cancer product candidates, we will evaluate opportunities to selectively form collaborative alliances
for our non-oncology assets to expand our capabilities and accelerate the development and commercialization of our oncology products.
We engage in conversations with third parties to evaluate such potential collaborations on an ongoing basis.
|
●
|
Expand
our manufacturing capacity to support clinical trials and possible commercialization of VB-111
|
We
previously manufactured clinical quantities of VB-111 at our facility in Or-Yehuda, Israel and through a third party in the United
States. In October 2017, we announced the opening of our new gene therapy manufacturing plant in Modiin, Israel. This plant can
be the first commercial facility for production of VB-111 if it receives regulatory approval. On the longer term, we intend
to have more than one manufacturing site for VB-111, if regulatory approved.
Our
Product Candidates and Technology
The
following table summarizes the status of pipeline:
Our
VTS Platform
Overview
Our
innovative, proprietary VTS platform technology enables systemic administration of gene therapy to either destroy or promote angiogenic
blood vessels. VTS is both tissue- and condition-specific, allowing for targeted and limited gene expression in endothelial cells,
the thin layer of cells that lines the interior surface of blood vessels undergoing angiogenesis.
Our
VTS platform technology comprises three components, a viral vector, a promoter and a transgene:
1.
Viral vector—a modified virus that is used as a delivery vehicle to distribute the promoter and the transgene throughout
the body.
2.
Promoter—our proprietary, genetically modified promoter, called PPE-1-3X, that specifically targets the endothelial cells
of angiogenic blood vessels. When present in these cells, the promoter initiates the expression of the transgene.
3.
Transgene—a genetic sequence designed to yield a specific biologic effect, the expression of which is directed by PPE-1-3X.
The particular transgene will vary depending on the therapeutic objectives of the product candidate.
Once
the gene therapy has reached the angiogenic blood vessels, the PPE-1-3X promoter activates expression of the transgene to produce
a desired RNA or protein in the endothelial cells of those vessels. For oncology applications, the transgene selected is designed
to destroy angiogenic blood vessels that feed solid tumors. For other potential applications, such as the treatment of ischemia,
a different transgene can be selected that is designed to promote the development of angiogenic blood vessels instead of their
destruction.
VB-111
(ofranergene obadenovec)
VB-111
is a unique biologic agent that uses a dual mechanism to target solid tumors. Its mechanism combines blockade of tumor vasculature
with an anti-tumor immune response.
Based
on a non-integrating, non-replicating, Adeno 5 vector, VB-111 utilizes VBL’s proprietary Vascular Targeting System (VTS™)
to target the tumor vasculature for cancer therapy. We designed VB-111 to address oncology indications, specifically solid tumors,
by selectively targeting the blood vessels required for tumor growth and encouraging the programmed cell-death process, or apoptosis,
of cells in those blood vessels. VB-111 is administered intravenously. PPE-1-3X is activated specifically in angiogenic endothelial
cells and regulates a transgene consisting of a combination of two gene sequences known as Fas and TNFR1. When expressed, the
transgene produces a unique pro-apoptotic protein, the Fas-TNFR1 chimera, that interacts with a native inflammatory molecule,
Tumor Necrosis Factor, or TNF- alpha, and results in the destruction of newly formed or immature blood vessels. When activated
by PPE-1-3X, specifically in angiogenic endothelial cells, this combination enables VB-111 to reduce tumor growth in a highly
targeted manner.
In
addition, VB-111 induces a specific anti-tumor immune response. In 2004, we published preclinical data, which suggested that there
is an immune inflammatory response to the presence of the viral vector and the Fas-TNFR1 chimera. Further support for a potential
role of the immune system as part of VB-111’s mechanism of action came from an observation that patients who developed fever
as a response to VB-111 administration, at least once along the treatment course, had a survival benefit over those who did not
experience post-dosing fever. Moreover, an immunotherapeutic effect was also observed in biopsies taken from ovarian cancer patients.
Immunohistochemistry staining showed regions of apoptotic cancer cells and infiltration of cytotoxic CD8 T-cells following treatment
with VB-111.
In
November 2017, at the Society for Neuro-Oncology conference, we presented data, which support the relationship between
VB-111’s novel dual immuno-oncology and vascular targeting mechanisms of action to overall survival, and show that molecular
and radiographic biomarkers may serve as predictors of clinical benefit.
VB-111’s
mechanism of action is illustrated below:
Unlike
anti-VEGF agents (such as Avastin
®
) or tyrosine-kinase inhibitors (TKIs), VB-111 does not aim to block a specific
pro-angiogenic pathway; instead, it uses an angiogenesis-specific sensor (VBL’s PPE-1-3x proprietary promoter) to specifically
induce cell death in angiogenic endothelial cells in the tumor milieu. This mechanism may retain activity regardless of
baseline tumor mutations or the identity of the pro-angiogenic factors secreted by the tumor and shows activity even after failure
of prior treatment with other anti-angiogenics. Moreover, VB-111 induces specific anti-tumor immune response, which is accompanied
by recruitment of CD8 T-cells and apoptosis of tumor cells. We believe that this mode of action makes VB-111 less susceptible
to resistance and, therefore, potentially applicable for a broader patient population than current therapies.
We have
conducted pre-clinical studies in animal models of lung cancer, colon cancer, thyroid cancer, rGBM and melanoma. Based on those
studies, and clinical results to date, we believe that VB-111 has anti-tumoral activity that may hold clinical promise and may
be suitable for treatment of some solid tumors. We initially decided to focus on rGBM as our first indication because
we expected the rapid kinetics of this disease would enable us to accumulate clinical data in a short time, but
we also advanced VB-111 to a randomized-controlled Phase 3 study in platinum-resistant ovarian cancer.
VB-111
Clinical Programs- Overview
We
initially studied VB-111 in a Phase 1 “all comers” trial involving patients with multiple types of advanced metastatic
cancer types, including thyroid cancer, neuroendocrine cancer, renal cell carcinoma and lung cancer. In that trial, VB-111 was
well-tolerated and showed a dose- dependent extension in median overall survival across a range of tumor types. Based on these
results, we decided to proceed with the development of VB-111 for the lead indication of rGBM, as well as to investigate VB-111
as a monotherapy for the treatment of thyroid cancer and, in combination with chemotherapy, for ovarian cancer. We have an open
IND for VB-111 with the Office of Cellular, Tissue, and Gene Therapeutics within FDA’s Center for Biologics Evaluation and
Research.
VB-111
Clinical Program in GBM
Glioblastoma
is a brain cancer that affects approximately 12,000 to 13,000 newly diagnosed people each year in the United States. It is a devastating,
rapidly progressing tumor, with a median time from diagnosis to the patient’s death of 12 to 15 months. In recurrent glioblastoma,
treatment consists of both symptomatic and palliative therapies. However, with currently available therapies, glioblastoma typically
remains fatal within a very short period of time.
We
conducted an open-label Phase 2 trial in rGBM, which was originally initiated as an adaptive Phase 1/2 trial. The trial was intended
to evaluate the safety and efficacy of VB-111, both by itself and in combination with bevacizumab, an anti-angiogenesis agent
approved by the FDA for use in rGBM. In this trial, patients were initially dosed with VB-111 alone. After disease progression
on VB-111 alone, they receive either bevacizumab alone as standard of care, or, in a second cohort, a combination of VB-111 and
bevacizumab. Disease progression was defined as a worsening of the patient’s cancer with an increase of at least 25% in
the overall mass of measurable tumors, the appearance of new tumors, the worsening of non-measurable tumors since beginning of
treatment, a need for an increased dose of corticosteroids or clinical deterioration.
Our
Phase 2 trial results include 46 patients with rGBM treated with VB-111; upon disease progression, 23 patients were treated with
VB-111 in combination with Avastin
®
, and 22 received Avastin
®
alone. One patient, who achieved
a complete response, is still stable on VB-111 alone for more than 45 months as of December 31, and was included in the continuous
exposure cohort. The median number of bi-monthly VB-111 doses was four for the cohort, which was treated with VB-111 through progression,
versus one in the limited exposure cohort (average of 4.7 vs. 2.2, respectively). Continuous exposure to VB-111 demonstrated significant
improvement in overall survival, with median overall survival of 59.1 weeks (414 days), compared to 31.9 weeks (223 days) in patients
on limited VB-111 exposure (p=0.043), meeting the primary endpoint of the trial. Two complete responses and five partial responses
were seen in the VB-111 continuous exposure cohort (n=24), compared to only two partial responses in VB-111 limited exposure cohort
(n=22). VB-111 was found to be well tolerated.
Trial
data also showed that VB-111 may induce an immuno-therapeutic effect. Of the 46 patients who received VB-111, 25 patients experienced
a fever post-dosing of VB-111 at least once, while 21 patients did not. Patients with fevers demonstrated increased overall survival
of 16 months, compared to patients without fevers, who had a median overall survival of 8.5 months (p=0.03). Additional biomarkers
analyses presented at the SNO conference in November 2017 have demonstrated that in addition to fever, VB-111 is also associated
with immune-mediated responses, including secretion of immune-stimulatory cytokines that correlate with OS, further supporting
a role of the immune system as part of VB-111’s dual mechanism of action.
In
June 2016 at the ASCO conference, we presented clinical data that demonstrate a significant overall survival benefit in rGBM patients
receiving VB-111 compared with historical Avastin
®
meta-analysis data. In the Phase 2 VB-111 trial, the median
overall survival of patients who received continuous exposure of VB-111 in combination with Avastin was 59.1 weeks. This is compared
to 32.1 weeks in the pooled data from the 8 studies in the meta-analysis (p=0.0295; Hazard Ratio 0.62, 95% CI: 0.40-0.96). Median
survival ranged from 26.0 weeks to 45.7 weeks in the meta-analysis. Overall survival at 12 months for patients on continuous exposure
of VB-111 was 57%, compared with 24% overall survival (range 16%-38%) for the pooled Avastin
®
treated rGBM data
(p=0.03).
In
62 patients with rGBM, the most frequent toxicity was self-limited fever, starting several hours post therapy and usually resolving
within 24 hours and controlled with anti-pyretics. There were 22 adverse events classified as grade 3 or higher, of which 7 were
considered possibly related to VB-111 including asthenia, pyrexia, brain edema, depressed consciousness, pulmonary embolism, or
PE (in a patient with PE prior to enrollment in the trial) and hypertension. Safety results were reviewed five times by the trial
Data and Safety Monitoring Board, as well as by the FDA, without safety concerns. Based on interim Phase 2 data of VB-111 in rGBM,
the FDA has allowed VBL to launch a Phase 3 study of VB-111 in rGBM patients even prior to the completion of the Phase 2 trial.
In
June 2016 at the ASCO conference, we presented clinical data that demonstrate a significant overall survival benefit in rGBM patients
receiving VB-111 compared with historical Avastin
®
meta-analysis data. In the Phase 2 VB-111 trial, the median
overall survival of patients who received continuous exposure of VB-111 in combination with Avastin was 59.1 weeks. This is compared
to 32.1 weeks in the pooled data from the 8 studies in the meta-analysis (p=0.0295; Hazard Ratio 0.62, 95% CI: 0.40-0.96). Median
survival ranged from 26.0 weeks to 45.7 weeks in the meta-analysis. Overall survival at 12 months for patients on continuous exposure
of VB-111 was 57%, compared with 24% overall survival (range 16%-38%) for the pooled Avastin
®
treated rGBM data
(p=0.03).
VBL’s
pivotal Phase 3 GLOBE study was conducted under a Special Protocol Assessment (SPA) granted by the FDA, with full endorsement
by the Canadian Brain Tumor Consortium (CBTC). Enrollment in the study, 256 patients in total, started in August 2015 and has
been completed in December 2016, five months ahead of schedule.
To
maintain an SPA agreement, FDA approval is required for any protocol modification. Following a meeting with FDA in December 2016,
VBL has received FDA approval for adjustments in the GLOBE protocol, while keeping the SPA in place. Originally, the interim DSMC
analysis in GLOBE was to be conducted after 91 deaths. The modified protocol specified that it would be conducted
after 105 deaths, and after 50% of the patients have more than 12 months potential follow up, whichever occurs later. The final
analysis would be conducted at 189 deaths (75% of events), versus the original planned for 151 deaths (60% of events).
In late 2017, FDA had also approved the use of 12-month survival rate and stratification according to baseline tumor volume
as study endpoints under the SPA, along with an exploratory analysis of survival starting at 100 days.
Three
safety reviews were conducted during the GLOBE trial, by the independent Data Safety Monitoring Committee (DSMC). The DSMC is
an independent multidisciplinary group that conducts detailed review of un-blinded study data, discusses potential safety concerns
and provides recommendations regarding trial continuation. In December 2016, we announced that the independent Data Safety Monitoring
Committee (DSMC) met to conduct its first safety review of the Phase 3 GLOBE Study investigating ofranergene obadenovec (VB-111)
in recurrent glioblastoma (rGBM). The committee reviewed the GLOBE safety data collected through a cutoff date in September 2016,
and did not find any adverse events that would be cause for concern. As a result, the DSMC recommended that the study continue
as planned. In April 2017, we announce that the committee reviewed the GLOBE safety data collected through a cutoff date in March
2017 and unanimously recommended that the study continue as planned. The Third and final DSMC review took place in September 2017.
The committee reviewed the GLOBE safety data, including mortality data, collected through a cutoff date in August 2017 and stated
that they did not identify any safety concerns. The DSMC confirmed that no additional follow up will be necessary. Accordingly,
the DSMC unanimously recommended that the study continue as planned, to completion.
On
March 8, 2018 we announced top-line data from the GLOBE study. These results show that the GLOBE study did not meet its pre-specified
primary endpoint of overall survival (OS), or the secondary endpoint of progression-free-survival (PFS). No new safety concerns
associated with VB-111 have been identified in the GLOBE study. Once we receive the full and final data set, we intend to conduct
an in-depth analysis in order to better understand the outcome of the study and the potential activity of VB-111 in rGBM.
VB-111
Clinical Program in Ovarian Cancer
In
addition to GBM, based on observations from early clinical trials, we have advanced VB-111 into tumor specific, repeat-dose trials,
in ovarian cancer and thyroid cancer.
Ovarian
cancer was diagnosed in approximately 22,000 American women in 2013, according to the National Cancer Institute. In ovarian cancer,
clinical trials of bevacizumab, which, like VB-111, is an anti-angiogenic agent, demonstrated some improvement in progression
free survival in women with high-risk advanced ovarian cancer. Therefore, we conducted a Phase 1/2 clinical trial in ovarian cancer
using VB-111 in combination with paclitaxel, a common chemotherapeutic agent.
This
trial was designed as a Phase 1/2 dose escalation study. The primary objectives were to evaluate the safety and tolerability and
identify dose limiting toxicity in combination of VB-111 and weekly paclitaxel; and explore the efficacy in an expanded cohort
of the optimally tolerated dose of combination VB-111 and weekly paclitaxel, based on RECIST response, CA-125 response, progression
free survival (PFS) and overall survival (OS) in patients with recurrent platinum-resistant ovarian cancer.
Twenty
one patients with recurrent platinum-resistant Müllerian/ovarian cancer were enrolled at Massachusetts General Hospital and
Dana Farber Cancer Institute, and received up to 7 doses of treatment. Patients were treated in two consecutive cohorts: Low Dose
Treatment (n=4, 3x10
12
VPs + 40mg/80 mg paclitaxel) or a Therapeutic Dose (n=17, 1x10
13
VPs + 80 mg paclitaxel).
All patients had measurable disease, with a grade at diagnosis of: 1A (1, 5%), 1B (1, 5%), 1C (1, 5%); IIIC (12, 57%); or IV (6,
29%). The patients included in the study were of particularly adverse prognosis as 48% of the patients were primary platinum refractory
and 52% had tumors that failed to respond to prior anti-angiogenic agents, including Avastin.
In
June 2016 at the ASCO conference, we presented clinical top-line data from this trial. The results showed a significant increase
in overall survival at the therapeutic dose of VB-111 vs. the low dose level (810 vs. 172 days, p=0.042). Nine of the 15 evaluable
patients (60%) on the therapeutic dose had a response, as defined by a 50% reduction in CA-125. Durable RECIST responses and disease
stabilizations were seen. This represents an approximate doubling in response rate, compared to historical data with ovarian cancer
patients treated with a combination of Avastin
®
and chemotherapy in the AURELIA trial which reported CA-125 response
in 11.6% of patients treated with chemotherapy and 31.8% CA-125 response in ovarian cancer patients treated with a combination
of chemotherapy and Avastin
®
.
An
immunotherapeutic effect was also observed in biopsies taken from patients. H&E and immunohistochemistry staining showed regions
of apoptotic cancer cells and infiltration of cytotoxic CD8 T-cells following treatment with VB-111. VB-111 was found to be safe
and well tolerated. Toxicity was similar to what would be expected with antiangiogenics and taxanes in this patient population.
Eight serious adverse events were reported, 2 were considered by the investigator to be possibly related to be VB-111. No dose
limiting toxicities were reported at any dose level.
In
December 2016 we had an end-of-Phase 2 meeting with the FDA to discuss the clinical path of VB-111 in ovarian cancer. We reached
agreement with the FDA on our clinical plan to proceed to a Phase 3 potential registration study of VB-111 in platinum-resistant
patients, with OS as the primary endpoint. We intend to advance VB-111 for this patient population, for which most current therapies
fail to prolong patient survival, and in December 2017 announce the enrollment of the first patient in the OVAL potential registration
Phase 3 study of VB-111 in platinum-resistant ovarian cancer. The OVAL study will be conducted in collaboration with the Gynecologic
Oncology Group (GOG) Foundation, Inc., a leading organization for research excellence in the field of gynecologic malignancies.
The
randomized, controlled, double-blind, Phase 3 OVAL study in recurrent platinum-resistant ovarian cancer has been designed to enroll
up to 350 adult patients at approximately 75 clinical sites in the United States and Israel. Patients will be randomized 1:1 to
VB-111 (1x10
13
VPs once every 8 weeks) in combination with chemotherapy (80mg/m2 paclitaxel once weekly), or to placebo
with chemotherapy. The primary endpoint is overall survival. Additional endpoints include objective response rate (ORR), progression
free survival (PFS), CA-125, RECIST 1.1 response and patient reported outcome measures. Given the GLOBE trial results, we may
choose to adapt the OVAL trial protocol to provide better insight and support of activity of VB-111 in this indication during
the study.
VB-111
Program in Thyroid Cancer
We
conducted an exploratory Phase 2 clinical trial to evaluate safety and efficacy of VB-111 in advanced thyroid cancer. According
to the National Cancer Institute, there are an estimated 535,000 people currently living with thyroid cancer in the United States,
with an estimated 60,000 new cases of thyroid cancer each year. Most cases can be treated by surgery and radioactive iodine. If
radioactive iodine is ineffective, other treatments are prescribed, such tyrosine kinase inhibitors and systemic chemotherapy.
However, if such treatments are unsuccessful, the therapeutic options for patients are currently very limited. There are an estimated
2,000 annual deaths in the U.S. as a result of the disease. This subset of patients has an unmet need for novel therapeutic options
such as VB-111.
Our
open-label dose-escalating study enrolled patients with advanced, recently-progressive, differentiated thyroid cancer that was
unresponsive to radioactive iodine, in two cohorts. Most patients had tumors that had not responded to multiple therapies prior
to enrollment, including radiation and kinase inhibitors. In the first cohort, thirteen patients received a single intravenous
infusion of VB-111 at a sub-therapeutic dose of 3X10
12
viral particles (VPs). The second cohort included seventeen
patients, who received VB-111 at a therapeutic dose of 10
13
VPs every two months until disease progression. One patient
proceeded from a single low dose to receive later multiple high doses at progression and was included in both groups (for PFS
only).
On
February 21, 2017 we announced full data from this trial. The primary endpoint of the trial, defined as 6-month progression-free-survival
(PFS-6) of 25%, was met with a dose response. Forty-seven percent (47%; 8/17) of patients in the therapeutic-dose cohort reached
PFS-6, versus 25% (4/12) in the sub-therapeutic cohort, both groups meeting the primary endpoint. Reduction in tumor measurement
after the first dose was seen in 44% (7/16) of patients in the therapeutic-dose cohort, compared to 9% (1/11) in the sub-therapeutic-dose
cohort. An overall survival benefit was seen with a tail of more than 40% at 3.7 years for the therapeutic-dose cohort (mOS 684
days). This is similar to historical data for pazopanib (Votrient
®
), a tyrosine kinase inhibitor; however, most
patients in the VB-111 study had tumors that previously had progressed on pazopanib or other kinase inhibitors. VB-111 was observed
to be well-tolerated in this study, with no signs of clinically significant safety issues.
We see
these positive data as additional proof-of-concept for VB-111 in another advanced solid tumor, particularly important for
investigating the therapeutic potential of VB-111 even as monotherapy. Our primary focus continues to be advancement of VB-111
towards commercialization, if approved, in ovarian cancer. Further clinical development of VB-111 for thyroid cancer may also
be pursued, potentially with a strategic partner, or via an investigator-sponsored study.
Additional
VB-111 Program
Based
on support from pre-clinical data, which we presented at the American Society of Gene & Cell Therapy (ASGCT) conference in
May 2017, we planned to conduct an exploratory study for VB-111 in combination with nivolumab, a checkpoint inhibitor,
in non-small cell lung cancer. Launch of this trial was expected in the first quarter of 2018. However, given
the readout of the GLOBE trial, before we launch such study, or studies, we intend to conduct additional data analyses and revisit
our clinical plans regarding new indications, to seek the best way to advance VB-111 towards commercialization.
Additional
VTS Pipeline candidates
Our
VTS platform technology enables systemic administration of gene therapy to either destroy or promote angiogenic blood vessels.
Beyond VB-111, we have generated additional product candidates which utilize the same vector and promoter as in VB-111, yet comprise
alternative functional transgenes. VB-511 is an anti-angiogenic candidate, while VB-211 and VB-411 are pro-angiogenic candidates
that may be employed for ischemic conditions like peripheral vascular disease. All three candidates have demonstrated pre-clinical
efficacy and are ready for toxicology. We may pursue further development of VB-511 internally, but we aim to partner-out the pro-angiogenic
candidates.
Our
Lecinoxoid Platform Technology
Our
proprietary Lecinoxoid platform technology comprises a family of orally administered small molecules designed to modulate the
body’s inflammatory response. Lecinoxoids are compounds that are structurally and functionally similar to naturally occurring
molecules, known as oxidized phospholipids, which possess immune modulating anti-inflammatory properties, modified to enhance
stability and activity. We believe that Lecinoxoids hold significant promise in their ability to treat a range of chronic immune-based
inflammatory diseases.
The
inflammatory response is a complex physiologic process balancing both pro- and anti- inflammatory components that interact intimately
with the body’s immune system. Oxidized phospholipids are instrumental in the interplay of these components that maintain
equilibrium. When the inflammatory response is not adequately balanced, excess inflammation results and may cause both acute and
chronic disease states.
The
Lecinoxoid platform seeks to harness the ability of oxidized phospholipids to regulate and attenuate key immune-inflammatory signaling.
We believe that our approach—identifying naturally occurring anti-inflammatory compounds and modifying them to enhance stability
and activity—may lead to more physiologically balanced responses than other available anti-inflammatory therapies.
VB-201
Our
lead Lecinoxoid-based compound, VB-201, was designed as an oral agent for the control of chronic inflammatory disorders. It was
clinically developed for psoriasis and ulcerative colitis, however, our recent Phase 2 data do not support further development
for these indications. We believe that VB-201 may still have potential in other disorders in which TLR-2 and TLR-4 or monocytes
play a role. In this regard, in April 2016 we announced a scientific publication of preclinical findings demonstrating that VB-201,
and its next-generation derivative VB-703, can inhibit Non-Alcoholic Steatohepatitis, or NASH, and liver fibrosis in a murine
NASH model.
Non-alcoholic
fatty liver disease is the most common liver disease in the western world. This pathological condition is characterized by lipid
accumulation in hepatocytes and ranges from the non-progressive form termed steatosis to NASH, the progressive form that is prone
to the development of cirrhosis, liver cancer, and liver failure. NASH is characterized by fatty liver inflammation. Several studies
have implicated TLR4 and its co-receptor CD14 in NASH and fibrosis. In addition, studies have emphasized the crucial role of infiltrating
monocytes/macrophages for the progression of liver inflammation and fibrosis in experimental mouse models and in patients with
liver cirrhosis. It has become clear that the macrophage compartment of the liver, traditionally called Kupffer cells, is greatly
augmented by an overwhelming number of infiltrating monocytes upon acute or chronic liver injury.
VB-201
inhibits the CD-14/TLR4 and TLR2 pathways as well as monocyte migration. Using an external CRO, we studied VB-201 in a mouse model
of NASH and found that while treatment with VB-201 did not reduce steatosis, it significantly decreased liver lobular inflammation
and liver fibrosis compared to vehicle treated mice. Furthermore, in April 2017 VBL presented findings of a post-hoc, hypothesis-driven
analysis of data from completed Phase 2 studies with VB-201, indicating that VB-201 may reduce certain liver enzymes in blood
samples from treated patients, in a time-dependent and dose-dependent manner. VBL may seek to strengthen these findings and investigate
the potential of VB-201 through an exploratory Phase 2 study in NASH patients.
Beyond
VB-201, we have developed second and third generations of Lecinoxoid product candidates. Our results highlight the potential of
some of these molecules, such as VB-703, a third generation candidate whose IP life-cycle can extend to the mid-2030s. In May
2015 at the DDW conference, we presented that VB-703 inhibits liver fibrosis by blocking TLR4 signaling pathways.
Recent
preclinical studies which we performed also demonstrate efficacy of VB-201 and VB-703 in a rat model of renal fibrosis. Renal
fibrosis is a direct consequence of the kidney’s limited capacity to regenerate after injury. Renal scarring results in
a progressive loss of renal function, ultimately leading to end-stage renal failure and a requirement for dialysis or kidney transplantation.
Our
lead Lecinoxoid molecule, VB-201, is a Phase-2 ready oral molecule which has demonstrated safety in > 600 patients and proof-of-concept
in a Phase 2 study for vascular inflammation. Our next-generation molecule VB-703, offers long IP lifecycle with demonstrated
efficacy in liver and renal fibrosis models.
The
following table summarizes the status of the Lecinoxoid platform:
We
believe that Lecinoxoids have therapeutic potential in disorders in which TLR-2 and TLR-4 or monocytes play a role, such as atherosclerosis,
NASH/Liver fibrosis and renal fibrosis. In spite of that potential, we have decided strategically to focus our efforts and resources
on development of novel anti-cancer therapies, such as VB-111 and MOSPD2. Therefore, we may seek some proof-of-concept findings
for Lecinoxoids , but on the longer term we intend to seek one or more strategic partners that would help us to promote the development
of our Lecinoxoid assets.
Expanding
our Pipeline—The VB-600 Family
We
intend to continue research and development activities in the oncology field to strengthen the pipeline of our anti-cancer drug
candidates. In this regard, we believe that we have identified a novel tumor-related target, MOSPD2, that may be used as a marker
for selective targeting of several types of tumors. In January 2017, a manuscript published by VBL disclosed that MOSPD2, a protein
with a previously unknown function, regulates cell migration in human monocytes. While this first manuscript focused on the importance
of MOSPD2 in immune cells, research conducted by VBL has explored the relevance of MOSPD2 in motility and metastasis of tumor
cells. These oncology-related data were presented at the American Association of Cancer research (AACR) conference in April 2017.
We believe that targeting of MOSPD2 may have several therapeutic applications, including inhibition of monocyte migration in chronic
inflammatory conditions, inhibition of tumor cell metastases and targeting of MOSPD2-expressing tumor cells. We are developing
our VB-600 series of pipeline candidates towards these applications. We expect to present additional findings related to
our MOSPD2 program for cancer in the second quarter of 2018.
Intellectual
Property
Our
success depends, at least in part, on our ability to protect our proprietary technology and intellectual property, and to operate
without infringing or violating the proprietary rights of others. We rely on a combination of patent, trademark, trade secret
and copyright laws, know- how, intellectual property licenses and other contractual rights, including confidentiality and invention
assignment agreements to protect our intellectual property rights.
Patents
As
of January 28, 2018, we had 178 granted patents and 39 applications pending worldwide for our oncology program and VTS platform
technology and 110 granted patents and 30 patent applications pending worldwide for our anti-inflammatory program and Lecinoxoid
family of compounds. Our lead VTS asset, VB-111, is covered by US granted patent extending to 2033 before any extensions. Our
lead Lecinoxoid, VB-201, is protected by US granted composition-of-matter patent extending to 2027 before any extensions. In addition,
we have pending patent applications covering use of VB-201, VB-703 and additional Lecinoxoid for NASH and fibrosis indications
that may extend, if granted, to the 2030s. For MOSPD2, there are 2 applications pending worldwide.
Trademarks
We
rely on trade names, trademarks and service marks to protect our name brands. Our registered trademarks in several countries include
the following: “VTS,” “VASCULAR TARGETING SYSTEMS,” “VBL,” “V VBL THERAPEUTICS &
Design,” “VASCULAR BIOGENICS,” “VASCULAR THERAPEUTICS” and “GLOBE & Design.”
Trade
Secrets and Confidential Information
In
addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how. We rely
on, among other things, confidentiality and invention assignment agreements to protect our proprietary know-how and other intellectual
property that may not be patentable, or that we believe is best protected by means that do not require public disclosure. For
example, we require our employees to execute confidentiality agreements in connection with their employment relationships with
us, and to disclose and assign to us inventions conceived in connection with their services to us. However, there can be no assurance
that these agreements will be enforceable or that they will provide us with adequate protection.
We
may be unable to obtain, maintain and protect the intellectual property rights necessary to conduct our business, and may be subject
to claims that we infringe or otherwise violate the intellectual property rights of others, which could materially harm our business.
For a more comprehensive summary of the risks related to our intellectual property, see “Risk Factors.”
Sales
and Marketing
We
have not yet established sales, marketing or product distribution operations because our lead candidates are still in early clinical
development.
Manufacturing
We
generally perform process development for our drug substance candidates and manufacture quantities of our drug candidates necessary
to conduct pre-clinical studies and clinical trials of our drug candidates. We rely on third-party manufacturers to produce bulk
drug substance required for our clinical trials and expect to continue to rely on third parties to manufacture clinical trial
drug supplies for the foreseeable future. We also contract with additional third parties for the formulating, labeling, packaging,
storage and distribution of the final drug products.
VB-111
Until
late 2017, we manufactured the active pharmaceutical ingredient and the formulated drug product of VB-111 for the clinical development
at our small-scale cGMP-compliant production facility in Or-Yehuda, Israel and pursuant to an arrangement with a third party in
the United States.
In
October 2017, we announced the opening of our new gene therapy manufacturing plant in Modiin, Israel. This plant will be the commercial
facility for production of the Company’s lead product candidate, ofranergene obadenovec (VB-111), if approved. The site
design enables modular expansion of the manufacturing capacity, to supply growing demand following commercialization. The Modiin
facility shall also enable us to comply with the restrictions of the Research Law and our undertaking to the OCS that an essential
portion of our VB-111 production, and in any event not less than the majority of VB-111 production, will remain in Israel. The
investment in the facility is included in the Company’s budget and was also supported by the Israel Innovation Authority.
VBL expects that its current cash will fund the Company’s operating expenses and capital expenditure requirements through
2020.
Employees
As
of March 1, 2018, we employed 37 employees, including 30 in research and development, and 7 in general and administrative positions,
and of which 14 employees have either MDs or PhDs. All of our employees are located in Israel. We believe our employee relations
are good.
Israeli
labor laws govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination
of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti- discrimination
laws and other conditions of employment. Subject to specified exceptions, Israeli law generally requires severance pay upon the
retirement, death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute,
which is similar to the U.S. Social Security Administration. Our employees have defined benefit pension plans that comply with
the applicable Israeli legal requirements.
None
of our employees currently work under any collective bargaining agreements.
Property
Our
corporate headquarters and research facilities are currently located in Modi’in, Israel, where we lease an aggregate of
approximately 21,500 square feet of office and laboratory space, pursuant to a lease agreement that expires in June 2023. This
facility additionally houses our clinical development, clinical operations, regulatory and management functions, as well as our
local biological drugs manufacturing facility.
Organizational
Structure
We
do not have any subsidiaries.
Legal
Proceedings
We
are not a party to any legal proceedings.
Item
4A. Unresolved Staff Comments
Not
applicable.
Item
5. Operating and Financial Review and Prospects
The
following discussion of our financial condition and results of operations should be read in conjunction with “Item 3. Key
Information—Selected Financial Data” and our financial statements and the related notes to those statements included
elsewhere in this Annual Report. In addition to historical financial information, the following discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events
may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those
discussed under “Item 3. Key Information—D. Risk Factors” and elsewhere in this Annual Report.
The
audited financial statements for the years ended December 31, 2017, 2016 and 2015 and as of December 31, 2017 and 2016
in this Annual Report have been prepared in accordance with IFRS as issued by the IASB. None of the financial information in this
Annual Report has been prepared in accordance with U.S. GAAP.
Overview
We
are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of first-in-class treatments
for cancer. Our program is based on our proprietary Vascular Targeting System, or VTS, platform technology, which utilizes genetically
targeted therapy to destroy newly formed, or angiogenic, blood vessels, and which we believe will allow us to develop product
candidates for multiple oncology indications.
Our
lead product candidate, VB-111(ofranergene obadenovec), is a gene-based biologic that we are developing for solid tumor indications,
with an advanced program for recurrent glioblastoma, or rGBM, an aggressive form of brain cancer, ovarian cancer and thyroid
cancer. We have obtained fast track designation for VB-111 in the United States for prolongation of survival in patients with
glioblastoma that has recurred following treatment with standard chemotherapy and radiation. We have also received orphan drug
designation in both the United States and Europe. VB-111 has also received an orphan designation for the treatment of ovarian
cancer by the European Medicines Agency. In September 2015, we reported complete results from our Phase 2 trial of VB-111 in rGBM,
demonstrating a statistically-significant benefit in overall survival and favorable response rate in patients treated with VB-111
in combination with bevacizumab. Our pivotal Phase 3 GLOBE study in rGBM began in August 2015 and was comparing a combination
of VB-111 and bevacizumab to bevacizumab alone. The study which enrolled a total of 256 patients in the US, Canada and Israel
was conducted under a special protocol assessment, or SPA, agreement with the U.S. Food and Drug Administration, or FDA, with
full endorsement by the Canadian Brain Tumor Consortium (CBTC). On March 8, 2018, we announced top-line results from the GLOBE
study, which showed that the study did not meet its pre-specified primary endpoint of overall survival (OS). No new safety concerns
associated with VB-111 have been identified in the GLOBE study. Once we receive the full and final data set, we will conduct an
in-depth analysis in order to better understand the outcome of the GLOBE study and the potential activity of VB-111 in rGBM. We
do not think that results of the GLOBE study in rGBM will necessarily have implications on the prospects for VB-111 in other tumor
types. Our OVAL phase 3 potential registration study of VB-111 in platinum resistant ovarian cancer was launched in December 2017 and is conducted
in collaboration with the GOG Foundation, Inc., a leading organization for research excellence in the field of gynecologic malignancies
We
also have been conducting a program targeting anti-inflammatory diseases, based on the use of our Lecinoxoid platform technology.
Lecinoxoids are a novel class of small molecules we developed that are structurally and functionally similar to naturally occurring
molecules known to modulate inflammation. The lead product candidate from this program, VB-201, is a Phase 2-ready molecule that
demonstrated efficacy in reducing vascular inflammation in a Phase 2 sub-study in psoriatic patients with cardiovascular risk.
Due to business limitations associated with the heavy burden of developing medications for cardiovascular diseases, we chose to
test it in psoriasis and ulcerative colitis; however, as we reported in February 2015, VB-201 failed to meet the primary endpoint
in Phase 2 clinical trials for psoriasis and for ulcerative colitis. As a result, we have terminated our development of VB-201
in those indications. Nevertheless, based on recent pre-clinical studies, we believe that VB-201 and some second generation molecules
such as VB-703 may be applicable for NASH and renal fibrosis, and we may seek a clinical proof of concept in NASH patients
through an exploratory Phase 2 study for VB-201. Since the Company intends to focus substantially all of our efforts and resources
on advancing our oncology program, we will seek to advance our Lecinoxoid assets via strategic deals.
We
are also conducting a research program exploring the potential of targeting of MOSPD2 for immuno-oncology applications. In January
2017, we reported that targeting of MOSPD2 inhibits chemotaxis of monocytes and neuropils, and that unpublished VBL data also
show MOSPD2 expression on certain tumor cells. We believe that targeting of MOSPD2 may have several therapeutic applications,
including inhibition of monocyte migration in chronic inflammatory conditions, inhibition of tumor cell metastases and targeting
of MOSPD2-expressing tumor cells. We are developing our “VB-600 series” of pipeline candidates towards these applications.
We
are developing our lead oncology product candidate, VB-111, for solid tumor indications, with current clinical programs in rGBM,
thyroid cancer and ovarian cancer. In interim analyses of data from our ongoing open-label Phase 2 clinical trial of VB-111 in
rGBM, we observed dose-dependent attenuation of tumor growth and an increase in median overall survival, which is the time interval
from initiation of treatment to the patient’s death. The U.S. FDA has granted VB-111 fast track designation for prolongation
of survival in patients with glioblastoma that has recurred following treatment with temozolomide, a chemotherapeutic agent commonly
used to treat newly diagnosed glioblastoma, and radiation. On July 1, 2014, the FDA concurred with the design and planned analyses
of our Phase 3 pivotal trial of VB-111 in rGBM pursuant to an SPA. At the time, commencement of the trial was subject to our providing
the agency with more information regarding our potency release assay for the trial. We developed this assay and submitted initial
information to the FDA on May 26, 2014. On February 5, 2015, the FDA found our data satisfactory and removed the partial hold.
We
began our Phase 3 pivotal trial of VB-111 in rGBM in August 2015 and completed patient enrollment for the study in December 2016,
five months ahead of our initial plan. Following positive safety reviews announced in December 2016, in April 2017 and the third
and final safety review that was announced in October 2017, the GLOBE trial continued to completion. On March 8, 2018, we announced
top-line results from the GLOBE study, which showed that the study did not meet its pre-specified primary endpoint of overall
survival (OS).
VB-111
was also being studied in a Phase 2 trial for recurrent platinum-resistant Ovarian Cancer and in a Phase 2 study in recurrent,
iodine-resistant differentiated Thyroid cancer. In a Phase 2 trial for recurrent platinum-resistant ovarian cancer, VB-111 demonstrated
a statistically significant increase in overall survival and 60% durable response rate (as measured by reduction in CA-125), approximately
twice the historical response with bevacizumab plus chemotherapy in ovarian cancer. In December 2016, we had an end-of-Phase-2
meeting with the FDA, in which we received approval from the FDA to advance VB-111 for a Phase 3 study in platinum-resistant ovarian
cancer, which we launched in December 2017. The OVAL study is conducted in collaboration with the Gynecologic Oncology Group (GOG)
Foundation, Inc., a leading organization for research excellence in the field of gynecologic malignancies.
.
In
February 2017, we reported full data from our exploratory Phase 2 study of VB-111 in recurrent, iodine-resistant differentiated
thyroid cancer. The primary endpoint of the trial, defined as 6-month progression-free-survival (PFS-6) of 25%, was met with a
dose response. Forty-seven percent of patients in the therapeutic-dose cohort reached PFS-6, versus 25% in the sub-therapeutic
cohort, both groups meeting the primary endpoint. An overall survival benefit was seen, with a tail of more than 40% at 3.7 years
for the therapeutic-dose cohort, similar to historical data for pazopanib (Votrient), a tyrosine kinase inhibitor; however, most
patients in the VB-111 study had tumors that previously had progressed on pazopanib or other kinase inhibitors. As of December
31, 2016, we had studied VB-111 in over 200 patients and have observed it to be well-tolerated. In December 2015, we have been
granted a US composition of matter patents that provides intellectual property protection for VB-111 in the US until October 2033
before any patent term extension.
In
June 2017, at the BIO international conference we provided an update on the long-term status and survival of patients from three
completed Phase 2 trials with VB-111. In the Phase 2 study in rGBM patients, 12-month survival was 54% in patients who were treated
with VB-111 through progression, including a rGBM patient who remains alive with complete response after >40 months, compared
to 23% of patients who had limited exposure of a therapeutic dose of VB-111. According to a meta-analysis, the 12-month survival
on Avastin (bevacizumab) is only 24%. In the Phase 2 study in recurrent platinum-resistant and refractory ovarian cancer, 53%
of patients treated with a therapeutic dose of VB-111 in combination with paclitaxel were alive at 15 months. No patients in the
sub-therapeutic dose were alive at the 15-month time point. In the Phase 2 study in radioiodine refractory differentiated thyroid
cancer, 53% of those who received multiple therapeutic doses of VB-111 were alive at 24 months, compared to 33% of those who received
a single, sub-therapeutic dose of VB-111.
In
October 2017, we announced the opening of our new gene therapy manufacturing plant in Modiin, Israel. This plant will be the commercial
facility for production of VB-111, if approved. The Modiin facility is the first commercial-scale gene therapy manufacturing facility
in Israel and currently one of the largest gene-therapy designated ones in the world (20,000 sq. ft.). It is capable of manufacturing
in large-scale capacity of 1,000 liters and is scalable to 2,000 liters.
In November
2017, we signed an exclusive license agreement with NanoCarrier Co., Ltd. (TSE Mothers:4571) for the development, commercialization
and supply of VB-111 in Japan. VBL retains rights to VB-111 in the rest of the world. Under terms of the agreement, VBL has granted
NanoCarrier an exclusive license to develop and commercialize VB-111 in Japan for all indications. VBL will supply NanoCarrier
with VB-111, and NanoCarrier will be responsible for all regulatory and other clinical activities necessary for commercialization
in Japan. In exchange, we received an up-front payment of $15 million, and are entitled to receive greater than $100 million in
development and commercial milestone payments if certain development and commercial milestones are achieved. VBL will also
receive tiered royalties on net sales in the high-teens.
We commenced
operations in 2000, and our operations to date have been limited to organizing and staffing our company, business planning, raising
capital, developing our VTS and Lecinoxoid platform technologies and developing our product candidates, including conducting pre-clinical
studies and clinical trials of VB-111 and VB-201. To date, we have funded our operations through private sales of preferred shares,
a convertible loan, public offering and grants from the Israeli Office of Chief Scientist, or OCS, which has later transformed
to the Israeli Innovation Authority, or IIA, under the Israel Encouragement of Research and Development in Industry, or the Research
Law. We have no products that have received regulatory approval and accordingly have never generated regular revenue streams.
Since our inception and through December 31, 2017, we had raised an aggregate of $232.8 million to fund our operations, of which
$113.4 million was from sales of our equity securities, $40.5 from our initial public offering, or IPO, $15 million from a November
3, 2015 underwritten offering, approximately $24.0 million from a June 7, 2016 registered direct offering, $17.9 million from
a November 16, 2017 underwritten offering, and $22.0 million from NATI grants.
Since
inception, we have incurred significant losses. For the years ended December 31, 2017, 2016 and 2015, our loss was $10.1 million,
$16.0 million, and $14.9 million, respectively. We expect to continue to incur significant expenses and losses for at least the
next several years. As of December 31, 2017, we had an accumulated deficit of $168.2 million. Our losses may fluctuate significantly
from quarter to quarter and year to year, depending on the timing of our clinical trials, the receipt of payments under any future
collaborations we may enter into, and our expenditures on other research and development activities.
As
of December 31, 2017, we had cash, cash equivalents and short-term bank deposits of $54.7 million. To fund further operations,
we will need to raise additional capital. We may seek to raise more capital to pursue additional activities, which may be through
a combination of private and public equity offerings, government grants, strategic collaborations and licensing arrangements.
Additional financing may not be available when we specifically need it or may not be available on terms that are favorable to
us. As of March 1, 2018, we had 37 employees. As of October 2017, our operations relocated from Or Yehuda, Israel to a single
facility in Modiin, Israel.
Financial
Overview
Revenues
and Cost of Revenues
To date,
we have generated approximately $13.9 million revenue from an exclusive license agreement for the development, commercialization,
and supply of ofranergene obadenovec (“VB-111”) in Japan for all indications for a $15.0 million upfront payment,
in addition to a $2.0 million incurred milestone payment. The cost of revenues associated with these payments was approximately
$0.3 million to Tel Hashomer for a 2% consideration that was received for granting a license or similar rights to this intellectual
property. We do not expect to receive any other revenue from any product candidates that we develop unless and until we obtain
regulatory approval and commercialize our products or enter into collaborative agreements with third parties.
Research
and Development Expenses
Research
and development expenses consist of costs incurred for the development of both of our platform technologies and our product candidates.
Those expenses include:
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employee-related
expenses, including salaries and share-based compensation expenses for employees in research and development functions;
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expenses
incurred in operating our laboratories and small-scale manufacturing facility;
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expenses
incurred under agreements with CROs and investigative sites that conduct our clinical trials;
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expenses
relating to outsourced and contracted services, such as external laboratories, consulting and advisory services;
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supply,
development and manufacturing costs relating to clinical trial materials;
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maintenance
of facilities, depreciation and other expenses, which include direct and allocated expenses for rent and insurance; and
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costs
associated with pre-clinical and clinical activities.
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Research
and development activities are the primary focus of our 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. Our research and development expenses may increase in absolute dollars in future periods as we
continue to invest in research and development activities related to the development of our platform technologies and product
candidates. In particular, our research and development expenses may increase as we develop VB-111 beyond rGBM, and continue its
clinical development in ovarian cancer and thyroid cancer. In addition, our research and development expenses may increase as
we develop our VB-600 series of product candidates.
Research
expenses are recognized as incurred. An intangible asset arising from the development of our product candidates is recognized
if certain capitalization conditions are met. As of December 31, 2017, we did not have any capitalized development costs.
Costs
for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using
information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to
be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts
are then expensed as the related goods are delivered and the services are performed.
We have
received grants from the IIA as part of the research and development programs for our VTS and Lecinoxoid platform technologies.
The requirements and restrictions for such grants are found in the Research Law. These grants are subject to repayment through
future royalty payments on any products resulting from these research and development programs, including VB-111 and VB-201. Under
the Research Law, royalties of 3% to 3.5% on the revenues derived from sales of products or services developed in whole or in
part using these IIA grants are payable to the Israeli government. The maximum aggregate royalties paid generally cannot exceed
100% of the grants made to us, plus annual interest generally equal to the 12-month LIBOR applicable to dollar deposits, as published
on the first business day of each calendar year. The total gross amount of grants actually received by us from the IIA, including
accrued LIBOR interest as of December 31, 2017 and 2016, totaled $26.9 million and $23.3 million, respectively. As of December
31, 2017, we have incurred a $510 thousand royalty payment to the IIA derived from an upfront and a milestone payment from an
exclusive license agreement.
The
Research Law is targeted at maintaining the intellectual property and manufacturing rights relating to IIA-funded projects in
Israel. Under certain circumstances, where the above is not followed, the royalty rate might be higher and accordingly calculated
to a formula based on the ratio of the participation by the State in the project to the total project costs incurred us.
In
addition to paying any royalty due, we must abide by other restrictions associated with receiving such grants under the Research
Law that continue to apply following repayment to the IIA. These restrictions may impair our ability to outsource manufacturing,
engage in change of control transactions or otherwise transfer our know-how outside of Israel, and may require us 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 our ordinary shares 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. If we fail to comply
with the Research Law, we may be subject to criminal charges.
Under
applicable accounting rules, the grants income from the IIA have been accounted for as an off-set against the related research
and development expenses in our financial statements. As a result, our research and development expenses are shown on our financial
statements net of the IIA grants.
General
and Administrative Expenses
General
and administrative expenses consist principally of salaries and related costs for personnel in executive and finance functions
such as salaries, benefits and share-based compensation. Other general and administrative expenses include facility costs not
otherwise included in research and development expenses, communication expenses, and professional fees for legal services, patent
counseling and portfolio maintenance, consulting, auditing and accounting services.
Marketing
Expenses
Marketing
expenses consists principally of salaries and related cost for personnel in marketing and commercialization functions such as
salaries, benefits and share-based compensation, in addition to commercialization consulting services.
Financial
Expenses (Income), Net
Financial
income is comprised of interest income generated from interest earned on our cash, cash equivalents and short-term bank deposits
and gains and losses due to fluctuations in foreign currency exchange rates mainly in the appreciation and depreciation of the
NIS exchange rate against the U.S. dollar.
Financial
expenses primarily consist of fluctuations in foreign currency exchange rates.
Taxes
on Income
We
have not generated taxable income since our inception, and had carry forward tax losses as of December 31, 2017 of $144.9
million. We anticipate that we will be able to carry forward these tax losses indefinitely to future tax years. Accordingly, we
do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses.
We
recognize deferred tax assets on losses for tax purposes carried forward to subsequent years if utilization of the related tax
benefit against a future taxable income is expected. We have not created deferred taxes on our tax loss carry forward since their
utilization is not expected in the foreseeable future.
Critical
Accounting Policies and Significant Judgments and Estimates
This
management’s discussion and analysis of our financial condition and results of operations is based on our financial statements,
which have been prepared in accordance with IFRS. The preparation of these financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Estimates and
judgments are continually evaluated and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
We
make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are discussed below.
Revenue
In
2017, the Company signed a license and supply agreement as more fully described in note 8. In determining the amounts to be recognized
as revenue, the Company used its judgement in the following main issues:
Identifying
the performance obligations in the agreement and determining whether the license provided is distinct - based on the Company's
analysis, the license is distinct as the licensee is able to benefit from the license on its own at its current stage (inter alia,
due to sublicensing rights, rights and responsibility for development in the territory, etc.).
Allocation
of the transaction price – the Company estimated the standalone selling prices of the services to be provided based on expected
cost plus a margin and used the residual approach to estimate the standalone selling price of the license as the Company has not
yet established a price for the license, and it has not previously been sold on a standalone basis.
Share-Based
Compensation
We
operate a number of equity-settled, share-based compensation plans for employees (as defined in IFRS 2 “Share-Based Payments”),
directors and service providers. As part of the plans, we grant employees, directors and service providers, from time to time
and at our discretion, options to purchase our ordinary shares. The fair value of the services received in exchange for the grant
of the options is recognized as an expense in our statements of comprehensive loss and is carried to additional paid in capital
in our statements of financial position. The total amount is recognized as an expense ratably over the vesting period of the options,
which is the period during which all vesting conditions are expected to be met.
We
estimate the fair value of our share-based awards to employees, directors and service providers using the Black-Scholes option
pricing model, which requires the input of highly subjective assumptions, including (a) the expected volatility of our shares,
(b) the expected term of the award, (c) the risk-free interest rate, and (d) expected dividends. Due to the lack of a public market
for the trading of our shares until October 2014 and a lack of company-specific historical and implied volatility data, we have
based our estimate of expected volatility on the historic volatility of a group of similar companies that are publicly traded.
For options granted since 2015, the expected volatility was calculated using weighted average and was based on the stock price
volatility of the Company since October 1st, 2014 (IPO date) and the remaining years on the stock price volatility of similar
companies.
We
will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own share
price becomes available.
We
are also required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures
differ from the estimates. Vesting conditions are included in assumptions about the number of options that are expected to vest.
At the end of each reporting period, we revise our estimates of the number of options that are expected to vest based on the nonmarket
vesting conditions. We recognize the impact of the revision to original estimates, if any, in profit or loss, with a corresponding
adjustment to additional paid in capital.
The
following table summarizes the weighted average assumptions we have used in our Black-Scholes calculations for the years ended
December 31, 2017, 2016 and 2015:
|
|
Year
ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Employee share
options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
2.15
%-2.44
|
%
|
|
|
1.64%-1.78
|
%
|
|
|
1.99%-2.28
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected
volatility
|
|
|
97.0
|
%
|
|
|
86%-97.0
|
%
|
|
|
69%-85.0
|
%
|
Expected
term (years)
|
|
|
11
|
|
|
|
11
|
|
|
|
11
|
|
The
following table summarizes the allocation of our share compensation expense:
|
|
Year
ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in
thousands)
|
|
Research
and development
|
|
$
|
2,027
|
|
|
$
|
900
|
|
|
$
|
385
|
|
General
and administrative
|
|
|
1,977
|
|
|
|
520
|
|
|
|
656
|
|
Marketing
|
|
|
148
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
4,152
|
|
|
$
|
1,420
|
|
|
$
|
1,041
|
|
Share
-based
compensation expense for the year ended December 31, 2017 were $4,152 thousand, compared to $1,420 thousand for the year ended
December 31, 2016, an increase of $2,732 thousand. The increase is mainly due to stock based compensation expenses granted
and recognized in 2017 to the employees and officers of the Company.
Clinical
trial accruals
Clinical
trial expenses are charged to research and development expense as incurred. The Company accrues for expenses resulting from obligations
under contracts with clinical research organizations (CROs). The financial terms of these contracts are subject to negotiations,
which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services
are provided. The Company’s objective is to reflect the appropriate trial expense in the financial statements by matching
the appropriate expenses with the period in which services and efforts are expended. As of December 31, 2017, the company had
clinical accruals in the amount of approximately $1.5 million.
Results
of Operations
Comparison
of Years Ended December 31, 2017, 2016 and 2015
|
|
Year
ended December 31,
|
|
|
2017
Increase (Decrease)
|
|
|
2016
Increase (Decrease)
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
13,864
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
13,864
|
|
|
|
100
|
%
|
|
|
—
|
|
|
|
—
|
|
Cost
of Revenues
|
|
|
(340)
|
|
|
|
—
|
|
|
|
|
|
|
|
(340
|
)
|
|
|
100
|
%
|
|
|
—
|
|
|
|
—
|
|
Gross
profit
|
|
|
13,524
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,524
|
|
|
|
100
|
%
|
|
|
—
|
|
|
|
—
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development, gross
|
|
$
|
19,959
|
|
|
$
|
14,147
|
|
|
$
|
13,049
|
|
|
$
|
5,812
|
|
|
|
41
|
%
|
|
$
|
1,098
|
|
|
|
8
|
%
|
Government
grants
|
|
|
(2,189
|
)
|
|
|
(1,700
|
)
|
|
|
(1,851
|
)
|
|
|
(489
|
)
|
|
|
29
|
%
|
|
|
151
|
|
|
|
-8
|
%
|
Research
and development, net
|
|
$
|
17,770
|
|
|
$
|
12,447
|
|
|
$
|
11,198
|
|
|
$
|
5,323
|
|
|
|
43
|
%
|
|
$
|
1,249
|
|
|
|
11
|
%
|
General
and administrative
|
|
|
5,847
|
|
|
|
3,828
|
|
|
|
3,673
|
|
|
|
2,
019
|
|
|
|
53
|
%
|
|
|
155
|
|
|
|
4
|
%
|
Marketing
|
|
|
562
|
|
|
|
—
|
|
|
|
—
|
|
|
|
562
|
|
|
|
100
|
%
|
|
|
—
|
|
|
|
—
|
|
Operating
loss
|
|
|
10,655
|
|
|
|
16,275
|
|
|
|
14,871
|
|
|
|
(5,620
|
)
|
|
|
-35
|
%
|
|
|
1,404
|
|
|
|
9
|
%
|
Financial
expense (income), net
|
|
|
(517
|
)
|
|
|
(273
|
)
|
|
|
17
|
|
|
|
(244
|
)
|
|
|
89
|
%
|
|
|
(290
|
)
|
|
|
-1706
|
%
|
Loss
|
|
$
|
10,138
|
|
|
$
|
16,002
|
|
|
$
|
14,888
|
|
|
$
|
(5,864
|
)
|
|
|
-37
|
%
|
|
$
|
1,114
|
|
|
|
7
|
%
|
Revenues.
On
November 3, 2017 the Company entered into an exclusive license agreement with NanoCarrier Co., Ltd. for the development, commercialization,
and supply of ofranergene obadenovec (“VB-111”) in Japan for all indications. In exchange, the Company received an
up-front and a milestone payment of $17.0 million in aggregate, of which $13.9 million was recognized in 2017. This was offset
in 2017 by a cost of revenues payment of approximately $0.3 million to Tel Hashomer for a 2% consideration that was received for
granting a license or similar rights to this intellectual property.
Research
and development expenses, net
.
Research
and development expenses are shown net of IIA grants. Research and development expenses, net for the year ended December 31, 2017
were $17.8 million, compared to $12.4 million for the year ended December 31, 2016 and $11.2 million for the year ended
December 31, 2015, an increase of $5.3 million or 43% and an increase of $1.2 million, or 11%, respectively. The increase in research
and development expenses, net in 2017 was mainly due to increased expenses for the VB-111 subcontractors and consultants in 2017
of $4.0 million as the Phase 3 pivotal trial of VB-111 in rGBM continued with the completion of patient recruitment and
trial progression, in addition to costs incurred for the Ovarian Phase 3 trial that commenced in the fourth quarter of 2017, and
an increase of payroll related costs due to an overall increase of share based compensation of approximately $1.0 million. This
was offset by an increase in the amounts of IIA grants received of $0.5 million in 2017 due to the realization of the 2016 approved
grant for the GBM program. The increase in research and development expenses, net in 2016 was mainly due to increased expenses
for the VB-111 subcontractors and consultants in 2016 of $2.4 million as the Phase 3 pivotal trial of VB-111 in rGBM continued
with the completion of patient recruitment and trial progression, offset by lower expenses for VB-201 and psoriasis subcontractors
and consultants of $0.6 million in 2015 that began winding down from 2014, and lower VB-111 batch production costs of $0.5 million
due to the increased manufacturing costs in 2015 to supply the Phase 3 trial supply.
General
and administrative expenses.
General
and administrative expenses for the year ended December 31, 2017 were $5.8 million, compared to $3.8 million for the year ended
December 31, 2016 and $3.7 million for the year ended December 31, 2015, an increase of $2.0 million or 53%, and an increase of
$155 thousand or 4%, respectively. The increase in 2017 is mainly due to payroll related costs for management share-based compensation
expense of approximately $1.0 million, in addition to an increase to share-based compensation expense for options granted to independent
directors of approximately $600 thousand. The increase in 2016 is mainly due to payroll related costs for management bonuses and
employee share-based compensation expense of approximately $500 thousand, offset by a decrease to share-based compensation expense
for options granted to external directors of approximately $300 thousand.
Marketing
expenses
Marketing
expenses for the year ended December 31, 2017 were $0.6 million and mainly composed of compensation related costs and share-based
compensation expense for a new executive who is in charge of marketing and commercialization and joined the Company in
June 2017, in addition to commercialization consulting costs incurred during 2017.
Financial
expense (income), net.
Financial
expense (income), net for the year ended December 31, 2017 was ($517) thousand, compared to ($273) thousand for
the year ended December 31, 2016, and $17 thousand for the year ended December 31, 2015, a decrease of $244 thousand and $290
thousand or 89% and 100%, respectively. The decrease in 2017 was mainly related to higher interest received due to more favorable
interest rates and favorable exchange rates, and the decrease in 2016 was mainly related to higher interest received due to more
favorable interest rates.
Liquidity
and Capital Resources
Since
our inception and through December 31, 2017, we have raised a total of $113.4 million from sales of our equity securities before
the initial public offering, $40.5 million gross in our initial public offering ($34.9 million net), $15.0 million from a November
3, 2015 underwritten offering ($13.6 million net), $24.0 million from a June 7, 2016 registered direct offering ($21.9 million
net), $17.9 million from a November 16, 2017 underwritten offering, and $22.0 million from IIA grants. Our primary uses of cash
have been to fund working capital requirements and research and development, and we expect these will continue to represent our
primary uses of cash. We intend to use our cash resources, together with the proceeds from the offerings described above, to advance
clinical programs, working capital, and other general corporate purposes. We expect that our cash resources as of December 31,
2017 would provide sufficient funding for our operations through 2020.
In
December 2016, we entered into separate Equity Distribution Agreements with JMP Securities LLC and Chardan Capital Markets, LLC,
as sales agents, to implement an “at the market offering” program under which we, from time to time, may offer and
sell our ordinary shares, having an aggregate offering price of up to $20.0 million. We have provided the sales agents with customary
indemnification rights, and the sales agents will be entitled to a fixed commission of 3.0% of the aggregate gross proceeds from
the shares sold. For the year ended December 31, 2017, we have sold an aggregate of 224,695 ordinary shares under its at-the-market
equity facility. The total consideration amounted to $1,322 thousand, net of issuance costs.
Funding
Requirements
At
December 31, 2017, we had cash, cash equivalents and short-term bank deposits of $54.7 million and working capital of $50.9
million. We expect that our cash and cash equivalents and short-term bank deposits will enable us to fund our operating expenses
and capital expenditure requirements through 2020 and are expected to be sufficient to enable us to complete our Phase
3 clinical trial of VB-111 in rGBM. We are unable to estimate the amounts of increased capital outlays and operating expenses
associated with completing the development of VB-111 and our other product candidates. Our future capital requirements will depend
on many factors, including:
|
●
|
the
costs, timing and outcome of regulatory review of VB-111 and any other product candidates we may pursue;
|
|
|
|
|
●
|
the
costs of future development activities, including clinical trials, for VB-111 and any other product candidates we may pursue;
|
|
|
|
|
●
|
the
costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights
and defending intellectual property-related claims;
|
|
|
|
|
●
|
the
extent to which we acquire or in-license other products and technologies; and
|
|
|
|
|
●
|
our
ability to establish any future collaboration arrangements on favorable terms, if at all.
|
Until
such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination
of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed
external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities,
the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect your rights as a holder of our ordinary shares. Debt financing, if available, may involve agreements
that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making
capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing
arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or research
programs or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity
or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization
efforts or grant rights to develop and market VB-111 and any other product candidates that we would otherwise prefer to develop
and market ourselves.
Cash
Flows
The
following table sets forth the primary sources and uses of cash for each of the periods set forth below:
|
|
Year
ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in
thousands)
|
|
Cash
used in operating activities
|
|
$
|
(3,821
|
)
|
|
$
|
(13,412
|
)
|
|
$
|
(13,203
|
)
|
Cash
used in investing activities
|
|
|
(20,840
|
)
|
|
|
(4,091
|
)
|
|
|
(30,090
|
)
|
Cash
provided by financing activities
|
|
|
19,510
|
|
|
|
21,980
|
|
|
|
13,746
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
$
|
(5,151
|
)
|
|
$
|
4,477
|
|
|
$
|
(29,547
|
)
|
Operating
Activities
Cash
used in operating activities for the year ended December 31, 2017 was $3.8 million and consisted primarily of net loss of $10.1
million arising primarily from research and development activities, partially offset by net reduction in working capital of $2.3
million and net aggregate non-cash charges of $3.7 million.
Cash
used in operating activities for the year ended December 31, 2016 was $13.4 million and consisted of primarily net loss of $16.0
million arising primarily from research and development activities, partially offset by a net reduction of working capital of
$1.1 million and net aggregate non-cash charges of $1.3 million.
Cash
used in operating activities for the year ended December 31, 2015 was $13.2 million and consisted of primarily net loss of $14.9
million arising primarily from research and development activities, partially offset by a net reduction of working capital of
$0.5 million and net aggregate non-cash charges of $1.2 million.
Investing
Activities
Net
cash used in investing activities was $20.8 million for the year ended December 31, 2017. This was primarily due to the purchases
of short-term bank deposits and the purchases of Property Plant & Equipment in relation to the new Modiin facility.
Net
cash used in investing activities was $4.1 million for the year ended December 31, 2016. This was primarily due to the purchases
of short-term bank deposits.
Net
cash used in investing activities was $30.1 million for the year ended December 31, 2015. This was primarily due to the purchases
of short-term bank deposits.
Financing
Activities
Net
cash provided by financing activities was $19.5 million for the year ended December 31, 2017 was mainly the result of the net
receipt of $17.9 million from the issuance of ordinary shares per the closing of November 16, 2017 securities offering.
Net
cash provided by financing activities was $22.0 million for the year ended December 31, 2016 was the result of the net receipt
of $21.9 million from the issuance of ordinary shares per the closing of June 7, 2016 securities offering.
Net
cash provided by financing activities was $13.7 million for the year ended December 31, 2015 was the result of the net receipt
of $13.6 million from the issuance of ordinary shares per the closing of the November 6, 2015 underwritten offering.
Contractual
Obligations and Commitments
The
following tables summarize our contractual obligations and commitments as of December 31, 2017 that will affect our future liquidity:
|
|
Total
|
|
|
Less
than 1 Year
|
|
|
1-3
Years
|
|
|
3-5
Years
|
|
|
More
than 5 Years
|
|
|
|
(in
thousands)
|
|
Licenses
|
|
$
|
360
|
|
|
$
|
120
|
|
|
$
|
240
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating
Leases
|
|
|
2,652
|
|
|
|
565
|
|
|
|
905
|
|
|
|
692
|
|
|
|
490
|
|
Total
|
|
$
|
3,012
|
|
|
$
|
685
|
|
|
$
|
1,145
|
|
|
$
|
692
|
|
|
$
|
490
|
|
We
also have obligations to make future payments to third parties that become due and payable on the achievement of certain development,
regulatory and commercial milestones, such as the start of a clinical trial, filing of an NDA, approval by the FDA or product
launch, or royalties upon sale of products. We have not included these commitments on our statements of financial position or
in the table above because the achievement and timing of these milestones is not fixed and determinable. These potential future
commitments include:
|
●
|
Agreement
with the Contact Research Organization (“CRO”).
In January 2015, the Company entered into an agreement with
a CRO according to which it will receive project management, clinical development and other related services from the CRO
for the execution of the Phase 3 rGBM clinical trial study in consideration for up to $18.7 million. Additional expenses related
to changes in the study and in the estimated services involved were agreed upon and are being negotiated with the CRO during
the execution of the study. Through December 31, 2017, expenses in the total amount of $17.5 million were incurred.
|
|
|
|
|
●
|
Agreement
with the Contact Research Organization (“CRO”).
In
December
2017, the Company entered into an agreement with a Contact Research Organization (“CRO”)
according to which it will receive project management, clinical development and other
related services from the CRO for the execution of the Phase 3 study in platinum-resistant
ovarian cancer in consideration for approximately $19.0 million. Through December 31,
2017, expenses in the total amount of $400 thousand were incurred.
|
|
|
|
|
●
|
Agreement with Tel Hashomer.
On February 3, 2013, we entered into
an agreement with Tel Hashomer—Medical Research, Infrastructure and Services Ltd., or Tel Hashomer, a private company
whose purpose is to promote the welfare of the Sheba Medical Center, or the Hospital, and Prof. Dror Harats, our chief executive
officer. The agreement with Tel Hashomer resolved claims of the Hospital regarding the ownership of certain inventions and
patent rights owned by us and developed in part by Prof. Harats and other inventors who were engaged by us and by the Hospital
in parallel. The agreement provided us with a waiver of rights by the Hospital and Tel Hashomer in connection with intellectual
property developed by these inventors prior to the date of the agreement. In consideration for the waiver, we undertook to
pay 1% of any net sales of any product covered by the intellectual property covered under the agreement, which includes all
of our current product candidates, and 2% of any consideration that we receive for granting a license or similar rights to
this intellectual property. Such amounts will be recorded as part of our cost of revenues. In addition, upon the occurrence
of an exit event such as a merger, sale of all shares or assets or the closing of an initial public offering, we are required
to pay to Tel Hashomer 1% of the proceeds received by us or our shareholders as the case may be. In November 2014, following
the completion of our IPO, we paid to Tel Hashomer the amount of $0.4 million. In November 2017, we entered into a license
agreement. For the cash payment received to date in this transaction, we paid Tel Hashomer an additional $340 thousand royalty
and all other payment obligations under this agreement will expire once we have paid an aggregate sum of NIS 100 million (approximately
$29 million) to Tel Hashomer by way of pay out, exit proceeds and licensing consideration. Amounts previously paid as royalties
on any net sales will not be taken into account when calculating this aggregate sum.
|
|
●
|
Agreement
with Crucell.
On April 15, 2011, we entered into a Commercial License Agreement with Crucell Holland B.V., or Crucell,
for incorporating the adenovirus 5 in VB- 111 and other drug candidates for cancer for consideration including the following
potential future payments:
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■
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an
annual license fee of € 100,000 ($120,000), continuing until the termination of the agreement, which will occur upon
(i) the later of the expiration date of the last related patent or 10 years from the first commercial sale of VB-111 or (ii)
the termination of the agreement by us, which is permitted, upon three months’ written advance notice to Crucell;
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|
|
|
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■
|
a
milestone payment of € 400,000 ($480,000) upon receipt of the first regulatory approval for the marketing of the first
indication for each product covered under the agreement; and
|
|
|
|
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■
|
royalties
of 0.5%-2.0% on net sales.
|
There
are no limits or caps on the amount of potential royalties. Pursuant to the agreement, the Company has the right to terminate
the agreement by giving Crucell three months’ written notice.
|
●
|
Participation
by the IIA.
We receive grants from the IIA, as part of the oncology and anti-inflammatory research and development programs.
The requirements and restrictions for such grants are set forth in the Research Law. These grants are subject to repayment
through future royalty payments on sales of any products resulting from these research and development programs, including
VB-111 and VB-201. Under the Research Law, we are obligated to pay royalties of 3% to 3.5%. The maximum aggregate royalties
paid generally cannot exceed 100% of the grants made to us, plus annual interest generally equal to the 12-month LIBOR applicable
to dollar deposits, as published on the first business day of each calendar year. The total gross amount of grants actually
received by us from the IIA as of December 31, 2017 totaled approximately $22.0 million, and the balance of the principal
and interest in respect of our commitments for future payments to the IIA totaled approximately $26.9 million. As of December
31, 2017, we incurred $510 thousand of royalties to the IIA in connection with upfront and milestone payments received
from a license agreement.
|
Off-Balance
Sheet Arrangements
Since
our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC,
such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance
or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected
on our statements of financial position.
Recently
Issued and Adopted Accounting Pronouncements
IFRS 9,
Financial Instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities.
The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification
and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary
measurement categories for financial assets: amortized cost, fair value through OCI and fair value through P&L. There is now
a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities,
there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive
income for liabilities designated at fair value through profit or loss. The standard is effective for accounting periods beginning
on or after January 1, 2018. Early adoption is permitted. The Company concluded that IFRS 9 would not have material
impact on the financial statements.
In January
2016, the IASB issued IFRS 16—Leases which sets out the principles for the recognition, measurement, presentation and disclosure
of leases for both parties to a contract and replaces the previous leases standard, IAS 17—Leases. IFRS 16 eliminates the
classification of leases for the lessee as either operating leases or finance leases as required by IAS 17 and instead introduces
a single lessee accounting model whereby a lessee is required to recognize assets and liabilities for all leases with a term that
is greater than 12 months, unless the underlying asset is of low value, and to recognize depreciation of leases assets separately
from interest on lease liabilities in the statements of comprehensive loss. As IFRS 16 substantially carries forward the
lessor accounting requirements in IAS 17, a lessor will continue to classify its leases as operating leases or finance leases
and to account for those two types of leases differently. IFRS 16 is effective from January 1, 2019 with early adoption allowed
only if IFRS 15—Revenue from Contracts with Customers is also applied. The Company is currently evaluating the impact of
adoption on its Financial Statements.
As
of January 1, 2017, the Company early adopted IFRS 15, with full retrospective application. Since the Company has not generated
revenues until 2017, the adoption of IFRS 15 did not have an effect on accumulated deficits as of January 1, 2015 nor on 2015’s
and 2016’s comparatives.
IFRS
15 introduces a five-step model for recognizing revenue from contracts with customers, as follows:
|
1.
|
identify
the contract with a customer;
|
|
2.
|
identify
the performance obligations in the contract;
|
|
3.
|
determine
the transaction price;
|
|
4.
|
allocate
the transaction price to the performance obligations in the contract;
|
|
5.
|
recognize
revenue when (or as) the entity satisfies a performance obligation.
|
For
more details, refer to Note 8(m).
JOBS
Act
On
April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting
requirements for an “emerging growth company.” As an “emerging growth company,” we are electing to not
take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting
standards, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of
such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to not take
advantage of the extended transition period for complying with new or revised accounting standards is irrevocable.
Safe
Harbor
See
“Cautionary Note Regarding Forward-Looking Statements” in the introduction to this Annual Report.
Item
6. Directors, Senior Management and Employees
Executive
Officers and Directors
The
following table sets forth certain information relating to our executive officers and directors, including their ages as of February
1, 2018. Unless otherwise stated, the address for our directors and executive officers is c/o Vascular Biogenics Ltd., 8 Hasatat
St. Modiin, Israel.
Name
|
|
Age
|
|
Position
|
Executive
Officers and Director
|
|
|
|
|
Dror
Harats
|
|
61
|
|
Chief
Executive Officer and Director
|
Amos
Ron
|
|
62
|
|
Chief
Financial Officer and Company Secretary
|
Erez
Feige
|
|
44
|
|
Vice
President, Business Operations
|
Yael
Cohen
|
|
55
|
|
Vice
President, Clinical Development
|
Eyal
Breitbart
|
|
51
|
|
Vice
President, Research and Operations
|
Naamit
Sher
|
|
63
|
|
Vice
President, Drug Development
|
Corinne
Epperly
|
|
40
|
|
US
Chief Operating Officer
|
Ayelet
Horn
|
|
47
|
|
General
Counsel
|
Non-Executive
Directors
|
|
|
|
|
Bennett
M. Shapiro (3)(4)
|
|
78
|
|
Chairman
and Director
|
Ruth
Arnon (1)(3)(4)
|
|
85
|
|
Director
|
Jecheskiel
Gonczarowski (2)(3)(4)
|
|
72
|
|
Director
|
Ruth
Alon (3)(4)
|
|
66
|
|
Director
|
Ron
Cohen (1)(2)(4)
|
|
62
|
|
Director
|
Philip
A. Serlin (1)(2)(4)
|
|
57
|
|
Director
|
Susan
L. Kelley, MD
|
|
63
|
|
Director
|
David
Hastings
|
|
56
|
|
Director
|
(1)
|
Member
of the compensation committee.
|
(2)
|
Member
of the audit committee.
|
(3)
|
Member
of the nominating and corporate governance committee.
|
(4)
|
Independent
director under the rules of the NASDAQ Stock Market.
|
Executive
Officers
Prof.
Dror Harats
founded our company in 2000 and has served as our chief executive officer since our inception. He has been a member
of our board of directors since January 2001. Prof. Harats is the Chairman of the Bert W. Strassburger Lipid Center and chair
of the R&D division at the Chaim Sheba Medical Center at Tel Hashomer and chairman of its Institute Review Board. Prof.
Harats received his M.D. from Hadassah Medical School at the Hebrew University of Jerusalem, Israel, following which he conducted
post-doctoral work at the University of California, San Francisco. Prof. Harats is also a Professor of Medicine in the Departments
of Internal Medicine and Biochemistry at the Sackler Faculty of Medicine of Tel-Aviv University, Israel. Prof. Harats has also
served as a visiting scientist at Syntax Discovery Research. Prof. Harats currently serves as an observer on the board of directors
of Art Healthcare Ltd. We believe Prof. Harats is qualified to serve on our board of directors because of his extensive technical
and industry experience, as well as his knowledge of our company.
Amos
Ron
has served as our chief financial officer since May 2011. Prior to joining our company, from July 2008 to April 2011,
Mr. Ron was the chief financial officer of Atlantium Technologies Ltd., a privately held start-up in the field of clean-tech.
Prior to that, Mr. Ron served as the chief financial officer and chief operating officer of Medical Compression Systems, and prior
to that, Mr. Ron served as the chief financial officer of Interpharm Laboratories Group, a wholly owned subsidiary of Serono S.A.
Mr. Ron holds an M.Sc. (Honors) in Chemical Technology Management from the Hebrew University of Jerusalem, a B.Sc. in Business
Administration, Empire State College (SUNY) (Jerusalem Branch) and a B.Sc. in Chemistry from the Hebrew University of Jerusalem.
Dr.
Erez Feige
has served as our vice president of business operations since January 2014. Prior to that, from 2012 to 2014, Dr.
Feige served as our director of business development and, from 2006 to 2012, Dr. Feige served as our head of biochemistry. Dr.
Feige holds a B.Sc., and M.B.A. and a Ph.D. from Bar-Ilan University, Israel and completed a post-doctoral fellowship at the Dana-Farber
Cancer Institute and Harvard Medical School.
Dr.
Yael Cohen
has served as our vice president of clinical development since 2008. Prior to joining our company, Dr. Cohen served
in various positions in Gamida Cell Ltd., Merck & Co. and Merck Research Labs, from 2000 to 2008. Dr. Cohen holds an M.D.
from the Sackler Medical School at Tel Aviv University, Israel, and completed her residency in internal medicine at the Chaim
Sheba Medical Center at Tel Hashomer, Israel, and a fellowship in hematology at the Rabin Medical Center, Petach Tikva, Israel.
Dr. Cohen is a senior physician at the Hematology Department at the Sourasky Medical Center, Tel Aviv, Israel.
Dr.
Eyal Breitbart
has served as our vice president, research and operations since January 2014. Prior to that, from 2006 to 2013,
Dr. Breitbart served as our vice president, research. Prior to that, Dr. Breitbart served as head of research from 2002 to 2006
and prior to that as project manager from 2001 to 2002. Dr. Breitbart holds a B.Sc., M.Sc. and Ph.D. from Bar-Ilan University,
Israel, and completed a post-doctoral fellowship at Tufts University School of Medicine.
Dr.
Naamit Sher
has served as our vice president of drug development and regulatory affairs since 2006. Prior to joining our company,
from 2005 to 2006, Dr. Sher was head of QC laboratories, operations division at Teva Pharmaceutical Industries Ltd. From 1992
to 2005, Dr. Sher acted as quality control/quality assurance director at InterPharm, a subsidiary of Ares- Serono. Dr. Sher holds
a B.Sc., M.Sc. and Ph.D. from the Hebrew University of Jerusalem, Israel. She completed post-doctoral fellowships at each of the
Hebrew University, Jerusalem, Israel, and Rutgers University.
Dr.
Corinne Epperly
has served as US Chief Operating Officer since June 2017. Previously Dr. Epperly worked across diverse roles
at Bristol-Myers Squibb (BMS) spanning marketing, M&A, strategic operations and medical strategy
from
2011 to 2017.
Most recently she helped lead the preparation for the commercial launches of OPDIVO® (nivolumab) across
multiple indications. From 2009 to 2010, she was a global healthcare research analyst at Goldman Sachs. Dr. Epperly holds an M.D.
and Masters of Public Health from the University of North Carolina, Chapel Hill. She completed her medical training at the University
of North Carolina Hospitals with the Department of Pediatrics. A
t the National Cancer Institute,
National Institutes of Health, she conducted biomedical research in Experimental Immunology of Oncology from 2000-2003.
Adv.
Ayelet Horn
has served as our general counsel since our inception in 2000, and has served as our company secretary between
2007-2016. Adv. Horn holds an LL.B from Tel-Aviv University, Israel, and an M.B.A. from Herriot Watt University, Edinburgh, Scotland.
Non-Executive
Directors
Dr.
Bennett M. Shapiro, M.D.
has served on our board of directors since September 2004 and as Chairman since 2007. In addition
to serving on our board of directors, Dr. Shapiro has been a senior partner at Puretech Ventures, an innovation enterprise, since
2004, and as chairman from 2009-2015; he now continues as a Non-Executive Director of PureTech HealthPLC-PRTC. From 1990 to 2003,
Dr. Shapiro served as executive vice president, Merck Research Laboratories. Prior to that, from 1970 to 1990, Dr. Shapiro was
a professor of the Department of Biochemistry at the University of Washington and served as chairman from 1985 to 1990. Prior
to joining the University of Washington, from 1965 to 1970 Dr. Shapiro served as a research associate, then section head, in the
Laboratory of Biochemistry of the National Heart Institute of the U.S. National Institutes of Health. Dr. Shapiro has served as
an external director on the board of directors of Momenta Pharmaceuticals from 2003-2016, various private companies, and the Drugs
for Neglected Diseases Initiative, an independent, non-profit drug development partnership. Dr. Shapiro previously served on the
board of directors of Celera Corporation prior to its acquisition by Quest Diagnostics Inc. Dr. Shapiro received his B.S. in chemistry
from Dickinson College and his M.D. from Jefferson Medical College. Dr. Shapiro has been a Guggenheim Fellow, a fellow of the
Japan Society for the Promotion of Science and a visiting professor at the University of Nice. We believe Dr. Shapiro is qualified
to serve on our board of directors because of his extensive technical and industry background, and his experience serving on boards
of directors of companies in our industry, including public companies.
Prof.
Ruth Arnon
has served on our board of directors since August 2007. Prof. Arnon is an immunologist with the Weizmann Institute
of Science in Israel. Prof. Arnon joined the staff of the Weizmann Institute in 1960, and served as vice president of the Institute
from 1988 to 1997. Prof. Arnon is a member of the Israel Academy of Sciences, and from 2010 until 2015 served as its president.
Prof. Arnon is also an elected member of the European Molecular Biology Organization. She has served as president of the European
Federation of Immunological Societies, and as secretary-general of the International Union of Immunological Societies. Her awards
and honors include the Robert Koch Prize in Medical Sciences, Spain’s Jimenez Diaz Memorial Award, France’s Legion
of Honor, the Hadassah World Organization’s Women of Distinction Award, the Wolf Prize for Medicine, the Rothschild Prize
for Biology, and the Israel Prize. Prof. Arnon earned her M.Sc. in Chemistry from the Hebrew University, Jerusalem, Israel, and
her Ph.D. from the Hebrew University. We believe Prof. Arnon is qualified to serve on our board of directors because of her extensive
technical and industry background.
Jecheskiel
Gonczarowski
has served on our board of directors since March 2001. Since 2010, Mr. Gonczarowski has served as the chairman
and chief executive officer of D.S.N.I. Investments Ltd., an Israeli based private family office, managing various local and international
investments. Prior to that, Mr. Gonczarowski founded and co-managed Getter Group Ltd, a publicly traded company in Israel specializing
in exclusive representation of leading international suppliers and brands, from 1982 to 2010. Mr. Gonczarowski also served on
the board of directors of Rotshtein Realestate Ltd., a publicly traded company in Israel performing private and public construction
in Israel. Mr. Gonczarowski studied economics, mathematics and business administration at the Hebrew University of Jerusalem,
Israel. We believe Mr. Gonczarowski is qualified to serve on our board of directors because of his broad business background and
experience with public companies.
Ruth
Alon
has served on our board of directors since March 2010. Ms. Alon is currently the founder and CEO of Medstrada. Since
1997 and until December 24, 2016, Ms. Alon has served as a general partner in Pitango Venture Capital. Prior to her tenure at
Pitango, Ms. Alon held senior positions with Montgomery Securities from 1981 to 1987, Genesis Securities, LLC from 1993 to 1996,
and Kidder Peabody & Co. from 1987 to 1993, and managed her own independent consulting business in San Francisco in the medical
devices industry from 1995 to 1996. Ms. Alon is the chairperson of Israel Life Science Industry, a not-for-profit organization
representing the mutual goals of approximately 700 Israeli life science companies. Ms. Alon has a B.A. in Economics from the Hebrew
University of Jerusalem, Israel, an M.B.A. from Boston University, and an M.S. from the Columbia University School of Physicians
and Surgeons. We believe Ms. Alon is qualified to serve on our board of directors because of her extensive business and industry
background, as well as her experience as a seasoned investor.
Dr.
Ron Cohen, M.D
. joined our board in February 2015. In addition to serving on our board of directors, Dr. Cohen has served
as President, Chief Executive Officer and founder of Acorda Therapeutics, Inc., since 1995. Previously he was a principal in the
startup and an officer of Advanced Tissue Sciences, Inc., a biotechnology company engaged in the growth of human organ tissues
for transplantation, from 1986 to 1992. Dr. Cohen received his B.A. with honors in Psychology from Princeton University, and his
M.D. from the Columbia College of Physicians & Surgeons. He completed his residency in Internal Medicine at the University
of Virginia Medical Center, and is Board Certified in Internal Medicine. Dr. Cohen is Chair of the Board of the Biotechnology
Innovation Organization (BIO). He previously served as a Director of Dyax Corporation until the end or 2015, and also previously
served as Director and Chair of the New York Biotechnology Association. He is a recipient of the NY CEO Lifetime Achievement Award
and the Ernst & Young Entrepreneur of the Year Award for the New York Metropolitan Region, and has been recognized by PharmaVOICE
Magazine as one of the 100 Most Inspirational People in the Biopharmaceutical Industry. We believe Dr. Cohen is qualified to serve
on our board of directors because of his extensive business and industry background.
Philip
A. Serlin
joined our board in February 2015. In addition to serving on our board of directors, Mr. Serlin is the Chief Executive
Officer of BioLineRx Ltd., having previously served as its Chief Financial and Operating Officer from 2009 to 2016. Mr. Serlin
also previously served as Chief Financial Officer of Tescom Software Systems Testing Ltd., an IT services company which was publicly
traded in both Tel Aviv and London. His background also includes senior positions at Chiaro Networks Ltd. and at Deloitte, where
he was head of the SEC and U.S. Accounting Department at the National Office in Tel Aviv, as well as seven years at the SEC at
its Washington, D.C., headquarters. Mr. Serlin previously served on the Board of Directors of Kitov Pharmaceuticals Ltd. from
2013 to 2016, and on the Board of Directors of Vringo, Inc. from 2010 to 2012. Mr. Serlin is a CPA and holds a Master’s
degree in Economics and Public Policy from The George Washington University. We believe Mr. Serlin is qualified to serve on our
board of directors because of his experience servicing public companies (including biotech) and his accounting background.
Susan
L. Kelley, M.D.
joined our board in January 2018. Dr. Kelley is an oncologist with extensive experience in drug development
and commercialization. Dr. Kelley worked with Bristol-Myers Squibb in Oncology and Immunology drug development from 1987 to 2001.
From 2001 to 2008, Dr. Kelley worked with Bayer Healthcare Pharmaceuticals as Vice President, Global Clinical Development and
Therapeutic Area Head – Oncology. From 2008 to 2011, she was Chief Medical Officer of the Multiple Myeloma Research Consortium,
Dr. Kelley served as a member of the Board of Directors of Alchemia from 2013-2015, and Cerulean Pharma from 2014-2017. She is
currently a Director at ArQule, Immune Design, and Daré Bioscience, all publicly-traded, US-based biotechnology companies.
Susan Kelley received her M.D. from Duke University School of Medicine and completed oncology training at the Dana-Farber Cancer
Institute in Boston. She was also a Fellow in Medical Oncology and Pharmacology at Yale University School of Medicine. We believe
Dr. Kelley is qualified to serve on our board of directors because of her extensive industry background.
David
Hastings
joined our board in January 2018. Mr. Hastings has more than 18 years of finance, accounting and operations experience
in the bio-pharmaceutical industry. He was the Executive Vice President and Chief Financial Officer at Incyte from October 2003
until 2014. Recently he was the Chief Financial Officer of Unilife Corporation. From February 2000 to September 2003 Mr. Hastings
served as Vice President, Chief Financial Officer and Treasurer of ArQule Inc. Prior to his employment with ArQule, Mr. Hastings
was Vice President and Corporate Controller at Genzyme Inc., and Director of Finance at Sepracor. David Hastings received his
B.A. in Economics at the University of Vermont. He is a member of the Board Director of SCYNEXIS, Inc. and chairs its Audit Committee.
We believe Mr. Hastings is qualified to serve on our board of directors because of his extensive financial and business background.
Arrangements
Concerning Election of Directors; Family Relationships
Our
current board of directors consists of nine directors.
We
are not a party to, and are not aware of, any voting agreements among our shareholders. In addition, there are no family relationships
among our executive officers and directors.
Advisory
Boards
We
established an advisory board with specific expertise in oncology. In addition we have an advisory board comprised of industry
experts with significant experience in the pharmaceutical industry.
Head
of Scientific Advisory Board—Rachel W. Humphrey, M.D.
Oncology
Experts
Glioblastoma
(GBM)
Deborah
Blumenthal
, MD, Tel Aviv Sourasky Medical Center
Andrew J. Brenner
, MD, PhD, The University of Texas Health Science Center
Nicholas Butowski
, MD, University of California
Timothy
Cloughesy
, MD, UCLA
Patrick Y. Wen
, MD, Dana-Farber Cancer Institute
Ovarian
Cancer
Rebecca
C. Arend
, MD, University of Alabama at Birmingham
Robert A. Burger
, MD, University of Pennsylvania
Thomas Herzog
, MD, University of Cincinnati Cancer Institute
Bradley J. Monk
, MD, FACS, FACOG, Univ. of Arizona& Creighton Univ.
Kathleen Moore
, MD, University of Oklahoma Health Sciences Center
Richard T. Penson
, MD, MRCP, Massachusetts General Hospital
Thyroid
Cancer
Keith
Bible
, MD, PhD, Mayo Clinic Cancer Center
Additional
Experts
Ronald
Goldblum, M.D.
Bonnie
Goldman, M.D.
John
Konz, Ph.D.
Compensation
of Executive Officers and Directors
The
aggregate compensation paid by us to our current directors and executive officers, including share based compensation, for the
year ended December 31, 2017, was $4.4 million. This amount includes any amounts set aside or accrued to provide pension, severance,
retirement, annual leave and recuperation or similar benefits or expenses. It does not include any business travel, relocation,
professional and business association dues and expenses reimbursed to office holders, and other benefits commonly reimbursed or
paid by companies in Israel. The above also includes the provision for bonuses for the year ended December 31, 2017 in the amount
of $0.4 million. As of December 31, 2017, options and RSU’s to purchase an aggregate of 2,816,259 ordinary shares granted
to our directors and executive officers were outstanding under the Employee Share Ownership and Option Plan (2000), or the 2000
Plan, and the Employee Share Ownership and Option Plan (2011), or the 2011 Plan, and the Employee Share Ownership and Option Plan
(2014), or the 2014 Plan at a weighted average exercise price of $3.26 per share.
Board
of Directors
Under
the Israeli Companies Law, 5759-1999, or the Companies Law, the management of our business is vested in our board of directors.
Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders
or to management. Our executive officers are responsible for our day-to-day management and have individual responsibilities established
by our board of directors. Our chief executive officer is appointed by, and serves at the discretion of, our board of directors,
subject to the employment agreement that we have entered into with him. All other executive officers are also appointed by our
board of directors, and are subject to the terms of any applicable employment agreements that we may enter into with them.
Under
our amended and restated articles of association, our board of directors must consist of at least three and not more than nine
directors, including the external directors. Our board of directors currently consists of seven directors, including two directors
who were formerly defined as external directors. Our amended and restated articles of association further provides that external
directors are elected according to the special election requirements under the Companies Law and two of our directors were nominated
as external directors in compliance with the Companies Law. Following the adoption by the Company of certain reliefs provided
under the Companies Law, the Company is exempt from the requirement to appoint external directors and the individuals formerly
appointed as external directors continue to serve as part of our board of directors until the end of their term and may be removed
from office in the same manner as any other director. We have only one class of directors.
The
following of our directors were elected in accordance with the terms of our articles of association in effect prior to the initial
public offering of our shares on NASDAQ and are nominated for re-election by our shareholders at any consecutive annual general
meeting:
|
●
|
Dr.
Shapiro was appointed as an industry expert by a majority of the other directors, a majority that included representatives
of our major shareholders.
|
|
|
|
|
●
|
Prof.
Harats was entitled to be a board member for so long as Prof. Harats is either (i) the chief executive officer of our company;
or (ii) a holder of 3% or more of our issued and outstanding share capital;
|
|
●
|
Mr.
Gonczarowski was appointed by J.J.D. Holdings G.P., A.J.J.G. Technology Investments 2003 and Inspe Aktiengesellschaft on behalf
of the holders of the Series A preferred shares;
|
|
|
|
|
●
|
Ms.
Alon was appointed by persons affiliated with Pitango Venture Capital; and
|
|
|
|
|
●
|
Prof.
Ruth Arnon was appointed by a majority of the other directors, which included representatives of our major shareholders.
|
Upon
the adoption of our amended and restated articles of association upon the closing of our initial public offering, the rights set
forth in the previous articles were terminated and no additional agreements exist with respect to the nomination of our board
members.
On
February 11, 2015, at a general meeting of our shareholders, each of Dr. Ron Cohen and Mr. Philip Serlin was appointed as an external
director by a majority of the shareholders who have no personal interest in his nomination for a period of three years. In accordance
with the exemption available to certain Israeli public companies, whose shares are traded on NASDAQ, we chose as of November 7,
2016 not to follow the requirements of Companies Law with regard to the appointment of “external directors” as defined
in the Companies Law, and instead, to follow the NASDAQ rules applicable to US domestic companies with respect to the appointment
of independent directors. Dr. Ron Cohen and Mr. Philip Serlin shall continue to serve as part of our board of directors until
the end of their term and may be removed from office in the same manner as any other director. As long as we follow such reliefs,
any reference to the election of our external directors in our amended articles of association shall have no actual expression.
We
comply with NASDAQ rules that a majority of our directors are independent. Our board of directors has determined that with the
exception of Prof. Harats, all of our directors are independent under such rules.
In
accordance with the exemption available to foreign private issuers under NASDAQ rules, we do not intend to follow the requirements
of NASDAQ rules with regard to the process of nominating directors, and instead, will follow Israeli law and practice, in accordance
with which our board of directors (or a committee thereof) is authorized to recommend to our shareholders director nominees for
election. See “Item 16G. Corporate Governance” for more information.
Under
the Companies Law and our amended and restated articles of association, nominees for directors may also be proposed by any shareholder
holding at least 1% of our outstanding voting power. However, any such shareholder may propose a nominee only if a written notice
of such shareholder’s intent to propose a nominee has been given to our company secretary (or, if we have no such company
secretary, our chief executive officer). Any such notice must include certain information, including, among other things, a description
of all arrangements between the nominating shareholder and the proposed director nominee(s) and any other person pursuant to which
the nomination(s) are to be made by the nominating shareholder, the consent of the proposed director nominee(s) to serve as our
director(s) if elected and a declaration signed by the nominee(s) declaring that there is no limitation under the Companies Law
preventing their election, and that all of the information that is required under the Companies Law to be provided to us in connection
with such election has been provided.
In
addition, our amended and restated articles of association allow our board of directors to appoint directors to fill vacancies
on our board of directors, for a term of office equal to the remaining period of the term of office of the director(s) whose office(s)
have been vacated.
Under
the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and
financial expertise (as defined below). In determining the number of directors required to have such expertise, our board of directors
must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board
of directors has determined that the minimum number of directors who are required to have accounting and financial expertise is
one.
A
director with accounting and financial expertise is a director who, due to his or her education, experience and skills, possesses
an expertise in, and an understanding of, financial and accounting matters and financial statements, such that he or she is able
to understand the financial statements of the company and initiate a discussion about the presentation of financial data. A director
is deemed to have professional qualifications if he or she has: (i) an academic degree in economics, business management, accounting,
law or public administration, (ii) an academic degree or has completed other higher education, in the primary field of business
of the company or a field which is relevant to his or her position in the company, or (iii) at least five years of experience
serving in one of the following capacities, or at least five years cumulative experience serving in two or more of the following
capacities: (a) a senior business management position in a company with a significant volume of business, (b) a senior position
in a company’s primary field of business, or (c) a senior position in public administration or service. The board of directors
is charged with determining whether a director possesses financial and accounting expertise or professional qualifications.
Our
board of directors has determined that Mr. Serlin has accounting and financial expertise as required under the Companies Law.
External
Directors
Under
the Companies Law, a public company is required to have at least two directors who qualify as external directors. In accordance
with the exemption available to certain Israeli public companies, whose shares are traded on NASDAQ, our board of directors elected
not to follow the requirements of Companies Law with regard to the appointment of “external directors” as defined
in the Companies Law, and instead, to follow the NASDAQ rules applicable to US domestic companies with respect to the appointment
of independent directors. The exemption applies as long as the Company has no controlling shareholder, is in compliance with applicable
US law and regulations and complies with the NASDAQ rules applicable to US domestic companies with respect to the appointment
of independent directors and to the composition of the compensation and audit committees. Our board may further resolve at any
time that we shall no longer follow the reliefs and in such event we shall be required to appoint two directors as external directors.
The
Companies Law provides that external directors must be elected by a majority vote of the shares present and voting at a shareholders
meeting, provided that either:
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such
majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not
have a personal interest in the election of the external director (other than a personal interest not deriving from a relationship
with a controlling shareholder) that are voted at the meeting, excluding abstentions, to which we refer as a disinterested
majority; or
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the
total number of shares voted against the election of the external director by non- controlling shareholders and by shareholders
who do not have a personal interest in the election of the external director (other than a personal interest not deriving
from a relationship with a controlling shareholder does not exceed 2% of the aggregate voting rights in the company).
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The
term “controlling shareholder” is defined in the Companies Law as a shareholder with the ability to direct the activities
of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the
shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the
company or its general manager. With respect to certain matters, a controlling shareholder is deemed to include any shareholder
that holds 25% or more of the voting rights in a public company if no other shareholder holds more than 50% of the voting rights
in the company, but excludes a shareholder whose power derives solely from his or her position as a director of the company or
from any other position with the company.
The
Companies Law provides that a person is not qualified to serve as an external director if (i) the person is a relative of a controlling
shareholder of the company, or (ii) if that person or his or her relative, partner, employer, another person to whom he or she
was directly or indirectly subject, or any entity under the person’s control, has or had, during the two years preceding
the date of appointment as an external director: (a) any affiliation or other disqualifying relationship with the company, with
any person or entity controlling the company or a relative of such person, or with any entity controlled by or under common control
with the company; or (b) in the case of a company with no shareholder holding 25% or more of its voting rights, had at the date
of appointment as external director, any affiliation or other disqualifying relationship with a person then serving as chairman
of the board or chief executive officer, a holder of 5% or more of the issued share capital or voting power in the company or
the most senior financial officer.
The
term “relative” is defined under the Companies Law as a spouse, sibling, parent, grandparent or descendant; spouse’s
sibling, parent or descendant; and the spouse of each of the foregoing persons. Under the Companies Law, the term “affiliation”
and the similar types of prohibited relationships include (subject to certain exceptions):
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an
employment relationship;
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a
business or professional relationship even if not maintained on a regular basis (excluding insignificant relationships);
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control;
and
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service
as an office holder, excluding service as a director in a private company prior to the initial public offering of its shares
if such director were appointed as a director of the private company in order to serve as an external director following the
initial public offering.
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The
term office holder is defined under the Companies Law as the general manager, chief executive officer, chief business manager,
deputy general manager, vice general manager, any other person assuming the responsibilities of any of these positions regardless
of that person’s title, a director, or a manager directly subordinate to the general manager.
In
addition, no person may serve as an external director if that person’s position or professional or other activities create,
or may create, a conflict of interest with that person’s responsibilities as a director or otherwise interfere with that
person’s ability to serve as an external director or if the person is an employee of the Israel Securities Authority or
of an Israeli stock exchange. A person may furthermore not continue to serve as an external director if he or she received direct
or indirect compensation from the company including amounts paid pursuant to indemnification or exculpation contracts or commitments
and insurance coverage for his or her service as an external director, other than as permitted by the Companies Law and the regulations
promulgated thereunder.
According
to regulations promulgated under the Companies Law, a person may be appointed as an external director only if he or she has professional
qualifications or if he or she has accounting and financial expertise (each, as defined below). In addition, at least one of the
external directors must be determined by our board of directors to have accounting and financial expertise. However, if at least
one of our other directors (i) meets the independence requirements under the Exchange Act, (ii) meets the standards of the NASDAQ
listing rules for membership on the audit committee, and (iii) has accounting and financial expertise as defined under Israeli
law, then neither of our external directors is required to possess accounting and financial expertise as long as each possesses
the requisite professional qualifications.
A
director with accounting and financial expertise is a director who, due to his or her education, experience and skills, possesses
an expertise in, and an understanding of, financial and accounting matters and financial statements, such that he or she is able
to understand the financial statements of the company and initiate a discussion about the presentation of financial data. A director
is deemed to have professional qualifications if he or she has: (i) an academic degree in economics, business management, accounting,
law or public administration, (ii) an academic degree or has completed other higher education, in the primary field of business
of the company or a field which is relevant to his or her position in the company, or (iii) at least five years of experience
serving in one of the following capacities, or at least five years cumulative experience serving in two or more of the following
capacities: (a) a senior business management position in a company with a significant volume of business, (b) a senior position
in a company’s primary field of business, or (c) a senior position in public administration or service. The board of directors
is charged with determining whether a director possesses financial and accounting expertise or professional qualifications.
Role
of Board in Risk Oversight Process
Risk
assessment and oversight are an integral part of our governance and management processes. Our board of directors encourages management
to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management
discusses strategic and operational risks at regular management meetings, and conducts specific strategic planning and review
sessions during the year that include a focused discussion and analysis of the risks facing us. Throughout the year, senior management
reviews these risks with the board of directors at regular board meetings as part of management presentations that focus on particular
business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate such risks.
Leadership
Structure of the Board
In
accordance with the Companies Law and our amended and restated articles of association, our board of directors is required to
appoint one of its members to serve as chairman of the board of directors. Our board of directors has appointed Dr. Shapiro to
serve as chairman of the board of directors.
Committees
of the Board of Directors
We
have an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter
for each of these committees.
Audit
Committee
Under
the Companies Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors,
including all of the external directors, one of whom must serve as chairman of the committee. In accordance with the exemption
available to certain Israeli public companies, whose shares are traded on NASDAQ, we chose as of November 7, 2016 and for as long
the required conditions precedent are met and unless otherwise decided by our board of directors, not to follow the requirements
of Companies Law with regard to the composition of the audit committee, and instead, will follow the NASDAQ rules applicable to
US domestic companies with respect to the appointment and composition of the audit committee.
Under
the NASDAQ listing requirements, we are required to maintain an audit committee consisting of at least three independent directors,
all of whom are financially literate and at least one of whom has accounting or related financial management expertise. Our audit
committee consists of our two external directors Mr. Serlin and Dr. Cohen, and of Mr. Gonczarowski and is chaired by Mr. Serlin.
Mr. Serlin is the audit committee financial expert as defined by the Securities and Exchange Commission rules and all of the members
of our audit committee have the requisite financial literacy as defined by the NASDAQ Stock Market rules. All the members of our
audit committee are “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act and under the
listing standards of NASDAQ.
Our
board of directors has adopted an audit committee charter setting forth the responsibilities of the audit committee consistent
with the rules of the Securities and Exchange Commission and NASDAQ rules as well as the requirements for such committee under
the Companies Law, including the following:
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oversight
of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement
of our independent registered public accounting firm to the board of directors in accordance with Israeli law;
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recommending
the engagement or termination of the person filling the office of our internal auditor; and
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recommending
the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by
our board of directors.
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Our
audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving
our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed
by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control
over financial reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions
that it deems necessary to satisfy itself that the accountants are independent of management.
Under
the Companies Law, our audit committee is responsible for:
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determining
whether there are deficiencies in our business management practices, including in consultation with our internal auditor or
the independent auditor, and making recommendations to the board of directors to improve such practices;
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determining
whether to approve certain related party transactions (including transactions in which an office holder has a personal interest)
and whether such transaction is extraordinary or material under the Companies Law (see “—Approval of Related Party
Transactions Under Israeli Law”);
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where
the board of directors approves the work plan of the internal auditor, to examine such work plan before its submission to
the board and propose amendments thereto;
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establishing
the approval process for certain transactions with a controlling shareholder or in which a controlling shareholder has a personal
interest;
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examining
our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources
and tools to dispose of its responsibilities;
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examining
the scope of our independent auditor’s work and compensation and submitting a recommendation with respect thereto to
our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; and
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establishing
procedures for the handling of employees’ complaints as to deficiencies in the management of our business and the protection
to be provided to such employees.
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Our
audit committee may not approve any actions requiring its approval (see “—Approval of Related Party Transactions Under
Israeli Law”), unless at the time of approval a majority of the committee’s members are present, which majority consists
of unaffiliated directors including at least one external director.
Compensation
Committee
Our
compensation committee consists of Mr. Serlin and Dr. Cohen and of Dr. Ruth Arnon. Mr. Serlin serves as the chairman of the compensation
committee. The members of our compensation committee are independent under the NASDAQ listing requirements.
Under
the Companies Law, the board of directors of a public company must appoint a compensation committee. In accordance with the exemption
available to certain Israeli public companies, whose shares are traded on NASDAQ, we chose as of November 7, 2016 and for as long
the required conditions precedent are met and unless otherwise decided by our board of directors, not to follow the requirements
of Companies Law with regard to the composition of the compensation committee, and instead, will follow the NASDAQ rules applicable
to US domestic companies with respect to the appointment and composition of the compensation committee.
The
duties of the compensation committee include the recommendation to our board of directors of a policy regarding the terms of engagement
of office holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors,
after considering the recommendations of the compensation committee, and will need to be brought for approval by the company’s
shareholders, which approval requires what we refer to as a special majority. A special majority approval requires shareholder
approval by a majority vote of the shares present and voting at a meeting of shareholders called for such purpose, provided that
either: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders
and do not have a personal interest in such compensation arrangement; or (b) the total number of shares of non-controlling shareholders
and shareholders who do not have a personal interest in the compensation arrangement and who vote against the arrangement does
not exceed 2% of the company’s aggregate voting rights. On May 27, 2015 our shareholders approved our compensation policy.
Our
compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office
holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment
or engagement. The compensation policy must relate to certain factors, including advancement of the company’s objectives,
the company’s business plan and its long term strategy, and creation of appropriate incentives for office holders. It must
also consider, among other things, the company’s risk management, size and nature of its operations. The term office holder
is defined under the Companies Law as the general manager, chief executive officer, chief business manager, deputy general manager,
vice general manager, any other person assuming the responsibilities of any of these positions regardless of that person’s
title, a director, or a manager directly subordinate to the general manager. The compensation policy must furthermore consider
the following additional factors:
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the
knowledge, skills, expertise, and accomplishments of the relevant office holder;
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the
office holder’s roles and responsibilities and prior compensation agreements with him or her;
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the
relationship between the terms offered and the average compensation of the other employees of the company, including those
employed through manpower companies;
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the
impact of disparities in salary upon work relationships in the company;
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the
possibility of reducing variable compensation at the discretion of the board of directors;
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the
possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and
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as
to severance compensation, the period of service of the office holder, the terms of his or her compensation during such service
period, the company’s performance during that period of service, the person’s contributions towards the company’s
achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the
company.
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The
compensation policy must also include the following principles:
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the
link between variable compensation and long term performance and measurable criteria;
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the
relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;
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the
conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that
the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial
statements;
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the
minimum holding or vesting period for variable, equity-based compensation; and
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maximum
limits for severance compensation.
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The
compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for
its approval (and subsequent approval by its shareholders) and (b) duties related to the compensation policy and to the compensation
of a company’s office holders as well as functions previously fulfilled by a company’s audit committee with respect
to matters related to approval of the terms of engagement of office holders, including:
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recommending
whether a compensation policy should continue in effect, if the then- current policy has a term of greater than three years
(approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur
every three years);
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recommending
to the board of directors periodic updates to the compensation policy;
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assessing
implementation of the compensation policy; and
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determining
whether the compensation terms of the chief executive officer of the company need not be brought to approval of the shareholders.
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Our
board of directors has adopted a compensation committee charter setting forth the responsibilities of the committee, which include:
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the
responsibilities set forth in the compensation policy;
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reviewing
and approving the granting of options and other incentive awards to the extent such authority is delegated by our board of
directors; and
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reviewing,
evaluating and making recommendations regarding the compensation and benefits for our non-employee directors.
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Nominating
and Corporate Governance Committee
Our
nominating and corporate governance committee consists of Dr. Shapiro, Mr. Gonczarowski, Ms. Alon and Dr. Arnon, and is chaired
by Dr. Shapiro. Each of the members of our nominating and corporate governance committee are independent under the listing requirements
of The NASDAQ Global Market.
Our
board of directors has adopted a nominating and governance committee charter sets forth the responsibilities of the nominating
and governance committee which include:
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overseeing
and assisting our board in reviewing and recommending nominees for election as directors;
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assessing
the performance of the members of our board; and
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establishing
and maintaining effective corporate governance policies and practices, including, but not limited to, developing and recommending
to our board a set of corporate governance guidelines applicable to our company.
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Internal
Auditor
Under
the Companies Law, the board of directors of a public company must appoint an internal auditor based on the recommendation of
the audit committee. The role of the internal auditor is to examine, among other things, our compliance with applicable law and
orderly business procedures. The audit committee is required to oversee the activities and to assess the performance of the internal
auditor as well as to review the internal auditor’s work plan. Our internal auditor is Ms. Orit Gal from Ernst & Young
Israel.
An
internal auditor may not be:
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a
person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;
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a
person (or a relative of a person) who has the power to appoint a director or the general manager of the company;
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an
office holder or director of the company; or
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a
member of the company’s independent accounting firm, or anyone on its behalf.
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Approval
of Related Party Transactions Under Israeli Law
Fiduciary
Duties of Directors and Executive Officers
The
Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Management—Executive
Officers and Directors” is an office holder under the Companies Law.
An
office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder
to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances.
The duty of loyalty requires that an office holder act in good faith and in the best interests of the company.
The
duty of care includes a duty to use reasonable means to obtain:
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information
on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and
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all
other important information pertaining to these actions.
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The
duty of loyalty includes a duty to:
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refrain
from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal
affairs;
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refrain
from any activity that is competitive with the company;
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refrain
from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and
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disclose
to the company any information or documents relating to the company’s affairs which the office holder received as a
result of his or her position as an office holder.
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Disclosure
of Personal Interests of an Office Holder and Approval of Certain Transactions
The
Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may be aware
of and all related material information or documents concerning any existing or proposed transaction by the company. An interested
office holder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors
at which the transaction is considered. An office holder is not obliged to disclose a personal interest if it derives solely from
the personal interest of his or her relative in a transaction that is not considered as an extraordinary transaction.
A
“personal interest” is defined under the Companies Law to include a personal interest of any person in an act or transaction
of a company, including the personal interest of such person’s relative or of a corporate body in which such person or a
relative of such person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint
at least one director or the general manager, but excluding a personal interest stemming from one’s ownership of shares
in the company.
A
personal interest furthermore includes the personal interest of a person for whom the office holder holds a voting proxy or the
personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or she holds a proxy
even if such shareholder has no personal interest in the matter. An office holder is not, however, obliged to disclose a personal
interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary
transaction.
Under
the Companies Law, an extraordinary transaction is defined as any of the following:
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a
transaction other than in the ordinary course of business;
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a
transaction that is not on market terms; or
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a
transaction that may have a material impact on the company’s profitability, assets or liabilities.
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If
it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required
for the transaction, unless the company’s articles of association provide for a different method of approval. Further, so
long as an office holder has disclosed his or her personal interest in a transaction, the board of directors may approve an action
by the office holder that would otherwise be deemed a breach of duty of loyalty. However, a company may not approve a transaction
or action that is adverse to the company’s interest or that is not performed by the office holder in good faith. An extraordinary
transaction in which an office holder has a personal interest requires approval first by the company’s audit committee and
subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is
not a director requires approval first by the company’s compensation committee, then by the company’s board of directors,
and, if such compensation arrangement or an undertaking to indemnify or insure is inconsistent with the company’s stated
compensation policy or if the office holder is the chief executive officer (apart from a number of specific exceptions), then
such arrangement is subject to a special majority approval. Arrangements regarding the compensation, indemnification or insurance
of a director require the approval of the compensation committee, board of directors and shareholders by ordinary majority, in
that order, and under certain circumstances, a special majority approval. If shareholders of a company do not approve the compensation
terms of office holders, other than directors, but including the chief executive officer, the compensation committee and board
of directors may override the shareholders’ decision, subject to certain conditions.
Generally,
a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee
may not be present at such a meeting or vote on that matter unless the chairman of the relevant committee or board of directors
(as applicable) determines that he or she should be present in order to present the transaction that is subject to approval. If
a majority of the members of the audit committee or the board of directors (as applicable) has a personal interest in the approval
of a transaction, then all directors may participate in discussions of the audit committee or the board of directors (as applicable)
on such transaction and the voting on approval thereof, but shareholder approval is also required for such transaction.
Disclosure
of Personal Interests of Controlling Shareholders and Approval of Certain Transactions
Pursuant
to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply
to a controlling shareholder of a public company. See “—Major Shareholders and Related Party Transactions” for
a definition of controlling shareholder. In the context of a transaction involving a shareholder of the company, a controlling
shareholder also includes a shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds
more than 50% of the voting rights in the company. For this purpose, the holdings of all shareholders who have a personal interest
in the same transaction will be aggregated. The approval of the audit committee, the board of directors and a special majority,
in that order, is required for (a) extraordinary transactions with a controlling shareholder or in which a controlling shareholder
has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directly or indirectly, for
the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or
her relative who is not an office holder or (d) the employment of a controlling shareholder or his or her relative by the company,
other than as an office holder.
To
the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is
required once every three years, unless, with respect to certain transactions, the audit committee determines that the duration
of the transaction is reasonable given the circumstances related thereto.
Arrangements
regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder
require the approval of the compensation committee, board of directors and shareholders by a special majority and the terms thereof
may not be inconsistent with the company’s stated compensation policy.
Pursuant
to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder or his or her relative,
or with directors, that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval
upon certain determinations of the audit committee and board of directors. Under these regulations, a shareholder holding at least
1% of the issued share capital of the company may require, within 14 days of the publication of such determinations, that despite
such determinations by the audit committee and the board of directors, such transaction will require shareholder approval under
the same majority requirements that would otherwise apply to such transactions.
Employment
Agreements with Executive Officers and Directors
We
have entered into written employment agreements with each of Dror Harats, Erez Feige, Amos Ron, Yael Cohen, Eyal Breitbart
and Naamit Sher. All such agreements contain provisions regarding non-competition, confidentiality of information and assignment
of inventions. The non-competition provisions apply for a period of 24 months following termination of the respective officer’s
employment. In addition, we are required to provide notice of between three and six months prior to terminating the employment
of such executive officers other than in the case of a termination for cause. Other than with respect to Prof. Harats, these agreements
do not provide for benefits upon the termination of these executives’ respective employment with us, other than payment
of salary and benefits during the required notice period for termination of these agreements, which varies under these individual
agreements. Prof. Harats’s agreement provides for six months of severance in the event Prof. Harats’s employment is
terminated by us without cause or terminated by Prof. Harats for good reason. Pursuant to his employment agreement, “Cause”
means Prof. Harats’s conviction of any felony related to our business, a serious breach of trust by Prof. Harats, including
theft, embezzlement of our funds, self-dealing, prohibited disclosure of confidential or proprietary information and Prof. Harats’s
engagement in any prohibited business competitive to our own, Prof. Harats’s disregard of lawful instructions of our board
of directors with respect to his duties to us following notice, or Prof. Harats’s willful failure to perform any of his
fundamental functions or duties. Pursuant to his employment agreement, “Good reason” means a material reduction in
Prof. Harats’s status, title, position or responsibilities, a reduction in Prof. Harats’s salary which is not part
of a general reduction in salary applicable to all of our employees, a failure by us to continue any material compensation or
benefit plan, program or practice in which Prof. Harats is participating, or a material breach by us of any provision of Prof.
Harats’s employment agreement.
In
addition, we have entered into compensation agreements with certain of our directors. The amounts payable pursuant to these arrangements
have been approved by our board of directors and shareholders.
Our
directors do not receive compensation for their service as our directors or otherwise, unless such compensation is approved by
our compensation committee, and then by the board of directors followed by the shareholders. The compensation of our directors
may be fixed, as an all-inclusive payment or as payment for participation in meetings, or as a combination thereof. In addition,
such compensation may include: (i) in the case of a director who is also an officer, a salary or other compensation in respect
of his or her work as an officer, as may be agreed upon by the director and us; and (ii) reimbursement of expenses, including
travel expenses, expended in connection with his or her duties as a member of the board of directors.
Employees
As
of March 1, 2018, we employed 37 employees, including 30 in research and development, and 7 in general and administrative positions,
and of which 14 employees have either MDs or PhDs. All of our employees are located in Israel. We believe our employee relations
are good.
Israeli
labor laws govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination
of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti- discrimination
laws and other conditions of employment. Subject to specified exceptions, Israeli law generally requires severance pay upon the
retirement, death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute,
which is similar to the U.S. Social Security Administration. Our employees have defined benefit pension plans that comply with
the applicable Israeli legal requirements.
None
of our employees currently work under any collective bargaining agreements.
Share
Ownership
For
information regarding the share ownership of our directors and executive officers, please refer to “—Equity Compensation
Plans” below and “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders.”
As of
March 1, 2018, our directors and executive officers hold, in the aggregate, options, warrants and RSU’s outstanding
for 2,976,191 ordinary shares. These options have an average exercise price of $3.39 per share and have expiration dates generally
twenty years after the grant date of the option.
1,693,417
options and warrants are exercisable as of March 1,
2018 and have a weighted average exercise price of $2.82 per share.
Equity
Compensation Plans
The
2000 Plan, the 2011 Plan and the 2014 Plan, allow us to grant options to purchase our ordinary shares to our directors, officers,
employees, consultants, advisers and service providers. The option plans are intended to enhance our ability to attract and retain
desirable individuals by increasing their ownership interests in us. We no longer intend to grant options under the 2000 Plan
or the 2011 Plan, and the remaining shares reserved for future grants under the option plans will constitute the initial share
reserve for the 2014 Plan. Additionally, upon the expiration of options granted under the 2000 Plan or the 2011 Plan, the ordinary
shares underlying such expired options will increase the pool reserved for allocation under the 2014 Plan. As of March 1, 2018,
we had reserved an aggregate of 5,411,649 ordinary shares under the option plans. As of March 1, 2018, options to purchase
an aggregate of 4,132,163 ordinary shares were outstanding and options to purchase 553,949 ordinary shares had been exercised.
The
plans are designed to reflect the provisions of the Israeli Income Tax Ordinance [New Version]—1961, as amended, mainly
Sections 102 and 3(i), of the Ordinance, which affords certain tax advantages to Israeli employees, officers and directors that
are granted options in accordance with its terms.
Section
102 of the Ordinance allows employees, directors and officers, who are not controlling shareholders and who are Israeli residents,
to receive favorable tax treatment for compensation in the form of shares or options. Section 102 of the Ordinance includes two
alternatives for tax treatment involving the issuance of options or shares to a trustee for the benefit of the grantees and also
includes an additional alternative for the issuance of options or shares directly to the grantee. Section 102(b)(2) of the Ordinance,
which provides the most favorable tax treatment for grantees, permits the issuance to a trustee under the “capital gains
track.” In order to comply with the terms of the capital gains track, all options granted under a specific plan and subject
to the provisions of Section 102 of the Ordinance, as well as the shares issued upon exercise of such options and other shares
received following any realization of rights with respect to such options, such as share dividends and share splits, must be registered
in the name of a trustee selected by the board of directors and held in trust for the benefit of the relevant employee, director
or officer. The trustee may not release these options or shares to the relevant grantee before the second anniversary of the registration
of the options in the name of the trustee. However, under this track, we are not allowed to deduct an expense with respect to
the issuance of the options or shares. Section 3(i) does not provide for a similar tax benefits.
The
plans may be administered by our board of directors either directly or upon the recommendation of a committee appointed by our
board of directors.
The
compensation committee recommends to the board of directors, and the board of directors determines or approves the eligible individuals
who receive options under the plans, the number of ordinary shares covered by those options, the terms under which such options
may be exercised, and other terms and conditions of the options, all in accordance with the provisions of the plans. Option holders
may not transfer their options except in the event of death or if the compensation committee determines otherwise. Our compensation
committee or board of directors may at any time amend or terminate each of the plans; however, any amendment or termination may
not adversely affect any options or shares granted under such plan prior to such action.
The
option exercise price is determined by the compensation committee and specified in each option award agreement. In general, the
option exercise price is the fair market value of the shares on the date of grant as determined in good faith by our board of
directors.
Employee
Share Ownership and Option Plan (2014)
In
June 2014, we adopted and obtained shareholder approval for our 2014 Plan and the U.S. Appendix thereto. The 2014 Plan provides
for the grant of options, restricted shares, restricted share units and other share- based awards to our directors, employees,
officers, consultants, advisors and service providers, among others and to any other person whose services are considered valuable
to us. Following the approval of the 2014 Plan by the Israeli tax authorities, we will only grant options or other equity incentive
awards under the 2014 Plan, although previously-granted options and awards will continue to be governed by our 2000 Plan and 2011
Plan. The initial reserved pool under the 2014 Plan was 928,288 ordinary shares, and was adjusted as set forth in the 2014 Plan,
including an automatic annual increase on January 1 of each year such that the number of shares issuable under the 2014 Plan will
equal 4% of our issued and outstanding share capital on a fully diluted basis on each such January 1, or a lesser number of shares
determined by the board of directors. As of March 1, 2018, the outstanding reserved pool under the 2014 Plan stands on 1,279,486.
The
2014 Plan is administered by our board of directors or by a committee designated by the board of directors, which shall determine,
subject to Israeli law, the grantees of awards and the terms of the grant, including, exercise prices, vesting schedules, acceleration
of vesting and the other matters necessary in the administration of the 2014 Plan. The 2014 Plan enables us to issue awards under
various tax regimes including, without limitation, pursuant to Sections 102 and 3(i) of the Ordinance, and under Section 422 of
the Code. Options granted under the 2014 Plan to U.S. residents may qualify as “incentive stock options” within the
meaning of Section 422 of the Code, or may be non-qualified. The exercise price for “incentive stock options” must
not be less than the fair market value on the date on which an option is granted, or 110% of the fair market value if the option
holder holds more than 10% of our share capital.
We
currently intend to grant awards under the 2014 Plan only to our employees, directors and officers who are not controlling shareholders
and are considered Israeli residents, under the capital gains track of Section 102(b)2 of the Ordinance.
Awards
under the 2014 Plan may be granted until June 8, 2034, 20 years from the date on which the 2014 Plan was approved by our board
of directors, provided that awards granted to any U.S. participants may be granted until June 8, 2024, 10 years from the date
on which the 2014 Plan was approved by our board of directors.
The
options granted under the 2014 Plan generally vest over four years commencing on the date of grant such that 50% vest on the second
anniversary of the date of grant and an additional 6.25% vest at the end of each subsequent three-month period thereafter for
24 months. Options, other than certain incentive share options, that are not exercised within 20 years from the grant date expire,
unless otherwise determined by our board of directors or its designated committee, as applicable. Share options that qualify as
“incentive stock options” granted to a person holding more than 10% of our voting power under the U.S. appendix to
the 2014 Plan will expire within five years from the date of the grant and any other options granted under the U.S. appendix to
the 2014 Plan will expire within 10 years from the date of grant. Except as otherwise determined by the board of directors or
as set forth in an individual’s award agreement, in the event of termination of employment or services for reasons of disability
or death, or retirement, the grantee, or in the case of death, his or her legal successor, may exercise options that have vested
prior to termination within a period of one year from the date of disability or death, or within 180 days following retirement.
If we terminate a grantee’s employment or service for cause, all of the grantee’s vested and unvested options will
expire on the date of termination. If a grantee’s employment or service is terminated for any other reason, the grantee
may exercise his or her vested options within 90 days of the date of termination. Any expired or unvested options return to the
pool for reissuance.
In
the event of a merger or consolidation of our company, or a sale of all, or substantially all, of our shares or assets or other
transaction having a similar effect on us, then without the consent of the option holder, our board of directors may determine,
at its absolute discretion, whether outstanding awards held by or for the benefit of any grantee and which have not yet vested,
is to be assumed or substituted and whether acceleration of such awards will be available.
Employee
Share Ownership and Option Plan (2011)
In
April 2011, we adopted the 2011 Plan. The term of the 2011 Plan is twenty years. Each option granted under the 2011 Plan entitles
the grantee to purchase our ordinary shares. The options granted under the 2011 Plan generally vest during a four-year period
following the date of the grant in 13 installments: 25% of the options vest one year following the grant date, and additional
1/16 of the options vest at the end of each subsequent quarter over the course of the following three years. The options expire
twenty years after the date of grant if not exercised earlier.
In
the case of certain changes in our share capital structure, such as a consolidation or share split or dividend, appropriate adjustments
will be made to the numbers of shares and exercise prices under outstanding options. Unless otherwise determined by the board
of directors, upon the consummation of certain kinds of transactions, such as a liquidation, a merger, reorganization or sale
of all or substantially all of our assets, any unexercised outstanding options shall expire, provided that in case of merger or
consolidation or the sale, transfer or exchange of all or substantially all our assets or shares, the surviving corporation does
not assume the options or substitute them with appropriate options in the surviving corporation.
In
general, when an option holder’s employment or service with us terminates, his or her option will no longer continue to
vest following termination, and the holder may exercise any vested options for a period of 90 days following termination without
cause. If an option holder’s employment with us terminates due to disability (as determined by the board of directors) or
if the termination of employment results from his or her death then the option holder or his or her estate (as applicable) has
twelve months to exercise the option. If an option holder retires from our company, then, with the approval of the board of directors,
the option holder or his or her estate (as applicable) has six months to exercise the option. If termination of employment results
from cause, his or her outstanding options will expire upon termination. No option may be exercised after its scheduled expiration
date.
Employee
Share Ownership and Option Plan (2000)
In
February 2000, we adopted the 2000 Plan, which was amended and restated in 2003 due to changes in applicable tax law. The original
term of the 2000 Plan was ten years. In 2013, the terms of outstanding options were extended by 10 years.
Each
option granted under the 2000 Plan entitles the grantee to purchase one of our ordinary shares. The options granted under the
2000 Plan generally vest during a four-year period following the date of the grant in three installments: 50% of the options vest
two years following the grant date, 25% of the options vest three years following the grant date and the remaining 25% of the
options vest four years following the grant date. The options under the plan expire ten years after the date of grant if not exercised
earlier.
In
the case of certain changes in our share capital structure, such as a consolidation or share split or dividend, appropriate adjustments
will be made to the numbers of shares and exercise prices under outstanding options. In the event of certain transactions, such
as an acquisition, or a merger or reorganization or a sale of all or substantially all of our assets, there shall be an acceleration
of exercise of unvested options, immediate or otherwise, which depends on, among other things, the nature of such transaction,
and provided that in case of merger or consolidation the surviving corporation does not assume the options or substitute them
with appropriate options in the surviving corporation.
In
general, when an option holder’s employment or service with us terminates, his or her option will no longer continue to
vest following termination, and the holder may exercise any vested options for a period of 90 days following termination without
cause. If an option holder’s employment with us terminates due to disability (as determined by the board of directors) or
if the termination of employment results from his or her death or due to retirement after age 60, then with the approval of the
board of directors, the option holder or his or her estate (as applicable) has twelve months to exercise the option; however,
the option may not be exercised after its scheduled expiration date. If termination of employment results from cause, his or her
outstanding options will expire upon termination.
Item
7. Major Shareholders and Related Party Transactions
Major
Shareholders
The
following table sets forth information with respect to the beneficial ownership of our ordinary shares as of February 11, 2018:
|
●
|
each
person or entity known by us to own beneficially more than 5% of our outstanding ordinary shares;
|
|
|
|
|
●
|
each
of our executive officers and directors individually; and
|
|
|
|
|
●
|
all
of our executive officers and directors as a group.
|
The
beneficial ownership of our ordinary shares is determined in accordance with the rules of the SEC and generally includes any shares
over which a person exercises sole or shared voting or investment power, or the right to receive the economic benefit of ownership.
For purposes of the table below, we deem ordinary shares issuable pursuant to options that are currently exercisable or exercisable
within 60 days of February 11, 2018 to be outstanding and to be beneficially owned by the person holding the options for the purposes
of computing the percentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the
percentage ownership of any other person. The percentage of ordinary shares beneficially owned is based on 29,897,323 ordinary
shares outstanding as of February 11, 2018.
According
to our transfer agent, as of February 23, 2018 there were 12 record holders of our ordinary shares, of which two
record holders were located in the United States. None of our shareholders has different voting rights from other shareholders.
Except
as described in the footnotes below, we believe each shareholder has voting and investment power with respect to the ordinary
shares indicated in the table as beneficially owned. Unless otherwise indicated, the address of each beneficial owner is c/o Vascular
Biogenics Ltd., 8 HaSatat St., Modi’in, Israel 7178106.
Name
|
|
Number
of
Ordinary Shares
Beneficially Owned
|
|
|
Percentage
of Ownership
|
|
5%
Shareholders
|
|
|
|
|
|
|
|
|
Thai
Lee Family Trust
|
|
|
5,266,076
|
|
|
|
17.6
|
%
|
Aurum
Ventures M.K.I. Ltd (1)
|
|
|
4,254,778
|
|
|
|
14.2
|
%
|
Persons
affiliated with Pitango Ventures (2)
|
|
|
1,658,630
|
|
|
|
5.6
|
%
|
Mr.
Jecheskiel Gonczarowski (3)
|
|
|
2,137,732
|
|
|
|
7.2
|
%
|
Executive
Officers and Directors
|
|
|
|
|
|
|
|
|
Dr.
Bennett M. Shapiro (4)
|
|
|
284,122
|
|
|
|
1.0
|
%
|
Prof.
Dror Harats (5)
|
|
|
1,673,490
|
|
|
|
5.4
|
%
|
Mr.
Jecheskiel Gonczarowski (6)
|
|
|
2,137,732
|
|
|
|
7.2
|
%
|
Prof.
Ruth Arnon
|
|
|
—
|
|
|
|
*
|
|
Ms.
Ruth Alon
|
|
|
—
|
|
|
|
—
|
|
Dr.
Ron Cohen
|
|
|
—
|
|
|
|
*
|
|
Mr.
Philip Serlin
|
|
|
—
|
|
|
|
*
|
|
Mr.
Amos Ron
|
|
|
—
|
|
|
|
*
|
|
Dr.
Yael Cohen
|
|
|
—
|
|
|
|
*
|
|
Dr.
Erez Feige
|
|
|
—
|
|
|
|
*
|
|
Dr.
Eyal Breitbart
|
|
|
—
|
|
|
|
*
|
|
Dr.
Naamit Sher
|
|
|
—
|
|
|
|
*
|
|
Adv.
Ayelet Horn
|
|
|
—
|
|
|
|
*
|
|
All
directors and executive officers as a group (7)
|
|
|
4,738,994
|
|
|
|
14.95
|
%
|
*
|
Less
than 1%
|
|
|
(1)
|
Consists
of 4,254,778 shares held by Aurum Ventures M.K.I. Ltd. Voting and investment power over such shares are vested with Mr. Morris
Kahn, who controls Aurum Ventures M.K.I. Ltd. As such, Mr. Kahn may be deemed to have beneficial ownership over our shares
held by Aurum Ventures M.K.I. Ltd. The address of Aurum Ventures M.K.I. Ltd. is 16 Abba Hillel Silver Rd., Ramat Gan, 5250608,
Israel.
|
|
|
(2)
|
Consists
of 1,623,570 shares held by Pitango Venture Capital Fund IV L.P. and 35,060 shares held
by Pitango Venture Capital Principals Fund IV L.P. (collectively, the “Pitango
Funds”). The Pitango Funds are managed by their sole general partner, Pitango V.C.
Fund IV, L.P., the sole general partner of which is Pitango G.P. Capital Holdings Ltd.,
an Israeli company owned indirectly (through personal holding entities) by each of the
following individuals: Rami Kalish, Chemi J. Peres, Aaron Mankovski, Isaac Hillel, Rami
Beracha and Zeev Binman, none of whom has sole voting or investment power of our shares
and each of whom has shared voting and investment power of such shares. Ms. Alon is a
General Partner of Pitango Ventures IV L.P., but does not have sole or shared voting
or investment power over the shares held by the Pitango Funds. The address of the Pitango
Funds is 11 HaMenofim Street, Building B, Herzliya, Israel 46725.
|
|
|
(3)
|
Consists
of 1,473,174 shares held directly by Mr. Jecheskiel Gonczarowski, 587,774
shares held by D.S.N.I. Investments Ltd. and 76,784 shares held by Inspe Aktiengesellschaft
(collectively, the “J.J.D. Funds”). The shares held by D.S.N.I. Investments
Ltd. and Inspe Aktiengesellschaft may be deemed to be beneficially owned by Jecheskiel
Gonczarowski, our shareholder and director.
|
|
|
(4)
|
Consists
of (a) 24,440 outstanding shares held by Puretech Ventures LLC, which may be deemed to
be beneficially owned by Bennett M. Shapiro, our chairman and a senior partner and chairman
of Puretech Ventures LLC; (b) 42,808 outstanding shares held by Bennett M. Shapiro
and Fredericka F. Shapiro, JTWROS; and (c) options to purchase 216,874 shares
exercisable within 60 days of February 11, 2018 held by Bennett M. Shapiro.
|
(5)
|
Consists
of (a) 691,711 outstanding shares held by or for Prof. Harats; (b) options to purchase 949,847 shares exercisable
within 60 days of February 11, 2018; and (c) warrants exercisable for 31,932 shares within 60 days of February 11, 2018.
|
|
|
(6)
|
Consists
of 664,558 shares held by D.S.N.I. Investments Ltd. and Inspe Aktiengesellschaft. These shares may be deemed to be
beneficially owned by Jecheskiel Gonczarowski, our shareholder and director. In addition, this number consists of 1,473,174
shares held directly by Mr. Jecheskiel Gonczarowski.
|
|
|
(7)
|
Consists
of (a) options to purchase 1,661,485 shares exercisable within 60 days of February 11, 2018; (b) warrants exercisable
for 31,932 shares within 60 days of February 11, 2018; and (c) 3,045,577 outstanding shares.
|
Related
Party Transactions
The
following is a description of the material terms of those transactions with related parties to which we are party since January
1, 2017.
We
have adopted a written policy which provides that the approval of the audit committee is required to effect specified actions
and transactions with our directors, executive officers and controlling shareholders, or in which such persons have an interest.
See “Item 6. Directors, Senior Management and Employees—Approval of Related Party Transactions Under Israeli Law.”
The term “controlling shareholder” means a shareholder with the ability to direct the activities of our company, other
than by virtue of being an executive officer or director. A shareholder is presumed to be a controlling shareholder if the shareholder
holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or
its general manager. For the purpose of approving transactions with controlling shareholders, as well as corporate approval of
executive compensation, the term also includes any shareholder (or two or more shareholders having a personal interest in the
same matter being brought for approval) that holds 25% or more of the voting rights of a company if the company has no shareholder
that owns more than 50% of its voting rights. The transactions described below were entered into prior to the effectiveness of
this policy.
Indemnification
Agreements
We
have in place indemnification agreements with each of our executive officers exculpating them from a breach of their duty of care
to us to the fullest extent permitted by law, subject to limited exceptions, and undertaking to indemnify them to the fullest
extent permitted by Israeli law, subject to limited exceptions, including with respect to liabilities resulting from the initial
public offering to the extent such liabilities are not covered by insurance.
Employment
Agreements
We
have entered into employment agreements with our executive officers and key employees. The employment agreements contain standard
provisions, including assignment of invention provisions and non-competition clauses. See “Item 6. Directors, Senior Management
and Employees—Employment Agreements with Executive Officers.”
Registration
Rights Agreement
Our
investor rights agreement entitles our preferred shareholders to certain registration rights following the closing of our initial
public offering. In accordance with this agreement, and subject to conditions described below, the following executives, directors
and entities, which as of the date of the prospectus relating to the initial public offering beneficially owned more than 5% of
our ordinary shares are entitled to registration rights: Jecheskiel Gonczarowski and entity affiliated therewith, Thai Lee Family
Trust, Aurum Ventures and Pitango Ventures.
Form
F-1 Demand Rights
. Upon the request of the holders of more than 50% of the shares held by our former preferred shareholders
given more than 180 days after the effective date of the registration statement related to our initial public offering, we are
required to file a registration statement on Form F-1 in respect of the ordinary shares held by our former preferred shareholders.
Following a request to effect such a registration, we are required to give notice of the request to the other holders of registrable
securities and offer them an opportunity to include their shares in the registration statement. We are not required to effect
more than two registrations on Form F-1 in the aggregate and not more than one registration in any 12 month period and we are
only required to do so if the aggregate proceeds from any such registration are estimated in good faith to be in excess of $6.0
million.
Form
F-3 Demand Rights
. After we become eligible under applicable securities laws to file a registration statement on Form F-3,
which will not be until at least 12 months after the date of initial public offering, upon the request of the holders of more
than 20% of the shares held by our former preferred shareholders, we are required to file a registration statement on Form F-3
in respect of the ordinary shares held by our former preferred shareholders
.
Following a request to effect such a registration,
we are required to give notice of the request to the other holders of registrable securities and offer them an opportunity to
include their shares in the registration statement. We are not required to effect a registration on Form F-3 more than twice in
any 12 month period and are only required to do so if the aggregate proceeds from any such registration are estimated in good
faith to be in excess of $2.0 million.
Piggyback
Registration Rights
. Following our initial public offering, shareholders holding registrable securities also have the right
to request that we include their registrable securities in any registration statement filed by us in the future for the purposes
of a public offering for cash, subject to specified exceptions.
Cutback
.
In the event that the managing underwriter advises the registering shareholders that marketing factors require a limitation on
the number of shares that can be included in a registered offering, the shares will be included in the registration statement
in an agreed order of preference among the holders of registration rights. The same preference also applies in the case of a piggyback
registration, but we have first preference and the number of shares of shareholders that are included may not be less than 30%
of the total number of shares included in the offering.
Termination
.
All registration rights granted to holders of registrable securities terminate on the fifth anniversary of the closing of our
initial public offering and, with respect to any of our holders of registrable securities when the shares held by such shareholder
can be sold within a 90 day period under Rule 144
.
Expenses
.
We will pay all expenses in carrying out the foregoing registrations other than selling shareholders’ underwriting discounts
and transfer taxes.
Item
8. Financial Information
Financial
statements are set forth under Item 18.
We
have never declared or paid any cash dividends to our shareholders. We currently anticipate that we will retain all of our future
earnings, if any, for use in the operation of our business. Additionally, our ability to pay dividends on our ordinary shares
is limited by restrictions under the terms of the agreements governing our indebtedness and under Israeli law.
Item
9. The Offer and Listing
Our
ordinary shares are quoted on the Nasdaq Global Market under the symbol “VBLT.”
Nasdaq
Global Market
The
following table sets forth, for the periods indicated since October 1, 2014, which was the date on which our ordinary shares began
trading on the Nasdaq Global Market under the symbol “VBLT,” the high and low sales prices of our ordinary shares
as reported by the Nasdaq Global Market.
|
|
Price
Per Ordinary Share
|
|
|
|
High
|
|
|
Low
|
|
Annual:
|
|
|
|
|
|
|
|
|
2014
|
|
$
|
7.56
|
|
|
$
|
4.65
|
|
2015
|
|
|
17.02
|
|
|
|
3.09
|
|
2016
|
|
|
7.58
|
|
|
|
2.76
|
|
2017
|
|
|
9.05
|
|
|
|
3.90
|
|
Quarterly:
|
|
|
|
|
|
|
|
|
First
Quarter 2016
|
|
$
|
5.22
|
|
|
$
|
2.76
|
|
Second
Quarter 2016
|
|
$
|
7.58
|
|
|
$
|
3.03
|
|
Third
Quarter 2016
|
|
$
|
5.83
|
|
|
$
|
3.74
|
|
Fourth
Quarter 2016
|
|
$
|
6.20
|
|
|
$
|
4.45
|
|
First
Quarter 2017
|
|
$
|
6.50
|
|
|
$
|
4.20
|
|
Second
Quarter 2017
|
|
$
|
6.70
|
|
|
$
|
4.35
|
|
Third
Quarter 2017
|
|
$
|
7.25
|
|
|
$
|
3.90
|
|
Fourth
Quarter 2017
|
|
$
|
9.05
|
|
|
$
|
5.60
|
|
First
Quarter 2018 (through March 9, 2017)
|
|
$
|
8.50
|
|
|
$
|
2.60
|
|
Most
Recent Six Months:
|
|
|
|
|
|
|
|
|
October
2017
|
|
$
|
7.05
|
|
|
$
|
5.60
|
|
November
2017
|
|
$
|
9.05
|
|
|
$
|
5.95
|
|
December
2017
|
|
$
|
7.30
|
|
|
$
|
6.40
|
|
January
2018
|
|
$
|
8.50
|
|
|
$
|
7.10
|
|
February
2018
|
|
$
|
6.70
|
|
|
$
|
6.00
|
|
On
March 9, 2018, the last reported sale price of our ordinary shares on the Nasdaq Global Market was $2.60 per share.
Item
10. Additional Information
A.
Share Capital
Not
applicable.
B.
Memorandum and Articles of Association
Ordinary
Shares
Voting
All
ordinary shares will have identical voting and other rights in all respects.
Transfer
of Shares
Our
fully paid ordinary shares are issued in registered form and may be freely transferred under our amended and restated articles
of association, unless the transfer is restricted or prohibited by another instrument, applicable law or the rules of a stock
exchange on which the shares are listed for trade. The ownership or voting of our ordinary shares by non-residents of Israel is
not restricted in any way by our amended and restated articles of association or the laws of the State of Israel, except for ownership
by nationals of some countries that are, or have been, in a state of war with Israel.
Election
of Directors
Our
ordinary shares do not have cumulative voting rights for the election of directors. As a result, the holders of a majority of
the voting power represented at a shareholders meeting have the power to elect all of our directors, subject to the special approval
requirements for external directors described under “Item 6. Directors, Senior Management and Employees—Board of Directors.”
Under
our amended and restated articles of association, our board of directors must consist of not less than three, not including two
external directors, but no more than nine directors (including the external directors).. Pursuant to our amended and restated
articles of association, other than the external directors, for whom special election requirements apply under the Companies Law,
the vote required to appoint a director is a simple majority vote of holders of our voting shares, participating and voting at
the relevant meeting. Each director will serve until his or her successor is duly elected and qualified or until his or her earlier
death, resignation or removal by a vote of the majority voting power of our shareholders at a general meeting of our shareholders
or until his or her office expires by operation of law, in accordance with the Companies Law. In addition, our amended and restated
articles of association allow our board of directors to appoint directors to fill vacancies on the board of directors to serve
for a term of office equal to the remaining period of the term of office of the directors(s) whose office(s) have been vacated.
External directors are elected for an initial term of three years, may be elected for additional terms of three years each under
certain circumstances, and may be removed from office pursuant to the terms of the Companies Law. See “Item 6. Directors,
Senior Management and Employees—Board of Directors.”
Dividend
and Liquidation Rights
We
may declare a dividend to be paid to the holders of our ordinary shares in proportion to their respective shareholdings. Under
the Companies Law, dividend distributions are determined by the board of directors and do not require the approval of the shareholders
of a company unless the company’s articles of association provide otherwise. Our amended and restated articles of association
do not require shareholder approval of a dividend distribution and provide that dividend distributions may be determined by our
board of directors.
Pursuant
to the Companies Law, the distribution amount is limited to the greater of retained earnings or earnings generated over the previous
two years, according to our then last reviewed or audited financial statements, provided that the date of the financial statements
is not more than six months prior to the date of the distribution, or we may otherwise only distribute dividends that do not meet
such criteria only with court approval. In each case, we are only permitted to distribute a dividend if our board of directors
and the court, if applicable, determines that there is no reasonable concern that payment of the dividend will prevent us from
satisfying our existing and foreseeable obligations as they become due.
In
the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of
our ordinary shares in proportion to their shareholdings. This right, as well as the right to receive dividends, may be affected
by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that
may be authorized in the future.
Shareholder
Meetings
Under
Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year that must be held
no later than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting
of shareholders are referred to in our amended and restated articles of association as extraordinary general meetings. Our board
of directors may call extraordinary general meetings whenever it sees fit, at such time and place, within or outside of Israel,
as it may determine. In addition, the Companies Law provides that our board of directors is required to convene an extraordinary
general meeting upon the written request of (i) any two of our directors or one- quarter of the members of our board of directors
or (ii) one or more shareholders holding, in the aggregate, either (a) 5% or more of our outstanding issued shares and 1% of our
outstanding voting power or (b) 5% or more of our outstanding voting power. One or more shareholders, holding 1% or more of the
outstanding voting power, may ask the board to add an item to the agenda of a prospective meeting, if the proposal merits discussion
at the general meeting.
Subject
to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote
at general meetings are the shareholders of record on a date to be decided by the board of directors, which may be between four
and 40 days prior to the date of the meeting. Furthermore, the Companies Law requires that resolutions regarding the following
matters must be passed at a general meeting of our shareholders:
|
●
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amendments
to our articles of association;
|
|
|
|
|
●
|
appointment
or termination of our auditors;
|
|
|
|
|
●
|
appointment
of external directors;
|
|
|
|
|
●
|
approval
of certain related party transactions;
|
|
|
|
|
●
|
increases
or reductions of our authorized share capital;
|
|
|
|
|
●
|
a
merger; and
|
|
|
|
|
●
|
the
exercise of our board of director’s powers by a general meeting, if our board of directors is unable to exercise its
powers and the exercise of any of its powers is required for our proper management.
|
The
Companies Law and our amended and restated articles of association require that a notice of any annual general meeting or extraordinary
general meeting be provided to shareholders at least 21 days prior to the meeting and if the agenda of the meeting includes the
appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an
approval of a merger, notice must be provided at least 35 days prior to the meeting.
Under
the Companies Law and our amended and restated articles of association, shareholders are not permitted to take action via written
consent in lieu of a meeting.
Quorum
Requirements
Pursuant
to our amended and restated articles of association, holders of our ordinary shares have one vote for each ordinary share held
on all matters submitted to a vote before the shareholders at a general meeting. As a foreign private issuer, the quorum required
for our general meetings of shareholders consists of at least two shareholders present in person, by proxy or written ballot who
hold or represent between them at least 25% of the total outstanding voting rights. A meeting adjourned for lack of a quorum is
generally adjourned to the same day in the following week at the same time and place or to a later time or date if so.
Vote
Requirements
Our
amended and restated articles of association provide that all resolutions of our shareholders require a simple majority vote,
unless otherwise required by the Companies Law or by our amended and restated articles of association. Under the Companies Law,
each of (i) the approval of an extraordinary transaction with a controlling shareholder and (ii) the terms of employment or other
engagement of the controlling shareholder of the company or such controlling shareholder’s relative (even if not extraordinary)
requires, the approval described above under “Management—Approval of Related Party Transactions Under Israeli Law—Disclosure
of Personal Interests of Controlling Shareholders and Approval of Certain Transactions.” Under our amended and restated
articles of association, the alteration of the rights, privileges, preferences or obligations of any class of our shares requires
a simple majority vote of the class so affected (or such other percentage of the relevant class that may be set forth in the governing
documents relevant to such class), in addition to the ordinary majority vote of all classes of shares voting together as a single
class at a shareholder meeting. An exception to the simple majority vote requirement is a resolution for the voluntary winding
up, or an approval of a scheme of arrangement or reorganization, of the company pursuant to Section 350 of the Companies Law,
which requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by voting
deed and voting on the resolution.
Access
to Corporate Records
Under
the Companies Law, shareholders are provided access to: minutes of our general meetings; our shareholders register and principal
shareholders register, articles of association and financial statements; and any document that we are required by law to file
publicly with the Israeli Companies Registrar or the Israel Securities Authority. In addition, shareholders may request to be
provided with any document related to an action or transaction requiring shareholder approval under the related party transaction
provisions of the Companies Law. We may deny this request if we believe it has not been made in good faith or if such denial is
necessary to protect our interest or protect a trade secret or patent.
Acquisitions
Under Israeli Law
Full
Tender Offer
A
person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the target company’s
issued and outstanding share capital is required by the Companies Law to make a tender offer to all of the company’s shareholders
for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli
company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required
to make a tender offer to all of the shareholders who hold shares of the relevant class for the purchase of all of the issued
and outstanding shares of that class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding
share capital of the company or of the applicable class, and more than half of the shareholders who do not have a personal interest
in the offer accept the offer, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by
operation of law. However, a tender offer will also be accepted if the shareholders who do not accept the offer hold less than
2% of the issued and outstanding share capital of the company or of the applicable class of shares.
Upon
a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whether such shareholder
accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer, petition an Israeli
court to determine whether the tender offer was for less than fair value and that the fair value should be paid as determined
by the court. However, under certain conditions, the offeror may include in the terms of the tender offer that an offeree who
accepted the offer will not be entitled to petition the Israeli court as described above.
If
(a) the shareholders who did not respond or accept the tender offer hold at least 5% of the issued and outstanding share capital
of the company or of the applicable class or the shareholders who accept the offer constitute less than a majority of the offerees
that do not have a personal interest in the acceptance of the tender offer, or (b) the shareholders who did not accept the tender
offer hold 2% or more of the issued and outstanding share capital of the company (or of the applicable class), the acquirer may
not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding
share capital or of the applicable class from shareholders who accepted the tender offer.
Special
Tender Offer
The
Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a special tender offer
if as a result of the acquisition the purchaser would become a holder of 25% or more of the voting rights in the company. This
requirement does not apply if there is already another holder of at least 25% of the voting rights in the company. Similarly,
the Companies Law provides that an acquisition of shares in a public company must be made by means of a special tender offer if,
as a result of the acquisition, the purchaser would become a holder of more than 45% of the voting rights in the company, provided
that there is no other shareholder of the company who holds more than 45% of the voting rights in the company, subject to certain
exceptions.
A
special tender offer must be extended to all shareholders of a company but the offeror is not required to purchase shares representing
more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered
by shareholders. A special tender offer may be consummated only if (i) outstanding shares representing at least 5% of the voting
power of the company will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of
shares whose holders objected to the offer (excluding the purchaser, controlling shareholders, holders of 25% or more of the voting
rights in the company or any person having a personal interest in the acceptance of the tender offer). If a special tender offer
is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling
person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into
a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity
undertook to effect such an offer or merger in the initial special tender offer.
Merger
The
Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements
described under the Companies Law are met, by a majority vote of each party’s shareholders, and, in the case of the target
company, a majority vote of each class of its shares, voted on the proposed merger at a shareholders meeting.
For
purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the
votes of shares represented at the shareholders meeting that are held by parties other than the other party to the merger, or
by any person (or group of persons acting in concert) who holds (or hold, as the case may be) 25% or more of the voting rights
or the right to appoint 25% or more of the directors of the other party, vote against the merger. If, however, the merger involves
a merger with a company’s own controlling shareholder or if the controlling shareholder has a personal interest in the merger,
then the merger is instead subject to the same special majority approval that governs all extraordinary transactions with controlling
shareholders (as described under “Item 6. Directors, Senior Management and Employees—Disclosure of Personal Interests
of Controlling Shareholders and Approval of Certain Transactions”).
If
the transaction would have been approved by the shareholders of a merging company but for the separate approval of each class
or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the request
of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking
into account the value of the parties to the merger and the consideration offered to the shareholders of the target company.
Upon
the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that
there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations
of the merging entities, and may further give instructions to secure the rights of creditors.
In
addition, a merger may not be consummated unless at least 50 days have passed from the date on which a proposal for approval of
the merger was filed by each party with the Israeli Registrar of Companies and at least 30 days have passed from the date on which
the merger was approved by the shareholders of each party.
Anti-takeover
Measures
The
Companies Law allow us to create and issue shares having rights different from those attached to our ordinary shares, including
shares providing certain preferred rights with respect to voting, distributions or other matters and shares having preemptive
rights. No preferred shares are currently authorized under our amended and restated articles of association. In the future, if
we do authorize, create and issue a specific class of preferred shares, such class of shares, depending on the specific rights
that may be attached to it, may have the ability to frustrate or prevent a takeover or otherwise prevent our shareholders from
realizing a potential premium over the market value of their ordinary shares. The authorization and designation of a class of
preferred shares will require an amendment to our amended and restated articles of association, which requires the prior approval
of the holders of a majority of the voting power attaching to our issued and outstanding shares at a general meeting. The convening
of the meeting, the shareholders entitled to participate and the majority vote required to be obtained at such a meeting will
be subject to the requirements set forth in the Companies Law as described above in “—Voting Rights.”
Tax
Law
Israeli
tax law treats some acquisitions, such as stock-for-stock swaps between an Israeli company and a foreign company, less favorably
than U.S. tax law. For example, Israeli tax law may subject a shareholder who exchanges ordinary shares in an Israeli company
for shares in a non-Israeli corporation to immediate taxation unless such shareholder receives authorization from the Israeli
Tax Authority for different tax treatment.
Modification
of Class Rights
Under
the Companies Law and our amended and restated articles of association, the rights attached to any class of share, such as voting,
liquidation and dividend rights, may be amended by adoption of a resolution by the holders of a majority of the shares of that
class present at a separate class meeting, or otherwise in accordance with the rights attached to such class of shares, as set
forth in our amended and restated articles of association.
Establishment
Our
registration number with the Israeli Registrar of Companies is 51-289976-6. Our purpose as set forth in our amended and restated
articles of association is to engage in any lawful activity.
Transfer
Agent and Registrar
The
transfer agent and registrar for our ordinary shares is American Stock Transfer & Trust Company, LLC.
C.
Material Contracts
We
have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item
4. Information on the Company,” “Item 6. Directors, Senior Management and Employees” or elsewhere in this Annual
Report.
D.
Exchange Controls
There
are currently no Israeli currency control restrictions on remittances of dividends on our ordinary shares, proceeds from the sale
of the shares or interest or other payments to non- residents of Israel, except for shareholders who are subjects of countries
that are, or have been, in a state of war with Israel.
In
1998, Israeli currency control regulations were liberalized significantly, so that Israeli residents generally may freely deal
in foreign currency and foreign assets, and non-residents may freely deal in Israeli currency and Israeli assets. There are currently
no Israeli currency control restrictions on remittances of dividends on the ordinary shares or the proceeds from the sale of the
shares provided that all taxes were paid or withheld; however, legislation remains in effect pursuant to which currency controls
can be imposed by administrative action at any time.
Non-residents
of Israel may freely hold and trade our securities. Neither our articles of association nor the laws of the State of Israel restrict
in any way the ownership or voting of ordinary shares by non-residents, except that such restrictions may exist with respect to
citizens of countries which are in a state of war with Israel. Israeli residents are allowed to purchase our ordinary shares.
E.
Taxation
The
following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership
and disposition of our ordinary shares. You should consult your own tax advisor concerning the tax consequences of your particular
situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
Israeli
Tax Considerations and Government Programs
The
following is a brief summary of the material Israeli tax laws applicable to us, and certain Israeli Government programs that may
benefit us. This section also contains a discussion of material Israeli tax consequences concerning the ownership and disposition
of our ordinary shares purchased by investors. This summary does not discuss all the aspects of Israeli tax law that may be relevant
to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special
treatment under Israeli law. Examples of such investors include residents of Israel or traders in securities who are subject to
special tax regimes not covered in this discussion. Because parts of this discussion are based on new tax legislation that has
not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or
the courts will accept the views expressed in this discussion. The discussion below is subject to change, including due to amendments
under Israeli law or changes to the applicable judicial or administrative interpretations of Israeli law, which change could affect
the tax consequences described below.
General
Corporate Tax Structure in Israel
Israeli
companies are generally subject to corporate tax, currently at the rate of 23% of a company’s taxable income. However,
the effective tax rate payable by a company that derives income from an Approved Enterprise, a Benefited Enterprise, a
Preferred Enterprise or a Preferred Technology Enterprise (as discussed below) may be considerably less. Capital gains
derived by an Israeli company are generally subject to tax at the prevailing corporate tax rate.
In December
2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Year)
was published, introducing a gradual reduction in corporate tax rate from 25% to 23%. However, the law also included a temporary
provision setting the corporate tax rate in 2017 at 24%. As a result, the corporate tax rate was 24% in 2017 and will
be 23% in 2018 and thereafter.
Law
for the Encouragement of Industry (Taxes), 5729-1969
The
Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several
tax benefits for “Industrial Companies.”
The
Industry Encouragement Law defines an “Industrial Company” as a company incorporated and resident in Israel,
of which 90% or more of its income in any tax year, other than income from defense loans, is derived from an “Industrial
Enterprise” owned by it that is located in Israel. An “Industrial Enterprise” is defined as an enterprise
whose principal activity in a given tax year is industrial production.
The
following corporate tax benefits, among others, are available to Industrial Companies:
|
●
|
amortization
over an eight-year period of the cost of patents and rights to use patents and know-how which were purchased in good faith
and are used for the development or advancement of the Industrial Enterprise;
|
|
|
|
|
●
|
under
certain conditions, an election to file consolidated tax returns with related Israeli Industrial Companies; and
|
|
|
|
|
●
|
expenses
related to a public offering are deductible in equal amounts over three years.
|
There
is no assurance that
we qualify as an Industrial Company or that the benefits described above are currently available to us or will be available
to us in the future.
Law
for the Encouragement of Capital Investments, 5719-1959
The
Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives
for capital investments in productive assets, such as production facilities, by “Industrial Enterprises” (as defined
under the Investment Law).
The
Investment Law was significantly amended effective April 1, 2005 (the “2005 Amendment”), and further amended as of
January 1, 2011 (the “2011 Amendment”) and as of January 1, 2017 (the “2017 Amendment”). Pursuant
to the 2005 Amendment, tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by the
2005 Amendment remain in force but any benefits granted subsequently are subject to the provisions of the 2005 Amendment. Similarly,
the 2011 Amendment introduced new benefits to replace those granted in accordance with the provisions of the Investment Law in
effect prior to the 2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect prior to January
1, 2011 were entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead,
irrevocably, to forego such benefits and have the benefits of the 2011 Amendment apply. Finally, the 2017 Amendment provided
another benefits track, which represents an alternative to the tracks available under the 2005 Amendment and the 2011 Amendment.
We have examined the possible effect, if any, of these provisions of the 2011 Amendment and the 2017 Amendment on our financial
statements and have decided, at this time, not to opt to apply the new benefits under the 2011 Amendment or the 2017 Amendment.
Tax
Benefits Prior to the 2005 Amendment
An
investment program that is implemented in accordance with the provisions of the Investment Law prior to the 2005 Amendment, referred
to as an “Approved Enterprise,” is entitled to certain benefits. A company that wished to receive benefits as an Approved
Enterprise must have received approval from the Investment Center of the Israeli Ministry of the Economy (formerly the Ministry
of Industry, Trade and Labor), or the Investment Center. Each certificate of approval for an Approved Enterprise relates to a
specific investment program in the Approved Enterprise, delineated both by the financial scope of the investment and by the physical
characteristics of the facility or the asset.
In
general, an Approved Enterprise is entitled to receive a grant from the Government of Israel or an alternative package of tax
benefits, known as the alternative benefits track. The tax benefits from any certificate of approval relate only to taxable income
attributable to the specific Approved Enterprise. Income derived from activity that is not integral to the activity of the Approved
Enterprise does not enjoy tax benefits.
In
addition, a company that has an Approved Enterprise program is eligible for further tax benefits if it qualifies as a Foreign
Investors’ Company (“FIC”), which is a company with a level of foreign investment, as defined in the Investment
Law, of more than 25%. The level of foreign investment is measured as the percentage of rights in the company (in terms of shares,
rights to profits, voting and appointment of directors), and of combined share capital and loans, that are owned, directly or
indirectly, by persons who are not residents of Israel. The determination as to whether a company qualifies as an FIC is made
on an annual basis.
If
a company elects the alternative benefits track and distributes a dividend out of income derived by its Approved Enterprise during
the tax exemption period it will be subject to corporate tax in respect of the amount of the dividend (grossed-up to reflect the
pre-tax income that it would have had to earn in order to distribute the dividend) at the corporate tax rate which would have
been applicable without the tax exemption under the alternative benefits track. In addition, dividends paid out of income attributed
to an Approved Enterprise are generally subject to withholding tax at source at the rate of 15% or such lower rate as may be provided
in an applicable tax treaty.
The
Investment Law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment
that are included in an Approved Enterprise program during the first five years in which the equipment is used.
The
benefits available to an Approved Enterprise are subject to the fulfillment of conditions stipulated in the Investment Law and
its regulations and the criteria in the specific certificate of approval. If a company does not meet these conditions, it would
be required to repay the amount of tax benefits, as adjusted by the Israeli consumer price index, and interest.
We
do not have Approved Enterprise programs.
Tax
Benefits Subsequent to the 2005 Amendment
The
2005 Amendment applies to new investment programs commencing after 2004, but does not apply to investment programs approved prior
to April 1, 2005. The 2005 Amendment provides that terms and benefits included in any certificate of approval that was granted
before the 2005 Amendment became effective (April 1, 2005) will remain subject to the provisions of the Investment Law as in effect
on the date of such approval.
The 2005
Amendment provides that a certificate of approval from the Investment Center will only be necessary for receiving cash grants.
As a result, it was no longer necessary for a company to obtain an Approved Enterprise certificate of approval in order to receive
the tax benefits previously available under the alternative benefits track. Rather, a company may claim the tax benefits offered
by the alternative benefits track directly in its tax returns, provided that it meets the criteria for tax benefits set forth
in the amendment. In order to receive the tax benefits, the 2005 Amendment states,
inter alia
, that a company must
make an investment which meets all of the conditions, including a minimum qualifying investment in certain productive assets as
specified in the Investment Law. Such investment, along with the fulfillment of certain export requirements, allows a company
to receive “Benefited Enterprise” status, and may be made over a period of no more than three years culminating with
the end of the Benefited Enterprise election year.
The
extent of the tax benefits available under the 2005 Amendment to qualifying income of a Benefited Enterprise depends on, among
other things, the geographic location in Israel of the Benefited Enterprise. The location will also determine the period for which
tax benefits are available. Such tax benefits include an exemption from corporate tax on undistributed income generated by the
Benefited Enterprise for a period of between two to ten years, depending on the geographic location of the Benefited Enterprise
in Israel, and a reduced corporate tax rate of between 10% to 25% for the remainder of the benefits period, depending on the level
of foreign investment in the company in each year. The benefits period is limited to 12 years from the beginning of the Benefited
Enterprise election year. With respect to an establishment Benefited Enterprise plan located in certain specific locations, the
benefits period is limited to 14 years from the beginning of the Benefited Enterprise election year, depending on the location
of the Benefited Enterprise. We informed the Israeli Tax Authority of our choice of 2012 as a Benefited Enterprise election year.
A company qualifying for tax benefits under the 2005 Amendment which pays a dividend out of income derived by its Benefited Enterprise
during the tax exemption period will be subject to corporate tax in respect of the amount of the dividend (grossed-up to reflect
the pre-tax income that it would have had to earn in order to distribute the dividend) at the corporate tax rate which would have
otherwise been applicable. Dividends paid out of income attributed to a Benefited Enterprise are generally subject to withholding
tax at source at the rate of 15% or such lower rate as may be provided in an applicable tax treaty.
The
benefits available to a Benefited Enterprise are subject to the fulfillment of conditions stipulated in the Investment Law and
its regulations. If a company does not meet these conditions, in a given tax year during the benefits period, it would generally
not be eligible for tax benefits during such tax year; however, the company’s eligibility for tax benefits in prior and
future years should not be impacted.
We
currently have one Benefited Enterprise program under the Investments Law, which, we believe, may entitle us to certain tax benefits.
The tax benefit period for this program has not yet commenced but is expected to end no later than the end of tax year 2023. During
the benefits period, which shall commence with the year we will first earn taxable income relating to such enterprise, subject
to the 12 years limitation described above, and shall run for a period of up to 10 years (assuming FIC status), a corporate
tax exemption is expected to apply with respect to the taxable income from our Benefited Enterprise program (once generated) generated
during the first two years of the benefits period (so long as it remains undistributed) and reduced corporate tax rates are expected
to apply to such taxable income generated in the remaining years of the benefits period.
There
is no assurance that our future taxable income will qualify as Benefited Enterprise income or that the benefits described above
will be available to us in the future.
Tax
Benefits Under the 2011 Amendment
The
2011 Amendment canceled the availability of the benefits granted to companies under the Investment Law prior to 2011, subject
to certain exceptions, and, instead, introduced new benefits for income generated by a “Preferred Company” through
its “Preferred Enterprise” (as such terms are defined in the Investment Law) as of January 1, 2011. The definition
of a Preferred Company includes a company incorporated in Israel that is not wholly-owned by a governmental entity, and that has,
among other things, Preferred Enterprise status and is controlled and managed from Israel. Pursuant to the 2011 Amendment, in
2014 and thereafter a Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to its income derived
by its Preferred Enterprise unless the Preferred Enterprise is located in development zone A, in which case the rate will be 9%.
This latter rate was reduced to 7.5% as of January 1, 2017. It should be noted, that the classification of income generated
from the provision of usage rights in know-how or software that were developed in the Preferred Enterprise, as well as royalty
income received with respect to such usage, as Preferred Enterprise income may be subject to the issuance of a pre-ruling
from the Israel Tax Authority stipulating that such income is associated with the productive activity of the Preferred Enterprise
in Israel.
Dividends
paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at source at the rate of 20%
or such lower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company,
no tax is required to be withheld (although, if such dividends are subsequently distributed to individuals or a non-Israeli company,
withholding tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply).
The
2011 Amendment also provided transitional provisions to address companies that may be eligible for tax benefits under the Approved
Enterprise or Benefited Enterprise regimes. These transitional provisions provide, among other things, that unless an irrevocable
request is made to apply the provisions of the Investment Law as amended in 2011 with respect to income to be derived as of January
1, 2011: (1) the terms and benefits included in any certificate of approval that was granted to an Approved Enterprise which chose
to receive grants before the 2011 Amendment became effective will remain subject to the provisions of the Investment Law as in
effect on the date of such approval, and subject to certain other conditions, (2) terms and benefits included in any certificate
of approval that was granted to an Approved Enterprise which had participated in an alternative benefits track before the 2011
Amendment became effective will remain subject to the provisions of the Investment Law as in effect on the date of such approval,
provided that certain conditions are met, and (3) a Benefited Enterprise can elect to continue to benefit from the benefits provided
to it before the 2011 Amendment came into effect, provided that certain conditions are met.
We
have examined the potential Israeli tax implications associated with the adoption and implementation of the provisions of the
2011 Amendment and have decided, at this time, not to apply the new benefits under the 2011 Amendment. There is no assurance that
our future taxable income will qualify as Preferred Enterprise income or that the benefits described above will be available to
us in the future.
The
termination or substantial reduction of any of the benefits available under the Investment Law could materially increase our tax
liabilities.
Tax
Benefits Under the 2017 Amendment
The
2017 Amendment introduced new benefits for income generated by a “Preferred Company” (as defined above) through its
“Preferred Technology Enterprise” (as defined in the Investment Law) as of January 1, 2017. Pursuant to the 2017 Amendment,
in 2017 and thereafter a Preferred Company is entitled to a reduced corporate tax rate of 12% with respect to its income derived
by its Preferred Technology Enterprise unless the Preferred Enterprise is located in development zone A, in which case the rate
will be 7.5%. It should be noted that the calculation of a Preferred Company's Preferred Technology Enterprise income is based
on a complex formula and the income not classified as such may be classified as Preferred Enterprise income or ordinary income
depending on the circumstances. In addition, a Preferred Company must generally fulfill certain conditions to be eligible for
Preferred Technology Enterprise status including,
inter alia
, an R&D expenses level of at least 7% of total revenues
or NIS 75 million per year.
Dividends
paid out of Preferred Technology Enterprise income are generally subject to withholding tax at source at the rate of 20% or such
lower rate as may be provided in an applicable tax treaty. However, subject to the fulfillment of certain conditions, to the extent
that the dividends are paid to a direct foreign parent company holding at least 90% of the shares of the Preferred Company, a
reduced withholding tax rate of 4% shall apply. Notwithstanding the above, if such dividends are paid to an Israeli company, no
tax is required to be withheld (although, if such dividends are subsequently distributed to individuals or a non-Israeli company,
withholding tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply).
We
have examined the potential Israeli tax implications associated with the adoption and implementation of the provisions of the
2017 Amendment and have decided, at this time, not to apply the new benefits under the 2017 Amendment. There is no assurance that
our future taxable income will qualify as Preferred Technology Enterprise income or that the benefits described above will be
available to us in the future.
The
termination or substantial reduction of any of the benefits available under the Investment Law could materially increase our tax
liabilities.
Taxation
of Our Shareholders
This
discussion does not address the tax consequences applicable to shareholders that own, or have owned at any time, directly or indirectly,
10% or more of our shares (“Controlling Shareholders”), and such shareholders should consult their tax advisers as
to the tax consequences of owning or disposing of our shares.
Capital
Gains Taxes Applicable to Non-Israeli Resident Shareholders
A
non-Israeli resident who derives capital gains from the sale of shares in an Israeli resident company that were purchased after
the Company was listed for trading on a stock exchange outside of Israel will be exempt from Israeli tax so long as,
inter
alia
, such capital gains were not attributable to a permanent establishment that the non-resident maintains in Israel.
However,
non-Israeli resident corporations will not be entitled to the foregoing exemption if the Israeli residents: (i) have a controlling
interest, directly or indirectly, alone, together with another (i.e., together with a relative, or together with someone who is
not a relative but with whom, according to an agreement, there is regular cooperation in material matters of the company, directly
or indirectly), or together with another Israeli resident, of more than 25% in one or more of the means of control in such non-Israeli
resident corporation, or (ii) Israeli residents are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits
of such non-Israeli resident corporation, whether directly or indirectly.
Additionally,
a sale of securities by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable
tax treaty. For example, under the United States- Israel Tax Treaty, the disposition of shares by a shareholder who (1) is a U.S.
resident (for purposes of the treaty), (2) holds the shares as a capital asset, and (3) is entitled to claim the benefits afforded
to such person by the treaty, is generally exempt from Israeli capital gains tax. Such exemption will not apply if: (1) the capital
gain arising from the disposition can be attributed to a permanent establishment in Israel, (2) the shareholder holds, directly
or indirectly, shares representing 10% or more of the voting power of the company during any part of the 12-month period preceding
the disposition, subject to certain conditions, or (3) such U.S. resident is an individual and was present in Israel for 183 days
or more during the relevant taxable year. In such case, the sale, exchange or disposition of our ordinary shares would be subject
to Israeli tax, to the extent applicable; however, under the United States-Israel Tax Treaty, the taxpayer would be permitted
to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition,
subject to the limitations under U.S. law applicable to foreign tax credits. The United States-Israel Tax Treaty does not relate
to U.S. state or local taxes.
In
some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration
may be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from
tax on their capital gains in order to avoid withholding at source at the time of sale.
Taxation
of Non-Israeli Shareholders on Receipt of Dividends
Non-Israeli
residents are generally subject to Israeli withholding tax on the receipt of dividends paid on our ordinary shares at the rate
of 25%, unless relief is provided in a treaty between Israel and the shareholder’s country of residence, subject to receipt
of a valid certificate from the Israeli Tax Authority allowing for such reduced rate. With respect to a person who is a “substantial
shareholder” at the time of receiving the dividend or at any time during the preceding twelve months, the applicable withholding
tax rate is 30%. Furthermore, an additional 3% tax might be applicable to individual shareholders if certain conditions
are met. A “substantial shareholder” is generally a person who alone or together with such person’s relative
or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10% of any of
the “means of control” of the corporation. “Means of control” generally include the right to vote, receive
profits, nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds any of the aforesaid
rights how to act, regardless of the source of such right. Notwithstanding the above, dividends paid to a non-Israeli resident
“substantial shareholder” on publicly traded shares, like our ordinary shares, which are held via a “nominee
company” (as defined under the Securities Law, 1968), are generally subject to Israeli withholding tax at a rate of 25%,
unless a different rate is provided under an applicable tax treaty, provided that a certificate from the Israeli Tax Authority
allowing for a reduced withholding tax rate is obtained in advance. Under the United States-Israel Tax Treaty, the maximum rate
of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes
of the United States- Israel Tax Treaty) is 25%. Unless a reduced tax rate is provided under an applicable tax treaty, a distribution
of dividends to non-Israeli residents is subject to withholding tax at source at a rate of 15% if the dividend is distributed
from income attributed to an Approved Enterprise or a Benefited Enterprise, while a 20% rate applies if the dividend is distributed
from Preferred Enterprise income or Preferred Technology Enterprise income (unless the dividend is paid to a foreign parent
company directly holding at least 90% of the shares of the Preferred Company, in which case a 4% withholding tax rate shall apply).
We cannot assure you that in the event we declare a dividend we will designate the income out of which the dividend is paid in
a manner that will reduce shareholders’ tax liability.
If the
dividend is attributable partly to Approved Enterprise income, Benefited Enterprise income, Preferred Enterprise
income or Preferred Technology Enterprise income, and partly to other sources of income, the withholding rate will be a
blended rate reflecting the relative portions of the two types of income. U.S. residents who are subject to Israeli withholding
tax on a dividend may be entitled to a credit or deduction for Untied States federal income tax purposes in the amount of the
taxes withheld, subject to detailed rules contained in U.S. tax legislation.
Estate
and Gift Tax
Israeli
law presently does not impose estate or gift taxes.
Certain
Material U.S. Federal Income Tax Considerations
The
following is a description of the material U.S. federal income tax considerations relating to the ownership and disposition of
our ordinary shares by a U.S. Holder (as defined below). This description addresses only the U.S. federal income tax considerations
to U.S. Holders that will hold such ordinary shares as capital assets. This description does not address tax considerations applicable
to U.S. Holders that may be subject to special tax rules, including, without limitation:
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banks,
financial institutions or insurance companies;
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real
estate investment trusts, regulated investment companies or grantor trusts;
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brokers,
dealers or traders in securities, commodities or currencies;
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tax
exempt entities or organizations, including an “individual retirement account” or “Roth IRA” as defined
in Section 408 or 408A of the Code (as defined below), respectively;
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certain
former citizens or long term residents of the United States;
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persons
that received our shares as compensation for the performance of services;
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persons
that will hold our shares as part of a “hedging,” “integrated” or “conversion” transaction
or as a position in a “straddle” for U.S. federal income tax purposes;
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partnerships
(including entities classified as partnerships for U.S. federal income tax purposes) or other pass-through entities, or holders
that will hold our shares through such an entity;
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corporations;
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persons
that acquire ordinary shares as a result of holding or owning our preferred shares;
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persons
whose “functional currency” is not the U.S. dollar; or
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persons
that own directly, indirectly or through attribution 10% or more of the voting power or value of our shares.
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Moreover,
this description does not address the U.S. federal estate, gift, or alternative minimum tax considerations, or any U.S. state,
local or non-U.S. tax considerations of the ownership and disposition of our ordinary shares.
This
description is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, changes to the code based on the U.S.
tax reform (as described below) existing, proposed and temporary U.S. Treasury Regulations promulgated thereunder and administrative
and judicial interpretations thereof, in each case as in effect and available on the date hereof. All the foregoing is subject
to change, which change could apply retroactively, and to differing interpretations, all of which could affect the tax considerations
described below. There can be no assurances that the U.S. Internal Revenue Service, or the IRS, will not take a different position
concerning the tax consequences of the ownership and disposition of our ordinary shares or that such a position would not be sustained.
Holders should consult their own tax advisers concerning the U.S. federal, state, local and foreign tax consequences of owning
and disposing of our ordinary shares in their particular circumstances.
For
purposes of this description, the term “U.S. Holder” means a beneficial owner of our ordinary shares that, for U.S.
federal income tax purposes, is (i) a citizen or resident of the United States, (ii) a corporation (or entity treated as a corporation
for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the
District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source, or (iv)
a trust with respect to which a court within the United States is able to exercise primary supervision over its administration
and one or more U.S. persons have the authority to control all of its substantial decisions.
If
a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares, the
U.S. federal income tax consequences relating to an investment in our ordinary shares will depend in part upon the status of the
partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor regarding the U.S.
federal income tax considerations of acquiring, owning and disposing of our ordinary shares in its particular circumstances.
As
indicated below, this discussion is subject to U.S. federal income tax rules applicable to a “passive foreign investment
company,” or a PFIC.
Persons
considering an investment in our ordinary shares should consult their own tax advisors as to the particular tax consequences applicable
to them relating to the ownership and disposition of our ordinary shares, including the applicability of U.S. federal, state and
local tax laws and non-U.S. tax laws.
Distributions
Subject
to the discussion under “—Passive Foreign Investment Company Considerations,” below, if you are a U.S. Holder,
the gross amount of any distribution made to you with respect to our ordinary shares before reduction for any Israeli taxes withheld
therefrom, other than certain distributions, if any, of our ordinary shares distributed pro rata to all our shareholders, generally
will be includible in your income as dividend income to the extent such distribution is paid out of our current or accumulated
earnings and profits as determined under U.S. federal income tax principles. To the extent that the amount of any distribution
by us exceeds our current and accumulated earnings and profits as determined under U.S. federal income tax principles, it will
generally be treated first as a return of your adjusted tax basis in our ordinary shares and thereafter as either long-term or
short-term capital gain depending upon whether the U.S. Holder has held our ordinary shares for more than one year as of the time
such distribution is received. We do not expect to maintain calculations of our earnings and profits under U.S. federal income
tax principles. Therefore, U.S. Holders should expect that the entire amount of any distribution generally will be reported as
dividend income. Non-corporate U.S. Holders may qualify for the preferential rates of taxation with respect to dividends on ordinary
shares applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year) applicable
to qualified dividend income (as discussed below). The Company, which is incorporated under the laws of the State of Israel, believes
that it qualifies as a resident of Israel for purposes of, and is eligible for the benefits of, the Convention between the Government
of the United States of America and the Government of the State of Israel with Respect to Taxes on Income, signed on November
20, 1975, as amended and currently in force, or the U.S.-Israel Tax Treaty, although there can be no assurance in this regard.
Further, the IRS has determined that the U.S.-Israel Tax Treaty is satisfactory for purposes of the qualified dividend rules and
that it includes an exchange-of-information program. Therefore, subject to the discussion under “—Passive Foreign
Investment Company Considerations,” below, if the U.S.-Israel Tax Treaty is applicable, such dividends will generally be
“qualified dividend income” in the hands of individual U.S. Holders, provided that certain conditions are met, including
holding period and the absence of certain risk reduction transaction requirements are met. The dividends will not be eligible
for the dividends received deduction generally allowed to corporate U.S. Holders.
On
December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, or the TCJA. The TCJA provides a 100% deduction
for the foreign-source portion of dividends received after January 1, 2018 from “specified 10-percent owned foreign corporations”
by U.S. corporate holders, subject to a one-year holding period. No foreign tax credit, including Israeli withholding tax (or
deduction for foreign taxes paid with respect to qualifying dividends) would be permitted for foreign taxes paid or accrued with
respect to a qualifying dividend. Deduction would be unavailable for “hybrid dividends.” The dividend received deduction
enacted under the TCJA may not apply to dividends from a passive foreign investment company.
U.S.
Holders, other than certain U.S. Holder’s that are U.S. corporations, generally may claim the amount of Israeli
withholding tax withheld either as a deduction from gross income or as a credit against U.S. federal income tax liability.
However, the foreign tax credit is subject to numerous complex limitations that must be determined and applied on an individual
basis. Generally, the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability
that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable
income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex
rules, as either “foreign source” or “U.S. source.” In addition, this limitation is calculated separately
with respect to specific categories of income. The amount of a distribution with respect to the ordinary shares that is treated
as a “dividend” may be lower for U.S. federal income tax purposes than it is for Israeli income tax purposes, potentially
resulting in a reduced foreign tax credit for the U.S. Holder. Each U.S. Holder should consult its own tax advisors regarding
the foreign tax credit rules.
In
general, the amount of a distribution paid to a U.S. Holder in a foreign currency will be the dollar value of the foreign currency
calculated by reference to the spot exchange rate on the day the U.S. Holder receives the distribution, regardless of whether
the foreign currency is converted into U.S. dollars at that time. Any foreign currency gain or loss a U.S. Holder realizes on
a subsequent conversion of foreign currency into U.S. dollars will be U.S. source ordinary income or loss. If dividends received
in foreign currency are converted into U.S. dollars on the day they are received, a U.S. Holder generally should not be required
to recognize foreign currency gain or loss in respect of the dividend.
Sale,
Exchange or Other Taxable Disposition of Our Ordinary Shares
Subject
to the discussion below under “—Passive Foreign Investment Company Considerations,” if you are a U.S. Holder,
you generally will recognize gain or loss on the sale, exchange or other taxable disposition of our ordinary shares equal to the
difference between the amount realized on such sale, exchange or other taxable disposition and your adjusted tax basis in our
ordinary shares, and such gain or loss will be capital gain or loss. The adjusted tax basis in an ordinary share generally will
be equal to the cost of such ordinary share. If you are a non-corporate U.S. Holder, capital gain from the sale, exchange or other
taxable disposition of ordinary shares is generally eligible for a preferential rate of taxation applicable to capital gains,
if your holding period determined at the time of such sale, exchange or other taxable disposition for such ordinary shares exceeds
one year (i.e., such gain is long-term capital gain). The deductibility of capital losses for U.S. federal income tax purposes
is subject to limitations under the Code. Any such gain or loss that a U.S. Holder recognizes generally will be treated as U.S.
source income or loss for foreign tax credit limitation purposes.
For
a cash basis taxpayer, units of foreign currency paid or received are translated into U.S. dollars at the spot rate on the settlement
date of the purchase or sale. In that case, no foreign currency exchange gain or loss will result from currency fluctuations between
the trade date and the settlement date of such a purchase or sale. An accrual basis taxpayer, however, may elect the same treatment
required of cash basis taxpayers with respect to purchases and sales of our ordinary shares that are traded on an established
securities market, provided the election is applied consistently from year to year. Such election may not be changed without the
consent of the IRS. For an accrual basis taxpayer who does not make such election, units of foreign currency paid or received
are translated into U.S. dollars at the spot rate on the trade date of the purchase or sale. Such an accrual basis taxpayer may
recognize exchange gain or loss based on currency fluctuations between the trade date and the settlement date. Any foreign currency
gain or loss a U.S. Holder realizes will be U.S. source ordinary income or loss.
Passive
Foreign Investment Company Considerations
If
we are classified as a PFIC in any taxable year, a U.S. Holder would be subject to special rules generally intended to reduce
or eliminate any benefits from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in a non-U.S.
company that does not distribute all of its earnings on a current basis.
A
non-U.S. corporation is classified as a PFIC for U.S. federal income tax purposes in any taxable year in which, after applying
certain look-through rules with respect to the income and assets of subsidiaries, either (i) at least 75% of its gross income
is “passive income” or (ii) at least 50% of the average quarterly value of its total gross assets (which, assuming
we are not a CFC for the year being tested, would be measured by fair market value of the assets, and for which purpose the total
value of our assets may be determined in part by the market value of our ordinary shares, which is subject to change) is attributable
to assets that produce “passive income” or are held for the production of passive income.
Passive
income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions,
the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason
of the temporary investment of funds raised in offerings of our ordinary shares. If a non-U.S. corporation owns directly or indirectly
at least 25% by value of the stock of another corporation, the non-U.S. corporation is treated for purposes of the PFIC tests
as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of
the other corporation’s income. If we are classified as a PFIC in any year with respect to which a U.S. Holder owns our
ordinary shares, we will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which
the U.S. Holder owns our ordinary shares, regardless of whether we continue to meet the tests described above.
We
must determine our PFIC status annually based on tests which are factual in nature, and our status will depend on our income,
assets and activities each year.
However,
we believe that we were not a PFIC for our 2017 taxable year, but we expect that unless and until we generate
sufficient revenue from active licensing and other non-passive sources and otherwise satisfy the asset test above, we will
be treated as a PFIC in future taxable years.
If
we are a PFIC, and you are a U.S. Holder, then unless you make one of the elections described below, a special tax regime will
apply to both (a) any “excess distribution” by us to you (generally, your ratable portion of distributions in any
year which are greater than 125% of the average annual distribution received by you in the shorter of the three preceding years
or your holding period for our ordinary shares) and (b) any gain realized on the sale or other disposition of the ordinary shares.
Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as
if (a) the excess distribution or gain had been realized ratably over your holding period, (b) the amount deemed realized in each
year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than income
allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax at the U.S. Holder’s
regular ordinary income rate for the current year and would not be subject to the interest charge discussed below), and (c) the
interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those
years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation applicable to long-term
capital gains discussed above under “Distributions.”
Certain
elections may potentially be used to reduce the adverse impact of the PFIC rules on U.S. Holders (“qualifying electing fund”
(“QEF”) and “mark-to-market” elections), but these elections may accelerate the recognition of taxable
income and may result in the recognition of ordinary income.
The
rules described above for excess distributions would not apply to a U.S. Holder if the U.S. Holder makes a timely QEF election
for the first taxable year of the U.S. Holder’s holding period for ordinary shares and we comply with specified reporting
requirements. A timely QEF election for a taxable year generally must be made on or before the due date (as may be extended) for
filing the taxpayer’s U.S. federal income tax return for the year. A U.S. Holder who makes a QEF election generally must
report on a current basis a pro rata share of our ordinary earnings and net capital gain for any taxable year in which we are
a PFIC, whether or not those earnings or gains are distributed. A U.S. Holder who makes a QEF election must file a Form 8621 with
its annual income tax return. We have not historically provided the information necessary for U.S. Holders to make qualified electing
fund elections. However, beginning with our 2016 taxable year, for U.S. Holders who seek to make a QEF election with respect to
our ordinary shares, we intend to make available an information statement that will contain the necessary information required
for making a QEF election and permit such U.S. Holders access to certain information in the event of an audit by the U.S. tax
authorities.
If
a U.S. Holder does not make a QEF election for the first taxable year of the U.S. Holder’s holding period for ordinary shares
during which we are a PFIC, the QEF election will not be treated as timely and the adverse tax regime described above would apply
to dispositions of or excess distributions on the ordinary shares. In such case, a U.S. Holder may make a deemed sale election
whereby the U.S. Holder would be treated as if the U.S. Holder had sold the ordinary shares in a fully taxable sale at fair market
value on the first day of such taxable year in which the QEF election takes effect. Such U.S. Holder would be required to recognize
any gain on the deemed sale as an excess distribution and pay any tax and interest due on the excess distribution when making
the deemed sale election. The effect of such further election would be to restart the U.S. Holder’s holding period in the
ordinary shares, subject to the QEF regime, and to purge the PFIC status of such ordinary shares going forward.
If
a U.S. Holder makes the mark-to-market election, the U.S. Holder generally will recognize as ordinary income any excess of the
fair market value of the ordinary shares at the end of each taxable year over their adjusted tax basis, and will recognize an
ordinary loss in respect of any excess of the adjusted tax basis of the ordinary shares over their fair market value at the end
of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market
election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in the ordinary shares will be adjusted to reflect
these income or loss amounts. Any gain recognized on the sale or other disposition of ordinary shares in a year when we are a
PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount
of income previously included as a result of the mark-to-market election). The mark-to-market election is available only if we
are a PFIC and our ordinary shares are “regularly traded” on a “qualified exchange.” Our ordinary shares
will be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of the ordinary
shares are traded on a qualified exchange on at least 15 days during each calendar quarter (subject to the rule that trades that
have as one of their principle purposes the meeting of the trading requirement as disregarded). The NASDAQ Global Market is a
qualified exchange for this purpose and, consequently, if the ordinary shares are regularly traded, the mark-to-market election
will be available to a U.S. Holder.
U.S.
Holders should consult their tax advisors to determine whether any of these elections would be available and if so, what the consequences
of the alternative treatments would be in their particular circumstances.
If
we are a PFIC, the general tax treatment for U.S. Holders described in this section would apply to indirect distributions and
gains deemed to be realized by U.S. Holders in respect of any of our subsidiaries that also may be determined to be PFICs.
If
a U.S. Holder owns ordinary shares during any year in which we are a PFIC and the U.S. Holder recognizes gain on a disposition
of our ordinary shares or receives distributions with respect to our ordinary shares, the U.S. Holder generally will be required
to file an IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund)
with respect to the company, generally with the U.S. Holder’s federal income tax return for that year. If our company were
a PFIC for a given taxable year, then you should consult your tax advisor concerning your annual filing requirements.
The
U.S. federal income tax rules relating to PFICs are complex. Prospective U.S. investors are urged to consult their own tax advisers
with respect to the ownership and disposition of our ordinary shares, the consequences to them of an investment in a PFIC, any
elections available with respect to our ordinary shares and the IRS information reporting obligations with respect to the ownership
and disposition of our ordinary shares.
Medicare
Tax
Certain
U.S. Holders that are individuals, estates or trusts may be required to pay an additional 3.8% Medicare tax
on all or a portion of their “net investment income,” which may include all or a portion of their dividend income
and net gains from the disposition of ordinary shares. U.S. Holders will likely not be able to credit foreign taxes against
the 3.8% Medicare tax. Each U.S. Holder that is an individual, estate or trust is urged to consult its tax advisors regarding
the applicability of the Medicare tax to its income and gains in respect of its investment in our ordinary shares.
Backup
Withholding Tax and Information Reporting Requirements
U.S.
backup withholding tax and information reporting requirements may apply to certain payments to certain shareholders. Information
reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, our ordinary shares
made within the United States, or by a U.S. payor or U.S. middleman, to a holder of our ordinary shares, other than an exempt
recipient (including a payee that is not a U.S. person that provides an appropriate certification and certain other persons).
A payor may be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the
sale or redemption of, ordinary shares within the United States, or by a U.S. payor or U.S. middleman, to a holder, other than
an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with,
or establish an exemption from, such backup withholding tax requirements. Any amounts withheld under the backup withholding rules
should generally be allowed as a credit against the beneficial owner’s U.S. federal income tax liability, if any,
and any excess amounts withheld under the backup withholding rules may be refunded, provided that the required information is
timely furnished to the IRS.
Foreign
Asset Reporting
Certain
U.S. Holders who are individuals may be required to report information relating to an interest in our ordinary shares,
subject to certain exceptions (including an exception for shares held in accounts maintained by U.S. financial institutions) by
filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. U.S. Holders are
urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership
and disposition of our ordinary shares.
Foreign
Account Tax Compliance Act
The
Foreign Account Tax Compliance Act (“FATCA”) encourages foreign financial institutions to report information about
their U.S. account holders (including holders of certain equity interests) to the IRS. Foreign financial institutions that fail
to comply with the withholding and reporting requirements of FATCA and certain account holders that do not provide sufficient
information under the requirements of FATCA are subject to a 30% U.S. withholding tax on certain payments they receive, including
foreign passthru payments (which may include payments made by us with respect to our ordinary shares). The term “foreign
passthru payment” is not currently defined in U.S. Treasury Regulations, and therefore, the future application of FATCA
withholding tax on foreign pass-thru payments to holders of ordinary shares is uncertain. If a holder of ordinary shares is subject
to withholding, there will be no additional amounts payable by way of compensation to the holder of such securities for the deducted
amount. Holders of ordinary shares should consult their own tax advisors regarding this legislation in light of such holder’s
particular situation.
THE
DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN ORDINARY
SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
F.
Dividends and Paying Agents
Not
applicable.
G.
Statement by Experts
Not
applicable.
H.
Documents on Display
You
may inspect our securities filings, including this Annual Report and the exhibits and schedules thereto, without charge at the
offices of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part of the Annual Report
from the Public Reference Section of the SEC, 100 F Street, NE, Washington, D.C. 20549 upon the payment of the prescribed fees.
You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains
a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants like
us that file electronically with the SEC. You can also inspect the Annual Report on this website.
A
copy of each document (or a translation thereof to the extent not in English) concerning our company that is referred to in this
Annual Report is available for public view (subject to confidential treatment of certain agreements pursuant to applicable law)
at our principal executive offices.
I.
Subsidiary Information
Not
applicable.
Item
11. Quantitative and Qualitative Disclosures About Market Risk
We
are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our
financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result
of foreign currency exchange rates. Approximately 23% of our expenses in 2017 were denominated in New Israeli Shekels. Changes
of 5% in the US$/NIS exchange rate will increase or decrease the operating expenses by up to 1%.
Foreign
Currency Risk
Fluctuations
in exchange rates, especially the NIS against the U.S. dollar, may affect our results, as some of our assets are linked to NIS,
as are some of our liabilities. In addition, the fluctuation in the NIS exchange rate against the U.S. dollar may impact our results,
as a portion of our operating costs are NIS denominated.
The
following table presents information about the changes in the exchange rates of the NIS against the U.S. dollar at year end:
Period
|
|
|
%
|
|
Year
ended December 31, 2017
|
|
|
|
1.5
|
%
|
Year
ended December 31, 2016
|
|
|
|
1.5
|
%
|
Year
ended December 31, 2015
|
|
|
|
(0.33
|
%)
|
Inflation
Risk
We
do not believe that inflation had a material effect on our business, financial condition or results of operations in the last
three fiscal years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset
such higher costs through hedging transactions. Our inability or failure to do so could harm our business, financial condition
and results of operations.
Item
12. Description of Securities Other Than Equity Securities
Not
applicable.