PART
I
ITEM 1.
|
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not
applicable.
ITEM 2.
|
OFFER
STATISTICS AND EXPECTED TIMETABLE
|
Not
applicable.
|
A.
|
Selected
Financial Data
|
The
following table sets forth our selected consolidated financial data for the periods ended and as of the dates indicated. The following
selected consolidated financial data should be read in conjunction with the financial information, “Item 5. Operational
and Financial Review and Prospects” and other information provided elsewhere in this Annual Report on Form 20-F and our
consolidated financial statements and related notes. The selected consolidated financial data in this section is not intended
to replace the consolidated financial statements and is qualified in its entirety thereby.
The
selected consolidated statement of comprehensive loss data for the years ended December 31, 2019, 2018 and 2017, and the selected
consolidated balance sheets as of December 31, 2019 and December 31, 2018, have been derived from our audited consolidated financial
statements and notes thereto set forth elsewhere in this Annual Report on Form 20-F. The selected consolidated balance sheets
as of December 31, 2017 have been derived from financial data.
Prior
to 2019, we prepared our financial statements in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board. In 2019, we decided to adopt U.S. GAAP since our business activity is primarily in the
U.S. as well as our activity in the U.S. capital markets. We have not included financial information for the years ended and as
of December 31, 2016 and 2015, as such information cannot be provided on a restated U.S. GAAP basis without unreasonable effort
or expense.
Statement
of operations data
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
(USD in thousands except
per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2,318
|
|
|
|
5,014
|
|
|
|
463
|
|
Cost of revenue
|
|
|
1,879
|
|
|
|
1,659
|
|
|
|
48
|
|
Gross Profit
|
|
|
439
|
|
|
|
3,355
|
|
|
|
415
|
|
Research and development expenses, net
|
|
|
4,414
|
|
|
|
3,877
|
|
|
|
3,906
|
|
General, administrative and marketing expenses
|
|
|
3,656
|
|
|
|
3,723
|
|
|
|
2,466
|
|
Operating loss
|
|
|
7,631
|
|
|
|
4,245
|
|
|
|
5,957
|
|
Exchange differences
|
|
|
230
|
|
|
|
(176
|
)
|
|
|
47
|
|
Financial expenses
|
|
|
3,303
|
|
|
|
2,180
|
|
|
|
47
|
|
Financial expenses, net
|
|
|
3,533
|
|
|
|
2,004
|
|
|
|
94
|
|
Loss for the period
|
|
|
11,164
|
|
|
|
6,249
|
|
|
|
6,051
|
|
Currency translation differences
|
|
|
-
|
|
|
|
557
|
|
|
|
(205
|
)
|
Comprehensive loss
|
|
|
11,164
|
|
|
|
6,806
|
|
|
|
5,846
|
|
Loss per ordinary share, basic and diluted
|
|
|
2.23
|
|
|
|
1.43
|
|
|
|
2.27
|
|
Weighted average ordinary shares outstanding, basic and
diluted
|
|
|
4,986,381
|
|
|
|
4,384,585
|
|
|
|
2,663,741
|
|
Balance
sheets data
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
(USD in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
3,791
|
|
|
|
1,580
|
|
|
|
5,139
|
|
Total assets(1)
|
|
|
10,752
|
|
|
|
8,752
|
|
|
|
7,670
|
|
Total liabilities(1)
|
|
|
6,664
|
|
|
|
3,332
|
|
|
|
2,499
|
|
Ordinary Shares
|
|
|
2,368
|
|
|
|
1,580
|
|
|
|
1,382
|
|
Total equity
|
|
|
4,088
|
|
|
|
5,420
|
|
|
|
5,171
|
|
|
1)
|
During 2019, we adopted Accounting Standard Codification
topic 842 (Leases) on a modified retrospective basis with an adoption date of January 1, 2019. Consequently, financial information
for periods prior to 2019 was not updated and the disclosures required under the new standard are not provided for dates and periods
before January 1, 2019.
|
|
B.
|
Capitalization
and Indebtedness
|
Not
applicable.
|
C.
|
Reasons
for the Offer and Use of Proceeds
|
Not
applicable.
You
should carefully consider the risks described below, together with all of the other information in this Annual Report on Form
20-F. The risks and uncertainties described below are those significant risk factors, currently known and specific to us, that
we believe are relevant to an investment in our securities. Additional risks and uncertainties not currently known to us or that
we now deem immaterial may also harm us. If any of these risks materialize our business, results of operations or financial condition
could suffer, and the price of the ADSs could decline substantially.
Risks
Related to Our Financial Position 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 regenerative and aesthetic medicine company. We have incurred losses in each year since our inception in 2004, including
total comprehensive loss of $11.2 million, $6.8 million and $5.8 million for the years ended December 31, 2019, December
31, 2018 and December 31, 2017, respectively. As of December 31, 2019, we had an accumulated deficit of $67.3 million.
We
have devoted most of our financial resources to research and development, including our clinical and preclinical development activities.
To date, we have financed our operations primarily with revenues from sales of our products and license of our technology, as
well as from net proceeds from private placements. Prior to February 2017, we financed our operations primarily from public offerings
of our securities on the TASE, participation of business partners in product development collaborations, and government grants
from the IIA. The amount of our future net losses will depend, in part, on the success of our collaborations and on the rate of
our future expenditures. If and when we or our partners will obtain regulatory approval to market products, our future revenues
will depend upon the size of any markets in which the products have received approval, and the ability to achieve sufficient market
acceptance, reimbursement from third-party payors and adequate market share for the products in those markets.
We
expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses
will increase substantially if and as we:
|
●
|
continue
our research and preclinical and clinical development of our products and product candidates;
|
|
●
|
initiate
additional preclinical, clinical, or other studies for our products and product candidates;
|
|
●
|
seek
marketing approvals for any of our products and product candidates that successfully complete clinical trials;
|
|
●
|
further develop and expand the manufacturing process for our products and product candidates;
|
|
●
|
establish a sales, marketing, and distribution infrastructure to commercialize our products and product candidates for which we may obtain marketing approval;
|
|
●
|
seek to identify and validate additional products and product candidates;
|
|
●
|
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.
Our
recurring operating losses, negative cash flows and current cash position have raised substantial doubt regarding our ability
to continue as a going concern.
We
have an accumulated deficit as of December 31, 2019, as well as a history of net losses and negative operating cash flows in recent
years. We expect to continue incurring losses and negative cash flows from operations until our products (primarily BioInk) reach
commercial profitability. As a result of these expected losses and negative cash flows from operations, along with our current
cash position, we do not have sufficient cash to meet our liquidity requirements for the following twelve months. Consequently,
there is substantial doubt regarding our ability to continue as a going concern. As a result, our independent registered public
accounting firm included a “going concern” explanatory paragraph in its report on our financial statements as of and
for the year ended December 31, 2019 with respect to this uncertainty. Our ability to continue as a going concern will require
us to obtain additional financing to fund our operations. The perception of our ability to continue as a going concern may make
it more difficult for us to obtain financing or obtain financing on favorable terms for the continuation of our operations and
could result in the loss of confidence by investors, suppliers and employees. If we are not successful in raising capital through
equity offerings, debt financings, collaborations, licensing arrangements or any other means or are not successful in reducing
our expenses, we may exhaust our cash resources and will be unable to continue our operations. If we cannot continue as a viable
entity, our shareholders would likely lose most or all of their investment in us.
We
will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain additional
capital when needed may force us to delay, limit, or terminate our product development efforts or other operations.
We are conducting clinical
and preclinical development of our products and product candidates and we intend to continue advancing their development. Developing
medical products is expensive, and we expect our research and development expenses to continue to be a material part of our expenses,
and may increase substantially in connection with our ongoing activities, particularly as we or our collaboration partners advance
our products or product candidates in clinical trials.
As of December 31,
2019, our cash and cash equivalents were $3.8 million. We believe that our existing cash and cash equivalents, together with the
additional $4.45 million raised in the March 2020 private placement, will enable us to fund our operating expenses and capital
expenditure requirements into the first quarter of 2021. 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. We will require additional capital to obtain U.S. Food and Drug
Administration, or FDA, approval and commercialize any product that receives regulatory approval. 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 products and 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 or ADSs 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 products 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 products or 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, 2019 we had received an aggregate of $10.1 million in the form of grants from the Israel Innovation Authority,
or the IIA (formerly known as the Office of the Chief Scientist of the Ministry of Economy and Industry, or the OCS). The requirements
and restrictions for such grants are found in the Encouragement of Research, Development and Technological Innovation in the Industry
Law 5744 1984 (formerly known as the Law for the Encouragement of Research and Development in Industry 5744 1984), or the
Innovation Law, and the IIA’s rules and guidelines. Under the IIA’s rules and guidelines, royalties of 3% to 6% on
the income generated from sales of products and related services developed in whole or in part under IIA programs are payable
to the IIA (depending on the type of the Recipient Company—i.e., whether it is a “Small Company”, a “Large
Company” or a “Traditional Industrial Company” as such terms are defined in the IIA’s rules and guidelines),
up to the total amount of grants received, including annual interest, all as detailed in the IIA’s rules and guidelines.
Prior
to 2018, we developed our platform technologies, at least in part, with funds from these grants, and accordingly we are obligated
to pay these royalties on sales of any of our current products that achieve regulatory approval. In addition, the Government of
Israel may from time to time audit sales of products which it claims incorporate technology funded via the IIA programs and this
may lead to additional royalties being payable on additional products. As of December 31, 2019, the maximum royalty amount that
would be payable by us, excluding interest, is $8.6 million. As of December 31, 2019, we paid to the IIA $1.5 million in royalties
and payments against the approval to use outside the state of Israel in regards to the License, Development and Commercialization
Agreement, or the United License Agreement, entered into by CollPlant, our wholly-owned subsidiary. For the year ended December 31,
2019, we recognized grants totaling $28,000 from the IIA, which relates to grant approved in 2018. The grants represented 0.6%
of our gross research and development expenditures for the year ended December 31, 2019. Following the full payment
of such royalties and interest, there is generally no further liability for royalty payments; however, other restrictions under
the IIA’s rules and guidelines, described below under “Risk Factors—The IIA grants we have received for research
and development expenditures restrict our ability to manufacture products and transfer know-how outside of Israel and require
us to satisfy specified conditions”, will continue to apply even after we have repaid the full amount of royalties on the
grants.
These
grants have funded some of our personnel, development activities with subcontractors, and other research and development costs
and expenses. However, if these grants are not funded in their entirety or if new grants are not awarded in the future, due to,
for example, if we choose not to submit an application for a grant, or due to 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 products.
The
IIA grants we have received for research and development expenditures restrict our ability to manufacture products and transfer
IIA funded know-how outside of Israel and require us to satisfy specified conditions.
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 Innovation Law and the IIA’s rules and guidelines.
Under
the Innovation Law and the IIA’s rules and guidelines, we are generally prohibited from manufacturing products developed
under the IIA’s funding outside of the State of Israel without the prior approval of the IIA (such approval is not required
for the transfer of less than 10% of the manufacturing capacity in the aggregate, but a mere notification). We may not receive
the required approvals for any proposed transfer of manufacturing activities. In general, in addition to the requirement of obtaining
approval to manufacture products developed with IIA grants outside of Israel, the royalty repayment rate would increase and we
would be required to pay increased royalties, between 120% and 300% of the grants plus annual interest, depending on the manufacturing
volume that is performed outside of Israel. This restriction may impair our ability to outsource manufacturing rights abroad.
A
company also has the option of declaring in its IIA grant application its intent to exercise a portion of the manufacturing capacity
abroad, thus avoiding the need to obtain additional approval following the receipt of the grant.
Additionally,
under the Innovation Law and the IIA’s rules and guidelines, we are prohibited from transferring the IIA’s funded
know-how and related intellectual property rights outside of the State of Israel, except under limited circumstances and only
with the approval of the IIA’s committee. We may not receive the required approvals for any proposed transfer, and even
if we receive the required approvals, we may be required to pay the IIA a redemption fee up to a maximum of 600% of the grant
amounts plus interest, depending upon the value of the transferred know-how, our research and development expenses, the amount
of the IIA’s support, the time of completion of the IIA supported research project and other factors.
A
transfer of IIA’s funded know-how to an Israeli company also requires the approval of the IIA’s committee, but will
not subject the Company to a payment of a redemption fee (we note that there will be an obligation to pay royalties to the IIA
from the income of such sale transaction as part of the royalty payment obligation), and approval may only be granted if the recipient
abides by the provisions of applicable laws, including the restrictions on the transfer of know-how and the manufacturing rights
outside of Israel and the obligation to pay royalties. No assurance can be given that approval to any such transfer, if requested,
will be granted.
Recently,
the IIA has published new rules and guidelines with respect to the grant of the right to use know-how that was developed using
the IIA’s grants to a foreign entity. According to these rules, the grant of a right to a foreign entity to use the IIA’s
funded know-how (without entirely expropriating from the IIA-funded company the possibility of using the IIA’s funded know-how)
is subject to receipt of the IIA’s prior approval. This approval is subject to payment to the IIA in accordance with the
formulas stipulated in these rules.
These
restrictions may impair our ability to sell our technology assets or to perform or outsource manufacturing outside of Israel,
or otherwise transfer our know-how outside of Israel. These restrictions may also require us to obtain the approval of the IIA
for certain actions and transactions and pay additional royalties and other amounts to the IIA. Furthermore, the consideration
available to our shareholders in a transaction involving the transfer outside of Israel of know-how developed with IIA funding
(such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the IIA.
If
we fail to comply with the requirements of the Innovation Law, we may be required to refund certain grants previously received
along with interest and penalties, and we may become subject to criminal proceedings.
In
August 2015, a new amendment to the Innovation Law was enacted, or Amendment No. 7, which came into effect on January 1,
2016. Under Amendment No. 7, the IIA has assumed oversight of activity previously subject to OCS’ responsibility. The IIA
was granted wide freedom of action, and among other things, the IIA has the authority to amend the requirements and restrictions
which were specified in the Innovation Law before Amendment No. 7 came into effect with respect to the ownership of IIA’s
funded know-how (including with respect to the restrictions on transfer of the IIA’s funded know-how and manufacturing activities
outside of Israel), as well as with respect to royalty payment obligations which apply to companies that receive grants from the
IIA. Amendment No. 7 also includes new provisions with respect to sanctions imposed for violations of the Innovation Law.
Although the IIA recently published rules which for the most part adopted the principal provisions and restrictions specified
in the Innovation Law prior to the effectiveness of Amendment No. 7, as of the date of this Annual Report on Form 20-F, we
are unable to assess the effect of any future rules which may be published by the IIA on our business.
We
may not be able to correctly estimate or control our future operating expenses, which could lead to cash shortfalls.
Our
operating expenses may fluctuate significantly in the future for various reasons, many of which are outside of our control. These
reasons may include:
|
●
|
the
time, resources, and expenses required to conduct clinical trials of, seek regulatory approvals for, manufacture, market,
and sell our current products and any additional products we may develop;
|
|
●
|
the
time, resources, and expenses required to research and develop additional indications of our current products;
|
|
●
|
the
costs of preparing, filing, prosecuting, defending, and enforcing patent claims and other patent-related costs, including
litigation costs or the results of such litigation;
|
|
●
|
any
product liability or other lawsuits related to our products and the costs associated with defending them or the results of
such lawsuits;
|
|
●
|
the
costs to attract and retain personnel with the skills required for effective operations; and
|
|
●
|
the
costs associated with being a public company in the United States.
|
It
is difficult to forecast our future performance, which may cause our financial results to fluctuate unpredictably.
Because
we do not yet have an established commercial operating history, and because the market for our products and product candidates
may rapidly evolve, it is hard for us to predict our future performance. A number of factors, many of which are outside of our
control, may contribute to fluctuations in our financial results assuming that we receive marketing authorizations and begin selling
our products. These factors may include variations in:
|
●
|
market
demand for, and acceptance of, our products;
|
|
●
|
our
ability to obtain or maintain regulatory approvals;
|
|
●
|
our
sales and marketing operations, or the effectiveness of these operations;
|
|
●
|
performance
of our third-party contractors;
|
|
●
|
the
availability of procedures or products that compete with our products;
|
|
●
|
media
coverage of our technologies, the procedures or products of our competitors or our industry; and
|
|
●
|
natural
disasters and political and economic instability, including wars, terrorism, political unrest, results of certain elections
and votes, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an emergency,
including for example, the recent coronavirus outbreak), boycotts, adoption or expansion of government trade restrictions,
and other business restrictions).
|
There
are uncertainties and risks relating to the Alpha, Meitav Dash and Ami Sagy transactions.
In
2017, we entered into securities purchase agreements with Alpha, Meitav Dash and Ami Sagy providing for up to $7.4 million
of financing. The foregoing purchase agreements contain certain covenants that may impact our ability to raise funds in the future,
including without limitation, full-ratchet anti-dilution protection.
In
addition, the staff of the Israel Securities Authority, or ISA, has informed us that the financings of Meitav Dash and Ami Sagy
should be viewed as constituting a single transaction under the provisions of section 270(5)(b)(3) of the Israeli Companies
Law, 5759-1999, or the Companies Law. This position was based on several arguments, including the identical price in these financings,
their proximity in timing, the similar structure of the financings, including their dates of completion as well as the conditioning
of the second closing of Meitav Dash upon the raising of NIS 3.7 million by us, which is an identical amount to the consideration
paid by Ami Sagy, and the disclosure with respect to which was published one business day following the disclosure of the Meitav
Dash financing. In addition, the Israel Securities Authority, or the ISA, informed us that the Meitav Dash and Ami Sagy financings
should be submitted for approval at a general meeting of shareholders as required by Section 270(5) of the Companies Law,
since it cannot be determined that the terms of these financings have been set at market terms, considering, among other things,
the discount rate embedded in these financings, which was set at 27%-33%. Their position is based on the fact that in our case,
there is difficulty in determining market terms which derives, according to the ISA’s position, from the differences in
the prevalent discount rates of companies with similar characteristics as us. The differences include the terms of issuance and
certain adjustments, including protection for decrease in share price (full ratchet anti-dilution) and the calculation of the
fair market value of the warrants. The ISA’s position was that such differences may have implications on the calculation
of the discount rates in the Meitav Dash and Ami Sagy financings. Nevertheless, our board of directors believes that in the first
place, the said financings should not be considered as a single transaction, and that even if they were viewed as a single transaction,
they were entered into on market terms. Accordingly, we have proceeded to complete all closings under the Meitav Purchase Agreement
and the Sagy Purchase Agreement without seeking shareholder approval. As a result of the position adopted by the ISA, there is
a possibility of derivative claims and class action litigation being brought against us. Such litigation, if instituted, could
result in the voiding of the transactions, incurrence of damages, substantial costs and diversion of management attention and
resources. Any conclusion of these matters in a manner adverse to us could have a material adverse effect on our liquidity, financial
condition and results of operations.
Risks
Related to Commercialization of Our Products
The
commercial success of any current or future product, if approved, will depend upon the degree of market acceptance by physicians,
patients, third-party payors, pharma companies and others in the medical community.
Even
if we obtain the requisite regulatory approvals, the commercial success of our products will depend in part on physicians, patients,
third party payors, pharma companies and others in the medical community accepting our products 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 products, if approved for commercial sale,
will depend on a number of factors, including:
|
●
|
the
cost, safety, efficacy, and convenience of our products in relation to alternative treatments and products;
|
|
●
|
the
ability of third parties to enter into relationships with us without violating their existing agreements;
|
|
●
|
the
effectiveness of our sales and marketing efforts;
|
|
●
|
the
prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved
labeling;
|
|
●
|
the
prevalence and severity of any side effects resulting from the procedure by which our products are administered;
|
|
●
|
the
willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
|
|
●
|
the
strength of marketing and distribution support for, and timing of market introduction of, competing products;
|
|
●
|
publicity
concerning our products or competing products and treatments; and
|
|
●
|
sufficient
third-party insurance coverage or reimbursement.
|
Even
if a potential product displays a favorable safety and efficacy profile in 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 products 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.
We
have only limited clinical data to support sales of our products, which may make physicians, patients, third-party payors, and
others in the medical community reluctant to accept or purchase our products.
Physicians,
patients, third party payors, and others in the medical community will only accept or purchase our products if they believe them
to be safe and effective, with advantages over competing products or procedures. To date, we have collected only limited clinical
data with which to assess the clinical and economic value of VergenixFG and VergenixSTR which we sell in Europe. The collection
of clinical and economic data and the process of generating peer review publications in support of our product and procedure is
an ongoing focus for us. If future publications of clinical studies indicate that procedures using the VergenixFG and VergenixSTR
are less safe or less effective than competing products or procedures, patients may choose not to undergo our procedure, and physicians
or others in the medical community may choose not to use our products. Furthermore, unsatisfactory patient outcomes or patient
injury could cause negative publicity for our products, particularly in the early phases of product introduction.
We
have low scale experience in producing our rhCollagen, and if we are unable to manufacture our rhCollagen in high-quality commercial
and clinical quantities successfully and consistently to meet demand, our growth will be limited.
We
have experience manufacturing limited quantities of rhCollagen, the recombinant human type I collagen used for development
with collaborators and in our products and product candidates. Our manufacturing capabilities will need to be further improved
to meet the standard requirements for future clinical studies and for commercialization of our products and product candidates.
To manufacture our rhCollagen in quantities that we believe will be sufficient to produce our end products and meet anticipated
market demand, we will need to increase manufacturing capacity, which will involve significant challenges. In addition, the development
of commercial-scale, regulation-compliant manufacturing capabilities will require us to invest substantial additional funds and
hire and retain the technical personnel who have the necessary manufacturing experience. We may not successfully complete any
required increase to existing manufacturing processes in a timely manner, or at all.
If
there is a disruption to our internal manufacturing operations, we will have no other means of production for the components and
products from such operations until we restore the affected facilities or develop alternative manufacturing facilities, which
would delay our clinical trials or cause us to be unable to meet commercial demand for our products. In such case, we may need
to arrange for third-party manufacturing of our components and products, which would be expensive and time consuming, assuming
we can identify an appropriate third party manufacturer. Additionally, any damage to or destruction of our facilities or equipment
may significantly impair our ability to manufacture our components and products on a timely basis.
If
we are unable to produce our products in sufficient quantities to meet anticipated customer demand, our revenues, business, and
financial prospects would be harmed. The lack of experience we have in producing commercial and clinical quantities of our components
and products may also result in quality issues and product recalls. Any product recall could be expensive and generate negative
publicity, which could impair our ability to market our products and further affect our results of operations. Manufacturing delays
related to quality control could negatively impact our ability to bring our technologies to market, harm our reputation, and decrease
our revenues.
If
we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell any
of our products that obtain regulatory approval, we may be unable to generate material revenue.
We
have limited experience in selling and marketing our products or any other products. To successfully commercialize our products
we will need to develop these capabilities, either on our own or with others. We are seeking to enter into commercial alliances
with third-party collaborators and distributors to utilize their development, marketing and distribution capabilities, but we
may be unable to do so on favorable terms, if at all. If any future collaboration or distribution partners do not commit sufficient
resources to commercialize our future products, and if 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 products.
We
face competition and rapid technological change and the possibility that our competitors may develop therapies or products that
are more advanced or effective than ours, which could impair our ability to successfully commercialize our products.
We
operate in the regenerative and aesthetic medicine fields, which is rapidly changing. We have competitors both in the United States
and internationally, including major multinational pharmaceutical companies, biotechnology companies, medical technology 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 products 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 products uneconomical
or obsolete, and we may not be successful in marketing our products against competitors.
We
are not aware of any competitors that produce collagen from plants or that produce recombinant type I human collagen.
A
variety of risks associated with international operations could harm our business.
If
any of our products are approved for commercialization, it is our current intention to market them on a regional or worldwide
basis in the jurisdictions where they may be approved, either alone or in collaboration with third parties. In addition, we may
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:
|
●
|
different
regulatory requirements for product approval in foreign countries;
|
|
●
|
reduced
protection for intellectual property rights;
|
|
●
|
unexpected
changes in tariffs, trade barriers, and regulatory requirements;
|
|
●
|
economic
weakness, including inflation, or political instability in particular foreign economies and markets;
|
|
●
|
compliance
with tax, employment, immigration, and labor laws for employees living or traveling abroad;
|
|
●
|
foreign
currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident
to doing business in another country;
|
|
●
|
workforce
uncertainty in countries where labor unrest is more common than in the United States and Israel;
|
|
●
|
production
shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
|
|
●
|
business
interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes,
typhoons, floods, fires, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility
of such an emergency, including for example, the recent coronavirus outbreak).
|
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 products 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 products will depend substantially, both in Europe and in the United States, on the extent to which the
costs of our products 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
products. Even if we obtain coverage for our products, third-party payors may not establish adequate reimbursement amounts, which
may reduce the demand for, or the price of, our products. If reimbursement is not available or is available only to limited levels,
we may not be able to commercialize certain of our products.
Furthermore,
publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels
within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or
amount, or if pricing is set at unacceptable levels, we or our partner may elect not to commercialize our products in such countries,
and our business and financial condition could be adversely affected.
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 indications for which our products have been deemed safe and
effective by the regulatory authorities. In addition, any new indication for an approved product also requires regulatory approval.
If we produce an approved product, we will rely on physicians to use and administer it as we have directed and for the indications
described on the labeling. It is not, however, uncommon for physicians to use in 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 use our products for off-label uses, our ability to promote the products is limited to those indications
that are specifically approved by the 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 regulation authorities’ rules and guidelines relating to promotion and advertising can result in the regulation
authorities’ 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.
Risks
Related to the Clinical Development and Regulatory Approval of Our Products
We
currently depend heavily on the future success of our BioInk, and medical aesthetics product candidates. Any failure to successfully
develop, obtain regulatory approval for, and commercialize these products or their end products, 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 rhCollagen, BioInk, and our Vergenix
line of products. We currently depend heavily on the future success of our BioInk, and medical aesthetics product candidates.
Our ability to generate revenues from our products and product candidates depends heavily on the successful development, approval,
and commercialization of our products, which, in turn, depend on several factors, including the following:
|
●
|
our
ability to continue and support our rhCollagen platform technology and programs;
|
|
●
|
our
ability to establish and maintain strategic partnerships, including the United License Agreement;
|
|
●
|
successfully initiating and completing future clinical trials and other studies required for our products and product candidates;
|
|
●
|
demonstrating
and maintaining the safety and efficacy of our products at a sufficient level of statistical or clinical significance and
otherwise obtaining marketing approvals from regulatory authorities;
|
|
●
|
establishing
successful sales and marketing arrangements for our products in the jurisdictions where they may be approved;
|
|
●
|
the
availability of coverage and reimbursement by healthcare payors for our products in the jurisdictions where they may be approved;
|
|
●
|
establishing
a large scale facility as a second source for the manufacture of commercial and clinical quantities of our products, if approved;
and
|
|
●
|
other
risks described in this “Risk Factors” section.
|
Our
products and product candicates are based on novel technology, which makes it difficult to predict the time and cost of product
development and potential regulatory approval.
We
have concentrated our product research and development efforts on our novel rhCollagen technology. The FDA has approved very few
plant-expressed products. We may experience development challenges in the future related to our technology, which could cause
significant delays or unanticipated costs, and we may not be able to solve such development challenges. 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.
In
addition, the clinical trial requirements of European regulatory authorities, the FDA, and other regulatory authorities and the
criteria these regulators use to determine the safety and efficacy of a product vary substantially according to the type, complexity,
novelty, and intended use and market of the potential products. The regulatory approval process for novel products such as ours
can be more expensive and take longer than for other, better known or extensively studied products. Our products may also be designated
by the FDA or other regulatory authorities as combination products, which include: (1) a product comprised of two or more regulated
components, e.g., drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise
combined or mixed and produced as a single entity; (2) two or more separate products packaged together in a single package or
as a unit and comprised of drug and device products, device and biological products, or biological and drug products; (3) a drug,
device, or biological product packaged separately that according to its investigational plan or proposed labeling is intended
for use only with an approved individually specified drug, device, or biological product where both are required to achieve the
intended use, indication, or effect and where upon approval of the proposed product the labeling of the approved product would
need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of administration, or significant
change in dose; or (4) any investigational drug, device, or biological product packaged separately that according to its proposed
labeling is for use only with another individually specified investigational drug, device, or biological product where both are
required to achieve the intended use, indication, or effect. Combination Products containing a biologic/device then may be regulated
as a biologic product, resulting in a longer regulatory approval process than the regulatory approval process for a medical device
alone. Approvals by any regulatory authorities may not be indicative of what the FDA or other regulatory agencies may require
for approval, and vice versa.
Regulatory
requirements governing medical devices and other products for medical use have changed frequently and may continue to change in
the future. Also, before a clinical trial can begin, an institutional review board, or IRB, at each institution at which a clinical
trial will be performed must review the proposed clinical trial to assess the safety of the trial. In addition, adverse developments
in clinical trials of comparable products conducted by others may cause European regulatory authorities, the FDA, or other regulatory
authorities to change the requirements for approval of any of our products.
These
regulatory agencies and additional or new requirements may lengthen the regulatory review process, require us to perform additional
studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval
and commercialization of our products, or lead to significant approval and post-approval limitations or restrictions. As we advance
our products, we will be required to consult with these regulatory authorities, and comply with applicable requirements. If we
fail to do so, we may be required to delay or discontinue development of our products. Delay or failure to obtain, or unexpected
costs in obtaining, the regulatory approval necessary to bring a potential product to market could impair our ability to generate
product revenue and to become profitable.
We
may find it difficult to enroll patients in future clinical trials, and patients could discontinue their participation in our
future clinical trials, which could delay or prevent clinical trials of our products and product candidates.
Identifying
and qualifying patients to participate in clinical trials of our products and product candidates is critical to our success. The
timing of our clinical trials depends on our ability to recruit patients to participate in our clinical trials. We may experience
delays in patient enrollment in the future. If patients are unwilling to participate in our clinical trials because of negative
publicity from adverse events in the biotechnology, pharmaceutical or medical technology 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:
|
●
|
design
of the trial protocol;
|
|
●
|
size
of the patient population;
|
|
●
|
eligibility
criteria for the trial in question;
|
|
●
|
severity
of the disease/wounds under investigation;
|
|
●
|
perceived
risks and anticipated benefits of the product under study;
|
|
●
|
proximity
and availability of clinical trial sites for prospective patients;
|
|
●
|
availability
of competing therapies, products, and clinical trials;
|
|
●
|
efforts
to facilitate timely enrollment in clinical trials;
|
|
●
|
patient
referral practices of physicians; and
|
|
●
|
ability
to monitor patients adequately during and after treatment.
|
We
are currently not conducting any clinical trials. We may not be able to initiate or continue future clinical trials if we cannot
enroll a sufficient number of eligible patients to participate in the clinical trials required by European regulatory authorities,
the FDA, or other regulatory authorities.
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 related
to our products under evaluation. The discontinuation of patients in any one of our trials may cause us to delay or abandon such
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.
Future
clinical trials may not be successful or may be delayed.
Before
obtaining marketing approval from regulatory authorities for the sale of our products or product candidates or any future product,
we must conduct clinical trials to demonstrate the safety in humans for European CE marking certification, and the safety and
efficacy of our products or product candidates in humans for other regulatory authorities such as the United States. From time
to time, we work with contract research organizations, or CROs, which assist us in overseeing and implementing our clinical trials.
Clinical trials are 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. We may not receive FDA regulatory approval for the conduct of any
particular clinical trial in the United States or regulatory approval for conduct of such clinical trial in other countries. 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:
|
●
|
delays
in reaching a consensus with regulatory agencies on trial design;
|
|
●
|
delays
in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
|
|
●
|
delays
in obtaining required IRB approval at each clinical trial site;
|
|
●
|
delays
in recruiting suitable patients to participate in our clinical trials;
|
|
●
|
imposition
of a clinical hold by regulatory agencies, including after an inspection of our clinical trial operations or trial sites;
|
|
●
|
failure
by our CROs, other third parties or us to perform in accordance with clinical trial requirements or the FDA’s good clinical
practices, or GCP, or applicable regulatory requirements in other countries;
|
|
●
|
delays
in the testing, validation, manufacturing, and delivery of our products to the clinical sites;
|
|
●
|
delays
in having patients complete participation in a trial or return for post-treatment follow-up;
|
|
●
|
clinical
trial sites or patients dropping out of a trial;
|
|
●
|
occurrence
of serious adverse events associated with the products that are viewed to outweigh their potential benefits; or
|
|
●
|
changes
in regulatory requirements and guidance that require amending or submitting new clinical trial protocols.
|
Any
inability to successfully complete preclinical 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 design changes to our products or product candidates,
we may need to conduct additional studies to bridge our modified products to earlier versions. Clinical trial delays could also
shorten any periods during which we may have the exclusive right to commercialize our products or product candidates or allow
our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our products.
If
the results of our clinical trials are inconclusive or if there are safety concerns or adverse events associated with our products
or product candidates, we may:
|
●
|
fail to obtain, or be delayed in obtaining, marketing approval for our products or product candidates;
|
|
●
|
obtain
approval for indications or patient populations that are not as broad as intended or desired;
|
|
●
|
obtain
approval with labeling that includes significant use or distribution restrictions or safety warnings;
|
|
●
|
be
required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;
|
|
●
|
have
regulatory authorities withdraw their approval of the product or impose restrictions on its distribution;
|
|
●
|
be
subject to the addition of labeling statements, such as warnings or contraindications;
|
|
●
|
experience
damage to our reputation.
|
Any
of these events could prevent us from achieving or maintaining market acceptance of our products or product candidates and impair
our ability to commercialize our products.
Success
in early clinical trials may not be indicative of results obtained in later trials.
There
is a high failure rate for medical devices, drugs, and biologics proceeding through clinical trials. A number of companies in
the pharmaceutical, biotechnology, and medical technology industries have suffered significant setbacks in later stage clinical
trials even after achieving promising results in earlier stage clinical trials. Data obtained from preclinical 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 the novelty of the product and changes in regulatory policy
during the period of product development.
Even
if we complete the necessary preclinical studies and clinical trials, we cannot predict when or if we will obtain regulatory approval
to commercialize a product, 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. Even if our
products or 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 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.
Side effects may occur following
treatment with our products or product candidates which could make it more difficult for our products to receive regulatory approval.
Treatment with our
products or product candidates may cause side effects or other adverse events. In addition, since our products may in the future
be 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, but may still impact the success of our clinical trials. Additionally, our products
or product candidates could potentially cause other adverse events that have not yet been predicted. The experience of side effects
and adverse events in our clinical trials could make it more difficult to achieve regulatory approval of our products or, if approved,
could negatively impact the market acceptance of such products.
Even
if we obtain regulatory approval for a product, 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 products, or impose ongoing requirements for potentially costly post-approval studies or post-market
surveillance. Advertising and promotional materials must comply with FDA, Federal Trade Commission, or FTC, and European and other
countries’ regulatory requirements and are subject to review by the FDA, FTC or other governmental authorities, in addition
to other potentially applicable federal and state laws.
The
laws that may affect our operations in the United States include:
|
●
|
the
federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering, or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an
item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
|
|
●
|
federal
civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities
from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors
that are false or fraudulent;
|
|
●
|
the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes
that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare
matters;
|
|
●
|
HIPAA,
as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, which
imposes certain requirements relating to the privacy, security, and transmission of individually identifiable health information;
|
|
●
|
the
federal physician sunshine requirements under the Patient Protection and Affordable Care Act, which requires manufacturers
of drugs, devices, biologics, and medical supplies to report annually to the Centers for Medicare and Medicaid Services, or
CMS, information related to payments and other transfers of value to physicians, other healthcare providers, and teaching
hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family
members; and
|
|
●
|
foreign
and state law equivalents of each of the above federal laws, such as the U.S. Foreign Corrupt Practices Act, or the FCPA,
and anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including
commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary
compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict
payments that may be made to healthcare providers and other potential referral sources; state laws that require manufacturers
to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing
expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which
differ from each other in significant ways, thus complicating compliance efforts.
|
The
scope of these laws and our lack of experience in establishing the compliance programs necessary to comply with this complex and
evolving regulatory environment increase the risks that we may violate the applicable laws and regulations.
In
addition, product manufacturers and their facilities are subject to continual review and periodic inspections by the European
regulatory authorities, the FDA, and other regulatory authorities for compliance with cGMP or any applicable European or other
governmental regulations. 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 products, one or more regulatory authorities
could:
|
●
|
issue
a warning letter asserting that we are in violation of the law;
|
|
●
|
seek
an injunction or impose civil or criminal penalties or monetary fines;
|
|
●
|
suspend
or withdraw regulatory approval;
|
|
●
|
suspend
any ongoing clinical trials;
|
|
●
|
refuse
to allow us to enter into supply contracts, including government contracts.
|
Any
government investigation of alleged violations of law could require us to expend significant time and resources in response and
could generate negative publicity and potentially lead to private litigation. The occurrence of any event or penalty described
above may inhibit our ability to commercialize our products 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 preparing and filing the applications necessary to gain regulatory approvals for our products and product
candidates to the extent that we decide to make such applications ourselves. Moreover, the products that are likely to result
from our development programs are based on new technologies that have not been extensively used in humans. The regulatory requirements
governing these types of products may be less well defined or more rigorous than for conventional products. As a result, we may
experience a longer regulatory review process in connection with obtaining regulatory approvals, if any, of products that we develop.
We intend to rely on independent consultants for regulatory services and compliance and product development and filings in Europe,
the United States and elsewhere. Any failure by our consultants to properly advise us regarding, or properly perform tasks related
to, regulatory submission and other requirements could compromise our ability to develop and obtain regulatory approval of our
products.
We
are subject to stringent regulation and any adverse regulatory action may materially adversely affect our financial condition
and business operations.
Our
products, development activities, and manufacturing processes are subject to extensive and rigorous regulation by numerous government
agencies, including European regulatory authorities, the FDA, and other regulatory authorities. To varying degrees, each of these
agencies monitors and enforces our compliance with laws and regulations governing the development, testing, manufacturing, labeling,
marketing, and distribution of our products. The process of obtaining marketing approval or clearance in Europe, the United States,
and other countries for new products or enhancements or modifications to existing products could:
|
●
|
take
a significant amount of time;
|
|
●
|
require
the expenditure of substantial resources;
|
|
●
|
involve
rigorous and expensive preclinical and clinical testing, as well as increased post-market surveillance;
|
|
●
|
involve
modifications, repairs, or replacements of our products; and
|
|
●
|
result
in limitations on the indicated uses of our products.
|
We
cannot be certain that we, or our third party collaborators, will receive required approval or clearance from European regulatory
authorities, the FDA, or other regulatory authorities for new products or modifications to existing products on a timely basis.
The failure to receive approval or clearance for significant new products or modifications to existing products on a timely basis
could have a material adverse effect on our financial condition and results of operations.
Both
before and after a product is commercially released, we and our third party collaborators have ongoing responsibilities under
FDA regulations. For example, we are required to comply with the FDA’s Quality System Regulation, or QSR, which are the
good manufacturing requirements that the FDA applies to medical devices, and which mandate that manufacturers adhere to certain
requirements pertaining to, among other things, development of our products, validation of manufacturing processes, controls for
purchasing product components, and documentation practices. As another example, FDA regulations require us to provide information
to the FDA whenever there is evidence that reasonably suggests that a product may have caused or contributed to a death or serious
injury, or that a malfunction occurred which would be likely to cause or contribute to a death or serious injury upon recurrence.
Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through, among other
things, periodic inspections by the FDA, which may result in observations on Form 483 that require corrective action, and
in some cases warning letters. If the FDA were to conclude that we are not in compliance with applicable laws or regulations,
or that any of our products are ineffective or pose an unreasonable health risk, the FDA could ban such products, detain or seize
such products, order a recall, repair, replacement, or refund of such products, or require us to notify health professionals and
others that the devices present unreasonable risks of substantial harm to the public health.
The
FDA has been increasing its scrutiny of the medical device, drugs, and biologics industries, and regulatory agencies are expected
to continue to scrutinize the industry closely with inspections, with possible enforcement actions by the FDA or other agencies.
Additionally, the FDA may restrict manufacturing and impose other operating restrictions, enjoin and restrain certain violations
of applicable law pertaining to medical products, and assess civil or criminal penalties against our officers, employees, or us.
The FDA may also recommend prosecution to the Department of Justice. Any adverse regulatory action, depending on its magnitude,
may restrict us from effectively manufacturing, marketing, and selling our products. In addition, negative publicity and product
liability claims resulting from any adverse regulatory action could have a material adverse effect on our financial condition
and results of operations.
Finally,
the FDA issued regulations regarding “Current Good Manufacturing Practice Requirements for Combination Products” on
January 22, 2013. These regulations may apply to some of our products if they are designated by the FDA as combination products,
which are products composed of two or more regulated components, such as a drug and a medical device. There have been and will
be additional costs associated with compliance with the FDA Good Manufacturing Practice Requirements regulations for Combination
Products.
Governmental
regulations have become increasingly stringent and more common, and we may become subject to even more rigorous regulation by
governmental authorities in various countries in the future. Penalties for a company’s non-compliance with governmental
regulation could be severe, including revocation or suspension of a company’s business license and criminal sanctions.
The
impact of healthcare reform and other changes in the healthcare industry and in healthcare spending is currently unknown, and
may adversely affect our business model.
The
commercial potential for our approved products, if any, could be affected by changes in healthcare spending and policy in Europe,
in the United States, and in other countries. We operate in a highly regulated industry and new laws, regulations, or judicial
decisions, or new interpretations of existing laws, regulations, or decisions, related to healthcare availability, the method
of delivery, or payment for healthcare products and services could negatively impact our business, operations, and financial condition.
In
addition to the level of commercial success of our products, our future prospects are also dependent on our ability to successfully
develop a pipeline of additional products, and we may not be successful in our efforts in using our platform technologies to identify
or discover additional products.
The
success of our business depends primarily upon our ability to identify, develop, and commercialize products based on our platform
technology. Our research programs may fail to identify other potential products for clinical development for a number of reasons.
Our research methodology may be unsuccessful in identifying potential products or our potential products 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 products require substantial technical, financial, and human resources. We may focus our efforts and resources on
potential programs or products that ultimately prove to be unsuccessful.
Risks
Related to Our Reliance on Third Parties
We
may not be successful in establishing and maintaining strategic partnerships, which could adversely affect our ability to develop
and commercialize our rhCollagen based BioInks, dermal fillers and other future products for medical aesthetics.
To successfully develop
and commercialize our products and product candidates, we will need substantial financial resources as well as expertise and physical
resources and systems. We may elect to develop some or all of these physical resources and systems and expertise ourselves, or
we may seek to collaborate with another company that can provide some or all of such physical resources and systems as well as
financial resources and expertise. For example, in October 2018, CollPlant entered into the United License Agreement with LB, pursuant
to which CollPlant and LB are collaborating in 3D bio-printing development of engineered lungs or lung substitutes using our rhCollagen
and BioInk, and LB is using our BioInks in order to manufacture 3D bioprinted lungs for transplant in humans.
We face significant competition in seeking appropriate partners
for our products and product candidates, and the negotiation process is time-consuming and complex. In order for us to successfully
partner our products and product candidates, potential partners must view our products and product candidates as economically valuable
in markets they determine to be attractive in light of the terms that we are seeking and other available products for licensing
by other companies. Even if we are successful in our efforts to establish strategic partnerships, the terms that we agree upon
may not be favorable to us, and we may not be able to maintain such strategic partnerships if, for example, development or approval
of a product is delayed or sales of an approved product are disappointing. Any delay in entering into strategic partnership agreements
related to our products could delay the development and commercialization of our products and reduce their competitiveness even
if they reach the market. If we fail to establish and maintain strategic partnerships related to our products, we will bear all
of the risk and costs related to the development and commercialization of our products, and we will need to seek additional financing,
hire additional employees and otherwise develop expertise which we do not have and for which we have not budgeted.
The
risks in a strategic partnership include the following:
|
●
|
the strategic partner may not apply the expected financial resources, efforts, or required expertise in developing the physical resources and systems necessary to successfully develop and commercialize a product or product candidate;
|
|
●
|
the
strategic partner may not invest in the development of a sales and marketing force and the related infrastructure at levels
that ensure that sales of the products reach their full potential;
|
|
●
|
we
may be required to undertake the expenditure of substantial operational, financial, and management resources;
|
|
●
|
we
may be required to issue equity securities that would dilute our existing shareholders’ percentage ownership;
|
|
●
|
we
may be required to assume substantial actual or contingent liabilities;
|
|
●
|
we
may not receive requisite regulatory approvals;
|
|
●
|
strategic
partners could decide to withdraw a development program, or move forward with a competing product developed either independently
or in collaboration with others, including our competitors;
|
|
●
|
disputes
may arise between us and a strategic partner that delay the development or commercialization or adversely affect the sales
or profitability of the product; or
|
|
●
|
the
strategic partner may independently develop, or develop with third parties, products that could compete with our products.
|
In
addition, a strategic partner for one or more of our products or product candidates may have the right to terminate the collaboration
at its discretion. For example, LB may terminate the United License Agreement at any time upon 30 days’ written notice with
respect to the entirety of the United License Agreement and upon 30 days’ written notice with respect to its license and
other rights under the United License Agreement relating to one or more CollPlant patents, on a patent-by-patent and country-by-country
basis. Any early termination in a manner adverse to us could have a material adverse effect on our liquidity, financial condition
and results of operations. Any termination may require us to seek a new strategic partner, which we may not be able to do on a
timely basis, if at all, or require us to delay or scale back our development and commercialization efforts. The occurrence of
any of these events could adversely affect the development and commercialization of our products or product candidates and materially
harm our business and stock price by delaying the development of our products, and the sale of any products that may be approved
by the FDA or other regulatory agencies, by slowing the growth of such sales, by reducing the profitability of the product and/or
by adversely affecting the reputation of the product.
Further,
a strategic partner may breach an agreement with us, and we may not be able to adequately protect our rights under these agreements.
Furthermore, a strategic partner will likely negotiate for certain rights to control decisions regarding the development and commercialization
of our products, if approved, and may not conduct those activities in the same manner as we would do so.
We
expect to depend upon third-party collaborators, distributors and resellers for a significant portion of our sales.
We
expect to rely primarily upon sales through independent collaborators, distributors and resellers. While we are highly dependent
upon acceptance of our products and solutions by such third parties and their active marketing and sales efforts relating to our
products, most of our distributors and resellers will not be obligated to deal with us exclusively and are not contractually subject
to minimum purchase requirements. In addition, some of our distributors and resellers may sell competing products or solutions.
As a result, our distributors and resellers may give higher priority to products or services of our competitors, thereby reducing
their efforts in selling our products and services.
There
can be no assurance that such distributors and resellers will act as effective sales agents for us, that they will remain our
partners, or that, if we terminate or lose any of them, we will be successful in replacing them. Any disruption in our distribution
channels could adversely affect our business, operating results, and financial condition.
We
expect to rely on third parties to conduct some aspects of our product manufacturing, protocol development, research, and preclinical
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 preclinical
and clinical testing. We currently rely, and expect to continue to rely, on third parties with respect to parts of these items.
Any
of these third parties may terminate their engagements with us at any time or upon advance notice. 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.
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 preclinical studies and clinical trials required to support future FDA, European, or other approvals of our
products.
Reliance
on third-party manufacturers entails risks to which we would not be subject if we manufactured the products ourselves, including:
|
●
|
the
inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;
|
|
●
|
reduced
control as a result of using third-party manufacturers for all aspects of manufacturing activities;
|
|
●
|
termination
or non-renewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; and
|
|
●
|
disruptions
to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations,
including the bankruptcy of the manufacturer or supplier.
|
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 of action from European regulatory authorities, the FDA,
or other regulatory authorities, including injunction, recall, seizure, or total or partial suspension of production.
If
we or our third parties on which we rely cannot manufacture our products at sufficient yields, we may experience delays in development,
regulatory approval, and commercialization.
Commercialization
of our products require access to, or development of facilities to manufacture our products at sufficient yields and at a commercial
scale. We have limited experience in large scale manufacturing volumes that are expected to be necessary to support large-scale
sales. Our efforts to establish these capabilities may not meet our requirements as to scale-up, yield, cost, potency, or quality
in compliance with cGMP. Future clinical trials should be conducted with product produced under applicable cGMP regulations. Failure
to comply with these regulations would delay the regulatory approval process. Even an experienced third-party manufacturer may
encounter difficulties in production, including:
|
●
|
costs
and challenges associated with scale-up and attaining sufficient manufacturing yields;
|
|
●
|
supply
chain issues, including the timely availability and shelf life requirements of raw materials and supplies;
|
|
●
|
quality
control and assurance;
|
|
●
|
shortages
of qualified personnel and capital required to manufacture large quantities of product;
|
|
●
|
compliance
with regulatory requirements that vary in each country where a product might be sold;
|
|
●
|
capacity
limitations and scheduling availability in contracted facilities; and
|
|
●
|
natural
disasters that affect facilities and possibly limit production.
|
Any
delay or interruption in the supply of our products could have a material adverse effect on our business and operations.
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 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 or the European authorities can impose
regulatory sanctions including, among other things, refusal to approve a pending application for a new 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. 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 products;
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 future clinical trials, and if these third parties perform
in an unsatisfactory manner, it may harm our business.
We
expect to rely heavily on hospitals, clinic centers, and other institutions and third parties, including the principal investigators
and their staff, to carry out our future clinical trials in accordance with our clinical protocols and designs. We also expect
to rely on a number of CROs to assist in undertaking, managing, monitoring, and executing future clinical trials as well as clinical
data management organizations, medical institutions, and clinical investigators to conduct our development efforts in the future.
We compete with many other companies for the resources of these third parties, and large pharmaceutical and medical device companies
often have significantly more extensive agreements and relationships with such third-party providers, and such third-party providers
may prioritize the requirements of such large pharmaceutical and medical device companies over ours. The third parties on whom
we rely may terminate their engagements with us at any time, which may cause delay in the development and commercialization of
our products or product candidates. If any such third party terminates its engagement with us or fails to perform as agreed, we
may be required to enter into alternative arrangements, which would result in significant cost and delay to our product development
program. Moreover, our agreements with such third parties generally do not provide assurances regarding employee turnover and
availability, which may cause interruptions in the research on our products by such third parties.
Moreover,
while our reliance on these third parties for certain development and management activities will reduce our control over these
activities, it will not relieve us of our responsibilities. For example, European regulatory authorities, the FDA, and other regulatory
authorities require compliance with regulations and standards, including GCP requirements, for designing, conducting, monitoring,
recording, analyzing, and reporting the results of clinical trials to ensure that the data and results from trials are credible
and accurate and that the rights, integrity, and confidentiality of trial participants are protected. Although we rely on third
parties to conduct our clinical trials, we are responsible for ensuring that each of these clinical trials is conducted in accordance
with its general investigational plan and protocol under legal and regulatory requirements. Regulatory authorities enforce these
GCP requirements through periodic inspections of trial sponsors, principal investigators, and trial sites. If we or any of our
CROs fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable,
and European regulatory authorities, the FDA, or other regulatory authorities may require us to perform additional clinical trials
before approving our marketing applications. We cannot assure you that upon inspection by a regulatory authority, such regulatory
authority will determine that any of our clinical trials comply with GCP requirements.
If CROs and other third parties do not successfully carry out
their duties under their agreements with us, if the quality or accuracy of the data they obtain is compromised due to their failure
to adhere to trial protocols or to regulatory requirements, or if they otherwise fail to comply with regulations and trial protocols
or meet expected standards or deadlines, the trials of our products or product candidates may not meet regulatory requirements.
If trials do not meet regulatory requirements or if these third parties need to be replaced, the development of our products or
product candidates may be delayed, suspended, or terminated, or the results may not be acceptable. If any of these events occur,
we may not be able to obtain regulatory approval of our products on a timely basis, at a reasonable cost, or at all.
Our
reliance on third parties may require 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 products, 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 strategic partners, 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 products.
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.
It
could be difficult to replace some of our suppliers and equipment vendors.
Outside
vendors provide key components, raw materials, and equipment used in the manufacture of our products. An uncorrected defect or
supplier’s variation in a component or raw material, either unknown to us or incompatible with our manufacturing process,
could harm our ability to manufacture products. We may not be able to find a sufficient alternative supplier in a reasonable time
period, or on commercially reasonable terms, if at all, and our ability to produce and supply our products could be impaired.
If
we were suddenly unable to purchase from one or more of these companies, we would need a significant period of time to qualify
a replacement, and the production of any affected products could be disrupted. While it is our policy to maintain sufficient inventory
of components so that our production will not be significantly disrupted even if a particular component or material is not available
for a period of time, we remain at risk that we will not be able to qualify new components or materials quickly enough to prevent
a disruption if one or more of our suppliers ceases production of important components or materials, or if we are unable to quickly
procure replacement equipment.
Risks
Related to Our Business Operations
Our
business may be adversely affected by the impact of coronavirus.
Public
health epidemics or outbreaks could adversely impact our business. In December 2019, a novel strain of coronavirus emerged in
Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions
to its economy, it has now spread to several other countries, including Israel, and infections have been reported globally. Many
countries around the world, including in Israel, have significant governmental measures being implemented to control the
spread of the virus, including temporary closure of businesses, severe restrictions on travel and the movement of people, and
other material limitations on the conduct of business. These measures have resulted in disruptions to our operations. The extent
to which coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted
with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of coronavirus
and the actions to contain coronavirus or treat its impact, among others. In particular, the continued spread of coronavirus in
Israel and globally could adversely impact our operations, including among others, our ability to manufacture our BioInks and
our ability to raise additional funds, and accordingly, the impact of coronavirus could have an adverse impact on our business
and our financial results.
Our
future success depends on our ability to retain key employees, consultants, and advisors and to attract, retain, and motivate
qualified personnel.
We
are dependent on principal members of our executive team listed under “Management” in this Annual Report on Form 20-F,
the loss of whose services may adversely impact the achievement of our objectives. While we have entered into employment agreements
with each member of our senior management, any of them could leave our employment at any time, subject to advance notice periods.
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 medical device
companies for individuals with similar skill sets. In addition, failure to succeed in 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 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.
Our
business and operations would suffer in the event of computer system failures or security breaches.
Despite
the implementation of security measures, our internal computer systems, and those of our contract research organizations, or CROs
and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks,
natural disasters, fire, terrorism, war, and telecommunication and electrical failures. If such an event were to occur
and interrupt our operations, it could result in a material disruption of our drug development programs. For example,
the loss of clinical trial data from ongoing or planned clinical trials could result in delays in our regulatory approval efforts
and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security
breach results in a loss of or damage to our data or applications, loss of trade secrets or inappropriate disclosure of confidential
or proprietary information, including protected health information or personal data of employees or former employees, access to
our clinical data, or disruption of the manufacturing process, we could incur liability and the further development of our drug
candidates could be delayed. We may also be vulnerable to cyber-attacks by hackers or other malfeasance. This
type of breach of our cybersecurity may compromise our confidential information and/or our financial information and adversely
affect our business or result in legal proceedings. Further, these cybersecurity breaches may inflict reputational
harm upon us that may result in decreased market value and erode public trust.
We
will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.
As
of March 15, 2020, we had 46 employees. As we mature and undertake the activities required to advance our products and product
candidates and to operate as a public company in the United States, 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 setbacks, 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 products. 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 products 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 regulations, provide accurate information to European
regulatory authorities, the FDA and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations,
report financial information or data accurately, or disclose unauthorized activities to us. In particular, sales, marketing, and
business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct,
kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing,
discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. 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 products harm patients, or is perceived to harm patients even when such harm is unrelated to our products, 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 products in clinical trials and the sale of any products exposes us to the risk
of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical
and medical device companies, or others that sell or otherwise come into contact with our products. There is a risk that our products
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:
|
●
|
impairment
of our business reputation;
|
|
●
|
withdrawal
of clinical trial participants;
|
|
●
|
costs
due to related litigation;
|
|
●
|
distraction
of management’s attention from our primary business;
|
|
●
|
substantial
monetary awards to patients or other claimants;
|
|
●
|
the
inability to commercialize our products;
|
|
●
|
decreased
demand for our products, if approved for commercial sale; and
|
|
●
|
impairment
of our ability to obtain product liability insurance coverage.
|
We
currently carry product liability insurance of $5.0 million for sales in Europe of VergenixFG and VergenixSTR. We intend to acquire
product liability insurance before commercializing any of our other products. However, we may not be able to obtain insurance
coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability. If we obtain marketing
approval for additional products, we intend to obtain insurance coverage to include the sale of those 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 medical treatments that had unanticipated adverse effects.
A product liability claim or series of claims brought against us could cause our ADS or ordinary share price to decline and, if
judgments exceed our insurance coverage, could materially and adversely affect our financial position.
Our
development and production of rhCollagen relies upon the continued availability of tobacco plants, and any interruption in availability
or supply of tobacco plants may delay production and adversely affect commercial utilization of our rhCollagen-based products.
Our
products are all based on our recombinant human collagen extracted from tobacco plants. Any disruption to the supply of tobacco
plants or any change in its availability for use would delay our production of collagen and adversely affect commercial utilization
of our products.
The
occurrence of severe adverse weather conditions, soil salination or crop diseases may have a potentially devastating impact upon
our tobacco production. The effect of severe adverse weather conditions or the occurrence and effect of crop disease may reduce
yields in our plants or require higher levels of investment to maintain yields, even when only a portion of the crop is damaged.
We cannot assure you that severe future adverse weather conditions will not adversely impact our operating results and financial
condition. Although some crop diseases are treatable, the cost of treatment is high, and we cannot assure that such events in
the future will not adversely affect our operating results and financial condition.
If
our existing rhCollagen production site or any new facility is damaged or destroyed, or production at this facility is otherwise
interrupted, our business and prospects would be negatively affected.
We
currently have a single, small-scale production site in Israel where we manufacture rhCollagen. Under the United License Agreement,
LB is required to build a facility, or engage a manufacturer to build a facility, in the U.S. for the manufacture of our rhCollagen
and BioInk in connection with the United License Agreement. There can be no assurance that the agreement between iBio and LB will
yield a successful production process of rhCollagen or that a production facility will be built at all. If our existing production
facility or the new facility, or the equipment in it, is damaged or destroyed, we likely would not be able to quickly or inexpensively
replace our production capacity. Any new facility needed to replace our existing production facility would need to comply with
the necessary regulatory requirements and be tailored to our production requirements and processes. We would need regulatory approval
before using any products 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 products are approved by the regulator, 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 impact 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
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.
We
may use our financial and human resources to pursue a particular research program or product and fail to capitalize on programs
or products 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 products 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 products may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target
market for a particular product, we may relinquish valuable rights to that product 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, or we may allocate internal resources to a product in a therapeutic area in which it would have been more
advantageous to enter into a collaboration arrangement.
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 adversely affect our earnings and results of operations.
We
currently operate in two different currencies. While the U.S. dollar is our functional and reporting currency, we incur a portion
of our expenses in NIS. As a result, our financial results may be adversely affected by fluctuations in currency exchange rates.
We
are exposed to the risks that the NIS may appreciate relative to the U.S. dollar, in such event, the 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 2019, 2018 and in 2017. Market volatility and currency fluctuations may limit our ability to cost-effectively hedge against
our foreign currency exposure. 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.
We
or the third parties upon whom we depend may be adversely affected by natural disasters and/or health epidemics, and our business
continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Natural
disasters could severely disrupt our operations and have a material adverse effect on our business, results of operations, financial
condition and prospects. If a natural disaster, power outage, health epidemic or other event occurred that prevented us from using
all or a significant portion of our office, manufacturing and/or lab spaces, that damaged critical infrastructure, such as the
manufacturing facilities of our third-party contract manufacturers, CROs, clinical sites, third parties ongoing activities and
schedules or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our
plans and business for a substantial period of time.
Our
business could be adversely impacted by the effects of the coronavirus outbreak originating in China, or by other epidemics. In
addition, such an event may cause other parties to slow down their activities and schedules and therefore influence our timelines.
A health epidemic or other outbreak, including the current coronavirus outbreak, may materially and adversely affect our business,
financial condition and results of operations.
The
disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar
event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans,
which could have a material adverse effect on our business.
Risks
Related to Our Intellectual Property
We
have an extensive worldwide patent portfolio. The cost of maintaining our patent protection is high and maintaining our patent
protection requires continuous review and compliance in order to maintain worldwide patent protection. We may not be able to effectively
maintain our intellectual property position throughout the major markets of the world.
The
U.S. Patent and Trademark Office, or U.S. PTO, and foreign patent authorities require maintenance fees and payments as well as
continued compliance with a number of procedural and documentary requirements. Non-compliance may result in abandonment or lapse
of the subject patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
Non-compliance may result in reduced royalty payments for lack of patent coverage in a particular jurisdiction from our collaboration
partners or may result in competition, either of which could have a material adverse effect on our business.
We
have made, and will continue to make, certain strategic decisions in balancing costs and the potential protection afforded by
the patent laws of certain countries. As a result, we may not be able to prevent third parties from practicing our inventions
in all countries throughout the world, or from selling or importing products made using our inventions in and into the United
States or other countries. Third parties may use our technologies in territories in which we have not obtained patent protection
to develop their own products and, further, may infringe our patents in territories which provide inadequate enforcement mechanisms,
even if we have patent protection. Such third-party products may compete with our products, and our patents or other intellectual
property rights may not be effective or sufficient to prevent them from competing.
If
we are unable to obtain or protect intellectual property rights related to our products and product candidates, we may not be able to obtain
exclusivity for our products or prevent others from developing similar competitive products.
We
rely upon a combination of granted patents, pending patent applications, trade secret protection, and confidentiality
agreements to protect the intellectual property related to our products and product candidates. The strength of patents in the field of
regenerative medicine involves complex legal and scientific questions and can be uncertain. The patent applications that we
own may fail to result in issued patents with claims that cover our products in the United States or in other 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 products, 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
products, or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent
competition from third parties.
Our
ability to attract third parties to collaborate with us to develop products and our ability to commercialize future products may
be adversely affected if the patent applications we hold with respect to our techniques or products 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
products. Third parties may challenge their validity or enforceability of our patents or patents that issue in the future from
our patent applications, which may result in such patents being narrowed, invalidated, or held unenforceable. Even if our patents
and patent applications are not challenged by third parties, they may not prevent others from designing around our claims and
may not otherwise adequately protect our products. If the breadth or strength of protection provided by the patents and patent
applications we hold with respect to our products is threatened, our ability to commercialize our products may be adversely effected.
Discoveries
are generally published in the scientific literature well after their actual development, and patent applications in the United
States and other countries are typically not published until 18 months after filing and in some cases are never published.
Therefore, we cannot be certain that we were the first to make the inventions claimed in our owned granted patents or patent applications,
or that we were the first to file for patent protection covering such inventions. Subject to meeting other requirements for patentability,
for United States patent applications filed prior to March 16, 2013, the first to invent the claimed invention is entitled
to receive patent protection for that invention while, outside the United States, the first to file a patent application
encompassing the invention is entitled to patent protection for the invention. In addition, patents have a limited lifespan. In
the United States, the expiration of a patent is generally 20 years from the earliest non-provisional filing date. Various
extensions may be available, but the life of a patent, and the protection it affords, is limited. Once the patent life has expired
for a product, we may be open to competition from third party products, including products that are copies of our products. 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 our
proprietary know-how and other proprietary information that is not patentable or that we elect not to patent. For example, many
of our discovery, development, and manufacturing processes involve proprietary know-how, information, or technology that is not
covered by patents. We seek to protect our trade secrets and 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, 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 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 in other countries. 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 patents 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. 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 technologies. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases
that our products 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 products. 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 products 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 products or any final product
itself, the holders of any such patents may be able to block our ability to commercialize such product 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 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.
The
patent landscape in competitive product areas is highly complex and there may be patents of third parties of which we are unaware
that may result in claims of infringement. Accordingly, there can be no assurance that our products do not infringe proprietary
rights of third parties. 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 products. Defense of such claims, regardless of their
merit, would involve substantial litigation expense and would be a substantial diversion of financial and 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
intend, if necessary, to vigorously enforce our intellectual property in order to protect the proprietary position of our products.
Active efforts to enforce our patents may include litigation, post-grant patent challenges, administrative proceedings, or all
of the foregoing, depending on the potential benefits that might be available from those actions and the costs associated with
undertaking those efforts against third parties. We review and monitor publicly available information regarding products that
may be competitive with our products and intend to assert our intellectual property rights where appropriate.
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 products and product
candidates. 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 products.
We
may be involved in lawsuits or administrative proceedings to obtain, protect or enforce our patents, which could be expensive,
time consuming, and unsuccessful.
Competitors
may infringe our patents. To counter infringement or unauthorized use, we may be required to file an infringement suit, which
can be expensive and time consuming. In addition, in an infringement proceeding, the defendant may file a countersuit, challenging
the validity or enforceability of our patent. In that case, a court may decide that a patent of ours is not valid, is unenforceable,
or is not infringed, or it 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.
We
may not be able to prevent misappropriation of our intellectual property rights, particularly in countries where the laws may
not protect those rights.
We
may be involved in interference proceedings in the U.S. PTO that are provoked by third parties or provoked by us when there appears
to be the same subject matter claimed in our patents or patent applications and the third parties’ patents or patent applications,
in order to determine the priority of inventions. An unfavorable outcome could require us to cease using the related technology,
to lose our patent claims partially or in entirety, 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 interference
proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees.
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 or
ADSs.
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.
On
September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act
includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications are
prosecuted and also affect patent litigation. The U.S. PTO has developed regulations and procedures to govern administration of
the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular,
the first to file provisions which were enacted March 16, 2013. However, it is not clear what, if any, impact the Leahy-Smith
Act will have on the operation of our business. The Leahy-Smith Act and its implementation could increase the uncertainties and
costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. We may become
involved in post-grant proceedings challenging our patents or the patents of others, and the outcome of any such proceedings are
highly uncertain. An unfavorable outcome in any such proceedings could reduce the scope of, or invalidate, our patent rights,
allow third parties to commercialize our technology and compete directly with us, or result in our inability to manufacture, develop,
or commercialize our products without infringing the patent rights of others.
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 employees and personnel were previously employed at universities, medical institutions, or other biotechnology or pharmaceutical
companies. 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.
Section 134 of the Israeli Patents Law, 5727-1967, or the Patents Law, grants employees the right to receive consideration for
service inventions unless otherwise provided in an agreement between the parties. According to a decision by the special Committee
for Compensations and Royalties formed under the Patents Law, or the Committee, an employee’s right to receive consideration
for service inventions is a personal right and is entirely separate from the proprietary rights in such invention. A decision
in May 2014 by the Committee clarifies that the right to receive consideration under Section 134 can be waived and that such
waiver does not necessarily have to be explicit. However, the Committee has the authority to examine, on a case by case basis,
the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. Although
such decision seems to alleviate the requirement to obtain an explicit waiver for royalties for service inventions under Section 134
of the Patents Law, to the extent that there is no explicit waiver in an employment agreement, the existence of such waiver will
be subject to the interpretation of the Committee. Further, the Committee has not yet determined one specific formula for calculating
this remuneration (but rather uses the criteria specified in the Patents Law) 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. Ownership disputes may arise in the future, for example, from conflicting obligations of consultants
or others who are involved in developing our products. 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 requires compliance with various procedural, document submissions, fee payments, 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 are and 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 products or product candidates could be found invalid or unenforceable if challenged in court or in administrative
proceedings.
If
we initiate legal proceedings against a third party to enforce a patent covering one of our products or product candidates, the defendant may
contend that the patent covering our product is invalid, unenforceable, or fails to cover the product 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 products. 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 products. For example, as further described below, in July 2017,
Fibrogen, Inc., or Fibrogen, prevailed in an administrative challenge to one of our patents in Europe, resulting in the
revocation of the patent and the abandonment of another patent. 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. Moreover, third parties may continue to initiate new
proceedings in the United States and foreign jurisdictions to challenge our patents from time to time.
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 or ADSs. 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
or product candidates.
As
is the case with other companies in our industry, 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 therefore is
costly, time consuming, and inherently uncertain. In addition, in recent years, the United States enacted and implemented 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
that had already been granted. The patent laws and regulations may change in unpredictable ways through actions of the U.S. Congress,
the federal courts, and the U.S. PTO, in the future, and any changes may adversely affect our ability to obtain new patents or
to enforce our existing patents and patents that we might obtain in the future.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting, and defending patents on products 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 may export otherwise infringing products to territories where we have patent protection, but
enforcement is not as strong as in the United States. These products may compete with our products, 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.
Intellectual
property rights do not address all potential threats to any competitive advantage we may have.
The
degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have
limitations, and intellectual property rights may not adequately protect our business or permit us to maintain our competitive
advantage. The following examples are illustrative:
|
●
|
Others
may be able to make products that are the same as or similar to our current or future products but that are not covered by
the claims of the patents that we own or have exclusively licensed.
|
|
●
|
We
or any of our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent
or pending patent application that we own or have exclusively licensed.
|
|
●
|
We
or any of our licensors or strategic partners might not have been the first to file patent applications covering certain of
our inventions.
|
|
●
|
Others
may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our
intellectual property rights.
|
|
●
|
The
prosecution of our pending patent applications may not result in granted patents.
|
|
●
|
Granted
patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid
or unenforceable, as a result of legal challenges by our competitors.
|
|
●
|
Patent
protection on our products may expire before we are able to develop and commercialize the product, or before we are able to
recover our investment in the product.
|
|
●
|
Our
competitors might conduct research and development activities in the United States and other countries that provide a safe
harbor from patent infringement claims for such activities, as well as in countries in which we do not have patent rights,
and may then use the information learned from such activities to develop competitive products for sale in markets where we
intend to market our products.
|
Risks
Related to the Offering and Ownership of the ADSs
The
market price of the ADSs may be highly volatile.
Since
our listing of the ADSs on the Nasdaq Capital Market on January 31, 2018 and which were previously quoted on the OTC from March
2015 to January 30, 2018, an active market has not developed. You may not be able to sell your ADSs quickly or at the market price
if trading in the ADSs is not active.
The
market price of the ADSs is likely to be volatile. Our ADS price could be subject to wide fluctuations in response to a variety
of factors, including the following:
|
●
|
adverse
results or delays in preclinical studies or clinical trials;
|
|
●
|
reports
of adverse events in other similar products or clinical trials of such products;
|
|
●
|
inability
to obtain additional funding;
|
|
●
|
any
delay in filing a regulatory submission for any of our products and any adverse development or perceived adverse development
with respect to the FDA’s review or European authorities’ review of that regulatory submission;
|
|
●
|
failure to develop successfully and commercialize our products or product candidates and future products;
|
|
●
|
failure
to enter into or maintain strategic collaborations;
|
|
●
|
failure
by us or strategic collaboration partners to prosecute, maintain, or enforce our intellectual property rights;
|
|
●
|
changes
in laws or regulations applicable to future products;
|
|
●
|
inability
to scale up our manufacturing capabilities (including in Israel), inability to obtain adequate product supply for our products,
or the inability to do so at acceptable prices;
|
|
●
|
adverse
regulatory decisions, including by the IIA under the Innovation Law;
|
|
●
|
introduction
of new products, services, or technologies by our competitors;
|
|
●
|
failure
to meet or exceed financial projections we may provide to the public;
|
|
●
|
failure
to meet or exceed the financial expectations of the investment community;
|
|
●
|
the
perception of the biotechnology industry by the public, legislatures, regulators, and the investment community;
|
|
●
|
announcements
of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors;
|
|
●
|
disputes
or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent
protection for our technologies;
|
|
●
|
additions
or departures of key scientific or management personnel;
|
|
●
|
significant
lawsuits, including patent or shareholder litigation;
|
|
●
|
changes
in the market valuations of similar companies;
|
|
●
|
sales
of our ordinary shares or ADSs by us or our shareholders in the future; and
|
|
●
|
trading
volumes of our ordinary shares and ADSs.
|
In
addition, companies trading in the stock market in general, and life science 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.
We
may not be able to maintain our listing on the Nasdaq Capital Market.
Nasdaq
has established certain standards for the continued listing of a security on the Nasdaq Capital Market. The standards for continued
listing include, among other things, that the minimum bid price for the listed securities not fall below $1.00 per share for a
period of 30 consecutive trading days and that we maintain a minimum of $2,500,000 in shareholders’ equity. In the future
we may not satisfy the Nasdaq’s continued listing standards. If we do not satisfy any of the Nasdaq’s continued listing
standards, our ADSs could be delisted. Any such delisting could adversely affect the market liquidity of our ADSs and the market
price of our ADSs could decrease. A delisting could adversely affect our ability to obtain financing for our operations or result
in a loss of confidence by investors, customers, suppliers or employees.
We
incur significant additional costs as a result of being a public company subject to SEC reporting requirements in the United States,
and our management is required to devote substantial additional time to new compliance initiatives as well as to compliance with
ongoing United States reporting requirements.
As
a U.S. public reporting company, we are incurring significant additional accounting, legal, and other expenses in the future.
Our management and other personnel need to devote substantial time to the compliance requirements of being a U.S. public company;
in addition, the implementation of such compliance processes and systems may require us to hire outside consultants and incur
other significant costs. Any future changes in the laws and regulations affecting public companies in the United States and the
rules and regulations adopted by the SEC and the Nasdaq Capital Market, for so long as they apply to us, will result in increased
costs to us as we respond to such changes. These laws, rules, and regulations could make it more difficult or more costly for
us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced
policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements
could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on our board
committees, if any, or as senior management.
Our
principal shareholders, management and directors beneficially own a significant percentage of our ordinary shares and will be
able to exert significant influence over matters subject to shareholder approval.
As
of March 15, 2020, our senior management, directors, and five percent or more shareholders and their affiliates beneficially owned
approximately 48% of our ordinary shares. These shareholders will be able to significantly influence all matters requiring shareholder
approval, except for decisions that require a special majority at a shareholders’ meeting. For example, these shareholders,
if they were to act together, may be able to significantly influence elections of directors (other than our external directors,
within the meaning of Israeli law, as described under “Management—External 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.
In
addition, but for the application of blocker provisions in certain security instruments that subject the conversion or exercise
of such instruments, as applicable, to 4.99% beneficial ownership limitations and the need to conduct a special tender offer if
Alpha wishes to hold 25% or more of the voting rights in the Company, Alpha would beneficially own approximately 22% of our outstanding
ordinary shares as of March 15, 2020. If Alpha were to convert or exercise such instruments to the maximum extent possible, absent
such blocker provisions and special tender offer requirement, Alpha would have the ability to also obtain a substantial interest
in our Company. This concentration and potential further concentration of ownership could have the effect of delaying a change
in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could in turn have
an adverse effect on the market price of our ordinary shares or ADSs or prevent our shareholders from realizing a premium over
the then-prevailing market price for their ordinary shares or ADSs. Furthermore, because of the large number of shares that may
be issued from time to time under security instruments issued to Alpha, Meitav Dash and Ami Sagy, there may be an adverse effect
on the market because of the quantity and regularity of conversion and/or exercise and sale of those shares, or even the potential
of those shares being sold. Therefore, there may be limited demand and excessive price and volume volatility.
If
we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report
our financial results or prevent fraud. As a result, our shareholders could lose confidence in our financial and other public
reporting, which would harm our business and the trading price of the ADSs.
Effective
internal controls over financial reporting are necessary for us to provide reliable financial reports. Together with adequate
disclosure controls and procedures, effective internal controls are designed to prevent fraud. Any failure to implement required
new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations.
In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley
Act, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, may
require prospective or retroactive changes to our financial statements, or may identify other areas for further attention or improvement.
Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have
a negative effect on the trading price of the ADSs.
We
are required to disclose changes made in our internal controls and procedures on an annual basis and our management is
required to assess the effectiveness of these controls annually. However, for as long as we are an “emerging growth
company” under the Jumpstart Our Business Startups Act, or the JOBS Act, our independent registered public accounting
firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act. We could be an emerging growth company for up to the date that is the last date of the fiscal year that includes the fifth anniversary of our
first sale of ADS pursuant to an effective registration statement (i.e. December 31, 2023). An independent assessment
of the effectiveness of our internal controls could detect problems that our management’s assessment might not.
Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to
incur the expense of remediation.
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 the ADSs less attractive
to investors.
We
are an “emerging growth company,” as defined in 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, reduced disclosure obligations regarding executive compensation in this Annual Report on Form 20-F
and other periodic reports and proxy statements, extended transition periods for adopting new or revised accounting standards,
and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval
of any golden parachute payments not previously approved. We will be an emerging growth company until the earliest of: (i) the
last day of the fiscal year during which we had total annual gross revenues of $1.07 billion or more, (ii) the last day of the
fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement,
(iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt or
(iv) the date on which we are deemed a “large accelerated filer” as defined in Regulation S-K under the Securities
Act, which means the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the prior June
30th. 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, as amended, 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 proxy statements that comply with the requirements applicable to 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,
along with other corporate governance exemptions resulting from our ability to rely on home country rules, will reduce the frequency
and scope of information and protections to which you may otherwise have been eligible in relation to U.S. domestic reporting
companies. See “Item 16G. Corporate Governance Practices” for more information.
We
cannot predict if investors will find the ADSs less attractive because we may rely on these reduced requirements. If some investors
find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and our share price may be more
volatile.
Sales
of a substantial number of our ordinary shares or ADSs 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 securities on the Nasdaq Capital Market after the date of this Annual Report on Form 20-F, the market price of our securities
could decline significantly. As of March, 15, 2020, we had 6,462,445 ordinary shares outstanding.
In
addition, as of March 15, 2020, an aggregate of 3,735,191 ordinary shares, that are issuable pursuant to exercise of either outstanding
options or outstanding warrants or outstanding pre-paid warrants, will 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 of 1933,
as amended, or 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 securities or rights to purchase securities, including pursuant to our equity incentive plans, could
result in additional dilution of the percentage ownership of our shareholders and could cause the prices of our securities 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, ADSs, 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, ADSs, convertible securities, or other equity securities in one or more transactions, existing investors may be materially
diluted by subsequent sales, and new investors could gain rights superior to our existing shareholders.
Pursuant
to our Share Ownership and Option Plan (2010), or the 2010 Plan, our management is authorized to grant share options and other
equity-based awards to our employees, directors, and consultants. As of March15, 2020, our officers, directors, employees and
consultants hold options to purchase 729, 569 ordinary shares under the 2010 Plan. In addition, on January 30, 2020, our board
of directors approved the grant of 162,713 options to purchase 162,713 ordinary shares, which are subject to shareholders approval.
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
do not intend to pay dividends on our securities in the foreseeable future, 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; see “Item
10.B. Memorandum and Articles of Association——Dividend and Liquidation Rights” for additional information. As
a result, investors in the ADSs or ordinary shares will not be able to benefit from owning these securities unless their market
price becomes greater than the price paid by such investors and they are able to sell such securities. We cannot assure you that
you will ever be able to resell our securities at a price in excess of the price paid.
In
the event we make distributions or dividends, you may not receive the same distributions or dividends as those we make to the
holders of our ordinary shares, and, in some limited circumstances, you may not receive dividends or other distributions, or receive
any value for them, if it is illegal or impractical to make them available to you.
The
depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary
shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions
in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that
it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make
a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act, but that are
not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars
from foreign currency that was part of a dividend made with respect to deposited ordinary shares may require the approval or license
of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine
not to distribute such property and hold it as “deposited securities” or may seek to effect a substitute dividend
or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable
substitute. We have no obligation to register under U.S. securities laws any ordinary shares, rights, or other securities made
available through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs,
ordinary shares, rights, or anything else to holders of ADSs. In addition, the depositary may withhold from such dividends or
distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes it
is required to make such withholding. This means that you may not receive the same distributions or dividends as those we make
to the holders of our ordinary shares, and, in some limited circumstances, you may not receive any value for such distributions
or dividends if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline
in the value of the ADSs.
Holders
of ADSs must act through the depositary to exercise their rights.
Holders
of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying
ordinary shares in accordance with the provisions of the deposit agreement for the ADSs. In general, under Israeli law, the minimum
notice period required to convene a shareholders’ meeting is no less than 35 or 21 calendar days, depending on the proposals
on the agenda for the shareholders’ meeting. When a shareholders’ meeting is convened, holders of the ADSs may not
receive sufficient notice of a shareholders’ meeting to permit them to withdraw their ordinary shares to allow them to cast
their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting materials
to holders of the ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause
the depositary to extend voting rights to holders of the ADSs in a timely manner, but we cannot assure holders that they will
receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, the depositary
and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote
is cast or for the effect of any such vote. As a result, holders of the ADSs may not be able to exercise their right to vote,
and they may lack recourse if their ADSs are not voted as they requested. In addition, in the capacity as a holder of ADSs, they
will not be able to call a shareholders’ meeting.
You
may be subject to limitations on transfer of your ADSs.
Your
ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from
time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse
to deliver, transfer, or register transfers of ADSs generally when our books or the books of the depositary are closed, or at
any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental
body or for any other reason in accordance with the terms of the deposit agreement.
Your
percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters
on which shareholders vote.
Our
board of directors will have the authority, in most cases without action or vote of our shareholders, to issue all or any part
of our authorized but unissued shares, including ordinary shares issuable upon the exercise of outstanding options and warrants.
Issuances of additional shares would reduce your influence over matters on which our shareholders vote.
If
equity research analysts do not publish research reports about our business or if they issue unfavorable commentary or downgrade
the ADSs, the price of the ADSs could decline.
The
trading market for the ADSs will rely in part on the research and reports that equity research analysts publish about us and our
business. The price of the ADSs could decline if we do not obtain research analyst coverage or if one or more securities analysts
downgrade the ADSs, issue other unfavorable commentary, or cease publishing reports about us or our business.
Risks
Related to Our 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 corporate governance requirements
under the listing rules of the Nasdaq Stock Market LLC, or the Nasdaq Listing Rules.
As
a foreign private issuer, we are permitted 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 follow home country practice in Israel with
regard to the quorum requirement for shareholder meetings. As permitted under 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 20% of the voting power of our shares. In addition, we will follow home country practices
in Israel (and consequently avoid the requirements that would otherwise apply to a U.S. company listed on the Nasdaq Capital Market)
with regard to 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). We may in the future (or may be required to) elect to follow home country practices in Israel 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, amending our compensation policy from time to time, and the approval
of certain interested-parties transactions. Following our home country governance practices as opposed to the requirements that
would otherwise apply to a U.S. company listed on the Nasdaq Capital Market may provide less protection to you than what is accorded
to investors under the Nasdaq Listing Rules applicable to domestic U.S. issuers. See “Item 16G. Corporate Governance Practices”
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. Under
regulations promulgated under the Companies Law, we will be required to disclose in the notice for our annual meetings of shareholders,
the annual compensation of our five most highly compensated officers on an individual basis, rather than aggregate. However, this
disclosure will not be as extensive as the disclosure required by a U.S. domestic issuer. 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 as a foreign private issuer, our officers, directors and principal
shareholders will be exempt from the requirements to report short-swing profit recovery contained in Section 16 of the Exchange
Act. Also, as a foreign private issuer, we are not subject to the requirements of Regulation FD (Fair Disclosure) promulgated
under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protections available
to you in comparison to those applicable to U.S. domestic reporting companies.
In
order to maintain our current status as a foreign private issuer, more than 50% of our outstanding voting securities must not
be directly or indirectly owned by residents of the U.S., and we must not have any of the following: (i) a majority of our executive
officers or directors being U.S. citizens or residents, (ii) more than 50% of our assets being located in the U.S., or (iii) our
business being principally administered in the U.S. 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 impact 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 employees,
officers, and all but three 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 adversely
impact 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 Gaza Strip 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. Most recently, in July 2014, Israel yet again experienced rocket strikes against civilian targets in various parts of
Israel, as part of an armed conflict commenced between Israel and Hamas. If continued or resumed, these hostilities may negatively
affect business conditions in Israel in general and our business in particular. 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, 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.
In
addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed
to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel
militia groups in Syria. Additionally, a violent jihadist group named Islamic State of Iraq and Levant, or ISIL, is involved in
hostilities in Iraq and Syria. Although ISIL’s activities have not directly affected the political and economic conditions
in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. These situations may potentially
escalate in the future to more violent events, which may affect Israel and us. Any armed conflicts, terrorist activities, or political
instability in the region could adversely affect business conditions and could harm our results of operations and could make it
more difficult for us to raise capital. Parties with whom we do business may decline to travel to Israel during periods of heightened
unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face.
In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance
in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions
in such agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts.
Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies
may have an adverse impact on our operating results, financial condition, or the expansion of our business.
The
legislative power of the State resides in the Knesset, a unicameral parliament that consists of 120 members elected by nationwide
voting under a system of proportional representation. Israel’s most recent general elections were held on April 9, 2019,
September 17, 2019 and March 2, 2020. The uncertainty surrounding the results of the recent elections may continue. Actual or
perceived political instability in Israel or any negative changes in the political environment, may individually or in the aggregate
adversely affect the Israeli economy and, in turn, our business, financial condition, results of operations and prospects.
Our
operations may be disrupted by the obligations of personnel to perform military service.
As
of March 15, 2020, we had 46 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, November 2012 and July 2014 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 may be eligible for certain tax benefits provided to “Preferred Enterprises”
under the Israeli Law for the Encouragement of Capital Investments, 5719-1959, as amended, or the Investment Law. The benefits
that may be available to us under the Investment Law are subject to the fulfillment of conditions stipulated in the Investment
Law. 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 currently 23%. 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 10.E.
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 Annual
Report on Form 20-F 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, research facilities and substantially all of our operations are located
in Israel. All of our senior management and a majority of our directors are located outside the United States. All of our assets
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 by expert witnesses, which can be a time-consuming
and costly process. Certain matters of procedure would 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.
Because
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.C.
Board Practices—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, or a Full
Tender Offer, can only be completed if the acquirer receives approval of the holders of at least 95% of the issued share capital.
Completion of the Full 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 Full 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. In case the Full Tender Offer has
not been accepted by the required threshold, the offeror is limited to acquire shares that will confer on the offeror a holding
of not more than 90% of the issued share capital of the company. See “Item 10.B. 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.
We
have received grants from the IIA for certain research and development expenditures. The terms of these grants may require us
to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel. For more information,
see “—Risks Related to Our Financial Condition and Capital Requirements—The IIA grants we have received for
research and development expenditures restrict our ability to manufacture products and transfer know-how outside of Israel and
require us to satisfy specified conditions.”
We
may be classified as a passive foreign investment company for U.S. federal income tax purposes, and our U.S. shareholders may
suffer adverse tax consequences as a result.
Generally,
if, for any taxable year, either, at least 75% of our gross income is passive income (including our pro-rata share of the gross
income of our 25% or more-owned corporate subsidiaries), or at least 50% of the average value of our assets (including our pro-rata
share of the assets of our 25% or more-owned corporate subsidiaries) is attributable to assets that produce passive income or
are held for the production of passive income, we would be characterized as a passive foreign investment company, or PFIC, for
U.S. federal income tax purposes. Passive income generally includes dividends, interest, and gains from disposition of passive
assets and rents and royalties.
If
we are characterized as a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. holder
(as defined below) of our securities, such U.S. holder generally will be subject to certain adverse U.S. federal income tax consequences,
including increased tax liability on gains from dispositions of our securities and certain distributions and a requirement to
file annual reports with the Internal Revenue Service, or IRS. See “Item 10.E. Taxation—Material U.S. Federal Income
Tax Consequences—Passive Foreign Investment Company Consequences.”
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. However, based on our non-passive revenue-producing
operations for the year ended December 31, 2019, we do not believe we were a PFIC for our 2019 taxable year. Because
the PFIC determination is highly fact intensive, there can be no assurance that we will not be a PFIC in 2020 or any
other year.
U.S.
investors are urged to consult their own tax advisors regarding the possible application of the PFIC rules. For more information,
see “Item 10.E. Taxation—Material U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Consequences.”
Our
facilities in Israel are subject to local Business Licensing and Planning and Zoning regulations and we may be subject to fines
if not complied with.
Under
the Israeli Licensing of Businesses Law, to which our production site and offices and laboratories are subject, operating a business
without a license or temporary permit is a criminal offense. In April 2019, we moved our laboratories and offices to a new site
in Rehovot, Israel, and we are currently in the process of obtaining a business license for our sites in Rehovot. In addition,
we have a business license for our plant growth and production site at Yessod Hama’ala, Israel, which is in effect until
July 13, 2022. In addition, our production sites and laboratories are subject to the Israeli Planning and Zoning Law, which sets
provisions and obligations, inter alia, regarding the licensing process for a new building, including building permits,
non-conforming use and easements, the supervision over its construction, and the required occupancy permits. According to the
Planning and Zoning Law, work or use of land without a permit, where such permit is required, a deviation from the permit granted,
or use of agricultural land in violation of the law constitute criminal offenses.
ITEM 4.
|
INFORMATION
ON THE COMPANY
|
|
A.
|
History
and Development of the Company
|
We
are a regenerative and aesthetic medicine company focused on 3D bioprinting of tissues and organs, and medical aesthetics. Our
products and product candidates are based on our recombinant human collagen (rhCollagen) that is produced with our proprietary
plant based genetic engineering technology.
Our
products and product candidates address indications for the diverse fields of tissue repair, aesthetics and organ manufacturing,
and, we believe, are ushering in a new era in regenerative and aesthetic medicine. Our flagship rhCollagen BioInk product line
is ideal for 3D bioprinting of tissues and organs. In October 2018, CollPlant, our wholly-owned subsidiary, entered into a license
agreement with LB, a public benefit corporation and wholly-owned subsidiary of United Therapeutics Corporation, pursuant to which
CollPlant and LB are collaborating in 3D bio-printing development of engineered lungs or lung substitutes, and LB is using our
BioInks in order to manufacture 3D bioprinted lungs for transplant in humans.
In
January 2020, we also entered into a Joint Development Agreement with 3D Systems, pursuant to which we and 3D Systems agreed to
jointly develop tissue and scaffold bioprinting processes for third party collaborators. As part of the Joint Development Agreement,
we and 3D Systems plan to advance and accelerate tissue and scaffold bioprinting by delivering an integrated 3D bioprinter and
BioInks solution to third parties. Our industry collaboration also includes the ARMI and ReMDO.
Our
legal and commercial name is CollPlant Biotechnologies Ltd. We hold all of the issued and outstanding shares of CollPlant Ltd.
and have no holdings in other companies. CollPlant Ltd. was incorporated in Israel on August 12, 2004 as a private company
limited by shares and began its operations as a technology incubator company under the IIA’s technology incubators program.
CollPlant Ltd. owns all of our intellectual property.
We
were incorporated in Israel on November 9, 1981 as a private company limited by shares. We became a public company in Israel
in 1993, when all of our ordinary shares were listed on the TASE. On January 31, 2018, our ADSs commenced trading on the Nasdaq
Capital Market under the symbol “CLGN”. The ADSs were quoted on the OTCQX from March 2015 to May 25, 2017, and quoted
on the OTCQB from May 26, 2017 to January 30, 2018. Our name has changed several times, but has been CollPlant Biotechnologies
Ltd. since June 21, 2019. We delisted our ordinary shares from the TASE, and the last date of trading of our ordinary shares was
on October 29, 2018.
Our
principal offices are located at 4 Oppenheimer, Weizmann Science Park, Rehovot 7670104, Israel, and our telephone number
is +972-73-232-5600. Our primary internet address is http://www.CollPlant.com. None of the information on our website is incorporated
by reference herein. Puglisi & Associates serves as our agent for service of process in the United States for certain limited
matters, and its address is 850 Library Avenue, Suite 204, Newark, Delaware 19711.
We
use our website (http://www.CollPlant.com) as a channel of distribution of Company information. The information we post on our
website may be deemed material. Accordingly, investors should monitor our website, in addition to following our press releases,
SEC filings and public conference calls and webcasts. The contents of our website are not, however, a part of this Annual Report.
We
are an emerging growth company, as defined in Section 2(a) of the Securities Act, as implemented under the JOBS Act. As such,
we are eligible to, and intend to, take advantage of certain exemptions from reporting requirements that generally apply to public
companies, including the auditor attestation requirements with respect to internal control over financial reporting under Section
404 of the Sarbanes-Oxley Act, compliance with new standards adopted by the Public Company Accounting Oversight Board which may
require mandatory audit firm rotation or auditor discussion and analysis, exemption from say on pay, say on frequency, and say
on golden parachute voting requirements, and reduced disclosure obligations regarding executive compensation in our periodic reports
and proxy statements. We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during
which we had total annual gross revenues of $1.07 billion or more, (ii) the last day of the fiscal year following the fifth anniversary
of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) the date on which we have, during
the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed a
“large accelerated filer” as defined in Regulation S-K under the Securities Act, which means the market value of our
ordinary shares that is held by non-affiliates exceeds $700 million as of the prior June 30th.
As
a foreign private issuer, we are exempt from certain rules and regulations under the Exchange Act that are applicable to other
public companies that are not foreign private issuers. For example, although we intend to report our financial results on a quarterly
basis, 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 report with the SEC and
will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies. Our senior management,
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. As a foreign private issuer,
we will also not be subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act.
Our
capital expenditures for December 31, 2019, 2018 and 2017 amounted to $1.5 million, $832,000 and $129,000, respectively. Our purchases
of fixed assets primarily include laboratory equipment and establishment of our production site in Rehovot. We financed these
expenditures primarily from cash on hand.
Overview
We
are a regenerative and aesthetic medicine company focused on 3D bioprinting of tissues and organs, and medical aesthetics. Our
products and product candidates are based on our recombinant human collagen (rhCollagen) that is produced with our proprietary
plant based genetic engineering technology.
Our
products and product candidates address indications for the diverse fields of tissue repair, aesthetics and organ manufacturing,
and, we believe, are ushering in a new era in regenerative and aesthetic medicine. Our flagship rhCollagen BioInk product line
is ideal for 3D bioprinting of tissues and organs. In October 2018, CollPlant, our wholly-owned subsidiary, entered into a license
agreement with LB, a public benefit corporation and wholly-owned subsidiary of United Therapeutics Corporation, pursuant to which
CollPlant and LB are collaborating in 3D bio-printing development of engineered lungs or lung substitutes, and LB is using our
BioInks in order to manufacture 3D bioprinted lungs for transplant in humans.
In
January 2020, we also entered into a Joint Development Agreement with 3D Systems, pursuant to which we and 3D Systems agreed to
jointly develop tissue and scaffold bioprinting processes for third party collaborators. As part of the Joint Development Agreement,
we and 3D Systems plan to advance and accelerate tissue and scaffold bioprinting by delivering an integrated 3D bioprinter and
BioInks solution to third parties. Our industry collaboration also includes the ARMI and ReMDO.
We
believe our technology is the only commercially viable technology available for the production of genetically engineered, or recombinant,
human collagen. We believe that our rhCollagen, though laboratory-derived, is identical to the type I collagen produced by the
human body, has significant advantages compared to currently marketed tissue-derived collagens, including improved biological
function, high homogeneity, and reduced risk of immune response. We believe the attributes of our rhCollagen make it suitable
for numerous tissue repair applications throughout the human body. We believe that the annual market size for our BioInk, and
our medical aesthetics product candidates including dermal filler, exceeded $10 billion in 2019, and is estimated to reach $17
billion in 2025.
Our
rhCollagen has superior biological function when compared to any tissue-derived collagens, whether from animal or human tissues,
according to data published in peer-reviewed scientific publications. Our rhCollagen can be fabricated in different forms and
shapes including gels, pastes, sponges, sheets, membranes, fibers, and thin coats, all of which have been tested in vitro
and in animal models and proven superior to tissue-derived products. We have demonstrated that, due to its homogeneity, rhCollagen
can produce fibers and membranes with high molecular order, meaning there is high molecular alignment, which enables the formation
of tissue repair products with distinctive physical properties. We produce our rhCollagen from genetically engineered tobacco
plants, assuring a relatively abundant supply of high quality raw materials.
We
are currently focusing on the following two rhCollagen-based family products lines:
|
●
|
CollPlant
rhCollagen-based BioInk for use in the 3D printing of tissues and organs. Our
flagship BioInk product line provides an ideal building block for three dimensional bioprinting
of tissues and organs. The BioInk is being developed to enable the printing of three-dimensional
scaffolds combined with human cells and/or growth factors as a basis for tissue or organ
formation. In addition to collagen, CollPlant’s BioInk formulations can include
other proteins and/or polymers as well. Our BioInk is being developed to be compatible
with numerous 3D bioprinting technologies and with printed organ characteristics. In
October 2018, we entered into the United License Agreement pursuant to which CollPlant
and LB are collaborating in the development of engineered lungs or lung substitutes using
our rhCollagen and BioInk. In January 2020, we announced a Joint Development Agreement
with 3D Systems Corporation, pursuant to which CollPlant and 3D Systems Corporation agreed
to jointly develop tissue and scaffold bioprinting processes for third party collaborators.
|
|
●
|
Aesthetic
medicine product line including a dermal filler and breast implants. Our rhCollagen
offers a portfolio of opportunities in the field of regenerative aesthetics, owing to
its ideal structure and non-immunogenic properties that provide, what we believe is the
optimal scaffold to attract cells and promote tissue regeneration. We are developing
a photocurable regenerative dermal filler combining hyaluronic acid with our tissue regenerating
rhCollagen which is designed to address the need for more innovative aesthetic products
to treat wrinkles. . In addition, we are developing injectable and 3D bioprinted breast
implants for regeneration of breast tissue comprised of rhCollagen and additional materials.
In parallel, we are advancing collaborations with leading companies in the field of medical
aesthetics with the goal of positioning CollPlant as a major player in the medical aesthetics
market. We are currently exploring strategic collaboration opportunities for these products.
|
We also currently
market two of our products in Europe: VergenixSTR, a soft tissue matrix, intended to accelerate treatment of tendinopathy, and
VergenixFG, a wound healing flowable gel, intended to enhance the quality and speed of closure of deep surgical incisions and
wounds.
Collagen
and Collagen-Based Products
Collagen
is the main component of connective tissue and is the most abundant protein in mammals. In humans, it comprises approximately
30% of the protein found in the body. Due to its unique characteristics and diverse profile in human body functions, collagen
is frequently selected from a variety of biocompatible materials for use in tissue repair to support structural integrity, induce
cellular infiltration and promote healing. We estimate that the size of the market for human collagen-based tissue repair with
our BioInks and aesthetic medicine product line exceeded $10 billion in 2019 and is estimated to reach approximately $17 billion
in 2025.
Type I
collagen is the most abundant form of collagen in the human body. It is the dominant constituent of connective tissue and serves
as the primary scaffold in tissue or organ repair processes, making it a logical choice for regenerative medicine products. It
is found in tendons, skin, artery walls, corneas, the endomysium surrounding muscle fibers, fibrocartilage, and the organic part
of bones and teeth. Type II collagen is primarily found in articular cartilage. Type III collagen, which is produced
quickly by young fibroblasts before the tougher type I collagen is synthesized, is found in granulation tissue such as artery
walls, skin, intestines, and the uterus. While there may be some niche applications in the future where type III or possibly
type II collagen is appropriate, type I collagen is best suited for applications associated with regenerative medicine
because of its essential role in the healing process of bones, skin, and tendons. Type III recombinant human collagen is
currently available for the research market, and is not used in any products currently approved for medical use.
Disadvantages
of Current Collagen-Based Products
Currently,
type I collagen for medical use is primarily derived from bovine (cow) and porcine (pig) sources, as well as from human cadavers.
It is extracted from the tissues using mechanical processes and chemical treatments. Tissue-derived collagens suffer from a number
of disadvantages:
|
●
|
The
harsh chemical conditions required to recycle collagen from mature tissue results in a collagen product with random defects
in its protein structure, leading to a compromised triple helix. Consequently, tissue-derived collagens have significant damage
to binding sites for progenitor cells, which are required for cell proliferation and differentiation into tissue.
|
|
●
|
Tissue-derived
collagens are non-homogenous and contains high proportions of cross-linked collagen species with high molecular weight. The
rate of degradation of collagen is based on the proportion of cross-linked collagen species within the product. Excessive
proportions of cross-linked collagen can impair the collagen’s ability to self-assemble homogenous scaffolds with a
high surface area and fully functional integrin-binding capacity, and can also impede its rate of degradation. The inability
to effectively control the level of cross-linked collagen species in tissue-derived collagens results in variability of performance
for a given product, and affects the rate of infiltration of cells into the scaffold, which can delay healing.
|
|
●
|
The
extraction of collagen from mature mammalian tissues leaves, in many cases, contaminant proteins, growth factors, and cytokines.
As a result, scaffolds made of tissue-derived collagens may provoke inflammation, as well as undesirable immune and foreign
body responses that may cause adverse effects and unpredictable biological outcomes.
|
|
●
|
Extraction
from animals or humans is also associated with risk of disease transmission. Since 2007, the FDA has highlighted the risks
of transmissible diseases to humans in medical devices that contain materials derived from animal sources. In January 2014,
the FDA released draft guidance suggesting precautionary procedures to be used in the production of medical devices containing
materials derived from animal sources.
|
|
●
|
Although
collagen molecules are similar among various animal species, slight differences in the protein sequence between species may
result in different biological behavior when applied to humans, and in some cases, invoke specific immune responses; for example,
bovine collagen is associated with hypersensitivity and allergic reactions in approximately 3% of people.
|
Advantages
of our rhCollagen and rhCollagen-based Products
All
of our products and product candidates are based on our proprietary recombinant type I human collagen, rhCollagen, though
laboratory-derived, is identical to the type I collagen produced by the human body. The graphic below illustrates the structural
differences between rhCollagen produced with our proprietary plant-based technology and currently marketed tissue-derived collagens.
The
key advantages of products using our rhCollagen, as compared to those using collagen derived from animals or human cadaveric tissue,
include:
|
●
|
Better
biofunctionality in tissue regeneration. Our rhCollagen has superior biological function when compared to animal or
human tissue-derived collagen and has a number of useful physical characteristics, including thermal stability, or resistance
to decomposition at high temperatures, and a pristine triple helix, according to data published in peer-reviewed scientific
publications. The triple helix structure of collagen is formed when two α-1 protein chains and one α-2
protein chain wind together along a common axis. In the formation of rhCollagen, this structure is achieved without modifications
that can lead to defects in the triple helix structure in human tissue-derived collagen, hereby leading to a pristine triple
helix identical to the form found in nature. A pristine triple helix enables superior binding, which accelerates primary human
cell proliferation. Collagen scaffolds of our rhCollagen support endothelial, fibroblast, and keratinocyte cell attachment
and proliferation. In all cell types tested, cell proliferation was significantly better in scaffolds made of rhCollagen than
in commercially available scaffolds made of bovine collagen. The accelerated cell proliferation achieved with our rhCollagen
results in faster wound healing, less scarring, and higher quality tissue regeneration.
|
|
●
|
High
homogeneity. Because our rhCollagen is synthesized by five human genes in tobacco plants producing pure molecules
that are repeatable and identical to type I human collagen, it is more homogenous than collagen derived from animal or
human tissue sources. The high level of homogeneity of our rhCollagen allows the formulation of extremely high concentrations
of monomeric, or single-molecule, collagen, up to 150-200mg/ml, which is at least 10 to 100 times higher than the concentration
achieved with tissue-derived collagen. The high concentration of homogeneous monomeric collagen is of particular importance
where strong collagen fibers are needed for 3-D scaffolds. The homogeneity of our rhCollagen enables us to engineer consistent
and reproducible products with a controlled degradation rate which can be optimized to the targeted indication. Achieving
the same level of engineered performance would be difficult, if not impossible, with tissue-derived collagen that varies from
batch to batch.
|
|
●
|
Improved
safety and greater purity. Our pure rhCollagen does not induce an immunogenic response, whereas impurities carried
over from the source of tissue-derived collagen can lead to immune system rejection. In vitro studies performed under
an academic collaboration have demonstrated that rhCollagen incubated with activated THP1-macrophages produces significantly
lower levels of inflammatory cytokines when compared with bovine collagen that is similarly incubated. This demonstrates that
animal-derived collagen can provoke a foreign body response not seen with rhCollagen, which delays healing and increases scarring.
Further, with our rhCollagen, there are no potential side effects in the growth of tissue because there are no residues of
growth factors. In addition, with tissue-derived collagen, there is a possibility that the animal or human from which the
collagen was produced was infected with a virus, prion, or other pathogen. With our rhCollagen there is no known risk of transmitting
diseases and pathogens.
|
|
●
|
Novel
applications. Due to our ability to control the protein at the molecular level, it is possible to use our rhCollagen
to produce products with unique physical features, as well as high repeatability, which is not possible with tissue-derived
collagen. As compared to tissue-derived collagen, rhCollagen membranes have shown better thermal stability, improved tensile
strength due to alignment of the collagen fibers, and higher levels of transparency. In addition, rhCollagen can be used to
produce high concentration solutions of collagen at low viscosities. The unique properties of our rhCollagen make it an ideal
building block for many products that we believe cannot currently be produced using tissue-derived collagen, such as BioInks
for 3-D printing, artificial tendons, and transparent ophthalmic products.
|
We
believe the clinical attributes of our rhCollagen will translate into benefits for patients, payors, and physicians, and will
be adopted rapidly by the market . We believe the improved biofunctionality of our products could lead to faster recovery, better
clinical outcomes, and reduced hospitalization time. Our in vivo studies have shown faster tissue remodeling, faster wound
closure, and reduced scarring compared to competing products made from tissue-derived collagen.
The
advantages of our rhCollagen outlined above have been demonstrated through in vitro testing and in preclinical animal studies,
and are based on the performance of rhCollagen alone. The performance demonstrated in these studies is not necessarily indicative
of the performance of our products which contain rhCollagen. We cannot assure you that the same advantages of rhCollagen will
be seen in clinical testing of our products and product candidates containing rhCollagen.
We
can produce our rhCollagen cost-effectively and have access to an abundant supply of raw materials. Tobacco is a relatively easy
plant to grow, and can be cultivated in a wide range of climates and soils. The tobacco plant is an extremely hardy plant, may
be grown in very large volumes and its growth time to reach desired maturity is relatively short (about eight weeks). Under our
current production technology, we are able to achieve a cost of goods that allows us to offer products at prices that are competitive
with tissue-derived collagen.
Collagen-based
products are already used extensively in the marketplace; therefore, we expect our product candidates, except for dermal fillers,
will likely be eligible for reimbursement by third-party payors, including government agencies and insurance companies. We believe
that the demand for tissue-derived collagen will decrease as the market recognizes the significant advantages of our rhCollagen.
Our
Market Opportunity
Our
rhCollagen represents a platform for the development of products addressing significant opportunities in multiple therapeutic,
aesthetic, and other medical markets. We are initially focused on BioInk for use in the 3D printing of tissues and organs and
the medical aesthetics market.
We
also see a significant opportunity to use our rhCollagen platform to develop products to address additional indications in these
markets as well as in new markets, including cardiovascular, orthobiologics, and ophthalmic markets. We believe that the potential
addressable market opportunity for products using our technology is even greater than the market size served by currently available
collagen-based products, mainly due to continued unmet medical needs and the shortcomings of tissue-derived collagen.
BioInk
for 3D printing of tissues& organs
Regenerative
medicine and tissue engineering have seen unprecedented growth in the past decade, driving the field of artificial tissue models
towards a revolution in future medicine. Progress has been achieved through the development of innovative biomanufacturing strategies
to pattern and assemble cells and extracellular matrix, or ECM, in three dimensions to create functional tissue constructs. Bioprinting
has emerged as a promising 3D biomanufacturing technology, enabling precise control over spatial and temporal distribution of
cells and ECM. Bioprinting technology can be used to engineer artificial tissues and organs by producing scaffolds with controlled
spatial heterogeneity of physical properties, cellular composition, and ECM organization. This innovative approach is increasingly
utilized in biomedicine, and has potential to create artificial functional constructs for drug screening and toxicology research,
as well as tissue and organ transplantation.
Grand
View Research Inc. in a report published in February 2019 notes that the global 3D bioprinting market size was valued at $965
million in 2018 and that the global market was expected to reach $2.8 billion by 2024. The growth of the global market is largely
driven by increasing large demand of tissues and organs for transplantation and the innovations and advancements in technology
for 3D bioprinting. A large number of people across the globe are waiting for an organ or tissue transplant, due to the large
gap in demand for organ transplants and donors. This has created traction in the 3D bioprinting industry for developing live tissues
and organs. Different companies along with academic institutes and laboratories are investing capital for 3D bioprinting research
and development. Some of the other factors driving the growth of the global market include increasing research and development
activities and increasing compliance for 3D bioprinting in drug discovery processes. Growing stem cell research and increasing
adoption of 3D bioprinting in cosmetic industry are expected to create ample growth opportunities for the global market.
Aesthetic
Medicine
Dermal
fillers are gaining popularity all across the globe due to increasing trend of using anti-aging treatments, growing aging population,
demand to look younger and the use of social media. According to the American Society of Plastic Surgeons, in 2016, 92% of the
cosmetic minimally invasive procedures are performed on women, and there is rapidly gaining popularity with the male population
as well. More and more companies are on the search for safer and longer lasting fillers.
Broadly,
facial fillers can be divided into four categories: autologous fat, collagens, hyaluronic acid, and synthetic fillers (e.g., Calcium
hydroxylapatite, Polylactic acid). In 2017, hyaluronic acid comprised the largest category of soft tissue filler injections, with
78% market share and 2.1 million procedures performed in the U.S.
According
to Global Market Insights Inc, the global dermal filler and global breast implants market sizes were estimated at $6.2 billion
in 2019 and 2.2 billion in 2018, respectively, and are expected to surpass $10.5 billion by 2026 and $4.6 billion by 2026 and
2025, respectively.
Orthopedic
and wound healing
Orthobiologics
Market
An
aging population, active demographics, innovative technology, and emerging geographic areas are expected to continue to drive
growth in the global orthopedic market. Top market segments within orthopedics include reconstructive devices, such as joint replacements;
spinal implants and instruments, used to treat joint pain; fracture repair, including the use of plates and screws; and arthroscopy
and soft tissue repair, primarily for sports and movement related injuries.
Chronic
complex musculoskeletal injuries that are slow to heal pose challenges to physicians and patients alike. Orthobiologics use cell-based
therapies and biomaterials to help injuries heal more rapidly with a superior outcome. These products are made from substances
that are naturally found in the body, which dynamically interact with the musculoskeletal system to facilitate the healing of
bone, cartilage, meniscus, tendons, and ligaments affected by disease or injury. Orthobiologics products are spread across all
segments of the larger orthopedic market, generating much of the growth within orthopedics. In 2018, market report issued by Credence
Research, Inc. “Orthobiologics Market – Growth, Future Prospects, Competitive Analysis, 2018 – 2026,”
the global Orthobiologics market was expected at $4.9 billion in 2017 increasing at a CAGR of 5.7% from 2018 to 2026.
Advanced
Wound Care Market
The
global market for wound care encompasses traditional dressings and bandages, as well as advanced wound care products such as bioengineered
skin and skin substitutes and wound care growth factors. Over the past 30 years, there has been a shift from traditional
wound dressings towards advanced therapies that aim to optimize the wound healing environment. Advanced wound care is composed
of biocompatible products that are intended to actively promote wound healing by interacting either directly or indirectly with
wound tissues. Attempts to reduce the duration of hospital stays in order to limit healthcare costs and the goal of enhancing
therapeutic outcomes are driving the demand for advanced wound care and closure products. One of the primary market drivers for
advanced wound care products is the increasing incidence of chronic wounds, which are on the rise due to an aging population and
a sharp rise in the incidence of diabetes and obesity worldwide. Both advanced age and chronic medical conditions are associated
with a slower healing process, and all phases of wound healing are affected. The inflammatory response is decreased or delayed,
as is the proliferative response.
The
global advanced wound care market is expected to reach $11.5 billion in 2025 from $8.2 billion in 2017. The market is estimated
to grow with a CAGR of 4.5% from 2016-2025, according to ResearchAndMarkets July 2018 report. The three major market segments
are device-based wound care, comprised of negative-pressure wound therapy and hydrosurgery systems; moist wound care, comprised
of dressings that create and maintain a moist environment; and biologics, comprised of bioactive technologies that provide new
approaches to debridement and dermal repair and regeneration.
Our
Strategy
We
plan to exploit the unique characteristics of our rhCollagen to develop and commercialize an extensive portfolio of regenerative
medicine products, independently or in collaboration with collaboration partners. The key elements of our strategy include the
following:
|
●
|
Position our rhCollagen as the “gold standard” platform technology for collagen-based products in a broad range of markets. We believe that our rhCollagen represents a significant advance in collagen technology, demonstrated by its biofunctionality, high homogeneity, and reduced risk of immune response. Our rhCollagen is a platform technology which can be utilized in a broad range of therapeutic, aesthetic, and other medical applications, and in particular in emerging industries such as 3D bioprinting which we believe cannot be adequately addressed with currently available collagen technologies. We intend to expand the awareness of rhCollagen through partnerships and collaborations with leading commercial and academic partners around the world and further clinical trials which we will seek to have published in peer-reviewed journals, as well as through our participation in academic and industry conferences, to position rhCollagen as the “gold standard” platform technology for collagen-based products. We believe our platform technology, and the knowledge and expertise we have gained in its development, will enable the development, both independently and with collaborators, of differentiated products in multiple industries with a short time to market.
|
|
●
|
Utilize
collaborative partners and distributors to develop and commercialize our technology and products. We believe the market-leading
characteristics of our rhCollagen will create attractive collaboration opportunities for our products, and we intend to selectively
establish collaborations and strategic partnerships with respect to our current and future products in order to accelerate
their development and commercialization. We established a collaboration with United Therapeutics, and intend to engage with
well-established companies whose distribution networks are deeply entrenched. We expect our commercial efforts will be comprised
of the distribution networks of our collaboration partners, particularly in the United States and Europe.
|
|
●
|
Manufacturing
capacity to support commercialization of rhCollagen-based end products. We cultivate the tobacco plants used in the production
of our rhCollagen in a network of farms in Israel, and we extract the raw materials used to manufacture our rhCollagen from
these tobacco plants. We have a manufacturing facility in Israel that is supporting our current commercial needs to manufacture
commercial and clinical quantities of our rhCollagen and our BioInk in a cost-competitive manner for application in both premium
and commodity markets.
|
|
●
|
Expand
our pipeline through ongoing development of new products. We intend to continue to develop additional products, both independently
and with strategic collaborators, initially in 3D bioprinting of tissues and organs, and medical aesthetics markets and subsequently
in other high value markets, based on our rhCollagen. Recently, we initiated development of injectable and 3D bioprinted breast
implants. Our product pipeline and our research and development program are expected to yield new products in the coming years.
|
|
●
|
Advance
our leadership position in recombinant protein production through our plant-based technology. We continually seek to expand
our knowledge of plant-based protein production systems and introduce improvements into our process. We are shifting production
to an enhanced line of tobacco plants with higher collagen yield, along with improvements in the growing and cultivation process
as well as collagen extraction and purification. As tissue engineering and regenerative medicine continue to evolve and expand,
we expect that the demand for high-quality biomaterials will grow.
|
Our
Products and Product Candidates
BioInk
for 3D printing of tissues & organs
3D
bioprinting is being applied to the field of regenerative medicine to address the need for complex scaffolds, tissues, and organs
that are suitable for transplantation. We have developed rhCollagen-based BioInks that are optimized and provides an ideal building
block for the three-dimensional bioprinting of tissues and organs.
For
that purpose, rhCollagen was modified chemically to adapt the biological molecules for printing such that BioInks keep a controlled
fluidity during printing and cure to form hydrogels when irradiated by certain light sources ranging from UV to visible light.
The unique viscosity and shear thinning properties of the modified rhCollagen enable the formulation of BioInks that are suitable
for different printing technologies including extrusion, ink-jet, Laser Induced Forward Transfer and Stereolithography. The control
of chemical modification in combination with illumination energy allows tight control of the physical properties of the resulting
scaffolds to match natural tissue properties, from stiff cartilage to soft adipose. BioInks formulated from rhCollagen were evaluated
with all major currently available printing technologies and exhibited the required physical properties and excellent support
for cells including a series of primary and differentiated human cells.
CollPlant’s
BioInk based on rhCollagen - building block for tissue and organ manufacturing
We
believe our BioInk offers ideal characteristics for 3D bioprinting, including:
|
●
|
Biocompatibility—supports
cell viability and promotes proliferation (e.g. endothelial cells, fibroblasts, keratinocytes, MSCs)
|
|
●
|
Potential
safety—has not shown to promote allergic and other tissue reactions
|
|
●
|
Optimized
viscosity and gelation kinetics—printability and compatibility with multiple printing technologies
|
|
●
|
Curing
with a range of light sources based on specific requirements
|
|
●
|
Controlled
degradation profile
|
|
●
|
Controlled
rheological properties (e.g. viscosity)
|
|
●
|
Shear
thinning properties – compatible with inkjet technology
|
|
●
|
Convenient
handling at broad range of temperatures and pH (e.g., maintains liquid properties at RT and above –no gelation)
|
|
●
|
Compatible
with different photoinitiators to cover the spectrum of 280-500nm
|
|
●
|
Customized
physical properties of the printed constructs that are compatible with natural tissues
|
We
have initiated several research collaborations with biotechnology and medical device companies, as well as academic and research
institutions. These collaborations include development of technology for 3D bioprinting of life-saving organs and different tissues,
such as cornea, using our BioInk formulations. Our collaborations are generally structured such that our partners provide research
funding and purchasing of our BioInk to cover the scope of work, in part or in full. This funding is typically reflected as collaboration
revenues in our financial statements. Upon entering into a collaboration, we disclose the financial details only to the extent
that they are material to our business and not subject to confidentiality agreements with our partners. Research collaborations
with academic or research institutions typically involve both us and the academic partner contributing resources directly to projects,
but also may involve sponsored research agreements where we fund specific research programs.
In
May 2017, we created a division focused on development of our rhCollagen-based BioInk, following the expansion of our research
activities in the field of 3D biologic printing of organs and tissues.
On
October 19, 2018, CollPlant entered into the United License Agreement with LB, pursuant to which CollPlant and LB are collaborating
in the development of engineered lungs or lung substitutes using our rhCollagen and BioInk. Pursuant to the United License Agreement,
CollPlant granted to LB and its affiliates, an exclusive, perpetual, royalty-bearing and transferable license of our technology
relating to the production and use of our rhCollagen and BioInk for the commercialization of engineered lungs or lung substitutes
using 3D bioprinting processes throughout the universe. In August 2019, LB entered into an agreement with iBio to produce rhCollagen
for 3D bioprinted organ transplants, in connection with the United License Agreement. Under the United License Agreement, CollPlant
granted to LB and its affiliates, a two-year option to extend the license to engineered organs or organ substitutes of up to three
additional organs specified in the United License Agreement (each an “Option Product” and together with lungs, the
“Covered Products”). Further, at the end of the option period, LB and its affiliates shall have a one-year right of
first refusal to receive an exclusive license under our technology relating to the production and use of our rhCollagen and BioInk
for the Option Products. Other than under the United License Agreement, CollPlant has agreed not to conduct, enable or fund any
research, development or commercialization, or grant any license, with respect to the Covered Products during the term of the
United License Agreement, unless with respect to any Option Product, the option is not exercised and the right of first refusal
period expires.
3D
bioprinting of trachea using CollPlant’s BioInk
The
United License Agreement provides that LB will purchase our BioInk on a non-exclusive basis for use in the development and manufacture
of Covered Products and for up to the first two years of the United License Agreement, CollPlant will supply LB with a specified
limited quantity of BioInk without charge. The United License Agreement further provides that, LB will build a facility, or engage
a manufacturer to build a facility, in the U.S. for the manufacture of our rhCollagen and BioInk and the parties have agreed to
collaborate in the design and construction of the facility.
The
United License Agreement provides for the payment of an upfront cash payment of $5 million to CollPlant, which was paid to us
in November 2018 following effectiveness of the United License Agreement. In addition, the United License Agreement provides for
a one-time non-refundable option payment of $3 million per Option Product ($9 million in the aggregate), and up to $30 million
of milestone payments payable as follows: (i) $5 million upon completion of the U.S. facility design, or initial production of
rhCollagen at a U.S. based facility of a subcontractor, (ii) $5 million upon completion of production of a specified amount of
BioInk, and (iii) $5 million for FDA marketing approval for each Covered Product (up to $20 million in the aggregate). Further,
CollPlant shall be entitled to a fixed-fee royalty payment (subject to certain adjustment) for each product commercially sold
during the term of the Agreement, a fee for the supply of certain quantities of BioInk to LB, and reimbursement for certain costs
related to the U.S. facility and any payment made by CollPlant to the IIA.
Unless
earlier terminated, the United License Agreement will continue in effect on a Covered Product-by-Covered Product and country-by-country
basis until the later of (i) the expiration, invalidation or abandonment of the last CollPlant patent covering a Covered Product
in a particular country, and (ii) 12 years from the first commercial sale of such Covered Product in such country. Following expiration
(unless earlier terminated), the licenses granted to LB in the Agreement will continue on a fully paid-up, irrevocable basis.
The United License Agreement may be terminated early by either party for material breach or bankruptcy. In addition, CollPlant
may terminate the United License Agreement in the case of a challenge made by LB, its affiliates or sub-licensees with respect
to a CollPlant patent covering a Covered Product or if LB and its affiliates and sub-licensees discontinue development and commercialization
of all Covered Products for at least one year. LB may terminate the United License Agreement at any time upon 30 days’ written
notice with respect to the entirety of the United License Agreement and upon 30 days’ written notice with respect to its
license and other rights under the United License Agreement relating to one or more CollPlant patents, on a patent-by-patent and
country-by-country basis.
On
January 13, 2020, we announced a Joint Development Agreement with 3D Systems Corporation, pursuant to which we and 3D Systems
agreed to jointly develop tissue and scaffold bioprinting processes for third party collaborators. As part of the Joint Development
Agreement, we and 3D Systems plan to advance and accelerate tissue and scaffold bioprinting by delivering an integrated 3D bioprinter
and BioInks solution to third parties.
Medical
Aesthetics
Dermal
Filler
We
are currently developing a new photocurable regenerative dermal filler which is designed to address the need for more innovative
aesthetic products to treat wrinkles.
Skin
rejuvenation procedures are increasing in popularity, especially nonsurgical treatments such as dermal filler injections. Hyaluronic
acid is a water-retaining molecule widely used for dermal filling, but on its own, lacks the ability to promote cell proliferation
and tissue regeneration. This results in a limited-lasting effect.
The
combination of hyaluronic acid with a photocurable version of our tissue regenerating rhCollagen, serves as the basis for a new
dermal filler product line now in development. We are developing a photocurable regenerative filler comprised of rhCollagen and
hyaluronic acid which is intended to provide several revolutionary effects: lifting, sculpturing ability, retention to the host
tissue, and tissue regeneration.
The
photocurable regenerative dermal filler is intended for injection in a semiliquid phase and hardened in-situ post injection by
light illumination through the skin. Utilization of photocuring technology is expected to ease the injection process, particularly
in subcutaneous and supraperiosteal applications. As the hyaluronic acid and rhCollagen degrade, a newly formed tissue is expected
to regenerate and take their place.
In
May 2018, we filed a provisional patent application with the U.S. Patent and Trademark Office for photocurable dermal fillers
comprised of rhCollagen and hyaluronic acid, for the aesthetics market.
In
February 2019, we supplied the first material order of our rhCollagen to a leading company in the aesthetics market, and since
then we have been selling rhCollagen for development of medical aesthetics products to that company.
According
to Global Market Insights Inc., global dermal filler market will surpass $10.5 billion by 2026. We believe that rising awareness
and acceptance regarding several cosmetic procedures in developed and developing regions, coupled with increasing disposable income,
is expected to drive forward the dermal filler market size.
We
believe that an expanding geriatric population across the globe seeking anti-aging and wrinkle treatment is expected to have a
significant impact on segmental growth, and that an accelerating demand for numerous beauty enhancement procedures is expected
to further support facial line correction segment growth.
Breast
implants
Current
breast reconstruction is based on synthetic breast implantation and free flap surgery/autologous fat tissue transfer, all of which
replace tissue rather than regenerate it. Breast augmentation and reconstruction through silicone implants, which are among the
most popular surgical procedures, are associated with high risk for adverse events. Another procedure increasing in popularity
for relatively small volume breast augmentation is an injectable scaffold composed of autologous fat tissue injected into the
desired location for volume fill (fat transfer). The clinical outcome of this procedure is however quite limited due to a significant
volume loss after a relatively short period.
We
are advancing the development of injectable and 3D bioprinted breast implants for regeneration of breast tissue, aimed to overcome
these challenges and provide a revolutionary alternative to the current practices.
Injectable
implants
Injectable
implants composed of rhCollagen, additional materials and fat cells taken from the patient are intended to promote breast tissue
regeneration. The specific compositions are designed to support the viability and function of the autologous fat cells, and to
attract cells to promote tissue regeneration. The scaffold is designed to gradually degrade and be replaced by newly grown natural
breast tissue that is free of any foreign material.
3D
Bioprinted breast implants
The
implants in development will be bioprinted and loaded with compositions that are based on rhCollagen, autologous fat cells and
ECM components. These implants are intended to promote tissue regeneration and degrade in synchronization with the development
of a natural breast tissue.
In
August 2019, we began developing 3D bioprinted implant for regeneration of breast tissue, and have successfully produced first
prototypes, and have since expanded our development to include injectable breast implants. In August 2019, our proprietary rhCollagen-based
regenerative breast implants program accelerated and we launched an animal study during the first quarter of 2020.
Orthopedic
and wound healing
VergenixSTR—Tendinopathy
Treatment
VergenixSTR
is a soft tissue repair matrix that combines cross-linked rhCollagen with PRP, a concentrated blood plasma that contains high
levels of platelets, a critical component of the healing process. Platelets contain growth factors that are responsible for stimulating
tissue generation and repair, including soft tissue repair, bone regeneration, development of new blood vessels, and stimulation
of the wound healing process. VergenixSTR serves as a scaffold to support cell proliferation and the release of growth factors.
The product is injected into the affected area and forms a viscous gel matrix which serves as a temporary reservoir for PRP
in the vicinity of a tendon injury site, holding the platelet concentrate in place at the injured area. The matrix formed has
the capabilities to activate the platelets in PRP, thereby releasing growth factors in a controlled manner and controlled biodegradation
time, enabling optimal healing.
In
the European Union, VergenixSTR is intended for the treatment of tendinopathy by promoting healing and repair of tendon injuries
in a variety of tendons including the elbow tendon (for treatment of “tennis elbow”), rotator cuffs, patellar tendons,
Achilles tendon, and hand tendon.
We
estimate the size of the target market for VergenixSTR for treating tendinopathy is three million procedures per year, or approximately
$2.0 billion. While our initial focus for VergenixSTR is in tendinopathy, VergenixSTR may be applicable to other soft tissue
indications such as tendon rupture, meniscus tear, and cartilage repair, as well as in the aesthetic market. According to ResearchAndMarkets.com’s,
the global orthopedic soft tissue market was valued at $5.9 billion in 2016. Globally, the aging population is playing a
major role in increasing the incidence of sports injuries as the reduced flexibility and mobility associated with aging can make
the body more prone to injury.
We
completed a 40 patient open label, single arm, and multi-center clinical trial of VergenixSTR at hospitals in Israel which demonstrated
the safety and evaluated the performance of VergenixSTR in patients suffering from tennis elbow or lateral epicondylitis.
Tennis elbow is an inflammation of the tendons that join the forearm muscles on the outside of the elbow. The trial, which commenced
in January 2015, initially enrolled 20 patients and was expanded to enroll an additional 20 patients. Patients enrolled in the
trial received a one-time injection of VergenixSTR and monitored for the level of pain, tendon healing, and recovery of hand movement
at three and six months after treatment.
In
August 2016, we announced final results. At the three-month and six-month follow ups, patients treated with VergenixSTR reported
an average 51% and 59% reduction in pain and improvement in motion, respectively, as measured by score improvement over the baseline
on the Patient-Rated Tennis Elbow Evaluation, or PRTEE, questionnaire. The PRTEE questionnaire is designed to measure reduction
in pain and recovery of motion for patients with tennis elbow. Furthermore, at three-month and six-month follow ups, 74% and 86%,
respectively, of patients treated with VergenixSTR showed at least a 25% reduction in pain and improvement in motion as measured
by PRTEE. In contrast, a study of standard-of-care tennis elbow therapies published in 2010 in the American Journal of Sports
Medicine, or AJSM, reported that, at three and six months, 48% and 36%, respectively, of steroid patients showed at least a 25%
reduction in pain and improvement in motion as measured by PRTEE. Also at the three-month and six-month follow ups, 62% and 64%,
respectively, of patients treated with VergenixSTR showed at least a 50% reduction in pain and improvement in motion as measured
by PRTEE, whereas the 2010 AJSM study showed 33% and 17% reductions at three and six months, respectively, for this same measurement.
In
October 2016, we received CE marking certification for VergenixSTR. In November 2016, we entered into an exclusive distribution
agreement with Arthrex GmbH in Munich, Germany, an affiliate of Arthrex, Inc., for VergenixSTR covering Europe, the Middle East,
India, and certain African countries. Sales in Europe commenced in the fourth quarter of 2016. We currently do not intend to pursue
an FDA regulatory pathway to market for VergenixSTR.
In
March 2018, Arthrex announced results of ACP Tendo, a product for treatment of tendinopathy combining our Vergenix®STR and
Arthrex’s platelet reach plasma extraction kit, in a European case series. The safety and performance of ACP Tendo was evaluated
for the treatment of tendinopathy in 24 patients in 9 different European locations. The indications included injuries in rotator
cuff, Achilles tendon, peroneal tendon, tibialis tendon and common extensor tendon. In all treatment groups, patient-recorded-pain
decreased after 2 weeks and continued along this trend up to the last follow-up at 6 months. Specifically for rotator cuff and
common extensor tendon groups, the functionality was increased over the study period, almost achieving pre-symptom levels after
6 months.
VergenixFG—Wound
Filler
VergenixFG
is an advanced wound care product based on our rhCollagen. In the European Union, VergenixFG is intended for the treatment of
deep surgical incisions and deep wounds, including diabetic ulcers, venous and pressure ulcers, burns, bedsores, and other chronic
wounds that are difficult to heal. VergenixFG is designed to be easy to use and to be administrated through a cannula by a doctor
or nurse. The VergenixFG formulation provides a scaffold of pure human collagen, an important characteristic in promoting the
closure of wounds, that fills the wound bed and is engineered to create maximal contact with the surrounding tissue, which is
believed to enhance healing. VergenixFG provides complete coverage of the wound site, facilitates wound closure through an engineered
synchronization between scaffold degradation and growth of new tissue, and offers a non-allergenic and pathogen-free scaffold
for safe and efficacious wound care therapy. Other flowable gel products are available on the market, but they are based on tissue-derived
collagen.
Our
initial market for VergenixFG in Europe is chronic wounds, which includes diabetic foot ulcers, venous ulcers, and pressure ulcers.
MedTech Europe has reported there are an estimated 4 million individuals with wounds in the European Union per year.
We
have completed an open label, single arm, and multi-center registration trial of VergenixFG of 20 patients in Israel to demonstrate
safety and to evaluate the performance of VergenixFG in patients with hard-to-heal chronic wounds of the lower limbs. Patients
enrolled in the trial, received a single treatment of VergenixFG followed by a four-week follow up. Product performance was examined
according to several measures, the main one being the percentage of wound closure achieved. The results were published in February
2019 in Wounds, a peer-reviewed journal focusing on wound care and wound research. The paper, titled, “A
Novel Recombinant Human Collagen-based Flowable Matrix for Chronic Lower Limb Wound Management: First Results of a Clinical Trial,”
presents data from a previously reported independent study conducted by physicians at several wound care medical clinics and hospitals
in Israel. Four weeks following treatment, nine wounds closed completely, fifteen wounds exhibited a greater than 70% closure,
and the median wound area reduction was 94%. Only one patient failed to respond to treatment. All patients in the study reported
a 50% reduction in pain. Further, no significant device-related adverse events were reported throughout the study.
In
February 2016, we received CE marking certification for VergenixFG. Since then we have entered into distribution agreements for
the distribution of VergenixFG in 20 countries in Europe and Africa. We currently do not intend to pursue an FDA regulatory pathway
to market for VergenixFG.
Technology
Our
rhCollagen is based upon research conducted by our founder and Chief Scientist, Prof. Oded Shoseyov. We believe our technology
is the only viable technology available for the production of recombinant type I human collagen, the most abundant collagen
in the human body.
The
production of our rhCollagen begins with the creation of genetically engineered cultures that are transferred to selected greenhouses
across Israel and continues with the harvesting of tobacco leaves and the processing of such leaves to an extract which then undergoes
purification until the completion of the rhCollagen.
Five
human genes encoding heterotrimeric type I collagen are introduced into tobacco plants. The three protein chains that make
up type I collagen—two α1 protein chains and one α2 protein chain—are encoded by two genes. The other
three genes encode the human prolyl-4-hydroxylase (P4Hα and P4Hβ) as well as lysyl hydroxylase 3 (LH3) enzymes. These
enzymes are responsible for key post-translational modifications of collagen, and plants co-expressing all five of these vacuole-targeted
genes generate intact procollagen. The plants are grown in a greenhouse under strict growing protocols and mature leaves are transported
to a protein extraction facility. Upon extraction, pro-collagen is enzymatically converted to atelocollagen using a plant-derived
protease. The protein is purified to homogeneity through a cost-effective industrial process taking advantage of collagen’s
unique properties that make it soluble at a very low pH.
rhCollagen
forms thermally stable triple helix structures which readily fibrillate at natural pH and low sodium chloride concentrations,
making it ideal for use in the manufacture of products for tissue repair in the human body. Binding of integrins (transmembrane
receptors) presented by the cells to a specific 3D structure on type I collagen fibrils requires a perfect triple helix.
This binding is essential for binding and proliferation of cells on tissue repair scaffolds. In a study published in the Journal
of Biomedical Materials Research Part B: Applied Biomaterials, rhCollagen was compared with acid-solubilized collagen
from bovine dermis and pepsin-solubilized collagen from human fibroblast cell culture. Tested samples of the tissue-derived collagens
had random fibrillar organization, whereas rhCollagen membranes showed far greater regional fibril alignment and transparency.
RhCollagen membranes also showed better thermal stability compared with the tissue-derived collagens. The authors concluded that
cross-linked rhCollagen membranes had a superior combination of desirable properties, namely higher transparency, higher thermal
and tensile strengths, and adequate hydration.
We
have selected tobacco as the medium for production of rhCollagen due to certain attributes of the tobacco plant that provide us
with a number of advantages:
|
●
|
The
genetic structure of tobacco is well understood and therefore can be effectively manipulated.
|
|
●
|
We
can monitor the effect of weather conditions on the accumulation of proteins in the plants, which allows us to make optimal
use of the growing area. We control the growing process in order to maximize yields.
|
|
●
|
Because
tobacco is not part of the food chain, there are no concerns about cross-contamination of the food supply that could result
from genetically modified plants, which eases the regulatory burden.
|
|
●
|
Tobacco
plants may be grown in very large volumes and its growth time until reaching the desired maturity is relatively short (about
eight weeks).
|
We
have developed a large portfolio of configurations and composites based on our rhCollagen that are used to create high-quality
products, including our three products, as follows:
Our
Development Activities
Development
History
Our
rhCollagen was first developed as a collaboration among several commercial partners and the Hebrew University of Jerusalem, a
major academic institution in Israel, under the direction of Professor Oded Shoseyov. Prof. Shoseyov is a faculty member at the
Robert Smith Institute of Plant Science and Genetics at the Hebrew University of Jerusalem. The intellectual property was transferred
to our wholly owned subsidiary, CollPlant.
As
part of our regulatory strategy, we first developed and achieved a CE marking for a collagen-based non-invasive dressing, VergenixWD.
We pursued a CE mark for this product as a predicate product for achieving in 2016 CE marking for our VergenixSTR and VergenixFG
product in the European Union.
Between
2013 and 2017, we developed with Bioventus a surgical matrix, a novel resorbable carrier designed to help accelerate bone healing
and formation. The surgical matrix is a novel resorbable carrier composed of rhCollagen and synthetic minerals which is intended
to be charged with a bone morphogenetic protein for use as a bone graft substitute in bone repair indications such as spinal fusion
and trauma. A study was led by Bioventus, and published in Science Translational Medicine, under the title “Bone Repair
with a Receptor Optimized BMP-2/6/Activin Chimera Delivered in a Novel Ceramic/rhCollagen Matrix is Superior to BMP-2”.
The published article reports results from a study in non-human primates for bone regeneration using a receptor optimized chimera
version of BMP-2/BMP-6/Activin A delivered in a composite matrix formulated with CollPlant’s rhCollagen and ceramic granules.
The rhCollagen matrix was specifically designed for high retention of the BMP chimera and has a unique design for cell infiltration
and bone tissue growth. The treatment demonstrated tissue ingrowth that generated superior bone formation at concentrations
of BMP that were 1/10th to 1/30th of the standard dosage of BMP-2 concentration approved by the
FDA for clinical use in humans.
In
May 2017, we created a division focused on development of collagen-based biological ink, or BioInk, following the expansion of
our research activities in the field of 3D biologic printing of organs and tissues. In October 2018, we entered into the United
License Agreement pursuant to which CollPlant and LB are collaborating in the development of engineered lungs or lung substitutes
using our rhCollagen and BioInk.
In
May 2018, we filed a provisional patent application for photocurable dermal fillers comprising rhCollagen and hyaluronic acid,
for the aesthetics market. This application represents an integral part of our strategy to expand the uses for rhCollagen into
new, high value markets. The combination of hyaluronic acid, a naturally-occurring, moisture-binding compound, with our plant-based,
tissue regenerating rhCollagen is intended to form the basis for a new dermal filler product line aimed at addressing the need
for innovative aesthetic products to treat wrinkles.
In
August 2019, we announced that we are developing 3D bioprinted implants for regeneration of breast tissue and that we successfully produced
first prototypes. The implants will be comprised of our rhCollagen and additional materials. Loaded with fat cells taken from
the patient, these implants are intended to promote breast tissue regeneration. Eventually, the scaffold is designed to degrade
and be replaced by newly grown natural breast tissue, that is free of any foreign material. We have since expanded our development
to include injectable breast implants.
Future
Development
To
facilitate efficient development, our management holds regular research and development meetings where they prioritize development
projects and determine future products. The prioritization process is based on several factors, including our business plan, commercial
potential of the products, time to market, cost of development, feasibility of the project, and our established strategic objectives.
We have several development projects that are in different stages of development.
We
periodically examine the continued development of other collagen-based products that we have conceived. Each one of our current
products offers a platform to product derivatives that can address other indications and contribute to our pipeline and revenues.
Through ongoing research we are also pursuing other platforms for our rhCollagen, such as biomaterial coatings in order to reduce
foreign body response and tissue adhesion.
In
January 2020, we announced that we became part of a new public-private ManufacturingUSA initiative, the ARMI. Headquartered in
Manchester, New Hampshire, ARMI brings together a consortium of over 150 partner organizations from industry, government, academia
and the non-profit sector to develop next-generation manufacturing processes and technologies for cells, tissues and organs. We
intend to contribute our expertise to advance the entire science and industry of bioengineering and manufacturing.
Manufacturing,
Supply, and Production
The
majority of our product research and development work is carried out at our offices and research laboratories center in Weizmann
Science Park in Rehovot, Israel. The agricultural research and development and extraction activities for our rhCollagen are carried
out at our site in Yessod Hama’ala, Israel.
We
work with subcontractors with greenhouses for growing the tobacco plant containing human collagen. This tobacco growth occurs
year-round and is optimized to the climate conditions in order to achieve the maximum amount of the protein in the leaves. Each
grower has the infrastructure that can be scaled-up to accommodate future demand without additional capital expenditures.
We
produce the rhCollagen from the tobacco plants at our manufacturing facility in Yessod Hama’ala and Rehovot, Israel. We
believe that we currently have the ability to produce sufficient quantities of quality recombinant type I human collagen
to support our product development activities and sales until 2022. Our activities are focused on yield improvement, scale-up,
and cost reduction.
While
our upstream and downstream processes are quite robust and efficient, we continuously invest in further yield improvement and
scalability, in order to reduce costs. In order to increase yield, we plan to increase biomass per growing area by using new genetic
derivatives, improvement and optimization of growing techniques, and introduction of online controls. Our next-generation tobacco
plants have been created through improved genetics and cross-breeding and produce three times the amount of collagen as our first-generation
plants. In addition, increased growing areas will reduce overall cost per harvest. We also plan further process optimization of
our extraction process to increase yields.
We
have an approved in-house purification capability. The purification facility includes clean rooms, logistics support areas, and
dedicated production equipment to support the Company’s production demand for the next few years.
Under
our current production techniques, we achieve a cost of goods that allow us to offer competitive pricing in the premium collagen-based
products markets. We anticipate that the above-mentioned production enhancements will reduce the production cost of our rhCollagen
to a level that will enable us to be competitive in both premium and commodity markets for collagen-based products.
Sales,
Marketing, and Distribution
We
sell our BioInk and rhCollagen directly to our business partners, collaborators and selective customers. We anticipate that any
products we develop in collaboration with a strategic partner or collaborator, such as organs based on our BioInk for 3D bioprinting,
or medical aesthetics, will be marketed by the partner’s sales force.
We
sell our rhCollagen in the research market mostly to selective customers, including business collaborators and potential collaborators.
We
are marketing and distributing VergenixSTR and VergenixFG in the European market with business partners. In November 2016, we
entered into an exclusive distribution agreement with Arthrex GmbH in Munich, Germany, an affiliate of Arthrex, Inc.
for VergenixSTR covering Europe, the Middle East, India, and certain African countries. In December 2016, we supplied our first
order to Arthrex and since then we are supplying Arthrex shipments upon purchase orders, to support sales in Europe. Since 2016
we distribute VergenixFG in European countries with local distributors.
We
have commenced post marketing surveillance studies for both VergenixSTR and VergenixFG with our European key opinion leaders and
physicians in order to generate additional clinical data that demonstrates the efficacy and superiority of our products. The study
is intended to facilitate market adoption of our products in Europe, as well as provide additional support for the submission
package to other regulatory agencies, such as the FDA.
Our
proprietary end products are marketed, and will be marketed, to physicians, hospitals, and clinics. We plan to expand the awareness
of rhCollagen and our rhCollagen-based products to the end users through the publication of clinical trial data as well as marketing
studies we may conduct, along with participation in academic and industry conferences. We will also market our rhCollagen to companies
who are developing products using collagen and that do not compete with our primary end products. We anticipate entering into
collaborations or partnerships with these companies where we would supply them with rhCollagen for use in their products in return
for royalties.
Competition
We
are not aware of any competitors that produce human collagen from plants or that produce recombinant type I human collagen.
However, our industry is characterized by rapidly evolving technology and intense competition, and our rhCollagen-based products
will compete with several alternative tissue-derived or synthetic products. Adequate protection of intellectual property, successful
product development, adequate funding, and retention of skilled, experienced, and professional personnel are among the many factors
critical to success in the pharmaceutical industry.
Generally,
our competitors currently include large fully integrated companies, as well as academic research institutes and companies in various
developmental stages that develop alternative sources and forms of collagen and tissue-derived products.
The
primary competitors to our BioInk are potential bio-material inks for 3D biological printing, based on tissue-derived collagens.
Manufacturers of these products include, among others, Collagen Solutions, Cellink and Advanced BioMatrix.
The
primary competitors to our medical aesthetics products that are in development are Allergan, Mentor, Galderma and Merz.
Our
VergenixSTR product competes with companies that sell steroid injections and PRP kits, including Biomet Inc., Harvest Technologies
Corporation, MTF Sports Medicine, and Arteriocyte Medical Systems Inc.
The
primary competitors to our VergenixFG product are products based on tissue-derived collagens. Manufacturers of these products
include, among others, Integra Lifesciences Corporation, Wright Medical Technology Inc., Smith & Nephew, Molnlycke,
Convatec, Coloplast, and Urgo.
Intellectual
Property
Our
success depends, in part, on our ability to protect our proprietary technology and intellectual property. We rely on a combination
of patent, trade secret, and trademark laws in the United States and other jurisdictions to protect our intellectual property
rights. In addition, we rely on proprietary processes and know-how, intellectual property licenses, and other contractual rights,
including confidentiality and invention assignment agreements, to protect our intellectual property rights and develop and maintain
our competitive position.
Patents
We
have a global patent portfolio that is comprised of ten patent families. More than three dozen of our patent applications have
issued as patents or will issue soon, having been allowed by the relevant patent office. We have exclusive ownership of 19 issued
patents in our patent family that cover methods of creating collagen-producing plants and three issued patents that cover methods
of processing recombinant collagen. These issued patents and others that may issue in the future in these patent families, assuming
timely payment of annual fees, are expected to expire in 2025. Our patent portfolio also includes patent families that cover production
and use of collagen. Our patent portfolio also includes patent families that cover different uses of collagen including 3D Bioprinting
and dermal fillers which, if granted, could provide patent protection for particular formulations of our rhCollagen until 2038.
In
addition, our patent portfolio includes pending applications, some of which are jointly owned with Yissum Research Development
Company of the Hebrew University of Jerusalem Ltd., or Yissum.
We
are not aware of any impediments to the patent applications being granted in the United States or other jurisdictions. However,
some of our patent applications may never issue as patents, and our issued patents and any that may issue in the future may be
challenged, invalidated or circumvented.
Trade
Secrets and Confidential Information
In
addition to patented technology, we rely on our trade secrets and continuing technological innovations to develop and maintain
our competitive position. In an effort to protect our trade secrets, we rely on, among other safeguards, confidentiality and invention
assignment agreements to protect our proprietary technology, 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, consultants
and advisors to execute confidentiality agreements in connection with their employment or consulting relationships with us and
to disclose and assign to us inventions conceived in connection with their services to us. These agreements also provide that
all confidential information developed or made known to the individual during the course of their relationship with us must be
kept confidential, except in specified circumstances.
Materials
Transfer Agreements
We
periodically enter into materials transfer agreements with commercial organizations, medical institutions and research and development
institutions to transfer materials and products developed by us. These agreements include provisions that are customary for such
agreements concerning the permitted use of the transferred material and any results obtained using the material, confidentiality,
the rights in the transferred materials and in the results of the research and/or development in which the materials are used,
and the instructions concerning care and usage of the materials. These agreements may be used as a basis for further cooperation
between us and the counterparties.
We
may be unable to obtain, maintain, and protect the intellectual property rights necessary to conduct our business and may be subject
to claims that we infringe or otherwise violate the intellectual property rights of others, which could materially harm our business.
For a more comprehensive summary of the risks related to our intellectual property, see “Item 3.D. Risk Factors.”
Agreement
with Yissum Research Development Company of the Hebrew University of Jerusalem Ltd. with respect to our rhCollagen
Under
an agreement dated July 13, 2004 among Meytav—Technological Innovation Center Ltd., Yehuda Zafrir Fagin, Yissum,
and Prof. Oded Shoseyov (our Chief Scientist), we carried out a research and development project to develop a process for the
production of quality human collagen in plants and further developed the resulting products created by us, Professor Shoseyov
and Zafrir, for commercial applications. Yissum and Professor Shoseyov have assigned all intellectual property rights developed
by Professor Shoseyov and owned by them to us, including the intellectual property rights in connection with the development of
the method for production of quality human collagen in plants.
Government
Regulation
We
are a developer of products which are subject to extensive regulation in the United States, the European Union and other jurisdictions.
These regulations govern, among other things, the introduction of new products, the observance of certain standards with respect
to the design, manufacture, testing, promotion and sales of the products, the maintenance of certain records, the ability to track
devices, the reporting of potential product defects, the import and export of devices, and other matters.
In
order to obtain marketing authorization in the United States, we and/or our partners would be subject to extensive regulation
by the FDA and other federal, state, and local regulatory agencies. The Federal Food, Drug, and Cosmetic Act, or FD&C Act,
the Public Health Service Act, or the PHS Act, and their implementing regulations set forth, among others, requirements for the
research, testing, development, manufacture, quality control, safety, effectiveness, approval, labeling, storage, record keeping,
reporting, distribution, import, export, advertising, and promotion of our products. A failure to comply with relevant requirements
may lead to administrative, civil, or criminal sanctions. These sanctions could include the imposition by the FDA of a clinical
hold or other suspension on clinical trials, refusal to approve pending marketing applications or supplements, withdrawal of approval,
warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines,
civil penalties, or criminal prosecution.
Although
the discussion below focuses on regulation in the United States, we and/or our partners anticipate seeking approval for the marketing
of products in other countries which have their own regulatory requirements. Generally, our activities or those of our partners
in other countries will be subject to regulations that are similar in nature and scope as that imposed in the United States such
as medical device approval, quality system requirements, product data and certifications, although there can be important differences
and the number and scope of these regulatory requirements are generally increasing.
We
and/or our partners must obtain approval by comparable regulatory authorities of foreign countries outside of the European Union
and the United States before we can commence clinical trials or marketing of our products in those countries. The approval process
varies from country to country and the process may be longer or shorter than that required for FDA approval. In addition, the
requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary greatly from country
to country. In all cases, clinical trials must be conducted in accordance with the FDA’s regulations, commonly referred
to as good clinical practices, or GCPs, and the applicable regulatory requirements and ethical principles that have their origin
in the Declaration of Helsinki.
Government
regulation may delay or prevent testing or marketing of our products and impose costly procedures upon our activities. The testing
and approval process, and the subsequent compliance with appropriate statutes and regulations, require substantial time, effort,
and financial resources, and we cannot be certain that the FDA or any other regulatory agency will grant approvals for our products
or any future product candidates on a timely basis or at all. The policies of the FDA or any other regulatory agency may change
and additional governmental regulations may be enacted that could prevent or delay regulatory approval of our products or any
future product candidates or approval of new indications or label changes. We cannot predict the likelihood, nature or extent
of adverse governmental regulation that might arise from future legislative, judicial, or administrative action, either in the
United States or abroad.
Approval
by Health Authorities
The
following is a summary review of the laws and regulations governing our operations or those of our partners. Our end products
are medical and aesthetics products, and their marketing, once development is complete, is contingent upon approval of the health
authorities in every country in which the products will be marketed:
Israel
Our
operations are subject to permits from the Ministry of Health on two levels:
|
●
|
First,
the registration of medical devices, importing and marketing the medical devices and accessories, and issuing the documentation
necessary for the export of medical devices from Israel are all supervised by the medical accessories and devices unit, or
AMR, of the Ministry of Health.
|
|
●
|
Second,
pertaining to research and development, clinical trials in humans are subject to the approval of the Helsinki Committee of
the institution conducting the trial, which is governed by the Public Health Regulations (Trials in Human Beings), 1980, including
all amendments until 1999, or the Trials in Human Subjects Regulations and are conducted in accordance with the Guidelines
for Clinical Trials in Human Subjects issued by the Ministry of Health, or the Guidelines, and the guidelines of the Declaration
of Helsinki, or any other approval required by the Ministry of Health. According to the Trials in Human Subjects Regulations
and the Guidelines, the Helsinki Committee must plan and approve every experimental process that involves human beings. The
Helsinki Committee is an institutional committee that acts in the medical institution where the trial is performed and is
the body that approves and supervises the entire trial process. In practice, the physician, who is the principal investigator,
submits a trial protocol to the committee on behalf of the requesting party. The committee forwards its decisions regarding
the requests for clinical trials that were approved by the committee to the manager of the medical institute and the manager
has the authority to approve the requests, and in some cases the additional approval of the Ministry of Health will be required.
According to the procedure for medical trials in human beings set forth by the Ministry of Health, the Helsinki Committee
will not approve performance of a clinical trial, unless it is absolutely convinced that the following conditions, among others,
are fulfilled: (i) the anticipated benefits for the participant in the clinical trial and to the requesting party to
justify the risk and the inconvenience involved in the clinical trial to its participant; (ii) the available medical
and scientific information justifies the performance to the requested clinical trial; (iii) the clinical trial is planned
in a scientific manner that enables a solution to the tested question and is described in a clear, detailed, and precise manner
in the protocol of the clinical trial, conforming with the Declaration of Helsinki; (iv) the risk to the participant
in the clinical trial is as minimal as possible; (v) optimal monitoring and follow-up of the participant in the clinical
trial; (vi) the initiator, the principal investigator and the medical institute are capable and undertake to allocate
the resources required for adequate execution of the clinical trial, including qualified personnel and required equipment;
and (vii) the nature of the commercial agreement with the principal investigator and the medical institute does not impair
the adequate performance of the clinical trial.
|
All
phases of clinical trials conducted in Israel must be conducted in accordance with the Trials in Human Subjects Regulations, including
amendments and addenda thereto, the Guidelines, and the International Conference for Harmonized Tripartite Guideline for Good
Clinical Practice. The Trials in Human Subjects Regulations and the Guidelines stipulate that a medical study on humans will only
be approved after the Helsinki Committee at the hospital intending to perform the study has approved the medical study and notified
the relevant hospital director in writing. In addition, certain clinical studies require the approval of the Ministry of Health.
The relevant hospital director, and the Ministry of Health, if applicable, also must be satisfied that the study is not contrary
to the Declaration of Helsinki or to other regulations.
Additionally
the Israeli penal code prohibits bribing a foreign public employee in exchange for any action related to such employee’s
role, in order to achieve, guarantee, or promote business activities or other business advantage.
In
June 2017, we received AMR approval for VergenixFG and started treating patients in Israel. In March 2018, we received AMR approval
for VergenixSTR.
United
States
The
regulatory process of obtaining product approvals and clearances can be onerous and costly. Foreign companies manufacturing medical
devices intended for sale in the United States are required to meet the FDA’s regulatory requirements. The FDA does not
recognize the regulatory certification provided by governmental authorities of other countries.
Regulation
of Combination Products
The
FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two
or more regulated components, e.g., drug/device, biologic/device, drug/biologic, or drug/device/biologic, which are physically,
chemically, or otherwise combined or mixed and produced as a single entity; (2) two or more separate products packaged together
in a single package or as a unit and comprised of drug and device products, device and biological products, or biological and
drug products; (3) a drug, device, or biological product packaged separately that according to its investigational plan or proposed
labeling is intended for use only with an approved individually specified drug, device, or biological product where both are required
to achieve the intended use, indication, or effect and where, upon approval of the proposed product, the labeling of the approved
product would need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of administration, or
significant change in dose; or (4) any investigational drug, device, or biological product packaged separately that according
to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product
where both are required to achieve the intended use, indication, or effect.
The
FDA is divided into various “Centers” by product type such as the Center for Drug Evaluation and Research, or CDER,
CBER, or the CDRH. Different Centers review drug, biologic, or device applications.
The
FDA is charged with assigning a Center with primary jurisdiction, or a lead Center, for review of a combination product. That
determination is based on the “primary mode of action,” or PMOA, of the combination product. Thus, if the PMOA of
a device-biologic combination product is attributable to the biologic product, CBER, which is responsible for premarket review
of the biologic product, would have primary jurisdiction for the combination product.
The
FDA has also established an Office of Combination Products to address issues surrounding combination products and provide more
certainty to the regulatory review process. That office serves as a focal point for combination product issues for agency reviewers
and industry. It is also responsible for developing guidance and regulations to clarify the regulation of combination products
and for assignment of the FDA center that has primary jurisdiction for review of combination products where the jurisdiction is
unclear or in dispute.
After
formally establishing the PMOA through an applicant’s Request for Designation, the Center that regulates that portion of
the product that generates the PMOA becomes the lead evaluator. When evaluating an application, a lead Center may consult other
centers but still retain complete reviewing authority, or it may collaborate with another Center, wherein the lead Center assigns
concurrent review of a specific section of the application to another Center, delegating its review authority for that section.
Typically,
the FDA requires a single marketing application submitted to the Center selected to be the lead evaluator, although the agency
has the discretion to require separate applications to more than one Center. One reason to submit multiple evaluations is if the
applicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug
product or orphan drug exclusivity. If multiple applications are submitted, each may be evaluated by a different lead Center.
When submitting multiple applications, the applicant may be subject to the payment of two user fees, but a waiver of such fees
may be obtained under certain limited circumstances.
The
FDA may subject a combination product to two or more sets of legal authorities, e.g., drug/device, biologic/device, or drug/biologic
drug, but it has the authority to deem one set of legal authorities sufficient. FDA’s standard of review for a combination
products application and the applicable legal authority or authorities will depend on a case-by-case basis evaluation of the scientific
and technical issues and risk profile relevant to a combination product and its constituent parts. Because of the breadth and
complexity of this analysis in each case, no single regulatory paradigm is appropriate for all combination products.
After
receiving FDA approval or clearance, an approved or cleared product must comply with postmarket safety reporting requirements
applicable to the product based on the application type under which it received marketing authorization. In the case of current
good manufacturing practices, or cGMP, the applicant may take one of two approaches: (1) complying with cGMP for each constituent
part, or (2) a streamlined approach specific to combination products, subject to certain limitations.
In
January 2019, the U.S. Food and Drug Administration, or FDA, responded to the Company’s Pre-RFD regarding product classification
and jurisdictional assessment. The FDA’s OCP determined that VergenixSTR should be classified as a Combination Product,
specifically a drug/biologic/device product, and should be assigned to the FDA’s CBER. A Pre-RFD is FDA’s preliminary,
nonbinding assessment of (1) the regulatory identity or classification of a product as a drug, device, biological product, or
combination product, and (2) which FDA Center (i.e., CBER, CDER, or CDRH) will have primary jurisdiction for the premarket review
and regulation of the product. Therefore, this classification and jurisdictional assessment is subject to change. We currently
do not intend to pursue an FDA regulatory pathway to market for VergenixSTR and VergenixFG. We nevertheless include a discussion
of FDA’s requirements for approval of, and ongoing, regulation for drugs, biologics, and medical devices below which are
relevant to the end products that we are either developing internally or in collaboration with our partners.
Marketing
Authorization for Drugs and Biologics in the U.S.
A
new biologic must be approved by the FDA through the biologics license application, or BLA, process before it may be legally marketed
in the U.S. A new drug must be approved by the FDA through the new drug application, or NDA, process before it may be legally
marketed in the U.S.
The
animal and other non-clinical data and the results of human clinical trials performed under an Investigational New Drug, or IND,
application and under similar foreign applications will become part of the BLA or NDA.
In
the U.S., the FDA regulates biologics under the Public Health Service Act, or PHS Act, and implementing regulations, and under
the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations, respectively. The U.S. regulates drugs under
the FDCA. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local, and
foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the
applicable U.S. requirements at any time during the product development process, approval process or after approval may subject
an applicant to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending
applications, withdrawal of an approval, a clinical hold, warning letters, requesting product recalls, product seizures, total
or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement,
or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The process
required by the FDA before a drug or biologic may be marketed in the U.S. generally involves the following:
|
●
|
completion
of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices, or GLP, or
other applicable regulations;
|
|
●
|
submission
to the FDA of an IND which must become effective before human clinical trials may begin;
|
|
●
|
approval
by an institutional review board, or IRB, representing each clinical trial site before each clinical trial may be initiated;
|
|
●
|
performance
of adequate and well-controlled human clinical trials according to Good Clinical Practices, or GCP, to establish the safety
and efficacy of the proposed biologic for its intended use;
|
|
●
|
preparation
and submission of a BLA or NDA to the FDA;
|
|
●
|
satisfactory
completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance
with current good manufacturing practice, or cGMP, to assure that the facilities, methods and controls are adequate to preserve
the drug’s identity, strength, quality and purity; and satisfactory completion of any FDA audits of the clinical study
sites to assure compliance with GCP, and the integrity of clinical data in support of the BLA or NDA; and
|
|
●
|
FDA
review and approval of the BLA or NDA.
|
Once
a biologic or drug product candidate is identified for development, it enters the preclinical testing stage. Preclinical tests
include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must
submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of
the IND. The sponsor will also include a protocol detailing, among other things, the objectives of the first phase of the clinical
trials, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated if the first phase lends
itself to an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically
becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on
a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can
begin. Clinical holds also may be imposed by the FDA at any time before or during studies due to safety concerns or non-compliance.
All
clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCP regulations.
They must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion
criteria, and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the
IND, and progress reports detailing the results of the clinical trials must be submitted at least annually. In addition, timely
safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events. An institutional
review board, or IRB, responsible for the research conducted at each institution participating in the clinical trial must review
and approve each protocol before a clinical trial commences at that institution and must also approve the information regarding
the trial and the consent form that must be provided to each trial subject or his or her legal representative, monitor the study
until completed and otherwise comply with IRB regulations.
|
●
|
Phase
I: The product candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance,
absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases,
such as cancer, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the
initial human testing may be conducted in patients.
|
|
●
|
Phase
II: This phase involves studies in a limited patient population to identify possible adverse effects and safety risks,
to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and
optimal dosage.
|
|
●
|
Phase
III: Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population
at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of
the product candidate and provide, if appropriate, an adequate basis for product labeling.
|
Concurrent
with clinical trials, companies usually complete additional animal studies and must also develop additional information about
the chemistry and physical characteristics of a biologic or drug and finalize a process for manufacturing the product in commercial
and clinical quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing
quality batches of the product candidate, and, among other things, the manufacturer must develop methods for testing the identity,
strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability
studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf
life. Before approving a BLA or NDA, the FDA typically will inspect the facility or facilities where the product is manufactured.
The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in full compliance
with cGMP requirements and adequate to assure consistent production of the product within required specifications. The PHS Act
in particular emphasizes the importance of manufacturing control for products like biologics whose attributes cannot be precisely
defined.
Manufacturers
and others involved in the manufacture and distribution of products must also register their establishments with the FDA and certain
state agencies. Both domestic and foreign manufacturing establishments must register and provide additional information to the
FDA upon their initial participation in the manufacturing process. Any product manufactured by or imported from a facility that
has not registered, whether foreign or domestic, is deemed misbranded under the FDCA.
Establishments
may be subject to periodic unannounced inspections by government authorities to ensure compliance with cGMP and other laws. Manufacturers
may have to provide, on request, electronic or physical records regarding their establishments. Delaying, denying, limiting, or
refusing inspection by the FDA may lead to a product being deemed to be adulterated. Human clinical trials for biologics and drugs
are typically conducted in three sequential phases that may overlap or be combined. If there are two independent modes of action,
neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based on
consistency with other combination products raising similar types of safety and effectiveness questions or to the center with
the most expertise in evaluating the most significant safety and effectiveness questions raised by the combination product.
Marketing
Authorization for Medical Devices in the U.S.
In
the United States, medical devices are regulated by the FDA. Unless an exemption applies, a new medical device will require either
prior 510(k) clearance or approval of a PMA before it can be marketed in the United States. The information that must be submitted
to the FDA in order to obtain clearance or approval to market a new medical device varies depending on how the medical device
is classified by the FDA. Medical devices are classified into one of three classes on the basis of the controls deemed by the
FDA to be necessary to reasonably ensure their safety and effectiveness. Class I devices, which are those that have the lowest
level or risk associated with them, are subject to general controls, including labeling, premarket notification, and adherence
to the QSR. Class II devices are subject to general controls and special controls, including performance standards. Class III
devices, which have the highest level of risk associated with them, are subject to most of the previously identified requirements
as well as to premarket approval. Most Class I devices and some Class II devices are exempt from the 510(k) requirement,
although manufacturers of these devices are still subject to registration, listing, labeling and QSR requirements.
A
510(k) premarket notification must demonstrate that the device in question is substantially equivalent to another legally marketed
device, or predicate device, that did not require premarket approval. In evaluating the 510(k), the FDA will determine whether
the device has the same intended use as the predicate device, and: (i)(a) has the same technological characteristics as the
predicate device, or (b) has different technological characteristics; and (ii)(a) the data supporting the substantial
equivalence contains information, including appropriate clinical or scientific data, if deemed necessary by the FDA, that demonstrates
that the device is as safe and as effective as a legally marketed device, and (b) does not raise different questions of safety
and effectiveness than the predicate device. Most 510(k)s do not require clinical data for clearance, but the FDA may request
such data. If the FDA does not agree that the new device is substantially equivalent to the predicate device, the new device will
be classified in Class III, and the manufacturer must submit a PMA.
The
PMA process is more complex, costly, and time consuming than the 510(k) clearance procedure. A PMA must be supported by extensive
data including, but not limited to, technical, preclinical, clinical, manufacturing, control, and labeling information to demonstrate
to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. After a PMA is submitted, the
FDA has 45 days to determine whether it is sufficiently complete to permit a substantive review. If the PMA is complete,
the FDA will file the PMA. The FDA is subject to performance goal review times for PMAs and may issue a decision letter as a first
action on a PMA within 180 days of filing, but if it has questions, it will likely issue a first major deficiency letter
within 150 days of filing. It may also refer the PMA to an FDA advisory panel for additional review and will conduct a preapproval
inspection of the manufacturing facility to ensure compliance with the QSR, either of which could extend the 180-day response
target. A PMA can take several years to complete, and there is no assurance that any submitted PMA will ever be approved. Even
when approved, the FDA may limit the indication for which the medical device may be marketed. Changes to the device, including
changes to its manufacturing process, may require the approval of a supplemental PMA.
If
a medical device is determined to present a “significant risk,” the manufacturer may not begin a clinical trial until
it submits an investigational device exemption, or IDE, to the FDA and obtains approval of the IDE from the FDA. The IDE must
be supported by appropriate data, such as animal and laboratory testing results, and include a proposed clinical protocol. The
clinical trials must be conducted in accordance with applicable regulations, including but not limited to the FDA’s IDE
regulations and current good clinical practices. A clinical trial may be suspended by the FDA or the sponsor at any time for various
reasons, including a belief that the risks to the study participants outweigh the benefits of participation in the trial. Even
if a clinical trial is completed, the results may not demonstrate the safety and efficacy of a device or may be equivocal or otherwise
not be sufficient to obtain approval. Medical devices, however, typically rely on one or a few pivotal studies rather than Phase
I, II and III clinical trials
Clinical
trials are subject to extensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under
the oversight of an institutional review board, or IRB, for the relevant clinical trial sites and must comply with FDA regulations,
including, but not limited to, those relating to good clinical practices. To conduct a clinical trial, we also are required to
obtain the patient’s informed consent in a form and substance that complies with both FDA requirements and state and federal
privacy and human subject protection regulations.
The
FDA, the IRB, or we could suspend a clinical trial at any time for various reasons, including a belief that the risks to study
subjects outweigh the anticipated benefits or a finding that the research subjects or patients are being exposed to an unacceptable
health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial
is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious
harm to patients. Clinical testing may not be completed successfully within any specified period, if at all. Even if a trial is
completed, the results of clinical testing may not adequately demonstrate the safety and efficacy of the device or may otherwise
not be sufficient to obtain FDA clearance or approval to market the product in the United States. Similarly, in Europe, the clinical
study must be approved by a local ethics committee and in some cases, including studies with high-risk devices, by the ministry
of health in the applicable country.
In
August 2010, we submitted a 510(k) notification to the FDA for VergenixWD, a collagen-based non-invasive dressing. In October
2010, we received notice that the Center for Devices and Radiological Health, or CDRH, which is the FDA center with jurisdiction
over medical devices, determined that the product required a submission of a PMA for regulatory approval and not a 510(k). We
filed an appeal of this decision that was denied, and in April 2012, the FDA confirmed its previous determination that our product
would require PMA approval prior to its marketing in the United States. Most dermal fillers have been traditionally regulated
as medical devices. However, similar products have more recently been regulated as biologics by CBER. Therefore, the classification
and jurisdictional assessment related to our VergenixWD product is subject to change. We believe that most, if not all, of our
products will be subject to the PMA process or will be considered combination products subject to at least some medical device
regulations.
We
expect, based on our prior limited interaction with the FDA in connection with our predecessor wound healing product, that our
current products and pipeline products, including dermal fillers and breast implants, will be regulated as medical devices through
a PMA process; however, no assurance can be given that the FDA will not impose additional, more stringent, regulatory requirements
with respect to one or more of our current or future product candidates. Conducting clinical trials for our pipeline product candidates
that are required to undergo the PMA process may take one to three years, depending on the composition of the product candidate
under development and its designation.
We
are not presently conducting any discussions with the FDA with respect to any of our products.
Post-Approval
Regulation of Biologics, Drugs and Medical Devices
After
a product is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below,
adverse event reporting regulations require that we report to the FDA any incident in which our product may have caused or contributed
to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or
contribute to death or serious injury. Additional regulatory requirements include:
|
●
|
product
listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;
|
|
●
|
cGMP
or QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, validation, testing,
control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process;
|
|
●
|
labeling
regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label use or indication;
|
|
●
|
clearance
of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in
intended use of one of our approved medical products;
|
|
●
|
notice
or approval of product or manufacturing process modifications or deviations that affect the safety or effectiveness of one
of our approved medical products;
|
|
●
|
post-approval
restrictions or conditions, including post-approval study commitments;
|
|
●
|
post-market
surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness
data for the medical product;
|
|
●
|
the
FDA’s recall authority, whereby it can ask or, under certain conditions, order device manufacturers to recall from the
market a product that is in violation of governing laws and regulations;
|
|
●
|
regulations
pertaining to voluntary recalls; and
|
|
●
|
notices
of corrections or removals.
|
Also,
quality control and manufacturing procedures must continue to conform to current Good Manufacturing Practices, or cGMP after approval,
which includes, among other things, maintenance of a stability program. The FDA periodically inspects manufacturing facilities
to assess compliance with cGMP, which imposes extensive procedural, substantive, and record keeping requirements. In addition,
changes to the manufacturing process are strictly regulated and, depending on the significance of the change, may require prior
FDA approval before being implemented. FDA regulations also require investigation and correction of product out of specification
results and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use.
Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain
compliance with cGMP and other aspects of regulatory compliance. The holder of an NDA is responsible for legal and regulatory
compliance for advertising and promotion of the drug product. We are required to provide to the FDA copies of all drug promotion
at the time of first use and to ensure that all information disseminated conforms to the product’s approved labeling and
other FDA regulations and policies.
A
biologic product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests
on each lot of the product before it is released for distribution. If the product is subject to official lot release, the manufacturer
must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and
the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may, in addition, perform certain
confirmatory tests on lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory
research related to the safety, purity, potency and effectiveness of pharmaceutical products.
Advertising
and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission,
or FTC, and by state regulatory and enforcement authorities. Promotional activities for FDA-regulated products of other companies
have been the subject of enforcement action brought under healthcare reimbursement laws and consumer protection statutes. Furthermore,
under the federal U.S. Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising
claims. In addition, we are required to meet regulatory requirements in countries outside the United States, which can change
rapidly with relatively short notice. If the FDA determines that our promotional materials or training constitutes promotion of
an unapproved or uncleared use, it could request that we modify our training or promotional materials or subject us to regulatory
or enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if
they consider our promotional or training materials to constitute promotion of an unapproved use, which could result in significant
fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.
Failure
by us or by our third-party manufacturers and suppliers to comply with applicable regulatory requirements can result in enforcement
action by the FDA or other regulatory authorities, which may result in sanctions including, but not limited to:
|
●
|
untitled
letters, warning letters, fines, injunctions, consent decrees and civil penalties;
|
|
●
|
customer
notifications or repair, replacement, refunds, recall, detention or seizure of our products;
|
|
●
|
operating
restrictions or partial suspension or total shutdown of production;
|
|
●
|
refusing
or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;
|
|
●
|
withdrawing
510(k) clearances or PMA approvals that have already been granted;
|
|
●
|
refusing
to grant export approval for our products; or
|
Proteins
Intended for Therapeutic Use
In
the United States, proteins intended for therapeutic use, whether derived from plants, animals, microorganisms, or recombinant
versions of these products, are regulated as biological products that have been transferred from the FDA Center for Biologics
Evaluation and Research, or CBER, to the Center for Drug Evaluation and Research, or CDER. CDER has regulatory responsibility,
including premarket review and continuing oversight over the transferred products. Cellular products, including products composed
of human, bacterial, or animal cells, or from physical parts of those cells, remain under the jurisdiction of CDER.
Our
products and product candidates are based on our recombinant type I human collagen, or rhCollagen, a form of human collagen produced
with our proprietary plant based genetic engineering technology. Therefore, we believe our underlying platform technology would
be regulated as a drug in the U.S.
Regenerative
Medicine Advanced Therapy Designation
Under
section 3033 of the 21st Cures Act, or Cures Act, a drug is eligible for regenerative medicine advanced therapy (RMAT) designation
if (1) the drug is a regenerative medicine therapy, which is defined as a cell therapy, therapeutic tissue engineering product,
human cell and tissue product, or any Combination Product using such therapies or products, except for those regulated solely
under section 361 of the PHS Act and 21 C.F.R. Part 1271, (2) the drug is intended to treat, modify, reverse, or cure a serious
or life-threatening disease or condition, and (3) preliminary clinical evidence indicates that the drug has the potential to address
unmet medical needs for such disease or condition. If we pursue U.S. marketing approval for any of our products, we may be able
to avail ourselves of this pathway or another expedited pathway.
Human
Cells, Tissues, and Cellular and Tissue-Based Products Regulation
Under
Section 361 of the PHS Act, the FDA issued specific regulations governing the use of human cells, tissues, and cellular and tissue-based
products, or HCT/Ps, in humans. Pursuant to Part 1271 of Title 21 of the Code of Federal Regulations, or Part 1271, the FDA established
a unified registration and listing system for establishments that manufacture and process HCT/Ps. The regulations also include
provisions pertaining to donor eligibility determinations; current good tissue practices covering all stages of production, including
harvesting, processing, manufacture, storage, labeling, packaging, and distribution; and other procedures to prevent the introduction,
transmission, and spread of communicable diseases.
The
HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered
include the degree of manipulation, whether the product is intended for a homologous function, whether the product has been combined
with noncellular or non-tissue components, and the product’s effect or dependence on the body’s metabolic function.
In those instances where cells, tissues, and cellular and tissue-based products have been only minimally manipulated, are intended
strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or have any
effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured
products, and adopt and implement procedures for the control of communicable diseases. If one or more of the above factors has
been exceeded, the product would be regulated as a drug, biological product, or medical device rather than an HCT/P.
We
do not believe that Part 1271 requirements currently apply to us because we are not currently investigating, marketing or selling
cellular therapy products in the U.S. If we were to change our business operations in the future, the FDA requirements that apply
to us may also change, and we would potentially need to expend significant resources to comply with these requirements.
European
Union
Legal
Requirements for Medical Devices in the EU
Under
the European Union Medical Device Directive, or EU MDD, medical devices must meet the EU MDD requirements and receive a CE marking
certification prior to marketing in the European Union, or EU. CE marking is the uniform labeling system of products designed
to facilitate the supervision and control of the EU concerning manufacturers’ compliance with the various regulations and
directives of the EU and to clarify the obligations imposed in the various legislative provisions in the EU. Use of a uniform
product labeling indicates compliance with all of the directives and regulations required for the application of such labeling,
and it is effective as a manufacturer’s declaration that the product meets the required criteria and technical specifications
of the relevant authorities such as health, safety, and environmental protection. CE marking ensures free trade between the EU
and European Economic Area (or EEA) countries (Switzerland, Iceland, Liechtenstein, and Norway) and permits the enforcement and
customs authorities in European countries not to allow the marketing of similar products that do not bear the CE marking sign.
Such certification allows, among other things, marking the products (according to various categories) with the CE marking and
their sale and marketing in the EU.
CE
requires the performance of a conformity assessment procedure to establish that a product meets the essential requirements under
the EU MDD or MDR. The nature of the conformity assessment procedure and the data required under it - including the question of
whether or not a clinical investigation of a device is required - depends on, inter alia, the risk class of the respective device
and the extent to which safety data is already available. Devices of the lowest risk class, class I, are subject to self-certification
by the manufacturer, while devices of higher risk classes, i.e., classes IIa, IIb and III, require a comprehensive quality system
program, and other aspects to be reviewed by a Notified Body, or NB. An NB is a private entity vested with certain competencies
and designated by the national governments of the EU member states to make independent judgments about whether a product complies
with the EU requirements for medical devices and to grant the CE certificate if the manufacturer, and the product, comply with
specified terms. After receiving the CE certificate, we must pass a review carried out by the competent NB annually, under which
it audits our facilities to verify our compliance with the ISO 13485 quality system standard. The CE-certificate is a requirement
for the declaration of conformity we issue for our medical devices and for our legitimate affixing of the CE-mark to our products.
Compliance
with the ISO 13485 standard, for medical device quality management systems, is required for regulatory purposes in the EU
with regard to devices of risk class IIa or higher. ISO standards are recognized international quality standards that are designed
to ensure that we develop and manufacture quality medical devices. Other countries are also instituting regulations regarding
medical devices. Compliance with these regulations requires extensive documentation and clinical reports for all of our products,
revisions to labeling, and other requirements such as facility inspections to comply with the registration requirements.
In
February 2016, we received the CE certification for VergenixFG, and in October 2016, we received the CE certification for VergenixSTR.
These CE certifications were renewed in 2018 under the requirements of the MDD. The renewed certificates will expire in 2023.
The CE certification for VergenixWD we had has now expired, and we have not renewed it. VergenixWD was our first medical product
based on collagen protein derived from plants that is authorized for sale and marketing in Europe, but we are not currently promoting
a marketing strategy for VergenixWD, which is considered a commodity product and is not targeted towards the advanced wound care
market, which is our target market.
In
February 2019, we received DEKRA (European Union Notified Body) Certification for the manufacturing and purification of our recombinant
human collagen, rhCollagen. The Rehovot production facility is now covered by the current CollPlant ISO13485:2016 certification.
When
the MDR will become applicable and replace the existing regulatory framework for medical devices in the EU, stricter provisions
will apply to medical devices in several regards. Inter alia, the MDR will cause several medical devices being classified in higher
risk classes and therefore face elevated regulatory requirements. In addition, the MDR will generally elevate regulatory requirements
to medical devices. As a result, it is likely that it will become more difficult to market medical devices and costs incurred
for clinical evaluation, conformity assessment and post marketing surveillance will increase. These regulatory changes may adversely
affect our business, financial condition, and results of operations or restrict our operations.
Legal
Requirements for Drugs in the EU
We
do not believe that our products are currently subject to EU or Member States’ regulation on drugs. However, given that
our products are highly innovative, a risk remains that regulatory authorities, notified bodies, competitors and/or courts might
be of a different opinion. Consequently, there is a risk that discussions might be started with regard to the regulatory status
of our products.
If
one or more of our current or future products would have the status of a drug under the law of the EU or one or more of its Member
States, regulatory requirements for such product(s) would be significantly higher. In particular, a drug can only be placed on
the market if it has been authorized by the competent regulatory authority either under the EU centralized procedure, the decentralized
or mutual recognition procedure or under a Member State’s national procedure. Marketing authorizations for drugs under all
of the different authorization procedures are expensive and time consuming and require the performance of extensive pre-clinical
and clinical research. If one or more of our products would be considered drugs by a regulatory authority, notified body or court
of the EU or a Member State, it is possible that we would be forced to take the respective product(s) off the market until they
have received marketing approval under pharmaceutical law. In addition, this might also lead to administrative fines, criminal
prosecution and/or claims raised by customers and/or competitors.
Other
U.S. Federal Healthcare Laws and Regulations
Healthcare
providers, physicians, and third-party payors play a primary role in the recommendation and medical devices that are granted marketing
approval. In the United States, we are subject to laws and regulations pertaining to healthcare fraud and abuse, including anti-kickback
laws and physician self-referral laws that regulate the means by which companies in the healthcare industry may market their products
to hospitals and healthcare providers and may compete by discounting the prices of their products. The delivery of our products
is subject to regulation regarding reimbursement, and federal healthcare laws apply when a customer submits a claim for a product
that is reimbursed under a federally funded healthcare program. These rules require that we exercise care in structuring our sales
and marketing practices and customer discount arrangements.
Arrangements
with healthcare providers, third-party payors, and other customers are subject to broadly applicable fraud and abuse and other
healthcare laws and regulations, including the following:
|
●
|
the
federal healthcare Anti-Kickback Law prohibits, among other things, persons from knowingly and willfully soliciting, offering,
receiving, or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral
of an individual for, or the purchase, order, or recommendation of, any good or service for which payment may be made, in
whole or in part, under a federal healthcare program such as Medicare and Medicaid;
|
|
●
|
the
U.S. False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals
or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false
or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government;
|
|
●
|
the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing
a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
|
|
●
|
HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also
imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission
of individually identifiable health information;
|
|
●
|
the
federal false statements statute prohibits knowingly and willfully falsifying, concealing, or covering up a material fact
or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or
services;
|
|
●
|
the
federal transparency requirements under the Health Care Reform Law require manufacturers of drugs, devices, and medical supplies
to report to the U.S. Department of Health and Human Services information related to payments and other transfers of value
to physicians and teaching hospitals, physician ownership and investment interests; and
|
|
●
|
analogous
state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including
private insurers.
|
Healthcare
providers that purchase medical devices generally rely on third-party payors, including, in the United States, the Medicare and
Medicaid programs and private payors, such as indemnity insurers, employer group health insurance programs, and managed care plans,
to reimburse all or part of the cost of the products. As a result, demand for our products is and will continue to be dependent
in part on the coverage and reimbursement policies of these payors. The manner in which reimbursement is sought and obtained varies
based upon the type of payor involved and the setting in which the product is furnished and utilized. Reimbursement from Medicare,
Medicaid, and other third-party payors may be subject to periodic adjustments as a result of legislative, regulatory, and policy
changes as well as budgetary pressures. Possible reductions in, or eliminations of, coverage or reimbursement by third-party payors,
or denial of, or provision of uneconomical reimbursement for new products, may affect our customers’ revenue and ability
to purchase our products. Any changes in the healthcare regulatory, payment, or enforcement landscape relative to our customers’
healthcare services has the potential to significantly affect our operations and revenue.
Other
Approvals
Our
international operations, as well as being an Israeli company, subject us to laws regarding sanctioned countries, entities, and
persons; customs, import-export, and laws regarding transactions in foreign countries; and the U.S. Foreign Corrupt Practices
Act and local anti-bribery and other laws regarding interactions with healthcare providers. Among other things, these laws restrict,
and in some cases can prevent, United States companies from directly or indirectly selling goods, technology, or services to people
or entities in certain countries. In addition, these laws require that we exercise care in structuring our sales and marketing
practices in foreign countries.
In
addition to the above regulations, we are and may be subject to regulation under country-specific federal and state laws, including,
but not limited to, requirements regarding record keeping and the maintenance of personal information, including personal health
information. As a public company whose securities will be registered pursuant to the Securities Act, we will be subject to U.S.
securities laws and regulations, including the Sarbanes-Oxley Act. We also are subject to other present, and could be subject
to possible future, local, state, federal, and non-U.S. regulations in countries in which we will distribute our products.
Israeli
Ministry of Agriculture
The
process of growth of transgenic plants and the treatment thereof is subject to the regulations published by the Israeli Ministry
of Agriculture and the approval of the Ministry of Agriculture to engage in the cultivation of recombinant plants. Although the
Ministry of Agriculture requirements do not necessarily apply to our operations, we hold a valid permit from the Plant Protection
and Inspection Services Administration, or PPIS, for growing tobacco plants in greenhouses in our site at Yessod Hama’ala,
Israel, as well as in all of our subcontractors’ facilities.
Business
Licensing
Under
the Israeli Licensing of Businesses Law, to which our production sites and laboratories are subject, operating a business without
a license or temporary permit is a criminal offense. In April 2019, we moved our laboratories and offices into a new site, and
we are currently in the process of obtaining a business license for our sites in Rehovot Israel. In addition, we have a business
license for our production site at Yessod Hama’ala, in effect until July 12, 2022.
Planning
and Zoning
Our
production sites and laboratories are subject to the Israeli Planning and Zoning Law, which sets provisions and obligations, inter
alia, regarding the licensing process for a new building, including building permits, non-conforming use and easements, the
supervision over its construction, and the required occupancy permits. According to the Planning and Zoning Law, work or use of
land without a permit where such permit is required, a deviation from the permit granted, or use of agricultural land in violation
of the law, constitutes a criminal offense.
Employees
As
of December 31, 2019, we had 38 full-time employees, including 13 in research and development, 16 in manufacturing and 9 in sales,
general and administrative positions. 6 of our employees have either MDs or PhDs. All of our employees are located in Israel.
We believe our employee relations are good.
In
addition, we employ a limited number of part-time employees on a temporary basis, as well as consultants and service providers.
Israeli
labor laws govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination
of the scope 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. We fund our ongoing severance obligations by making monthly payments to insurance
policies that comply with the applicable Israeli legal requirements. All of our current employees have agreed that upon termination
of their employment, they will be entitled to receive only the amounts accrued in the insurance policies with respect to severance
pay. Furthermore, Israeli employers and employees are required to make payments to the National Insurance Institute, which is
similar to the U.S. Social Security Administration.
None
of our employees currently work under any collective bargaining agreements.
Environmental,
Health, and Safety Matters
Our
research, development, and manufacturing processes involve the controlled use of certain hazardous materials. Therefore, we are
subject to extensive environmental, health, and safety laws and regulations in a number of jurisdictions in Israel, governing,
among other things: the use, storage, registration, handling, emission, and disposal of chemicals, waste materials, and sewage;
chemicals, air, water, and ground contamination; air emissions; and the cleanup of contaminated sites, including any contamination
that results from spills due to our failure to properly dispose of chemicals, waste materials, and sewage. Our operations at our
Rehovot manufacturing facility use chemicals and produce waste materials and sewage. Our activities require permits from various
governmental authorities including local municipal authorities, the Ministry of Environmental Protection, and the Ministry of
Health. The Ministry of Environmental Protection, the Ministry of Health, local authorities, and the municipal water and sewage
company conduct periodic inspections in order to review and ensure our compliance with various regulations.
These
laws, regulations, and permits could potentially require the expenditure by us of significant amounts for compliance or remediation.
We believe that our environmental, health, and safety procedures for handling and disposing of these materials comply with the
standards prescribed by the controlling laws and regulations. If we fail to comply with such laws, regulations, or permits, we
may be subject to fines and other civil, administrative, or criminal sanctions, including the revocation of permits and licenses
necessary to continue our business activities. In addition, we may be required to pay damages or civil judgments with respect
to third-party claims, including those relating to personal injury (including exposure to hazardous substances we use, store,
handle, transport, manufacture, or dispose of), property damage, or contribution claims. These risks are managed to minimize or
eliminate associated business impacts. Some environmental, health, and safety laws allow for strict joint and several liability
for remediation costs, regardless of comparative fault. We may be identified as a responsible party under such laws. Such developments
could have a material adverse effect on our business, financial condition, and results of operations as these kinds of liabilities
could exceed our resources. We could be subject to a regulatory shutdown of a facility that could prevent the distribution and
sale of products manufactured in such facility for a significant period of time, and we could suffer a casualty loss that could
require a shutdown of the facility in order to repair it, any of which could have a material, adverse effect on our business.
Although we continuously strive to maintain full compliance with respect to all applicable global environmental, health, and safety
laws and regulations, we could incur substantial costs to fully comply with future laws and regulations, and our operations, business,
or assets may be negatively affected.
In
addition, compliance with laws and regulations relating to environmental, health, and safety matters is an ongoing process and
is often subject to change. In the event of any changes or new laws or regulations, we could be subject to new compliance measures
or to penalties for activities which were previously permitted. For instance, Israeli regulations were promulgated in 2012 relating
to the discharge of industrial sewage into the sewer system. These regulations establish new and potentially significant fines
for discharging forbidden or irregular sewage into the sewage system. We have compliance procedures in place for employee health
and safety programs, driven by a centrally led organizational structure that ensures proper implementation, which is essential
to our overall business objectives.
We
invest resources in creating a green production environment and in the treatment and disposal of waste using environmentally friendly
processes. We have received all the necessary permits from the Ministry of Environmental Protection regarding our operations in
Yessod Hama’ala and we are in the process of obtaining a business license for our new facilities in Rehovot. We consult
with environmental consultants for direction on environmental issues.
Legal
Proceedings
From
time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business.
We are currently not a party to any material legal or administrative proceedings and, are not aware of any pending or threatened
material legal or administrative proceedings against us.
C.
|
Organizational
Structure
|
We
currently have one wholly owned subsidiary: CollPlant Ltd., which is incorporated in the State of Israel.
D.
|
Property,
Plant and Equipment
|
From
March 31, 2019, our corporate headquarters and research lab center are located in the Weizmann Science Park in Rehovot, Israel.
We entered into a lease agreement in November 2018, for an aggregate of 13,450 square feet of office and laboratory space. The term of the lease is for 65 months, commencing on November 15, 2018 and ending
on April 15, 2024, with an option to extend the lease for an additional five years. Monthly rent is approximately $25,000. We
have invested approximately $1 million in establishment of the infrastructure, offices, labs and equipment in our new space, net
of participation by the landlord. From June 2008 to March 31, 2019, we leased an aggregate of approximately 7,653 square feet
of office and laboratory space in the same Weizmann Science Park, pursuant to lease agreements which expired, following extensions,
on March 31, 2019.
The
research facilities serve us for development of our product pipeline, including BioInks for 3D bioprinting of tissues and organs,
and dermal fillers and breast implants for medical aesthetics. The majority of our research and development work is carried out
at our research laboratories in Weizmann Science Park. The plant research process of our rhCollagen is carried out at our site
in Yessod Hama’ala, Israel. We use greenhouses for tobacco growing in a few areas in Israel, where we are using subcontractors
under agreements. We produce our rhCollagen and BioInk in our two production sites, inYessod Hama’ala and in Rehovot.
We
rent areas in Yessod Hama’ala, Israel, of approximately 64,583 square feet of greenhouse and manufacturing facility pursuant
to a lease agreement that expires on April 30, 2021, with an option to extend the lease for an additional six years.
In
addition, on July 28, 2016, we leased additional space in Rehovot, Israel, of approximately 6,329 square feet for production
activities pursuant to a lease agreement that expires on October 19, 2020, with an option to extend for three additional years.
We
believe that our existing facilities are adequate for our near-term needs. When our leases expire, we may look for extension periods
or alternate space for our operations. We believe that suitable additional or alternative space and area would be available if
required in the future on commercially reasonable terms.
ITEM 4A.
|
UNRESOLVED
STAFF COMMENTS
|
Not
applicable.
ITEM 5.
|
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
|
You
should read the following discussion and analysis of our financial condition and results of operations together with the section
titled “Item 3.A.—Selected Financial Data” and our consolidated financial statements and related notes included
elsewhere in this Annual Report on Form 20-F. This discussion and other parts of this Annual Report on Form 20-F contain forward-looking
statements based upon current expectations that involve risks and uncertainties. This discussion and other parts of this Annual
Report on Form 20-F contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives,
expectations, and intentions. Our actual results could differ materially from those discussed in these forward looking statements.
Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled
“Item 3.D.—Risk Factors” and elsewhere in this Annual Report in Form 20-F.
The
share and per share numbers in the following discussion reflect a 1-for-3 reverse share split that we effected on November 20,
2016 and the 1 for 50 reverse share split effected on July 15, 2019. We report financial information in accordance with generally
accepted accounting principles in the United States.
Overview
We
are a regenerative and aesthetic medicine company focused on 3D bioprinting of tissues and organs, and medical aesthetics. Our
products and product candidates are based on our recombinant human collagen (rhCollagen) that is produced with our proprietary
plant based genetic engineering technology.
Our
products and product candidates address indications for the diverse fields of tissue repair, aesthetics and organ manufacturing,
and, we believe, are ushering in a new era in regenerative and aesthetic medicine. Our flagship rhCollagen BioInk product line
is ideal for 3D bioprinting of tissues and organs.
Our
rhCollagen-based BioInk for use in the 3D printing of tissues and organs is being developed to enable the printing of three-dimensional
scaffolds combined with human cells and/or growth factors as a basis for tissue or organ formation. In addition to collagen, our
BioInk formulations can include other proteins and/or polymers as well. Our BioInk is being developed to be compatible with numerous
3D bioprinting technologies and with printed organ characteristics. In October 2018, we entered into the United License Agreement,
pursuant to which CollPlant and LB are collaborating in the development of engineered lungs or lung substitutes using our rhCollagen
and BioInk.
To
date, we have financed our operations primarily with revenues from sales of our products and license of our technology, as well
as from net proceeds from private placements. Prior to February 2017, we financed our operations primarily from public offerings
of our securities on the TASE, participation of business partners in product development collaborations, and government grants
from the IIA.
Since
our inception, we have incurred significant losses. Our total net loss was $11.2 million for the year ended December 31, 2019
and $6.8 million and $5.8 million for the years ended December 31, 2018 and 2017, respectively. As of December
31, 2019, we had an accumulated deficit of $67.3 million.
We
expect to continue to incur expenses and operating losses for the foreseeable future. The net losses we incur may fluctuate significantly
from quarter to quarter. We anticipate that our expenses will increase substantially if and as we:
|
●
|
continue
our research and preclinical and clinical development of our pipeline products;
|
|
●
|
seek
marketing approvals for our products and future products in the United States and other new territories;
|
|
●
|
maintain,
expand, and protect our intellectual property portfolio;
|
|
●
|
hire
additional operational, clinical, quality control, and scientific personnel;
|
|
●
|
establish
plant infrastructure to accommodate product capacity increase;
|
|
●
|
add
operational, financial, and management information systems and personnel, including personnel to support our product development,
any future commercialization efforts, and our transition to a public reporting company in the United States; and
|
|
●
|
identify
additional product candidates.
|
Financial
Operations Overview
Prior to 2019, the Company prepared its financial statements
in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board,
or IASB, as permitted in the U.S. based on the Company’s status as a foreign private issuer as defined by the SEC. During
2019, the Company decided to change its accounting method into US GAAP since the company’s business activity is primarily in the
U.S as well as its activity in the U.S capital markets.
Revenue
Our
ability to generate significant revenues depend on the successful commercialization of our rhCollagen-based BioInk and establish
business collaborations and successful commercialization of VergenixSTR and VergenixFG. For the year ended December 31, 2019,
we reported revenues of $2.3 million mainly from the United License Agreement and the sale of rhCollagen-based BioInk in the United
States and from the sales of VergenixSTR and VergenixFG in Europe.
Our
revenues are recorded in the amount of consideration to which we expect to be entitled in exchange for performance
obligations upon transfer of control to the customer.
Operating
Expenses
Cost of Revenue
Cost of revenues in our proprietary
products and services includes expenses for the manufacturing of products such as raw materials, payroll, utilities, laboratory
costs and depreciation. Cost of revenue also includes provisions for the costs associated with manufacturing scraps and inventory
write offs.
In addition to the successful strategic partnerships with United
Therapeutics Corporation, and expansion of our technology into the medical aesthetics, we have focused during.
Research
and Development Expenses
Research
and development expenses consist of costs incurred for the development of both of our rhCollagen based developed products. Those
expenses include:
|
●
|
employee-related
expenses, including salaries and share-based compensation expenses for employees in research and development functions;
|
|
●
|
expenses
incurred in operating our laboratories;
|
|
●
|
expenses
incurred under agreements with CROs and investigative sites that conduct our clinical trials;
|
|
●
|
expenses
relating to outsourced and contracted services, such as external laboratories, consulting, and advisory services;
|
|
●
|
supply,
development, and manufacturing costs relating to clinical trial materials;
|
|
●
|
maintenance
of facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and insurance, net of
expenses capitalized to inventory; and
|
|
●
|
costs
associated with preclinical and clinical activities.
|
Research
and development activities are the primary focus of our business. Products 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. We expect that our research and development expenses will continue to be significant in absolute
dollars in future periods as we continue to invest in research and development activities related to the development of our products.
Our
total research and development expenses for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 were
$4.4 million, $3.9 million and $3.9 million, respectively. The research and development expenditures on our rhCollagen technology
and our products for the years ended December 31, 2019, and 2018 presented net of grants participation from the IIA, in the amounts
of $28,000 and $327,000, respectively. In the year ended December 31, 2017 these expenses were partly funded in the amount
of $584,000 by Bioventus and government grants. To date we have charged all research and development expenses to operations as
they are incurred.
There
are numerous factors associated with the successful commercialization of any of our products, including future trial design and
various regulatory requirements, many of which cannot be determined with accuracy at this time. Additionally, future commercial
and regulatory factors beyond our control will affect our clinical development programs and plans.
Participation
in Research and Development Expenses
Our
research and development expenses are net of the following participations by third parties.
Participation
by the Israel Innovation Authority. We have received grants from IIA as part of the research and development programs
for our rhCollagen technology and our products. The requirements and restrictions for such grants are found in the Innovation
Law and the regulations promulgated thereunder. These grants are subject to repayment through future royalty payments on any products
resulting from these research and development programs. Under the Innovation Law and related regulations, royalties of 3% - 6%
on the income generated from sales of products and from related services developed in whole or in part under IIA programs are
payable to the IIA, up to the total amount of grants received, linked to the U.S. dollar and bearing interest at an annual rate
of LIBOR applicable to U.S. 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, 2019 totaled approximately $10.1 million. As of December 31,
2019, we paid $1.5 million as royalties to the IIA.
In
addition to paying any royalty due, we must abide by other restrictions associated with receiving such grants under the Innovation
Law that continue to apply following repayment to the IIA. These restrictions may impair our ability to outsource manufacturing
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. For more information, see “Item 3.D. Risk Factors—Risks
Related to Our Financial Condition and Capital Requirements—The IIA grants we have received for research and development
expenditures restrict our ability to manufacture products and transfer know-how outside of Israel and require us to satisfy specified
conditions.” If we fail to comply with the Innovation Law, we may be subject to civil claims and criminal charges.
Under
applicable accounting rules, the grants from the IIA have been accounted for as an off-set against the related research and development
expenses in our financial statements. Our balance sheet liabilities include current obligations regarding royalties that we are
obligated to pay to the IIA based on sales of our products for the second half of the year, as they are due for payment in the
following quarter. Our cost of goods include royalties expenses regarding royalties on our sales to the IIA See Note 2k in
our consolidated financial statements for the year ended December 31, 2019 for more information.
General,
Administrative, and Marketing Expenses
Our
general and administrative expenses consist principally of:
|
●
|
employee-related
expenses, including salaries, benefits, and related expenses, including equity-based compensation expenses;
|
|
●
|
legal
and professional fees for auditors, investor relations, and other consulting expenses not related to research and development
activities;
|
|
●
|
cost
of offices, communication, and office expenses;
|
|
●
|
information
technology expenses;
|
|
●
|
business
development and marketing activities;
|
|
|
|
|
●
|
Stock
exchange fees and related services; and
|
|
|
|
|
●
|
Board
members related expenses, including fees and directors’ liability insurance premiums.
|
We
expect that our general, administrative, and marketing expenses will increase in the future as our business expands and we incur
additional general and administrative costs associated with being a public company in the United States, including compliance
under the Sarbanes-Oxley Act and rules promulgated by the SEC. These public company-related increases will likely include costs
of additional personnel, additional legal fees, audit fees, directors’ liability insurance premiums, and costs related to
investor relations.
Financial
Income/Financial Expense
Financial
income includes exchange rate differences. Financial expense consists primarily of remeasurement of financial instruments, exchange
rate differences and bank commissions.
Taxes
on Income
We
do not generate taxable income in Israel, as we have historically incurred operating losses resulting in carry forward tax losses.
As of December 31, 2019, we have incurred operating losses of approximately $4.5 million for CollPlant Biotechnologies Ltd.
and $50.3 million for CollPlant Ltd. We anticipate that we will be able to carry forward these tax losses indefinitely to
future tax years assuming that we utilize them at the first opportunity. 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.
The
standard corporate tax rate in Israel is 23%. Under the Investment Law, and other Israeli laws, we may be entitled to certain
additional tax benefits, including reduced tax rates, accelerated depreciation, and amortization rates for tax purposes on certain
assets and amortization of other intangible property rights for tax purposes.
The
table below provides our results of operations for the years ended December 31, 2019, 2018 and 2017.
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
(USD in thousands)
|
|
Statement of comprehensive loss data:
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
2,318
|
|
|
|
5,014
|
|
|
|
463
|
|
Cost of revenue
|
|
|
1,879
|
|
|
|
1,659
|
|
|
|
48
|
|
Gross Profit
|
|
|
439
|
|
|
|
3,355
|
|
|
|
415
|
|
Research and development expenses, net
|
|
|
4,414
|
|
|
|
3,877
|
|
|
|
3,906
|
|
General, administrative, and marketing
expenses
|
|
|
3,656
|
|
|
|
3,723
|
|
|
|
2,466
|
|
Operating loss
|
|
|
7,631
|
|
|
|
4,245
|
|
|
|
5,957
|
|
Financial expenses
|
|
|
3,303
|
|
|
|
2,180
|
|
|
|
47
|
|
Exchange differences
|
|
|
230
|
|
|
|
(176
|
)
|
|
|
47
|
|
Financial expenses (income), net
|
|
|
3,533
|
|
|
|
2,004
|
|
|
|
94
|
|
Loss for the period
|
|
|
11,164
|
|
|
|
6,249
|
|
|
|
6,051
|
|
Revenues
We generated revenues from the sale of our BioInk,
rhCollagen, VergenixFG and VergenixSTR, as well as revenues from the United License Agreement, in the year ended December 31,
2019 of approximately $2.3 million compared to $5.0 million in the year ended December 31, 2018. The decrease in revenues in 2019
was primarily due to revenues recognized from the United License Agreement in 2018 in the amount of $4.1 million which comprised of $3.1 million resulting from the United License Agreement, and $1.0 million from proceeds
related to the license regarding the payment to the IIA. Excluding the license payments, we had an increase
in revenues from sales of goods and rendering of services in the total amount of approximately $1.4 million.
We
generated revenues from the sale of our BioInk, rhCollagen, VergenixFG and VergenixSTR, as well as revenues from the United License
Agreement in the year ended December 31, 2018 of approximately $5.0 million compared to $463,000 in the year ended December
31, 2017. The increase in revenues in 2018 compared to 2017 was primarily due to revenues recognized from the United License Agreement
in the amount of $4.1 million. In addition, we had an increase in revenues from product sales and rendering of services in the
total amount of $437,000.
Cost
of revenue
We
incurred cost of revenue in the amount of $1.9 million in the year ended December 31, 2019 compared to $1.7 million in the
year ended December 31, 2018. Cost of revenue includes mainly the cost of VergenixFG, VergenixSTR, our rhCollagen based
BioInk and royalties to the IIA for our sales. The increase in cost of revenue in the amount of $220,000 is comprised of: (i)
a decrease in the amount of $1.2 million due to royalties expenses to the IIA recognized in 2018 primarily in relation to the
United License Agreement and (ii) an increase in the amount of $1.4 million in cost of revenue regarding increase of revenues
generated from BioInk and rhCollagen sales.
Cost
of revenues increased from $48,000 in the year ended December 31, 2017 to $1.7 million in the year ended December 31, 2018. The
increase in cost of revenue in the amount of $1.5 million is primarily due to royalties expenses recognized in relation to the
United License Agreement in 2018 in the amount of $1.2 million and the increase in revenues generated from BioInk sales.
Research
and Development Expenses
We
incurred research and development expenses, net of participation of the IIA, of $4.4 million in the year ended December 31, 2019
compared to $3.9 million in the year ended December 31, 2018. The expenses primarily related to the development of our BioInk
product, other development projects such as our aesthetics dermal filler and process development in our Rehovot facility. The
increase in the amount of $500,000 is mainly due to a decrease of approximately $330,000 from IIA grant recorded, and an increase
in R&D salary and share base compensation due to salary raises and repricing of employees option.
Research
and development expenses accumulated to $3.9 million in the year ended December 31, 2018 compared to $3.9 million in the year
ended December 31, 2017. The expenses were primarily related to the development of our BioInk product and other development
projects such as our aesthetics dermal filler and process development in our Rehovot facility.
The
participation by parties not affiliated with the Company in the research and development expenses were $327,000 in 2018, compared
to $584,000 in 2017. The decrease of $257,000 is mainly due to the end of the development of the Surgical Matrix Carrier in March
2017, a project that was fully funded by Bioventus.
General,
Administrative, and Marketing Expenses
General,
administrative, and marketing expenses amounted to $3.7 million in the year ended December 31, 2019, compared to $3.7 million
in the year ended December 31, 2018. The expenses primarily related to employees and directors salary expenses and equity base
compensation, directors and officers insurance premium and legal expenses.
General,
administrative, and marketing expenses were $3.7 million in the year ended December 31, 2018, compared to $2.5 million in the
year ended December 31, 2017. The increase in expenses amounting to $1.2 million is primarily due to (i) an increase in legal
and other professional services expenses of $444,000 related to our US capital market expenses as a Nasdaq traded company, and
(ii) an increase in salaries and amortization of equity-based compensation in the total amount of $693,000.
Financial
Expenses (Income), Net
Financial
expenses, net, totaled $3.5 million in the year ended December 31, 2019, compared to financial expenses, net of $2.0 million
in the year ended December 31, 2018. The increase in financial expenses in 2019 as compared to the year 2018 was mainly due
to a $1.1 million measurement expenses of financial instruments, related to the Alpha purchase agreement, Meitav Dash
purchase agreement and Ami Sagy purchase agreement.
Financial
expenses, net, totaled $2.0 million in the year ended December 31, 2018, compared to financial expenses, net of $94,000 in the
year ended December 31, 2017. The increase in financial expenses in 2018 as compared to the year 2017 was mainly due to measurement
expenses of debentures converted to prepaid warrants of $2.1 million related to the Alpha purchase agreement, and $176,000 income
from exchange rate differences.
Significant
Accounting Estimates and Judgments
Estimates
and judgments are reviewed on an ongoing basis and are based on past experience and other factors, including expectations of future
events, which are considered reasonable in view of current circumstances.
Significant
Accounting Estimates
We
make estimates and assumptions with respect to the future. By nature, the accounting estimates are rarely identical to actual
results. The estimate that has a significant risk of resulting in a material adjustment to carrying amounts of assets and liabilities
in the next financial year is listed below.
Significant
Judgments Made When Applying our Accounting Policies
We
prepare our financial statements in conformity with US. GAAP. We describe our significant accounting policies and estimates more
fully in Note 2 to our financial statements as of and for the year ended December 31, 2019, included elsewhere in this annual
report. We believe that the accounting policies and estimates below are critical in order to fully understand and evaluate our
financial condition and results of operations. In preparing these financial statements, our management has made estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of expenses during the reporting periods recognized in our financial
statements. Actual results may differ from these estimates. As applicable to the financial statements included in this annual
report, the most significant estimates and assumptions relate to the fair value of share-based compensation.
Share-based
Compensation
Share-based
compensation reflects the compensation expense of our share option programs granted to employees which compensation expense is
measured at the grant date fair value of the options. The grant date fair value of share-based compensation is recognized as an
expense over the requisite service period. We recognize compensation expense for awards conditioned only on continued
service that have a graded vesting schedule using the accelerated method based on the multiple-option award approach, and classify
these amounts in our statement of operations based on the department to which the related employee reports.
Options
Valuation
We
selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value of the
share based compensation.
For
the purpose of the evaluation of the fair value and the manner of the recognition of share-based compensation, our management
is required to estimate, among others, various subjective and complex parameters that are included in the calculation of the fair
value of the option as well as our results and the number of options that will vest. These parameters include the expected volatility
of our share price over the expected term of the options, the risk-free interest rate assumption, the share option exercise and
expected dividends.
Recent
Accounting Pronouncements
Certain
recently issued accounting pronouncements are discussed in Note 2, Significant Accounting Policies, to the consolidated financial
statements included in “Item 18. Financial Statements” of this Annual Report.
JOBS
Act
With
less than $1.07 billion in revenues during our last fiscal year, we qualify as an emerging growth company under the JOBS
Act. An emerging growth company may take advantage of specified provisions in the JOBS Act that provide exemptions or reductions
of its regulatory burdens related to reporting and other requirements that are otherwise applicable generally to public companies.
These provisions include an exemption from the auditor attestation requirement in the assessment of our internal control over
financial reporting pursuant to the Sarbanes-Oxley Act. We may take advantage of some, but not necessarily all, of these provisions
to reduce our burdens or exempt ourselves from regulatory requirements for up to five years or such earlier time that we are no
longer deemed an emerging growth company. We have elected not to avail ourselves of an exemption that allows emerging growth companies
to extend the transition period for complying with new or revised financial accounting standards. This election is irrevocable.
We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual
gross revenues of $1.07 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the
first sale of the ADSs pursuant to an effective registration statement, (iii) the date on which we have, during the previous three-year
period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed a “large accelerated
filer” as defined in Regulation S-K under the Securities Act.
|
B.
|
Liquidity
and Capital Resources
|
To
date, we have financed our operations primarily with revenues from sales of our products and licensing of our technology, as well
as from net proceeds from private placements. Prior to February 2017, we financed our operations primarily from public offerings
of our securities on the TASE, participation of business partners in product development collaborations, and government grants
from the IIA.
Our
recurring operating losses, negative cash flows and current cash position have raised substantial doubt regarding our ability
to continue as a going concern. Our financial statements include a note describing the conditions which raise this substantial
doubt. As a result, our independent registered public accounting firm included a “going concern” explanatory paragraph
in its report on our financial statements as of and for the year ended December 31, 2019 with respect to this uncertainty. Our
ability to continue as a going concern will require us to obtain additional financing to fund our operations. The perception of
our ability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations
and could result in the loss of confidence by investors, suppliers and employees. If we are not successful in raising capital
through public or private offerings or reducing our expenses, we may exhaust our cash resources and will be unable to continue
our operations. If we cannot continue as a viable entity, our shareholders would likely lose most or all of their investment in
us.
We
believe that, based on our current business plan, our existing cash and cash equivalents will be able to maintain our current
planned development, manufacturing and marketing activities and the corresponding level of expenditures into the first
quarter of 2021. This has led management to conclude in part that substantial doubt about our ability to continue as a going
concern exists. As of December 31, 2019, we had $3.8 million in cash and cash equivalents. In the event we are unable to
successfully raise additional capital during or before the end of the first quarter of 2021, we will not have sufficient cash
flows and liquidity to finance our business operations as currently contemplated. Accordingly, in such circumstances we would
be compelled to immediately reduce general and administrative expenses and delay research and development projects and
clinical trials, until we are able to obtain sufficient financing. If such sufficient financing is not received timely, we
would then need to pursue a plan to license or sell our assets, seek to be acquired by another entity, cease operations
and/or seek bankruptcy protection.
Cash
Flows
The
following table summarizes our consolidated statement of cash flows for the years ended December 31, 2019, 2018 and 2017.
|
|
Year
ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
(USD
in thousands)
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
(5,703
|
)
|
|
|
(1,217
|
)
|
|
|
(4,996
|
)
|
Investing activities
|
|
|
(1,461
|
)
|
|
|
(832
|
)
|
|
|
(127
|
)
|
Financing activities
|
|
|
5,410
|
|
|
|
2,753
|
|
|
|
9,106
|
|
Net
Cash Used in Operating Activities
The
use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and measurements and changes in
components of working capital. Adjustments to net income for non-cash items include depreciation and amortization and share-based
compensation.
Net
cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and measurements and changes
in components of working capital. Adjustments to net loss for non-cash items include depreciation and amortization, equity-based
compensation and exchange differences on cash and cash equivalents. This cash flow mainly reflects the cash needed for funding
the products and pipeline products development and costs of the Company’s management during the applicable periods.
Net
cash used in operating activities in the year ended December 31, 2019 totaled $5.7 million and consisted primarily of (i)
a net loss of $11.2 million, adjusted for non-cash items including depreciation and amortization of $539,000, shared-based compensation
of $1.1 million and amortization and change in financial instruments of $3.2 million, and (ii) a net increase in operating assets
and liabilities of $247,000, which are mainly attributable to an increase in accrued liabilities and trade payables of $857,000
and a decrease in trade receivables of $437,000, and a decrease in differed revenues of $ 1.0 million relating to the United License
Agreement.
Net
cash used in operating activities in the year ended December 31, 2018 totaled $1.2 million and consisted primarily of (i)
a net loss of $6.2 million, adjusted for non-cash items including depreciation and amortization of $342,000, shared-based compensation
of $1.4 million and amortization and change in financial instruments of $2.3 million, and (ii) a net increase in operating assets
and liabilities of $1.1 million, which are mainly attributable to an increase in differed revenues of $2.0 million relating to
the United License Agreement, and an increase in inventory of $653,000 and an increase in trade receivables of $439,000, all as
an outcome of the growth in production and sales activity of BioInk.
Net
cash used in operating activities in the year ended December 31, 2017 totaled $5.0 million and consisted primarily of (i)
a net loss of $6.1 million, adjusted for non-cash items, including depreciation and amortization of $230,000 and share based compensation
of $956,000, and (ii) a net increase in operating assets and liabilities of $141,000, which are mainly attributable to a
decrease in trade payables and long term payables of $542,000 as a result of the decrease in our development activity with the
Surgical Matrix Carrier.
Net
Cash Used in Investing Activities
Net
cash used in investing activities was $1.5 million during the year ended December 31, 2019 and $832,000 during the year ended
December 31, 2018. The increase in the amount of approximately $629,000 relates mainly to the purchases of property and equipment,
net, in the amount of 1.5 million, for the establishment of our new center of R&D labs and headquarters in Rehovot.
The
increase in investing activities from $127,000 for the year ended December 31, 2017 to $832,000 for the year ended December 31,
2018, is primarily due to the establishment of our production facility in Rehovot.
Net
Cash Provided by Financing Activities
Net
cash provided by financing activities amounted to approximately $5.4 million for 2019 and $2.8 million in 2018. In 2019, we consummated
equity raises of net $5.4 million in return for proceeds from the issuances of securities under the Sagy Loan Agreement and the
U.S. Loan Agreement. In addition, we paid $20,000 on a loan and made payments of $17,000 for equipment on financing terms and
received proceeds in the amount of $7,000 from options exercised.
Net
cash provided by financing activities amounted to approximately $2.8 million for 2018 and $9.1 million in 2017. In 2018, we consummated
equity raises of net $2.8 million in return for proceeds from the issuances of securities under the Alpha Purchase Agreement and
several private investments of our existing shareholders. In addition we received, net of returns $46,000 from a loan and made
payments of $70,000 for equipment on financing terms.
Cash
and Funding Sources
The
table below summarizes our sources of funding for the years ended December 31, 2019, 2018 and 2017:
|
|
Issuance
of
Ordinary
Shares and
Warrants
|
|
|
Government
Grants and
Strategic
Collaboration*
|
|
|
Total
|
|
|
|
(USD
in thousands)
|
|
Year ended December
31, 2019
|
|
|
5,447
|
|
|
|
38
|
|
|
|
5,485
|
|
Year ended December 31, 2018
|
|
|
2,777
|
|
|
|
364
|
|
|
|
3,141
|
|
Year ended December 31, 2017
|
|
|
9,176
|
|
|
|
586
|
|
|
|
9,762
|
|
|
*
|
Does
not include royalties payments to the IIA
|
Funding
Requirements
We
believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditures into
the first quarter of 2021. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital
resources sooner than we currently expect.
Our
present and future funding requirements will depend on many factors, including, among other things:
|
●
|
the
number of potential new products we identify and decide to develop;
|
|
|
|
|
●
|
the
progress, timing, and completion of preclinical testing and clinical trials in the U.S. for tissues and organs which are based
on our BioInk, medical aesthetics, and any future pipeline product;
|
|
|
|
|
●
|
selling
and marketing activities undertaken in connection with the commercialization of our products;
|
|
●
|
the
costs of upscaling our manufacturing capabilities;
|
|
●
|
costs
involved in the development of distribution channels, and for an effective sales and marketing organization, for the commercialization
of our products in Europe;
|
|
●
|
the
time and costs involved in obtaining regulatory approvals and any delays we may encounter as a result of evolving regulatory
requirements or adverse results with respect to any of these products; and
|
|
●
|
the
costs involved in filing patent applications and maintaining and enforcing patents or defending against claims or infringements
raised by third parties.
|
For
more information as to the risks associated with our future funding needs, see “Item 3.D. Risk Factors—We will need
to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain additional capital when
needed may force us to delay, limit, or terminate our product development efforts or other operations.”
|
C.
|
Research
and Development, Patents and Licenses
|
See
above, under Item 5A – “Operating Results.”
We
are in a development stage with regard to different 3D BioInks and medical aesthetics products, and are in early stages of commercialization
of our BioInks for customers that develop technologies for 3D bio-printing of tissues and organs and the medical aesthetics market.
It is not possible for us to predict with any degree of accuracy the outcome of our research, development, or commercialization
efforts. As such, it is not possible for us to predict with any degree of accuracy any known trends, uncertainties, demands, commitments
or events that are reasonably likely to have a material effect on our net sales or revenues, income from continuing operations,
profitability, liquidity or capital resources, or that would cause reported financial information to not necessarily be indicative
of future operating results or financial condition. However, to the extent possible, certain trends, uncertainties, demands, commitments
and events are in this “Operating and Financial Review and Prospects.”
|
E.
|
Off-Balance
Sheet Arrangements
|
As
of December 31, 2019, we do not have any, and during the periods presented, we did not have any, off-balance sheet arrangements.
|
F.
|
Contractual
Obligations
|
Our
significant contractual obligations as of December 31, 2019 are summarized in the following table.
|
|
Payments
due by period
|
|
|
Less than
1 year
|
|
1
to 2 years
|
|
|
2
to 5 years
|
|
|
More
than
5 years
|
|
|
Total
|
|
|
|
(USD in thousands)
|
Operating
lease obligations(1)
|
|
654
|
|
|
603
|
|
|
|
1,550
|
|
|
|
1,899
|
|
|
|
4,706
|
|
|
(1)
|
Operating
lease obligations consist of payments pursuant to lease agreements for office and laboratory
facilities, as well as lease agreements for eight vehicles, which generally run
for a period of three years.
|
Our
balance sheet liabilities do not include all of the obligations regarding royalties that we are obligated to pay to the IIA based
on future sales of our products. The maximum royalty amount that would be payable by us, before interest, is approximately $8.6
million (assuming 100% of the royalties are payable). This liability is contingent upon sales of our rhCollagen-based products.
ITEM 6.
|
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|
|
A.
|
Directors
and Senior Management
|
The
following table sets forth certain information relating to our directors and senior management. Unless otherwise stated, the address
for our directors and senior management is at the Company’s registered address c/o 4 Oppenheimer, Weizmann Science Park,
P.O. Box 4132, Rehovot 7670104, Israel.
Name
|
|
Age
|
|
Position
|
Senior
Management
|
|
|
|
|
Yehiel
Tal
|
|
67
|
|
Chief
Executive Officer
|
Prof.
Oded Shoseyov (1)
|
|
63
|
|
Founder,
Chief Scientist
|
Eran
Rotem, CPA
|
|
52
|
|
Deputy
CEO and Chief Financial Officer
|
Dr. Ilana
Belzer
|
|
60
|
|
Chief
Operating Officer
|
Dr. Nadav
Orr
|
|
62
|
|
Vice
President, Research and Development
|
Dr. Philippe
Bensimon
|
|
54
|
|
Vice
President, Regulatory Affairs and Quality Assurance
|
Non-Employee
Director
|
|
|
|
|
Dr.
Roger Pomerantz (6)(8)
|
|
63
|
|
Chairman
of the Board and Director
|
Dr. Abraham
Havron(2)(6)(7)(8)
|
|
72
|
|
Director
|
Dr. Gili
Hart(2)(3)(4)(5)(6)(7)(8)
|
|
45
|
|
Director
|
Dr. Elan
Penn(2)(3)(4)(5)(6)(7)(8)
|
|
68
|
|
Director
|
Joseph
Zarzewsky (3)(4)(6)(8)
|
|
59
|
|
Director
|
|
(1)
|
On
March 26, 2019, Prof. Shoseyov became our Chief Scientist instead of our Chief Scientific
Officer and is no longer considered an office holder under the Companies Law.
|
|
(2)
|
Member
of the Compensation Committee
|
|
(3)
|
Member
of the Audit Committee
|
|
(4)
|
Member
of Financial Statements Committee
|
|
(5)
|
External
Director under Israeli Law
|
|
(6)
|
Independent
Director under Israeli Law
|
|
(7)
|
Member
of the Nominating and Corporate Governance Committee
|
|
(8)
|
Independent
Director under the Nasdaq Listing Rules
|
Senior
Management
Yehiel
Tal has served as our chief executive officer since January 2010. Mr. Tal possesses over 30 years of management
experience in the Israeli and American high-tech and biotechnology industries. Prior to joining us, Mr. Tal was the chief
executive officer and co-founder of Regentis Biomaterials Ltd. Prior to that Mr. Tal served as vice-president of business
development at ProChon BioTech Ltd. He has also served as vice president of marketing and business development at OrthoScan
Technologies Ltd. and director of business development and business unit manager at Kulicke and Soffa Industries, Inc.
Mr. Tal holds a Bachelor’s and a Master’s degree in mechanical engineering from the Technion, Israel Institute
of Technology.
Prof.
Oded Shoseyov founded our subsidiary CollPlant Ltd. in 2004, and currently serves as our Chief Scientist since March
2019. Prof. Shoseyov served as our Chief Scientific Officer from August 2008 until March 2019, and a member of our board of directors
from May 2010 until October 2016. Prof. Shoseyov is a faculty member of the Hebrew University of Jerusalem. He has extensive experience
with plant transformation systems and protein engineering. Prof. Shoseyov has authored or co-authored over 160 scientific publications
and is the inventor or co-inventor of 45 patents. Prof. Shoseyov holds a Ph.D. from The Hebrew University of Jerusalem, Israel.
Prof. Shoseyov received the Outstanding Scientist Polak Award for 2002, the 1999 and 2010 Kay Awards for Innovative and Applied
Research, and The 2012 Israel Prime Minister Citation for Entrepreneurship and Innovation. He is the scientific founder of nine
companies, including: SP-Nano Ltd., a nano-biotech company which manufactures SP1-Carbon Nano Tube coated fabrics for
the composite industry; CBD-Technologies/FuturaGene, a forestry agro-biotech company that develops and commercializes transgenic
trees for the pulp and paper and the bio-fuel industry; Melodea Ltd., a nano-biotech company that develops and manufactures
Nano Crystaline Cellulose from sludge for structural foam additives for the paint, printing and packaging industries; and Valentis
Nanotech Ltd., a nanotechnology company that develops and manufactures nano-bio-based transparent films for food packaging
and agriculture.
Eran
Rotem has served as our chief financial officer since January 2012 and, since November 2017, also as our deputy CEO. Mr. Rotem
possesses 25 years of broad financial and operational experience, primarily with biotechnology and industrial companies.
Prior to joining us, Mr. Rotem served as the chief financial officer of Tefron Ltd., an industrial global company traded
on both the Tel Aviv Stock Exchange (TASE:TFRN) and on the OTCBB (OTC:TFRFF) in the United States. Before Tefron, Mr. Rotem
served as chief financial officer of Healthcare Technologies, Ltd. (NASDAQ:HCTL) and Gamida Ltd., a group of companies
that specialize in the development, manufacturing, and marketing of clinical diagnostic test kits, as well as medical equipment
and services to the biotechnology and high-tech industries. Prior to joining Healthcare Technologies, Ltd., Mr. Rotem
served as a senior manager at Ernst & Young. Mr. Rotem holds a Bachelor’s degree in Accounting and Business
Administration from the Tel Aviv College of Management and is a Certified Public Accountant in Israel.
Dr. Ilana
Belzer has served as our chief operating officer since October 2015. Prior to joining us, Dr. Belzer served as the
chief operating officer of BioHarvest, an innovative biotechnology company, from October 2012 to September 2015, and prior to
that as vice president of research and development and operations at Procognia Ltd. Prior to that, Dr. Belzer held executive
positions in Omrix Biopharmaceuticals Inc., now part of the Johnson & Johnson family of companies, and InterPharm
Laboratories Ltd., now a subsidiary of Merck-Serono. Dr. Belzer holds an M.Sc., a B.Sc. and a Ph.D. in Microbiology
and Cell Biology from Tel Aviv University, Israel.
Dr. Nadav
Orr has served as our vice president of research and development since September 2014. Dr. Orr has over 17 years
of experience in research and development, including 12 years in the development of biosurgery products. Prior joining us, Dr. Orr
served as the associate director of research and development at Omrix Biopharmaceuticals Ltd., a subsidiary of Ethicon US LLC,
part of the Johnson & Johnson family of companies. As part of his role at Omrix, Dr. Orr led an international team
in the development of hemostatic combination products and led base business support for production processes and products. Dr. Orr
holds a Ph.D. from the Weizmann Institute of Science, Israel.
Dr. Philippe
Bensimon has served as our vice president of quality assurance and clinical affairs since February 2011. Dr. Bensimon
has 26 years of experience in regulatory affairs, quality assurance and clinical affairs in international medical device
companies. Prior to joining us Dr. Bensimon served for 14 years at InterVascular Datascope (now Maquet-Getinge Group),
a manufacturer of long-term cardiovascular implants, as director of regulatory affairs, quality assurance, and clinical affairs.
Dr. Bensimon also served for five years at 3M Medical as manager of regulatory affairs. Dr. Bensimon holds a PharmD
degree from the University of Pharmacy, Marseille, France.
Non-Employee
Directors
Dr.
Roger Pomerantz has served as our Chairman of the board of directors since February 2020. Dr. Pomerantz is currently the
President, Chief Executive Officer and Chairman of the Board of Directors of ContraFect, and a board member of Intec Pharma and
VerImmune. Dr. Pomerantz served as Chairman of the board of directors of Seres Therapeutics in 2019, where he served as Chairman
and CEO from June 2014 until January 2019. From 2011 to 2013, he was Worldwide Head of Licensing & Acquisitions, Senior Vice
President at Merck & Co., Inc. where he oversaw all licensing and acquisitions at Merck Research Laboratories. Previously,
he served as Senior Vice President and Global Franchise Head of Infectious Diseases at Merck. Prior to joining Merck, Dr. Pomerantz
was Global Head of Infectious Diseases for Johnson & Johnson Pharmaceuticals. He joined Johnson & Johnson in 2005 as President
of Tibotec Pharmaceuticals, Inc. Dr. Pomerantz received his B.A. in Biochemistry at the Johns Hopkins University and his M.D.
at the Johns Hopkins School of Medicine. He received post-graduate training at the Massachusetts General Hospital, Harvard Medical
School and M.I.T. Dr. Pomerantz is Board Certified in both Internal Medicine and Infectious Diseases. He was Professor of Medicine,
Biochemistry and Molecular Pharmacology, Chief of Infectious Diseases, and the Founding Director and Chair of the Institute for
Human Virology and Biodefense at the Thomas Jefferson University and Medical School. He has developed twelve small and large molecular
drugs approved world-wide in important diseases, including HIV, HCV, CMV, C. Diff, and tuberculosis.
Dr.
Abraham (Avri) Havron has served on our board of directors since May 2016. Dr. Havron is a 39-year veteran of the
biotech industry. Since 2005 and until 2014 when its acquisition by OPKO Health Inc. (NASDAQ: OPK) was completed. Dr. Havron
was the Chief Executive Officer and a director of PROLOR Biotech Inc. (NYSE: PBTH). Between 1999 and 2003, Dr. Havron served as
V.P. and Chief Technology Officer of Clal Biotechnology Industries Ltd. and prior to that for 12 years as V.P. Manufacturing and
Process-Development of BioTechnology General Ltd. (now, a subsidiary of Ferring Pharmaceuticals). Dr. Havron was a member
of the founding team of Interpharm Laboratories Ltd. (a subsidiary of Merck-Serono) - the first Israeli biotech company, where
he served as Director of R&D from 1980 to 1987. During his managerial career Dr. Havron was directly involved in the multi-disciplinary
development of many biopharmaceuticals seven of which were approved and are marketed worldwide: Rebif (recombinant beta interferon),
Biotropin (recombinant human growth hormone), Bio-Hep-B (3rd generation recombinant hepatitis B vaccine), Biolon and Euflexxa
(ophthalmic and orthopedic devices containing bacteria derived hyaluronic acid), bio-similar recombinant Insulin and, Nexxobrid
(debridement agent for severe burns). In addition, Phase 3 clinical trial of Somatrogon - recombinant long acting human growth
hormone developed by Prolor Biotech (later Opko Biologics) was completed successfully in October 2019. Dr. Havron has been
actively involved in establishing several biotech start-up companies among them Mediwound, Curetech, Prolor-Biotech, Polyheal,
PamBio and Enlivex. He is a member of the board of directors of Collplant Biotechnologies Ltd. (NASDAQ: CLGN) and Enlivex Therapeutics
Ltd. (NASDAQ: ENLV; TASE: ENLV), was the Chairman of Mediwound during 2001-2003 and later a member of its board from 2014 to 2017
(NASDAQ: MDWD) and from 2010 to 2018 was a member of the board of directors of Kamada Ltd. (NASDAQ: KMDA; TASE: KAMDA). Dr. Havron
earned his PhD in chemistry from the Weizmann Institute of Science, and completed his post- doctorate at Harvard Medical School.
Dr. Havron is also a board member of CollPlant Ltd., our wholly owned subsidiary.
Dr.
Gili Hart has served on our board of directors since July 2017. Dr. Hart served as the Chief Executive Officer of
OPKO Biologics from 2014 and until 2017. From 2011 to 2014, Dr. Hart served as Vice President of Prolor Biotech Ltd.
Dr. Hart serves as a director in Enlivex Therapeutics, and Dr. Hart holds a B.Sc degree in Biological engineering and
an M.Sc degree from the Weizmann Institute of Science as well as a Ph.D. from the Weizmann Institute of Science.
Dr. Elan
Penn has served on our board of directors since January 2018. Dr. Penn has served as chief executive officer and
chairman of Penn Publishing Ltd., a private company based in Tel Aviv, Israel, since 2001. From 2000 to 2001, Dr. Penn
served as vice president of finance and administration of A.I. Research and Development Ltd. Dr. Penn served as chief
executive officer of Sivan Computer Training Company Ltd. during the years 1998 through 2000. From 1992 to 2000, Dr. Penn
served as vice president of finance and administration of Mashov Computers Ltd. From 1987 to 1991 and again from 1992 to
1997, Dr. Penn served as vice president of finance and administration of Magic Software Enterprises Ltd. (NASDAQ: MGIC)
and, from 2005 to 2014, served as an external director of Magic Software. Dr. Penn previously served as a director of Telkoor
Power Supplies Ltd. (TASE: TLCR) and Nexgen Biofuels Ltd. (formerly Healthcare Technologies Ltd) (OTC: NXGN). Dr. Penn
holds a B.A. degree in Economics from the Hebrew University of Jerusalem and a Ph.D. in Management Science from the University
of London.
Joseph
Zarzewsky has served as the Vice President of Business Development at the Mitrelli Group, or Mitrelli, since June 2010.
Mr. Zarzewsky has served as the Chairman of “SMAD”, a joint venture between Mitrelli and the Harbin Government, China,
since June 2011. Mr. Zarzewsky has also served as the Chairman of the Investment Committee of the Harbin Israel Fund since 2012,
and as a member of the board of directors of Wize Pharma, Inc. (OTCQB: WIZP) since November 2017. He has also previously
served as the Vice President of marketing at Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) and as the Vice President of
Marketing for the Israel Postal Authority. In addition, Mr. Zarzewsky has served as a director of Excellence Underwriter House
Ltd. since 2007. In 2008, he was appointed as the Honorary Economic Advisor of the Harbin Government, China. In addition, in June
2012, he was honored as an Honorary Citizen of Harbin, China. Mr. Zarzewsky holds an MA in Commercial Law from the University
of Tel Aviv in collaboration with the University of California, Berkeley.
Advisory
Boards
We
have established a scientific advisory board and a clinical advisory board. The members of our advisory boards are appointed by
our chief executive officer after consultation with our board of directors. Once nominated, the members of our advisory boards
sign a standard letter of engagement. Most of the members of our advisory boards are not appointed for a specific term and their
position may be terminated by either us or the member of the advisory board according to standard notice periods. The members
of our advisory boards are all paid either daily or hourly fees for their services and are entitled to the reimbursement of their
expenses. Furthermore, several of the members of our advisory boards have been granted options due to their strategic role and
years of service. The members of our advisory boards are as follows:
Scientific
Advisory Board
Prof.
Avraham Hershko
Prof.
Shay Soker
Prof.
Vicki Rosen
Prof.
Abhay Pandit
Prof.
Ofer Levy, MD, MCh (Orth)
Joseph
M. Lane, MD
Clinical
Advisory Board
Joseph
M. Lane, MD
Scott
Rodeo, MD
Thomas
Serena, MD
Gabi
Agar, MD
Prof.
Ofer Levy, MD, MCh (Orth)
Compensation
of Senior Management and Directors
The
following table presents in the aggregate all compensation we paid to all of our senior management and directors as a group for
the year ended December 31, 2019. The table does not include any amounts we paid to reimburse any of such persons for costs
incurred in providing us with services during this period.
|
|
Salaries,
fees,
commissions, and
bonuses(1)(2)
(thousand
USD)
|
|
|
Value
of
Options
Granted(3)
(thousand
USD)
|
|
All
senior management and directors as a group, consisting of 11 persons
|
|
|
1,735
|
|
|
|
886
|
|
|
(1)
|
Salary
includes cost of salary to the Company and ancillary benefits such as payments to the
National Insurance Institute, advanced education funds, managers’ insurance and
pension funds; vacation pay; recuperations pay as mandated by Israeli law.
|
|
(2)
|
Includes
cost of salary to three former directors who ended their tenure during 2019.
|
|
(3)
|
Consists
of amounts recognized as share-based compensation expense for the year ended December 31,
2019. Assumptions and key variables used in the calculation of such amounts are discussed
in Note 14 of our financial statements.
|
In
accordance with the Companies Law, the following table presents information regarding compensation of our five most highly paid
office holders, namely our Chief Executive Officer, deputy CEO and Chief Financial Officer, Vice President Regulatory Affairs
and Quality Assurance, Vice President Research and Development and Vice President during the year ended December 31, 2019.
Name and Position
|
|
Salary(1)
(thousand USD)
|
|
|
Bonus
(thousand USD)
|
|
|
Value
of
Options
Granted(2)
(thousand USD)
|
|
|
Total
(thousand
US dollar)
|
|
Yehiel
Tal, CEO
|
|
|
395
|
|
|
|
100
|
|
|
|
289
|
|
|
|
784
|
|
Eran Rotem,
Deputy CEO & CFO
|
|
|
277
|
|
|
|
34
|
|
|
|
160
|
|
|
|
464
|
|
Ilana Belzer
|
|
|
208
|
|
|
|
34
|
|
|
|
63
|
|
|
|
305
|
|
Philippe Bensimon,
VP Reg. Affairs & QA
|
|
|
194
|
|
|
|
19
|
|
|
|
64
|
|
|
|
273
|
|
Nadav Orr,
VP R&D
|
|
|
206
|
|
|
|
19
|
|
|
|
69
|
|
|
|
291
|
|
|
(1)
|
Salary
includes cost of salary to the Company and ancillary benefits such as payments to the
National Insurance Institute, advanced education funds, managers’ insurance and
pension funds; vacation pay; recuperations pay as mandated by Israeli law.
|
|
(2)
|
Consists
of amounts recognized as share-based compensation expense for the year ended December 31,
2019. Assumptions and key variables used in the calculation of such amounts are discussed
in Note 8 of our financial statements.
|
Compensation
of Directors
Under
the Companies Law and the rules and regulations promulgated thereunder, external directors are generally entitled to fixed annual
compensation and an additional payment for each meeting attended. We currently pay our directors an annual fee of approximately
$8,400 and a per meeting fee of approximately $500.
In
January 2019, we granted, subject to shareholders approval which was obtained on June 6, 2019, Dr. Elan Penn, Dr. Gili
Hart and Dr. Abraham Havron, and now former directors, Scott Burell and Adi Goldin options to purchase 5,000 ordinary shares
each and, to now former director, Dr. Wolfgang Ruttenstorfer, options to purchase 15,000 ordinary shares each, and to Jonathan
M.N. Rigby, our former Chairman of the Board and Director, options to purchase 246,390 ordinary shares, each at an exercise price
per share of $5.07. In September 2019, we granted, subject to shareholders approval which was obtained on December 31, 2019, Mr.
Joseph Zarzewsky options to purchase 15,000 ordinary shares at an exercise price per share of $4.02. In February 7, 2020, we granted,
subject to shareholders approval, Dr. Roger Pomerantz options to purchase 162,713 ordinary shares at an exercise price of $11.06.
The
options vest subject to a vesting period of four years, with a quarter of the options vesting on the first anniversary of the
grant date, and the remaining options vesting in equal parts at the end of every quarter thereafter.
Employment
and Services Agreements with Senior Management
We
have entered into written employment agreements with each of our executive officers. These agreements provide for notice periods
of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive
officer will continue to receive base salary and benefits. These agreements also contain customary provisions regarding noncompetition,
confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may
be limited under applicable law.
In
January 2019, we granted, subject to shareholders approval which was obtained on June 6, 2019, Yehiel Tal, our CEO, options to
purchase 54,000 ordinary shares and, to Eran Rotem, our Deputy CEO & CFO options to purchase 40,000 ordinary shares, and to
Prof. Oded Shoseyov our Chief Scientist options to purchase 20,000 ordinary shares, and to each of Dr. Nadav Orr VP R&D and
Dr. Ilana Belzer COO options to purchase 22,000 ordinary shares, each, and to Dr. Philippe Bensimon VP RA & QA options to
purchase 16,000 ordinary shares, each at an exercise price per share of $5.07. The options vest subject to a vesting period of
four years, with a quarter of the options vesting on the first anniversary of the grant date, and the remaining options vesting
in equal parts at the end of every quarter thereafter.
For
information on exemption and indemnification letters granted to our directors and officers, please see “C. Board Practices
– Exculpation, Insurance and Indemnification of Directors and Officers”.
Board
of Directors
Under
the Companies Law, the overseeing of 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 officers
are responsible for our day-to-day management and have individual responsibilities established by our board of directors and specified
in their specific employment agreements. 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 officers are appointed by our
chief executive officer with the prior review of our board of directors and compensation committee, and are subject to the terms
of any applicable employment agreements that we may enter into with them.
Under
our articles of association, our board of directors must consist of at least three and not more than twelve directors, including
at least two external directors, but allows us, subject to and in accordance with the provisions of any law, to determine that
the provisions relating to external directors (including the obligation to appoint external directors) shall not apply to us.
Prior
to the 2019 Financing, we considered ourselves as a company with no controlling shareholder, and therefore, in November 2018,
our board of directors has decided to adopt an exemption, or the Exemption, that provides relief for Israeli companies whose shares
are listed on certain stock exchanges outside of Israel (including the Nasdaq Capital Market) with no controlling shareholder,
such as ourselves, from being required to appoint external directors so long as such companies satisfy the requirements of the
foreign laws in the listing jurisdiction outside of Israel which apply to companies incorporated in such jurisdiction, in respect
of the appointment of independent directors and the composition of the audit committee and compensation committee. Our articles
of association were amended to reflect such relief on June 6, 2019. Accordingly, the former external directors, Dr. Gili Hart
and Dr. Elan Penn, were no longer classified as external directors, but continued to serve on our board of directors. As part
of the 2019 Financing, Mr. Sagy increased his holdings in the Company to over 25%, and since then, we have considered Mr. Sagy
as our controlling shareholder. Under these circumstances, we could no longer benefit from the Exemption and approached the Israeli
Ministry of Justice to re-classify Dr. Gili Hart and Dr. Elan Penn as external directors despite changes in their compensation
package adopted during the period in which they were not classified as external directors. The Israeli Ministry of Justice has
notified us that under the circumstances there is no prevention from re-classifying Dr. Gili Hart and Dr. Elan Penn as external
directors, and accordingly, we re-classified Dr. Gili Hart and Dr. Elan Penn as our external directors until the remainder of
their term on July 4, 2020 and January 14, 2021, respectively, considering among other things, the short time that lapsed from
the date on which we adopted the Exemption and the formation of a control interest in the Company as well as the fact that Dr.
Gili Hart and Dr. Elan Penn do not have any affiliation with Mr. Sagy.
Currently
our board of directors consists of seven directors, including two external directors. Other than external directors, for whom
special election requirements apply under the Companies Law, as detailed below, our articles of association provide that directors
(other than external directors) are elected annually at the general meeting of our shareholders by a vote of the holders of a
majority of the voting power present and voting, in person or by proxy, at that meeting.
We
have three types of directors: independent directors, external directors (who are also independent in nature), and “regular”
directors. For purposes of complying with the Nasdaq Listing Rules to list the Company’s ADSs on the Nasdaq Capital Market,
our board of directors is comprised of five independent directors (of which two are external directors).
Our
board of directors has determined that all of our directors are independent under such rules. The definition of “independent
director” under the Nasdaq Listing Rules and “external director” under the Companies Law overlap to a significant
degree such that we would generally expect the two directors serving as external directors to satisfy the requirements to be independent
under the Nasdaq Listing Rules. The definition of external director under the Companies Law includes a set of statutory criteria
that must be satisfied, including criteria whose aim is to ensure that there is no factor that would impair the ability of the
external director to exercise independent judgment. The definition of independent director under Nasdaq Listing Rules specifies
similar, if slightly less stringent, requirements in addition to the requirement that the board of directors consider any factor
which would impair the ability of the independent director to exercise independent judgment. See “—External Directors”
below for a description of the requirements under the Companies Law for a director to serve as an external director.
Under
the Companies Law any shareholder holding at least 1% of our outstanding voting power may propose to nominate one or more persons
for election as directors at a general meeting by delivering a written notice of such shareholder’s intent to make such
nomination or nominations to our registered office. Each such notice must set forth all of the details and information as required
to be provided by our amended and restated articles of association and regulations promulgated under the Companies law.
In
addition, our articles of association allow our board of directors to appoint additional director or directors who shall remain
in office until the next annual shareholders’ meeting, provided that the board of directors must consist of no more than
12 directors. In addition, our articles of association allow our board of directors to appoint alternate 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. See “—External Directors” 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.
External
Directors
Under
the Companies Law, a public company is required to have at least two directors who qualify as external directors. Public companies
that comply with the terms of the Exemption are allowed to use the Exemption.
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:
|
●
|
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
|
|
●
|
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.
|
Under
the Companies Law, the term “controlling shareholder” means a shareholder with the ability to direct the activities
of the company, other than by virtue of serving as 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 more than half of the directors
of the company or its general manager. For the purpose of approving transactions with controlling shareholders, 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. For purposes of determining the holding percentage stated above, two
or more shareholders who have a personal interest in a transaction that is brought for the company’s approval are deemed
as joint holders.
Under
the Companies Law, the initial term of an external director is three years. Thereafter, an external director may be reelected
to serve in that capacity for no more than two additional three-year terms, provided that either (i) his or her service for
each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights
and is approved at a shareholders’ meeting by a disinterested majority, where the total number of shares held by non-controlling,
disinterested shareholders voting for such reelection exceeds 2% of the aggregate voting rights in the company, provided that
the nominating shareholder, the external director, and certain of their related parties meet additional independence requirements;
(ii) his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders’
meeting by the same majority required for the initial election of an external director (as described above); or (iii) the
external director has recommended that he or she be nominated for each such additional term and such nomination is approved at
a shareholders’ meeting by the same majority and under the same criteria required as if he had been recommended by a shareholder.
The
term of office for external directors for companies traded on certain foreign stock exchanges, including the Nasdaq Capital Market,
may be further extended, in increments of additional three-year terms, provided that, in addition to reelection in such manner
described above, (i) the audit committee and subsequently the board of directors of the company confirm that, in light of
the external director’s expertise and special contribution to the work of the board of directors and its committees, the
reelection for such additional period is beneficial to the company, and provided that (ii) the external director is reelected
subject to the same shareholder vote requirements as if elected for the first time (as described above). Prior to the approval
of the reelection of the external director at a general shareholders’ meeting, the company’s shareholders must be
informed of the term previously served by him or her and of the reasons why the board of directors and audit committee recommended
the extension of his or her term.
External
directors may be removed from office by an extraordinary general meeting of shareholders called by the board of directors, which
approves such dismissal by the same shareholder vote percentage required for their election or by a court, in each case only under
limited circumstances, including ceasing to meet the statutory qualifications for appointment or violating their duty of loyalty
to the company. If an external directorship becomes vacant and there are fewer than two external directors on the board of directors
at the time, then the board of directors is required under the Companies Law to call a shareholders’ meeting as soon as
possible to appoint a replacement external director.
Each
committee of the board of directors that exercises the powers of the board of directors must include at least one external director.
The audit committee and the compensation committee must include all external directors then serving on the board of directors
and should be comprised of a majority of independent directors, the external directors must be the majority of the members of
the compensation committee, and the audit and compensation committee’s chairman must be an external director. See “—Committees
of the Board of Directors” below. Under the Companies Law, external directors of a company and all members of the compensation
committee are prohibited from receiving, directly or indirectly, any compensation for their services, other than for their services
as external directors pursuant to the Companies Law and the regulations promulgated thereunder. Compensation of an external director
is determined prior to his or her appointment and may not be changed during his or her term subject to certain exceptions. Under
the regulations pursuant to the Companies Law, certain exemptions and reliefs are granted to companies which securities are traded
outside of Israel. We may use those exemptions and reliefs in the future.
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):
|
●
|
an
employment relationship;
|
|
●
|
a
business or professional relationship even if not maintained on a regular basis (excluding insignificant relationships);
|
|
●
|
service
as an office holder, excluding service as a director in a private company prior to the initial 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.
|
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, and a director, or a manager directly subordinate to the general manager.
In
general, the external directors must be of Israeli residency (unless the company on which he or she serves had offered shares
(or bonds) to the public outside of Israel or are registered on a stock exchange outside of Israel) and must possess the minimal
criteria required for the directorship of a “regular” director. 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 ISA 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.
For
a period of two years from the date that an external director of a company ceases to act in such capacity, the company in which
such external director served, and its controlling shareholder or any entity under control of such controlling shareholder may
not, directly or indirectly, grant such former external director or his or her spouse or child, any benefit, including via (i) the
appointment of such former director or his or her spouse or his child as an officer in the company or in an entity controlled
by the company’s controlling shareholder, (ii) the employment of such former external director and (iii) the engagement,
directly or indirectly, of such former external director as a provider of professional services for compensation, including via
an entity under his or her control. With respect to a relative who is not a spouse or a child, such limitations shall only apply
for one year from the date such external director ceased to be engaged in such capacity.
If,
at the time at which an external director is appointed, all members of the board of directors, who are not controlling shareholders
or relatives of controlling shareholders of the company, are of the same gender, the external director to be appointed must be
of the other gender. A director of one company may not be appointed as an external director of another company if a director of
the other company is acting as an external director of the first company at such time.
According
to 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.
According
to regulations promulgated under the Companies Law, 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.
As
discussed above, Dr. Gili Hart and Dr. Elan Penn serve as our two external directors until the remainder of their term on July
4, 2020 and January 14, 2021, respectively.
Role
of Board of Directors 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 of Directors
In
accordance with the Companies Law and our 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. Roger Pomerantz to serve as chairman
of the board of directors.
Committees
of the Board of Directors
Currently,
our board of directors has four permanent committees: an audit committee, a compensation committee, financial statements committee
and a nominating and corporate governance committee. The first two committees are mandatory and regulated under the Companies
Law provisions. A nominating and corporate governance committee has been constituted.
Audit
Committee
Under
the Companies Law, we are required to appoint an audit committee. The audit committee of a public company must be comprised of
at least three directors, including all of the external directors, one of whom must serve as chairman of the committee. The audit
committee may not include the chairman of the board, any director employed by or otherwise providing services on a regular basis
to the company, to a controlling shareholder, or to any entity controlled by a controlling shareholder, any director who derives
most of his or her income from a controlling shareholder, nor a controlling shareholder or a relative thereof.
In
addition, under the Companies Law, the audit committee of a publicly traded company must consist of a majority of independent
directors. In general, an “independent director” under the Companies Law is defined as either an external director
or as a director who meets the following criteria:
|
●
|
he
or she meets the qualifications for being appointed as an external director and the audit committee has approved that he or
she meets such qualifications, except for the requirement (i) that the director be an Israeli resident (which does not
apply to companies such as ours whose securities have been offered outside of Israel to date or are listed outside of Israel)
and (ii) for accounting and financial expertise or professional qualifications; and
|
|
●
|
he
or she has not served as a director of the company for a period exceeding nine consecutive years. For this purpose, a break
of less than two years in the service shall not be deemed to interrupt the continuation of the service.
|
Under
the Nasdaq Listing Rules, 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 Dr. Gili Hart, Dr. Elan Penn and Mr. Joseph Zarzewsky. Dr. Penn possesses accounting
and financial expertise and is an audit committee financial expert as defined by the SEC rules, and all of the members of our
audit committee have the requisite financial literacy as defined by the Nasdaq Listing Rules. All audit committee members are
“independent” as such term is defined in Rule 10A3(b)(1) under the Exchange Act and under the Nasdaq Listing
Rules.
Our
board of directors has adopted an audit committee charter setting forth the responsibilities of the audit committee consistent
with the rules of the SEC and the Nasdaq Listing Rules as well as the requirements for such committee under the Companies Law,
including the following:
|
●
|
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;
|
|
●
|
recommending
the engagement or termination of the person filling the office of our internal auditor; and
|
|
●
|
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.
|
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 mainly responsible for:
|
●
|
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;
|
|
●
|
determining
whether certain acts of an office holder not in accordance with his or her fiduciary duty owed to the Company are extraordinary
or material and to approve such acts and 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” below);
|
|
●
|
determining
procedures for a competitive process, or other procedures, before approving related party transactions with controlling shareholders,
even if such transactions are deemed by the audit committee not to be extraordinary transactions. This process is to be supervised
by the audit committee, or any person authorized for such supervision, or via any other method approved by the audit committee;
|
|
●
|
determining
the approval process for transactions that are not negligible, as well as determine which types of transactions would require
the approval of the audit committee. Non-negligible transactions are defined as related party transactions with a controlling
shareholder, or in which the controlling shareholder has a personal interest, even if they are deemed by the audit committee
not to be extraordinary transactions but which have also been classified by the audit committee as non-negligible transactions;
|
|
●
|
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;
|
|
●
|
examining
our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources
and tools to dispose of its responsibilities;
|
|
●
|
examining
the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of
directors or shareholders, depending on which of them is considering the appointment of our auditor; and
|
|
●
|
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.
|
Our
audit committee may not approve any actions requiring its approval (see “—Approval of Related Party Transactions Under
Israeli Law” below), unless at the time of approval a majority of the committee’s members are present, which majority
consists of independent directors including at least one external director.
Compensation
Committee
Our
compensation committee consists of Dr. Abraham Havron, Dr. Gili Hart and Dr. Elan Penn.
Under
the Companies Law, the board of directors of a public company must appoint a compensation committee. Subject to certain exceptions
compensation committee must be comprised of at least three directors, including all of the external directors, which shall be
a majority of the members of the compensation committee and one of whom must serve as chairman of the committee.
Each
compensation committee member who is not an external director must be a director whose compensation is equivalent to the compensation
that may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the
audit committee as to who may not be a member of the committee. According to the Companies Law, our audit committee may also act
as compensation committee.
The
duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding
the terms of engagement of office holders, to which we refer as a compensation policy, and to examine the necessity of updating
the compensation policy. That policy must be adopted by the company’s board of directors, after considering the recommendations
of the compensation committee, and must be approved by the company’s shareholders, which approval requires a special majority.
For this purpose, 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: (i) 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 (ii) 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. Under special circumstances, the board of directors may approve the compensation policy despite the objection
of the shareholders on the condition that the compensation committee (or the audit committee acting in lieu of a compensation
committee pursuant to the Companies Law) and then the board of directors decide, on the basis of detailed arguments and after
discussing again the compensation policy, that approval of the compensation policy, despite the objection of the meeting of shareholders,
is for the benefit of the company. Our current compensation policy was approved by our shareholders on June 6, 2019 and will be
in effect for a period of three years from the date of approval. We have adopted a new compensation policy which remains subject
to shareholder approval. The compensation policy does not, by nature, grant any rights to our directors or officers. The compensation
policy includes both long-term and short-term compensation elements and is to be reviewed from time to time by our compensation
committee and our board of directors, according to the requirements of the Companies Law.
Our
compensation policy serves 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 with respect to employment
or engagement. According to the Companies Law, the compensation policy must be approved (or reapproved) not longer than every
three years and 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 compensation policy must furthermore consider
the following additional factors:
|
●
|
the
knowledge, skills, expertise, and accomplishments of the relevant office holder;
|
|
●
|
the
office holder’s roles and responsibilities and prior compensation agreements with him or her;
|
|
●
|
the
ratio between the terms offered and the average compensation of the other employees of the company, including those employed
through manpower companies, and in particular the ratio between the average wage and the median salary of such employees;
|
|
●
|
the
impact of disparities in salary upon work relationships in the company;
|
|
●
|
the
possibility of reducing variable compensation at the discretion of the board of directors;
|
|
●
|
the
possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and
|
|
●
|
as
to severance compensation, the period of service of the office holder, the terms of his or her compensation during such service
period, the company’s performance during that period of service, the person’s contributions towards the company’s
achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the
company.
|
The
compensation policy must also include the following principles:
|
●
|
the
linkage between variable compensation and long-term performance and measurable criteria; however, in certain circumstances,
we may grant up to three monthly salaries per year of unmeasurable criteria for an office holder who is not our chief executive
officer.
|
|
●
|
the
ratio between variable and fixed compensation, and the ceiling for the value of variable compensation at the time of the payment
(or with respect to variable equity compensation that is not paid for in cash, a ceiling for their value on the grant date);
|
|
●
|
the
conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that
the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial
statements;
|
|
●
|
the
minimum holding or vesting period for variable, equity-based compensation with a view to long-term incentives; and
|
|
●
|
maximum
limits for severance compensation.
|
Our
board of directors has adopted a compensation committee charter setting forth the responsibilities of the committee, which include:
|
●
|
the
responsibilities set forth in the compensation policy;
|
|
●
|
reviewing
and approving the granting of options and other incentive awards to the extent such authority is delegated by our board of
directors; and
|
|
●
|
reviewing,
evaluating, and making recommendations regarding the compensation and benefits for our non-employee directors.
|
Financial
Statements Committee
Our
financial statements committee, which complies with the Israeli Companies Regulations (Provisions and Conditions Regarding the
Financial Statements’ Authorization Process), 2010, is responsible for considering and making recommendations to the board
of directors on our financial statements. Prior to the approval of our financial statements by our board of directors, the financial
statements committee reviews and discusses the financial statements and presents its recommendations with respect to the financial
statements to the board of directors. Our financial statements committee currently consists of the members of our audit committee:
Dr. Gili Hart, Dr. Elan Penn and Mr. Joseph Zarzewsky.
Nominating
and Corporate Governance Committee
Our
nominating and corporate governance committee consists of Dr. Gili Hart, Dr. Abraham Havron, and Dr. Elan Penn.
Each of the members of our nominating and corporate governance committee is independent under the listing requirements of the
Nasdaq Capital Market.
Our
board of directors has adopted a nominating and governance committee charter setting forth the responsibilities of the nominating
and governance committee, which include:
|
●
|
overseeing
and assisting our board in reviewing and recommending nominees for election as directors;
|
|
●
|
assessing
the performance of the members of our board; and
|
|
●
|
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.
|
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.
An
internal auditor may not be:
|
●
|
a
person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;
|
|
●
|
a
person (or a relative of a person) who has the power to appoint a director or the general manager of the company;
|
|
●
|
an
office holder or director (or a relative of an officer or director) of the company; or
|
|
●
|
a
member of the company’s independent accounting firm, or anyone on its behalf.
|
Ms. Dana
Gottesman Erlich, has been serving as our Internal Auditor since November 2013. Ms. Gottesman Erlich is a CPA, CIA, MA,
Partner in the Risk Advisory Services (RAS) Group at the accounting firm of BDO Ziv Haft. Ms. Gottesman Erlich has more than
10 years of experience in the provision of internal audit and risk management consulting services to public and private companies,
government agencies, municipalities, non-profit organizations, and more. Ms. Gottesman Erlich specializes in the analysis
and specification of work procedures and their assimilation in the organization, the internal audit of work procedures in different
organizations, including the performance of risk surveys and fraud and embezzlement surveys. Ms. Gottesman Erlich holds a
BA in Accounting and Business Administration and an MA in Internal Audit and Public Administration. Ms. Gottesman Erlich’s
nomination satisfies the requirements of the Companies Law.
Approval
of Related Party Transactions under Israeli Law
Fiduciary
Duties of Directors and Officers
The
Companies Law imposes a duty of care and a fiduciary duty on all office holders of a company. Each person listed in the table
under “Management—Senior Management and Directors” is an office holder under the Companies Law.
The
duty of care requires an office holder to act with the degree of proficiency with which a reasonable office holder in the same
position would have acted under the same circumstances. The fiduciary duty 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:
|
●
|
information
on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and
|
|
●
|
all
other important information pertaining to these actions.
|
The
fiduciary duty includes a duty to:
|
●
|
refrain
from any act involving a conflict of interest between the performance of his or her duties to the company and his or her other
duties or personal affairs;
|
|
●
|
refrain
from any activity that is competitive with the company;
|
|
●
|
refrain
from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and
|
|
●
|
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.
|
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 solely 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:
|
●
|
a
transaction other than in the ordinary course of business;
|
|
●
|
a
transaction that is not on market terms; or
|
|
●
|
a
transaction that may have a material impact on the company’s profitability, assets, or liabilities.
|
If
it is determined that an office holder has a personal interest in a transaction which is not an extraordinary transaction, approval
by the board of directors is required for such transaction, unless the company’s articles of association provide for a different
method of approval. 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. In general, 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, exculpation, 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.
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
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 at least half of the directors
of the company or its general manager. For the purpose of approving transactions with controlling shareholders, 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. For purposes of determining the holding percentage stated above, two
or more shareholders who have a personal interest in a transaction that is brought for the company’s approval are deemed
as joint holders.
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 “—External Directors” above 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 or compensation committee, the board of directors, and a special majority,
in that order, is required for: (i) extraordinary transactions with a controlling shareholder or in which a controlling shareholder
has a personal interest; (ii) the engagement with a controlling shareholder or his or her relative, directly or indirectly,
for the provision of services to the company; (iii) the terms of engagement and compensation of a controlling shareholder
or his or her relative who is not an office holder; or (iv) the employment of a controlling shareholder or his or her relative
by the company, other than as an office holder. For this purpose, 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 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.
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, exculpation, indemnification, or insurance of a controlling shareholder in his or her capacity as
an office holder require the approval of the compensation committee and board of directors, and, in general, approval by a special
majority of shareholders.
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 or compensation committee and board of directors.
Shareholders’
Duties
Under
the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders
and to refrain from abusing his or her power in the company, including, among other things, in voting at general meetings of shareholders
and class meetings of shareholders with respect the following matters:
|
●
|
an
amendment of the articles of association or memorandum of association of the company;
|
|
●
|
an
increase in the company’s authorized share capital;
|
|
●
|
the
approval of related party transactions and acts of office holders that require shareholder approval.
|
A
shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, certain shareholders
have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows
that he or she has the power to determine the outcome of a shareholder vote and any shareholder who has the power to appoint or
to prevent the appointment of an office holder of the company or other power. The Companies Law does not define the substance
of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the
event of a breach of the duty to act with fairness.
Exculpation,
Insurance and Indemnification of Directors and Officers
Under
the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli
company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the
company as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles
of association. Our articles of association include such a provision. A company may not exculpate a director from liability arising
out of a prohibited dividend or distribution to shareholders.
Under
the Companies Law and the Israeli Securities Law, an Israeli company may indemnify an office holder with respect to the following
liabilities and expenses incurred for acts performed as an office holder, either in advance of an event or following an event,
provided a provision authorizing such indemnification is contained in its articles of association:
|
●
|
financial
liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s
award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided
in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen
based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria
determined by the board of directors as reasonable under the circumstances, and such undertaking must detail the abovementioned
foreseen events and amount or criteria;
|
|
●
|
reasonable
litigation expenses, including attorneys’ fees, incurred by the office holder: (i) as a result of an investigation
or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided
that (a) no indictment was filed against such office holder as a result of such investigation or proceeding and (b) no
financial liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation
or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require
proof of criminal intent; and (ii) in connection with a monetary sanction;
|
|
●
|
expenses
associated with an administrative procedure, as defined in the Israeli Securities Law, conducted regarding an office holder,
including reasonable litigation expenses and reasonable attorneys’ fees; and
|
|
●
|
reasonable
litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted
against him or her by the company, on its behalf, or by a third party or in connection with criminal proceedings in which
the office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal intent.
|
Under
the Companies Law and the Israeli Securities Law, a company may insure an office holder against the following liabilities incurred
for acts performed as an office holder if, and to the extent, provided in the company’s articles of association:
|
●
|
a
breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the
office holder;
|
|
●
|
a
breach of fiduciary duty to the company, to the extent that the office holder acted in good faith and had a reasonable basis
to believe that the act would not prejudice the company;
|
|
●
|
a
monetary liability imposed on the office holder in favor of a third party; and
|
|
●
|
expenses
incurred by an office holder in connection with an administrative procedure, including reasonable litigation expenses and
reasonable attorneys’ fees.
|
Under
the Companies Law, a company may not indemnify or insure an office holder against any of the following:
|
●
|
a
breach of fiduciary duty, except for indemnification and insurance for a breach of the fiduciary duty to the company and to
the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice
the company;
|
|
●
|
a
breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the
office holder;
|
|
●
|
an
act or omission committed with intent to derive illegal personal benefit; or
|
|
●
|
a
fine or forfeit levied against the office holder.
|
Under
the Companies Law, exculpation, indemnification, and insurance of office holders in a public company must be approved by the compensation
committee and the board of directors and, with respect to certain office holders or under certain circumstances, by the shareholders.
Our
articles of association and compensation policy allow us to exculpate, indemnify, and insure our office holders according to applicable
law.
As
of the date of this Annual Report on Form 20-F, no claims for directors’ and officers’ liability insurance have been
filed under this policy and we are not aware of any pending or threatened litigation or proceeding involving any of our directors
or officers in which indemnification is sought.
We
have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue
to maintain such coverage and pay all premiums thereunder to the fullest extent permitted by the Companies Law. In addition, we
have entered into agreements with each of our current office holders undertaking to indemnify them to the fullest extent permitted
by the Companies Law and our articles of association, to the extent that these liabilities are not covered by insurance.
In
the opinion of the Securities and Exchange Commission, indemnification of directors and office holders for liabilities arising
under the Securities Act, however, is against public policy and therefore unenforceable.
There
is no pending litigation or proceeding against any of our directors or officers as to which indemnification is being sought, nor
are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.
See
“Item 4.B. Business Overview―Employees.”
See
“Item 7.A. Major Shareholders” below.
Share
Incentive Plan
In
May 2010, we adopted the 2010 Plan, an option plan for employees and senior officers, and as part of the acquisition of CollPlant Ltd.,
all of the options under the Employee Share Ownership and Option Plan (2004) of CollPlant Ltd. were substituted with and
assumed by options under our 2010 Plan, while any restriction periods under Sections 102(b)(2) and 102(b)(3) of the Israeli
Income Tax Ordinance, or the Ordinance, were calculated as of their original grant date. The 2010 Plan allows us to grant options
to purchase our ordinary shares to our officers, employees, and consultants. The 2010 Plan is intended to enhance our ability
to attract and retain desirable individuals by increasing their ownership interests in us. As of March 15, 2020, our employees,
officers, and consultants hold an aggregate of options to purchase 892,282 ordinary shares, NIS 1.50 par value, under
the 2010 Plan. In addition, on February 6, 2020, our board of directors approved the grant of 162,713 options to purchase 162,713
ordinary shares subject to shareholders approval. As of March 15, 2020, options to purchase an aggregate of 71,615
ordinary shares had been exercised and transferred to the beneficial holders. The 2010 Plan is designed to reflect the provisions
of the Israeli Income Tax Ordinance, or the Ordinance, mainly Sections 102 and 3(i), 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. Sections 102(b)(2) and 102(b)(3) of the Ordinance,
which provide the most favorable tax treatment for grantees, permit 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, our ability to deduct an expense with respect to the issuance
of the options or shares might be limited. Section 3(i) of the Ordinance does not provide for 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 plan, 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 transfer to an Administrator in accordance with law in the event
of the absence of legal competency. 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, following the approval of the board of directors, and specified
in each option award agreement. In general, and according to our compensation policy, the option exercise price is the market
value of the shares on the date of grant in accordance to the ADS market value traded on the Nasdaq Capital Market.
Awards
under the 2010 Plan may be granted until 2020, 10 years from the date on which the 2010 Plan was approved by our board of
directors.
Options
granted under the 2010 Plan generally vest over four years commencing on the date of grant such that 25% vest on the first anniversary
of the date of grant and an additional 6.25% vest at the end of each subsequent three-month period thereafter for 36 months
and some every calendar year, unless otherwise provided in a specific allocation agreement.
Options,
other than certain incentive share options, that are not exercised within 10 years from the grant date expire, unless otherwise
determined by our board of directors. 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, 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, death, or retirement. If we terminate a grantee’s employment or service for cause,
all of the grantee’s unvested options will expire on the date of termination, yet options which by that date the offeree’s
eligibility to exercise has already been formed shall remain exercisable. 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 (i) a sale of all or substantially all of our assets or (ii) our consolidation or merger in which we are
not the ongoing or surviving corporation, then, and unless otherwise determined in the agreement or by the board, we shall be
entitled to determine that all of the outstanding unexercised options held by or for the benefit of any grantee shall be assumed
or substituted for an appropriate number of options of the successor company, provided that the aggregate amount of the exercise
price for such options shall be equal to the aggregate amount of the exercise price of our unexercised options held by each grantee
at such time. With respect to the grants that were made since October 2017, the above acceleration provision was amended in a
manner that the options’ vesting is fully accelerated upon the occurrence of a M&A Transaction or Reorganization: (1) “M&A
Transaction” shall mean a “merger” as such term or term of similar nature is defined in the Israeli Companies
Law of 1999, as well as (i) a sale of 50% or more of the assets of the Company and its subsidiaries taken as a whole, or
the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Company if more than 50% of the assets
of the Company and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries; (ii) a sale of all or more
than 50% of the shares of the share capital of the Company whether by a single transaction or a series of related transactions
which occur either over a period of 12 months or within the scope of the same acquisition agreement; (iii) an issuance
of shares of the Company, whether by a single transaction or a series of related transactions which occur either over a period
of 12 months or within the scope of the same acquisition agreement, that results in the offeree holding more than 50% of
the share capital of the Company; or (iv) a merger, consolidation or like transaction of the Company with or into another
corporation including a reverse triangular merger, but excluding a merger which falls within the definition of Reorganization;
and/or (2) “Reorganization” shall mean any re-domestication of the Company, share flip, creation of a holding
Company for the Company which will hold all, or 50% or more, of the shares of the Company or any other transaction involving the
Company in which the ordinary shares of the Company outstanding immediately prior to such transaction continue to represent, or
are converted into or exchanged for shares that represent, immediately following such transaction, at least a majority, by voting
power, of the share capital of the surviving, acquiring or resulting corporation and in which there is no material change to the
interests held by the shareholders of the Company prior to such transaction and thereafter.
The
Board may also determine that in the occurrence of a Fund-Raising Transaction (as defined below), that all of the outstanding
and unexercised options held by or for the benefit of any grantee shall become fully vested. Such determination shall be specifically
determined in the grantee’s letter of grant. “Fund-Raising Transaction” shall mean the raise by the Company
of at least $10 million by way of public offerings and/or private placements of equity securities by one transaction or more,
except in the event of issuance of equity securities in connection with the grant in exchange for services or as part of a commercial
transaction.
In
the event of termination of the employment or the director or service-provider relationship by us or by a related company within
12 months after a significant event in which the options were assumed, then the unvested portion of the options shall become
fully vested and shall remain exercisable for a period of three months following the termination or notice of termination. For
such purposes, a “Significant Event” would include our consolidation or merger with or into another corporation in
which we are the ongoing or surviving corporation or in which, the ongoing or surviving corporation (or, if such transaction is
effected through a subsidiary, the parent of such ongoing or surviving corporation) assumes the option or substitutes it with
an appropriate option in the surviving corporation (or in the parent as aforesaid) in the manner set forth above.
ITEM 7.
|
MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
The
following table sets forth information with respect to the beneficial ownership of our ordinary shares as of March 15, 2020 by:
|
●
|
each
of our directors and senior management;
|
|
●
|
all
of our directors and senior management as a group; and
|
|
●
|
each
person (or group of affiliated persons) known by us to be the beneficial owner of 5% or more of the outstanding ordinary shares.
|
Beneficial
ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities
to persons who possess sole or shared voting or investment power with respect to those securities, and include shares subject
to options and warrants that are exercisable within 60 days after March 15, 2020. Such shares are also deemed outstanding
for purposes of computing the percentage ownership of the person holding the option, but not the percentage ownership of any other
person.
Unless
otherwise indicated below, to our knowledge, all persons named in the table have sole voting and investment power with respect
to their shares, except to the extent that authority is shared by spouses under community property laws. None of our shareholders
has informed us that he, she, or it is affiliated with a registered broker-dealer or is in the business of underwriting securities.
None of our shareholders has different voting rights from other shareholders.
|
|
Ordinary
Shares Beneficially
Owned
|
|
|
Percentage
Owned**
|
|
Senior Management and Directors
|
|
|
|
|
|
|
Dr. Roger Pomerantz (1)
|
|
|
-
|
|
|
|
-
|
|
Abraham Havron (2)
|
|
|
7,188
|
|
|
|
*
|
|
Dr. Gili Hart (2)
|
|
|
7,188
|
|
|
|
*
|
|
Dr. Elan Penn (2)
|
|
|
7,188
|
|
|
|
*
|
|
Joseph Zarzewsky (3)
|
|
|
-
|
|
|
|
-
|
|
Yehiel Tal (4)
|
|
|
128,000
|
|
|
|
2
|
%
|
Eran Rotem (5)
|
|
|
61,657
|
|
|
|
*
|
|
Oded Shoseyov (6)
|
|
|
154,704
|
|
|
|
2.4
|
%
|
Philippe Bensimon (7)
|
|
|
25,771
|
|
|
|
*
|
|
Nadav Orr (8)
|
|
|
24,646
|
|
|
|
*
|
|
Ilana Belzer (9)
|
|
|
19,979
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All senior management and directors as a group (11)
persons)
|
|
|
436,321
|
|
|
|
6.4
|
%
|
More than 5% Shareholders
|
|
|
|
|
|
|
|
|
Meitav Dash Investment Ltd.(10)
|
|
|
886,715
|
|
|
|
13.2
|
%
|
Ami Sagy (11)
|
|
|
2,217,086
|
|
|
|
31
|
%
|
Alpha Capital Anstalt(12)
|
|
|
327,000
|
|
|
|
4.9
|
%
|
Strata Trust Company Custodian FBO George Walter Loewenbaum IRA and Lillian S. Loewenbaum (13)
|
|
|
537,500
|
|
|
|
7.9
|
%
|
JKALL Holdings, LLC (14)
|
|
|
500,000
|
|
|
|
7.4
|
%
|
|
**
|
Based
on 6,463,695 ordinary shares outstanding
|
(1)
|
Dr.
Pomerantz was granted on February 6, 2020 with options to purchase 162,713 ordinary shares at an exercise price of $11.06
per share and expiring on February 6, 2030. The issuance is subject to shareholders’ approval.
|
|
|
(2)
|
Consists
of (i) options to purchase 5,625 ordinary shares NIS 1.50 par value at an exercise price of $4.02 per share and expiring on
January 14, 2025 and (ii) options to purchase 1,563 ordinary shares at an exercise price of $5.07 per share and expiring on
January 30, 2026.
|
|
|
(3)
|
Does
not include options to purchase 15,000 ordinary shares at an exercise price of $4.02 per share and expiring on December 31,
2026, that vest in more than 60 days of March 15, 2020.
|
|
|
(4)
|
Consists
of (i) 30,117 ordinary shares, (ii) options to purchase 1,020 ordinary shares exercisable at an exercise price of $4.02
per share and expiring on May 3, 2020, (iii) options to purchase 37,800 ordinary shares exercisable at an exercise
price of $4.02 per share and expiring on July 31, 2025, (iv) options to purchase 42,188 ordinary shares exercisable at
an exercise price of $4.02 per share and expiring on January 14, 2025, and (v) options to purchase 16,875 ordinary shares
at an exercise price of $5.07 per share and expiring on January 30, 2026.
|
(5)
|
Consists
of (i) options to purchase 3,000 ordinary shares exercisable at an exercise price of $4.02 per share and expiring
on October 20, 2021, (ii) options to purchase 844 ordinary shares exercisable at an exercise price of $4.02 per share and
expiring on May 3, 2020, (iii) options to purchase 20,000 ordinary shares exercisable at an exercise price of $4.02
per share and expiring on May 15, 2025, (iv) options to purchase 25,313 ordinary shares exercisable at an exercise price
of $4.02 per share and expiring on December 26, 2024, and (v) options to purchase 12,500 ordinary shares at an exercise
price of $5.07 per share and expiring on January 30, 2026.
|
|
|
(6)
|
Consists
of (i) 54,751 ordinary shares, (ii) options to purchase 15,059 ordinary shares at an exercise price of $4.02 per share
and expiring on February 16, 2021, (iii) options to purchase 727 ordinary shares at an exercise price of $4.02 per share
and expiring on May 3, 2020, (iv) options to purchase 66,667 ordinary shares at an exercise price of $4.02 per share and
expiring on July 31, 2025, (v) options to purchase 11,250 ordinary shares at an exercise price of $4.02 per share and expiring
on December 26, 2024, and (vi) options to purchase 6,250 ordinary shares at an exercise price of $5.07 per share and expiring
on January 30, 2026.
|
(7)
|
Consists
of (i) options to purchase 1,333 ordinary shares exercisable at an exercise price of $4.02 per share and expiring
on October 20, 2021, (ii) options to purchase 2,000 ordinary shares exercisable at an exercise price of $4.02 per share
and expiring on May 3, 2020, (iii) options to purchase 9,000 ordinary shares exercisable at an exercise price of $4.02
per share and expiring on May 18, 2025, (iv) options to purchase 8,438 ordinary shares exercisable at an exercise price of
$4.02 per share and expiring on December 26, 2024, and (v) options to purchase 5,000 ordinary shares at an exercise price
of $5.07 per share and expiring on January 30, 2026.
|
(8)
|
Consists
of (i) options to purchase 2,667 ordinary shares exercisable at an exercise price of $4.02 per share and expiring
on September 8, 2024, (ii) options to purchase 6,667 ordinary shares exercisable at an exercise price of $4.02 per
share and expiring on May 18, 2025, (iii) options to purchase 8,438 ordinary shares exercisable at an exercise price of $4.02 per share and expiring on December 26, 2024, and (iv) options to purchase 6,875 ordinary shares at an exercise price
of $5.07 per share and expiring on January 30, 2026.
|
(9)
|
Consists
of (i) options to purchase 4,667 ordinary shares exercisable at an exercise price of $4.02 per share and expiring
on August 31, 2025, (ii) options to purchase 8,438 ordinary shares exercisable at an exercise price of $4.02 per
share and expiring on December 26, 2024, and (iii) options to purchase 6,875 ordinary shares at an exercise price
of $5.07 per share and expiring on January 30, 2026.
|
(10)
|
Based
partially on information contained in a Schedule 13G/A filed with the SEC on February 12, 2020 jointly by Meitav Dash Investments
Ltd. and Meitav Dash Provident Funds and Pension Ltd., or Meitav Dash. Consists of (i) 648,715 ordinary shares, and (ii) a
warrant to purchase 238,000 ordinary shares exercisable at an exercise price of $4.00 per share and expiring on March 7,
2023.
|
(11)
|
Based
partially on information contained in a Schedule 13D filed with the SEC on November 5, 2019 by Ami Sagy. Consists of (i) 1,531,086
ordinary shares, (ii) warrants to purchase 186,000 ordinary shares exercisable at an exercise price of $4.00 per share and
expiring on March 7, 2023, and (iii) warrants to purchase 500,000 ordinary shares exercisable at an exercise price of $4.00 per share and expiring on October 27, 2022.
|
(12)
|
To
our knowledge, consists of (i) 243,477 ordinary shares, and (ii) 83,523 ordinary shares issuable upon exercise of prepaid
warrants. Pursuant to the terms of certain warrants, the holder cannot convert such warrants if it would beneficially own,
after any such conversion, more than 4.99% of the outstanding ordinary shares. The percentage in the table above gives effect
to the blocker. Excludes (i) 407,561 ADSs representing approximately 407,561 ordinary shares issuable upon exercise of prepaid
warrants within 60 days of March 15, 2020, and which are subject to the foregoing blocker, and (ii) 992,149 ordinary shares
issuable upon exercise of a warrant. Konrad Ackerman has voting and dispositive power over the securities owned by Alpha.
|
(13)
|
Based on information contained in a Schedule 13G filed with the SEC on September 18, 2019 by Strata Trust Company Custodian FBO George Walter Loewenbaum IRA, or Strata Trust, and Lillian S. Loewenbaum. Consists of (i) 250,000 ordinary shares held by the Strata Trust, (ii) warrants to purchase 250,000 ordinary shares exercisable at $4.00 and expiring on October 27, 2022 held by the Strata Trust, (iii) 18,750 ordinary shares held by Ms. Loewenbaum, and (iv) warrants to purchase 18,750 ordinary shares exercisable at $4.00 and expiring on October 27, 2022 held by Ms. Loewenbaum.
|
|
|
(14)
|
Based on information contained in a
Schedule 13G filed with the SEC on September 16, 2019 by JKALL Holdings, LLC, or JKALL. Consists of (i) 250,000 ordinary
shares, and (ii) warrants to purchase 250,000 ordinary shares exercisable at $4.00 and expiring on October 27, 2022.
JKALL’s managers are Joseph Allison and Kathleen Allison.
|
Bank
of New York Mellon, or BNY, is the holder of record for our ADR program, pursuant to which each ADS represents one ordinary share.
As of March 15, 2020, BNY held 6,418,941 ordinary shares representing 99% of the outstanding ordinary shares at that date. Certain
of these ordinary shares were held by brokers or other nominees. As a result, the number of holders of record or registered holders
in the United States is not representative of the number of beneficial holders or of the residence of beneficial holders.
To our knowledge,
from March 15, 2017 to March 15, 2020, the ownership percentage of Meitav Dash decreased by 5.4% from 18.6% to 13.2%, the
ownership percentage of Ami Sagy increased by 24.2% from 6.8% to 31%, in 2019 the ownership percentage of Strata Trust and
Lillian Loewenbaum increased to over 5%, and in 2019 the ownership percentage of JKALL increased to over 5%. See “Item
7.B. Related Party Transactions” and “Item 10.C. Material Contracts” below for additional information.
|
B.
|
Related
Party Transactions
|
The
following is a description of the material terms of those transactions with related parties to which we are party and which were
in effect since January 1, 2017.
All
share amounts have been adjusted to give effect to the 1 for 3 reverse share split effected on November 20, 2016 and the 1 for
50 reverse share split effected on July 15, 2019. The descriptions provided below are summaries of the terms of such agreements
and do not purport to be complete and are qualified in their entirety by the complete agreements.
We
believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could
have obtained from unaffiliated third parties. See “Item 6.C. Board Practices—Approval of Related Party Transactions
under Israeli Law.”
Issuances
of Securities
|
●
|
On
February 12, 2017, we completed a public offering in which we sold 423,040 ordinary shares at a price per share of NIS 17
(approximately $4.5), as well as 211,520 Series L warrants to purchase 211,520 ordinary shares at an exercise price of NIS
18 (approximately $4.8) per warrant, for gross proceeds of $1,919,000. The warrants were exercisable at NIS 18 (approximately
$4.8) per warrant until June 13, 2017. In addition, we issued 18,828 Series L warrants to purchase 18,828 ordinary shares
to the underwriters in the transaction under the same conditions set out above. The following owners of our ordinary shares
participated in these offerings: Meitav DS Investments Ltd, Docor International BV, Docor Levi Lassen BV, and Adi Goldin.
During the second quarter of 2017, 201,109 Series L warrants were exercised into 201,109 ordinary shares at an exercise price
of NIS 18 (approximately $5.1)for each warrant, resulting in $1,024,000 in gross proceeds. 29,239 Series L warrants that were
not exercised expired on June 14, 2017.
|
|
●
|
On
August 22, 2017, we issued to David Tsur, our former Chairman, 4,420 options to purchase 4,420 ordinary shares without an
exercise price as well as an additional 5,300 options to purchase 5,300 ordinary shares with an exercise price of NIS 16.5
each (approximately $4.6).
|
|
●
|
On
September 6, 2017, we entered into the Alpha Purchase Agreement with Alpha, pursuant to which we agreed, upon the terms
and subject to the conditions of the Alpha Purchase Agreement, to issue and sell to Alpha in a private placement, certain
of our securities in three tranches, as follows: (i) at the first closing, ordinary shares and a Debenture, for a purchase
price of $2,000,000, (ii) at the second closing, ordinary shares and/or a Debenture for a purchase price of $2,000,000 and
(iii) at the third closing, ordinary shares and/or a Debenture, and a warrant to purchase 992,149 ordinary shares for
a purchase price of $1,000,000. The first closing occurred on October 26, 2017, the second closing occurred on December 31,
2017, and the third closing occurred on April 30, 2018. For further information, see “Item 10. Additional Information—C.
Material Contracts—Alpha Financing.”
|
|
●
|
On
November 8, 2017, we entered into the Meitav Purchase Agreement with Meitav Dash, pursuant to which we agreed, upon the
terms and subject to the conditions of the Meitav Purchase Agreement, to issue and sell to Meitav Dash in a private placement,
certain of our securities in three tranches, as follows: (i) at the first closing, 190,000 ordinary shares, for a purchase
price of $1,089,000, (ii) at the second closing, 48,000 ordinary shares for a purchase price of $275,000, provided that
Meitav Dash shall not be obligated to buy or hold, immediately following the second closing, 20% or more of our share capital
and (iii) at the third closing for no additional consideration, warrants exercisable into 190,000 ordinary shares, and if
the second closing has occurred, additional warrants exercisable into 48,000 ordinary shares. The first and second closings
occurred on December 26, 2017 and the third closing occurred on March 7, 2018. For further information, see “Item
10. Additional Information—C. Material Contracts—Meitav Dash Financing.”
|
|
●
|
On November 9, 2017, we entered into the Sagy Purchase
Agreement with Ami Sagy pursuant to which we agreed, upon the terms and subject to the conditions of the Sagy Purchase Agreement,
to issue and sell to Ami Sagy in a private placement, certain of our securities in two tranches, as follows: (i) at the first closing,
186,000 ordinary shares, for gross proceeds of $1,066,000 and (ii) at the second closing for no additional consideration, warrants
exercisable into 186,000 ordinary shares, or the Sagy Warrants. The first closing occurred on December 26, 2017 and the second
closing occurred on March 7, 2018. For further information, see “Item 10. Additional Information—C. Material Contracts—Ami
Sagy Financing.”
|
|
●
|
On
December 7, 2017, our board of directors approved the grant of 321,000 options to purchase 321,000 ordinary shares at
an exercise price of $7.5 per option to certain officers, directors and employees. On January 14, 2018, our shareholders approved
the grant to the directors and to our CEO.
|
|
●
|
On January 18, 2018, we entered into Security Purchase
Agreements for the purchase and sale, in a private placement, of an aggregate of 86,887 ordinary shares for an aggregate of $634,000
to the following three investors as follows: (i) Alpha entered into a Security Purchase Agreement for the purchase and sale
of 25,506 ordinary shares for $186,000 ; (ii) Ami Sagy entered into a Security Purchase Agreement for the purchase and sale
of 40,920 ordinary shares for $299,000; and (iii) Docor International BV entered into a Security Purchase Agreement for
the purchase and sale of 20,460 ordinary shares for $149,000. Closing occurred on January 25, 2018.
|
|
|
|
|
●
|
On
July 26, 2018, we entered into a Securities Purchase Agreement with Ami Sagy for the purchase and sale, in a private placement,
of 222,500 ordinary shares for an aggregate purchase price of $1.2 million. Closing occurred on July 31, 2018.
|
|
|
|
|
●
|
On January 30, 2019, our board of directors approved the grant
of 516,390 options to purchase 516,390 ordinary shares at an exercise price of $5.07 per option to certain officers, directors
and employees. On June 6, 2019, our shareholders approved the grant to the directors and to our CEO.
|
|
|
|
|
●
|
On
August 30, 2019, we entered into the Sagy Loan Agreement (as defined below) and the U.S.
Loan Agreement (as defined below). The third and second closings, respectively, occurred
on October 31, 2019, resulting in the automatic conversion of the loans into securities,
and the issuance of the following securities: (i) 500,000 ADSs and a warrant to purchase
up to 500,000 ADSs were issued to Mr. Sagy and (ii) an aggregate of 875,000 ADSs and
warrants to purchase an aggregate of up to 875,000 ADSs were issued to the U.S. Investors.
In addition, in satisfaction of certain price protection undertakings, on October 31,
2019, we issued an aggregate of 175,039 ADSs to Mr. Sagy and Meitav Dash, and on November
27, 2019 we issued 270,000 ADSs to Alpha Capital Anstalt.
|
|
|
|
|
●
|
On
February 13, 2020, we entered into Securities Purchase Agreement with U.S. accredited
investors, for the purchase and sale, by way of a non-brokered private placement, of
445,000 ADSs of the Company at a price of $10.00 per ADS. The offering was completed
on March 6, 2020.
|
|
|
|
|
●
|
In September 2019, we granted, subject to shareholders approval
which was obtained on December 31, 2019, Mr. Joseph Zarzewsky options to purchase 15,000 ordinary shares at an exercise price per
share of $4.02.
|
|
|
|
|
●
|
In February 7, 2020, we granted, subject to shareholders approval,
Dr. Roger Pomerantz options to purchase 162,713 ordinary shares at an exercise price of $11.06.
|
Agreements
with Yissum
We
have entered into certain agreements with Yissum, in which Prof. Oded Shoseyov, our Chief Scientist, has or might have a personal
interest, including an agreement dated July 13, 2004 with respect to the intellectual property rights relating to our rhCollagen.
See “Item 4.B. Business Overview— Intellectual Property—Agreement with Yissum Research Development Company of
the Hebrew University of Jerusalem Ltd. with Respect to Our rhCollagen,” and see “Item 6.C. Board Practices—Approval
of Related Party Transactions Under Israeli Law.”
Rights
of Appointment
Our
current board of directors currently consists of five directors. See “Item 6.A.—Directors and Senior Management.”
Currently serving directors that were appointed (other than the external directors) will continue to serve pursuant to their appointment
until the next annual meeting of shareholders.
The
Alpha Purchase Agreement provided for certain board appointment rights. On the first closing, we were required to appoint two
directors selected by Alpha (out of a seven-member board), and on the second closing, we were required to appoint one director
selected by Alpha (out of an eight-member board). At the first closing, Alpha selected Scott Burell to serve on the board, and
in June 2018, Alpha selected Dr. Wolfgang Ruttenstorfer to serve on the board. Since December 31, 2019, Scott Burell and Dr. Wolfgang
Ruttenstorfer no longer serve on our board.
Registration
Rights
In
connection with the first closing of the Alpha financing, we entered into a Registration Rights Agreement with Alpha. Pursuant
to the Registration Rights Agreement, we agreed to file a registration statement with the SEC within 45 days from the date of
the Registration Rights Agreement to register the resale of our ordinary shares held by Alpha that were issued in the private
placement including ordinary shares underlying the Debentures, Warrants and pre-paid warrants and to maintain the effectiveness
thereunder. We also agreed to use best efforts to have the registration statement declared effective within 105 days from the
date of the Registration Rights Agreement and use best efforts to keep the registration statement continuously effective until
the earlier of (i) the date after which all of the securities to be registered thereunder have been sold, or (ii) the date on
which all the securities to be registered thereunder may be sold without volume or manner-of-sale restrictions and without current
public information pursuant to Rule 144 under the Securities Act.
Agreements
with Directors and Senior Management
Insurance,
Exculpation, and Indemnification Agreements
We
have entered into indemnification agreements with each of our current directors and 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, and including with respect to liabilities
resulting from this offering to the extent such liabilities are not covered by insurance. See “Item 6.C. Board Practices—Approval
of Related Party Transactions Under Israeli Law—Exculpation, Insurance and Indemnification of Directors and Officers.”
Employment
and Services Agreements
We
have entered into employment or services agreements with our senior management. See “Item 6.B. Compensation.”
Options
We
have granted options to purchase our ordinary shares to certain of our officers and directors. See “Item 6.B. Compensation”
and “Item 7.A. Major Shareholders.” We describe our option plans under “Item 6.E. Share Ownership” and
“Item 7.A. Major Shareholders.”
|
C.
|
Interests
of Experts and Counsel
|
Not
applicable.
ITEM 8.
|
FINANCIAL
INFORMATION.
|
|
A.
|
Consolidated
Statements and Other Financial Information.
|
See
“Item 18. Financial Statements.”
Legal
Proceedings
See
“Item 4.B. Business Overview―Legal Proceedings.”
Dividends
We
have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to
reinvest any earnings in developing and expanding our business. Any future determination relating to our dividend policy will
be at the discretion of our board of directors and will depend on a number of factors, including future earnings, our financial
condition, operating results, contractual restrictions, capital requirements, business prospects, applicable Israeli law and other
factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which
permits the distribution of dividends only out of distributable profits.
If
we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares,
subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for
any unexercised warrants. Cash dividends on our ordinary shares, if any, will be paid to ADS holders in U.S. dollars.
Other
than as otherwise described in this Annual Report on Form 20-F and as set forth below, no significant change has occurred in our
operations since the date of our consolidated financial statements included in this Annual Report on Form 20-F.
ITEM 9.
|
THE
OFFER AND LISTING
|
|
A.
|
Offer
and Listing Details
|
On
January 31, 2018, our ADSs commenced trading on the Nasdaq Capital Market under the symbol “CLGN.” Our ADSs were quoted
on the OTCQX from March 2015 to May 25, 2017, and quoted on the OTCQB from May 26, 2017 to January 30, 2018.
Not
applicable.
Our
ADSs are listed on the Nasdaq Capital Market.
Not
applicable.
Not
applicable.
Not
applicable.
ITEM 10.
|
ADDITIONAL
INFORMATION
|
Not
applicable.
|
B.
|
Memorandum
and Articles of Association
|
Copies
of our Memorandum of Association and Amended and Restated Articles of Association are attached as Exhibits 1.1 and 1.2 to this
Annual Report, respectively. Other than as disclosed below, the information called for by this Item is set forth in Exhibit 2.1
to this Annual Report and is incorporated by reference into this Annual Report.
Except
as set forth below, we have not entered into any material contract within the two years prior to the date of this Annual Report
on Form 20-F, other than contracts entered into in the ordinary course of business, or as otherwise described herein in “Item 4.A.
History and Development of the Company”, “Item 4.B. Business Overview”, “Item 7A. Major Shareholders”
or “Item 7B. Related Party Transactions” above.
The
share and per share numbers in the following discussion reflect a 1-for-3 reverse share split that we effected on November 20,
2016 and the 1 for 50 reverse share split effected on July 15, 2019.
Alpha
Financing
On
September 6, 2017, we entered into the Alpha Purchase Agreement with Alpha, pursuant to which we agreed, upon the terms and subject
to the conditions of the Alpha Purchase Agreement, to issue and sell to Alpha in a private placement, certain of our securities
in three tranches, as follows: (i) at the first closing, ordinary shares and a Convertible Debenture, or Debenture, for a purchase
price of $2,000,000, (ii) at the second closing, ordinary shares and/or a Debenture for a purchase price of $2,000,000, and (iii)
at the third closing, ordinary shares and/or a Debenture, and the Alpha Warrant, for a purchase price of $1,000,000.
Alpha
Purchase Agreement
At
each closing, the number of ordinary shares issuable was calculated by dividing the applicable purchase price by NIS 18.072, subject
to adjustment for share splits, share dividends, and the like, and with respect to each of the first and second closings, an additional
69,168 ordinary shares are issuable for no cash consideration; provided that to the extent that the purchaser’s ownership
of ordinary shares, together with any of its affiliates, would exceed a beneficial ownership limitation of 4.99%, then Alpha may,
at its option, elect to apply the applicable purchase price to the purchase of Debentures.
We
completed the first closing on October 26, 2017, which resulted in the issuance to Alpha of an aggregate of 145,600 ordinary shares
and a Debenture in the principal amount of $1,375,144 for gross proceeds of $2,000,000. We completed the second closing on December
31, 2017, which resulted in the issuance to Alpha of a Debenture in the principal amount of $2,000,000. Upon the listing of our
ADSs on the Nasdaq Capital Market, the Debentures automatically converted into a pre-paid warrant to purchase 786,455 ADSs representing
786,455 ordinary shares. To date, Alpha exercised a portion of such pre-paid warrant into an aggregate of 535,000 ADSs representing
535,000 ordinary shares. We completed the third closing on April 30, 2018, which resulted in the issuance to Alpha of a pre-paid
warrant to purchase 198,430 ordinary shares represented by 198,430 ADSs and the Alpha Warrant to purchase up to 992,149 ordinary
shares represented by 992,149 ADSs, at an exercise price of $10.28 per ADS, for gross proceeds of $1 million.
Under
the Alpha Purchase Agreement, Alpha was granted full-ratchet anti-dilution protection until October 26, 2019 in the event of certain
subsequent equity issuances at a price that is lower than the then applicable per ordinary share purchase price.
The
Alpha Purchase Agreement provides for the following restrictions on future issuances of securities (subject to certain exempt
issuances): (i) until the 24 month anniversary of the second closing or the applicable date of termination of the Alpha
Purchaser Agreement pursuant to the terms therein, if applicable, (as the case may be), we are prohibited from effecting a variable
rate transaction, (ii) until the 12 month anniversary of the third closing, we are prohibited from issuing any equity
securities that include any anti-dilution protection (other than customary anti-dilution protection for share splits, dividends
and the like), and (iii) until the 12 month anniversary of the second closing or the applicable date of termination
of the Alpha Purchaser Agreement pursuant to the terms therein, if applicable, (as the case may be), we are prohibited from issuing
any equity securities for an effective price per share less than the effective per ordinary purchase price, subject to adjustment
for share splits, dividends and the like.
The
Alpha Purchase Agreement further provides for certain board appointment rights. On the first closing, we were required to appoint
two directors selected by Alpha (out of a seven-member board) and on the second closing, we were required to appoint one director
selected by Alpha (out of an eight-member board), each who shall serve as directors at least until the end of our 2018 annual
general meeting. At the first closing, Alpha selected Scott Burell to serve on the board, and in June 2018, Alpha selected Dr.
Wolfgang Ruttenstorfer to serve on the board. Since December 31, 2019, Scott Burell and Dr. Wolfgang Ruttenstorfer no longer serve
on our board.
We
were required under the Alpha Purchase Agreement to use commercially reasonable efforts to take the necessary steps to transition
to dual-listing reporting format with a view to delisting our ordinary shares from the TASE and to list the ADSs on the Nasdaq
Capital Market. We delisted our ordinary shares from the TASE, and the last date of trading of our ordinary shares was on October
29, 2018.
If
we fail to timely effect a legend removal in accordance with the Alpha Purchase Agreement, the Alpha Purchase Agreement provides
for certain liquidated damages and customary buy-in provisions. In addition, the Alpha Purchase Agreement provides for certain
liquidated damages in the case of a failure to satisfy certain current public information requirements under Rule 144.
The
Alpha Purchase Agreement also contains representations and warranties, covenants and indemnification provisions customary in transactions
of this nature.
Debentures
In
connection with the first and second closings, we issued Debentures in an aggregate principal amount of $3,375,144. As stated
above, upon the listing of our ADSs on the Nasdaq Capital Market, the Debentures automatically converted into a pre-paid warrant
to purchase 786,455 ADSs representing approximately 786,455 ordinary shares.
The
Debenture issuable had a maturity date of five years from the date of issuance and is interest-free. The Debenture was convertible
at any time at the option of the holder into ADSs. In addition, the Debenture was mandatorily convertible at the then effective
conversion price without regard to any beneficial ownership limitation if (i) the ADSs or our ordinary shares are approved for
listing on the Nasdaq Capital Market, and (ii) certain equity conditions are met, including, among other things, an effective
registration covering a minimum number of ordinary shares held by the holder or that all the ordinary shares or ADSs held by the
holder may be sold under Rule 144 without volume or manner-of-sale restrictions or current public information requirements; provided
that the holder could elect to convert the Debenture in whole or in part to a pre-paid warrant to purchase such number of ADSs
otherwise issuable upon mandatory conversion of the Debenture. The pre-paid warrant may be exercised on a cashless basis at any
time. The pre-paid warrant is subject to certain anti-dilution adjustments upon certain events, including share splits, share
dividends, subsequent rights offerings, pro-rata distributions and fundamental transactions. In addition, we entered into a side
letter with Alpha pursuant to which any ordinary shares or ADSs issued upon exercise of a pre-paid warrant are subject to full-ratchet
anti-dilution protection until October 26, 2019 in the event of certain subsequent equity issuances at a price that is lower than
the applicable conversion price of the Debenture.
Upon
the occurrence of certain events of default, the outstanding principal amount of the Debenture, together with other amounts due,
would become, at the election of the holder, immediately due and payable in cash at the “Mandatory Default Amount”
as defined in the Debenture. In addition, if we fail to timely effectuate a conversion under the terms of the Debenture, the Debenture
provided for certain liquidated damages and customary buy-in provisions.
The
Debenture was an unsecured, general obligation and ranked pari passu with other unsecured and unsubordinated liabilities.
Warrant
At
the third closing, we issued the Alpha Warrant to purchase 992,149 ordinary shares represented by 992,149 ADSs. The Alpha Warrant
may be exercised for a period of five years from issuance at an exercise price of $10.28 per ADS. The Alpha Warrant may be exercised
on a cashless basis if after the one-year anniversary of issuance there is no effective registration statement covering the resale
of the ADSs underlying the Alpha Warrant.
The
Alpha Warrant is subject to certain anti-dilution adjustments upon certain events, including share splits, share dividends, subsequent
rights offerings, pro-rata distributions and fundamental transactions (which, in the case of fundamental transactions, is subject
to certain limitations). In addition, the Alpha Warrant contains full-ratchet anti-dilution protection until October 26,
2019 in the event of certain subsequent equity issuances at a price that is lower than the applicable exercise price of the Alpha
Warrant.
If
we fail to timely effectuate an exercise under the terms of the Alpha Warrant, the Alpha Warrant provides for certain liquidated
damages and customary buy-in provisions.
Registration
Rights Agreement
In
connection with the first closing of the Alpha financing, we entered into a Registration Rights Agreement with Alpha. Pursuant
to the Registration Rights Agreement, we agreed to file a registration statement with the SEC within 45 days from the date of
the Registration Rights Agreement to register the resale of our ordinary shares held by Alpha that were issued in the private
placement including ordinary shares underlying the Debentures, Warrants and pre-paid warrants and to maintain the effectiveness
thereunder. We also agreed to use best efforts to have the registration statement declared effective within 105 days from the
date of the Registration Rights Agreement and use best efforts to keep the registration statement continuously effective until
the earlier of (i) the date after which all of the securities to be registered thereunder have been sold, or (ii) the date on
which all the securities to be registered thereunder may be sold without volume or manner-of-sale restrictions and without current
public information pursuant to Rule 144 under the Securities Act.
Meitav
Dash Financing
On
November 8, 2017, we entered into a securities purchase agreement, or the Meitav Purchase Agreement, with Meitav Dash, pursuant
to which we agreed, upon the terms and subject to the conditions of the Meitav Purchase Agreement, to issue and sell to Meitav
Dash in a private placement, certain of our securities in three tranches, as follows: (i) at the first closing, 190,000 ordinary
shares, for a purchase price of $1,089,000, (ii) at the second closing, 48,000 ordinary shares for a purchase price of $275,000,
provided that Meitav Dash shall not be obligated to buy or hold, immediately following the second closing, 20% or more of our
share capital, and (iii) at the third closing for no additional consideration, warrants exercisable into 238,000 ordinary shares.
We
completed the first and second closings on December 26, 2017 which resulted in the issuance to Meitav Dash of an aggregate of
238,000 ordinary shares for gross proceeds of $1,364,000 and we completed the third closing on March 7, 2018 which resulted in
the issuance to Meitav Dash of a warrant to purchase 238,000 ordinary shares represented by 238,000 ADSs. The warrant may be exercised
for a period of five years from issuance at an exercise price of the US dollar equivalent of $11.57.
The
Meitav Purchase Agreement contains full-ratchet anti-dilution protection until the second anniversary of the first closing in
the event of certain subsequent equity issuances at a price that is lower than the then applicable per ordinary share purchase
price.
The
Meitav Purchase Agreement also contains representations and warranties and covenants provisions customary in transactions of this
nature.
The
Meitav Warrant is subject to certain anti-dilution adjustments upon certain events, including share splits, share dividends, subsequent
rights offerings, and fundamental transactions. In addition, pursuant to a side letter, the ordinary shares or ADSs issuable upon
exercise of the Meitav Warrant are subject to full-ratchet anti-dilution protection until the second anniversary of the first
closing in the event of certain subsequent equity issuances at a price that is lower than the then applicable per ordinary share
purchase price.
Ami
Sagy Financing
On
November 9, 2017, we entered into the Sagy Purchase Agreement with Ami Sagy, pursuant to which we agreed, upon the terms and subject
to the conditions of the Sagy Purchase Agreement, to issue and sell to Ami Sagy in a private placement, certain of our securities
in two tranches, as follows: (i) at the first closing, 186,000 ordinary shares, for gross proceeds of $1,066,000, and (ii) at
the second closing for no additional consideration, the Sagy Warrant exercisable into 186,000 ordinary shares.
We
completed the first closing on December 26, 2017 which resulted in the issuance to Ami Sagy of an aggregate of 186,000 ordinary
shares for gross proceeds of $1,066,000, and we completed the second closing on March 7, 2018 which resulted in the issuance to
Ami Sagy of a warrant to purchase 186,000 ordinary shares represented by 186,000 ADSs. The Sagy Warrant may be exercised for a
period of five years from issuance at an exercise price of $11.57 per ADS.
The
Sagy Purchase Agreement contains full-ratchet anti-dilution protection until the second anniversary of the first closing in the
event of certain subsequent equity issuances at a price that is lower than the then applicable per ordinary share purchase price.
The
Sagy Purchase Agreement also contains representations and warranties and covenants provisions customary in transactions of this
nature.
The
Sagy Warrant is subject to certain anti-dilution adjustments upon certain events, including share splits, share dividends, subsequent
rights offerings, and fundamental transactions. In addition, pursuant to a side letter, the ordinary shares or ADSs issuable upon
exercise of Sagy Warrant are subject to full-ratchet anti-dilution protection until the second anniversary of the first closing
in the event of certain subsequent equity issuances at a price that is lower than the then applicable per ordinary share purchase
price.
January
2018 Financing
On January 18, 2018, we entered into Security Purchase
Agreements for the purchase and sale, in a private placement, of an aggregate of 86,887 ordinary shares NIS 1.50 par value, for
an aggregate of $634,000 to the following three investors as follows: (i) Alpha entered into a Security Purchase Agreement
for the purchase and sale of 25,506 ordinary shares NIS 1.50 par value, for $186,000; (ii) Ami Sagy entered into a Security
Purchase Agreement for the purchase and sale of 40,920 ordinary shares NIS 1.50 par value for $299,000; and (iii) Docor International BV
entered into a Security Purchase Agreement for the purchase and sale of 20,460 ordinary shares NIS 1.50 par value for $149,000.
Closing occurred on January 25, 2018.
July
2018 Financing
On
July 26, 2018, we entered into a Securities Purchase Agreement with Ami Sagy for the purchase and sale, in a private
placement, of 222,500 ordinary shares NIS 1.50 par value for an aggregate purchase price of $1.2 million. Closing occurred on
July 31, 2018.
2019
Financing
On August 30, 2019,
we entered into (i) a Convertible Loan Agreement with Ami Sagy, or the Sagy Loan Agreement, pursuant to which Ami Sagy provided
a loan to us in an amount of $3,000,000 in two tranches, and (ii) a Convertible Loan Agreement, or the U.S. Loan Agreement, with
certain U.S. investors, or the U.S. Investors, pursuant to which such U.S. investors agreed to provide us with a loan in an amount
of $3,500,000 in one tranche.
The U.S. Loan Agreement
provided that the transactions contemplated by the U.S. Loan Agreement shall occur in two separate closings. On the first closing
date, which occurred on September 5, 2019, the U.S. Investors transferred to the Company the principal amount of $3,500,000, or
the Principal Amount. On the second closing date, which was subject to shareholder approval, or the Shareholder Approval, approving
the holding by Ami Sagy of voting rights in the Company exceeding 25% of the voting rights in the Company as well as the implementation
of existing anti-dilution undertakings of the Company towards Ami Sagy, Alpha Capital Anstalt and Meitav Dash, and which occurred
on October 31, 2019, the following occurred: (i) the Principal Amount was automatically converted into ADSs at a conversion price
equal to $4.00 per ADS, and we shall pay the U.S. Investors the interest accrued on the converted principal in cash, and (ii) we
will issue the U.S. Investors warrants to purchase up to an aggregate amount of 875,000 ADSs representing 875,000 ordinary shares,
at an exercise price of $4.00 per ADS.
The Sagy Loan Agreement
provided that the transactions contemplated by the Sagy Loan Agreement shall occur in three separate closings. On the first closing
date, which occurred on September 3, 2019, Ami Sagy transferred to us the principal amount of $2,000,000, or the First Principal
Amount. On the second closing date, which will occur three business days after we shall have executed a license and/or a co-development
agreement with a certain strategic business partner of the Company with respect to our intellectual property (if such were to occur),
the following shall occur: (i) Ami Sagy will transfer to the Company the principal amount of $1,000,000, and we will issue
to Ami Sagy a warrant to purchase up to 250,000 ADSs representing 250,000 ordinary shares.
On the third closing
date, which was subject to the Shareholder Approval, and which occurred on October 31, 2019, the following securities were issued:
(i) 500,000 ADSs, each ADS representing one ordinary share, were issued to Ami Sagy upon conversion of the First Principal Amount,
and a warrant to purchase up to 500,000 ADSs was issued to Mr. Sagy and (ii) an aggregate of 875,000 ADSs were issued to the U.S.
investors upon conversion of convertible loans in the aggregate principal amount of $3,500,000 and warrants to purchase an aggregate
of up to 875,000 ADSs were issued to such U.S. investors.
The loans issuable
under the Convertible Loan Agreements had a maturity date of three years from the issuance of the loan and bear interest at the
rate of 6% per annum, payable in arrears on a quarterly basis. The principal amount of the loans automatically convert into ADSs
at a conversion $4.00 per ADS on the occurrence of the conditions described above. The loans could be prepaid early without any
penalty and upon the occurrence of certain events of default, the outstanding loan amount, would become, at the election of each
lender, immediately due and payable. The loans were subject to certain adjustments upon certain events, including share splits
and share dividends. In addition, until the three-year anniversary of the first closing date and so long as the principal amount
under the loans has not converted into ADSs, in the event of certain subsequent equity issuances at a price that is lower than
the then applicable conversion price, the conversion price would adjust to such lower price.
In addition, on the
third closing date, we entered into Price Protection Agreements pursuant to which, until the three-year anniversary of the first
closing date, we shall issue additional ADSs in the event of certain subsequent equity issuances at a price that is lower than
$4.00 (subject to certain adjustments) on a “full-ratchet” basis with respect to their holdings in the Company.
The warrants issuable
under the Convertible Loan Agreements are exercisable at $4.00 per ADS and have a term of three years from the issuance date. The
warrants are subject to adjustments upon certain events, including share splits, share dividends, subsequent rights offerings,
and fundamental transactions. In addition, until the three-year anniversary of the first closing date, in the event of certain
subsequent equity issuances at a price that is lower than the then applicable exercise price, the exercise price shall adjust to
such lower price.
Concurrently with the
execution of the Convertible Loan Agreements, we entered into Registration Rights Agreements with each of Ami Sagi and the U.S.
Investors, pursuant to which the Company granted certain demand and piggyback registration rights with respect to the ordinary
shares represented by the ADSs underlying the convertible loans and warrants.
In addition, as a result of the Shareholder Approval and in
satisfaction of certain price protection undertakings, on October 31, 2019, we issued an aggregate of 175,039 ADSs to Mr. Sagy
and Meitav Dash, and on November 27, 2019 we issued 250,000 ADSs and 20,000 prepaid warrants to Alpha Capital Anstalt, and the
exercise price of the warrants held by Mr. Sagy, Meitav Dash and Alpha was adjusted to $4.00 per share.
February
2020 Private Placement
On
February 13, 2020, we entered into Securities Purchase Agreement with U.S. accredited investors who have years of deep experience
in medical and 3D printing, for the purchase and sale, by way of a non-brokered private placement, of 445,000 ADSs of the Company
at a price of $10.00 per ADS. The offering was completed on March 6, 2020.
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.
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 and ADSs. 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 benefit
us. This section also contains a discussion of material Israeli tax consequences concerning the ownership and disposition of our
ordinary shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor
in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli
law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes not
covered in this discussion. To the extent that the discussion is 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
resident (as defined below) companies, such as us, are generally subject to corporate tax at the rate of 23% as of 2018. However,
the effective tax rate payable by a company that derives income from a Preferred Enterprise or a Preferred Technology Enterprise
(as discussed below) may be considerably lower. Capital gains derived by an Israeli company are generally subject to tax at the
prevailing corporate tax rate.
Law
for the Encouragement of Industry (Taxes), 5729-1969
The
Law for the Encouragement of Industry (Taxes), 5729-1969, or the Industry Encouragement Law, provides several tax benefits for
“Industrial Companies.”
The
Industry Encouragement Law defines an “Industrial Company” as a company 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. 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 a patent and know-how which were purchased in good faith
and are used for the development or advancement of the Industrial Enterprise;
|
|
●
|
deduction
over a three-year period of expenses incurred in connection with the issuance and listing of shares on a stock market; and
|
|
●
|
under
certain conditions, an election to file consolidated tax returns with related Israeli Industrial Companies.
|
There
can be no assurance that we currently qualify, or will continue to qualify, as an Industrial Company or that the benefits described
above will be available in the future.
Law
for the Encouragement of Capital Investments, 5719-1959
Tax
Benefits for Income from Preferred Enterprise
The
Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law, currently provides certain tax benefits for
income generated by “Preferred Companies” from their “Preferred Enterprises.” The definition of a Preferred
Company includes, inter alia, a company incorporated in Israel that is not wholly owned by a governmental entity, which:
|
●
|
owns
a Preferred Enterprise, which is defined as an “Industrial Enterprise” (as defined under the Investment Law) that
is classified as either a “Competitive Enterprise” (as defined under the Investment Law) or a “Competitive
Enterprise in the Field of Renewable Energy” (as defined under the Investment Law);
|
|
●
|
is
controlled and managed from Israel;
|
|
●
|
is
not a “Family Company,” a “Home Company,” or a “Kibbutz” (collective community) as defined
under the Income Tax Ordinance;
|
|
●
|
keeps
acceptable books of account and files reports in accordance with the provisions of the Investment Law and the Income Tax Ordinance;
and
|
|
●
|
was
not, and certain officers of which were not, convicted of certain crimes in the 10 years prior to the tax year with respect
to which benefits are being claimed.
|
As
of January 1, 2017, a Preferred Company is currently 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 area A, in which case the
rate is currently 7.5% (our operations are currently not located in development area A).
Dividends
paid out of income attributed to a Preferred Enterprise are generally subject to tax 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, such dividends should
be exempt from tax (although, if such dividends are subsequently distributed to individuals or a non-Israeli company, tax at a
rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply).
If
in the future we generate taxable income, to the extent that we qualify as a “Preferred Company,” the benefits provided
under the Investment Law could potentially reduce our corporate tax liabilities. Therefore, the termination or substantial reduction
of the benefits available under the Investment Law could materially increase our tax liabilities.
Tax
Benefits for Income from Preferred Technology Enterprise
An
amendment to the Investment Law was enacted as part of the Economic Efficiency Law that was published on December 29, 2016,
and became effective as of January 1, 2017 (and is referred to herein as the “2017 Amendment”). The 2017 Amendment
provides new tax benefits to Preferred Companies for “Technology Enterprises,” as described below, and is in addition
to the Preferred Enterprise regime provided under the Investment Law.
The
2017 Amendment provides that a technology company satisfying certain conditions will qualify as a “Preferred Technology
Enterprise” and may thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “Preferred Technology
Income,” as defined in the Investment Law. The tax rate is further reduced to 7.5% for a Preferred Technology Enterprise
located in development area A. In addition, a Preferred Technology Enterprise may enjoy a reduced capital gains tax rate of 12%
on capital gain derived from the sale of certain “Benefited Intangible Assets” (as defined in the Investment Law)
to a related foreign company if the Benefited Intangible Assets were acquired from a foreign company on or after January 1,
2017 for at least NIS 200 million, and the sale receives prior approval from the IIA.
Dividends
distributed by a Preferred Technology Enterprise that are paid out of Preferred Technology Income are subject to tax at the rate
of 20%, but if they are distributed to a foreign company and at least 90% of the shares of the distributing company are held by
foreign resident companies then the tax rate may be as low as 4%, subject to the fulfillment of certain conditions.
As
we have not yet generated taxable income, there is no assurance that we qualify as a Preferred Technology Enterprise or that the
benefits described above will be available to us in the future.
If
in the future we generate taxable income, to the extent that we qualify as a “Preferred Company,” the benefits provided
under the Investment Law could potentially reduce our corporate tax liabilities. Therefore, the termination or substantial reduction
of the benefits available under the Investment Law could materially increase our tax liabilities.
The
Encouragement of Research, Development and Technological Innovation in the Industry Law 5744
Under
the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984 (formerly known as
the Law for the Encouragement of Research and Development in Industry 5744-1984), or Innovation Law, and the regulations and guidelines
promulgated thereunder, research and development programs which meet specified criteria and are approved by a committee of the
IIA, are eligible for grants. The grants awarded are typically up to 50% of the project’s expenditures, as determined by
the research committee. The grantee is required to pay royalties to the State of Israel from the sale of products developed under
the program. Regulations under the Innovation Law generally provide for the payment of royalties of 3% to 6% on income generated
from products and services based on technology developed using grants, until 100% of the grant, linked to the dollar and bearing
interest at the LIBOR rate, is repaid. In July 2017, new regulations came into force. According to the new regulations, the royalties
range between 1.3-5% depending on the company’s size and sector. The terms of the IIA participation also require that products
developed with IIA grants be manufactured in Israel and that the know-how developed thereunder may not be transferred outside
of Israel, unless approval is received from the IIA and additional payments are made to the IIA. However, this does not restrict
the export of products that incorporate the funded know-how. The royalty repayment ceiling can reach up to three times the amount
of the grant received (plus interest) if manufacturing is transferred outside of Israel, and repayment of up to six times the
amount of the grant (plus interest) may be required if the technology itself is transferred outside of Israel or license to use
it was granted to a foreign entity.
Taxation
of our Shareholders
Capital
Gains Tax
Israeli
law generally imposes a capital gains tax (i) on the sale of any capital assets by residents of Israel, as defined for Israeli
tax purposes, and (ii) on the sale of capital assets located in Israel, including shares of Israeli companies, by non-residents
of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country
of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is
a portion of the total capital gain that is equivalent to the increase of the relevant asset’s purchase price which is attributable
to the increase in the Israeli consumer price index or a foreign currency exchange rate between the date of purchase and the date
of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
Israeli
Residents
Generally,
as of January 1, 2012 and thereafter, the tax rate applicable to real capital gains derived from the sale of shares, whether
listed on a stock market or not, is 25% for Israeli individuals, unless such shareholder claims a deduction for financing expenses
in connection with such shares, in which case the gain will generally be taxed at a rate of 30%. Additionally, if such shareholder
is considered a “substantial shareholder” at the time of the sale or at any time during the 12-month period preceding
such sale, the tax rate will be 30%. A “substantial shareholder” is defined as one who holds, directly or indirectly,
alone or “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),
holds, directly or indirectly, at least 10% of any of the “means of control” in the company. “Means of control”
generally include the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation,
or instruct someone who holds any of the aforementioned rights regarding the manner in which such rights are to be exercised.
However, different tax rates will apply to dealers in securities. Israeli companies are subject to capital gains tax at the regular
corporate tax rate (i.e., 23% for the tax year 2018 and thereafter) on real capital gains derived from the sale of listed
shares.
As
of January 1, 2019, Israeli resident shareholders who are individuals with taxable income that exceeds NIS 649,500 in a tax
year (linked to the Israeli consumer price index each year) will be subject to an additional tax at the rate of 3% on the portion
of their taxable income for such tax year that is in excess of NIS 649,500 (linked to the Israeli consumer price index each year).
For this purpose, taxable income includes taxable capital gains from the sale of our shares and taxable income from dividend distributions.
In
some instances where our shareholders are 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.
Non-Israeli
Residents
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 the shares
were not held through a permanent establishment that the non-resident maintains in Israel. However, non-Israeli resident corporations
will not be entitled to the foregoing exemption if (i) an Israeli resident has a controlling interest, directly or indirectly,
alone, “together with another” (as defined above), or together with another Israeli resident, of more than 25% in
one or more of the “means of control” (as defined above) 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.
In
addition, 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, pursuant to the provisions 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, as amended, or the U.S.-Israel Tax Treaty,
capital gains arising from the sale, exchange or disposition of our ordinary shares by (i) a person who qualifies as a resident
of the United States within the meaning of the U.S.-Israel Tax Treaty, (ii) who holds the shares as a capital asset, and
(iii) who is entitled to claim the benefits afforded to such person by the U.S.-Israel Tax Treaty generally is generally
exempt from Israeli capital gains tax. Such exemption will not apply if: (i) such person holds, directly or indirectly, shares
representing 10% or more of our voting power during any part of the 12-month period preceding such sale, exchange, or disposition,
subject to particular conditions; (ii) the capital gains from such sale, exchange, or disposition are attributable to a permanent
establishment in Israel; or (iii) such person is an individual and was present in Israel for 183 days or more during
the relevant tax year. In such case, the capital gain arising from the sale, exchange, or disposition of our ordinary shares would
be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Tax Treaty, the taxpayer may 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 U.S.-Israel Tax Treaty does not relate to U.S.
state or local taxes.
Shareholders
may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at
the time of sale.
It
should be noted that in the event that the real capital gain realized by an individual shareholder is not exempt from tax in Israel,
the tax rates applicable to Israeli resident individual shareholders should generally apply.
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.
Taxation
of Dividend Distributions
Israeli
Residents
Israeli
resident individuals are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares, other
than bonus shares (share dividends). As of January 1, 2012 and thereafter, the tax rate applicable to such dividends is generally
25%. With respect to a person who is a “substantial shareholder” (as defined above) at the time the dividend is received
or at any time during the preceding 12-month period, the applicable tax rate is 30%. Dividends paid from income derived from Preferred
Enterprises and Preferred Technology Enterprises will generally be subject to income tax at a rate of 20%.
As
of January 1, 2019, Israeli resident shareholders who are individuals with taxable income that exceeds NIS 649,500 in a tax
year (linked to the Israeli consumer price index each year) will be subject to an additional tax at the rate of 3% on the portion
of their taxable income for such tax year that is in excess of NIS 649,500 (linked to the Israeli consumer price index each year).
For this purpose, taxable income includes taxable capital gains from the sale of our shares and taxable income from dividend distributions.
Dividends
paid to an Israeli resident individual shareholder on our ordinary shares will generally be subject to withholding tax at the
rates corresponding with the income tax rates detailed above unless we are provided in advance with a withholding tax certificate
issued by the Israel Tax Authority stipulating a different rate.
Notwithstanding
the above, dividends paid to an Israeli resident “substantial shareholder” (as defined above) on publicly traded shares,
like our ordinary shares, which are held via a “nominee company” (as defined under the Israeli Securities Law), 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 Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance.
If
the dividend is attributable partly to income derived from a Preferred Enterprise or a Preferred Technology Enterprise and partly
to other sources of income, the tax rate will be a blended rate reflecting the relative portions of the various types of income.
We cannot assure you that we will designate the profits that are being distributed in a way that will reduce shareholders’
tax liability.
Israeli
resident companies are generally exempt from tax on the receipt of dividends paid on our ordinary shares.
Non-Israeli
Residents
Unless
relief is provided in a treaty between Israel and the shareholder’s country of residence, non-Israeli residents are generally
subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%. With respect to a person
(including a corporation) who is a “substantial shareholder” (as defined above) at the time of receiving the dividend
or at any time during the preceding 12-month period, absent treaty relief as mentioned above, the applicable Israeli income tax
rate is 30%. Notwithstanding the above, dividends paid from income derived from Preferred Enterprises will be subject to Israeli
income tax at a rate of 20%. In addition, dividends distributed by a Preferred Technology Enterprise that are paid out of Preferred
Technology Income are subject to tax at the rate of 20%, but if they are distributed to a foreign company and at least 90% of
the shares of the distributing company are held by foreign resident companies then the tax rate may be as low as 4%, subject to
the fulfillment of certain conditions.
In
this regard, dividends paid to a non-Israeli resident shareholder on our ordinary shares will generally be subject to withholding
tax at the rates corresponding with the income tax rates detailed above unless we are provided in advance with a withholding tax
certificate issued by the Israel Tax Authority stipulating a different rate (e.g., in accordance with the provisions of an
applicable tax treaty).
Notwithstanding
the above, dividends paid to a non-Israeli resident “substantial shareholder” (as defined above) on publicly traded
shares, like our ordinary shares, which are held via a “nominee company” (as defined under the Israeli Securities
Law), 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 Israel Tax Authority allowing for a reduced withholding tax rate is obtained
in advance.
In
addition, it should be noted that an additional 3% tax might be applicable to individual shareholders if certain conditions are
met.
Under
the U.S.-Israel Tax Treaty, the maximum Israeli tax on dividends paid to a holder of ordinary shares who qualifies as a resident
of the United States within the meaning of the U.S.-Israel Tax Treaty is 25%. Such tax rate is generally reduced to 12.5% if:
(i) the shareholder is a U.S. corporation and holds at least 10% of the outstanding shares of our voting stock during the
part of our tax year that precedes the date of payment of the dividends and during the whole of our prior tax year; (ii) not
more than 25% of our gross income in the tax year preceding the payment of the dividends consists of interest or dividends, other
than dividends or interest received from subsidiary corporations 50% or more of the outstanding shares of voting stock of which
is owned by us at the time such dividends or interest are received by us; and (iii) the dividends are not sourced from income
derived during a period for which we were entitled to the reduced tax rate applicable to a Preferred Enterprise under the Investment
Law. If the dividends are sourced from income derived during a period for which we are entitled to the reduced tax rate applicable
to a Preferred Enterprise or a Preferred Technology Enterprise under the Investment Law, to the extent that the first two conditions
detailed above are met, the Israeli tax rate applicable to such dividends should be 15%.
If
the dividend is attributable partly to income derived from a Preferred Enterprise or a Preferred Technology Enterprise and partly
to other sources of income, the tax rate will be a blended rate reflecting the relative portions of the various types of income.
We cannot assure you that we will designate the profits that are being distributed in a way that will reduce shareholders’
tax liability.
Estate
and gift tax
Israeli
law presently does not impose estate tax.
Israeli
law also does not presently impose gift taxes upon the transfer of assets to Israeli resident individuals so long as it is demonstrated
to the satisfaction of the Israel Tax Authority that the transfer was executed in good faith.
Material
U.S. Federal Income Tax Consequences
The
following summary describes certain material U.S. federal income tax consequences relating to an investment in the ADSs and ordinary
shares. This summary deals only with ADSs and ordinary shares that are held as capital assets within the meaning of section 1221
of the U.S. Internal Revenue Code of 1986, as amended, or the Code, and does not address tax considerations of holders that may
be subject to special tax rules, such as dealers or traders in securities or currencies, financial institutions, tax-exempt organizations,
insurance companies, regulated investment companies, real estate investment trusts, individual retirement and tax-deferred accounts,
persons holding ADSs or ordinary shares as part of a hedging, integrated, conversion or constructive sale transaction, or a straddle,
persons subject to the alternative minimum tax, or persons who have a functional currency other than the U.S. dollar. In addition,
this discussion does not address the tax treatment of U.S. holders (as defined below) who own, directly, indirectly, or constructively,
10% or more of our outstanding stock, by vote or value. The summary set forth below relating to U.S. holders (as defined below)
is applicable only to such U.S. holders (i) who are residents of the United States for purposes of the U.S.-Israel Tax Treaty,
(ii) whose ordinary shares or ADSs are not, for purposes of the U.S.-Israel Tax Treaty, effectively connected with or attributable
to a permanent establishment in Israel, and (iii) who otherwise qualify for the full benefits of the U.S.-Israel Tax Treaty.
The discussion below is based upon the Code, final, temporary and proposed Treasury regulations promulgated thereunder, applicable
administrative rulings and judicial interpretations thereof, and the U.S.-Israel Tax Treaty, all as in effect as of the date hereof
and all of which are subject to change, possibly on a retroactive basis, and all of which are open to differing interpretations.
In addition, this summary does not consider the possible application of U.S. federal gift or estate taxes or any aspect of state,
local, or non-U.S. tax laws. Furthermore, we will not seek a ruling from the IRS with regard to the U.S. federal income tax treatment
of an investment in our ADSs or ordinary shares and can provide no assurance that the tax consequences contained in this summary
will not be challenged by the IRS or will be sustained in a court if challenged.
As
used in this summary the term “U.S. holder” means a beneficial owner of ADSs or ordinary shares that is, for U.S.
federal income tax purposes: (i) an individual citizen or resident of the United States, (ii) a corporation (or other
entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United
States or any state thereof, or the District of Columbia; (iii) an estate the income of which is subject to U.S. federal
income taxation regardless of its source, or (iv) a trust if either (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust, or (b) the trust has a valid election in effect under applicable Treasury regulations
to be treated as a U.S. person. Except to the limited extent discussed below, this summary does not consider the U.S. federal
tax considerations to a person that is not a U.S. holder (a “non-U.S. holder”). In addition, the tax treatment of
persons who hold ADSs or ordinary shares through a partnership or other pass-through entity treated as a partnership for U.S.
federal income tax purposes generally depends upon the status of the partner and the activities of the partnership. The tax consequences
to such a partner or partnership are not considered in this summary and partners and partnerships should consult their tax advisors
with respect to the U.S. federal tax consequences of investing in the ADSs or ordinary shares.
This
summary does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular investor in light of
its circumstances. Prospective purchasers of the ADSs or ordinary shares should consult their own tax advisors with respect to
the specific U.S. federal income tax consequences to such person of purchasing, holding, or disposing of the ADSs or ordinary
shares, as well as the effect of any state, local, or other tax laws.
ADSs
If
you hold ADSs, for U.S. federal income tax purposes, you generally will be treated as the owner of the underlying ordinary shares
that are represented by such ADSs. Accordingly, deposits or withdrawals of ordinary shares for ADSs will not be subject to U.S.
federal income tax.
Distributions
on Ordinary Shares or ADSs
Subject
to the discussion under the heading “Passive Foreign Investment Company Consequences,” U.S. holders are required to
include in gross income the amount of any distribution paid on ordinary shares or ADSs to the extent the distribution is paid
out of our current and/or accumulated earnings and profits, as determined for U.S. federal income tax purposes. To the extent
a distribution paid with respect to our ordinary shares or ADSs exceeds our current and accumulated earnings and profits, such
amount will be treated first as a non-taxable return of capital, reducing a U.S. holder’s tax basis for the ordinary shares
or ADSs to the extent thereof, and thereafter as either long-term or short-term capital gain depending upon whether the U.S. holder
has held our ordinary shares or ADSs for more than one year as of the time such distribution is received. Preferential tax rates
for long-term capital gains are applicable for U.S. holders that are individuals, estates, or trusts. However, we do not expect
to maintain calculations of our earnings and profits under United States federal income tax principles. Therefore, U.S. holders
should expect that the entire amount of any distribution generally will be reported as dividend income. The amount of the dividend
will generally be treated as foreign-source dividend income to U.S. holders. A non-corporate U.S. holder that meets certain eligibility
requirements may qualify for a lower rate of U.S. federal income taxation on dividends paid if we are a “qualified foreign
corporation” for U.S. federal income tax purposes. We generally will be treated as a qualified foreign corporation if we
are not a passive foreign investment company, or PFIC, in the taxable year in which such dividends are paid or in the preceding
taxable year (see discussion below), and (i) we are eligible for benefits under the United States-Israel income tax treaty
or (ii) our ordinary shares or ADSs are listed on an established securities market in the United States (which includes the
Nasdaq Capital Market). In addition, a non-corporate U.S. holder will not be eligible for a reduced U.S. federal income tax rate
with respect to dividend distributions on ordinary shares or ADSs if (a) such U.S. holder has not held the ordinary shares
or ADSs for at least 61 days during the 121-day period starting on the date which is 60 days before, and ending 60 days
after the ex-dividend date, (b) to the extent the U.S. holder is under an obligation to make related payments on substantially
similar or related property, or (c) with respect to any portion of a dividend that is taken into account by the U.S. holder
as investment income under Section 163(d)(4)(B) of the Code. Any days during which the U.S. holder has diminished its risk
of loss with respect to ordinary shares or ADSs (for example, by holding an option to sell the ordinary shares or ADSs) are not
counted towards meeting the 61-day holding period. Non-corporate U.S. holders should consult their own tax advisors concerning
whether dividends received by them qualify for the reduced rate of tax.
Corporate
U.S. holders generally will not be allowed a deduction for dividends received from us.
The
amount of a distribution with respect to our ordinary shares or ADSs equals the amount of cash and the fair market value of any
property distributed plus the amount of any Israeli taxes withheld therefrom. The amount of any cash distributions paid in NIS
equals the U.S. dollar value of the NIS on the date of distribution based upon the exchange rate in effect on such date, regardless
of whether the NIS are converted into U.S. dollars at that time, and U.S. holders who include such distribution in income on such
date will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the dividend is
converted to U.S. dollars on the date of receipt, a U.S. holder generally will not recognize a foreign currency gain or loss.
However, if the U.S. holder converts the NIS into U.S. dollars on a later date, the U.S. holder must include, in computing its
income, any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the difference between
(i) the U.S. dollar value of the amount included in income when the dividend was received and (ii) the amount received
on the conversion of the NIS into U.S. dollars. Such gain or loss will generally be ordinary income or loss and United States
source income for U.S. foreign tax credit purposes. U.S. holders should consult their own tax advisors regarding the tax consequences
to them if we pay dividends in NIS or any other non-U.S. currency.
Subject
to certain significant conditions and limitations, including potential limitations under the U.S.-Israel Tax Treaty, U.S. holders
may be entitled to a credit against their U.S. federal income tax liability or a deduction against U.S. federal taxable income
in an amount equal to the Israeli tax withheld on distributions on our ordinary shares or ADSs. U.S. holders should consult their
own tax advisors to determine whether and to what extent they would be entitled to such credit. Distributions paid on our ordinary
shares or ADSs will generally be treated as passive income that is foreign source for U.S. foreign tax credit purposes, which
may be relevant in calculating a U.S. holder’s foreign tax credit limitation.
Disposition
of Ordinary Shares or ADSs
Subject
to the discussion under the heading “Passive Foreign Investment Company Consequences,” upon the sale, exchange or
other disposition of ordinary shares or of ADSs, a U.S. holder generally will recognize capital gain or loss in an amount equal
to the difference between the amount realized on the disposition and such U.S. holder’s adjusted tax basis in the ordinary
shares or ADSs. The adjusted tax basis in an ordinary share or ADS generally will be equal to the cost of such ordinary share
or ADS. The capital gain or loss realized on the sale, exchange, or other disposition of ordinary shares or ADSs will be long-term
capital gain or loss if the U.S. holder held the ordinary shares or ADSs for more than one year as of the time of disposition.
Preferential tax rates for long-term capital gain will generally apply to non-corporate U.S. holders. Any gain or loss realized
by a U.S. holder on the sale, exchange, or other disposition of ordinary shares or ADSs generally will be treated as from sources
within the United States for U.S. foreign tax credit purposes, except for certain losses which will be treated as foreign source
to the extent certain dividends were received (or certain inclusion amounts were taken into account) by the U.S. holder within
the 24-month period preceding the date on which the U.S. holder recognized the loss. The deductibility of capital losses for U.S.
federal income tax purposes is subject to limitations.
Disclosure
of Reportable Transactions
If
a U.S. holder sells or disposes of the ordinary shares or ADSs at a loss or otherwise incurs certain losses that meet certain
thresholds, such U.S. holder may be required to file a disclosure statement with the IRS. Failure to comply with these and
other reporting requirements could result in the imposition of significant penalties.
Passive
Foreign Investment Company Consequences
Generally,
a non-U.S. corporation will be a PFIC for U.S. federal income tax purposes in any taxable year in which either (i) 75% or
more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the
average fair market value of its assets during such year (based on quarterly valuations) produce or are held for the production
of passive income. Passive income for this purpose generally includes dividends, interest, rents, royalties, annuities, income
from certain commodities transactions and from notional principal contracts, and the excess of gains over losses from the disposition
of assets that produce passive income. Passive income also includes amounts derived by reason of the temporary investment of funds,
including those raised in a public offering. Assets that produce or are held for the production of passive income include cash,
even if held as working capital or raised in a public offering, marketable securities, and other assets that may produce passive
income. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation
in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.
A
foreign corporation’s PFIC status is an annual determination that is based on tests that are factual in nature, and our
PFIC status for any year will depend on the composition of our income, fair market value of our assets, and our activities for
such year. Based on our non-passive revenue-producing operations for the year ended December 31, 2019, we do not expect to
be a PFIC for our 2019 taxable year. Because the PFIC determination is highly fact intensive, there can be no assurance that we
will not be a PFIC in 2020 or any other year. Even if we determine that we are not a PFIC after the close of a taxable year,
there can be no assurance that the IRS or a court will agree with our conclusion.
If
we were a PFIC for any taxable year during which a U.S. holder held ordinary shares or ADSs, then unless an election has been
made by a U.S. holder to be taxed under one of the alternative regimes discussed below, gain recognized by a U.S. holder on a
sale or other disposition (including certain pledges) of the ordinary shares or ADSs would be allocated ratably over the U.S.
holder’s holding period for the ordinary shares or ADSs. The amounts allocated to the taxable year of the sale or other
disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable
year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year,
and an interest charge would be imposed on the amount allocated to that taxable year. Similar rules would apply to any distribution
with respect to the ordinary shares or ADSs in excess of 125% of the average of the annual distributions received by a U.S. holder
during the preceding three years or such U.S. holder’s holding period, whichever is shorter. In addition, non-corporate
U.S. holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable
year in which such dividends are paid or in the preceding taxable year.
If
we are a PFIC for any taxable year during which you hold the ordinary shares or ADSs and our non-United States subsidiary is also
a PFIC, a U.S. holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes
of the application of these rules. U.S. holders are urged to consult their tax advisors about the application of the PFIC rules
to our subsidiary.
If
we are treated as a PFIC for any taxable year during the holding period of a non-electing U.S. holder (i.e., a U.S. holder
that does not elect to be taxed under one of the alternative regimes discussed below), we will continue to be treated as a PFIC
for all succeeding years during which such non-electing U.S. holder is treated as a direct or indirect holder even if we are not
a PFIC for such years. A U.S. holder is encouraged to consult its tax advisor with respect to any available elections that may
be applicable in such a situation, including the “deemed sale” election of Section 1298(b)(1) of the Code.
Notwithstanding
the default PFIC rules described in the preceding paragraphs, certain elections may be available that would result in alternative
tax consequences; i.e., the “qualified electing fund” or “QEF” election and the “mark to market”
election. If a U.S. holder makes a timely and valid 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 or ADSs 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 or ADSs
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). The U.S. holder’s tax basis in the ordinary shares or ADSs will be adjusted
to reflect the income or loss resulting from the mark-to-market election. Any gain recognized on the sale or other disposition
of ordinary shares or ADSs 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
and any loss in excess of such amount will be treated as capital loss). The mark-to-market election is available only if we are
a PFIC and the ordinary shares or ADSs are “regularly traded” on a “qualified exchange” within the meaning
of applicable U.S. Treasury regulations. The ordinary shares or ADSs will be treated as “regularly traded” in any
calendar year in which more than a de minimis quantity of the ordinary shares or ADSs are traded on a qualified exchange on at
least 15 days during each calendar quarter. Although the IRS has not published any authority identifying specific exchanges
that may constitute “qualified exchanges,” Treasury Regulations provide that a qualified exchange is (i) a U.S.
securities exchange that is registered with the Securities and Exchange Commission, (ii) the U.S. market system established
pursuant to section 11A of the Securities and Exchange Act of 1934, or (iii) a non-U.S. securities exchange that is
regulated or supervised by a governmental authority of the country in which the market is located, provided that: (a) such
non-U.S. exchange has trading volume, listing, financial disclosure, surveillance, and other requirements designed to prevent
fraudulent and manipulative acts and practices, to remove impediments to and perfect the mechanism of a free and open, fair and
orderly, market, and to protect investors, and the laws of the country in which such non-U.S. exchange is located and the rules
of such non-U.S. exchange ensure that such requirements are actually enforced; and (b) the rules of such non-U.S. exchange
effectively promote active trading of listed shares. No assurance can be given that the ADSs will meet the requirements to be
treated as “regularly traded” for purposes of the mark-to-market election. The Nasdaq Capital Market is a qualified
exchange for this purpose and, consequently, if the ADSs are regularly traded, the mark-to-market election will be available to
a U.S. holder. We have delisted our ordinary shares from the Tel Aviv Stock Exchange and the last date of trading of our ordinary
shares was on October 29, 2018. Therefore, U.S. holders are not currently able to make a mark-to-market election with respect
to our ordinary shares. A mark-to-market election will not apply to ordinary shares or ADSs held by a U.S. holder for any taxable
year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become
a PFIC unless the ordinary shares or ADSs are no longer regularly traded on a qualified exchange or the IRS consents to the revocation
of the election. Such election will not apply to any PFIC subsidiary that we own. Each U.S. holder is encouraged to consult its
own tax advisor with respect to the availability and tax consequences of a mark-to-market election with respect to the ordinary
shares or ADSs.
Another
way in which certain of the adverse consequences of PFIC status can be mitigated is for a U.S. holder to make a QEF election.
Generally, a shareholder making the QEF election is required for each taxable year to include in income a pro rata share of the
ordinary earnings and net capital gain of the QEF, subject to a separate election to defer payment of taxes, which deferral is
subject to an interest charge. An election to treat us as a QEF will not be available if we do not provide the information necessary
to make such an election. We are not obligated and do not currently intend to provide the information necessary to make a QEF
election and thus it is not expected that a QEF election will be available for U.S. holders of the ordinary shares or ADSs if
we were a PFIC in any prior year, the current year or any future year.
U.S.
holders should consult their tax advisors to determine under what circumstances these elections would be available and, if available,
what the consequences of the alternative treatments would be in their particular circumstances.
If
a U.S. holder holds ordinary shares or ADSs in any year in which we are treated as a PFIC, the U.S. holder will be required to
file IRS Form 8621 and may be subject to certain other information reporting requirements.
The
U.S. federal income tax rules relating to PFICs are complex. Prospective U.S. holders are urged to consult their own tax advisors
with respect to the consequences to them of an investment in a PFIC, any elections available with respect to the ADSs or ordinary
shares and the IRS information reporting obligations with respect to the purchase, ownership, and disposition of the ADSs or ordinary
shares in the event we are determined to be a PFIC.
Medicare
Tax on Investment Income
In
addition to the income taxes described above, U.S. holders that are individuals, estates, or trusts and whose income exceeds certain
thresholds will be subject to a 3.8% tax on all or a portion of their “net investment income,” which generally would
include dividends on, and dispositions of, the ordinary shares or ADSs. U.S. holders should consult their tax advisors with respect
to the applicability of the 3.8% Medicare tax to their income and gains, if any, resulting from their investment in the ordinary
shares or ADSs.
Information
Reporting and Backup Withholding
A
U.S. holder may be subject to backup withholding and information reporting requirements with respect to cash distributions and
proceeds from a disposition of ADSs or ordinary shares. In general, backup withholding will apply only if a U.S. holder fails
to comply with certain identification procedures. Information reporting and backup withholding will not apply with respect to
payments made to certain exempt recipients, such as corporations and tax-exempt organizations. Backup withholding is not an additional
tax and may be claimed as a credit against the U.S. federal income tax liability of a U.S. holder, provided that the required
information is furnished to the IRS.
Tax
Reporting
Certain
U.S. holders will be required to file an IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation)
to report a transfer of cash or other property to us. Substantial penalties may be imposed on a U.S. holder that fails to comply
with this reporting requirement. Each U.S. holder is urged to consult with its own tax advisor regarding this reporting obligation.
Foreign
Asset Reporting
Certain
U.S. holders who are individuals may be required to report information relating to an interest in the ADSs or ordinary shares,
subject to certain exceptions. For example, certain U.S. holders that own “specified foreign financial assets” with
an aggregate value in excess of $50,000 (and in some circumstances, a higher threshold) are generally required to file IRS Form 8938
with respect to such assets with their tax returns. “Specified foreign financial assets” include any financial accounts
maintained by foreign financial institutions, as well as any of the following, but only if they are not held in accounts maintained
by financial institutions: (i) stocks and securities issued by non-U.S. persons; (ii) financial instruments and contracts
held for investment that have non-U.S. issuers or counterparties; and (iii) interests in foreign entities. In addition, a
U.S. holder should consider the possible obligation to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts,
as a result of holding ADSs or ordinary shares. U.S. holders are urged to consult their tax advisors regarding the application
of these and other reporting requirements that may apply to their ownership of ADSs or ordinary shares.
Non-U.S.
Holders of Ordinary Shares or ADSs
Except
as provided below, a non-U.S. holder of ordinary shares or ADSs generally will not be subject to U.S. income or withholding tax
on the payment of dividends on and the proceeds from the disposition of ADSs or ordinary shares.
A
non-U.S. holder may be subject to U.S. federal income tax on dividends received on ADSs or ordinary shares or upon the receipt
of income from the disposition of ADSs or ordinary shares if: (i) such income is effectively connected with the conduct by
the non-U.S. holder of a trade or business in the United States or, in the case of a resident of a country which has an applicable
income tax treaty with the United States, such item is attributable to a permanent establishment or a fixed place of business
of the non-U.S. holder in the United States; (ii) with respect to a U.S. holder that is an individual, the non-U.S. holder
is an individual who is present in the United States for 183 days or more in the taxable year of the sale and certain other
conditions are met; or (iii) the non-U.S. holder is subject to tax pursuant to the provisions of the U.S. tax laws applicable
to U.S. expatriates.
Payments
to non-U.S. holders of distributions on, or proceeds from the disposition of, ADSs or ordinary shares are generally exempt from
information reporting and backup withholding. However, a non-U.S. holder may be required, under certain circumstances, to establish
that exemption by providing certification of non-U.S. status on an appropriate IRS Form W-8.
THE
DISCUSSION ABOVE IS A GENERAL SUMMARY AND IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE ADSs OR ORDINARY SHARES. 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
RELATING TO THE PURCHASE, OWNERSHIP, AND DISPOSITION OF ADSs OR ORDINARY SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
|
F.
|
Dividends
and Paying Agents
|
Not
applicable.
Not
applicable.
We
are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under
those requirements will file reports with the SEC. The SEC maintains an internet site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Our filings
with the SEC will also be available to the public through the SEC’s website at www.sec.gov.
As
a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements,
and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly
and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities
are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year,
or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent
registered public accounting firm, and may submit to the SEC, on a Form 6-K, unaudited quarterly financial information.
|
I.
|
Subsidiary
Information.
|
Not
applicable.
ITEM 11.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We
are exposed to market risk 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 fluctuations in foreign currency exchange rates and interest rates.
Foreign
Currency Exchange Risk
Our
functional and reporting currency is the U.S. dollar. Our foreign currency exposures give rise to market risk associated with
exchange rate movements of the NIS, mainly against the U.S. dollar and the Euro. A material portion of our expenses consist principally
of payments in NIS made to employees, subcontractors and consultants for clinical trials, other research and development activities,
and purchase of new equipment. A material portion of our research and development is conducted through collaboration agreements
denominated in U.S. dollars, and therefore our net research and development expenses are subject to significant foreign currency
risk. If the NIS fluctuates significantly against either the U.S. dollar or the Euro, it may have a negative impact on our results
of operations.
To
date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments.
In the future, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in
the operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.
Interest
Rate Risk
At
present, our investments consist primarily of cash and cash equivalents in short-term deposits. The primary objective of our investment
activities is to preserve our capital to fund our operations. Our investments are exposed to market risk due to fluctuation in
interest rates, which may affect our interest income and the fair market value of our investments, if any. We manage this exposure
by performing ongoing evaluations of our investments. Due to the short-term maturities, if any, of our investments to date, their
carrying value has always approximated their fair value. We believe that our exposure to interest rate risk is not significant
and a 1% change in market interest rates would not have a material impact on our assets.
ITEM 12.
|
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not
applicable.
Not
applicable.
Not
applicable.
|
D.
|
American
Depositary Shares
|
The
Bank of New York Mellon, as depositary, registered and delivered our ADSs. Each ADS represents one (1) ordinary share (or a right
to receive one (1) ordinary share) deposited with the principal Tel Aviv office of either of Bank Leumi or Bank Hapoalim, as custodian
for the depositary. Each ADS also represents any other securities, cash or other property which may be held by the depositary.
The depositary’s office at which the ADSs are administered is located at 240 Greenwich, New York, New York 10286. The Bank
of New York Mellon’s principal executive office is located at 240 Greenwich, New York, New York 10286.
Persons
depositing or withdrawing ordinary shares or ADS holders must pay:
|
|
For:
|
|
|
|
$5.00
(or less) per ADSs (or portion of ADSs)
|
|
Issuance
of ADSs, including issuances resulting from a distribution of ordinary shares or rights or other property; or cancellation
of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
|
|
|
|
$0.05
(or less) per ADS
|
|
Any
cash distribution to ADS holders
|
|
|
|
A
fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary
shares had been deposited for issuance of ADSs
|
|
Distribution
of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders
|
|
|
|
$0.05
(or less) per ADS per calendar year
|
|
Depositary
services
|
|
|
|
Registration
or transfer fees
|
|
Transfer
and registration of ordinary shares on our share register to or from the name of the depositary or its agent when you deposit
or withdraw ordinary shares
|
|
|
|
Expenses
of the depositary
|
|
Cable
(including SWIFT) and facsimile transmissions (when expressly provided in the deposit agreement); conversion of foreign currency
to U.S. dollars
|
|
|
|
Taxes
and other governmental charges the depositary or the custodian has to pay on any ADSs or ordinary shares underlying ADSs,
such as stock transfer taxes, stamp duty, or withholding taxes
|
|
As
necessary
|
|
|
|
Any
charges incurred by the depositary or its agents for servicing the deposited securities
|
|
As
necessary
|
The
depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs
for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to
investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees.
The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing
investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its
fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to
ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until
its fees for those services are paid.
From
time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment
and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary, or share revenue from
the fees collected from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers,
or other service providers that are affiliates of the depositary and that may earn or share fees or commissions.
The accompanying notes are an integral
part of the consolidated financial statements
The accompanying notes are an integral
part of the consolidated financial statements
The accompanying notes are an integral
part of the consolidated financial statements.
The accompanying notes are an integral
part of the consolidated financial statements.
The accompanying notes are an integral
part of the consolidated financial statements
The accompanying notes are an integral
part of the consolidated financial statements
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
(U.S. dollars in
thousands, except share and per share amounts)
NOTE 1 - GENERAL
a.
|
CollPlant Biotechnologies Ltd. (formerly known
as CollPlant Holdings Ltd.) (the “Company”) is a regenerative and aesthetic medicine company focused on 3D
bioprinting of tissues and organs and medical aesthetics.
The Company’s revenues include income from business
collaborators and sales of (i) the BioInk product for the development of 3D bioprinting of organs and tissues, (ii) sales
of rhCollagen for the medical aesthetics market, and (iii) sales in Europe of the products for tendinopathy and wound healing.
|
The Company operates through CollPlant Ltd.,
a wholly-owned subsidiary (CollPlant Biotechnologies Ltd. and CollPlant Ltd. will be referred to hereinafter as “the
Company” and “CollPlant”, respectively).
The address of the Company’s registered office
is 4 Oppenheimer St., Science Park, Rehovot, Israel.
Since January 31, 2018, the Company’s American Depositary Shares (“ADSs”)
commenced trading on the Nasdaq Capital Market. On October 29, 2018 the Company delisted its ordinary shares from trading on the
Tel Aviv Stock Exchange (“TASE”).
The Company has an accumulated deficit of approximately
$67,260 as of December 31, 2019, as well as a history of net losses and negative operating cash flows in recent years. The Company
expects to continue incurring losses and negative cash flows from operations until it will receive material income from business
collaborators under licensing agreements and/or its products (primarily BioInk) reach commercial profitability. As a result of
these expected losses and negative cash flows from operations, along with the Company’s current cash position, the Company
does not have sufficient cash to meet its liquidity requirements for the following twelve months. Consequently, there is substantial
doubt about the Company’s ability to continue as a going concern. These financial statements have been prepared assuming
that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this
uncertainty.
Management’s plans include the continued commercialization
of the Company’s products and collaborations with global leading companies, raising capital through the sale of additional
equity securities, or capital inflows from strategic partnerships. There are no assurances however, that the Company will be successful
in obtaining the level of financing needed for its operations. If the Company is unsuccessful in commercializing its products
and raising capital, it may need to reduce activities, curtail or cease operations.
b.
|
On June 6, 2019, the Company’s shareholders approved
a reverse share split of the Company’s ordinary shares at a ratio of 1-for-50, such that each fifty (50) ordinary shares,
par value NIS 0.03 per share, will be consolidated into one (1) ordinary share, par value NIS 1.50, which decreased the number
of ordinary shares issued and outstanding as of June 6 2019, from approximately 191 million shares to approximately 3.8 million.
Concurrently with the reverse split, the Company effected a
corresponding change in the ratio of ordinary shares to each of the Company’s ADSs, such that its ratio of ADSs to ordinary
shares changed from one (1) ADS representing fifty (50) ordinary shares to a new ratio of one (1) ADS representing one (1) ordinary
share. The first date when the Company’s ADSs began trading on the Nasdaq Capital Market after implementation of the reverse
split and concurrent ratio change was July 15, 2019.
All share, ADS and per share amounts included in the consolidated
financial statements and the footnotes have been adjusted retroactively to reflect the effects of the reverse share split unless
specified otherwise.
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a.
|
Basis of presentation of the financial statements
|
The Company’s financial statements for all
periods presented have been prepared in accordance with generally accepted accounting principles in the United States of America
(“U.S. GAAP”).
Prior to 2019, the Company prepared its financial
statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International
Accounting Standards Board (“IASB”), as permitted in the United States (“U.S.”) based on the Company’s
status as a foreign private issuer as defined by the U.S. Securities and Exchange Commission (the “SEC”). During 2019,
the Company decided to adopt the US GAAP since the Company’s business activity is primarily in the U.S. as well as its activity
in the U.S. capital markets.
b.
|
Use
of estimates in the preparation of financial statements
|
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results may differ from those estimates.
From the Company’s inception through December
31, 2018, the Company and its subsidiary’s functional currency was the New Israeli Shekel (NIS). Management conducted a review
of the functional currency of the Company and its subsidiary and concluded that the functional currency changed from the NIS to
the U.S. dollar, effective January 1, 2019. This change was based on an assessment by Company management that the U.S. dollar became
the primary currency of the economic environment in which the Company and its subsidiary operates. Accordingly, the functional
and presentation currency of the Company in these financial statements is the U.S. dollar.
In determining the appropriate
functional currency to be used, the Company reviewed factors relating to sales, costs and expenses, financing activities and cash
flows, as well as other potential factors, that should be considered. In this regard, in 2018, the Company incurred a significant
increase in revenues denominated in U.S. dollars relating to collaboration with its customers in the U.S., which is reflected
primarily in the agreement the Company signed in October 2018, with Lung Biotechnology PBC, a public benefit corporation and wholly-owned
subsidiary of United Therapeutics Corporations. The Company expects additional increase in revenues denominated in U.S. dollars
related to its activities. The Company incurred an increase and expects to continue to incur a significant part of its expenses
in U.S. dollars. These changes, as well as the fact that the majority of the Company’s available funds are in U.S. dollars,
the Company’s principal source of financing is the U.S. capital markets, and all of the Company’s budgeting is conducted
solely in U.S. dollars, led to the decision that a change occurred in the functional currency as of January 1, 2019, as indicated
above.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
The effect of the change in the functional currency
is accounted for prospectively. Assets and liabilities were translated into the new functional currency using the exchange rate
at the date of the change. The resulting translated amounts for non-monetary items are treated as their historical cost. In addition,
warrants previously included as equity were classified as financial liability measured at fair value, due to their NIS exercise
price.
Due to the change in its functional currency as above
and concurrently with it, the Company decided to change its presentation currency from NIS to the U.S. dollar.
The change in presentation currency was applied retrospectively
to all comparative figures presented.
In effecting the change in presentation currency
to U.S. dollars, with respect to comparative figures: (1) all assets and liabilities of the Company were translated using the
dollar exchange rate as of each balance sheet presented; (2) equity items were translated using historical exchange rates at the
relevant transaction dates; (3) the statement of comprehensive loss items have been translated at the average exchange rates for
the relevant reporting periods; and (4) the resulting translation differences have been reported as “currency translation
differences” within other comprehensive loss.
d.
|
Principles of
consolidation
|
The consolidated financial statements include the
accounts of the Company and CollPlant. All inter-company transactions and balances have been eliminated in consolidation.
e.
|
Cash and cash
equivalents
|
The Company considers as cash
equivalents all short-term, highly liquid investments, which include short-term bank deposits with original maturities of three
months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known
amounts of cash.
Inventory is measured at the
lower of cost and net realizable value.
The cost of inventories is based on the first-in
first-out (FIFO) principle. In the case of purchased goods and work in process, costs include raw materials, direct labor, other
direct costs and fixed production overheads (based on the normal operating capacity of the production facilities).
Net realizable value is the estimated selling price
in the ordinary course of business, less variable attributable selling expenses.
On January 1, 2019, the Company adopted ASU No. 2016-02,
Leases (Topic 842). The Company determines if an arrangement is a lease at inception. Balances related to operating leases are
included in operating lease right-of-use (“ROU”) assets and current and non-current operating lease liabilities in
the consolidated balance sheets.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
ROU assets represent the Company’s
right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease
payments arising from the lease. Operating lease ROU assets and liabilities are recognized as of the commencement date based on
the present value of lease payments over the lease term. Lease terms will include options to extend or terminate the lease when
it is reasonably certain that the Company will either exercise or not exercise the option to renew or terminate the lease. The
discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. As the Company’s
leases do not provide an implicit rate, the Company’s uses its estimated incremental borrowing rate based on the information
available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized
on a straight-line basis over the lease term (see also Note 2q and Note 6).
h.
|
Property and equipment
|
|
1)
|
Property and equipment
are stated at cost, net of accumulated depreciation and amortization.
|
|
2)
|
The Company’s property and
equipment are depreciated by the straight-line method on the basis of their estimated useful life.
Annual rates of depreciation are
as follows:
|
|
|
Years
|
Computer equipment
|
|
3
|
Greenhouse equipment*
|
|
4 - 10
|
Office furniture
|
|
7 - 17
|
Laboratory equipment
|
|
4 - 5
|
Leasehold improvements
|
|
5
|
Vehicles
|
|
4-7
|
|
*
|
Greenhouse
equipment - agricultural equipment used in the tobacco production greenhouse.
|
Leasehold improvements are amortized by the straight-line
method over the expected lease term, which is shorter than the estimated useful life of the improvements.
|
i.
|
Impairment in
value of long-lived assets
|
The Company tests long-lived assets for impairment
whenever events or circumstances present an indication of impairment. If the sum of expected future cash flows (undiscounted and
without interest charges) of the assets is less than the carrying amount of such assets, an impairment loss would be recognized.
The assets would be written down to their estimated fair values, calculated based on the present value of expected future cash
flows (discounted cash flows), or some other fair value measure.
For the three years ended December 31, 2019, the
Company did not recognize an impairment loss for its long-lived assets.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
|
j.
|
Share-based compensation
|
The Company accounts for employees’ share-based
payment awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment transactions
is recognized as an expense over the requisite service period.
The Company elected to recognize
compensation costs for awards conditioned only on continued service that have a graded vesting schedule using the accelerated
method based on the multiple-option award approach.
The Company elects to account
for forfeitures as they occur.
On January 1, 2019,
the Company adopted the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718) Improvements to Nonemployee Share-based
Payments. This ASU was issued to simplify the accounting for share-based transactions by expanding the scope of Topic 718 from
only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods
and services from nonemployees. As a result, nonemployee share-based transactions are being measured by estimating the fair value
of the equity instruments at the grant date.
|
k.
|
Research and
development expenses
|
Research and development expenses include costs directly
attributable to the conduct of research and development programs, including the cost of salaries, share-based compensation expenses,
payroll taxes and other employee benefits, lab expenses, consumable equipment and consulting fees. All costs associated with research
and developments are expensed as incurred.
Grants received from Israel Innovation Authority
(hereafter - “IIA”), (formerly known as the Office of the Chief Scientist of the Ministry of Economy and Industry,
or the OCS) are recognized when the grant becomes receivable, provided there is reasonable assurance that the Company will comply
with the conditions attached to the grant and there is reasonable assurance the grant will be received. Since at the time the
grants were received, successful development of the related projects was not assured, the grant was deducted from the research
and development expenses as the applicable costs are incurred, and presented in R&D expenses, net. See Note 7(a).
Research and development expenses, net for the years
ended December 31, 2019, 2018 and 2017, include participation in research and development expenses in the amount of approximately
$28, $327 and $584, respectively.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
On January 1, 2018, the Company adopted the
new accounting standard, ASC 606, Revenue from Contracts with Customers (“ASC 606”), and all the related amendments,
using the modified retrospective method. The implementation of this Accounting Standards Update (ASU) did not have a material
impact on the Company’s consolidated financial statement.
The Company’s revenue recognition accounting
policy from January 1, 2018, following the adoption of the new revenue standard
A contract with a customer exists only when: the
parties to the contract have approved it and are committed to perform their respective obligations, the Company can identify each
party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), the Company
can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and it
is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services
that will be transferred to the customer.
Revenues are recorded in the amount of consideration
to which the Company expects to be entitled in exchange for performance obligations upon transfer of control to the customer.
|
1.
|
Revenues
from sale of goods
|
The Company recognizes revenues from selling goods
at a point in time when control over the product is transferred to customers (upon delivery). The goods are products based on
the Company’s rhCollagen, and includes the BioInk product for the development of 3D bioprinting of organs and tissues and
products for tendinopathy and wound healing.
|
2.
|
Revenues
from rendering services
|
Revenue from rendering of services is recognized
over time, during the period the customer simultaneously receives and consumes the benefits provided by the Company’s performance.
Under the Company’s service contracts, the Company has a right to consideration from the customer in an amount that corresponds
directly with the value to the customer of the Company’s performance completed to date and recognizes revenue in the amount
to which the Company has a right to invoice.
The Company charges its customers based on payment
terms agreed upon in specific agreements. When payments are made before or after the service is performed, the Company recognizes
the resulting contract asset or liability.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
|
3.
|
Revenues
from licensing agreement
|
On October 19, 2018, the Company signed a License,
Development and Commercialization Agreement (the “License Agreement”) with Lung Biotechnology PBC (“LB”)
(see also Note 7(b)).
According
to ASC 606, a performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services.
Goods and services that are not distinct are bundled with other goods or services in the contract until a bundle of goods or services
that is distinct is created. A good or service promised to a customer is distinct if the customer can benefit from the good or
service either on its own or together with other resources that are readily available to the customer and the entity’s promise
to transfer the good or service to the customer is separately identifiable from other promises in the contract.
Options
granted to the customer that do not provide a material right to the customer that it would not receive without entering into the
contract do not give rise to performance obligations.
The
Company has identified the following performance obligations in the License Agreement: (1) grant of the license and use of its
IP (“License”); and (2) a limited quantity of BioInk to be supplied over a specific time frame (“First BioInk”).
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, option services can be obtained from other experts in the field and not necessarily from the Company, etc.).
In
addition, the Company has identified several options in the License Agreement. However, neither of the options provides a material
right to the customer and therefore, neither of the said options give rise to a performance obligation.
The
transaction price included an up-front paid amount of $5.0 million and reimbursement for part of the costs related to the IIA
in an amount of $1.0 million, as well as variable considerations contingent upon LB achieving certain milestones, sales-based
royalties and additional reimbursement of costs related to payments made by CollPlant to the IIA (“Variable Consideration”).
The Company estimates variable consideration using the most likely method. Amounts included in the transaction price are recognized
only when it is probable that a significant reversal of cumulative revenues will not occur.
Sales-based
royalties are not included in the transaction price. Rather, they are recognized as incurred, due to the specific exception of
ASC 606 for sales-based royalties in licensing of intellectual properties
The
Company allocates the transaction price to each performance obligation identified based on the standalone selling prices of the
goods or services being provided to the customer. The stand-alone selling price is the price at which the Company would sell the
promised goods or services separately to a customer. When the stand-alone selling price is not directly observable by reference
to similar transactions with similar customers, the Company applies suitable methods for estimating the stand-alone selling price.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
The
following are the details of the allocation of the transaction price (which does not include the Variable Consideration) to the
various performance obligations in the Agreement:
|
a)
|
The First BioInk
was allocated with its stand-alone selling price, which is the observable price of the BioInk when the Company sells it separately.
|
|
|
|
|
b)
|
The License was
allocated with an estimated stand-alone selling price, based on the residual approach, since the Company has not yet established
a price for that license and the license has not previously been sold on a stand-alone basis (i.e. the selling price is uncertain),
as well as the related IIA royalties reimbursement.
|
The Company’s revenue
recognition accounting policy prior to January 1, 2018, was materially the same.
|
1)
|
Deferred taxes
Income taxes are computed using the asset and liability
method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax
rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes
will not be realized in the foreseeable future. The Company has provided a full valuation allowance with respect to its
deferred tax assets.
|
|
2)
|
Uncertainty in income taxes
The Company follows a two-step approach in recognizing
and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if
the available evidence indicates that it is more likely than not that the position will be sustained based on technical
merits. If this threshold is met, the second step is to measure the tax position as the largest amount that has more than
a 50% likelihood of being realized upon ultimate settlement.
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Basic loss per share is computed on the basis of
the net loss, adjusted to recognize the effect of a down-round feature when it is triggered, for the period divided by the weighted
average number of ordinary shares and prepaid warrants outstanding during the period. Diluted loss per share is based upon the
weighted average number of ordinary shares and of ordinary shares equivalents outstanding when dilutive. Ordinary share equivalents
include outstanding stock options and warrants, which are included under the treasury stock method when dilutive. The calculation
of diluted loss per share does not include options, warrants and convertible bonds exercisable into 3,536,495 shares, 2,299,684
shares and 1,584,071 shares for the years ended December 31, 2019, 2018 and 2017, respectively, because the effect would
be anti-dilutive. The computation of basic and diluted net loss per ordinary share was adjusted retroactively for all periods
presented to reflect the Company’s reverse share split. See also Note 1b.
o.
|
Fair value measurement
|
Fair value is based on the price that would be received
from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants
at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes
a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels,
which are described as follows:
Level 1: Quoted prices (unadjusted) in active markets
that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to
Level 1 inputs.
Level 2: Observable prices that are based on inputs
not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little
or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers
counterparty credit risk in its assessment of fair value.
The carrying amount of the cash and cash equivalents,
restricted deposits, trade receivable, trade payables, accrued expenses and other liabilities approximates their fair value.
p.
|
Equity-linked financial instruments with down round features
|
In July 2017, the FASB issued ASU 2017-11, Earnings
Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): Accounting for
Certain Financial Instruments with Down Round Features. The amendments of this ASU update the classification analysis of certain
equity-linked financial instruments, or embedded features, with down round features, as well as clarify existing disclosure requirements
for equity-classified instruments. When determining whether certain financial instruments should be classified as liabilities or
equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed
to an entity’s own stock. ASU 2017-11 is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2018, and early adoption is permitted, including adoption in an interim period. ASU 2017-11 provides that upon
adoption, an entity may apply this standard retrospectively to outstanding financial instruments with a down round feature by means
of a cumulative- effect adjustment to the opening balance of accumulated deficit in the fiscal year and interim period adoption.
The Company has early adopted ASU 2017-11 retrospectively for all periods presented.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
q.
|
Newly issued
and recently adopted accounting pronouncements:
|
Recently adopted accounting pronouncements:
|
1)
|
The Company adopted ASU No. 2016-02, Leases (Topic
842), on January 1, 2019 using the modified retrospective transition approach by applying the new standard to all leases existing
at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019
are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with
its historical accounting under Topic 840.
|
The Company elected the package
of practical expedients permitted under the transition guidance, which allowed to carry forward the Company’s historical
lease classification, the Company’s assessment on whether a contract was or contains a lease, and the Company’s initial
direct costs for any leases that existed prior to January 1, 2019. The Company also elected to combine lease and non-lease components
and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments
in the consolidated statements of income on a straight-line basis over the lease term.
Upon adoption, the new standard
resulted in an increase of $3,458 in operating lease ROU assets and $3,458 corresponding liabilities on the Company’s consolidated
balance sheet. The Company does not have finance leases. The adoption did not have a material impact on the Company’s consolidated
statement of comprehensive loss or consolidated statement of cash flows and did not have an impact on the comparative figures.
See Note 6 for further details.
|
2)
|
On
January 1, 2019, the Company adopted ASU 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee
Share-based Payment Accounting” that expands the scope of ASC Topic 718 to include share-based payment transactions for
acquiring goods and services from nonemployees. An entity should apply the requirements of ASC Topic 718 to nonemployee awards
except for certain exemptions specified in the amendment. The guidance is effective for fiscal years beginning after December
15, 2018, including interim reporting periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s
adoption date of Topic 606. The adoption did not have a material impact on the Company’s financial statements.
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands, except share
and per share amounts)
NOTE 3 - FAIR VALUE MEASUREMENTS
|
A.
|
Estimates
of fair value
|
The following is an analysis of the financial
instruments measured at fair value, according to valuation methods. Inputs for the assets and liabilities that are not based on
observable market data (unobservable inputs) (Level 3).
The Company’s financial liability
at fair value through profit or loss is the anti-dilution derivatives, classified as liabilities, and amounted to $68 and $97
as of December 31, 2019 and 2018, respectively.
The following table presents the assumptions
that were used for the models as of December 31, 2018:
|
|
Alpha
|
|
|
Meitav Dash and Ami Sagy*
|
|
|
|
|
|
|
|
|
Probability
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
57.33
|
%
|
|
|
53.31
|
%
|
Risk free interest rate
|
|
|
0.47
|
%
|
|
|
0.55
|
%
|
Expected term (years)
|
|
|
0.82
|
|
|
|
0.99
|
|
The following table presents the assumptions
that were used for the models as of December 31, 2019:
|
|
Ami Sagy*
|
|
|
US
investors -2019 agreement
|
|
|
|
|
|
|
|
|
Probability
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
59.58
|
%
|
|
|
59.58
|
%
|
Risk free interest rate
|
|
|
1.62
|
%
|
|
|
1.62
|
%
|
Expected term (years)
|
|
|
2.68
|
|
|
|
2.68
|
|
|
B.
|
Financial
instruments in level 3
|
The following table presents the Level 3 anti-dilution
instrument roll-forward:
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
Opening balance as of beginning of year
|
|
|
-
|
|
|
|
(41
|
)
|
|
|
(97
|
)
|
Issuance
|
|
|
(38
|
)
|
|
|
-
|
|
|
|
(100
|
)
|
Exercise of anti-dilution derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
2,024
|
|
Loss from changes in fair value of financial instruments
|
|
|
(3
|
)
|
|
|
(56
|
)
|
|
|
(1,895
|
)
|
Closing balance as of end of year
|
|
|
(41
|
)
|
|
|
(97
|
)
|
|
|
(68
|
)
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands, except share
and per share amounts)
NOTE 3 - FAIR VALUE MEASUREMENTS (continued)
The following table presents the Level 3 warrants roll-forward:
|
|
2019
|
|
Opening balance as of beginning of year
|
|
|
-
|
|
Classification of warrants from equity to liability
|
|
|
(1,804
|
)
|
Loss from changes in fair value of financial instruments
|
|
|
(1,335
|
)
|
Classification of warrants from liability to equity
|
|
|
3,139
|
|
Closing balance as of end of year
|
|
|
-
|
|
NOTE 4 - PROPERTY AND EQUIPMENT
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
Cost:
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
267
|
|
|
$
|
228
|
|
Office furniture
|
|
|
181
|
|
|
|
136
|
|
Laboratory equipment
|
|
|
1,631
|
|
|
|
1,527
|
|
Greenhouse equipment
|
|
|
713
|
|
|
|
796
|
|
Leasehold improvements
|
|
|
2,271
|
|
|
|
1,517
|
|
Vehicles
|
|
|
84
|
|
|
|
57
|
|
|
|
|
5,147
|
|
|
|
4,261
|
|
Less:
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(2,818
|
)
|
|
|
(2,854
|
)
|
Property and Equipment, net
|
|
$
|
2,329
|
|
|
$
|
1,407
|
|
Depreciation
and amortization expense totaled $539, $342 and $230 for the years ended December 31, 2019, December 31, 2018 and December 31,
2017, respectively.
During the year ended December 31, 2019, the Company
disposed of fixed assets in the net amount of $30. In the years ended December 31, 2018 and 2017 there was no disposal of fixed
assets booked to the Company’s financial statements.
NOTE 5 - INVENTORY
|
a.
|
Inventories
at December 31, 2019 and 2018 consisted of the following:
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Work in progress
|
|
$
|
422
|
|
|
$
|
264
|
|
Finished goods
|
|
|
466
|
|
|
|
550
|
|
Total inventory
|
|
$
|
888
|
|
|
$
|
814
|
|
|
b.
|
During
the year ended December 31, 2019, the Company recorded approximately $44 thousand for write-down of inventory under cost of goods
sold. There was no write down in 2018 and 2017.
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 6 - OPERATING LEASES
|
1)
|
On November 15, 2018, the Company signed a new lease agreement
for the Company’s new offices located in Rehovot which expires in April 2024, for a monthly payment of NIS 89 thousand, (approximately
$25 thousand), with an option to extend for five additional years. In addition, as part of the lease agreement the Company did
not carry the monthly rent payment during the first five months of the lease agreement and was reimbursed for its building adjustments
costs in the amount of $689.
|
As collateral for the lease agreement, a restricted
deposit was pledged in favor of the property owner. The balance of the restricted deposit as of December 31, 2019 amounted
to $168. The deposit is classified as a non-current asset.
On July 28, 2016, the Company signed a lease
agreement for additional space designated for its development and production activities. The lease was for three years with an
option to extend for four additional years, in return for a monthly payment of NIS 30 thousand (approximately $8.5). On March
24, 2019, the Company exercised its first option to extend the lease period for an additional 16 months commencing July 1, 2019.
In July 2017, the Company signed a lease agreement
for land in Yessod Hamaala that was previously leased. The new lease agreement is for four years, commencing May 1, 2017, with
an option to extend for an additional six years, with a monthly rental amount of NIS 10 thousand (approximately $3).
The Company also leased a space for its old offices
in Ness Ziona until March 31, 2019, for a monthly rental amount of approximately $15.
|
2)
|
The
Company has entered into operating lease agreements for vehicles used by its employees. The lease periods are generally for three
years and the payments are linked to the Israeli CPI. To secure the terms of the lease agreements, the Company has made certain
prepayments to the leasing company, representing approximately three months of lease payments.
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 6 - OPERATING LEASES (continued)
Operating
leases cost for rental space and vehicles for the year ended December 31, 2019 totaled $619.
Rent expense for the years
ended December 31, 2017 and 2018 was approximately $296 thousand and $331 thousand, respectively.
The operating lease costs
include variable lease payments of $9.
Supplemental
cash flow information related to leases was as follows:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
Operating cash flows
from operating leases
|
|
$
|
505
|
|
Supplemental balance sheet information
related to leases was as follows:
|
|
December 31,
|
|
|
|
2019
|
|
Operating Leases
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
3,215
|
|
|
|
|
|
|
Current lease liabilities
|
|
$
|
455
|
|
Non-current lease liabilities
|
|
|
3,139
|
|
Total lease liabilities
|
|
$
|
3,594
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term
|
|
|
|
|
Operating leases
|
|
|
8.4 years
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
Operating leases
|
|
|
7.3
|
%
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share amounts)
NOTE 6 - OPERATING LEASES (continued)
As of December 31, 2019, the maturities
of lease liabilities were as follows:
|
|
Operating leases
|
|
Year ending December 31,
|
|
|
|
|
2020
|
|
$
|
671
|
|
2021
|
|
|
603
|
|
2022
|
|
|
579
|
|
2023
|
|
|
528
|
|
2024 and thereafter
|
|
|
2,294
|
|
Total lease payments
|
|
|
4,675
|
|
Less - imputed interests
|
|
|
(1,081
|
)
|
Total
|
|
|
3,594
|
|
As of December 31, 2018, the minimum lease
payments of the Company were as follows:
Year ending December 31,
|
|
|
|
2019
|
|
|
537
|
|
2020
|
|
|
578
|
|
2021
|
|
|
524
|
|
2022
|
|
|
514
|
|
2023
|
|
|
496
|
|
NOTE 7 - COMMITMENTS
|
a.
|
Commitment to pay royalties to the government
of Israel
|
The Company has received grants from the IIA for research and development funding
and therefore is subject to the provisions of the Israeli Law for the Encouragement of Research, Development and Technological
Innovation in the Industry and the regulations and guidelines thereunder (the “Innovation Law”, formerly known as
the Law for the Encouragement of Research and Development in Industry). Under the Innovation Law the rate of royalties varies
between 3% to 5% computed based on the revenues from the products that their development was also funded by grants from the IIA.
Such commitment is up to the amount of grants received (dollar linked), plus interest at annual rate based on LIBOR. Pursuant
to the Innovation Law there are restrictions regarding intellectual property and manufacturing outside of Israel, unless approval
is received, and additional payments are made to the IIA.
In 2019, the Company received from the IIA grants
in the total amount of $38 which relates to a 2018 IIA approved project. For the years ended December 31, 2019, 2018 and 2017,
the Company recorded royalties expenses of $43, $1,263 and $34, respectively.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands, except share
and per share amounts)
NOTE 7 - COMMITMENTS (continued)
The
royalty expenses which are related to the funded project are recognized in the statements of comprehensive loss as a component
of cost of revenue.
As
of December 31, 2019, the maximum total royalty amount payable by the Company under IIA funding arrangement is approximately $8.6
million (without interest).
|
b.
|
LICENSE DEVELOPMENT
AND COMMERCIALIZATION AGREEMENTS
|
On October 19, 2018, CollPlant entered into the License
Agreement with LB, a public benefit corporation and wholly-owned subsidiary of United Therapeutics Corporation, pursuant to which
LB will be entitled to develop engineered lungs or lung substitutes using CollPlant’s rhCollagen and BioInk.
Pursuant to the License Agreement, CollPlant granted
to LB and its affiliates, an exclusive, perpetual, royalty-bearing and transferable license of CollPlant’s technology relating
to the production and use of rhCollagen and BioInk for the commercialization of engineered lungs or lung substitutes using 3D
bioprinting processes throughout the universe.
Further, under the License Agreement, CollPlant granted
to LB and its affiliates, a two-year option to extend the license to engineered organs or organ substitutes of up to three additional
organs specified in the License Agreement (each an “Option Product” and together with lungs, the “Covered Products”).
Further, at the end of the option period, LB and its affiliates shall have a one-year right of first refusal to receive an exclusive
license under CollPlant’s technology relating to the production and use of rhCollagen and BioInk for the Option Products.
Other than under the license Agreement, CollPlant has agreed not to conduct, enable or fund any research, development or commercialization,
or grant any license, with respect to the Covered Products during the term of the License Agreement, unless with respect to any
Option Product, the option is not exercised and the right of first refusal period expires.
The License Agreement provides that LB will purchase
CollPlant’s BioInk on a non-exclusive basis for use in the development and manufacture of Covered Products and for up to
the first two years of the License Agreement, CollPlant will supply LB with a specified limited quantity of BioInk without charge.
The License Agreement further provides that following effectiveness, LB will build a facility, or engage a manufacturer to build
a facility, in the U.S. for the manufacture of the Company’s rhCollagen and BioInk and the parties have agreed that LB has
the option to purchase consulting services for the design of the facility.
The License Agreement provides for the payment of
an upfront cash payment of $5,000 to CollPlant, which was paid to CollPlant in November 2018 following effectiveness of the Agreement.
In addition, the License Agreement provides for a one-time non-refundable option payments of $3,000 per Option Product ($9,000
in the aggregate), and up to $30,000 of milestone payments payable as follows: (i) $5,000 upon completion of the U.S. facility
design, (ii) $5,000 upon completion of production of a specified amount of BioInk, and (iii) $5,000 for FDA marketing approval
for each Covered Product (up to $20,000 in the aggregate). Further, CollPlant shall be entitled to a fixed-fee royalty payment
(subject to certain adjustment) for each product commercially sold during the term of the License Agreement, a fee for the supply
of certain quantities of BioInk to LB, and reimbursement for certain costs related to the U.S. facility and any payment made by
CollPlant to the IIA.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 7 - COMMITMENTS (continued)
Unless earlier terminated, the License Agreement
will continue in effect on a Covered Product-by-Covered Product and country-by-country basis until the later of (i) the expiration,
invalidation or abandonment of the last CollPlant patent covering a Covered Product in a particular country, and (ii) 12 years
from the first commercial sale of such Covered Product in such country. Following expiration (unless earlier terminated), the
licenses granted to LB in the License Agreement will continue on a fully paid-up, irrevocable basis. The License Agreement may
be terminated early by either party for material breach or bankruptcy. In addition, CollPlant may terminate the License Agreement
in the case of a challenge made by LB, its affiliates or sub-licensees with respect to a CollPlant patent covering a Covered Product
or if LB and its affiliates and sub-licensees discontinue development and commercialization of all Covered Products for at least
one year. LB may terminate the License Agreement at any time upon 30 days’ written notice with respect to the entirety of
the License Agreement and upon 30 days’ written notice with respect to its license and other rights under the License Agreement
relating to one or more CollPlant patents, on a patent-by-patent and country-by-country basis.
On September 6, 2017, the
Company received a VAT assessment from the Israel Tax Authority according to which the Company is required to pay tax in the amount
of $434 (including linkage differentials and interest) for the years 2012-2016. The Company disputed the position of the Israel
Tax Authority resulting in the latter to increase its VAT assessment and require the Company to pay tax in the amount of $521
(including linkage differentials and interest) for the abovementioned period. The Company has appealed the entire assessment to
the District Court, in view of its position that it is not liable for the entire tax requirement. On February 11, 2020, the Company
reached a settlement agreement with Israel Tax Authority, which received court approval. According to the settlement agreement
the Company paid a final amount of $116 to the Israel Tax Authority. As of December 31, 2019 and 2018, the Company has recorded
a provision of $145 in relation to the VAT assessment.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 8 - SHARE CAPITAL
|
1)
|
Rights of the Company’s ordinary shares
|
Each ordinary
share is entitled to one vote. The holder of the ordinary shares is also entitled to receive dividends whenever funds
are legally available, when and if declared by the Board of Directors. Since its inception, the Company has not declared
any dividends.
On
January 31, 2018 the Company’s ADSs commenced trading on the Nasdaq Capital Market, under the symbol CLGN. Each ADS represents
one ordinary share.
On October 29,
2018, the Company’s delisted its ordinary shares from trading on the TASE.
On
March 1, 2018, an extraordinary general meeting of the shareholders of the Company. approved the increase of the authorized share
capital of the Company by 5,000,000 ordinary shares to 15,000,000 ordinary shares, par value NIS 0.03 per share. On October 27
2019, the Company’s shareholders approved an increase in the Company’s authorized share capital to 30,000,000 ordinary
shares NIS 1.50 par value.
On June 6,
2019, at a general meeting of shareholders, the Company’s shareholders approved a reverse share split of the Company’s
ordinary shares at a ratio of 1-for-50, such that each fifty (50) ordinary shares, par value NIS 0.03 per share, consolidated
into one (1) ordinary share, par value NIS 1.50.
Concurrently
with the reverse split, the Company effected a corresponding change in the ratio of ordinary shares to each of the Company’s
ADSs, such that its ratio of ADSs to ordinary shares changed from one (1) ADS representing fifty (50) ordinary shares
to a new ratio of one (1) ADS representing one (1) ordinary share. The first date when the Company’s ADSs began
trading on the Nasdaq Capital Market after implementation of the reverse split and concurrent ratio change was July 15,
2019.
Additionally,
according to the share option plan of the Company, every 50 options, or 150 options if granted before the November 2016
reverse split, that were allocated to directors, employees, consultants and officers under the option plan are exercisable
into one ordinary share of the Company of NIS 1.50 par value. No change took place in the exercise price of the options;
however, for options that were granted between November 2016 to date, the total exercise price for one share of NIS 1.50
par value will be the former exercise price for one share of NIS 0.03 par value multiplied by 50 and, for options that
were granted before the November 2016 reverse split, the total exercise price for one share of NIS 1.50 par value will
be the former exercise price for one share of NIS 0.01 par value multiplied by 150.
Further,
according to the terms and conditions of the warrants of the Company, each 50 warrants that the Company issued are exercisable
into one ordinary share of the Company of NIS 1.50 par value. There will be no change in the exercise price of those warrants;
however, the total exercise price for one share of NIS 1.50 par value will be the former exercise price for one share of NIS 0.03
par value multiplied by 50.
Following the
reverse split, the Company retrospectively reflected the change in the share capital of the Company for all periods presented.
Unless otherwise indicated, all of the share and ADS numbers, losses per share, share prices, options and warrants in
these financial statements have been adjusted, on a retroactive basis, to reflect this 1-for-50 reverse share split.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share amounts)
NOTE 8 - SHARE CAPITAL (continued)
|
2)
|
Changes
in share capital:
|
|
a)
|
On February 12, 2017, the Company completed a capital
raise of $1,812, net of issuance expenses, from institutional investors and from the public. In consideration, the Company issued
423,040 ordinary shares and 211,520 Series L warrants exercisable into 211,520 ordinary shares at an exercise price of NIS
18 (approximately $4.80) per warrant, until June 13, 2017. In addition, under the terms of the broker agreement, the Company
issued to the broker 18,828 Series L warrants exercisable into 18,828 ordinary shares at an exercise price of NIS 18 (approximately
$4.80) per warrant.
|
|
b)
|
During
the second quarter of 2017, 201,109 Series L warrants were exercised into 201,109 ordinary shares, at an exercise price of
NIS 18 (approximately $5.1) for each warrant. The total consideration amounted to $1,024. 29,239 Series L warrants that were
not exercised expired on June 14, 2017.
|
|
c)
|
On September 6, 2017, the Company signed a securities purchase
agreement (the “Alpha Purchase Agreement”) with Alpha Capital Anstalt (“Alpha”) , pursuant to which
the Company agreed, upon the terms and subject to the conditions of the Alpha Purchase Agreement, to issue to Alpha, in a private
placement, certain securities, in three tranches, as follows: (i) at the first closing, which was completed on October 26,
2017, ordinary shares and a Convertible Debenture (“Debenture”), for a purchase price of $2,000 (ii) at the second
closing, which was completed on December 31, 2017 and which was subject, among other things, to approval of the private placement
by the Company’s shareholders, a Debenture for a purchase price of $2,000, and (iii) at the third closing, which was
completed on April 30, 2018, which was subject, among other things, to the listing of the Company’s ADSs for trading on the
NASDAQ and to the receipt of shareholder and option holder approval to adopt the provisions of Chapter E3 of the Israeli Securities
Law of 1968 (which allows the Company to report in Israel in accordance with U.S. reporting requirements) (“Dual Reporting
Approval”), ordinary shares and/or a Debenture for a purchase price of $1,000, and a warrant (the “Alpha Warrant”)
to purchase 992,149 ordinary shares represented by 992,149 ADSs exercisable for a period of five years from the date of issuance
at an exercise price of approximately $10.15 per ADS (calculated in accordance with the known representative rate of exchange on
the date of the notice of exercise).
On October 26, 2017, upon the completion of the first closing,
the Company issued to Alpha 145,600 ordinary shares and a Debenture in the principal amount of $1,375, for gross proceeds of $2,000.
On December 31, 2017, upon completion of the second closing, the Company issued a Debenture in the principal amount of $2,000 for
gross proceeds of $2,000. The Debentures were convertible at any time at the option of the holder into ADSs at a conversion price
of $4.29 per ADS. In addition, the Debenture was mandatorily convertible at the then effective conversion price without regard
to any beneficial ownership limitation if (i) the ADSs or the Company’s ordinary shares are approved for listing on
the Nasdaq stock market, and (ii) certain equity conditions are met, and provided that the holder may elect to convert the
Debenture in whole or in part to a pre-paid warrant to purchase such number of ADSs otherwise issuable upon mandatory conversion
of the Debenture. On January 31, 2018, Debentures in the aggregate principal amount of $3,375 were automatically converted into
a pre-paid warrant to purchase 786,455 ordinary shares represented by 786,455 ADSs.
On April 30, 2018, the Company completed the third closing of
the Alpha Purchase Agreement, which resulted in the issuance to Alpha of a pre-paid warrant to purchase 198,430 ordinary shares
represented by 198,430 ADSs and the Alpha Warrant to purchase up to 992,149 ordinary shares represented by 992,149 ADSs, at an
exercise price of $10.28 per ADS, for gross proceeds of $1,000. In 2018, Alpha converted a pre-paid warrant to purchase 165,000
ordinary shares into 165,000 ordinary shares and in 2019 Alpha converted a pre-paid warrant to purchase 50,000 ordinary shares
into 50,000 ordinary shares.
As part of the first and second closings, and included within
the ordinary shares and Debentures issued at the first and second closings, the Company issued an aggregate of 21,610 ordinary
shares and Debentures convertible into 116,726 ordinary shares in connection with services Alpha provided to the Company. These
issuances, having a fair market value of $871, were accounted as share-based compensation. $435 was recognized as an expense within
“general, administrative and marketing expenses” in the statements of comprehensive loss in 2017 and 2018, respectively.
Under the Alpha Purchase Agreement, Alpha was also granted certain
rights, including, among other things, anti-dilution protection until October 26, 2019 in the event of certain subsequent equity
issuances at a price that is lower than the then applicable per ordinary share purchase price. The anti-dilution was accounted
as derivatives measured in fair value, see Note 3.
On October 27, 2019, as a result of a share issuance to certain
private investors, the warrant exercise price was reduced into $4.00 per share. In addition, the reduction in exercise price to
become denominated in USD, resulted in the instrument being reclassified from a financial liability to equity.
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 8 - SHARE CAPITAL (continued)
|
d)
|
On November 8, 2017, the Company signed a securities purchase
agreement (the “Meitav Dash Purchase Agreement”) with Meitav Dash, a company held by Meitav Dash Ltd., one of
the Company’s shareholders pursuant to which the Company agreed, upon the terms and subject to the conditions of the Meitav
Dash Purchase Agreement, to issue to Meitav Dash in a private placement certain securities in three tranches as follows: (i) at
the first closing, which was completed on December 26, 2017, 190,000 ordinary shares, for a purchase price of $1,089, (ii) at
the second closing, which was completed on the same day, 48,000 ordinary shares for a purchase price of $275 provided that Meitav
Dash shall not be obligated to buy or hold, immediately following the second closing, 20% or more of the Company’s share
capital, and (iii) at the third closing, which was completed on March 7, 2018 and which was subject, among other things, to
the listing of the Company’s ADSs for trading on the Nasdaq and Dual Reporting Approval, for no additional consideration,
warrants exercisable into 238,000 ordinary shares.
The Company completed the first and second closings on December 26,
2017 which resulted in the issuance to Meitav Dash of an aggregate of 238,000 ordinary shares for gross proceeds of $1,364 and
on March 7, 2018, the Company completed the third closing which resulted in the issuance to Meitav Dash of a warrant to purchase
238,000 ordinary shares.
|
|
|
The warrant may be exercised for a period of five years from
issuance at an exercise price of the US dollar equivalent of NIS 40 (approximately $11.57) per ADS.
Under the Meitav Dash Purchase Agreement, Meitav Dash was also
granted certain rights, including, among others, anti-dilution protection in the event of certain subsequent equity issuances at
a price that is lower than the then applicable per ordinary share purchase price.
On October 27, 2019, as a result of a share issuance to certain
private investors, the warrant exercise price was reduced into $4.00 per share. In addition, the reduction in exercise price to
become denominated in USD, resulted in the instrument being reclassified from a financial liability to equity.
|
|
e)
|
On November 9, 2017, the Company signed a securities purchase
agreement (the “Sagy Purchase Agreement”) with Ami Sagy, one of the Company’s shareholders, pursuant to which
the Company agreed, upon the terms and subject to the conditions of the Sagy Purchase Agreement, to issue to Ami Sagy in a private
placement certain securities in two tranches as follows: (i) at the first closing, which closed on December 26, 2017, 186,000
ordinary shares, for gross proceeds of $1,066, and (ii) at the second closing, which closed on March 7, 2018 and which was
subject, among other things, to the listing of the Company’s ADSs for trading on the Nasdaq and to Dual Reporting Approval,
for no additional consideration, the Company will issue warrants exercisable into 186,000 of its ordinary shares.
|
|
|
The Company completed the first closing on December 26,
2017 which resulted in the issuance to Ami Sagy of an aggregate of 186,000 ordinary shares for gross proceeds of $1,066 and on
March 7, 2018, the Company completed the second closing which resulted in the issuance to Ami Sagy of a warrant to purchase 186,000
ordinary shares.
The warrant may be exercised for a period of five years from
issuance at an exercise price of the NIS 40 (approximately $11.57) per ADS.
Under the Sagy Purchase Agreement, Ami Sagy was also granted
certain rights, including, among other things, anti-dilution protection in the event of certain subsequent equity issuances at
a price that is lower than the then applicable per ordinary share purchase price.
On October 27, 2019, as a result of a share issuance to certain
private investors, the warrants exercise price was reduced into $4.00 per share. In addition, the reduction in exercise price to
become denominated in USD, resulted in the instrument being reclassified from a financial liability to equity.
|
|
f)
|
On January 18, 2018, the Company signed Security Purchase
Agreements for the purchase and sale, in a private placement, of an aggregate of 86,887 ordinary shares for total gross consideration
of $634 to the following three investors: (i) Alpha for the purchase of 25,506 ordinary shares for $186; (ii) Ami Sagy
for the purchase of 40,920 ordinary shares for $299; and (iii) Docor International BV for the purchase of 20,460 ordinary
shares for $149. Closing occurred on January 25, 2018.
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 8 - SHARE CAPITAL (continued)
|
g)
|
On March 20, 2018, the board of directors resolved to delist
all of Company’s securities from trading on the TASE. In accordance with the Israeli Securities Law and the rules of the
TASE, as the Company had four different series of warrants traded on the TASE, and in order to effectuate the resolution, the Company
was required to enter into an arrangement between the Company, shareholders and the holders of warrants, pursuant to Section 350
of the Israeli Companies Law.
On April 16, 2018, the Company petitioned the District Court
of Lod, Israel (the “Court”), to approve the convening of a shareholders’ meeting and meetings of holders of Series
I Warrants and Series K Warrants, in order to approve an arrangement for the delisting of all of Company securities from TASE and
the reduction of the exercise price of Series I and Series K Warrants to NIS 20 (approximately $5.7) each (the “Arrangement”).
The holders of Series G Warrants and Series H Warrants were not part to the Arrangement as such warrants expired before the expected
date of the delisting of the Company’s securities from the TASE. On July 29 2018, the Court approved the Arrangement, following
its approval by the different meetings of shareholders and holders of Series I and Series K Warrants. The last date of trading
of the ordinary shares, Series I Warrants and Series K Warrants on the TASE was on October 29, 2018.
|
|
h)
|
On July 11, 2018, following the Company’s board of directors and shareholders’ approval, the Company issued to Alpha a pre-paid warrant to purchase 21,200 ordinary shares represented by 21,200 ADSs, in connection with services Alpha provided to the Company. The issuance at a fair market value of $137 was accounted as share-based compensation and recognized as an expense within “general, administrative and marketing expenses” in the statements of operations.
|
|
i)
|
On July 26, 2018, the Company entered into a Securities Purchase Agreement with Ami Sagy, pursuant to which the Company issued on July 31, 2018, in a private placement, 222,500 ordinary shares for an aggregate purchase price of $1,245.
|
|
j)
|
On September 10, 2018, the Company signed a one year service agreement with a service provider according to which in return to its services the Company will pay a monthly retainer and issue a total of 12,000 restricted ADSs (12,000 ordinary shares) in 3 tranches of 4,000 ADSs (4,000 ordinary shares) each: (i) following the execution of the agreement, (ii) February 1, 2019, and (iii) June 1, 2019. If the agreement was cancelled prior to the issuance date the share balance would not be owed. The first tranche was completed on December 19, 2018. The second and third tranches were completed on January 10, 2020.
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 8 - SHARE CAPITAL (continued)
|
k)
|
On August 30, 2019, the Company entered into an agreement with
Ami Sagy and certain U.S. investors for the issuance of shares and warrants in a form of a convertible loan agreements in the total
amount of $6,500, as follows: (i) a convertible loan agreement with Ami Sagy, its largest shareholder (the “Sagy Loan Agreement”),
pursuant to which Mr. Sagy provided a loan to the Company in an amount of $3,000 in two tranches, and (ii) a convertible loan agreement
with certain U.S. investors (the “U.S. Loan Agreement”, and, together with the Sagy Loan Agreement, the “Convertible
Loan Agreements”), pursuant to which such U.S. investors (the “U.S. Investors”) provided a loan to the Company
in an amount of $3,500 in one tranche.
|
|
|
The Sagy Loan Agreement provided that the transactions contemplated by the Sagy Loan Agreement shall occur in three separate closings. On the first closing date, which occurred on September 3, 2019, Ami Sagy transferred to the Company the principal amount of $2,000. This amount was invested on account of the issuance in a form of convertible loan and was automatically converted into 500,000 ADSs at a conversion price of $4.00 per ADS on October 27, 2019. On the second closing date, which will occur three business days after the Company shall have executed a license and/or a co-development agreement with its certain strategic business partner with respect to the Company’s intellectual property (if such were to occur), the following shall occur: (i) Ami Sagy will transfer to the Company an amount of $1,000 by way of an equity investment, and (ii) the Company will issue to Ami Sagy a warrant to purchase up to 250,000 ADSs representing 250,000 ordinary shares. On the third closing date, which was subject to shareholder approval and occurred on October 27, 2019, the Company issued to Ami Sagy a warrant to purchase up to 500,000 ADSs representing 500,000 ordinary shares. The consideration of the third closing is included in the principal amount received in the first closing.
|
|
|
The U.S. Loan Agreement provided that the transactions contemplated by the U.S. Loan Agreement shall occur in two separate closings. On the first closing date, which occurred on September 6, 2019, the U.S. Investors transferred to the Company the principal amount of $3,500. On the second closing date, which occurred on October 27, 2019, the following occurred: (i) the principal amount invested on account of the issuance in a form of convertible loan, was automatically converted into 875,000 ADSs at a conversion price equal to $4.00 per ADS, and (ii) the Company issued to the U.S. Investors warrants to purchase up to 875,000 ADSs representing 875,000 ordinary shares.
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 8 - SHARE CAPITAL (continued)
|
|
In addition, the Company agreed to enter into Price Protection
Agreements pursuant to which, until the three-year anniversary of the first closing date, the Company shall issue additional ADSs
in the event of certain subsequent equity issuances at a price that is lower than $4.00 (subject to certain adjustments) on a “full-ratchet”
basis with respect to their holdings in the Company. The “full-ratchet” instruments are classified as financial liability
on the balance sheets and measures at fair value through profit or loss.
The warrants issuable under the Convertible Loan Agreements
are exercisable at $4.00 per ADS and have a term of three years from the issuance date. The warrants are subject to adjustments
upon certain events, including share splits, share dividends, subsequent rights offerings, and fundamental transactions. In addition,
until the three-year anniversary of the first closing date, in the event of certain subsequent equity issuances at a price that
is lower than the then applicable exercise price, the exercise price shall adjust to such lower price
|
|
|
Concurrently with the execution of the Convertible Loan Agreements, the Company entered into Registration Rights Agreements with each of Ami Sagy and the U.S. Investors, pursuant to which the Company granted certain demand and piggyback registration rights with respect to the ordinary shares represented by the ADSs underlying the convertible loans and warrants.
|
On October 27, 2019, an extraordinary general meeting
was held and the Company received the “shareholders’ approval” and subsequently issued the ADSs and warrants
as mentioned above.
The Company also issued an aggregate of 175,039 ADSs
to Mr. Sagy, and Meitav Dash and 250,000 ADSs and 20,000 prepaid warrant to purchase up to 20,000 ADSs to Alpha in satisfaction
of the price protection undertakings under the Alpha Purchase Agreement, the Meitav Dash Purchase Agreement and the Sagy Purchase
Agreement.
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 8 - SHARE CAPITAL (continued)
|
A.
|
Share-based
compensation:
|
|
1)
|
Option plan
In accordance with an option plan for employees and consultants
(the “Option Plan”), as amended from time to time, employees and consultants of the Company will be granted options,
each exercisable into one ordinary share of the Company of NIS 1.50 (see Note 1b). The ordinary shares that will be issued in accordance
with the Option Plan will have the same rights as the other ordinary shares of the Company, immediately subsequent to their issue.
An option that is not exercised within 10 years from the allotment date will expire, unless the board of directors extends
its validity.
Grants to employees are made in accordance with the Option Plan,
and are carried out within the provisions of Section 102 of the Israel Income Tax Ordinance. In accordance with the track
selected by the Company and these provisions, the Company is not entitled to claim a tax deduction for the employee benefits.
For those who are not employees of the Company, and for the
Company’s controlling shareholders (as defined in the Income Tax Ordinance) options are granted in accordance with section 3(I)
of the Income Tax Ordinance.
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 8 - SHARE CAPITAL (continued)
|
a.
|
Option
granted to employees and directors
|
In
the years ended December 31, 2019, 2018 and 2017, the Company granted options as follows (amounts presented reflect the number
of shares issued if the options will be exercised):
|
|
Year
ended December 31, 2019
|
|
|
Award
amount
|
|
|
Exercise
price range
|
|
|
Vesting period
|
|
Expiration
|
Employees
|
|
|
230,000
|
|
|
$
|
5.07
|
|
|
4 years
|
|
7 years
|
Directors
|
|
|
301,390
|
|
|
$
|
4.02-
$5.07
|
|
|
4 years
|
|
7 years
|
|
|
Year
ended December 31, 2018
|
|
|
Award
amount
|
|
|
Exercise
price range*
|
|
|
Vesting period
|
|
Expiration
|
Employees
|
|
|
93,000
|
|
|
$
|
5.87
|
|
|
4 years
|
|
7 years
|
Directors
|
|
|
63,000
|
|
|
$
|
7.74
|
|
|
4 years
|
|
7 years
|
|
|
Year
ended December 31, 2017
|
|
|
Award
amount
|
|
|
Exercise price range*
|
|
|
Vesting period
|
|
Expiration
|
Employees
|
|
|
182,000
|
|
|
$
|
8.34
|
|
|
4 years
|
|
7 years
|
Directors
|
|
|
9,720
|
|
|
$
|
0-
$4.75
|
|
|
0-4 years
|
|
7 years
|
|
*
|
Exercise price range before reduction of exercise price as of October 27, 2019
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 8 - SHARE CAPITAL (continued)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Value
of one ordinary share
|
|
$
|
5.7-$5.93
|
|
|
$
|
5.34-$7.83
|
|
|
$
|
4.89-$7.44
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
61.31%-62.56
|
%
|
|
|
62.63
|
%
|
|
|
57.78
%-62.55
|
%
|
Risk-free interest rate
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
Expected term
|
|
|
4-5.5
years
|
|
|
|
4
years
|
|
|
|
4
years
|
|
The
fair value of options granted during 2019, 2018 and 2017 was $1,602, $621 and $636, respectively.
The
total unrecognized compensation cost of employee options at December 31, 2019 is $679, which is expected to be recognized
over a weighted average period of 0.94 year.
Modification of share-based compensation
On October 27, 2019, the Company’s board of
directors approved the reduction of the exercise price of 305,342 outstanding options previously granted to employees to a price
of $4.02 per share.
On December 31, 2019 an extraordinary general meeting
of the shareholders of the Company, approved a reduction of the exercise price of 171,287 options held by the Company’s directors
and the Chief Executive Officer to a price of $4.02 per share.
The reduction of exercise price of the options was
considered a Type I modification for share-based compensation, and, as a result, during the year ended December 31, 2019, the Company
recorded additional compensation expense in the amount of $365.
The total incremental fair value of these options
amounted to $478 and was determined based on the Black-Scholes pricing options model using the following assumptions: risk free
interest rate of 1.6%, expected volatility of 49% - 74%, expected term of 0.4-5.9 years and dividend yield of 0%.
The incremental fair value of the fully vested options as of October 27, 2019 in the amount of $341 was recognized immediately.
The remaining incremental fair value will be recognized over the remaining vesting period and until March 2022.
|
The
following table summarizes the number of options granted to employees under the Option Plan for the years ended December 31,
2019, 2018 and 2017, and related information:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
Number of options
|
|
|
Weighted average exercise price
|
|
|
Number of options
|
|
|
Weighted average exercise price*
|
|
|
Number of options
|
|
|
Weighted average exercise price*
|
|
Options outstanding at the beginning of the year
|
|
|
512,615
|
|
|
$
|
15.09
|
|
|
|
385,115
|
|
|
$
|
17.68
|
|
|
|
205,592
|
|
|
$
|
27.10
|
|
Granted
|
|
|
531,390
|
|
|
|
5.09
|
|
|
|
156,000
|
|
|
|
7.55
|
|
|
|
191,720
|
|
|
|
8.07
|
|
Exercised
|
|
|
(6,076
|
)
|
|
|
1.30
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(11,891
|
)
|
|
|
23.83
|
|
|
|
(2,500
|
)
|
|
|
24.01
|
|
|
|
(7,102
|
)
|
|
|
24.89
|
|
Forfeited
|
|
|
(304,677
|
)
|
|
|
5.84
|
|
|
|
(26,000
|
)
|
|
|
7.42
|
|
|
|
(5,095
|
)
|
|
|
25.96
|
|
Options outstanding at the end of the year
|
|
|
721,361
|
|
|
$
|
4.38
|
*
|
|
|
512,615
|
|
|
$
|
15.09
|
|
|
|
385,115
|
|
|
$
|
17.68
|
|
Options exercisable at the end of the year
|
|
|
310,093
|
|
|
$
|
4.02
|
*
|
|
|
211,906
|
|
|
$
|
20.28
|
|
|
|
131,265
|
|
|
$
|
22.29
|
|
|
*
|
After
repricing- see Note 8(B)(2)(a).
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 8 - SHARE CAPITAL (continued)
|
b.
|
Option granted to non-employees
The fair value of options granted to non-employees in 2019 and
2018 were $16 and $13, respectively. The underlying data used for computing the fair value of the options are as follows:
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Value of one ordinary share
|
|
$
|
5.93
|
|
|
$
|
5.36
|
|
|
|
-
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
-
|
|
Expected volatility
|
|
|
62
|
%
|
|
|
58
|
%
|
|
|
-
|
|
Risk-free interest rate
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
-
|
|
Expected term
|
|
|
4 years
|
|
|
|
4 years
|
|
|
|
-
|
|
|
|
The following table summarizes the number of options granted
to non-employees under the Option Plan for the year ended December 31, 2019, 2018 and 2017, and related information, amounts
presented reflects the number of shares issued if the options will be exercised:
|
|
|
Year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
Number of
options
|
|
|
Weighted average exercise
price
|
|
|
Number of
options
|
|
|
Weighted average exercise
price*
|
|
|
Number of
options
|
|
|
Weighted average exercise
price*
|
|
Options outstanding at the beginning of the year
|
|
|
18,664
|
|
|
$
|
33.44
|
|
|
|
13,664
|
|
|
$
|
43.52
|
|
|
|
13,664
|
|
|
$
|
43.52
|
|
Granted
|
|
|
5,000
|
|
|
|
5.07
|
|
|
|
5,000
|
|
|
|
5.87
|
|
|
|
-
|
|
|
|
-
|
|
Options outstanding at the end of the year
|
|
|
23,664
|
|
|
$
|
27.44
|
|
|
|
18,664
|
|
|
$
|
33.44
|
|
|
|
13,664
|
|
|
$
|
43.52
|
|
Options exercisable at the end of the year
|
|
|
10,202
|
|
|
$
|
46.03
|
|
|
|
8,165
|
|
|
$
|
51.21
|
|
|
|
7,831
|
|
|
$
|
52.57
|
|
COLLPLANT BIOTECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(U.S. dollars in thousands,
except share and per share amounts)
NOTE 8 - SHARE CAPITAL (continued)
The following tables
summarize information concerning outstanding and exercisable options as of December 31, 2019:
December 31, 2019
|
|
Options outstanding
|
|
|
Options exercisable
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
|
options
|
|
|
average
|
|
|
options
|
|
|
average
|
|
|
|
|
outstanding
|
|
|
remaining
|
|
|
exercisable
|
|
|
remaining
|
|
Exercise
|
|
|
at end of
|
|
|
contractual
|
|
|
at end of
|
|
|
contractual
|
|
prices *
|
|
|
year
|
|
|
Life
|
|
|
year
|
|
|
life
|
|
60.5
|
|
|
|
6,998
|
|
|
|
0.85
|
|
|
|
6,998
|
|
|
|
0.85
|
|
26.04
|
|
|
|
6,666
|
|
|
|
5.38
|
|
|
|
1,329
|
|
|
|
5.38
|
|
6.37
|
|
|
|
5,000
|
|
|
|
5.34
|
|
|
|
1,875
|
|
|
|
5.34
|
|
5.07
|
|
|
|
248,000
|
|
|
|
6.09
|
|
|
|
-
|
|
|
|
-
|
|
4.02
|
|
|
|
478,361
|
|
|
|
5.03
|
|
|
|
310,093
|
|
|
|
4.94
|
|
* In U.S. dollars per Ordinary Share.
|
c.
|
The aggregate intrinsic value of the total exercisable options as of December 31, 2019 is approximately $521. The aggregate intrinsic value of the options exercised in 2019 is approximately $25.
|
|
d.
|
The following table illustrates the effect of share-based
compensation on the statements of operations:
|
|
|
Year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Research and development expenses
|
|
$
|
549
|
|
|
$
|
457
|
|
|
$
|
333
|
|
General, administrative and marketing expenses
|
|
|
576
|
|
|
|
977
|
|
|
|
623
|
|
|
|
$
|
1,125
|
|
|
$
|
1,434
|
|
|
$
|
956
|
|
NOTE 9 - INCOME TAX
The Company and its subsidiary
are taxed under Israel tax laws:
The corporate tax rates applicable
to 2019, 2018 and 2017 are 23%, 23% and 24%, respectively.
The Company and its subsidiary
have tax assessments that are considered to be final through tax year 2014.
|
C.
|
Losses
for tax purposes carried forward to future years
|
As of December 31, 2019, CollPlant Biotechnologies Ltd.
and CollPlant Ltd had approximately $4,506, and $50,309, respectively, of net carry forward tax losses which are available
to reduce future taxable income with no limited period of use.
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
In respect of:
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
12,607
|
|
|
$
|
10,170
|
|
Research and development expenses
|
|
|
801
|
|
|
|
753
|
|
Less – valuation allowance
|
|
|
(13,408
|
)
|
|
|
(10,923
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Realization of deferred tax assets is contingent
upon sufficient future taxable income during the period that deductible temporary differences and carry forward losses are expected
to be available to reduce taxable income. As the achievement of required future taxable income is not likely, the Company recorded
a full valuation allowance.
COLLPLANT
BIOTECHNOLOGIES LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share amounts)
NOTE
9 - INCOME TAX (continued)
E.
|
Reconciliation
of theoretical tax expenses to actual expenses
|
The primary difference between the statutory tax rate
of the Company and the effective rate results virtually from the changes in valuation allowance in respect of carry forward tax
losses and research and development expenses due to the uncertainty of the realization of such tax benefits.
F.
|
Uncertain
tax positions
|
As
of December 31, 2019 and 2018, the Company does not have a provision for uncertain tax positions.
|
G.
|
Roll
forward of valuation allowance:
|
Balance at January 1, 2017
|
|
$
|
9,051
|
|
Additions
|
|
|
2,104
|
|
Balance at December 31, 2017
|
|
$
|
11,155
|
|
Additions
|
|
|
(232
|
)
|
Balance at December 31, 2018
|
|
$
|
10,923
|
|
Additions
|
|
|
2,485
|
|
Balance at December 31, 2019
|
|
$
|
13,408
|
|
NOTE
10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
Balance
sheets:
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
a. Accounts receivable and prepaid expenses
|
|
|
|
|
|
|
Institutions
|
|
$
|
124
|
|
|
$
|
125
|
|
Prepaid expenses
|
|
|
84
|
|
|
|
105
|
|
Other
|
|
|
62
|
|
|
|
104
|
|
|
|
$
|
270
|
|
|
$
|
334
|
|
b. Trade payable, breakdown by currency:
|
|
|
|
|
|
|
|
|
USD
|
|
$
|
35
|
|
|
$
|
180
|
|
NIS
|
|
|
798
|
|
|
|
442
|
|
|
|
$
|
833
|
|
|
$
|
622
|
|
c. Accounts payable and accruals - other:
|
|
|
|
|
|
|
|
|
Employees and institutions for employees
|
|
$
|
799
|
|
|
$
|
385
|
|
Provisions for vacation and others
|
|
|
245
|
|
|
|
196
|
|
Other
|
|
|
159
|
|
|
|
38
|
|
|
|
$
|
1,203
|
|
|
$
|
619
|
|
COLLPLANT
BIOTECHNOLOGIES LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTs
(U.S.
dollars in thousands, except share and per share amounts)
NOTE
10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued)
Statements
of operations:
|
1)
|
Disaggregated revenues
|
|
|
Year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Revenues from the sales of goods
|
|
$
|
1,949
|
|
|
$
|
739
|
|
|
$
|
463
|
|
Revenues from the rendering of services
|
|
|
369
|
|
|
|
190
|
|
|
|
-
|
|
Revenues from licensing agreement (see Note 2(l))
|
|
|
-
|
|
|
|
4,085
|
|
|
|
-
|
|
Total revenues
|
|
$
|
2,318
|
|
|
$
|
5,014
|
|
|
$
|
463
|
|
|
2)
|
Revenues
by geographical area (based on the location of customers):
|
|
|
Year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
United states and Canada
|
|
$
|
2,078
|
|
|
$
|
4,868
|
|
|
$
|
223
|
|
Europe
|
|
|
240
|
|
|
|
146
|
|
|
|
240
|
|
Total revenues
|
|
$
|
2,318
|
|
|
$
|
5,014
|
|
|
$
|
463
|
|
Set
forth below is a breakdown of the Company’s revenue by major customers (major customer –revenues from these customers
constitute at least 10% of total revenues in a certain year):
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Customer A
|
|
|
1,374
|
|
|
|
4,274
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer B
|
|
|
-
|
|
|
|
-
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer C
|
|
|
-
|
|
|
|
-
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer D
|
|
|
419
|
|
|
|
505
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer E
|
|
|
242
|
|
|
|
-
|
|
|
|
-
|
|
COLLPLANT
BIOTECHNOLOGIES LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share amounts)
NOTE
10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued)
|
4)
|
The changes in deferred revenues relating to goods that were not yet delivered are as follows:
|
|
|
2019
|
|
|
2018
|
|
Balance at beginning of year
|
|
$
|
(1,950
|
)
|
|
$
|
-
|
|
Contract liability recognized due to LB agreement
|
|
|
-
|
|
|
|
(1,959
|
)
|
Revenue recognized during the period
|
|
|
1,008
|
|
|
|
9
|
|
Balance at end of year(1)
|
|
|
(942
|
)
|
|
|
(1,950
|
)
|
Contract liability presented in current liabilities
|
|
|
(942
|
)
|
|
|
(970
|
)
|
Contract liability presented in non-current liabilities
|
|
|
-
|
|
|
|
(980
|
)
|
(1)
|
Represents
the unfulfilled performance obligation related to First BioInk.
|
All of the Company’s long-lived assets are located in Israel.
f.
|
Research and development
|
|
|
Year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Payroll and related expenses
|
|
$
|
1,954
|
|
|
$
|
1,968
|
|
|
$
|
2,136
|
|
Share-based payments
|
|
|
549
|
|
|
|
457
|
|
|
|
333
|
|
Subcontractors and consultants
|
|
|
77
|
|
|
|
296
|
|
|
|
551
|
|
Consumables and materials
|
|
|
304
|
|
|
|
309
|
|
|
|
194
|
|
Depreciation and amortization
|
|
|
354
|
|
|
|
220
|
|
|
|
227
|
|
Rent and maintenance
|
|
|
980
|
|
|
|
780
|
|
|
|
750
|
|
Other
|
|
|
224
|
|
|
|
174
|
|
|
|
299
|
|
|
|
|
4,442
|
|
|
|
4,204
|
|
|
|
4,490
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Participation in R&D expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
(159
|
)
|
IIA participation in R&D expenses, see Note 7(a)
|
|
|
(28
|
)
|
|
|
(327
|
)
|
|
|
(425
|
)
|
|
|
|
(28
|
)
|
|
|
(327
|
)
|
|
|
(584
|
)
|
|
|
$
|
4,414
|
|
|
$
|
3,877
|
|
|
$
|
3,906
|
|
COLLPLANT
BIOTECHNOLOGIES LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share amounts)
NOTE
10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued)
|
g.
|
General,
administrative and marketing
|
|
|
Year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Payroll and related expenses
|
|
$
|
1,293
|
|
|
$
|
1,152
|
|
|
$
|
813
|
|
Share-based payments (1)
|
|
|
576
|
|
|
|
977
|
|
|
|
623
|
|
Directors’ salary and insurance
|
|
|
415
|
|
|
|
168
|
|
|
|
114
|
|
Rent and office maintenance
|
|
|
84
|
|
|
|
89
|
|
|
|
89
|
|
Professional services
|
|
|
1,012
|
|
|
|
1,111
|
|
|
|
667
|
|
Depreciation
|
|
|
33
|
|
|
|
23
|
|
|
|
13
|
|
Other
|
|
|
243
|
|
|
|
203
|
|
|
|
147
|
|
|
|
$
|
3,656
|
|
|
$
|
3,723
|
|
|
$
|
2,466
|
|
|
(1)
|
Share-based
payments expenses for the year ended December 31, 2018 and 2017, include amount of $583 and $425, respectively, due to services
received from Alpha, and none for the year ended December 31, 2019.
|
|
|
Year ended December 31
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Financial expenses:
|
|
|
|
|
|
|
|
|
|
Bank and other fees
|
|
$
|
63
|
|
|
$
|
17
|
|
|
$
|
9
|
|
Remeasurement of financial instruments
|
|
|
3,230
|
|
|
|
2,154
|
|
|
|
17
|
|
Other financing expenses
|
|
|
10
|
|
|
|
9
|
|
|
|
21
|
|
Total financial expenses
|
|
$
|
3,303
|
|
|
$
|
2,180
|
|
|
$
|
47
|
|
COLLPLANT
BIOTECHNOLOGIES LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except share and per share amounts)
NOTE
11 - SUBSEQUENT EVENTS
|
a.
|
On
February 7, 2020, the Company appointed a new chairman of the board of directors, who will be entitled to an annual
fee of approximately $175 and options to purchase 162,713 ordinary shares (represented by 162,713 ADSs) exercisable at $11.06
per ADS. The options will vest over four years, in accordance with the Company’s compensation policy.
|
|
b.
|
On
February 14, 2020, the Company entered into a Securities Purchase Agreement with a few accredited U.S. investors, pursuant
to which the Company issued on March 6, 2020, in a private placement, 445,000 ordinary shares for an aggregate purchase price
of $4,450.
|
|
c.
|
Public
health epidemics or outbreaks could adversely impact our business. In late 2019, a novel strain of COVID-19, also known as coronavirus,
was reported in Wuhan, China. While initially the outbreak was largely concentrated in China, it has now spread to several other
countries and infections have been reported globally. The extent to which the coronavirus impacts the Company’s operations
will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration
and severity of the outbreak, and the actions that may be required to contain the coronavirus or treat its impact. In particular,
the continued spread of the coronavirus globally, could adversely impact the Company’s operations and workforce and its
ability to raise capital which in turn could have an adverse impact on the Company’s business and financial results.
|
F-40