ITEM 1. BUSINESS.
DESCRIPTION OF BUSINESS
Research and Development
We are a pharmaceutical company currently engaged
in the research and development of innovative pharmaceutical solutions, including an oral insulin capsule to be used for the treatment
of individuals with diabetes, and the use of orally ingestible capsules or pills for delivery of other polypeptides. We utilize
Clinical Research Organizations, or CROs, to conduct our clinical studies.
Oral insulin: We are seeking to
transform the treatment of diabetes through our proprietary flagship product, an orally ingestible insulin capsule, or ORMD-0801.
Our technology allows insulin to travel from the gastrointestinal tract via the portal vein to the bloodstream, revolutionizing
the manner in which insulin is delivered. It enables the passage in a more physiological manner than current delivery methods of
insulin. Our technology is a platform that has the potential to deliver medications and vaccines orally that today can only be
delivered via injection.
FDA Guidance: In August 2017, during
a call with the U.S. Food and Drug Administration, or FDA, we were advised that the regulatory pathway for the submission of ORMD-0801
would be a Biologics License Application, or BLA. If approved the BLA pathway would grant us 12 years of marketing exclusivity
for ORMD-0801, from the approval date, and an additional six months of exclusivity may be granted to us if the product also receives
approval for use in pediatric patients. The FDA confirmed that the approach to nonclinical toxicology, chemistry manufacturing
controls and qualification of excipients would be driven by their published guidance documents.
Phase IIb Study: In May 2018, we initiated
a three-month dose-ranging Phase IIb clinical trial of ORMD-0801. This placebo controlled, randomized, 90-day treatment clinical
trial was conducted on 269 type 2 diabetic patients in multiple centers throughout the United States pursuant to an Investigational
New Drug application, or IND, with the FDA. The primary endpoints of the trial were to assess the safety and evaluate the effect
of ORMD-0801 on HbA1c levels over a 90-day treatment period. Secondary endpoints of the trial included measurements of fasting
plasma glucose, or FPG, post-prandial glucose, or PPG levels, during a mixed-meal tolerance test, or MMTT, and weight. In May 2019
we began an extension of this protocol for approximately 75 type 2 diabetic patients, who were dosed using a lower dosage.
In November 2019, we announced positive
results from the initial cohort of the Phase IIb trial. Patients randomized in the trial to once-daily ORMD-0801 achieved a reduction
in mean HbA1c of 0.60% from baseline, or a reduction of 0.54% adjusted for placebo (p value = 0.036). This 0.54% reduction in HbA1c
is considered clinically meaningful, reflecting an improved glucose control that would result in reduced risk of developing diabetes-related
complications. Treatment with ORMD-0801 demonstrated an excellent safety profile, with no serious drug-related adverse events and
with no increased frequency of hypoglycemic episodes. In addition, during this 90-day trial, no weight gain was observed. In the
initial cohort, 269 U.S.-based patients were enrolled and treated with a dose-increasing approach: 16 mg initial dose, titrated
to 24 mg per dose, and then titrated to 32 mg per dose. Patients were randomized into three groups to assess dosing frequency:
once-daily (32 mg per day), twice-daily (64 mg per day), thrice daily (96 mg per day). There was a corresponding placebo for each
treatment arm. Two hundred nine (209) patients completed treatment to the 12-week endpoint and were included in the data analysis
(24 subjects did not complete the full 12 weeks of treatment). In addition, due to evidence of treatment-by-center interaction,
two sites (36 patients (13.4% of enrolled subjects)) were excluded from the statistical analysis as they showed results opposite
from the rest of the statistically significant results. We are still investigating the cause of this discrepancy. The once-daily
and twice-daily arms achieved statistically significant (p-value 0.036 and 0.042, respectively) reductions from baseline in A1C
of 0.60% (0.54% with placebo adjustment) and 0.59% (0.53% with placebo adjustment), respectively. The thrice-daily arm did not
meet statistical significance (p-value 0.093). ORMD-0801 demonstrated an excellent safety profile with no serious drug-related
adverse events.
As our Phase IIb three-month dose-ranging clinical
trial successfully met its primary endpoints, we anticipate initiating two six-month Phase III clinical trials on both type 1 and
type 2 diabetic patients, following which we expect to file a BLA with potential FDA approval by the end of calendar year 2024.
Clamp Study: In June 2018, we initiated
a glucose clamp study which will quantify insulin absorption in type 1 diabetic patients treated with ORMD-0801. The glucose clamp
is a method for quantifying insulin absorption in order to measure a patient’s insulin sensitivity and how well a patient
metabolizes glucose. This exploratory, randomized, double-blind glucose clamp study is evaluating exposure-response profiles of
type 1 diabetic patients treated with ORMD-0801. Six patients with HbA1c levels of 10% or below, aged 18-50, are enrolled in the
study. We expect to receive the results of this study in the first quarter of calendar year
2020.
Food Effect Study: In June 2018, we also
initiated a food effect trial in the United States for ORMD-0801. This single-blind, five period, randomized, placebo-controlled
crossover trial is evaluating the pharmacokinetics, or PK, and pharmacodynamics of ORMD-0801 taken at different times in relation
to meals in healthy volunteers and patients with type 1 diabetes. Forty-eight (48) patients are enrolled, including 24 healthy
volunteers and 24 patients with type 1 diabetes. We expect to receive the results of this
study in the first quarter of calendar year 2020.
NASH Study: In October 2018, we initiated
an exploratory clinical study of ORMD-0801 in patients with nonalcoholic steatohepatitis, or NASH. The three-month treatment study,
which was approved by Israel’s Ministry of Health, will assess the effectiveness of ORMD-0801 in reducing liver fat content,
inflammation and fibrosis in 30 patients with NASH. As requested by Israel’s Ministry of Health, the first part of the study
will be conducted on 10 participants and is expected to be completed during first quarter of calendar year 2020.
Toxicology Study (6 Months): In March
2019, we completed a six-month dosing toxicology study of ORMD-0801, which was initiated in September 2018 following the FDA’s
request. We expect to receive the results of this study in the first quarter of calendar
year 2020.
Type 1 Study: In November 2019 we initiated
a crossover study of type 1 diabetic patients to compare the effects of ORMD-0801 given once daily versus the effects of ORMD-0801
given three times daily. The study is anticipated to include 26 subjects and is expected to be completed in the second quarter
of calendar year 2020.
Oral Glucagon-Like Peptide-1:
Glucagon-Like Peptide-1, or GLP-1, is an incretin hormone, which is a type of gastrointestinal hormone that stimulates the secretion
of insulin from the pancreas. The incretin concept was hypothesized when it was noted that glucose ingested by mouth (oral) stimulated
two to three times more insulin release than the same amount of glucose administered intravenously. In addition to stimulating
insulin release, GLP-1 was found to suppress glucagon release (a hormone involved in the regulation of glucose) from the pancreas,
slow gastric emptying to reduce the rate of absorption of nutrients into the blood stream and increase satiety. Other important
beneficial attributes of GLP-1 are its effects of increasing the number of beta cells (cells that manufacture and release insulin)
in the pancreas and, possibly, protection of the heart. In addition to our flagship product, the ORMD-0801 insulin capsule, we
are using our technology for an orally ingestible GLP-1 capsule, or ORMD-0901.
In February 2019, we completed a
Phase I PK trial to evaluate the safety and the pharmacokinetics of ORMD-0901 compared to placebo. We expect to receive the results
of this study in the first quarter of calendar year 2020. This study was conducted pursuant to an IND, which we expect to be
followed by a Phase II trial on type 2 diabetic patients which will likely be conducted in the United States under an IND.
Diabetes: Diabetes is a disease
in which the body does not produce or properly use insulin. Insulin is a hormone that causes sugar to be absorbed into cells, where
the sugar is converted into energy needed for daily life. The cause of diabetes is attributed both to genetics (type 1 diabetes)
and, most often, to environmental factors such as obesity and lack of exercise (type 2 diabetes). According to the International
Diabetes Federation, or IDF, an estimated 425 million adults worldwide suffered from diabetes in 2017 and the IDF projects this
number will increase to 629 million by 2045. Also, according to the IDF, in 2017, an estimated 4 million people died from diabetes.
According to the American Diabetes Association, or ADA, in the United States there were approximately 30.3 million people with
diabetes, or 9.4% of the United States population in 2015. Diabetes is a leading cause of blindness, kidney failure, heart attack,
stroke and amputation.
Intellectual property: We own
a portfolio of patents and patent applications covering our technologies, and we are aggressively protecting these technology developments
on a worldwide basis.
Management: We are led by an experienced
management team knowledgeable in the treatment of diabetes. Our Chief Scientific Officer, Miriam Kidron, PhD, is a recognized pharmacologist
and a biochemist and the innovator primarily responsible for our oral insulin technology development and know-how.
Scientific Advisory Board: Our
management team has access to our internationally recognized Scientific Advisory Board whose members are thought-leaders in their
respective areas. The Scientific Advisory Board is comprised of Dr. Roy Eldor, Professor Ele Ferrannini, Dr. Robert R. Henry, Professor
Avram Hershko, Dr. Harold Jacob and Dr. Jane E. B. Reusch.
Strategy
Short Term Business Strategy
We plan to conduct further research and development
on the technology covered by the patent application “Methods and Composition for Oral Administration of Proteins,”
which we acquired from Hadasit Medical Research Services and Development Ltd. in 2006, and which is granted in various foreign
jurisdictions, as well as the other patents we have filed in various foreign jurisdictions since then, as discussed below under
“—Patents and Licenses” and below under “Item 1A. Risk Factors”.
Through our research and development efforts,
we have successfully developed an oral dosage form that is intended to withstand the harsh environment of the stomach and intestines
and effectively deliver active insulin or other proteins, such as exenatide, for the treatment of diabetes. The excipients that
are added to the proteins in the formulation process are not intended to modify the proteins chemically or biologically, and the
dosage form is designed to be safe to ingest. We plan to continue to conduct clinical trials to show the effectiveness of our technology.
As our oral insulin (ORMD-0801) Phase IIb three-month
dose-ranging clinical trial successfully met its primary endpoints, we anticipate initiating two six-month Phase III clinical trials
on both type 1 and type 2 diabetic patients, following which we expect to file a BLA with potential FDA approval by the end of
calendar year 2024.
In September 2018, the FDA cleared our IND application
for human trials of our oral GLP-1 analog capsule ORMD-0901 and we initiated a Phase I PK
trial which will evaluate the safety and the pharmacokinetics of ORMD-0901 compared to placebo. We expect to get the results of
this study in the first calendar quarter of 2020.
Clinical trials are planned in order to substantiate
our results as well as for purposes of making future filings for drug approval. We also plan to conduct further research and development
by deploying our proprietary drug delivery technology for the delivery of other polypeptides in addition to insulin, and to develop
other innovative pharmaceutical products.
The table below gives an overview of our primary
product pipeline:
Another component of our business strategy is
to partner with other companies or medical institutions in order to further develop our technology and commence pre-commercialization
activities. On November 30, 2015, we, our Israeli subsidiary and HTIT entered into a Technology License Agreement, which was further
amended, according to which we granted HTIT an exclusive commercialization license in the territory of the People’s Republic
of China, Macau and Hong Kong, or the Territory, related to our oral insulin capsule, ORMD-0801. Pursuant to this license agreement,
HTIT will conduct, at its own expense, certain pre-commercialization and regulatory activities with respect to our subsidiary’s
technology related to the ORMD-0801 capsule, and will pay, upon the meeting of certain conditions, certain royalties and an aggregate
of approximately $37.5 million (see “Out-Licensed Technology” below). We plan to seek additional partnerships or forms
of cooperation with other companies or medical institutions. While our strategy is to partner with an appropriate party, no assurance
can be given that we will in fact be able to reach an agreeable partnership with any third party. Under certain circumstances,
we may determine to develop one or more of our oral dosage forms on our own, either world-wide or in select territories.
Long Term Business Strategy
We plan to ultimately seek a strategic commercial
partner, or partners, with extensive experience in the development, commercialization, and marketing of insulin applications and/or
other orally digestible drugs. We anticipate such partner or partners would be responsible for, or substantially support, late
stage clinical trials (Phase III) to increase the likelihood of obtaining regulatory approvals and registrations in the appropriate
markets in a timely manner. We further anticipate that such partner, or partners, would also be responsible for sales, marketing
and support of our products in these markets. Such planned strategic partnership, or partnerships, may provide a marketing and
sales infrastructure for our products as well as financial and operational support for global clinical trials, post marketing studies,
label expansions and other regulatory requirements concerning future clinical development in the United States and elsewhere. Any
future strategic partner, or partners, may also provide capital and expertise that would enable the partnership to develop new
oral dosage forms for other polypeptides. While our strategy is to partner with an appropriate party, no assurance can be given
that we will in fact be able to reach an agreeable partnership with any third party. Under certain circumstances, we may determine
to develop one or more of our oral dosage forms on our own, either world-wide or in select territories.
Other Planned Strategic Activities
In addition to developing our own oral dosage
form drug portfolio, we are, on an on-going basis, considering in-licensing and other means of obtaining additional technologies
to complement and/or expand our current product portfolio. Our goal is to create a well-balanced product portfolio that will enhance
and complement our existing drug portfolio.
Product Development
Combination Therapy
In June 2012, we presented an abstract, which
reported the impact of ORMD-0801 delivered in combination with ORMD-0901. The work assessed the safety and effectiveness of a combination
of oral insulin and oral exenatide treatments delivered to pigs prior to food intake. The drug combination resulted in significantly
improved blood glucose regulation when compared to administration of each drug separately.
In the near term, we are focusing our efforts
on the development of our flagship products, oral insulin and oral exenatide. Once these two products have progressed further in
clinical trials, we intend to conduct additional studies with the oral combination therapy.
Other Products
During the first quarter of calendar year 2017,
we began developing a new drug candidate, a weight loss treatment in the form of an oral leptin capsule. We anticipate initiating
a proof of concept single dose study for our oral leptin drug candidate to evaluate its pharmacokinetic and pharmacodynamics (glucagon
reduction) in 10 type 1 adult diabetic patients in the fourth quarter of calendar year 2019. We anticipate receiving the final
report of this study in the first quarter of calendar year 2020.
Raw Materials
Our oral insulin capsule is currently manufactured
by Swiss Caps AG, a member of Aenova Group GmbH .
One of our oral capsule ingredients is being
developed and produced by an Indian company.
In July 2010, Oramed Ltd. entered into the Manufacturing
and Supply Agreement, or MSA, with Sanofi-Aventis Deutschland GMBH, or Sanofi-Aventis. According to the MSA, Sanofi-Aventis will
supply Oramed Ltd. with specified quantities of recombinant human insulin to be used for clinical trials.
We purchase, pursuant to separate agreements
with third parties, the raw materials required for the manufacturing of our oral capsule. We generally depend upon a limited number
of suppliers for the raw materials. Although alternative sources of supply for these materials are generally available, we could
incur significant costs and disruptions if we need to change suppliers. The termination of our relationships with our suppliers
or the failure of these suppliers to meet our requirements for raw materials on a timely and cost-effective basis could have a
material adverse effect on our business, prospects, financial condition and results of operations.
Patents and Licenses
We maintain a proactive intellectual property
strategy, which includes patent filings in multiple jurisdictions, including the United States and other commercially significant
markets. We hold 21 patent applications currently pending, with respect to various compositions, methods of production and oral
administration of proteins and exenatide. Expiration dates for pending patents, if granted, will fall between 2026 and 2034.
We hold 77 patents, 3 of which were issued during
the fiscal year ended August 31, 2019, or fiscal 2019, including patents issued by the United States, Swiss, German, French, U.K.,
Italian, Netherlands, Swedish, Spanish, Australian, Israeli, Japanese, New Zealand, South African, Russian, Canadian, Hong Kong,
Chinese, European and Indian patent offices that cover a part of our technology, which allows for the oral delivery of proteins;
patents issued by the Australian, Canadian, European, Austrian, Belgian, French, German, Irish, Italian, Luxembourg, Monaco, Netherlands,
Norwegian, Spanish, Swedish, Swiss, U.K., Israeli, New Zealand, South African, Russian and Japanese patent offices that cover part
of our technology for the oral delivery of exenatide; and patents issued by the European, Austrian, Belgian, Denmark, French, German,
Irish, Italian, Luxembourg, Monaco, Netherlands, Norway, Spanish, Swedish, Swiss, U.K. and Japanese patent offices for treating
diabetes.
Consistent with our strategy to seek protection
in key markets worldwide, we have been and will continue to pursue the patent applications and corresponding foreign counterparts
of such applications. We believe that our success will depend on our ability to obtain patent protection for our intellectual property.
Our patent strategy is as follows:
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Aggressively protect all current and future technological developments to assure strong and broad protection by filing patents
and/or continuations in part as appropriate,
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Protect technological developments at various levels, in a complementary manner, including the base technology, as well as
specific applications of the technology, and
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Establish comprehensive coverage in the United States and in all relevant foreign markets in anticipation of future commercialization
opportunities.
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We also rely on trade secrets and unpatentable
know-how that we seek to protect, in part, by confidentiality agreements. Our policy is to require our employees, consultants,
contractors, manufacturers, outside scientific collaborators and sponsored researchers, our board of directors, or our Board, technical
review board and other advisors, to execute confidentiality agreements upon the commencement of employment or consulting relationships
with us. These agreements provide that all confidential information developed or made known to the individual during the course
of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific
limited circumstances. We also require signed confidentiality or material transfer agreements from any company that is to receive
our confidential information. In the case of employees, consultants and contractors, the agreements provide that all inventions
conceived by the individual while rendering services to us shall be assigned to us as the exclusive property of our Company. There
can be no assurance, however, that all persons who we desire to sign such agreements will sign, or if they do, that these agreements
will not be breached, that we would have adequate remedies for any breach, or that our trade secrets or unpatentable know-how will
not otherwise become known or be independently developed by competitors.
Out-Licensed Technology
In June 2010, Oramed Ltd. entered into a joint
venture agreement with D.N.A Biomedical Solutions Ltd., or D.N.A, for the establishment of Entera Bio LTD, or Entera.
Under the terms of a license agreement that
was entered into between Oramed Ltd. and Entera in August 2010, we out-licensed technology to Entera, on an exclusive basis, for
the development of oral delivery drugs for certain indications to be agreed upon between the parties. The out-licensed technology
differs from our main delivery technology that is used for oral insulin and GLP-1 analog and is subject to different patent applications.
Entera’s initial development effort is for an oral formulation for the treatment of osteoporosis. In March 2011, we entered
into a patent transfer agreement, or the Patent Transfer Agreement, to replace the original license agreement pursuant to which
Oramed Ltd. assigned to Entera all of its right, title and interest in and to the patent application that it had licensed to Entera
in August 2010. Under this agreement, Oramed Ltd. is entitled to receive from Entera royalties of 3% of Entera’s net revenues
(as defined in the agreement) and a license back of that patent application for use in respect of diabetes and influenza.
In March 2011, we also consummated a transaction
with D.N.A, whereby we sold to D.N.A 47% of Entera’s outstanding share capital on an undiluted basis, retaining a 3% interest
as of March 2011. In consideration for the shares sold to D.N.A, we received, among other payments, ordinary shares of D.N.A. The
D.N.A ordinary shares are traded on the Tel Aviv Stock Exchange and its quoted price is subject to market fluctuations, and may,
at times, have a price below the value on the date we acquired such shares. In addition, the ordinary shares of D.N.A have historically
experienced low trading volume; as a result, there is no guarantee that we will be able to resell the ordinary shares of D.N.A
at the prevailing market prices. During the years ended August 31, 2019, 2018 and 2017, we did not sell any of the D.N.A ordinary
shares. As of August 31, 2019, we held approximately 6.9% of D.N.A’s outstanding ordinary shares.
As of August 31, 2019, Entera had not yet realized
any revenues. In July 2018, Entera completed an initial public offering and became listed on The Nasdaq Capital Market, or Nasdaq.
In August 2018, Entera announced that it completed the treatment of patients in the first part of the PK/pharmacodynamic study
in hypoparathyroidism patients with its oral parathyroid hormone drug, EB612. On December 11, 2018, Entera announced that it had
entered into a research collaboration and license agreement, or the Amgen License, with Amgen Inc. related to research of inflammatory
disease and other serious illnesses. As reported by Entera, under the terms of the Amgen License, Entera will receive a modest
initial technology access fee from Amgen and will be responsible for preclinical development at Amgen’s expense. Entera will
be eligible to receive up to $270,000,000 in aggregate payments, as well as tiered royalties up to mid-single digits, upon achievement
of various clinical and commercial milestones if Amgen decides to move all of these programs forward. Amgen is responsible for
clinical development, manufacturing and commercialization of any of the resulting programs. To the extent the Amgen License results
in net revenues as defined in the Patent Transfer Agreement, our Subsidiary will be entitled to the aforementioned royalties.
On November 30, 2015, we, our Israeli subsidiary
and HTIT entered into a Technology License Agreement, and on December 21, 2015, these parties entered into an Amended and Restated
Technology License Agreement that was further amended by the parties on June 3, 2016 and July 24, 2016, or the License Agreement.
According to the License Agreement, we granted HTIT an exclusive commercialization license in the Territory, related to our oral
insulin capsule, ORMD-0801, or the Product. Pursuant to the License Agreement, HTIT will conduct, at its own expense, certain pre-commercialization
and regulatory activities with respect to our subsidiary’s technology and ORMD-0801 capsule, and will pay (i) royalties of
10% on net sales of the related commercialized products to be sold by HTIT in the Territory, or Royalties, and (ii) an aggregate
of $37.5 million, of which $3 million was payable immediately, $8 million will be paid subject to our entry into certain agreements
with certain third parties, and $26.5 million will be payable upon achievement of certain milestones and conditions. In the event
that we will not meet certain conditions, the Royalties rate may be reduced to a minimum of 8%. Following the final expiration
of our patents covering the technology in the Territory in 2033, the Royalties rate may be reduced, under certain circumstances,
to 5%. The royalty payment obligation shall apply during the period of time beginning upon the first commercial sale of the Product
in the Territory, and ending upon the later of (i) the expiration of the last-to-expire licensed patents in the Territory; and
(ii) 15 years after the first commercial sale of the Product in the Territory, or the Royalty Term. The License Agreement shall
remain in effect until the expiration of the Royalty Term. The License Agreement contains customary termination provisions. Through
August 31, 2019, we received aggregate milestone payments of $20.5 million.
We also entered into a separate securities
purchase agreement with HTIT, or the SPA, pursuant to which HTIT invested $12 million in us in December 2015 (see – “Liquidity
and capital resources” below). In connection with the License Agreement and the SPA, we received a non-refundable payment
of $500,000 as a no-shop fee.
Government Regulation
The Drug Development Process
Regulatory requirements for the approval of
new drugs vary from one country to another. In order to obtain approval to market our drug portfolio, we need to go through a different
regulatory process in each country in which we apply for such approval. In some cases, information gathered during the approval
process in one country can be used as supporting information for the approval process in another country. As a strategic decision,
we decided to first explore the FDA regulatory pathway. The following is a summary of the FDA’s requirements.
The FDA requires that pharmaceutical and certain
other therapeutic products undergo significant clinical experimentation and clinical testing prior to their marketing or introduction
to the general public. Clinical testing, known as clinical trials or clinical studies, is either conducted internally by life science,
pharmaceutical or biotechnology companies or is conducted on behalf of these companies by CROs.
The process of conducting clinical studies is
highly regulated by the FDA, as well as by other governmental and professional bodies. Below we describe the principal framework
in which clinical studies are conducted, as well as describe a number of the parties involved in these studies.
Protocols. Before commencing human clinical
studies, the sponsor of a new drug or therapeutic product must submit an IND application to the FDA. The application contains,
among other documents, what is known in the industry as a protocol. A protocol is the blueprint for each drug study. The protocol
sets forth, among other things, the following:
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Who must be recruited as qualified participants,
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How often to administer the drug or product,
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What tests to perform on the participants, and
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What dosage of the drug or amount of the product to give to the participants.
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Institutional Review Board. An institutional
review board is an independent committee of professionals and lay persons which reviews clinical research studies involving human
beings and is required to adhere to guidelines issued by the FDA. The institutional review board does not report to the FDA, but
its records are audited by the FDA. Its members are not appointed by the FDA. All clinical studies must be approved by an institutional
review board. The institutional review board’s role is to protect the rights of the participants in the clinical studies.
It approves the protocols to be used, the advertisements which the company or CRO conducting the study proposes to use to recruit
participants, and the form of consent which the participants will be required to sign prior to their participation in the clinical
studies.
Clinical Trials. Human clinical studies or testing
of a potential product are generally done in three stages known as Phase I through Phase III testing. The names of the phases are
derived from the regulations of the FDA. Generally, there are multiple studies conducted in each phase.
Phase I. Phase I studies involve testing a drug
or product on a limited number of healthy or patient participants, typically 24 to 100 people at a time. Phase I studies determine
a product’s basic safety and how the product is absorbed by, and eliminated from, the body. This phase lasts an average of
six months to a year.
Phase II. Phase II trials involve testing of
no more than 300 participants at a time who may suffer from the targeted disease or condition. Phase II testing typically lasts
an average of one to two years. In Phase II, the drug is tested to determine its safety and effectiveness for treating a specific
illness or condition. Phase II testing also involves determining acceptable dosage levels of the drug. Phase II studies may be
split into Phase IIa and Phase IIb sub-studies. Phase IIa studies may be conducted with patient volunteers and are exploratory
(non-pivotal) studies, typically designed to evaluate clinical efficacy or biological activity. Phase IIb studies are conducted
with patients defined to evaluate definite dose range and evaluate efficacy. If Phase II studies show that a new drug has an acceptable
range of safety risks and probable effectiveness, a company will generally continue to review the substance in Phase III studies.
Phase III. Phase III studies involve testing
large numbers of participants, typically several hundred to several thousand persons. The purpose is to verify effectiveness and
long-term safety on a large scale. These studies generally last two to three years. Phase III studies are conducted at multiple
locations or sites. Like the other phases, Phase III requires the site to keep detailed records of data collected and procedures
performed.
Biological License Application. The results
of the clinical trials for a biological product are submitted to the FDA as part of a BLA. Following the completion of Phase III
studies, assuming the sponsor of a potential product in the United States believes it has sufficient information to support the
safety and effectiveness of its product, the sponsor will generally submit a BLA to the FDA requesting that the product be approved
for marketing. The application is a comprehensive, multi-volume filing that includes the results of all clinical studies, information
about the drug’s composition, and the sponsor’s plans for producing, packaging and labeling the product. The FDA’s
review of an application can take a few months to many years, with the average review lasting 18 months. Once approved, drugs and
other products may be marketed in the United States, subject to any conditions imposed by the FDA. Approval of a BLA provides 12
years of exclusivity in the U.S. market.
Phase IV. The FDA may require that the sponsor
conduct additional clinical trials following new drug approval. The purpose of these trials, known as Phase IV studies, is to monitor
long-term risks and benefits, study different dosage levels or evaluate safety and effectiveness. In recent years, the FDA has
increased its reliance on these trials. Phase IV studies usually involve thousands of participants. Phase IV studies also may be
initiated by the company sponsoring the new drug to gain broader market value for an approved drug.
Similar to the U.S., a European sponsor of a
biological product may submit a Marketing Approval Application to the EMA for the registration of the product. The approval process
in Europe consists of several stages, which together are summed up to 210 days from the time of submission of the application (net,
without periods in which the sponsor provides answers to questions raised by the agency) following which, a Marketing Approval
may be granted. During the approval process, the sponsor’s manufacturing facilities will be audited in order to assess Good
Manufacturing Practice compliance.
The drug approval process is time-consuming,
involves substantial expenditures of resources, and depends upon a number of factors, including the severity of the illness in
question, the availability of alternative treatments, and the risks and benefits demonstrated in the clinical trials.
Other Regulations
Various federal, state and local laws, regulations,
and recommendations relating to safe working conditions, laboratory practices, the experimental use of animals, the environment
and the purchase, storage, movement, import, export, use, and disposal of hazardous or potentially hazardous substances, including
radioactive compounds and infectious disease agents, used in connection with our research are applicable to our activities. They
include, among others, the U.S. Atomic Energy Act, the Clean Air Act, the Clean Water Act, the Occupational Safety and Health Act,
the National Environmental Policy Act, the Toxic Substances Control Act, and Resources Conservation and Recovery Act, national
restrictions on technology transfer, import, export, and customs regulations, and other present and possible future local, state,
or federal regulation. The compliance with these and other laws, regulations and recommendations can be time-consuming and involve
substantial costs. In addition, the extent of governmental regulation which might result from future legislation or administrative
action cannot be accurately predicted and may have a material adverse effect on our business, financial condition, results of operations
and prospects.
Competition
Competition in General
Competition in the area of biomedical and pharmaceutical
research and development is intense and significantly depends on scientific and technological factors. These factors include the
availability of patent and other protection for technology and products, the ability to commercialize technological developments
and the ability to obtain regulatory approval for testing, manufacturing and marketing. Our competitors include major pharmaceutical,
medical products, chemical and specialized biotechnology companies, many of which have financial, technical and marketing resources
significantly greater than ours. In addition, many biotechnology companies have formed collaborations with large, established companies
to support research, development and commercialization of products that may be competitive with ours. Academic institutions, governmental
agencies and other public and private research organizations are also conducting research activities and seeking patent protection
and may commercialize products on their own or through joint ventures. We are aware of certain other products manufactured or under
development by competitors that are used for the treatment of the diseases and health conditions that we have targeted for product
development. We can provide no assurance that developments by others will not render our technology obsolete or noncompetitive,
that we will be able to keep pace with new technological developments or that our technology will be able to supplant established
products and methodologies in the therapeutic areas that are targeted by us. The foregoing factors could have a material adverse
effect on our business, prospects, financial condition and results of operations. These companies, as well as academic institutions,
governmental agencies and private research organizations, also compete with us in recruiting and retaining highly qualified scientific
personnel and consultants.
Competition within our sector is increasing,
so we will encounter competition from existing firms that offer competitive solutions in diabetes treatment solutions. These competitive
companies could develop products that are superior to, or have greater market acceptance, than the products being developed by
us. We will have to compete against other biotechnology and pharmaceutical companies with greater market recognition and greater
financial, marketing and other resources.
Our competition will be determined in part by
the potential indications for which our technology is developed and ultimately approved by regulatory authorities. In addition,
the first product to reach the market in a therapeutic or preventive area is often at a significant competitive advantage relative
to later entrants to the market. Accordingly, the relative speed with which we, or our potential corporate partners, can develop
products, complete the clinical trials and approval processes and supply commercial quantities of the products to the market are
expected to be important competitive factors. Our competitive position will also depend on our ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products, develop and implement production and marketing plans, obtain
and maintain patent protection and secure adequate capital resources. We expect our technology, if approved for sale, to compete
primarily on the basis of product efficacy, safety, patient convenience, reliability, value and patent position.
Competition for Our Oral Insulin Capsule
We anticipate the oral insulin capsule to be
a competitive diabetes drug because of its anticipated efficacy and safety profile. The following are some of the treatment options
for type 1 and type 2 diabetic patients:
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A combination of diet, exercise and oral medication which improve the body’s response to insulin or cause the body to
produce more insulin.
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Scientific Advisory Board
We maintain a Scientific Advisory Board consisting
of internationally recognized scientists who advise us on scientific and technical aspects of our business. The Scientific Advisory
Board meets periodically to review specific projects and to assess the value of new technologies and developments to us. In addition,
individual members of the Scientific Advisory Board meet with us periodically to provide advice in their particular areas of expertise.
The Scientific Advisory Board consists of the following members, information with respect to whom is set forth below: Dr. Roy Eldor,
Professor Ele Ferrannini, Dr. Robert R. Henry, Professor Avram Hershko, Dr. Harold Jacob and Dr. Jane E. B. Reusch.
Dr. Roy Eldor, MD, PhD,
joined the Oramed Scientific Advisory Board in July 2016. He is an endocrinologist, internist and researcher with over twenty years
of clinical and scientific experience. He is currently Director of the Diabetes Unit at the Institute of Endocrinology, Metabolism
& Hypertension, Tel-Aviv Sourasky Medical Center. Prior to that, Dr. Eldor served as Principal Scientist at Merck Research
Laboratories, Clinical Research - Diabetes & Endocrinology, Rahway, New Jersey. He has previously served as a senior physician
in internal medicine at the Diabetes Unit in Hadassah Hebrew University Hospital, Jerusalem, Israel; and the Diabetes Division
at the University of Texas Health Science Center in San Antonio, Texas (under the guidance of Dr. R.A. DeFronzo). Dr. Eldor is
a recognized expert, with over 35 peer reviewed papers and book chapters, and has been a guest speaker at numerous international
forums.
Professor Ele Ferrannini, MD, joined
the Oramed Scientific Advisory Board in February 2007. He is a past President to the European Association for the Study of Diabetes,
which supports scientists, physicians and students from all over the world who are interested in diabetes and related subjects
in Europe, and performs functions similar to that of the ADA in the United States. Professor Ferrannini has worked with various
institutions including the Department of Clinical & Experimental Medicine, University of Pisa School of Medicine, and CNR (National
Research Council) Institute of Clinical Physiology, Pisa, Italy; and the Diabetes Division, Department of Medicine, University
of Texas Health Science Center at San Antonio, Texas. He has also had extensive training in internal medicine and endocrinology,
and has specialized in diabetes studies. Professor Ferrannini has received a Certificate of the Educational Council for Foreign
Medical Graduates from the University of Bologna, and with cum laude honors completed a subspecialty in Diabetes and Metabolic
Diseases at the University of Torino. He has published over 500 original papers and 50 book chapters and he is a “highly
cited researcher,” according to the Institute for Scientific Information.
Dr. Robert R. Henry, MD, joined
the Oramed Scientific Advisory Board in February 2018 and is a leader in diabetes research. As a past President of the ADA and
recipient of its Banting Medal for Scientific Achievement, among other international recognitions, his basic and clinical research
funded by the National Institutes of Health, or NIH, has resulted in more than 400 journal articles, chapters and books. Dr. Henry
is currently Chief of the Section of Endocrinology, Metabolism & Diabetes, Veterans Affairs Healthcare System in San Diego,
California, Professor of Medicine at the University of California, San Diego and Chief of the Center for Metabolic Research in
San Diego, California. In addition to studying the metabolic and cardiovascular effects of human skeletal muscle and adipose tissue
signaling and interactions, his current clinical research interests involve the study and development of new therapies for type
1 and type 2 diabetes and obesity.
Professor Avram Hershko, MD, PhD,
joined the Oramed Scientific Advisory Board in July 2008. He earned his MD degree (1965) and PhD degree (1969) from the Hebrew
University-Hadassah Medical School of Jerusalem. Professor Hershko served as a physician in the Israel Defense Forces from 1965
to 1967. After a post-doctoral fellowship with Gordon Tomkins at the University of San Francisco (1969-72), he joined the
faculty of the Haifa Technion becoming a professor in 1980. He is now Distinguished Professor in the Unit of Biochemistry in the
B. Rappaport Faculty of Medicine of the Technion. Professor Hershko’s main research interests concern the mechanisms by which
cellular proteins are degraded, a formerly neglected field of study. Professor Hershko and his colleagues showed that cellular
proteins are degraded by a highly selective proteolytic system. This system tags proteins for destruction by linkage to a protein
called ubiquitin, which had previously been identified in many tissues, but whose function was previously unknown. Subsequent work
by Professor Hershko and many other laboratories has shown that the ubiquitin system has a vital role in controlling a wide range
of cellular processes, such as the regulation of cell division, signal transduction and DNA repair. Professor Hershko was awarded
the Nobel Prize in Chemistry (2004) jointly with his former PhD student Aaron Ciechanover and their colleague Irwin Rose. His many
honors include the Israel Prize for Biochemistry (1994), the Gairdner Award (1999), the Lasker Prize for Basic Medical Research
(2000), the Wolf Prize for Medicine (2001) and the Louisa Gross Horwitz Award (2001). Professor Hershko is a member of the Israel
Academy of Sciences (2000) and a Foreign Associate of the U.S. Academy of Sciences (2003).
Dr. Harold Jacob, MD, joined the
Oramed Scientific Advisory Board in November 2016. Since 1998, Dr. Jacob has served as the president of Medical Instrument Development
Inc., a company which provides a range of support and consulting services to start-up and early stage companies as well as patenting
its own proprietary medical devices. Since 2011, Dr. Jacob has also served as an attending physician at Hadassah University Medical
Center, where he has served as the director of the gastrointestinal endoscopy unit since September 2013. Dr. Jacob has advised
a spectrum of companies in the past and he served as a consultant and then as the Director of Medical Affairs at Given Imaging
Ltd., from 1997 to 2003, a company that developed the first swallowable wireless pill camera for inspection of the intestine. He
has licensed patents to a number of companies including Kimberly-Clark Corporation. Since 2014, Dr. Jacob has served as the Chief
Medical Officer and a director of NanoVibronix, Inc., a medical device company using surface acoustics to prevent catheter acquired
infection as well as other applications, where he served as Chief Executive Officer from 2004 to 2014. He practiced clinical gastroenterology
in New York and served as Chief of Gastroenterology at St. John’s Episcopal Hospital and South Nassau Communities Hospital
from 1986 to 1995, and was a Clinical Assistant Professor of Medicine at SUNY from 1983 to 1990. Dr. Jacob founded and served as
Editor in Chief of Endoscopy Review and has authored numerous publications in the field of gastroenterology.
Dr. Jane E. B. Reusch, MD, joined
the Oramed Scientific Advisory Board in February 2018. She is a distinguished academic physician-scientist-diabetologist committed
to understanding and treating the vascular complications of diabetes. She is currently Professor of Medicine and Associate Director,
Center for Women’s Health, at the University of Colorado at Denver and Director of the Diabetes Care Team at the Veteran’s
Administration Medical Center in Denver, Colorado. Dr. Reusch has been awarded numerous NIH Research Project Grant (R01) and VA
Merit grants for both basic and clinical research, leading to more than 100 peer-reviewed publications on diabetes and diabetic
vascular complications. In a continuation of her life-long service to the diabetes community, Dr. Reusch is a previous ADA President
for Medicine and Science.
Employees
We have been successful in retaining experienced
personnel involved in our research and development program. In addition, we believe we have successfully recruited the clinical/regulatory,
quality assurance and other personnel needed to advance through clinical studies or have engaged the services of experts in the
field for these requirements. As of August 31, 2019, we have contracted with thirteen individuals for employment or consulting
arrangements. Of our staff, four are senior management, five are engaged in research and development work, and the remaining four
are involved in administration work.
Additional Information
Additional information about us is contained
on our Internet website at www.oramed.com. Information on our website is not incorporated by reference into this report. On our
website, under “Investors”, “SEC Filings”, we make available free of charge our Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after
we electronically file such material with, or furnish it to, the SEC. Reports filed with the SEC are made available on its
website at www.sec.gov. The following Corporate Governance documents are also posted on our website: Code of Ethics, Whistleblowing
Policy and the Charters for each of the Audit Committee, Compensation Committee and Nominating Committee of our Board.
ITEM 1A. RISK FACTORS.
An investment in our securities involves
a high degree of risk. You should consider carefully the following information about these risks, together with the other information
contained in this Annual Report on Form 10-K before making an investment decision. Our business, prospects, financial condition
and results of operations may be materially and adversely affected as a result of any of the following risks. The value of our
securities could decline as a result of any of these risks. You could lose all or part of your investment in our securities. Some
of the statements in “Item 1A. Risk Factors” are forward-looking statements. The following risk factors are not the
only risk factors facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial
may also affect our business, prospects, financial condition and results of operations.
Risks Related to Our Business
We continue, and in the future expect, to
incur losses.
Successful completion of our development programs
and our transition to normal operations are dependent upon obtaining necessary regulatory approvals from the FDA prior to selling
our products within the United States, and foreign regulatory approvals must be obtained to sell our products internationally.
There can be no assurance that we will receive regulatory approval of any of our product candidates, and a substantial amount of
time may pass before we achieve a level of revenues adequate to support our operations. We also expect to incur substantial expenditures
in connection with the regulatory approval process for each of our product candidates during their respective developmental periods.
Obtaining marketing approval will be directly dependent on our ability to implement the necessary regulatory steps required to
obtain marketing approval in the United States and in other countries. We cannot predict the outcome of these activities.
Based on our current cash resources and commitments,
we believe we will be able to maintain our current planned development activities and the corresponding level of expenditures for
at least the next 12 months, although no assurance can be given that we will not need additional funds prior to such
time. If there are unexpected increases in our operating expenses, we may need to seek additional financing during the next 12
months.
We will need substantial additional capital
in order to satisfy our business objectives.
To date, we have financed our operations principally
through offerings of securities and we will require substantial additional financing at various intervals in order to continue
our research and development programs, including significant requirements for operating expenses including intellectual property
protection and enforcement, for pursuit of regulatory approvals, and for commercialization of our products. We can provide no assurance
that additional funding will be available on a timely basis, on terms acceptable to us, or at all. In the event that we are unable
to obtain such financing, we will not be able to fully develop and commercialize our technology. Our future capital requirements
will depend upon many factors, including:
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Continued scientific progress in our research and development programs,
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Costs and timing of conducting clinical trials and seeking regulatory approvals and patent prosecutions,
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Competing technological and market developments,
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Our ability to establish additional collaborative relationships, and
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Effects of commercialization activities and facility expansions if and as required.
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If we cannot secure adequate financing when
needed, we may be required to delay, scale back or eliminate one or more of our research and development programs or to enter into
license or other arrangements with third parties to commercialize products or technologies that we would otherwise seek to develop
ourselves and commercialize ourselves. In such event, our business, prospects, financial condition and results of operations may
be adversely affected as we may be required to scale-back, eliminate, or delay development efforts or product introductions or
enter into royalty, sales or other agreements with third parties in order to commercialize our products.
We have a history of losses and can provide
no assurance as to our future operating results.
We do not have sufficient revenues from our
research and development activities to fully support our operations. Consequently, we have incurred net losses and negative cash
flows since inception. We currently have only licensing revenues and no product revenues, and may not succeed in developing or
commercializing any products which could generate product revenues. We do not expect to have any products on the market for several
years. In addition, development of our product candidates requires a process of pre-clinical and clinical testing, during which
our products could fail. We may not be able to enter into agreements with one or more companies experienced in the manufacturing
and marketing of therapeutic drugs and, to the extent that we are unable to do so, we will not be able to market our product candidates.
Eventual profitability will depend on our success in developing, manufacturing, and marketing our product candidates. As of August
31, 2019, August 31, 2018 and August 31, 2017, we had working capital of $28,016,000, $26,484,000 and $15,132,000, respectively,
and stockholders’ equity of $19,393,000, $31,112,000 and $19,238,000, respectively. During fiscal 2019 and the fiscal years
ended August 31, 2018, or fiscal 2018, and 2017, we generated revenues of $2,703,000, $2,449,000 and $2,456,000, respectively.
For the period from our inception on April 12, 2002 through August 31, 2019, and for fiscal 2019, fiscal 2018 and fiscal 2017,
we incurred net losses of $83,578,000, $14,355,000, $12,727,000 and $10,480,000, respectively. We may never achieve profitability
and expect to incur net losses in the foreseeable future. See “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
We rely upon patents to protect our technology.
The patent position of biopharmaceutical and
biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our
current or future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated
or circumvented. Patents may not provide a competitive advantage or afford protection against competitors with similar technology.
Competitors or potential competitors may have filed applications for, or may have received patents and may obtain additional and
proprietary rights to compounds or processes used by or competitive with ours. In addition, laws of certain foreign countries do
not protect intellectual property rights to the same extent as do the laws of the United States.
Patent litigation is becoming widespread in
the biopharmaceutical and biotechnology industry and we cannot predict how this will affect our efforts to form strategic alliances,
conduct clinical testing or manufacture and market any products under development. If challenged, our patents may not be held valid.
We could also become involved in interference proceedings in connection with one or more of our patents or patent applications
to determine priority of invention. If we become involved in any litigation, interference or other administrative proceedings,
we will likely incur substantial expenses and the efforts of our technical and management personnel will be significantly diverted.
In addition, an adverse determination could subject us to significant liabilities or require us to seek licenses that may not be
available on favorable terms, if at all. We may be restricted or prevented from manufacturing and selling our products in the event
of an adverse determination in a judicial or administrative proceeding or if we fail to obtain necessary licenses.
We may be unable to protect our intellectual
property rights and we may be liable for infringing the intellectual property rights of others.
Our ability to compete effectively will depend
on our ability to maintain the proprietary nature of our technologies. We currently hold several pending patent applications in
the United States, Canada, Brazil, Europe, India, Hong Kong, Japan and China for our technologies covering oral administration
of insulin and other proteins and oral administration of exenatide and proteins and 77 patents issued by the United States, Australian,
Canadian, Chinese, Israeli, Japanese, New Zealand, South African, Russian, European, Hong Kong, Swiss, German, Spanish, French,
United Kingdom, Italian, Indian, Austrian, Belgian, Irish, Swedish, Denmark, Luxembourg, Monaco, Norway and Netherlands patent
offices for our technologies covering oral administration of insulin and other proteins, or for our technologies covering oral
administration of exenatide, or for methods and compositions for treating diabetes. Further, we intend to rely on a combination
of trade secrets and non-disclosure and other contractual agreements and technical measures to protect our rights in our technology.
We intend to depend upon confidentiality agreements with our officers, directors, employees, consultants, and subcontractors, as
well as collaborative partners, to maintain the proprietary nature of our technology. These measures may not afford us sufficient
or complete protection, and others may independently develop technology similar to ours, otherwise avoid our confidentiality agreements,
or produce patents that would materially and adversely affect our business, prospects, financial condition and results of operations.
We believe that our technology is not subject to any infringement actions based upon the patents of any third parties; however,
our technology may in the future be found to infringe upon the rights of others. Others may assert infringement claims against
us or against companies to which we have licensed our technology, and if we should be found to infringe upon their patents, or
otherwise impermissibly utilize their intellectual property, our ability to continue to use our technology could be materially
restricted or prohibited. If this event occurs, we may be required to obtain licenses from the holders of this intellectual property,
enter into royalty agreements, or redesign our products so as not to utilize this intellectual property, each of which may prove
to be uneconomical or otherwise impossible. Licenses or royalty agreements required in order for us to use this technology may
not be available on terms acceptable to us, or at all. These claims could result in litigation, which could materially adversely
affect our business, prospects, financial condition and results of operations. Further, we may need to indemnify companies to which
we licensed our technology in the event that such technology is found to infringe upon the rights of others.
Our commercial success will also depend significantly
on our ability to operate without infringing the patents and other proprietary rights of third parties. Patent applications are,
in many cases, maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature
frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications are filed.
In the event of infringement or violation of another party’s patent, we may be prevented from pursuing product development
or commercialization. See “Item 1. Business—Description of Business—Patents and Licenses.”
At present, our success depends primarily
on the successful commercialization of our oral insulin capsule.
The successful commercialization of our oral
insulin capsule is crucial for our success. At present, our principal product is the oral insulin capsule. Our oral insulin capsule
is in a clinical development stage and faces a variety of risks and uncertainties. Principally, these risks include the following:
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Future clinical trial results may show that the oral insulin capsule is not well tolerated by recipients at its effective doses
or is not efficacious as compared to placebo,
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Future clinical trial results may be inconsistent with previous preliminary testing results and data from our earlier studies may be inconsistent with clinical data; similarly, we may encounter discrepancies due to evidence of treatment-by-center interaction which could cause us to exclude certain results, as happened with the results of two sites in the initial cohort of our Phase IIb trial,
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Even if our oral insulin capsule is shown to be safe and effective for its intended purposes, we may face significant or unforeseen
difficulties in obtaining or manufacturing sufficient quantities or at reasonable prices,
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Our ability to complete the development and commercialization of the oral insulin capsule for our intended use is significantly
dependent upon our ability to obtain and maintain experienced and committed partners to assist us with obtaining clinical and regulatory
approvals for, and the manufacturing, marketing and distribution of, the oral insulin capsule on a worldwide basis,
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Even if our oral insulin capsule is successfully developed, commercially produced and receives all necessary regulatory approvals,
there is no guarantee that there will be market acceptance of our product, and
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Our competitors may develop therapeutics or other treatments which are superior or less costly than our own with the result
that our products, even if they are successfully developed, manufactured and approved, may not generate significant revenues.
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If we are unsuccessful in dealing with any of
these risks, or if we are unable to successfully commercialize our oral insulin capsule for some other reason, it would likely
seriously harm our business.
We have limited experience in conducting
clinical trials.
Clinical trials must meet FDA and foreign regulatory
requirements. We have limited experience in designing, conducting and managing the preclinical studies and clinical trials necessary
to obtain regulatory approval for our product candidates in any country. We have entered into agreements with Integrium LLC to
assist us in designing, conducting and managing our various clinical trials in the United States. Any failure of Integrium LLC
or any other consultant to fulfill their obligations could result in significant additional costs as well as delays in designing,
consulting and completing clinical trials on our products.
Our clinical trials may encounter delays,
suspensions or other problems.
We may encounter problems in clinical trials
that may cause us or the FDA or foreign regulatory agencies to delay, suspend or terminate our clinical trials at any phase. These
problems could include the possibility that we may not be able to conduct clinical trials at our preferred sites, enroll a sufficient
number of patients for our clinical trials at one or more sites or begin or successfully complete clinical trials in a timely fashion,
if at all. Furthermore, we, the FDA or foreign regulatory agencies may suspend clinical trials at any time if we or they believe
the subjects participating in the trials are being exposed to unacceptable health risks or if we or they find deficiencies in the
clinical trial process or conduct of the investigation. If clinical trials of any of the product candidates fail, we will not be
able to market the product candidate which is the subject of the failed clinical trials. The FDA and foreign regulatory agencies
could also require additional clinical trials, which would result in increased costs and significant development delays. Our failure
to adequately demonstrate the safety and effectiveness of a pharmaceutical product candidate under development could delay or prevent
regulatory approval of the product candidate and could have a material adverse effect on our business, prospects, financial condition
and results of operations.
Clinical trials of our products conducted
by third parties may encounter delays, suspensions or other problems and are outside of our control.
Third parties who conduct clinical trials of
our products may encounter problems that may cause delays, suspensions or other problems at any phase. These problems could include
the possibility that they may not be able to conduct clinical trials at their preferred sites, enroll a sufficient number of patients
for their clinical trials at one or more sites or begin or successfully complete clinical trials in a timely fashion, if at all.
In addition, these third parties are not controlled by us and may conduct these trials in a manner in which we disagree or
which may prove to be unsuccessful. Furthermore, domestic or foreign regulatory agencies may suspend clinical trials at any
time if they believe the subjects participating in the trials are being exposed to unacceptable health risks or if they find deficiencies
in the clinical trial process or conduct of the investigation. If such clinical trials conducted by third parties fail, it could
have a material adverse effect on our business, prospects, financial condition and results of operations.
We can provide no assurance that our products
will obtain regulatory approval or that the results of clinical studies will be favorable.
The testing, marketing and manufacturing
of any of our products will require the approval of the FDA or regulatory agencies of other countries. We have completed certain
non-FDA clinical trials and pre-clinical trials for our products. In addition, we have completed a Phase IIb clinical trial in
patients with type 2 diabetes under an IND with the FDA and we have completed Phase IIa clinical trials of ORMD-0801 in patients
with type 1 diabetes under an IND with the FDA. However, success in pre-clinical testing and early clinical trials does not ensure
that later clinical trials will be successful. Even within a clinical trial there might be discrepancies from statistically significant
data, as occurred at two of the sites in the initial cohort of our Phase IIb trial, which we excluded while we investigate such
discrepancies. Further, a number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical
trials.
We cannot predict with any certainty the amount
of time necessary to obtain regulatory approvals, including from the FDA or other foreign regulatory authorities, and whether any
such approvals will ultimately be granted. In any event, review and approval by the regulatory bodies is anticipated to take a
number of years. Preclinical and clinical trials may reveal that one or more of our products are ineffective or unsafe, in which
event further development of such products could be seriously delayed or terminated. Moreover, obtaining approval for certain products
may require the testing on human subjects of substances whose effects on humans are not fully understood or documented. Delays
in obtaining necessary regulatory approvals of any proposed product and failure to receive such approvals would have an adverse
effect on the product’s potential commercial success and on our business, prospects, financial condition and results of operations.
In addition, it is possible that a product may be found to be ineffective or unsafe due to conditions or facts which arise after
development has been completed and regulatory approvals have been obtained. In this event we may be required to withdraw such product
from the market. See “Item 1. Business—Description of Business—Government Regulation.”
We are dependent upon third party suppliers
of our raw materials.
We are dependent on outside vendors for our
entire supply of the oral insulin and GLP-1 capsules and do not currently have any long-term agreements in place for the supply
of oral insulin or GLP-1 capsules. While we believe that there are numerous sources of supply available, if the third party suppliers
were to cease production or otherwise fail to supply us with quality raw materials in sufficient quantities on a timely basis and
we were unable to contract on acceptable terms for these services with alternative suppliers, our ability to produce our products
and to conduct testing and clinical trials would be materially adversely affected.
Our future revenues from HTIT are dependent
upon third party suppliers and Chinese regulatory approvals.
Our future revenues from HTIT are dependent
upon the achievement of certain milestones and conditions, and the success of HTIT to implement our technology and to manufacture
the oral insulin capsule. Our future revenues from HTIT are also dependent upon the ability of third parties to scale-up one of
our oral capsule ingredients and to scale-up the manufacturing process of our capsules. Our future revenues from royalties from
HTIT are further dependent upon the granting of regulatory approvals in the Territory. Accordingly, if any of the foregoing does
not occur, we may not be successful in receiving future revenues from HTIT and may not succeed with our business plans in China.
We are highly dependent upon our ability
to enter into agreements with collaborative partners to develop, commercialize and market our products.
Our long-term strategy is to ultimately seek
a strategic commercial partner, or partners, such as large pharmaceutical companies, with extensive experience in the development,
commercialization and marketing of insulin applications and/or other orally digestible drugs. We anticipate such partner or partners
would be responsible for, or substantially support, late stage clinical trials (Phase III) and sales and marketing of our oral
insulin capsule and other products. Such planned strategic partnership, or partnerships, may provide a marketing and sales infrastructure
for our products as well as financial and operational support for global clinical trials, post marketing studies, label expansions
and other regulatory requirements concerning future clinical development in the United States and elsewhere.
While our strategy is to partner with an appropriate
party, no assurance can be given that any third party would be interested in partnering with us. We currently lack the resources
to manufacture any of our product candidates on a large scale and we have no sales, marketing or distribution capabilities. In
the event we are not able to enter into a collaborative agreement with a partner, or partners, on commercially reasonable terms,
or at all, we may be unable to commercialize our products, which would have a material adverse effect upon our business, prospects,
financial condition and results of operations.
The biotechnology and biopharmaceutical industries
are characterized by rapid technological developments and a high degree of competition. We may be unable to compete with more substantial
enterprises.
The biotechnology and biopharmaceutical industries
are characterized by rapid technological developments and a high degree of competition. As a result, our products could
become obsolete before we recoup any portion of our related research and development and commercialization expenses. These industries
are highly competitive, and this competition comes both from biotechnology firms and from major pharmaceutical and chemical companies.
Many of these companies have substantially greater financial, marketing and human resources than we do (including, in some cases,
substantially greater experience in clinical testing, manufacturing and marketing of pharmaceutical products). We also experience
competition in the development of our products from universities and other research institutions and compete with others in acquiring
technology from such universities and institutions. In addition, certain of our products may be subject to competition from products
developed using other technologies. See “Item 1. Business—Description of Business—Competition.”
We have limited senior management resources
and may be required to obtain more resources to manage our growth.
We expect the expansion of our business to place
a significant strain on our limited managerial, operational and financial resources. We will be required to expand our operational
and financial systems significantly and to expand, train and manage our work force in order to manage the expansion of our operations.
Our failure to fully integrate our new employees into our operations could have a material adverse effect on our business, prospects,
financial condition and results of operations. Our ability to attract and retain highly skilled personnel is critical to our operations
and expansion. We face competition for these types of personnel from other technology companies and more established organizations,
many of which have significantly larger operations and greater financial, technical, human and other resources than we have. We
may not be successful in attracting and retaining qualified personnel on a timely basis, on competitive terms or at all. If we
are not successful in attracting and retaining these personnel, our business, prospects, financial condition and results of operations
will be materially adversely affected. See “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” “Item 1. Business—Description of Business—Strategy” and “—Employees.”
We depend upon our senior management and
skilled personnel and their loss or unavailability could put us at a competitive disadvantage.
We currently depend upon the efforts and abilities
of our senior executives, as well as the services of several key consultants and other key personnel, including Dr. Miriam Kidron,
our Chief Scientific Officer. The loss or unavailability of the services of any of these individuals for any significant period
of time could have a material adverse effect on our business, prospects, financial condition and results of operations. We do not
maintain “key man” life insurance policies for any of our senior executives. In addition, recruiting and retaining
qualified scientific personnel to perform future research and development work will be critical to our success. There is currently
a shortage of employees with expertise in developing, manufacturing and commercialization of products and related clinical and
regulatory affairs, and this shortage is likely to continue. Competition for skilled personnel is intense and turnover rates are
high. Our ability to attract and retain qualified personnel may be limited. Our inability to attract and retain qualified skilled
personnel would have a material adverse effect on our business, prospects, financial condition and results of operations.
Healthcare policy changes, including pending
legislation recently adopted and further proposals still pending to reform the U.S. healthcare system, may harm our future business.
Healthcare costs have risen significantly over
the past decade. There have been and continue to be proposals by legislators, regulators and third-party payors to keep these costs
down. Certain proposals, if passed, would impose limitations on the prices we will be able to charge for the products that we are
developing, or the amounts of reimbursement available for these products from governmental agencies or third-party payors. These
limitations could in turn reduce the amount of revenues that we will be able to generate in the future from sales of our products
and licenses of our technology.
In 2010, the federal government enacted healthcare
reform legislation that has significantly impacted the pharmaceutical industry. In addition to requiring most individuals to have
health insurance and establishing new regulations on health plans, this legislation requires discounts under the Medicare drug
benefit program and increased rebates on drugs covered by Medicaid. In addition, the legislation imposes an annual fee, which has
increased annually, on sales by branded pharmaceutical manufacturers. There can be no assurance that our business will not
be materially adversely affected by these increased rebates, fees and other provisions. In addition, these and other initiatives
in the United States may continue the pressure on drug pricing, especially under the Medicare and Medicaid programs, and may also
increase regulatory burdens and operating costs. The announcement or adoption of any such initiative could have an adverse effect
on potential revenues from any product that we may successfully develop. An expansion in government’s role in the U.S. healthcare
industry may lower the future revenues for the products we are developing and adversely affect our future business, possibly materially.
In September 2017, members of the U.S. Congress
introduced legislation with the announced intention to repeal and replace major provisions of the Patient Protection and Affordable
Care Act, or the ACA. In addition to those efforts, on October 12, 2017, President Trump signed an executive order that modified
certain aspects of the ACA. Attempts to repeal or to repeal and replace the ACA will likely continue. In addition, various other
healthcare reform proposals have also emerged at the federal and state level. We cannot predict what healthcare initiatives, if
any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on us.
Changes to tax laws could have a negative
effect on us or our stockholders.
At any time, the U.S. federal or state income
tax laws, or the administrative interpretations of those laws, may be amended. Federal and state tax laws are constantly under
review by persons involved in the legislative process, the U.S. Internal Revenue Service, the U.S. Department of the Treasury and
state taxing authorities. Changes to the tax laws, regulations and administrative interpretations, which may have retroactive application,
could adversely affect us.
Tax reform legislation in December 2017 made
substantial changes to the Internal Revenue Code of 1986, as amended, or the Code, particularly as it relates to the taxation of
both corporate income and international income. Among those changes are a significant permanent reduction in the generally applicable
corporate income tax rate and the modification of tax policies, credits and deductions for businesses and individuals. This legislation
also imposes additional limitations on the deduction of net operating losses, which could negatively impact our ability to utilize
our net operating losses to offset our taxable income in future taxable years. The effect of these and other changes made in this
legislation is still uncertain in many respects, both in terms of their direct effect on the taxation of an investment in our securities
and their indirect effect on the value of assets owned by us. Furthermore, many of the provisions of the new law will require
additional guidance in order to assess their effect. It is also possible that there will be technical corrections legislation proposed
with respect to the tax reform legislation, the effect of which cannot be predicted and may be adverse to us or our stockholders.
Our stockholders are encouraged to consult with their tax advisors about the potential effects that changes in law may have on
them and their ownership of our securities.
We are exposed to fluctuations in currency
exchange rates.
A considerable amount of our expenses are generated
in dollars or in dollar-linked currencies, but a significant portion of our expenses such as some clinical studies and payroll
costs are generated in other currencies such as NIS and Euro. Most of the time, our non-dollar assets are not totally offset by
non-dollar liabilities. Due to the foregoing and to the fact that our financial results are measured in dollars, our results could
be adversely affected as a result of a strengthening or weakening of the dollar compared to these other currencies. During the
fiscal years ended August 31, 2016, 2017 and 2019, the dollar depreciated in relation to the NIS, which raised the dollar cost
of our Israeli based operations and adversely affected our financial results, while during the fiscal years ended August 31, 2015
and 2018, the dollar increased in relation to the NIS, which reduced the dollar cost of our Israeli based operations costs. In
addition, our results could also be adversely affected if we are unable to guard against currency fluctuations in the future. Although
we may in the future decide to undertake foreign exchange hedging transactions to cover a portion of our foreign currency exchange
exposure, we currently do not hedge our exposure to foreign currency exchange risks. These transactions, however, may not adequately
protect us from future currency fluctuations and, even if they do protect us, may involve operational or financing costs we would
not otherwise incur.
Risks Related to our Common Stock
As the market price of our common stock may
fluctuate significantly, this may make it difficult for you to sell your shares of common stock when you want or at prices you
find attractive.
The price of our common stock is currently listed
on Nasdaq and on the Tel Aviv Stock Exchange and constantly changes. In recent years, the stock market in general has experienced
extreme price and volume fluctuations. We expect that the market price of our common stock will continue to fluctuate. These fluctuations
may result from a variety of factors, many of which are beyond our control. These factors include:
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Clinical trial results and the timing of the release of such results,
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The amount of cash resources and our ability to obtain additional funding,
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Announcements of research activities, business developments, technological innovations or new products by us or our competitors,
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Entering into or terminating strategic relationships,
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Changes in government regulation,
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Departure of key personnel,
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Disputes concerning patents or proprietary rights,
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Changes in expense level,
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Future sales of our equity or equity-related securities,
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Public concern regarding the safety, efficacy or other aspects of the products or methodologies being developed,
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Activities of various interest groups or organizations,
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Status of the investment markets.
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Future sales of common stock or the issuance
of securities senior to our common stock or convertible into, or exchangeable or exercisable for, our common stock could materially
adversely affect the trading price of our common stock, and our ability to raise funds in new equity offerings.
Future sales of substantial amounts of our common
stock or other equity-related securities in the public market or privately, or the perception that such sales could occur, could
adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings
of equity or other equity-related securities. We anticipate that we will need to raise capital through offerings of equity and
equity related securities. We can make no prediction as to the effect, if any, that future sales of shares of our common stock
or equity-related securities, or the availability of shares of common stock for future sale, will have on the trading price of
our common stock.
Our stockholders may experience significant
dilution as a result of any additional financing using our equity securities.
To the extent that we raise additional funds
by issuing equity securities, our stockholders may experience significant dilution.
Our management will have significant flexibility
in using the net proceeds of any offering of securities.
We intend generally to use the net proceeds
from any offerings of our securities for expenses related to our clinical trials, research and product development activities,
and for general corporate purposes, including general working capital purposes. Our management will have significant flexibility
in applying the net proceeds of any such offering. The actual amounts and timing of expenditures will vary significantly depending
on a number of factors, including the amount of cash used in our operations and our research and development efforts. Management’s
failure to use these funds effectively would have an adverse effect on the value of our common stock and could make it more difficult
and costly to raise funds in the future.
Future sales of our common stock by our existing
stockholders could adversely affect our stock price.
The market price of our common stock could decline
as a result of sales of a large number of shares of our common stock in the market, or the perception that these sales could occur.
These sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem
appropriate. As of November 26, 2019, we had outstanding 17,398,112 shares of common stock, a large majority of which are freely
tradable. Giving effect to the exercise in full of all of our outstanding warrants, options and restricted stock units, or RSUs,
including those currently unexercisable or unvested, we would have outstanding 21,882,225 shares of common stock.
Our issuance of warrants, options and RSUs
to investors, employees and consultants may have a negative effect on the trading prices of our common stock as well as a dilutive
effect.
We have issued and may continue to issue warrants,
options, RSUs and convertible notes at, above or below the current market price. As of November 26, 2019, we had outstanding warrants
and options exercisable for 3,007,680 shares of common stock at a weighted average exercise price of $7.27. We also had outstanding
RSUs exercisable for 164,636 shares of common stock at a total exercise price of $900. In addition to the dilutive effect of a
large number of shares of common stock and a low exercise price for the warrants and options, there is a potential that a large
number of underlying shares of common stock may be sold in the open market at any given time, which could place downward pressure
on the trading of our common stock.
Delaware law could discourage a change in
control, or an acquisition of us by a third party, even if the acquisition would be favorable to you, and thereby adversely affect
existing stockholders.
The Delaware General Corporation Law contains
provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of our Company, even
when these attempts may be in the best interests of stockholders. Delaware law imposes conditions on certain business combination
transactions with “interested stockholders.” These provisions and others that could be adopted in the future could
deter unsolicited takeovers or delay or prevent changes in our control or management, including transactions in which stockholders
might otherwise receive a premium for their shares of common stock over then current market prices. These provisions may also limit
the ability of stockholders to approve transactions that they may deem to be in their best interests.
Because we will not pay cash dividends
in the foreseeable future, investors may have to sell shares of our common stock in order to realize their investment.
We have not paid any cash dividends on our common
stock and do not intend to pay cash dividends in the foreseeable future. We intend to retain future earnings, if any, for reinvestment
in the development and expansion of our business. Any credit agreements which we may enter into with institutional lenders or otherwise
may restrict our ability to pay dividends. Whether we pay cash dividends in the future will be at the discretion of our Board and
will be dependent upon our financial condition, results of operations, capital requirements and any other factors that our Board
decides is relevant.
Because certain of our stockholders control
a significant number of shares of our common stock, they may have effective control over actions requiring stockholder approval.
As of November 26, 2019, our directors, executive
officers and principal affiliated stockholders beneficially own approximately 16.9% of our outstanding shares of common stock,
excluding shares issuable upon the exercise of options, warrants and RSUs. As a result, these stockholders, should they act together,
may have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors
and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, should they act
together, may have the ability to control our management and affairs. Accordingly, this concentration of ownership might harm the
market price of our common stock by:
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Delaying, deferring or preventing a change in corporate control,
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Impeding a merger, consolidation, takeover or other business combination involving us, or
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Discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
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Risks Related to Conducting Business in Israel
We are affected by the political, economic
and military risks of having operations in Israel.
We have operations in the State of Israel, and
we are directly affected by political, economic and security conditions in that country. Since the establishment of the State of
Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying
in degree and intensity, has led to security and economic problems for Israel. In addition, acts of terrorism, armed conflicts
or political instability in the region could negatively affect local business conditions and harm our results of operations. We
cannot predict the effect on the region of any diplomatic initiatives or political developments involving Israel or the Palestinians
or other countries and territories in the Middle East. Recent political events, including political uprisings, social unrest and
regime change, in various countries in the Middle East and North Africa have weakened the stability of those countries and territories,
which could result in extremists coming to power. 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 and Hezbollah in Lebanon. This situation has escalated in the past and may potentially escalate in the future to violent
events which may affect Israel and us. Our business, prospects, financial condition and results of operations could be materially
adversely affected if major hostilities involving Israel should occur or if trade between Israel and its current trading partners
is interrupted or curtailed.
All adult male permanent residents of Israel,
unless exempt, may be required to perform military reserve duty annually. Additionally, all such residents are subject to being
called to active duty at any time under emergency circumstances. Some of our officers, directors and employees currently are or
in the future may be obligated to perform annual military reserve duty. We can provide no assurance that such requirements will
not have a material adverse effect on our business, prospects, financial condition and results of operations in the future, particularly
if emergency circumstances occur.
Because we received grants from the Israel
Innovation Authority of the Israeli Ministry of Economy & Industry we are subject to ongoing restrictions.
We received royalty-bearing grants from the
Israel Innovation Authority of the Israeli Ministry of Economy & Industry, or IIA, for research and development programs that
meet specified criteria. We did not recognize any grants in fiscals 2019, 2018 and 2017. We do not expect to receive further grants
from the IIA in the future. The terms of the IIA grants limit our ability to transfer know-how developed under an approved research
and development program outside of Israel, regardless of whether the royalties were fully paid.
It may be difficult to enforce a U.S. judgment
against us or our officers and directors and to assert U.S. securities laws claims in Israel.
Almost all of our directors and officers are
nationals and/or residents of countries other than the United States. As a result, service of process upon us, our Israeli subsidiary
and our directors and officers, may be difficult to obtain within the United States. Furthermore, because the majority of our assets
and investments, and most of our directors and officers are located outside the United States, it may be difficult for investors
to enforce within the United States any judgments obtained against us or any such officers or directors. Additionally, it may be
difficult to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim
based on a violation of U.S. securities laws because Israel is not the most appropriate forum in which to bring such a claim. In
addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to
such claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a
time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law.
Subject to specified time limitations and legal
procedures, under the rules of private international law currently prevailing in Israel, Israeli courts may enforce a U.S. judgment
in a civil matter, including a judgment based upon the civil liability provisions of the U.S. securities laws, as well as
a monetary or compensatory judgment in a non-civil matter, provided that the following key conditions are met:
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subject to limited exceptions, the judgment is final and non-appealable;
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the judgment was given by a court competent under the laws of the state in which the court is located and is otherwise enforceable
in such state;
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the judgment was rendered by a court competent under the rules of private international law applicable in Israel;
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the laws of the state in which the judgment was given provides for the enforcement of judgments of Israeli courts;
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adequate service of process has been effected and the defendant has had a reasonable opportunity to present its arguments and
evidence;
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the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of the State of Israel;
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the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same
parties; and
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an action between the same parties in the same matter was not pending in any Israeli court at the time the lawsuit was instituted
in the U.S. court.
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If any of these conditions are not met, Israeli courts
will likely not enforce the applicable U.S. judgment.