Asfiled with the Securities and Exchange Commission on August 10, 2022.
RegistrationNo. 333-
UNITEDSTATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORMF-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Polyrizon Ltd.
(Exact name of Registrant as specified in its charter)
NotApplicable
(Translation of Registrant’s name into English)
State of Israel | | 2834 | | Not Applicable |
(State or other jurisdiction of incorporation or organization) | | (Primary Standard Industrial Classification Code Number) | | (I.R.S. Employer Identification Number) |
5 Ha-Tidhar Street Raanana, 4366507, Israel Tel: +972-9-93740333 | | Puglisi & Associates 850 Library Ave., Suite 204 Newark, DE 19711 Tel: (302) 738-6680 |
(Address, including zip code, and telephone number, | | (Name, address, including zip code, and telephone |
including area code, of registrant’s principal executive offices) | | number, including area code, of agent for service) |
| | Copies to: | | |
| | | | |
David Huberman, Esq. McDermott Will & Emery LLP One Vanderbilt Avenue New York, NY 10017-3852 Tel: 312.372.2000 | | Keren Arad-Leibovitz, Adv. Keren Law Firm 5th Floor, Toyota Tower (A) 65 Yigal Alon Street Tel Aviv, Israel Tel: +972.544.275177 | | Darrin M. Ocasio, Esq. Avital Perlman, Esq. Sichenzia Ross Ference LLP 1185 Avenue of the Americas, 31st Floor New York, NY 10036 Tel: 212.930.9700 |
Approximatedate of commencement of proposed sale to the public: As soon as practicable after the effective date hereof.
Ifany of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 underthe Securities Act, check the following box. ☒
Ifthis form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check thefollowing box and list the Securities Act registration statement number of the earlier effective registration statement for the sameoffering. ☐
Ifthis form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and listthe Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Ifthis form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and listthe Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicateby check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerginggrowth company ☒
Ifan emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registranthas elected not to use the extended transition period for complying with any new or revised financial accounting standards † providedpursuant to Section 7(a)(2)(B) of the Securities Act. ☐
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Theregistrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until theregistrant shall file a further amendment which specifically states that this registration statement shall thereafter become effectivein accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date asthe Commission, acting pursuant to said Section 8(a), may determine.
Theinformation in this prospectus is not complete and may be changed. We may not sell these securities until the registration statementfiled with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not solicitingan offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION, | DATED AUGUST 10, 2022 |
Units
EachConsisting of One Ordinary Share
andTwo Warrants, each to Purchase One Ordinary Share
Polyrizon Ltd.
Thisis the initial public offering of Polyrizon Ltd. We are offering units,or Units, each consisting of one of our ordinary shares, par value NIS 0.04 per share, or Ordinary Shares, and two warrants, each topurchase one of our Ordinary Shares, or each, a Warrant. We anticipate that the initial public offering price per Unit will be between$ and $ , and the assumed exercise price of each Warrant included in the Unit will be $ (basedon an assumed public offering price of $ per Unit, the midpoint of the pricerange of the Units) per Ordinary Share (100% of the public offering price per Unit). The Units have no stand-alone rights and will notbe certificated or issued as stand-alone securities. The Ordinary Shares and Warrants are immediately separable and will be issued separatelyin this offering. The Warrants offered hereby will be immediately exercisable on the date of issuance and will expire five years fromthe date of issuance.
Additionally,in the event of any adjustment under the Warrants that results in a reduction of the exercise price, in the aggregate, to 50% of theinitial exercise price, then, in connection with such adjustment, each holder of Warrants that purchases at least Warrants(based on an assumed public offering price of $ per Unit, the midpoint of the price rangeof the Units) as part of the Units in this offering, or a Qualified Holder, shall receive one-half of one additional warrant, or an AdditionalWarrant, for each one Qualified Warrant (as defined below) held by such holder on the date of adjustment. The term Qualified Warrantsmeans at least Warrants purchased as part of a Unit in connection with this offeringby any Warrant holder, including each beneficial holder of the Warrants, taken together with all affiliates of such Warrant holder and/orbeneficial holder. The maximum number of Warrants subject to such adjustment by a given Qualified Holder will be limited to the numberof Warrants purchased by such Qualified Holder in connection with this offering. See “Description of the Securities We are Offering— Warrants Included in the Units” for more information. We are therefore also registering under the registration statementof which this prospectus forms a part the Additional Warrants and the Ordinary Shares issuable upon exercise thereof. Also, all calculationsin this prospectus are based on this assumption.
Wehave applied to list our Ordinary Shares and our Warrants on The Nasdaq Capital Market, or Nasdaq, under the symbol “ ”and “ ”,respectively. It is a condition to the closing of this offering that our Ordinary Shares and Warrants qualify for listing on a nationalsecurities exchange.
Weare both an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (or the JOBS Act), and a “foreignprivate issuer,” as defined under the U.S. federal securities law and are subject to reduced public company reporting requirements.See “Prospectus Summary – Implications of Being an Emerging Growth Company and Foreign Private Issuer” for additionalinformation.
Investingin our securities involves a high degree of risk. See “Risk Factors” beginning on page 11.
Neitherthe Securities and Exchange Commission (or the SEC) nor any state or other foreign securities commission has approved nor disapprovedthese securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
| | Per Unit | | | Total | |
Public offering price | | $ | | | | $ | | |
Underwriting discounts and commissions (1) | | $ | | | | $ | | |
Proceeds to us (before expenses) (2) | | $ | | | | $ | | |
| (1) | Does not include a non-accountable expense allowance equal to 1.0% of the initial public offering price payable to the underwriters. In addition, we have agreed to issue warrants to the representative of the underwriters, or the Representative’s Warrants, in an amount equal to 6% of the aggregate number of Ordinary Shares sold in this offering, but excluding the shares sold through the exercise of the over-allotment option). See the section titled “Underwriting” beginning on page 141 of this prospectus for additional disclosure regarding underwriter compensation and offering expenses. |
| (2) | Does not include proceeds from the exercise of the Warrants or Additional Warrants in cash, if any. |
Wehave granted the representative of the underwriters an option to purchase from us, up toadditional Ordinary Shares and/or up to an additional Warrants,within 45 days from the date of this prospectus to cover over-allotments, if any. The purchase price to be paid per additional OrdinaryShare will be equal to the public offering price of one Unit, less the underwriting discount, and the purchase price to be paid per additionalWarrant will be $0.001. If the representative exercises the option in full, the total underwriting discounts and commissions and managementfees payable will be $ and the total proceeds to us, before expenses, will be $ .
Theunderwriters expect to deliver the Ordinary Shares on or about , 2022.
SoleBook-Running Manager
AegisCapital Corp.
Thedate of this prospectus is , 2022.
TABLEOF CONTENTS
Neitherwe nor the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus,any amendment or supplement to this prospectus, or in any free writing prospectus we may authorize to be delivered or made availableto you. Neither we nor the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other informationthat others may give you. We and the underwriters are offering to sell Ordinary Shares and seeking offers to purchase Ordinary Sharesonly in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the dateon the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of Ordinary Shares. Our business,financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.
Throughand including ,2022 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participatingin this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation todeliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Neitherwe nor any of the underwriters have taken any action to permit this offering or possession or distribution of this prospectus in anyjurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves aboutand to observe any restrictions relating to this offering and the distribution of this prospectus.
Captureand Contain and Trap and Target are trademarks of ours that we use in this prospectus. This prospectus also includes trademarks, tradenamesand service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to inthis prospectus often appear without the ® or ™ symbols, but those references are not intended to indicate,in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensorto our trademark and tradenames.
Theterms “shekel,” “Israeli shekel” and “NIS” refer to New Israeli Shekels, the lawful currency of theState of Israel, and the terms “dollar,” “U.S. dollar” or “$” refer to United States dollars, thelawful currency of the United States of America. All references to “shares” in this prospectus refer to Ordinary Shares ofPolyrizon Ltd., par value NIS 0.04 per share.
MARKET,INDUSTRY AND OTHER DATA
Thisprospectus contains estimates, projections and other information concerning our industry, our business, and the markets for our productcandidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subjectto uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information.Unless otherwise expressly stated, we obtained this industry, business, market and other data from our own internal estimates and researchas well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry,medical and general publications, government data and similar sources.
Inaddition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertaintyand risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause ourfuture performance to differ materially from our assumptions and estimates. See “Special Note Regarding Forward-Looking Statements.”
PROSPECTUSSUMMARY
Thissummary highlights selected information contained elsewhere in this prospectus and does not contain all of the information that you shouldconsider in making your investment decision. Before deciding to invest in our securities, you should read this entire prospectus carefully,including the sections of this prospectus entitled “Risk Factors” and “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus.Unless the context otherwise requires, references in this prospectus to the “company,” “Polyrizon,” “we,”“us,” “our” and other similar designations refer to Polyrizon Ltd.
CompanyOverview
Weare a development stage biotech company specializing in the development of innovative medical device hydrogels delivered in the formof nasal sprays, which form a thin hydrogel-based shield containment barrier in the nasal cavity that can provide a barrier against virusesand allergens from contacting the nasal epithelial tissue. Our proprietary Capture and Contain TM, or C&C, hydrogel technology,comprised of a mixture of naturally occurring building blocks, is delivered in the form of nasal sprays, and potentially functions asa “biological mask” with a thin shield containment barrier in the nasal cavity. We are further developing certain aspectsof our C&C hydrogel technology such as the bioadhesion and prolonged retention at the nasal deposition site for intranasal deliveryof drugs. We refer to our additional technology, which is in an earlier stage of pre-clinical development, that is focused on nasal deliveryof active pharmaceutical ingredients, or APIs, as Trap and Target ™, or T&T.
OurProduct Candidates
Ournasal hydrogels have been designed to serve as a non-invasive and fast-acting system. The hydrogels are formulated as an innovative mixtureof mucoadhesive polymers (e.g., sodium alginate) which are Generally Recognized as Safe, or GRAS, by the Federal Drug Administration,or the FDA. Our mucoadhesive polymers derived from seaweed polysaccharides possess promising features as they are renewable, biodegradable,biocompatible, and environment friendly. The formulated hydrogel is sprayed into the nose to create a physical barrier with long-lastingadhesion to the mucosal membranes. Our polymers have an atomic mass much higher than the upper cell penetration limit, the polymers willsimply lay on top of the cells and act as a physical barrier to viruses and allergens from contacting the nasal epithelial tissue, asopposed to penetrating the cells and causing a chemical reaction. Therefore, the C&C product candidates are not expected to be consideredas drugs by the FDA but as medical devices.
Ourleading technologies are C&C and T&T. The C&C technology is a containment barrier against a wide range of allergen particulatesand viruses.
PL-14– Nasal Allergies Blocker
| o | We expect our PL-14 C&C technology medical device product candidate, or our PL-14 product candidate, to be regulated as a Class II medical device by the FDA under its 510(k) pathway. |
| o | Our PL-14 product candidate is scheduled to initiate preclinical safety trials in the third quarter of 2022. In addition, pivotal clinical trials on our PL-14 product candidate is expected to commence in the first quarter of 2023, following which we plan to submit a 510(k) application for FDA clearance. |
| o | For our PL-14 technology product candidate, we will pursue the 510(k) pathway which requires a manufacturer to demonstrate substantial equivalence to an FDA-cleared device (i.e., predicate device) to a subject device (i.e., our product candidate). This process for clearing our device with the FDA entails performing a medical device analysis of the product candidates (e.g., PL-14 product candidate) description, operational principle, potential accessories and proposed intended use, for the purpose of identifying a predicate device that has already been cleared by the FDA. Through this review, we found three possible predicate devices for establishing substantial equivalence, Alzair Allergy Blocker (510(k) Number: K170848), or Alzair, NASAL EASE ALLERGY BLOCKER (510(k) Number: K132520), or Nasalease, and Bentrio Allergy Blocker (510(k) Number: K213114), or Bentrio. There is no guarantee that our PL-14 product candidate will advance in the FDA 510(k) process at the same rate as the aforementioned predicate devices or will reach commercialization. |
| o | The estimated timeline for obtaining 510(k) clearance for our PL-14 product candidate is based on the estimated time needed for the following activities: (i) GMP manufacturing of our clinical trial materials, which usually requires 9-12 months; (ii) biocompatibility preclinical studies, which usually requires 3-6 months (although these studies may be performed concurrently with the GMP manufacturing mentioned above); (iii) clinical trials, which usually requires 6-12 months; and (iv) FDA submission and clearance, which usually requires 3-12 months. Regarding FDA submission and clearance, generally 510(k) applicants can expect submission acceptance review decisions within 15 calendar days, substantive review decisions within 60 days, and final decisions within 90 days. However, the FDA’s time of review does not include time on “hold”, which includes any time spent by us responding to any FDA information requests, meaning that the total timeframe of the review process could take longer than anticipated. In the case of our predicate devices for our PL-14 product candidate, Alzai, Nasalese, and Bentrio, the FDA submission and clearance process took 86 and 140 days, respectively. For additional information, please see “Business – FDA clearance plan for our C&C product candidates.” |
PL-15– COVID-19 and PL-16 – Influenza Blockers
| o | We expect our PL-15 C&C technology medical device product candidate, or our PL-15 product candidate, and our PL-16 C&C technology medical device product candidate, or our PL-16 product candidate, which provide a barrier to COVID-19 and influenza from contacting the nasal epithelial tissue, respectively, to be regulated as a Class II medical device under a De Novo Classification request. |
| o | Our PL-15 and PL-16 product candidates are scheduled to initiate preclinical safety trials in the third quarter of 2022, feasibility clinical trials in the first quarter of 2023 and pivotal clinical trials in the third quarter of 2023. Following these trials, we plan to submit De Novo Classification requests for each product candidate. |
| o | Upon a review similar to the one performed for our PL-14 product candidate, we found that there were no potential predicate devices in the FDA’s database matching the proposed intended uses of our PL-15 and PL-16 product candidates. Because of this, we will pursue a De Novo Classification request for each product candidate. This pathway involves demonstrating that the product candidates provide a reasonable assurance of safety and effectiveness. During the first quarter following the closing of this offering, we intend to submit a Q-submission (Pre-submission) for each product candidate and request a pre-submission meeting with FDA’s Center for Devices and Radiological Health, or CDRH, to confirm the potential for this regulatory path. For more information, please see “Business – Our Product Candidates – The determination process for the C&C product candidates as a Class II medical devices.” |
| o | The estimated timeline for marketing authorization via De Novo Classification grant for our PL-15 and PL-16 product candidates is based on taking similar steps as the steps described above for obtaining 510(k) clearance for our PL-14 product candidate. We estimate a longer period of time for the entire grant process for each of these product candidates due to possibly extended clinical trials requested by the FDA and also due to a longer review timeframe. For additional information, please see “Business – FDA clearance plan for our C&C product candidates.” |
Inthe event the FDA does not agree with our regulatory assessments regarding the C&C product candidates (510(k) for our PL-14 productcandidate, and Class II De Novo pathway for our PL-15 and PL-16 product candidates), it may require us to go through a lengthier, morerigorous examination than we had expected (such as Premarket approval, or PMA, which is the FDA process of scientific and regulatoryreview to evaluate the safety and effectiveness of Class III medical devices. If we are required to pursue a PMA, the introduction ofour product candidates into the market could be delayed significantly. For more information, please see “Risks Related to the Discovery,Development and Clinical Testing of Product Candidates.”
Trapand Target ™ Product Candidates
Incontrast to our C&C product candidates, the hydrogel in our T&T product candidates is formulated differently in order to providefor sustained release of the API. The content of the hydrogel (quantity and quality) in the T&T product candidates is formulateddifferently than the content of C&C product candidates, and therefore enable different functions: physical barrier for the C&Cproduct candidates and API sustained release for the T&T product candidates. It is through these differences that we rationalizethe different regulatory treatment of our C&C and T&T product candidates.
TheT&T platform technology is designed to allow a long residence time and an intimate contact with the mucosal tissue for a targeteddelivery of medicines. We expect that our T&T platform product candidates will be regulated as a combination-product consisting ofa nasal sprayer and formulation consisting of a hydrogel and a generic API, which we intend to pursue under the FDA’s 505(b)(2)pathway. We aim to conduct feasibility studies for our T&T platform product candidates with corticosteroids, benzodiazepines andnaloxone, beginning in the second quarter of 2022 through the second quarter of 2023. Pre-clinical studies will follow and are expectedto begin in either the second or third quarter of 2023. Phase I clinical trials for each of the three product candidates of the T&Ttechnology are planned for the first quarter of 2025, subject to securing additional financing.
People
Ourleadership team has a vast industry experience. Each of our executive management team has over 15 years (on average) of experience inlife science companies, which includes extensive work history in the area of research and development of medical devices, pharmaceuticaland other drug compounds. Our board of directors have similar experience in the life sciences industry as well as strong financial backgroundthat is derived from their roles as executives of publicly-traded companies and having educational backgrounds in finance, business,tax and accounting. We believe that these aforementioned practical and educational experiences of our group will strongly contributeto a successful path from clinical development, regulatory approvals and commercialization of our product candidates. In addition, ourmanagement is supported by our Scientific Advisory Board which is an advisory panel of professors with expertise in drug delivery systems,chemistry and pharmaceuticals.
MarketOpportunities
Webelieve that our technologies have the potential to provide solutions to a broad range of unmet needs in the healthcare market. Withour C&C technology, we aim to introduce solutions to address common medical and public health challenges, such as allergic rhinitisand nasal viral infections, including COVID-19.
Withour T&T technology, we aim to address challenges in the markets of: allergic and non-allergic rhinitis by local intranasal deliveryof corticosteroids; for systemic delivery of central nervous system, or CNS, related drugs for the growing markets of combatting opioidoverdose using intranasal naloxone, and benzodiazepines for seizure clusters.
RecentDevelopments
SciSparcCollaboration
OnMay 30, 2022, we entered into a collaboration agreement with SciSparc Ltd., or SciSparc (Nasdaq: SPRC), a specialty clinical-stage pharmaceuticalcompany focusing on the development of therapies to treat disorders of the central nervous system. As part of the collaboration, we willwork with SciSparc work to develop a unique technology for the treatment of pain, based on SciSparc's SCI-160 platform and our T&Tplatform technology.
Underthe collaboration agreement, SciSparc will pay development fees to us of up to a total of $2,550,000 upon the completion of certain milestones,as well as royalties in the low single digits upon sales of products under the agreement and additional royalties for sales under anysublicense by SciSparc.
NurExoneCollaboration
OnJuly 18, 2022, we signed a collaboration agreement with NurExone Biologic Inc., or NurExone, pursuant to which we will use our T&Tplatform technology to develop formulations, conduct analytical development and produce technicalbatches of a tailored intranasal delivery system. The intranasal system is being designed for delivery of NurExone’s ExoTherapyto patients with traumatic spinal cord injuries and may also be relevant to other indications through intranasal exosome delivery. Pursuantto the collaboration agreement, NurExone will cover the costs of the formulation development in an estimated amount of $220,000 in threeinstallments upon development success and expects to be able to perform a biological efficacy study of the intranasal system within threequarters. NurExone shall pay development fees to us of up to a total of $3,350,000 upon completion of certain milestones, including thepayment of an aggregate of $500,000 upon successful completion of a Phase 2 clinical trial. Moreover, NurExone shall pay royalties basedon any product sales resulting from the collaboration agreement. In advanced stages of the collaboration, we may assist NurExone withregulatory submissions for the United States and Europe. Manufacturing and marketing rights for formulations under the collaborationagreement are exclusive to NurExone.
CorporateInformation
Weare an Israeli corporation based in Israel near Raanana, and were incorporated in January 2005. Our principal executive offices are locatedat 5 Ha-Tidhar Street, Raanana, 4366507, Israel. Our telephone number is +972-9-93740333. Our website address is www.polyrizon-biotech.com.The information contained on our website and available through our website is not incorporated by reference into and should not be considereda part of this prospectus, and the reference to our website in this prospectus is an inactive textual reference only.
Summaryof Risks Associated with our Business
Ourbusiness is subject to a number of risks of which you should be aware before a decision to invest in our Ordinary Shares. You shouldcarefully consider all the information set forth in this prospectus and, in particular, should evaluate the specific factors set forthin the sections titled “Risk Factors” before deciding whether to invest in our Ordinary Shares. Among these important risksare, but not limited to, the following:
RisksRelated to Our Financial Condition and Capital Requirements
| ● | We have incurred significant losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future. We have never generated any revenue from product candidates sales and may never be profitable. |
| | |
| ● | We expect that we will need to raise substantial additional funding, which may not be available on acceptable terms, or at all. Failure to obtain funding on acceptable terms and on a timely basis may require us to curtail, delay or discontinue our product candidates development efforts or other operations. |
RisksRelated to the Discovery, Development and Clinical Testing of Product Candidates
| ● | We depend on enrollment of patients in our upcoming clinical trials in order to continue development of our product candidates. |
| | |
| ● | We may not receive, or may be delayed in receiving, the necessary clearances or approvals for our product candidates, failure to timely obtain necessary clearances or approvals would adversely affect our ability to grow our business. |
| ● | We do not plan to conduct a pre-submission meeting with the FDA’s CDRH to confirm the potential for the Class II medical device path under a de novo classification request for our PL-15 and PL-16 products until after the completion of this initial public offering. If we are denied submission under the de novo pathway, it may require us to go through a different pathway, such as a PMA pathway, which may result in a lengthier approval process for our devices. |
| ● | Legislative or regulatory reforms in the United States or the European Union may make it more difficult and costly for us to obtain regulatory clearances or approvals for our product candidates or to manufacture, market or distribute our product candidates after clearance or approval is obtained. |
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| ● | We are heavily dependent on the success of our C&C product candidates. |
| ● | Regulatory approval processes of the FDA, EMA and comparable foreign regulatory authorities are lengthy, time-consuming and unpredictable, if we are unable to obtain regulatory clearances, grants and approvals, our business may fail. |
| ● | If the FDA does not conclude that our T&T platform product candidate satisfies the requirements under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA, or Section 505(b)(2), or if we are unable to utilize the hybrid application pathway in the European Union, or if the requirements are not as we expect, the approval pathway for our T&T platform product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful. |
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| ● | Our C&C and T&T technologies are novel technologies, which makes it difficult to accurately and reliably predict the time and cost of development and regulatory approval. |
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| ● | As an organization, we have not previously conducted pivotal clinical trials, and we may be unable to do so for any product candidates we may develop, including our T&T platform product candidates. |
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| ● | We may find it difficult to enroll patients in our clinical trials due to various reasons, including possible disruption due to the COVID-19 pandemic, which could delay or prevent us from proceeding with such trials. |
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| ● | Our product candidates and the administration of our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval. |
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| ● | We may be subject, directly or indirectly, to U.S. federal and state healthcare fraud and abuse laws, false claims laws, physician payment transparency laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties. |
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| ● | We face intense competition in an environment of rapid technological change, which may adversely affect our financial condition and our ability to successfully market or commercialize our product candidates. |
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| ● | The misuse or off-label use of our product candidates may harm our reputation in the marketplace, result in injuries that lead to product candidates liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business. |
RisksRelated to our Reliance on Third Parties
| ● | We will rely on third parties to conduct certain elements of our preclinical studies and clinical trials and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates. |
| ● | Independent clinical investigators and CROs that we will engage to conduct our clinical trials may not devote sufficient time or attention to our clinical trials or be able to repeat their past success. |
| ● | We rely on third parties to manufacture the raw materials that we use to create our product candidates. Our business could be harmed if existing and prospective third parties fail to provide us with sufficient quantities of these materials and product candidates or fail to do so at acceptable quality levels or prices. |
RisksRelated to Our Intellectual Property
| ● | If we are unable to obtain and maintain effective patent rights for our product candidates or any future product candidates, we may not be able to compete effectively in our markets. If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us. |
| ● | Changes in patent policy and national intellectual property laws could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents. |
| ● | We may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful. |
| ● | We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers, and we may be subject to claims challenging the inventorship of our intellectual property. |
Risks Relatedto Our Business Operations
| ● | Our business, operations and financial performance have been and may continue to be impacted by the COVID-19 pandemic. |
| ● | We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations. |
| ● | Due to our limited resources and access to capital, we must, and have in the past decided to, prioritize development of certain product candidates over other potential candidates. These decisions may prove to have been wrong and may adversely affect our revenues. |
| ● | We may not be successful in our efforts to identify, discover or license additional product candidates. |
| ● | Our employees and independent contractors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements. |
| ● | Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. |
RisksRelated to Commercialization of Our Product Candidates
| ● | We currently have no marketing and sales organization. If we are unable to establish marketing and sales capabilities, or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any product candidates revenue. |
| ● | We are subject to significant regulatory oversight with respect to manufacturing our product candidates. Delays in establishing and obtaining regulatory approval of our manufacturing process may delay or disrupt our product candidates development and commercialization efforts. |
| ● | If we receive marketing approval for our product candidates, sales will be limited unless the product candidates achieves broad market acceptance. |
| ● | It may be difficult for us to profitably sell our product candidates if coverage and reimbursement for these product candidates is limited by government authorities and/or third-party payor policies. |
| ● | Our business entails a significant risk of clinical trial and/or product candidates liability and our ability to obtain sufficient insurance coverage could have a material effect on our business, financial condition, results of operations or prospects. |
RisksRelated to this Offering and Ownership of Our Securities
| ● | Our executive officers, directors and principal shareholders will maintain the ability to exert significant control over matters submitted to our shareholders for approval. |
| ● | We believe that we were likely a “passive foreign investment company”, or PFIC, for U.S. federal income tax purposes in 2021, and may likely be a PFIC in the current or any subsequent taxable year. If we are a PFIC in any taxable year during which a U.S. taxpayer holds our Equity Securities (defined below) (including Warrants, which are treated as PFIC stock), such U.S. taxpayer would be subject to certain adverse U.S. federal income tax rules. In particular, if the U.S. taxpayer did not make an election to treat us as a “qualified electing fund”, or QEF, or make a “mark-to-market” election, then “excess distributions” to the U.S. taxpayer, and any gain realized on the sale or other disposition of our Equity Securities by the U.S. taxpayer: (1) would be allocated ratably over the U.S. taxpayer’s holding period for our Equity Securities; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. A QEF election and a “mark-to-market” election will each be unavailable with respect to our Warrants. For a more detailed explanation please, see the complete risk factor on page 11, and see “Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Companies” on page 139. |
| ● | If a United States person is treated as owning at least 10% of our shares, such holder may be subject to adverse U.S. federal income tax consequences. |
| ● | As a foreign private issuer, we intend to follow certain home country corporate practices instead of Nasdaq requirements, and we will not be subject to certain U.S. securities laws. |
| ● | We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our Ordinary Shares less attractive to investors. |
RisksRelated to Israeli Law and Our Operations in Israel
| ● | Our headquarters and other significant operations are located in Israel, and, therefore, our results may be adversely affected by political, economic and military instability in Israel. |
| ● | It may be difficult to enforce a judgment of a U.S. court against us and our executive officers and directors in Israel, to assert U.S. securities laws claims in Israel or to serve process on us. |
| ● | Your rights and responsibilities as a shareholder will be governed in key respects by Israeli laws, which differs from U.S. companies. |
Implicationsof Being an “Emerging Growth Company” and a Foreign Private Issuer
EmergingGrowth Company
Asa company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company”as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specifiedreduced reporting and other burdens that are otherwise applicable generally to public companies. In particular, as an emerging growthcompany, we:
| ● | may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure in our initial registration statement; |
| ● | are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives, which is commonly referred to as “compensation discussion and analysis”; |
| ● | are not required to obtain a non-binding advisory vote from our shareholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on frequency” and “say-on-golden-parachute” votes); |
| ● | will not be required to conduct an evaluation of our internal control over financial reporting; |
| ● | are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and chief executive officer pay ratio disclosure; and |
| ● | an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002. |
Wemay take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. Wewould cease to be an emerging growth company upon the earlier to occur of: (1) the last day of the fiscal year in which we havetotal annual gross revenues of $1.07 billion or more; (2) the date on which we have issued more than $1.0 billion in nonconvertibledebt during the previous three years; or (3) the date on which we are deemed to be a large accelerated filer under the rules ofthe Securities and Exchange Commission, or the SEC. We may choose to take advantage of some but not all of these reduced burdens, andtherefore the information that we provide holders of our Ordinary Shares may be different than the information you might receive fromother public companies in which you hold equity. In addition, Section 107 of the JOBS Act also provides that an emerging growthcompany can take advantage of an extended transition period for complying with new or revised accounting standards applicable to publiccompanies. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards andto adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standardselection, we will not be subject to the same implementation timing for new or revised accounting standards as other public companiesthat are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult.In addition, the information that we provide in this prospectus may be different than the information you may receive from other publiccompanies in which you hold equity interests.
ForeignPrivate Issuer
Uponconsummation of this offering, we will report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S.company with foreign private issuer status. Even after we no longer qualify as an emerging growth company, as long as we continue toqualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicableto U.S. domestic public companies, including:
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations with respect to a security registered under the Exchange Act; |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and |
| ● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial statements and other specified information, and current reports on Form 8-K upon the occurrence of specified significant events. |
Wewill be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publishour results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the Nasdaq Stock Exchange.Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the informationwe are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed withthe SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made availableto you, were you investing in a U.S. domestic issuer.
Wemay take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign privateissuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstancesapplies: (i) the majority of our executive officers or directors are U.S. citizens or residents; (ii) more than 50% of our assets arelocated in the United States; or (iii) our business is administered principally in the United States.
Bothforeign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure rules.Thus, even if we no longer qualify as an emerging growth company, but remain a foreign private issuer, we will continue to be exemptfrom the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign privateissuer.
THEOFFERING
Ordinary Shares currently issued and outstanding | | 29,367,786 Ordinary Shares |
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Units offered by us | | Units (based on an assumed public offering price of $ per Unit, the midpoint of the range set forth on the cover page of this prospectus), each consisting of one Ordinary Share and two Warrants, each to purchase one Ordinary Share. The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The Ordinary Shares and Warrants are immediately separable and will be issued separately in this offering. |
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Warrants | | EachWarrant will have an exercise price of $ (based on an assumed public offering price of $ per Unit), per Ordinary Share (100% of the publicoffering price per Unit), will be immediately exercisable and will expire five years from the date of issuance. Subjectto certain exemptions outlined in the Warrant, for a period until the later of: (i) two years from the date of issuance of the Warrant,or (ii) on the date no Qualified Holders hold any Warrants, if the Company shall sell, enter into an agreement to sell, or grantany option to purchase, or sell, enter into an agreement to sell, or grant any right to reprice, or otherwise dispose of or issue (orannounce any offer, sale, grant or any option to purchase or other disposition) any Ordinary Shares or convertible security, atan effective price per share less than the exercise price of the Warrant then in effect, or a Dilutive Issuance, the exercise price ofthe Warrant shall be reduced to equal the effective price per share in such Dilutive Issuance; provided, however, that in no eventshall the exercise price of the Warrant be reduced to an exercise price lower than 50% of public offering price per Unit in this offering. Onthe date that is 90 calendar days immediately following the initial issuance date of the Warrants, the exercise price of the Warrantswill adjust to be equal to the Reset Price (as defined below), provided that such value is less than the exercise price in effecton that date. The Reset Price means such number equal to the greater of (a) 50% of the initial exercise price (as adjustedfor share splits, share dividends, recapitalizations and similar events pursuant to Section 3(a) of the Warrants) of the Warrants onthe issuance date or (b) 100% of the lowest volume weighted average price per Ordinary Share occurring during the 90 calendar daysfollowing the issuance date of the Warrants. Thelowest Reset Price is $ , which is 50% of offering price, based on an assumed public offering price of $ per Unit, the midpoint of theprice range of the Units, per Ordinary Share. Additionally,in the event of any adjustment under the Warrants that results in a reduction of the exercise price, in the aggregate, to 50% of theinitial exercise price, then in connection with such adjustment, each holder of Warrants that purchases at least Warrants(based on an assumed public offering price of $ per Unit, the midpoint of the price range of the Units) in connection with this offering,or a Qualified Holder, shall receive an Additional Warrant for each one Qualified Warrant held by such holder on the date of adjustment. Tobetter understand the terms of the Warrants, you should carefully read the “Description of the Securities We are Offering”section of this prospectus. You should also read the form of Warrant, which is filed as an exhibit to the registration statement of whichthis prospectus forms a part. The exercise price adjustments and the grant of Additional Warrants upon a reduction in the exercise pricewere offered to Warrant holders based on market conditions. |
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Ordinary Shares to be issued and outstanding after this offering | | Ordinary Shares (assuming no exercise of the representative’s warrant and excluding Ordinary Shares issuable upon exercise of the Warrants and Additional Warrants sold in this offering), or Ordinary Shares if the underwriter exercises in full the over-allotment option to purchase additional Ordinary Shares. |
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Over-allotment option | | We have granted the representative of the underwriters an option to purchase from us, up to additional Ordinary Shares, and/or up to an additional Warrants, within 45 days from the date of this prospectus to cover over-allotments, if any. The purchase price to be paid per additional Ordinary Share will be equal to the public offering price of one Unit (less $0.001 allocated to each Warrant), as applicable, less the underwriting discount, and the purchase price to be paid per additional Warrant will be $0.001. |
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Representative’s Warrants | | We will issue to the representative of the underwriters Representative’s Warrants to purchase up to Ordinary Shares. The Representative’s Warrants will have an exercise price of 125% of the per Unit public offering price, will be exercisable on the date of issuance and will expire five years from the effective date of the registration statement of which this prospectus forms a part. For additional information regarding our arrangement with the underwriters, please see “Underwriting.” |
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Lock-Up Agreements | | Our directors, executive officers, and any other holder(s) of five percent (5%) or more of the outstanding shares have agreed with the representative not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Ordinary Shares or securities convertible into Ordinary Shares for a period of 180 days from the closing of this offering. |
Use of proceeds | | We expect to receive approximately $ million in net proceeds from the sale of securities offered by us in this offering (approximately $ million if the underwriter exercises its over-allotment option in full), based upon an assumed public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We currently expect to use the net proceeds from this offering for the following purposes: ● approximately $ million to complete the preclinical and clinical development and submit a 510(k) application to the FDA for our PL-14, PL-15 and PL-16 product candidates; ● approximately $ million to complete in vitro feasibility as well as preclinical studies of corticosteroid, benzodiazepine, and naloxone for our T&T platform technology product candidates ; and ● the remainder for working capital and general corporate purposes and possible future acquisitions. The amounts and schedule of our actual expenditures will depend on multiple factors. As a result, our management will have broad discretion in the application of the net proceeds of this offering. |
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Risk factors | | Investing in our securities involves a high degree of risk. You should read the “Risk Factors” section starting on page 11 of this prospectus for a discussion of factors to consider carefully before deciding to invest in the Ordinary Shares. |
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Nasdaq Capital Market symbol: | | We have applied to list the Ordinary Shares and our Warrants on Nasdaq under the symbol “ ” and “ ”, respectively. No assurance can be given that our application will be approved or that a trading market will develop. |
Thenumber of the Ordinary Shares to be issued and outstanding immediately after this offering as shown above assumes that all of the OrdinaryShares offered hereby are sold, and is based on 29,367,786 Ordinary Shares issued and outstanding as of the date of this prospectus.This number excludes:
| ● | 1,465,289 Ordinary Shares issuable upon the exercise of options to directors, employees and consultants under our incentive option plan outstanding as of such date, with exercise price at a range of $0.0326-$0.0544 per share, of which 1,132,766 were vested as of such date (including 533,528 options which vests upon the completion of this offering); and |
| ● | such number of Ordinary Shares issuable upon the exercise of options representing 2.5% of the Company’s post-initial public offering issued and outstanding shares which shall vest and become exercisable over a total period of three years commencing on the grant date on a monthly basis in equal installments which will be granted to Company’s Chief Executive Officer subsequent to the completion of this offering. |
| ● | 3,518,010 Ordinary Shares reserved for future issuance under our incentive option plan. |
Unlessotherwise indicated, all information in this prospectus assumes or gives effect to:
| ● | no exercise of the underwriter’s over-allotment option; |
| ● | no exercise of the Warrants, Additional Warrants or the Representative’s Warrants; |
| ● | the issuance of ordinary shares upon the automatic conversion of a Simple Agreement for Future Equity, or SAFE, investment in the amount of $250, upon the completion of this offering at an assumed conversion price equal to $ , the midpoint of the price range set forth on the cover page of this prospectus; and |
| ● | the issuance of 2,180,201 Ordinary Shares upon the automatic conversion of the 2,180,201 Preferred Shares issued and outstanding as of the date hereof, which will automatically convert upon the completion of this offering. |
See“Description of Share Capital and Governing Documents” for additional information.
SUMMARYFINANCIAL DATA
Thefollowing table summarizes our financial data. We have derived the following statements of comprehensive loss data for the years endedDecember 31, 2021 and 2020 and the balance sheet data as of December 31, 2021 from our audited financial statements includedelsewhere in this prospectus. Such financial statements have been prepared in accordance with U.S. GAAP. Our historical results are notnecessarily indicative of the results that may be expected in the future, and our results for any interim period are not necessarilyindicative of results that may be expected for any full year. The following summary financial data should be read in conjunction with“Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations”and our audited financial statements and related notes included elsewhere in this prospectus.
(in thousands of USD, except share and per share data) | | Year Ended December 31, | |
| | 2021 | | | 2020 | |
Statements of Operations Data: | | | | | | |
Research and development expenses | | | 245 | | | | 38 | |
General and administrative expenses | | | 458 | | | | 34 | |
Operating loss | | | 703 | | | | 72 | |
Finance expenses, net | | | 8 | | | | 1 | |
Net loss | | | 711 | | | | 73 | |
Basic and diluted loss per share | | | 0.05 | | | | 0.03 | |
Weighted average number of shares outstanding used in computing basic and diluted loss per share | | | 14,727,407 | | | | 4,109,443 | |
(in thousands of USD) | | As of December 31, 2021 | |
| | | | | | | | Pro Forma | |
| | Actual | | | Pro Forma (1) | | | As Adjusted (2) | |
Balance Sheet Data: | | | | | | | | | |
Cash and cash equivalents | | $ | 523 | | | $ | | | | $ | | |
Deferred offering costs | | $ | 125 | | | $ | | | | $ | | |
Other current assets | | $ | 21 | | | $ | | | | $ | | |
Property and equipment, net | | $ | 18 | | | $ | | | | $ | | |
Total assets | | $ | 687 | | | $ | | | | $ | | |
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Employees and payroll related liabilities | | $ | 18 | | | $ | | | | $ | | |
Accrued expenses | | $ | 156 | | | $ | | | | $ | | |
Derivative warrant liability | | $ | 516 | | | | | | | | | |
Total current liabilities | | | 690 | | | | | | | | | |
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Temporary equity | | $ | 248 | | | $ | | | | $ | | |
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Ordinary shares | | $ | 326 | | | $ | | | | $ | | |
Additional paid-in capital | | $ | 1,565 | | | $ | | | | $ | | |
Accumulated deficit | | $ | (2,142 | ) | | $ | | | | $ | | |
Total shareholders’ equity | | $ | (251 | ) | | $ | | | | $ | | |
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Total liabilities, temporary equity and shareholders’ equity | | $ | 687 | | | $ | | | | $ | | |
| (1) | Pro Forma data gives effect to the following events as if each event had occurred on or before December 31, 2021: (i) the conversion of 2,180,201 preferred shares into 2,180,201 Ordinary Shares; and (ii) the issuance of Ordinary Shares pursuant to the 2022 SAFE Agreements (defined below), based on an assumed offering price of $ per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus; |
| (2) | Pro Forma as Adjusted data gives additional effect to the sale of securities in this offering at an initial public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as if the sale had occurred on December 31, 2021. |
Theas adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price andother terms of our initial public offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offeringprice of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus,would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term deposits, total assets andshareholders’ equity (deficiency) by $ million, assuming that the number of Units offeredby us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts andcommissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million Units offered by us atthe assumed initial public offering price would increase (decrease) each of cash, cash equivalents and short-term deposits, total assetsand shareholders’ equity (deficiency) by $ million.
RISKFACTORS
Investingin our Securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below, in additionto the other information set forth in this prospectus, including the financial statements and the related notes included elsewhere inthis prospectus, before purchasing our Ordinary Shares or Warrants. If any of the following risks actually occurs, our business, financialcondition, cash flows and results of operations could be negatively impacted. In that case, the trading price of our Ordinary Sharesor Warrants would likely decline and you might lose all or part of your investment.
RisksRelated to Our Financial Condition and Capital Requirements
Wehave incurred significant losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeablefuture, and we may never achieve or maintain profitability.
Weare a development stage biotech company. We have incurred operating losses since our inception, including operating losses of $703,000and $72,000 for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $2.1million. We have devoted substantially all of our financial resources to designing and developing our C&C product candidates, includingpreclinical studies and clinical development and providing general and administrative support for these operations. We expect that ourexpenses and operating losses will increase for the foreseeable future as we continue clinical development of our C&C product candidatesto provide a barrier against allergens, influenza and COVID-19 from contacting the nasal epithelial tissue and develop other productcandidates using our T&T platform technology for nasal delivery of APIs. Our ability to ultimately achieve revenues and profitabilityis dependent upon our ability to successfully complete the development of our C&C product candidates and any future product candidates,obtain necessary regulatory approvals for and successfully manufacture, market and commercialize our product candidates.
Weanticipate that our expenses will increase substantially based on a number of factors, including to the extent that we:
| ● | Begin our planned clinical trial of our C&C product candidates in the third quarter of 2022; |
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| ● | seek regulatory and marketing approvals for any product candidates that successfully complete clinical trials; |
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| ● | advance our preclinical and research and development programs; |
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| ● | identify, assess, acquire, license and/or develop other product candidates; |
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| ● | manufacture current good manufacturing practices, or cGMP, material for clinical trials or potential commercial sales; |
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| ● | establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval; |
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| ● | hire personnel and invest in additional infrastructure to support our operations as a public company and expand our product candidates development; |
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| ● | enter into agreements to license intellectual property from third parties; |
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| ● | develop, maintain, protect and expand our intellectual property portfolio; and |
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| ● | experience any delays or encounter issues with respect to any of the above, including, but not limited to, failed trials, complex results, safety issues or other regulatory challenges that require longer follow-up of existing clinical trials, additional major clinical trials or additional supportive studies in order to pursue marketing approval. |
Todate, we have financed our operations primarily through the sale of equity securities, convertible loans made by certain of our shareholders,royalty-bearing and non-royalty bearing grants that we received from the Israeli Innovation Authority, or the IIA. The amount of anyfuture operating losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equityor debt financings, strategic collaborations or grants. Even if we obtain regulatory approval to market one or more product candidates,our future revenue will depend upon the size of any markets in which such product candidates receive approval and our ability to achievesufficient market acceptance, pricing, reimbursement from third-party payors for such product candidates. Further, the operating lossesthat we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our resultsof operations may not be a good indication of our future performance. Other unanticipated costs may also arise.
Wehave never generated any revenue from product candidates sales and may never be profitable.
Wehave no product approved for marketing in any jurisdiction and we have never generated any revenue from product candidates sales. Ourability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfullycomplete the development of, and obtain the regulatory and marketing approvals necessary to commercialize, our product candidates orany future product candidates. We do not anticipate generating revenue from product candidates sales for at least the next year. Ourability to generate future revenue from product candidates sales will depend heavily on our ability to:
| ● | complete research and preclinical and clinical development of our product candidates and any future product candidates in a timely and successful manner, including our C&C product candidates to provide a barrier against viruses and allergens from contacting the nasal epithelial tissue. |
| ● | obtain regulatory and marketing approval for any product candidates for which we complete clinical trials; |
| ● | maintain and enhance a commercially viable, sustainable, scalable, reproducible and transferable manufacturing process for our technology product candidates and any future product candidates that is compliant with cGMPs; |
| ● | establish and maintain supply and, if applicable, manufacturing relationships with third parties that can provide, in both amount and quality, adequate product candidates to support clinical development and the market demand for our technology product candidates and any future product candidates, if and when approved; |
| ● | launch and commercialize any product candidates for which we obtain regulatory and marketing approval, either directly by establishing a sales force, marketing and distribution infrastructure, and/or with collaborators or distributors; |
| ● | expose and educate physicians and other medical professionals to use our product candidates; |
| ● | obtain market acceptance, if and when approved, of our product candidates and any future product candidates from the medical community and third-party payors; |
| ● | ensure our product candidates are approved for reimbursement from governmental agencies, healthcare providers and insurers in jurisdictions where they have been approved for marketing; |
| ● | address any competing technological and market developments that impact our product candidates and any future product candidates or their prospective usage by medical professionals; |
| ● | identify, assess, acquire and/or develop new product candidates; |
| ● | negotiate favorable terms in any collaboration, licensing or other arrangements into which we may enter and perform our obligations under such collaborations; |
| ● | maintain, protect and expand our portfolio of intellectual property rights, including patents, patent applications, trade secrets and know-how; |
| ● | avoid and defend against third-party interference or infringement claims; |
| ● | attract, hire and retain qualified personnel; and |
| ● | locate and lease or acquire suitable facilities to support our clinical development, manufacturing facilities and commercial expansion. |
Evenif our product candidates or any future product candidates are approved for marketing and sale, we anticipate incurring significant incrementalcosts associated with commercializing such product candidates. Our expenses could increase beyond expectations if we are required bythe FDA, the EMA or other regulatory agencies, domestic or foreign, or ethical committees in medical centers, to change our manufacturingprocesses or assays or to perform clinical, nonclinical or other types of studies in addition to those that we currently anticipate.Even if we are successful in obtaining regulatory approvals to market our technology product candidates or any future product candidates,our revenue earned from such product candidates will be dependent in part upon the breadth of the product candidates label, the sizeof the markets in the territories for which we gain regulatory approval for such product candidates, the accepted price for such productcandidates, our ability to obtain reimbursement for such product candidates at any price, whether we own the commercial rights for thatterritory in which such product candidates have been approved and the expenses associated with manufacturing and marketing such productcandidates for such markets. Therefore, we may not generate significant revenue from the sale of such product candidates, even if approved.Further, if we are not able to generate significant revenue from the sale of our approved product candidates, we may be forced to curtailor cease our operations. Due to the numerous risks and uncertainties involved in product candidates development, it is difficult to predictthe timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability.
Weexpect that we will need to raise substantial additional funding, which may not be available on acceptable terms, or at all. Failureto obtain funding on acceptable terms and on a timely basis may require us to curtail, delay or discontinue our product candidates developmentefforts or other operations.
Weare currently advancing our C&C product candidates through pre-clinical and clinical development in multiple indications, in orderto obtain regulatory approvals. Developing product candidates is expensive, and we expect our research and development expenses to increasesubstantially in connection with our ongoing activities, particularly as we advance product candidates through clinical trials and regulatoryapprovals. Furthermore, we expect to incur additional ongoing costs associated with operating as a public company.
Todate, we have financed our operations primarily through the sale of equity securities. As of December 31, 2021, we had cash, cash equivalentsof $523,000. We will require significant additional financing to fund our operations. Our future funding requirements will depend onmany factors, including but not limited to:
| ● | the progress, results and costs of our anticipated clinical trials of our C&C product candidate and any future product candidates; |
| ● | the cost, timing and outcomes of regulatory review of our product candidates and any future product candidates; |
| ● | the scope, progress, results and costs of product candidates development, laboratory testing, manufacturing, preclinical development and clinical trials for any other product candidates that we may develop or otherwise obtain in the future; |
| ● | the cost of our future activities, including establishing sales, marketing and distribution capabilities for any product candidates in any particular geography where we receive marketing approval for such product candidates; |
| ● | the terms and timing of any collaborative, licensing and other arrangements that we may establish; |
| ● | the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and |
| ● | the level of revenue, if any, received from commercial sales of any product candidates for which we receive marketing approval. |
Identifyingpotential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain processthat takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieveproduct candidates sales. In addition, our product candidates, if and when approved, may not achieve commercial success. Our productcandidates revenues, if any, will be derived from or based on sales of product candidates that may not be commercially available formany years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Anyadditional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability todevelop and commercialize our product candidates.
Wecannot guarantee that financing will be available in sufficient amounts or on terms acceptable to us, if at all, and the terms of anyfinancing may adversely affect the interests or rights of our shareholders. Even if we believe that we have sufficient funds for ourcurrent or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategicconsiderations. The issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may causethe market price of our shares to decline. Further, our ability to raise additional capital may be adversely impacted by potential worseningglobal economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States andworldwide resulting from the ongoing COVID-19 pandemic.
Tothe extent that we raise capital through the sale of equity or convertible debt securities, your ownership interest will be diluted,and the terms of such securities may include liquidation or other preferences that adversely affect your rights as a shareholder. Debtfinancing, if available, may involve covenants restricting our operations or our ability to incur additional debt. If we raise fundsthrough collaboration and licensing arrangements with third parties, it may be necessary to relinquish certain rights to our technologiesor our product candidates, or to grant licenses on terms that are not favorable to us.
Ifwe are unable to obtain funding on acceptable terms and on a timely basis, we may be required to significantly curtail, delay or discontinueone or more of our research, development or manufacturing programs or the commercialization of any approved product candidates, or beunable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect ourbusiness, financial condition and results of operations.
Ourfinancial statements contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern, whichcould prevent us from obtaining new financing on reasonable terms or at all.
Ouraudited financial statements for the year ended December 31, 2021, contain an explanatory paragraph regarding substantial doubt aboutour ability to continue as a going concern. We have net losses in each year since our inception, including a net loss of approximately$711,000 for the year ended December 31, 2021. These events and conditions, along with other matters, indicate that amaterial uncertainty exists that may cast significant doubt on our ability to continue as a going concern. The financial statements for2021 do not include any adjustments that might result from the outcome of this uncertainty. This going concern opinion could materiallylimit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Further financial statementsmay include an explanatory paragraph with respect to our ability to continue as a going concern. Until we can generate significant recurringrevenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain that additional funding willbe available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminateresearch or development plans for, or commercialization efforts with respect to our product candidates. This may raise substantial doubtsabout our ability to continue as a going concern.
RisksRelated to the Discovery, Development and Clinical Testing of Product Candidates
Wedepend on enrollment of patients in our upcoming clinical trials in order to continue development of our product candidates.
Weintend conduct clinical trials as part of the development of our product candidates. Our anticipated time to data in these trials issubject to our ability to recruit sufficient eligible patients and the number and size of cohorts that will need to be enrolled priorto observing activity, if achieved at all for the dose escalation and expansion arms of the relevant trials. There can be no assurancethat we will complete enrollment or have data from the trials when we anticipate or at all. The timely completion of clinical trialsin accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients that are inline with our inclusions and exclusion criteria and our ability to monitor these patients as required.
Wemay experience difficulties in patient enrollment in our clinical trials for a variety of reasons. Patient enrollment is affected bymany factors including the size and nature of the patient population, the eligibility criteria for the trial, the design of the clinicaltrial, the size of the patient population required for analysis of the trial’s primary endpoints, the proximity of patients tostudy sites, our ability to recruit clinical trial investigators with the appropriate competencies and experience, the number of enrollingclinical sites, our ability to obtain and maintain patient consents, the risk that patients enrolled in clinical trials will drop outof the trials before completion, and competing clinical trials (including other clinical trials that we are conducting or will conductin the future) and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relationto other available therapies, or competing drugs against the same target as well as any new drugs that may be approved for the indicationswe are investigating.
Additionally,we must compete for clinical sites, clinicians and the limited number of patients who fulfill the stringent requirements for participationin clinical trials. Also, due to the confidential nature of clinical trials, we do not know how many of the eligible patients may beenrolled in competing studies and who are consequently not available to us for our clinical trials. Our clinical trials may be delayedor terminated due to the inability to enroll enough patients. The delay or inability to meet planned patient enrollment may result inincreased costs and delay or termination of our trials, which could have a harmful effect on our ability to develop product candidates.While we are only in the early stages of pre-clinical development for our T&T platform, the foregoing and similar regulatory risksmay impact our business, results of operations and prospects as we progress with the development of our T&T platform.
Wemay not receive, or may be delayed in receiving, the necessary clearances or approvals for our C&C product candidates or future productcandidates, and failure to timely obtain necessary clearances or approvals for our C&C product candidates or future product candidateswould adversely affect our ability to grow our business.
Inthe United States, before we can market a new medical device, or a new use of, new claim for or significant modification to an existingproduct candidates, we must first receive either clearance under Section 510(k) of the FFDCA or approval of a pre-market approval application,or a PMA, from the FDA, unless an exemption applies. In the clearance process for Section 510(k) of the FFDCA, or Section 510(k), beforea device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed“predicate” device, which is defined as a device that has been previously cleared through the 510(k) process, a device thatwas legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant toan approved PMA and later down-classified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed devicemust have the same intended use as the predicate device, and either have the same technological characteristics as the predicate deviceor have different technological characteristics that do not raise different questions of safety or effectiveness than the predicate device.Clinical data are sometimes required to support substantial equivalence. In the process of obtaining PMA approval, the FDA must determinethat a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical,pre-clinical, clinical trial, manufacturing and labeling data. For a PMA, the FDA is making a determination that the probable benefitsmust be determined to outweigh the probable risk of the device for the labeled indication, and there must be a reasonable assurance ofsafety and effectiveness.
Modificationsto product candidates that are approved through a PMA application generally require FDA approval. Similarly, certain modifications madeto product candidates cleared through a 510(k) may require a new 510(k) clearance. Both the PMA approval and the 510(k) clearance processcan be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months, but can lastlonger. The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from oneto three years, or even longer, from the time the application is submitted to the FDA. In addition, a PMA generally requires the performanceof one or more clinical trials. Despite the time, effort and cost, a device may not be approved or cleared by the FDA. Any delay or failureto obtain necessary regulatory clearances or approvals could harm our business. Furthermore, even if we are granted regulatory clearancesor approvals, they may include significant limitations on the indications for use of the device or other restrictions or requirements,which may limit the market for the device.
Inthe United States, we expect to take a multi-step approach to the regulatory clearance process. The review process is an iterative processand may be more costly and time consuming than we expect and we may not ultimately be successful in completing the review process andour 510 (k) application may not be cleared by the FDA in a timely manner or at all. If cleared, any modification to our C&C productcandidate that has not been previously cleared may require us to submit a new 510(k) application and obtain clearance, or submit a PMAand obtain FDA approval prior to implementing the change. Specifically, any modification to a 510(k)-cleared device that could significantlyaffect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new510(k) clearance or, possibly, approval of a PMA. The FDA requires every manufacturer to make this determination in the first instance,but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances orapprovals are necessary. We may make modifications or add additional features in the future that we believe do not require a new 510(k)clearance or approval of a PMA. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or PMAapplications for modifications to our previously cleared product candidates for which we have concluded that new clearances or approvalsare unnecessary, we may be required to cease marketing or to recall the modified product candidates until we obtain clearance or approval,and we may be subject to significant regulatory fines or penalties. If the FDA requires us to go through a lengthier, more rigorous examinationfor future product candidates or modifications to existing product candidates than we had expected, product candidates introductionsor modifications could be delayed or canceled, which could adversely affect our ability to grow our business.
TheFDA can delay, limit or deny clearance or approval of a medical device for many reasons, including:
| ● | our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our product candidates are safe or effective for their intended uses; |
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| ● | the disagreement of the FDA or the applicable foreign regulatory body with the design or the interpretation of data from pre- clinical studies or clinical trials; |
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| ● | serious and unexpected adverse effects experienced by participants in our clinical trials; |
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| ● | the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required; |
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| ● | our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; |
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| ● | the manufacturing process or facilities we use may not meet applicable requirements; and |
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| ● | the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval. |
Inorder to sell our product candidates in member states of the European Union, or the EU, our product candidates must comply with the generalsafety and performance requirements of the EU Medical Devices Regulation (Regulation (EU) No 2017/745), which repeals and replaces theEU Medical Devices Directive (Council Directive 93/42/EEC). Compliance with these requirements is a prerequisite to be able to affixthe European Conformity, or CE, mark to our product candidates, without which they cannot be sold or marketed in the EU. All medicaldevices placed on the market in the EU must meet the general safety and performance requirements laid down in Annex I to the EU MedicalDevices Regulation including the requirement that a medical device must be designed and manufactured in such a way that, during normalconditions of use, it is suitable for its intended purpose. Medical devices must be safe and effective and must not compromise the clinicalcondition or safety of patients, or the safety and health of users and – where applicable – other persons, provided thatany risks which may be associated with their use constitute acceptable risks when weighed against the benefits to the patient and arecompatible with a high level of protection of health and safety, taking into account the generally acknowledged state of the art. TheEuropean Commission has adopted various standards applicable to medical devices. These include standards governing common requirements,such as sterilization and safety of medical electrical equipment and product standards for certain types of medical devices. There arealso harmonized standards relating to design and manufacture. While not mandatory, compliance with these standards is viewed as the easiestway to satisfy the general safety and performance requirements as a practical matter, as it creates a rebuttable presumption that thedevice satisfies the general safety and performance requirements.
Todemonstrate compliance with the general safety and performance requirements we must undergo a conformity assessment procedure, whichvaries according to the type of medical device and its (risk) classification. As a general rule, demonstration of conformity of medicaldevices and their manufacturers with the general safety and performance requirements must be based, among other things, on the evaluationof clinical data supporting the safety and performance of the product candidates during normal conditions of use. Specifically, a manufacturermust demonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks,and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claimsmade about the performance and safety of the device are supported by suitable evidence. Except for low-risk medical devices (Class I),where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its product candidateswith the general safety and performance requirements (except for any parts which relate to sterility, metrology or reuse aspects), aconformity assessment procedure requires the intervention of an organization accredited or designated by a member state of the EU toconduct conformity assessments, or a notified body. Depending on the relevant conformity assessment procedure, the notified body wouldtypically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices.If satisfied that the relevant product candidates conforms to the relevant essential requirements, the notified body issues a certificateof conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the CE Markto the device, which allows the device to be placed on the market throughout the EU. If we fail to comply with applicable EU laws andregulations, and corresponding EU member state laws, we would be unable to affix the CE mark to our product candidates, which would preventus from selling them within the EU.
Theaforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plusNorway, Liechtenstein and Iceland. Non-compliance with the above requirements would also prevent us from selling our product candidatesin these three countries.
Wedo not plan to conduct a pre-submission meeting with the FDA’s CDRH to confirm the potential for the Class II medical device pathunder a de novo classification request for our PL-15 and PL-16 product candidates until after the completion of this initial public offering.If we are denied submission under the de novo pathway, it may require us to go through a different pathway, such as a PMA pathway,which may result in a lengthier approval process for our devices.
Wedo not plan to conduct a pre-submission meeting with the FDA’s CDRH to confirm the potential for the Class II medical device pathunder a de novo classification request for our PL-15 and PL-16 product candidates until after the completion of the initial public offering.In the event the FDA does not agree with our regulatory assessments for our PL-15 and PL-16 product candidates under a Class II De Novopathway, the FDA may require us to go through a lengthier, more rigorous examination than we had expected. This examination could involvepursuing a PMA, which is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medicaldevices. PMA submissions must comply with far more rigorous standards compared to 510k or De Novo to prove device safety and effectiveness.Typically, Class III devices require both laboratory testing and clinical trials that include human participants. PMA is the most rigoroustype of device marketing application required by the FDA. PMA approval is based on a determination by the FDA that the PMA contains sufficientvalid scientific evidence to ensure that the device is safe and effective for its intended use(s). A PMA application generally includesextensive information about the device including the results of clinical testing conducted on the device and a detailed description ofthe manufacturing process. If we are required to pursue a PMA, the introduction of our product candidates into the market could be delayedsignificantly.
Legislativeor regulatory reforms in the United States or the European Union may make it more difficult and costly for us to obtain regulatory clearancesor approvals for our product candidates or to manufacture, market or distribute our product candidates after clearance or approval isobtained.
Fromtime to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing theregulation of medical devices. In addition, the FDA may change its clearance and approval policies, adopt additional regulations or reviseexisting regulations, or take other actions, which may prevent or delay approval or clearance of our future product candidates underdevelopment or impact our ability to modify our currently cleared product candidates on a timely basis. Over the last several years,the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical dataand a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their productcandidates. For example, in November 2018, FDA officials announced forthcoming steps that the FDA intends to take to modernize the premarketnotification pathway under Section 510(k) of the FDCA. Among other things, the FDA announced that it planned to develop proposals todrive manufacturers utilizing the 510(k) pathway toward the use of newer predicates devices. These proposals included plans to potentiallysunset certain older devices that were used as predicates devices under the 510(k) clearance pathway, and to potentially publish a listof devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 yearsold. In May 2019, the FDA solicited public feedback on these proposals. The FDA requested public feedback on whether it should considercertain actions that might require new authority, such as whether to sunset certain older devices that were used as predicates devicesunder the 510 (k) clearance pathway. These proposals have not yet been finalized or adopted, and the FDA may work with Congress to implementsuch proposals through legislation. Accordingly, it is unclear the extent to which any proposals, if adopted, could impose additionalregulatory requirements on us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance, or restrictour ability to maintain our current clearances, or otherwise create competition that may negatively affect our business.
Morerecently, in September 2019, the FDA finalized guidance describing an optional “safety and performance based” premarket reviewpathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k)clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviatingthe need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearanceprocess. The FDA intends to develop and maintain a list device types appropriate for the “safety and performance based” pathwayand will continue to develop product -specific guidance documents that identify the performance criteria for each such device type, aswell as the testing methods recommended in the guidance documents, where feasible. The FDA may establish performance criteria for classesof devices for which we or our competitors seek or currently have received clearance, and it is unclear the extent to which such performancestandards, if established, could impact our ability to obtain new 510(k) clearances or otherwise create competition that may negativelyaffect our business.
Inaddition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our businessand our product candidates. Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additionalcosts or lengthen review times of any future product candidates or make it more difficult to obtain clearance or approval for, manufacture,market or distribute our product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation orpolicies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things,require: additional testing prior to obtaining clearance or approval; changes to manufacturing methods; recall, replacement or discontinuanceof our product candidates; or additional record keeping.
TheFDA’s and other regulatory authorities’ policies may change and additional government regulations may be promulgated thatcould prevent, limit or delay regulatory clearance or approval of our future product candidates. We cannot predict the likelihood, natureor extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad.If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are notable to maintain regulatory compliance, we may lose any marketing approval or clearance that we may have obtained and we may not achieveor sustain profitability.
OnApril 5, 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces theEU Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EEA member states, the regulationswould be directly applicable, i.e., without the need for adoption of EEA member state laws implementing them, in all EEA member statesand are intended to eliminate current differences in the regulation of medical devices among EEA member States. The Medical Devices Regulation,among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEAfor medical devices and ensure a high level of safety and health while supporting innovation. The Medical Devices Regulation has becomeapplicable as of May 26, 2021. Among other things, the new Medical Devices Regulation:
| ● | strengthens the rules on placing devices on the market and reinforce surveillance once they are available; |
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| ● | establishes explicit provisions on manufacturers’ responsibilities for follow-up regarding the quality, performance and safety of devices placed on the market; |
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| ● | improves the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; |
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| ● | sets up a central database to provide patients, healthcare professionals and the public with comprehensive information on product available in the EU; and |
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| ● | Provides strengthened rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they are placed on the market. |
Thesemodifications may have an effect on the way we conduct our business in the EEA.
Weare heavily dependent on the success of our C&C product candidates, including obtaining regulatory approval to market our C&Cproduct candidates in the United States and the European Union.
Todate, we have invested substantially all of our efforts and financial resources to research and develop our C&C technology, includingconducting preclinical studies, developing and securing our intellectual property portfolio for our product candidates and technology.Our future success is dependent on our ability to successfully develop, obtain regulatory approval for and commercialize one or moreof our current and future product candidates. Our product candidates’ marketability is subject to significant risks associatedwith successfully completing current and future clinical trials, including:
| ● | our ability to initiate our clinical trials; |
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| ● | Success in in-vitro cell culture assays or other non-clinical experiments or animal studies does not ensure that later, clinical trials will be successful nor does it predict final results. |
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| ● | acceptance by the FDA, EMA or other regulatory agencies of our strategies for seeking regulatory approvals for our C&C product candidates and any future product candidates, including our proposed indications, primary and secondary endpoint assessments and measurements, safety evaluations and regulatory pathways; |
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| ● | the acceptance by the FDA, EMA or other regulatory agencies of the number, design, size, conduct and implementation of our clinical trials, our trial protocols and the interpretation of data from preclinical studies or clinical trials; |
| ● | our ability to successfully initiate and complete clinical trials of our C&C product candidates and any future product candidates, including timely patient enrollment and acceptable safety and efficacy data and our ability to demonstrate the safety and efficacy of the product candidates undergoing such clinical trials; |
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| ● | the willingness of the FDA, EMA or other regulatory agencies to schedule an advisory committee meeting in a timely manner in connection with our regulatory submissions, if such advisory committee meetings are required; |
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| ● | the recommendation of the FDA’s advisory committee to approve our applications to market our C&C product candidates and any future product candidates in the United States, and the EMA’s approval to market our C&C product candidates in the European Union, if such advisory committee reviews are scheduled, without limiting the approved labeling, specifications, distribution or use of the product candidates, or imposing other restrictions; |
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| ● | the satisfaction of the FDA, EMA or other regulatory agencies with the safety and efficacy of C&C product candidates and any future product candidates; |
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| ● | the prevalence and severity of adverse events associated with C&C product candidates and any future product candidates; |
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| ● | the timely and satisfactory performance by third-party contractors, trial sites and principal investigators of their obligations in relation to our clinical trials; |
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| ● | our success in educating medical professionals and patients about the benefits, administration and use of our C&C product candidates and any future product candidates, if approved; |
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| ● | the availability, perceived advantages, relative cost, safety and efficacy of alternative and competing product for the indications addressed by our C&C product candidates and any future product candidates; |
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| ● | the effectiveness of our marketing, sales and distribution strategy, and operations, as well as that of any current and future licensees; |
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| ● | our ability to scale, validate and maintain a commercially viable manufacturing process that is cGMP-compliant; |
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| ● | our ability to obtain, protect and enforce our intellectual property rights with respect to our C&C product candidates, any future product candidates and our C&C technology; and |
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| ● | changes to regulatory guidelines. |
Manyof these clinical, regulatory and commercial risks are beyond our control. Accordingly, we cannot assure you that we will be able toadvance our C&C product candidates and any future product candidates through clinical development, or to obtain regulatory approvalof or commercialize any product candidates. If we fail to achieve these objectives or overcome the challenges presented above, we couldexperience significant delays or an inability to successfully commercialize our C&C product candidates and any future product candidates.Accordingly, we may not be able to generate sufficient revenues through the sale of our product candidates to enable us to continue ourbusiness.
Additionally,approval of a product candidate in the United States by the FDA does not ensure approval of such product candidate by regulatory authoritiesin other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authoritiesin other foreign countries or by the FDA. We may never obtain approval outside of the United States, which would limit our market opportunitiesand adversely affect our business.
Regulatoryapproval processes of the FDA, EMA and comparable foreign regulatory authorities are lengthy, time-consuming and unpredictable, and ifwe are ultimately unable to obtain regulatory approval for our current product candidates or any future product candidates, ourbusiness may fail.
Theresearch, development, testing, manufacturing, labeling, packaging, approval, promotion, advertising, storage, recordkeeping, marketing,distribution, post-approval monitoring and reporting and export and import of drug product candidates are subject to extensive regulationby the FDA, the EMA and by foreign regulatory authorities in other countries. These regulations differ from country to country. To gainapproval to market our T&T platform product candidates and future product candidates, we must provide data from well-controlled clinicaltrials that adequately demonstrate the safety and efficacy of the product candidates for the intended indication to the satisfactionof the FDA, EMA or other regulatory authority. We have not yet obtained regulatory approval to market any product in the United Statesor any other jurisdiction. The FDA, EMA or other regulatory agencies can delay, limit or deny approval of our T&T platform productcandidates or any future product candidate for many reasons, including:
| ● | regulatory requests for additional analyses, reports, data, non-clinical and preclinical studies and clinical trials; |
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| ● | our inability to demonstrate that a product candidate is safe and effective for the target indication to the satisfaction of the FDA, EMA or other regulatory agencies; |
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| ● | the FDA’s, EMA’s, or other regulatory agencies’ disagreement with our trial protocol, the interpretation of data from preclinical studies or clinical trials, or adequacy of the conduct and control of clinical trials; |
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| ● | clinical holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval to commence a clinical trial in countries that require such approvals; |
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| ● | the population studied in the clinical trial may not be sufficiently broad or representative to assess safety in the patient population for which we seek approval; |
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| ● | unfavorable or inconclusive results of clinical trials and supportive non-clinical studies, including unfavorable results regarding safety or efficacy of a product candidate observed in clinical trials; |
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| ● | our inability to demonstrate that clinical or other benefits of a product candidate outweighs any safety or other perceived risks; |
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| ● | any determination that a clinical trial presents unacceptable health risks to subjects; |
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| ● | our inability to obtain approval from institutional review boards, or IRBs, to conduct clinical trials at their respective sites; |
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| ● | the FDA’s determination that the regulatory pathways under FFDCA Section 505(b)(2), or Section 505(b)(2), or Section 510(k) are not available for a product candidate; |
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| ● | the non-approval of the formulation, labeling or the specifications of a product candidate; |
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| ● | the failure to accept the manufacturing processes or facilities at of third-party manufacturers with which we contract; |
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| ● | the potential for approval policies or regulations of the FDA, EMA or other regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval; or |
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| ● | resistance to approval from the advisory committees of the FDA, EMA or other regulatory agencies for any reason including safety or efficacy concerns. |
Inthe United States, we will be required to submit an NDA to obtain FDA approval before marketing our T&T platform product candidate.An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safetyand efficacy for each desired indication. In the case of an NDA covered by Section 505(b)(2), we may rely in part on data not developedby us and for which we have not obtained a right of reference or use, including published scientific literature or the FDA’s findingsof safety and/or effectiveness for a previously approved drug. The NDA must also include significant information regarding the chemistry,manufacturing and controls for the product candidates. The FDA may further inspect our manufacturing facilities to ensure that the facilitiescan manufacture any product candidate and any product candidates, if and when approved, in compliance with the applicable regulatoryrequirements, as well as inspect our clinical trial sites to ensure that our trials are properly conducted. Obtaining approval of anNDA is a lengthy, expensive and uncertain process, and approval may not be obtained. Upon submission of an NDA, the FDA must make aninitial determination that the application is sufficiently complete to accept the submission for filing. We cannot be certain that anysubmissions will be accepted for filing and review by the FDA, or ultimately be approved. If the application is not accepted for reviewor approval, the FDA may require that we conduct additional clinical or preclinical trials, or take other actions before it will reconsiderour application. If the FDA requires additional trials or data, we would incur increased costs and delays in the marketing approval process,which may require us to expend more resources than we have available.
Regulatoryauthorities outside of the United States, such as in the European Union, also have requirements for approval of drugs for commercialsale with which we must comply prior to marketing in those areas. Regulatory requirements can vary widely from country to country andcould delay or prevent the introduction of a product candidate. Clinical trials conducted in one country may not be accepted by regulatoryauthorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtainedin any other country. However, the failure to obtain regulatory approval in one jurisdiction could have a negative impact on our abilityto obtain approval in a different jurisdiction. Approval processes vary among countries and can involve additional product candidatetesting and validation and additional administrative review periods. Seeking foreign regulatory approval could require additional non-clinicalstudies or clinical trials, which could be costly and time consuming. Foreign regulatory approval may include all of the risks associatedwith obtaining FDA approval. For all of these reasons, if we seek foreign regulatory approval for any product candidate, we may not obtainsuch approvals on a timely basis, if at all.
Evenif we eventually complete clinical testing and receive approval of any regulatory filing for a product candidate, the FDA may grant approvalcontingent on the performance of costly and potentially time-consuming additional post-approval clinical trials or subject to contraindications,black box warnings, restrictive surveillance or Risk Evaluation and Mitigation Strategies, or REMS. Further, the FDA, EMA or other foreignregulatory authorities may also approve a product candidate for a more limited indication or a narrower patient population than we originallyrequested, and these regulatory authorities may not approve the labeling that we believe is necessary or desirable for the successfulcommercialization of any product candidate. Following any approval for commercial sale of a product candidate, certain changes to theproduct candidates, such as changes in manufacturing processes and additional labeling claims, as well as new safety information, willbe subject to additional FDA notification, or review and approval. Also, regulatory approval for any product candidate may be withdrawn.To the extent we seek regulatory approval in foreign countries, we may face challenges similar to those described above with regulatoryauthorities in applicable jurisdictions. Any delay in obtaining, or inability to obtain, applicable regulatory approval for our T&Tplatform product candidates or any future product candidate would delay or prevent commercialization of such product candidate and wouldthus negatively impact our business, results of operations and prospects. While we are only in the early stages of pre-clinical developmentfor our T&T platform, the foregoing and similar regulatory risks may impact our business, results of operations and prospects aswe progress with the development of our T&T platform.
Clinicaldrug development is difficult to design and implement and involves a lengthy and expensive process with uncertain outcomes.
Clinicaltesting is expensive and can take many years to complete, and its outcome is inherently uncertain. Additionally, we are only in the earlystages of pre-clinical development for our T&T platform. A failure of one or more of our clinical trials can occur at any time duringthe clinical trial process. We do not know whether future clinical trials, if any, will begin on time, need to be redesigned, enrollan adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed, suspended or terminatedfor a variety of reasons, including failure to:
| ● | generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical trials; |
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| ● | obtain regulatory approval, or feedback on trial design, in order to commence a trial; |
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| ● | identify, recruit and train suitable clinical investigators; |
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| ● | reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among CROs and clinical trial sites, and have such CROs and sites effect the proper and timely conduct of our clinical trials; |
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| ● | obtain and maintain IRB approval at each clinical trial site; |
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| ● | identify, recruit and enroll suitable patients to participate in a trial; |
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| ● | have a sufficient number of patients complete a trial or return for post-treatment follow-up; |
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| ● | ensure clinical investigators and clinical trial sites observe trial protocol or continue to participate in a trial; |
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| ● | address any patient safety concerns that arise during the course of a trial; |
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| ● | address any conflicts with new or existing laws or regulations; |
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| ● | add a sufficient number of clinical trial sites; |
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| ● | manufacture sufficient quantities at the required quality of product candidate for use in clinical trials; or |
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| ● | raise sufficient capital to fund a trial. |
Wemay also experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability toreceive marketing approval or commercialize any product candidate, including:
| ● | we may receive feedback from regulatory authorities that requires us to modify the design of our clinical trials; |
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| ● | clinical trials of a product candidate may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon drug development programs; |
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| ● | the number of patients required for clinical trials of a product candidate may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate; |
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| ● | our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; |
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| ● | regulators or IRBs may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site or amend a trial protocol; |
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| ● | we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites and CROs; |
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| ● | we or our investigators might have to suspend or terminate clinical trials of a product candidate for various reasons, including non- compliance with regulatory requirements, a finding that a product candidate have undesirable side effects or other unexpected characteristics, or a finding that the participants are being exposed to unacceptable health risks; |
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| ● | the cost of clinical trials of a product candidate may be greater than we anticipate; |
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| ● | the supply or quality of a product candidate or other materials necessary to conduct clinical trials of such product candidate may be insufficient or inadequate; |
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| ● | there may be changes in government regulations or administrative actions; |
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| ● | a product candidate may have undesirable adverse effects or other unexpected characteristics; |
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| ● | we may not be able to demonstrate that a produce candidate’s clinical and other benefits outweigh its safety risks; |
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| ● | we may not be able to demonstrate that a product candidate provides an advantage over current standards of care of future competitive therapies in development; |
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| ● | regulators may revise the requirements for approving a product candidate, or such requirements may not be as we anticipate; and |
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| ● | any future collaborators that conduct clinical trials may face any of the above issues, and may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us. |
Inaddition, disruptions caused by the COVID-19 pandemic has caused and may continue to increase the likelihood that we encounter such difficultiesin initiating, enrolling, conducting or completing our planned and ongoing clinical trials. We may also encounter delays if a clinicaltrial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the trial’sdata safety monitoring board, by the FDA, EMA or other regulatory agencies. Such authorities may suspend or terminate one or more ofour clinical trials due to a number of factors, including our failure to conduct the clinical trial in accordance with relevant regulatoryrequirements or clinical protocols, inspection of the clinical trial operations or site by the FDA, EMA or other regulatory agenciesresulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit fromusing a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
Further,conducting clinical trials outside of the United States, as we plan to do for our product candidates and any future product candidates,presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in thecountries outside of the United States to adhere to clinical protocol as a result of differences in healthcare services or cultural customs,managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevantto such foreign countries.
Ifwe experience delays in completing any clinical trial of a product candidate or successfully obtaining regulatory approval, the commercialprospects of such product candidate may be harmed, and our ability to generate product candidates revenues from such product candidatewill be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate developmentand approval process and jeopardize our ability to commence product candidates sales and generate revenues. Any of these occurrencesmay significantly harm our business and financial condition. In addition, many of the factors that cause, or lead to, a delay in thecommencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
Ifthe FDA does not conclude that our T&T platform product candidate satisfies the requirements under Section 505(b)(2) ofthe FFDCA, or Section 505(b)(2), or if we are unable to utilize the hybrid application pathway in the European Union, or if therequirements are not as we expect, the approval pathway for our T&T platform product candidates will likely take significantlylonger, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may notbe successful.
Whilewe are only in the early stages of pre-clinical development for our T&T platform product candidates, we intend to utilize the FDA’sSection 505(b)(2) regulatory pathway, and the hybrid application pathway in the European Union, which is analogous to the Section 505(b)(2)pathway, to seek approval of our T&T platform product candidates. The Drug Price Competition and Patent Term Restoration Act of 1984,also known as the Hatch-Waxman Act, added Section 505(b)(2) to the FFDCA. Section 505(b)(2) permits the filing of an NDA whereat least some of the information required for approval comes from trials or studies that were not conducted by or for the applicant,and for which the applicant has not received a right of reference or use from the person by or for whom the investigations were conducted,which we believe could expedite the development program for our T&T platform product candidates by potentially decreasing theamount of preclinical and clinical data that we would need to generate in order to obtain FDA approval. However, while we believe thatour T&T platform product candidates is a reformulation of an already-approved drug and, therefore, will be eligible for submissionof an NDA under Section 505(b)(2), the FDA may disagree and determine that our T&T platform product candidates is not eligiblefor review under such regulatory pathway.
Ifwe are unable to pursue these regulatory pathways as anticipated, we may need to conduct additional preclinical experiments and clinicaltrials, provide additional data and information and meet additional standards for regulatory approval. If this were to occur, the timeand financial resources required to obtain FDA approval for T&T platform product candidates, and complications and risks associatedwith T&T platform product candidates, would likely increase significantly. Moreover, inability to pursue the Section 505(b)(2) orsimilar regulatory pathway could result in new competitive productsreaching the market more quickly than T&T platform product candidatesor any future product candidates, which would likely harm our competitive position and prospects. Even if we are allowed to pursue theSection 505(b)(2) or similar regulatory pathway, T&T platform product candidates may not receive the requisite approvals for commercialization,and there is no guarantee the 505(b)(2) or similar pathway would ultimately lead to faster product candidates development or earlierapproval.
Inaddition, notwithstanding the approval of a number of productsby the FDA under Section 505(b)(2) over the last few years, certain competitorsand others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2)is successfully challenged, the FDA may be required to change its 505(b)(2) policies and practices, which could delay or even preventthe FDA from approving any NDA that we submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive,and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approveddrugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approvalof our potential future NDAs for up to 30 months depending on the outcome of any litigation. It is also not uncommon for a manufacturerof an approved productto file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirementsfor, pending competing product candidates. If successful, such petitions can significantly delay, or even prevent, the approval of thenew product candidates. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while itconsiders and responds to the petition.
Moreover,even if our T&T platform product candidates or any future product candidates are approved under the Section 505(b)(2) pathway, asthe case may be, the approval may be subject to limitations on the indicated uses for which the product candidates may be marketed orto other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safetyor efficacy of the product candidates.
OurC&C and T&T technologies are novel technologies, which makes it difficult to accurately and reliably predict the time and costof development and of subsequently obtaining regulatory approval of our C&C and T&T technologies product candidates or any futureproduct candidates.
Wehave concentrated our efforts and product candidates research on our technologies, and our future success depends on the successful developmentof these technologies and product candidates based on them. There can be no assurance that any development problems we experience inthe future related to our product candidates will not cause significant delays or unanticipated costs, or that such development problemscan be solved. We may be unable to maintain and further develop sustainable, reproducible and scalable manufacturing processes, or transferthese processes to collaborators, which may prevent us from completing our clinical studies or commercializing our product candidateson a timely or profitable basis, if at all. To our knowledge, no regulatory authority has granted approval to any person or entity, includingus, to market and commercialize therapeutics using our novel delivery system. We may never receive approval to market and commercializeany product candidates that utilize our technologies.
Asan organization, we have not previously conducted pivotal clinical trials, and we may be unable to do so for any product candidates wemay develop, including our T&T platform product candidates.
Wewill need to successfully complete pivotal clinical trials in order to obtain the approval of the FDA, EMA or other regulatory agenciesto market our T&T platform product candidates or any future product candidates. Carrying out later-stage clinical trials and thesubmission of a successful NDA is a complicated process. As an organization, we have not previously conducted any later stage or pivotalclinical trials and have limited experience in preparing, submitting and prosecuting regulatory filings. Consequently, we may be unableto successfully and efficiently execute and complete necessary clinical trials, including our ongoing Phase 3 trials, in a way thatleads to marketing approval of our T&T platform product candidates. We may require more time and incur greater costs than our competitorsand may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delaysin, our planned clinical trials, could prevent us from or delay us in commercializing our T&T platform product candidates, whichare in early stages of pre-clinical development. See “Risks Related to Our Reliance on Third Parties.” We rely on third partiesto conduct certain elements of our preclinical and clinical trials and perform other tasks for us. If these third parties do not successfullycarry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatoryapproval for or commercialize our product candidates.
Wemay find it difficult to enroll patients in our clinical trials due to various reasons, including possible disruption due to the COVID-19pandemic, which could delay or prevent us from proceeding with such trials.
Identifyingand qualifying patients to participate in our clinical trials is critical to our success. The timing of our clinical trials depends inpart on the speed at which we can recruit patients to participate in testing our product candidates, and we may experience delays inour clinical trials if we encounter difficulties in enrollment. Patient enrollment and retention in clinical trials depends on many factors,including the size of the patient population, the nature of the trial protocol, our ability to recruit clinical trial investigators withthe appropriate competencies and experience, the existing body of safety and efficacy data with respect to the study drug, the numberand nature of competing product candidates and ongoing clinical trials of competing drugs for the same indication, the proximity of patientsto clinical sites, clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studiedin relation to other available therapies, including any drugs that may be approved for the indications we are investigating, the eligibilitycriteria for the trials, our ability to obtain and maintain patient consents and the risk that patients enrolled in clinical trials willdrop out of the trials before completion. We may experience disruptions in patient enrollment due to the COVID-19 pandemic for our plannedclinical trials during 2023 for our C&C product candidates, including difficulties in initiating clinical sites and enrolling andretaining participants, the diversion of healthcare resources away from clinical trials and challenges related to travel or quarantinepolicies that may be implemented.
Wemay not be able to identify, recruit and enroll a sufficient number of patients to complete our clinical trials because of the perceivedrisks and benefits of the product candidate under study, the availability and efficacy of competing therapies and clinical trials, theproximity and availability of clinical trial sites for prospective patients and the patient referral practices of physicians. We mayalso face challenges in identifying trial sites and enrolling patients in global trials such as our ongoing and planned clinical trialsin the third quarter of 2022 for our C&C product candidates. If patients are unwilling to participate in our trials for any reason,the timeline for recruiting patients, conducting trials and obtaining regulatory approval of potential product candidates will be delayed.
Ourproduct candidates and the administration of our product candidates may cause undesirable side effects or have other properties thatcould delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negativeconsequences following marketing approval, if any.
Undesirableside effects, including toxicology, caused by product candidates or any future product candidates, or the drugs encapsulated by suchproduct candidates, could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictivelabel or the delay or denial of regulatory approval by the FDA, EMA or other regulatory agencies. Results of our trials could reveala high and unacceptable severity and prevalence of these or other side effects. In such an event, our clinical studies could be suspendedor terminated, and the FDA, EMA or other regulatory agencies could order us to cease further development of or deny or withdraw approvalof our product candidates for any or all targeted indications. Moreover, during the conduct of clinical trials, patients report changesin their health, including illnesses, injuries and discomforts, to their study doctor. Often, it is not possible to determine whetheror not the product candidate being studied caused these conditions.
Drug-related,formulation-related and administration-related side effects could affect patient recruitment, the ability of enrolled patients to completethe clinical trials or result in potential product candidates liability claims, which could exceed our clinical trial insurance coverage.We do not currently have product candidates liability insurance and do not anticipate obtaining product candidates liability insuranceuntil such time as we have received FDA, EMA or other comparable foreign authority marketing approval for one of our product candidatesand such product candidates is being provided to patients outside of clinical trials.
Additionally,if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects causedby such product candidates, a number of potentially significant negative consequences could result, including but not limited to:
| ● | regulatory authorities may suspend or withdraw approvals of such product candidates; |
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| ● | regulatory authorities may require additional warnings on the label, such as a “black box” warning or contraindication; |
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| ● | additional restrictions may be imposed on the marketing of the particular product candidates or the manufacturing processes for the product candidates or any component thereof; |
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| ● | we may be required to create a REMS, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers and/or other elements to assure safe use; |
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| ● | we may be required to recall a product candidates, change the way a product candidate is administered or conduct additional clinical trials; |
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| ● | we could be sued and held liable for harm caused to patients; |
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| ● | the product candidates may become less competitive; and |
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| ● | our reputation may suffer. |
Whilewe are only in the early stages of pre-clinical development for our T&T platform, any of these events could prevent us from achievingor maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, resultsof operations and prospects.
Evenif we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize anyof our product candidates, and the approval may be for a more narrow indication than we seek or be subject to other limitations or restrictionsthat limit its commercial profile.
Wecannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate.Even if our current or future product candidates meet safety and efficacy endpoints in pivotal clinical trials, the regulatory authoritiesmay not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays mayresult if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. This may includeapproval of a product candidate for more limited indications than requested or they may impose significant limitations in the form ofwarnings. In addition, we may experience delays or rejections based upon additional government regulation from future legislation oradministrative action, or changes in regulatory authority policy during the period of product candidates development, clinical trialsand the review process.
Regulatoryauthorities also may approve a product candidate for more limited indications than requested or they may impose significant limitationsin the form of warnings or a REMS. These regulatory authorities may require precautions or contra-indications with respect to conditionsof use or they may grant approval subject to the performance of costly post-marketing clinical trials. In addition, regulatory authoritiesmay not approve the labeling claims that are necessary or desirable for the successful commercialization of any of our product candidates.While we are only in the early stages of pre-clinical development for our T&T platform, the foregoing and similar regulatory risksmay impact our business, results of operations and prospects as we progress with the development of our T&T platform.
Evenif we obtain regulatory approval for a product candidate, our product candidates and business will remain subject to ongoing regulatoryobligations and review.
Whilewe are only in the early stages of pre-clinical development for our T&T platform, if our product candidates are approved, they willbe subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping,conduct of post-marketing studies and submission of safety, efficacy and other post- market information, including both federal and staterequirements in the United States and comparable requirements outside of the United States. Accordingly, we and others with whom we workmust continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and qualitycontrol.
Anyregulatory approvals that we receive for our product candidates may also be subject to limitations on the cleared intended use(s) forwhich the product candidates may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketingtesting, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. The FDA mayalso require a REMS as a condition of approval of our product candidates, which could include requirements for a medication guide, physiciancommunication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and otherrisk minimization tools. We will also be required to report certain adverse reactions and production problems, if any, to the FDA, EMAor other regulatory agencies and to comply with requirements concerning advertising and promotion for our product candidates. Promotionalcommunications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistentwith the information in the product candidates’s approved label. As such, we may not promote our product candidates for indicationsor uses for which they do not have FDA, EMA or other regulatory agency approval. The holder of an approved NDA must also submit new orsupplemental applications and obtain FDA approval for certain changes to the approved product candidates, product candidates labeling,or manufacturing process. We could also be asked to conduct post-marketing clinical trials to verify the safety and efficacy of our productcandidates in general or in specific patient subsets. An unsuccessful post-marketing trial or failure to complete such a clinical trialcould result in the withdrawal of marketing approval. Furthermore, any new legislation addressing drug safety issues could result indelays in product candidates development or commercialization or increased costs to assure compliance. Foreign regulatory authoritiesimpose similar requirements. If a regulatory agency discovers previously unknown problems with a product candidates, such as adverseevents of unanticipated severity or frequency, or disagrees with the promotion, marketing or labeling of a product candidates, such regulatoryagency may impose restrictions on that product candidates or us, including requiring withdrawal of the product candidates from the market.If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
| ● | issue warning letters asserting that we are in violation of the law; |
| ● | seek an injunction or impose civil or criminal penalties or monetary fines; |
| ● | suspend or withdraw regulatory approval; |
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| ● | suspend any of our ongoing clinical trials; |
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| ● | refuse to approve pending applications or supplements to approved applications submitted by us or our strategic partners; |
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| ● | restrict the marketing or manufacturing of our product candidates; |
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| ● | seize or detain product candidates, or require a product candidates recall; |
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| ● | refuse to permit the import or export of our product candidates; or |
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| ● | refuse to allow us to enter into government contracts. |
Anygovernment investigation of alleged violations of law could require us to expend significant time and resources in response and couldgenerate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our abilityto commercialize and generate revenue from our product candidates. If regulatory sanctions are applied or if regulatory approval is withdrawn,the value of our company and our operating results will be adversely affected.
TheFDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that couldprevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirementsor the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approvalthat we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financialcondition and results of operations.
Wealso cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrativeor executive action, either in the United States or abroad.
Disruptionsat the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retainor deploy key leadership and other personnel, or otherwise prevent new or modified product candidates from being developed, approvedor commercialized in a timely manner or at all, which could negatively impact our business.
Theability of the FDA to review and approve new product candidates can be affected by a variety of factors, including government budgetand funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept thepayment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average reviewtimes at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fundresearch and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions atthe FDA and other agencies may also slow the time necessary for new drugs or modifications to approved drugs to be reviewed and/or approvedby necessary government agencies, which would adversely affect our business. For example, over the last several years, including for35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as theFDA, have had to furlough critical FDA employees and stop critical activities.
Separately,in response to the COVID-19 pandemic, in March 2020, the FDA announced the postponement of most foreign and routine surveillance inspectionsof domestic manufacturing facilities, and only restarted domestic inspections on a risk-based basis in July 2020. Regulatory authoritiesoutside the United States have adopted similar restrictions or other policy measures in response to the COVID-19 pandemic.
Ifa prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities fromconducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA orother regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on ourbusiness.
Wemay be subject, directly or indirectly, to U.S. federal and state healthcare fraud and abuse laws, false claims laws, physician paymenttransparency laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with suchlaws, we could face substantial penalties.
Ourcurrent and future operations may be directly or indirectly through our relationships with U.S. healthcare providers, patients and otherpersons and entities, subject to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain ourbusiness or financial arrangements and relationships through which we research, market, sell and distribute our product candidates inthe United States. In addition, we may be subject to patient privacy regulation by both the federal government and the states in whichwe conduct our business. The laws that may affect our ability to operate include:
| ● | The U.S. Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other U.S. federal healthcare programs. The U.S. Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers, among others, on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, but the exceptions and safe harbors are drawn narrowly and require strict compliance in order to offer protection. |
| ● | The U.S. federal false claims laws, including the False Claims Act, or FCA, and civil monetary penalties laws, which prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the U.S. federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the U.S. federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. In addition, manufacturers can be held liable under the FCA even when they do not submit claims directly to government third-party payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery. FCA liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties per false claim or statement. Government enforcement agencies and private whistleblowers have investigated pharmaceutical companies for or asserted liability under the FCA for a variety of alleged promotional and marketing activities, such as providing free productsto customers with the expectation that the customers would bill federal programs for the products; providing consulting fees and other benefits to physicians to induce them to prescribe products; engaging in promotion for “off-label” uses; and submitting inflated best price information to the Medicaid Rebate Program. |
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| ● | The U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, prohibits, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. |
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| ● | The Physician Payments Sunshine Act, enacted as part of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, imposes, among other things, annual reporting requirements for covered manufacturers for certain payments and “transfers of value” provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members. Beginning in 2022, applicable manufacturers also will be required to report such information regarding payments and transfers of value provided during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified nurse anesthetists and certified nurse midwives. |
| ● | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, impose, among other things, specified requirements relating to the privacy, security and transmission of individually identifiable health information held by covered entities, which include certain healthcare providers, health plans and healthcare clearinghouses, and their business associates, which include individuals or entities that perform services for covered entities that involve the creation, use, maintenance or disclosure of, individually identifiable health information as well as their covered subcontractors. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in U.S. federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. |
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| ● | European and other foreign law equivalents of each of the laws, including reporting requirements detailing interactions with and payments to healthcare providers. |
Manystates have analogous state laws and regulations, such as state anti-kickback and false claims laws, that may apply to our business practices,including but not limited to, research, distribution, sales or marketing arrangements and claims involving healthcare items or servicesreimbursed by non-governmental third-party payors, including private insurers. In addition, certain states require pharmaceutical companiesto comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated bythe U.S. federal government. Certain states and local jurisdictions require drug manufacturers to report information related to paymentsand other transfers of value to physicians and other healthcare providers and register pharmaceutical sales representatives. Additionally,certain states also require pharmaceutical companies to file reports relating to pricing information or marketing expenditures and havelaws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significantways and may not have the same effect, thus complicating compliance efforts.
Becauseof the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of ourbusiness activities could be subject to challenge under one or more of such laws. In addition, the ACA has strengthened these laws. Forexample, health care reform legislation, has among other things, amended the intent requirement of the U.S. Anti-Kickback statute andcertain criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intentto violate it. Moreover, the ACA provides that the government may assert that a claim including items or services resulting from a violationof the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
Ensuringthat our internal operations and business arrangements with third parties comply with applicable healthcare laws and regulations willlikely be costly. It is possible that governmental authorities will conclude that our business practices, including arrangements we mayhave with physicians and other healthcare providers, some of whom may receive stock options as compensation for services provided, donot comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws andregulations. If our operations were found to be in violation of any of these laws or any other governmental regulations that may applyto us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, possibleexclusion from government funded healthcare programs, contractual damages, reputational harm, diminished profits and future earnings,additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolveallegations of non-compliance with these laws, and curtailment of our operations, any of which could substantially disrupt our operations.If the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with applicablelaws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Legislativeor regulatory healthcare reforms in the United States may make it more difficult and costly for us to obtain regulatory clearance orapproval of our product candidates and to produce, market and distribute our product candidates after clearance or approval is obtained.
Fromtime to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing theregulatory clearance or approval, manufacture and marketing of regulated products or the reimbursement thereof. In addition, FDA regulationsand guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our product candidates.Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times ofour product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when andif promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:
| ● | changes to manufacturing methods; |
| ● | change in protocol design; |
| ● | additional treatment arm (control); |
| ● | recall, replacement, or discontinuance of one or more of our product candidates; and |
| ● | additional recordkeeping. |
Inaddition, in the United States, there have been a number of legislative and regulatory proposals to change the healthcare system in waysthat could affect our ability to sell our product candidates profitably. The pharmaceutical industry in the United States, as an example,has been affected by the passage of the ACA, which, among other things, imposed new fees on entities that manufacture or import certainbranded prescription drugs and expanded pharmaceutical manufacturer obligations to provide discounts and rebates to certain governmentprograms. There have been executive, judicial and Congressional challenges to certain aspects of the ACA. Concurrently, Congress consideredlegislation to repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, severalbills affecting the implementation of certain taxes under the ACA have been enacted. The Tax Cuts and Jobs Act of 2017 includes a provisionrepealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who failto maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”.In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac”tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the healthinsurer tax. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the“individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Courtof Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the caseback to the District Court to determine whether the remaining provisions of the ACA are invalid as well. The United States Supreme Courtis currently reviewing this case, but it is unknown when a decision will be reached. Although the Supreme Court has not yet ruled onthe constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment periodfrom February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executiveorder also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare,including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policiesthat create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how theSupreme Court ruling, other such litigation and the healthcare reform measures of the Biden administration will impact the ACA and ourbusiness.
Otherlegislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, COVID-19 relief legislationsuspended the 2% Medicare sequester from May 1, 2020 through March 31, 2021.
Further,there has been particular and increasing legislative and enforcement interest in the United States with respect to drug pricing practicesin recent years, particularly with respect to drugs that have been subject to relatively large price increases over relatively shorttime periods. There have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring moretransparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturerpatient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administrationused several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policyinitiatives. For example, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders relatedto prescription drug pricing that attempt to implement several of the administration’s proposals. The FDA also released a finalrule, effective November 30, 2020, implementing a portion of the importation executive order providing guidance for states to build andsubmit importation plans for drugs from Canada. Further, on November 20, 2020, the U.S. Department of Health and Human Services, or HHS,finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors underPart D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of therule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rulealso creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed feearrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed pending review bythe Biden administration until March 22, 2021. On November 20, 2020, CMS issued an interim final rule implementing President Trump’sMost Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowestprice paid in other economically advanced countries, effective January 1, 2021. On December 28, 2020, the United States District Courtin Northern California issued a nationwide preliminary injunction against implementation of the interim final rule. It is unclear whetherthe Biden administration will work to reverse these measures or pursue similar policy initiatives. Individual states in the United Stateshave also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical productspricing, including price or patient reimbursement constraints, discounts, restrictions on certain products access and marketing costdisclosure and transparency measures, and in some cases, designed to encourage importation from other countries and bulk purchasing.In the future, there will likely continue to be proposals relating to the reform of the U.S. healthcare system, some of which could furtherlimit coverage and reimbursement of drug products, including our product candidates. It is possible that additional governmental actionis taken in response to the COVID-19 pandemic, but there can be no certainty regarding what, if any, such action may be. Any reductionin reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. Our resultsof operations could be adversely affected by the ACA and by other health care reforms that may be enacted or adopted in the future.
Weface intense competition in an environment of rapid technological change and the possibility that our competitors may develop productsand drug delivery systems that are similar, more advanced or more effective than ours, which may adversely affect our financial conditionand our ability to successfully market or commercialize our product candidates.
Themedical device and pharmaceutical industry in which we operate is intensely competitive and subject to rapid and significant technologicalchange. We are currently aware of various existing therapies in the market and in development that may in the future compete with ourproduct candidates, for drug delivery mechanisms that T&T technology to deliver APIs at the local level. Other approaches may alsoemerge for the prevention or treatment of any of the indications on which we focus, and new technologies may emerge in localized drugdelivery.
Wehave competitors both in the United States and internationally, including major multinational medical device and pharmaceutical companies.Our competitors may succeed in developing, acquiring or licensing on an exclusive basis products that are more effective or less costlythan any product candidate that we may develop, or achieve earlier patent protection, regulatory approval, product candidates commercializationand market penetration than we do. Additionally, technologies developed by our competitors may render our potential product candidatesuneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.
Evenif we obtain and maintain approval for our T&T platform product candidates or our other product candidates from the FDA, wemay never obtain approval outside of the United States, which would limit our market opportunities and adversely affect our business.
Approvalof a product candidate in the United States by the FDA does not ensure approval of such product candidate by regulatory authorities inother countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authoritiesin other foreign countries or by the FDA. However, the failure to obtain approval from the FDA or other regulatory authorities may negativelyimpact our ability to obtain approval in other foreign countries. Sales of our T&T platform product candidates or our otherproduct candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketingapproval. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries alsomust approve the manufacturing and marketing of the product candidate in those countries. Approval procedures vary among jurisdictionsand can involve requirements and administrative review periods different from, and more onerous than, those in the United States, includingadditional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approvedfor reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our productcandidates, if approved, is also subject to approval.
Weintend to submit a marketing authorization application to the EMA for approval of our C&C product candidates in the European Union,but obtaining such approval from the European Commission following the opinion of the EMA is a lengthy and expensive process. Even ifa product candidate is approved, the applicable regulatory agency may limit the indications for which the product candidates may be marketed,require extensive warnings on the product candidates labeling or require expensive and time-consuming additional clinical trials or reportingas conditions of approval. Regulatory authorities in countries outside of the United States and the European Union also have requirementsfor approval of product candidates with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvalsand compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delayor prevent the introduction of our product candidates in certain countries.
Further,clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Also, regulatory approvalfor a product candidate may be withdrawn. If we fail to comply with the regulatory requirements, our target market will be reduced andour ability to realize the full market potential of our T&T platform product candidates or our other product candidates willbe harmed and our business, financial condition, results of operations and prospects will be adversely affected.
Themisuse or off-label use of our product candidates may harm our reputation in the marketplace, result in injuries that lead to productcandidates liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engagedin the promotion of these uses, any of which could be costly to our business.
Prescriptiondrugs may be promoted only for the approved indications in accordance with the approved label. The FDA and other agencies actively enforcethe laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off- labeluses may be subject to significant liability. We will train our marketing and sales personnel to not promote our product candidates,if approved, for any off-label uses. We cannot, however, prevent a physician from using our product candidates off-label, when in thephysician’s independent professional medical judgment he or she deems it appropriate.
Ifthe FDA, EMA or any foreign regulatory body determines that our promotional materials or training constitute promotion of an off-labeluse, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, includingthe issuance or imposition of an untitled letter, which is used for violators that do not necessitate a warning letter, injunction, seizure,civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take actionunder other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-labeluse, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages,fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.
RisksRelated to our Reliance on Third Parties
Wewill rely on third parties to conduct certain elements of our preclinical studies and clinical trials and perform other tasks for us.If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements,we may not be able to obtain regulatory approval for or commercialize our product candidates.
Wewill rely upon third-party vendors, including CROs, to monitor and manage data for our ongoing preclinical studies and clinical trials.If our CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replacedor if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols,regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtainregulatory approval for or successfully commercialize our product candidates. We will rely on these CROs for execution of our preclinicalstudies and clinical trials, and we control only certain aspects of their activities. Nevertheless, we will be responsible for ensuringthat each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and ourreliance on the vendors and CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors will be requiredto comply with good clinical practice, cGMP, the Helsinki Declaration, the International Conference on Harmonization Guideline for GoodClinical Practice, applicable European Commission Directives on Clinical Trials, laws and regulations applicable to clinical trials conductedin other territories, and good laboratory practices, or GLP, which are regulations and guidelines enforced by the FDA, the CompetentAuthorities of the Member States of the EEA, and comparable foreign regulatory authorities for all of our product candidates in clinicaldevelopment. Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators,study sites and other contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, including Good ClinicalPractice, or GCP, and cGMP regulations, the clinical data generated in our clinical studies may be deemed unreliable and the FDA, EMAor comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications.Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
Ifany of our relationships with these third-party CROs or vendors terminate, we may not be able to enter into arrangements with alternativeCROs or vendors or do so on commercially reasonable terms. In addition, our CROs are not our employees, and, except for remedies availableto us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoingclinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meetexpected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due tothe failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayedor terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs mayalso generate higher costs than anticipated, which could adversely affect our results of operations and the commercial prospects forour product candidates, increase our costs and delay our ability to generate revenue.
Replacingor adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transitionperiod when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinicaldevelopment timelines. Though we carefully manage our relationships with our CROs, we may encounter similar challenges or delays in thefuture, which could have a material adverse impact on our business, financial condition and prospects.
Independentclinical investigators and CROs that we will engage to conduct our clinical trials may not devote sufficient time or attention to ourclinical trials or be able to repeat their past success.
Wewill depend on third parties, including independent clinical investigators and CROs, to conduct our clinical trials. CROs may also assistus in the collection and analysis of data. There is a limited number of third-party service providers and vendors that specialize orhave the expertise required to achieve our business objectives. Identifying, qualifying and managing performance of third-party serviceproviders can be difficult, time consuming and cause delays in our development programs.
Theseinvestigators and CROs will not be our employees and we will not be able to control, other than through contract, the amount of resources,including time, which they devote to our product candidates and clinical trials. If independent investigators or CROs fail to devotesufficient resources to the development of our product candidates, or if their performance is substandard, it may delay or compromisethe prospects for approval and commercialization of any product candidates that we develop. Further, the performance of our CROs mayalso be interrupted by the ongoing COVID-19 pandemic, including due to travel or quarantine policies, heightened exposure of CRO staffwho are healthcare providers to COVID-19 patients or prioritization of resources toward the COVID-19 pandemic.
Investigatorsfor our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connectionwith such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or other regulatoryauthorities. The FDA or other regulatory authorities may conclude that a financial relationship between us and an investigator has createda conflict of interest or otherwise affected interpretation of the trial. The FDA or other regulatory authorities may therefore questionthe integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized.This could result in a delay in approval or rejection of our marketing applications by the FDA or other regulatory authorities, as thecase may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates.
Inaddition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which couldincrease the risk that this information will be misappropriated. Further, the FDA and other regulatory authorities require that we complywith standards, commonly referred to as GCP, for conducting, recording and reporting clinical trials to assure that data and reportedresults are credible and accurate and that the rights, integrity and confidentiality of trial subjects are protected. Failure of clinicalinvestigators or CROs to meet their obligations to us or comply with GCP procedures could adversely affect the clinical data, the outcomeof the clinical studies or the development of our product candidates and harm our business.
Werely on third parties to manufacture the raw materials that we use to create our product candidates. Our business could be harmed ifexisting and prospective third parties fail to provide us with sufficient quantities of these materials and product candidates or failto do so at acceptable quality levels or prices.
Werely on third party suppliers for certain raw materials necessary to manufacture our product candidates for our preclinical studies andclinical trials. We do not have any control over the availability of raw materials. If we or our manufacturers are unable to purchasethese raw materials on acceptable terms, at sufficient quality levels, or in adequate quantities, if at all, the development and commercializationof our product candidates or any future product candidates, would be delayed or there would be a shortage in supply, which would impairour ability to meet our development objectives for our product candidates or generate revenues from the sale of any approved productcandidates.
Evenfollowing our establishment of our own cGMP-compliant manufacturing capabilities, we intend to continue to rely on third party suppliersfor these raw materials, which will continue to expose us to manufacturing risks including:
| ● | reduced control for certain aspects of manufacturing activities; |
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| ● | termination or nonrenewal of manufacturing and service agreements with third parties in a manner or at a time that is costly or damaging to us; and |
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| ● | disruptions to the operations of our third-party manufacturers and service providers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or service provider. |
Certainof our raw material suppliers will be required to become cGMP-compliant and establish a drug master file for the applicable ingredientbefore we can submit an NDA for our T&T platform product candidates. If these suppliers do not successfully carry out their contractualduties or manufacture our raw materials in accordance with regulatory requirements, we will not be able to submit our NDA as plannedor complete, or may be delayed in completing, the clinical trials required for approval of our T&T platform product candidates. Insuch instances, we may need to locate an appropriate replacement third-party relationship, which may not be readily available or on acceptableterms, which would cause additional delay or increased expense prior to the approval of our C&C product candidates and would therebyhave a material adverse effect on our business, financial condition, results of operations and prospects.
Additionally,we have not yet entered into binding agreements with certain third-party manufacturers to produce the raw materials and products thatwe use to manufacture our product candidates. Although we intend to rely on third-party manufacturers for the raw materials and productsto support the manufacturing of our product candidates for commercialization, we have not yet entered into agreements with certain manufacturers.We may be unable to negotiate binding agreements with the manufacturers to support our commercialization activities at commercially reasonableterms.
Ourreliance on third parties requires us to share our intellectual property, including trade secrets, which increases the possibility thata competitor will discover them or that our intellectual property will be misappropriated or disclosed.
Becausewe rely on third parties to provide us with the materials that we use to develop and, if appropriate in the future, manufacture our productcandidates or approved product candidates, we may, at times, share trade secrets and intellectual property with such third parties. Weseek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transferagreements, collaborative research agreements, consulting agreements, or other similar agreements with our collaborators, advisors, employeesand consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of thethird parties to use or disclose our confidential information, such as trade secrets and intellectual property. Despite the contractualprovisions employed when working with third parties, the need to share trade secrets and other confidential information increases therisk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosedor used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, acompetitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and mayhave a material adverse effect on our business.
Despiteour efforts to protect our trade secrets and knowhow, our competitors may discover our trade secrets, either through breach of theseagreements, independent development or publication of information including our trade secrets by third parties. A competitor’sdiscovery of our trade secrets and knowhow would impair our competitive position and have an adverse impact on our business, financialcondition, results of operations and prospects.
RisksRelated to Our Intellectual Property
Ifwe are unable to obtain and maintain effective patent rights for our product candidates or any future product candidates, we may notbe able to compete effectively in our markets. If we are unable to protect the confidentiality of our trade secrets or know-how, suchproprietary information may be used by others to compete against us.
Weintend to rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual propertyrelated to our technologies and product candidates. Our success depends in large part on our ability to obtain and maintain patent andother intellectual property protection in the United States and in other countries with respect to our proprietary technology and productcandidates. This ability depends to a large extent on identifying aspects of the technology that are patentable, that their exposurevia patent applications would not provide a third party of engineering around capabilities and on the ability to generate and identifysuperior data that would present a comparative edge vis-à-vis third party technologies.
Wehave sought to protect our proprietary position by filing patent applications in the United States, with respect to our novel technologiesand product candidates, which are important to our business. These patent applications will base international and national patent filingsin countries of interest to our business, such as the United States, the European Union and Israel. Patent prosecution is expensive andtime consuming, and we may not be able to file and prosecute our applications in the United States, the European Union and Israel, ata reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and developmentoutput before it is too late to obtain patent protection.
Asof August 10, 2022, our growing portfolio of patent applications consists of two families that disclose our technology. We cannot offerany assurances about which, if any, patents will issue in due time, the breadth of any such patent or whether any issued patents willbe found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patentsowned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any productcandidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could marketa product candidate under patent protection could be reduced.
Further,the patent position of medical device and pharmaceutical companies generally is highly uncertain and involves complex legal and factualquestions for which legal principles remain unsolved. This renders the patent prosecution process particularly expensive and time-consuming.There is no assurance that all potentially relevant prior art relating to our patent applications has been found, which can invalidatea patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if suchpatents cover our product candidates, third parties may challenge their validity, enforceability, or scope, which may result in suchpatents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, our patent applications and anyfuture patents may not adequately protect our intellectual property, provide exclusivity for our product candidates, or prevent othersfrom designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which mayhave an adverse impact on our business.
Ifwe cannot obtain and maintain effective patent rights for our product candidates, we may not be able to compete effectively, and ourbusiness and results of operations would be harmed.
Wemay not have sufficient patent lifespan to effectively protect our product candidates and business.
Patentshave a limited lifespan. The natural expiration of a patent is generally 20 years counted from its filing date (or PCT filing date incase it is derived from an international application). Although various extensions may be available, they are uncommon and the protectionthey afford, is limited. Even if any of our patent applications matures into issued patents, if we do not have sufficient patent termsor regulatory exclusivity to protect our product candidates, our business and results of operations will be adversely affected.
Changesin patent policy and national intellectual property laws could increase the uncertainties and costs surrounding the prosecution of ourpatent applications and the enforcement or defense of any issued patents.
Changesin patent laws or interpretation of patent laws in the United States and other countries may diminish the value of any patents that mayissue from our patent applications, or narrow the scope of our patent protection. The laws of foreign countries may not protect our rightsto the same extent as the laws of the United States. Publications of discoveries in the scientific literature often lag behind the actualdiscoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months afterfiling. We therefore cannot be certain that we were the first to make the invention claimed in our owned patent or pending applications,or that we were the first to file for patent protection of such inventions.
Ifour trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interestand our business may be adversely affected.
Ourregistered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined tobe infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build namerecognition by potential partners or customers in our markets of interest. Over the long term, if we are unable to establish name recognitionbased on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Ifother entities use trademarks similar to ours in different jurisdictions, or have senior rights to ours, it could interfere with ouruse of our current trademarks throughout the world.
Ifwe are unable to maintain effective proprietary rights for our product candidates or any future product candidates, we may not be ableto compete effectively in our markets.
Inaddition to the protection afforded by any patents that may be granted, we rely on trade secret protection and confidentiality agreementsto protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforceand any other elements of our product candidate discovery and development processes that involve proprietary know-how, information ortechnology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technologyand processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors.We also seek to preserve the integrity and confidentiality of our data, trade secrets and intellectual property by maintaining the physicalsecurity of our premises and physical and electronic security of our information technology systems. While we have confidence in theseindividuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for anybreach. In addition, our trade secrets and intellectual property may otherwise become known or be independently discovered by competitors.
Althoughwe expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors andany third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, wecannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietaryinformation will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantiallyequivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets and intellectual property couldimpair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintainour trade secrets and intellectual property are deemed inadequate, we may have insufficient recourse against third parties for misappropriatingthe trade secret.
Intellectualproperty rights of third parties could adversely affect our ability to commercialize our product candidates, and we might be requiredto litigate or obtain licenses from third parties in order to develop or market our product candidate. Such litigation or licenses couldbe costly or not available on commercially reasonable terms.
Ourcompetitive position may suffer if patents issued to third parties or other third party intellectual property rights cover our productcandidates or elements thereof, or our manufacturing or uses relevant to our development plans. In such cases, we may not be in a positionto develop or commercialize our product candidates unless we successfully pursue litigation to nullify or invalidate the third partyintellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if available oncommercially reasonable terms. There may also be pending patent applications that if they result in issued patents, could be allegedto be infringed by our product candidates. If such an infringement claim should be brought and be successful, we may be required to paysubstantial damages, be forced to abandon our product candidates or seek a license from any patent holders. No assurances can be giventhat a license will be available on commercially reasonable terms, if at all.
Itis also possible that we have failed to identify relevant third party patents or applications. Patent applications in the U.S. and elsewhereare published approximately 18 months after the earliest filing to which priority is claimed, with such earliest filing date being commonlyreferred to as the priority date. Therefore, patent applications covering our product candidates or technology could have been filedby others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations,be later amended in a manner that could cover our technologies, our product candidates or the use of our product candidates. Third partyintellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we will be ableto successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on termsacceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be preventedfrom or experience substantial delays in pursuing the development of and/or marketing of our product candidates. If we fail in any suchdispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing our productcandidates that are held to be infringing. We might, if possible, also be forced to redesign our product candidates so that we no longerinfringe the third party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us todivert substantial financial and management resources that we would otherwise be able to devote to our business.
Third-partyclaims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Ourcommercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There have beenmany lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology, medical device andpharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and reexamination proceedings before theUSPTO and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are ownedby third parties, exist in the fields in which we are developing product candidates. As the medical device and pharmaceutical industryexpands and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patentrights of third parties.
Thirdparties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patentapplications with claims to materials, formulations, methods of manufacture, or methods for treatment related to the use or manufactureof our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applicationsthat may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in thefuture and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competentjurisdiction to cover the manufacturing process of any of our product candidates, any materials formed during the manufacturing processor any final product candidates itself, the holders of any such patents may be able to block our ability to commercialize such productcandidates unless we obtain a license under the applicable patents, or until such patents expire or are finally determined to be invalidor unenforceable.
Similarly,if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture,or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable productcandidate unless we obtain a license or until such patent expires or is finally determined to be invalid or unenforceable. In eithercase, such a license may not be available on commercially reasonable terms or at all.
Partiesmaking claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further developand commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantiallitigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim ofinfringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement,pay royalties, redesign our infringing product candidates or obtain one or more licenses from third parties, which may be impossibleor require substantial time and monetary expenditure.
Wemay not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
Becauseour technology may require the use of proprietary rights held by third parties, the growth of our business will likely depend in parton our ability to acquire, in-license, or use these proprietary rights. In addition, our product candidates may require specific formulationsto work effectively and efficiently and the rights to these formulations may be held by others. We may be unable to acquire or in-licenseany compositions, methods of use, processes, or other third-party intellectual property rights from third parties that we identify asnecessary for our product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area,and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rightsthat we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources,and greater clinical development and commercialization capabilities.
Forexample, we sometimes collaborate with academic institutions to accelerate our preclinical research or development under written agreementswith these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’srights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within thespecified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual propertyrights to other parties, potentially blocking our ability to pursue our program.
Inaddition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable tolicense or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment.If we are unable to successfully obtain rights to required third-party intellectual property rights, we may have to abandon developmentof that program and our business and financial condition could suffer.
Wemay be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful.
Competitorsmay infringe our intellectual property or that of our licensors that we may acquire in the future. If we or a future licensing partnerwere to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant couldcounterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States,defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an allegedfailure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceabilityassertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO,or made a misleading statement, during prosecution. Under the AIA, the validity of U.S. patents may also be challenged in post-grantproceedings before the USPTO. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
Interferenceproceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventionswith respect to our patent or patent applications or those of our licensors. An unfavorable outcome could require us to cease using therelated technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing partydoes not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, evenif successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associatedwith litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continueour research programs, license necessary technology from third parties, or enter into development partnerships that would help us bringour product candidates to market.
Furthermore,because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that someof our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcementsof the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive theseresults to be negative, it could have a material adverse effect on the price of our Ordinary Shares.
Wemay be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential informationof third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Weemploy individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitorsor potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietaryinformation or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants, or independentcontractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information,of any of our employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. Ifwe fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel,which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantialcosts and be a distraction to management and other employees.
Wemay be subject to claims challenging the inventorship of our intellectual property.
Wemay be subject to claims that former employees, collaborators or other third parties have an interest in or right to compensation withrespect to our patent applications, future patents or other intellectual property as an inventor or co-inventor. For example, we mayhave inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates.Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation.If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, suchas exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on ourbusiness. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distractionto management and other employees. To the extent that our employees have not effectively waived the right to compensation with respectto inventions that they helped create, they may be able to assert claims for compensation with respect to our future revenue. As a result,we may receive less revenue from future product candidates if such claims are successful which in turn could impact our future profitability.
Changesin United States and international patent law could diminish the value of patents in general, thereby impairing our ability to protectour product candidates.
Oursuccess is heavily dependent on intellectual property. Obtaining and enforcing patents in the medical device and pharmaceutical industriesinvolve both technological and legal complexity. Therefore, obtaining and enforcing these patents is costly, time consuming and inherentlyuncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation.Recent United States Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakenedthe rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patentsin the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on futureactions by the United States Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictableways that would weaken our ability to obtain patents or to enforce patents that we might obtain in the future.
Wemay not be able to protect our intellectual property rights throughout the world.
Filing,prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and ourintellectual property rights in some countries outside the United States may be less extensive than those in the United States. In addition,the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the UnitedStates.
Competitorsmay use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also exportotherwise infringing product candidates to territories where we have patent protection, but enforcement is not as strong as that in theUnited States. These products may compete with our product candidates. Future patents or other intellectual property rights may not beeffective or sufficient to prevent them from competing.
Manycompanies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. Thelegal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secretsand other intellectual property protection, particularly those relating to biotechnology productsor methods of treatment, which couldmake it difficult for us to stop the marketing of competing products in violation of our proprietary rights generally. Proceedings toenforce our future patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert ourefforts and attention from other aspects of our business, could put our future patents at risk of being invalidated or interpreted narrowlyand our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail inany lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, ourefforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage fromthe intellectual property that we develop or license.
RisksRelated to Our Business Operations
Ourbusiness, operations and financial performance have been and may continue to be impacted by the COVID-19 pandemic.
Theglobal spread of the COVID-19 pandemic and measures introduced by local, state and federal governments to contain the virus and mitigateits public health effects have significantly impacted the global economy. There remains considerable uncertainty around the durationand extent of the COVID-19 pandemic and its ongoing impacts, and we expect the evolving COVID-19 pandemic to continue to impact our businessand these impacts may be substantial. In particular, the Company cannot accurately predict the future impact COVID-19 may have on, amongothers, (i) labor availability and supply lines, (iii) availability of essential supplies, or (iii) ability of the Company to obtainnecessary financing. We may also experience limitations on employee resources in the future, including because of sickness of employeesor their families. These factors may hamper the Company’s efforts to comply with filing or reporting obligations or requirementsunder securities laws.
Theeffects of government actions and our own policies and those of third parties to reduce the spread of COVID-19 have and may continueto negatively impact productivity, slow down our research and development activities, cause disruptions to our supply chain and impairour ability to execute our business development strategy. To the extent our suppliers and service providers are unable to comply withtheir obligations under our agreements with them or they are otherwise unable to deliver or are delayed in delivering goods and servicesto us due to the COVID-19 pandemic, our ability to continue meeting demand for or otherwise advancing development of our product candidatesmay be impaired.
Whilemany jurisdictions have partially or entirely relaxed various “shelter-in-place” orders, quarantines, executive orders andsimilar government orders and restrictions, some have not, such as those in much of Europe. Additionally, if there is a resurgence ininfections in jurisdictions that have eased restrictions, then such restrictions may be reimplemented. Such orders or restrictions, aswell as the perceived need by individuals to continue such practices to avoid infection, among other factors, continue to result in businessclosures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, among othereffects. The states and countries in which our product candidates and their components are manufactured, assembled, shipped and distributedare in varying stages of restrictions and re-opening to address the COVID-19 pandemic. Any existing or renewed quarantines, governmentactions related to the pandemic or shutdowns could disrupt our supply chain, manufacturing or shipping process, or sales channel.
Thewidespread pandemic has resulted, and may continue to result for an extended period, in significant disruption of global financial markets,reducing our ability to access capital, which would negatively affect our liquidity. In addition, if the COVID-19 pandemic results ina prolonged economic recession, it could harm our future sales, if any, and our ability to continue as a going concern. A prolonged economiccontraction or recession may also result in employer layoffs in markets where we conduct business.
Despiteglobal vaccination efforts, it is not possible to reliably estimate the length and severity of these developments and the impact theCOVID-19 pandemic will continue to have on the financial results and condition of the Company in the future. To the extent the COVID-19pandemic adversely affects our financial results and business, it may also have the effect of heightening many of the other risks describedin this “Risk Factors” section.
Wewill need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
Ourfuture financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on ourability to effectively manage any future growth. As our development and commercialization plans and strategies develop, we expect toneed additional managerial, operational, sales, marketing, financial and legal personnel. Our management may need to divert a disproportionateamount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities.We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operationalmistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth couldrequire significant capital expenditures and may divert financial resources from other projects, such as the development of additionalproduct candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our abilityto generate and/or grow revenue could be reduced, and we may not be able to implement our business strategy.
Dueto our limited resources and access to capital, we must, and have in the past decided to, prioritize development of certain product candidatesover other potential candidates. These decisions may prove to have been wrong and may adversely affect our revenues.
Becausewe have limited resources and access to capital to fund our operations, we must decide which product candidates to pursue and the amountof resources to allocate to each. Our decisions concerning the allocation of research, collaboration, management and financial resourcestoward particular product candidates may not lead to the development of viable commercial product candidates and may divert resourcesaway from better opportunities. Similarly, our decisions to delay, terminate or collaborate with third parties in respect of certainproduct candidates development programs may also prove not to be optimal and could cause us to miss valuable opportunities. If we makeincorrect determinations regarding the market potential of our product candidates or misread trends in the medical device and pharmaceuticalindustries, in particular for our lead product candidate, our business, financial condition and results of operations could be materiallyadversely affected.
Wemay not be successful in our efforts to identify, discover or license additional product candidates.
Althougha substantial amount of our effort will focus on the continued clinical testing, potential approval and commercialization of our productcandidates, the success of our business also depends upon our ability to identify, discover or license additional product candidates.Our research programs or licensing efforts may fail to yield additional product candidates for clinical development for a number of reasons,including: lack of financial or personnel resources to acquire or discover additional product candidates; new product candidates maynot succeed in preclinical or clinical testing, or may be shown to have harmful side effects or may have other characteristics that maymake them unmarketable or unlikely to receive marketing approval; our competitors may develop alternatives that render our product candidatesobsolete or less attractive; the market for a product candidate may change during our development program so that such product candidatesmay become unprofitable to continue to develop; new product candidates may not be capable of being produced in commercial quantitiesat an acceptable cost, or at all; and new product candidates may not be accepted as safe and effective by patients, the medical community,or third-party payors.
Wemay be forced to abandon our development efforts for a program or programs that are unsuccessful, or we may not be able to identify,license, or discover additional product candidates, which would have a material adverse effect on our business and could potentiallycause us to cease operations. Further, research programs to identify new product candidates require substantial technical, financialand human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.
Europeandata collection is governed by restrictive regulations governing the collection, use, processing and cross-border transfer of personalinformation.
Wemay collect, process, use or transfer personal information from individuals located in the European Union in connection with our business,including in connection with conducting clinical trials in the European Union. Additionally, we intend to commercialize our product candidates,and any of our product candidates that receive marketing approval, in the European Union. The collection and use of personal health datain the European Union is governed by the provisions of the General Data Protection Regulation ((EU) 2016/679), or the GDPR, along withother European Union and country-specific laws and regulations. The United Kingdom and Switzerland have also adopted data protectionlaws and regulations. These legislative acts (together with regulations and guidelines) impose requirements relating to having legalbases for processing personal information relating to identifiable individuals and transferring such information outside of the EEA,including to the United States, providing details to those individuals regarding the processing of their personal information, keepingpersonal information secure, having data processing agreements with third parties who process personal information, responding to individuals’requests to exercise their rights in respect of their personal information, reporting security breaches involving personal data to thecompetent national data protection authority and affected individuals, appointing data protection officers, conducting data protectionimpact assessments and record-keeping. The GDPR imposes additional responsibilities and liabilities in relation to personal data thatwe process and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. Failureto comply with the requirements of the GDPR and related national data protection laws of the member states of the European Union mayresult in substantial fines, other administrative penalties and civil claims being brought against us, which could have a material adverseeffect on our business, prospects, financial condition and results of operations.
Ifwe fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incurcosts that could have a material adverse effect on the success of our business.
Ourresearch, development and manufacturing activities and our third party manufacturers’ and suppliers’ activities involve thecontrolled storage, use and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds.We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposalof these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at ourand our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could causean interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resultingin costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materialsand specified waste product candidates. Although we believe that the safety procedures utilized by our third-party manufacturers forhandling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guaranteethat this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be heldliable for any resulting damages, such liability could exceed our resources, and state or federal or other applicable authorities maycurtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex,change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of ourfuture compliance. We do not currently carry biological or hazardous waste insurance coverage.
Ouremployees and independent contractors may engage in misconduct or other improper activities, including noncompliance with regulatorystandards and requirements.
Weare exposed to the risk of fraud or other misconduct by our employees and independent contractors. Misconduct by these parties couldinclude intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standardswe may establish, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or dataaccurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industryare subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices.These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,customer incentive programs and other business arrangements. Employee and independent contractor misconduct could also involve the improperuse of information obtained in the course of clinical trials, including individually identifiable information, creating fraudulent datain our preclinical studies or clinical trials or illegal misappropriation of product candidates, which could result in regulatory sanctionsand serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties,and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or lossesor in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with suchlaws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct,even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting ourrights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
Underapplicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitorsfrom benefiting from the expertise of some of our former employees.
Wegenerally enter into non-competition agreements with our employees and certain key consultants. These agreements prohibit our employeesand certain key consultants, if they cease working for us, from competing directly with us or working for our competitors or clientsfor a limited period of time. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employeeswork and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultantsdeveloped while working for us.
Forexample, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate thatthe competitive activities of the former employee will harm one of a limited number of material interests of the employer which havebeen recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of itsintellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors frombenefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.
Internationalexpansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doingbusiness outside of the United States or Israel.
Otherthan our headquarters and other operations which are located in Israel (as further described below), we currently have limited internationaloperations, but our business strategy incorporates potentially significant international expansion, particularly in anticipation of approvalof our product candidates. We plan to retain sales representatives and third party distributors and conduct physician, ENT specialist,hospital pharmacist and patient association outreach activities, as well as clinical trials, outside of the United States, European Unionand Israel. Doing business internationally involves a number of risks, including but not limited to:
| ● | multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits, and licenses; |
| ● | failure by us to obtain regulatory approvals for the use of our product candidates in various countries; |
| ● | additional potentially relevant third-party patent rights; |
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| ● | complexities and difficulties in obtaining protection and enforcing our intellectual property; |
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| ● | difficulties in staffing and managing foreign operations; |
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| ● | complexities associated with managing multiple payor reimbursement regimes, government payors, prince controls or patient self-pay systems; |
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| ● | limits in our ability to penetrate international markets; |
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| ● | financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our product candidates and exposure to foreign currency exchange rate fluctuations; |
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| ● | an outbreak of a contagious disease, including COVID-19, which may cause us or our distributors, third party vendors and manufacturers and/or customers to temporarily suspend our or their respective operations in the affected city or country; |
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| ● | natural disasters, political and economic instability, including wars, terrorism, and political unrest, boycotts, curtailment of trade, and other business restrictions; |
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| ● | certain expenses including, among others, expenses for travel, translation and insurance; and |
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| ● | regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act its books and records provisions, or its anti-bribery provisions. |
Anyof these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.
RisksRelated to Commercialization of Our Product Candidates
Wecurrently have no marketing and sales organization. If we are unable to establish marketing and sales capabilities, or enter into agreementswith third parties to market and sell our product candidates, we may be unable to generate any product candidates revenue.
Wehave no experience selling and marketing our product candidates, and we currently have no marketing or sales organization. To successfullycommercialize any product candidates that may result from our development programs, we will need to develop these capabilities, eitheron our own or with others. If our product candidates receive regulatory approval, we intend to establish a sales and marketing organizationindependently or by utilizing experienced third parties with technical expertise and supporting distribution capabilities to commercializeour product candidates in major markets, all of which will be expensive, difficult and time consuming. Any failure or delay in the developmentof our internal sales, marketing and distribution capabilities would adversely impact our ability to commercialize our product candidates.
Further,given our lack of prior experience in marketing and selling medical device and pharmaceutical products, our initial estimate of the sizeof the required sales force may be materially more or less than the size of the sales force actually required to effectively commercializeour product candidates. As such, we may be required to hire sales representatives and third party distributors to adequately supportthe commercialization of our product candidates, or we may incur excess costs if we hire more sales representatives than necessary. Withrespect to certain geographical markets, we may enter into collaborations with other entities to utilize their local marketing and distributioncapabilities, but we may be unable to enter into such agreements on favorable terms, if at all. We also may enter into collaborationswith large medical device and pharmaceutical companies to develop and commercialize product candidates. If our future collaborators donot commit sufficient resources to develop and commercialize our future product candidates, if any, and we are unable to develop thenecessary marketing capabilities on our own, we will be unable to generate sufficient product candidates revenue to sustain our business.We may compete with companies that currently have extensive and well-funded marketing and sales operations. Without an internal teamor the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these moreestablished companies.
Ourefforts to educate the medical community, including physicians, hospital pharmacists and third-party payors on the benefits of our productcandidates may require significant resources and may never be successful. If any of our product candidates are approved but fail to achievemarket acceptance among physicians, patients or third-party payors, we will not be able to generate significant revenues from such productcandidates, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Weare subject to significant regulatory oversight with respect to manufacturing our product candidates. Delays in establishing and obtainingregulatory approval of our manufacturing process may delay or disrupt our product candidates development and commercialization efforts.
Thepreparation of drug products for clinical trials or commercial sale is subject to extensive regulation. Before we can begin to commerciallymanufacture our product candidates or any product candidate, we must obtain regulatory approvals from the Israeli Ministry of Health,or MOH, the FDA and similar regulatory agencies, as applicable for our manufacturing process and facility. A manufacturing authorizationmust also be obtained from the appropriate regulatory authorities in the European Union and worldwide. In addition, we must pass a pre-approvalinspection of our manufacturing facility by the FDA before our C&C product candidates or any product candidate can obtain marketingapproval. In order to obtain approval, we will need to ensure that all of our processes, methods and equipment are compliant with cGMP,and perform extensive audits of vendors, contract laboratories and suppliers. If any of our vendors, contract laboratories or suppliersis found to be out of compliance with cGMP, we may experience delays or disruptions in manufacturing while we work with these third partiesto remedy the violation or while we work to identify suitable replacement vendors. For example, in the past, a cGMP audit by the MOHof the manufacturing process in the facility of our contract manufacturer for our C&C product candidates resulted in certain criticalobservations, which have since been resolved. There can be no guarantee, however, that future inspections by regulatory authorities ofour manufacturing facilities or those of our contract manufacturers will result in MOH’s agreement that these critical observationshave been resolved or that similar inspectional observations will not be identified. If we do not demonstrate to the satisfaction ofthe applicable regulator that our manufacturing facilities, or those of our contract manufacturers, are in compliance with applicablerequirements, we may be materially delayed in the development of our product candidates, which would materially harm our business. ThecGMP requirements govern quality control of the manufacturing process and documentation policies and procedures. In complying with cGMP,we will be obligated to expend time, money and effort in production, record keeping and quality control to assure that the product candidatesmeets applicable specifications and other requirements. If we fail to comply with these requirements, we would be subject to possibleregulatory action and may not be permitted to sell any product candidate that we may develop.
Ourfailure to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions,civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products or product candidates,operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of any approved productsand our product candidates.
Ifwe receive marketing approval for our product candidates, sales will be limited unless the product candidates achieves broad market acceptanceby physicians, patients, third-party payors, hospital pharmacists, infectious disease specialists and others in the medical community.
Thecommercial success of our product candidates will depend upon the acceptance of the product candidates by the medical community, includingphysicians, patients, healthcare payors, hospital pharmacists and infectious disease specialists. The degree of market acceptance ofany approved product candidates will depend on a number of factors, including:
| ● | the demonstration of clinical safety and efficacy of our product candidates in clinical trials; |
| ● | the efficacy, potential and perceived advantages of our product candidates over alternative treatments; |
| ● | the cost of treatment relative to alternative treatments; |
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| ● | the prevalence and severity of any adverse side effects; |
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| ● | product candidates labeling or product candidates insert requirements of the FDA or other regulatory authorities, including any limitations or warnings contained in a product candidate’s approved labeling; |
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| ● | distribution and use restrictions imposed by the FDA or agreed to by us as part of a mandatory or voluntary risk management plan; |
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| ● | our ability to obtain third-party coverage and adequate reimbursement; |
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| ● | the willingness of patients to pay for drugs out of pocket in the absence of third-party coverage; |
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| ● | the demonstration of the effectiveness of our product candidates in reducing the cost of treatment; |
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| ● | the strength of marketing and distribution support; |
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| ● | the timing of market introduction of competitive products; |
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| ● | the availability of product candidates and their ability to meet market demand; and |
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| ● | publicity concerning our product candidates or competing products and treatments. |
Ifour product candidates are approved but do not achieve an adequate level of acceptance by physicians, patients, healthcare payors, hospitalpharmacists and infectious disease specialists, we may not generate sufficient revenue from the product candidates, and we may not becomeor remain profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of our productcandidates may require significant resources and may never be successful.
Itmay be difficult for us to profitably sell our product candidates if coverage and reimbursement for these product candidates, or theprocedures in which they are used, is limited by government authorities and/or third-party payor policies.
Inaddition to any healthcare reform measures which may affect reimbursement, market acceptance and sales of our product candidates, ifapproved, will depend on, in part, the extent to which the procedures utilizing our product candidates, performed by health care providers,will be covered by third party payors, such as government health care programs, commercial insurance and managed care organizations.Our product candidates will be purchased or provided by health care providers for utilization in certain surgical procedures. In theevent health care providers and patients accept our product candidates as medically useful, cost effective and safe, there is uncertaintyregarding whether our product candidates will be directly reimbursed, reimbursed through a bundled payment or if the product candidateswill be included in another type of value-based reimbursement program. Third party payors determine the extent to which new product candidatesor procedures will be covered as a benefit under their plans and the level of reimbursement for any covered product candidates or procedurewhich may utilize a covered product candidates.
Whenused in connection with certain procedures, our product candidates may not be reimbursed separately but their cost may instead be bundledas part of the payment received by the provider for the procedure only. Treating physicians are unlikely to use and order our productcandidates unless coverage is provided and the reimbursement is adequate to cover all or a significant portion of the cost of the procedureswhich utilize our product candidates. A decision by a third-party payor not to cover or adequately reimburse for our product candidatesor procedures using our product candidates, could reduce physician utilization of our product candidates once approved. Therefore, coverageand adequate reimbursement for procedures which utilize new product candidates is critical to the acceptance of such new product candidates.
Aprimary trend in the U.S. healthcare industry and elsewhere has been cost containment, including price controls, restrictions on coverageand reimbursement and requirements for substitution of less expensive products and procedures. Third party payors decide which productsand procedures they will pay for and establish reimbursement and co-payment levels. Government and other third-party payors are increasinglychallenging the prices charged for healthcare products and procedures, examining the cost effectiveness of procedures, and the productsused in such procedures, in addition to their safety and efficacy, and limiting or attempting to limit both coverage and the level ofreimbursement. We cannot be sure that coverage will be available for our product candidates, if approved, or, if coverage is available,the level of direct or indirect reimbursement.
Weexpect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare,the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcarecosts in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result,increasingly high barriers are being erected to the successful commercialization of new product candidates. Further, the adoption andimplementation of any future governmental cost containment or other health reform initiative may result in additional downward pressureon the price that we may receive for any approved product candidates.
Reimbursementby a third-party payor may depend upon a number of factors including the third-party payor’s determination that use of a productcandidates is:
| ● | a covered benefit or part of a covered benefit under its health plan; |
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| ● | safe, effective and medically necessary; |
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| ● | appropriate for the specific patient; |
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| ● | cost-effective; and |
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| ● | neither experimental nor investigational. |
Inthe United States, third-party payors, including private and governmental payors such as the Medicare and Medicaid programs, play animportant role in determining the extent to which procedures using new product candidates will be covered and reimbursed. The Medicareand Medicaid programs are increasingly used as models for how private payors and other governmental payors develop their coverage andreimbursement policies. It is difficult to predict at this time what third-party payors will decide with respect to reimbursement forfundamentally novel product candidates such as ours, as there is no body of established practices and precedents for these new productcandidates.
Obtainingcoverage and reimbursement approval for a products from a government or other third-party payor is a time-consuming and costly processthat could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our product candidates tothe payor.
Additionally,we may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverageor adequate reimbursement will be available for our product candidates, if approved. Also, we cannot be sure that reimbursement amountswill not reduce the demand for, or the price of, our future product candidates. If reimbursement is not available, or is available onlyto limited levels, we may not be able to commercialize our product candidates, or achieve profitably at all, even if approved.
Ourbusiness entails a significant risk of clinical trial and/or product candidates liability and our ability to obtain sufficient insurancecoverage could have a material effect on our business, financial condition, results of operations or prospects.
Ourbusiness exposes us to significant clinical trial and/or product candidates liability risks inherent in the development, testing, manufacturingand marketing of therapeutic treatments. Clinical trial and/or product candidates liability claims could delay or prevent completionof our development programs. If we succeed in marketing product candidates, product candidates liability claims could result in an FDAinvestigation of the safety and effectiveness of our product candidates, our manufacturing processes and facilities or our marketingprograms and potentially a recall of our product candidates or more serious enforcement action, limitations on the approved indicationsfor which they may be used or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims mayalso result in decreased demand for our product candidates, injury to our reputation, costs to defend the related litigation, a diversionof management’s time and our resources, substantial monetary awards to trial participants or patients and a decline in our companyvaluation. While we currently have clinical trial liability insurance, we do not have product candidates liability insurance and do notanticipate obtaining product candidates liability insurance until such time as we have received FDA or other comparable foreign authorityapproval for a product candidates and there is a product candidates that is being provided to patients outside of clinical trials. Anyinsurance we have or may obtain may not provide sufficient coverage against potential liabilities. In some countries, the institutionor the doctors involved do not have sufficient insurance to cover their activities. Furthermore, clinical trial and product candidatesliability insurance are becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance at a reasonablecost to protect us against losses caused by clinical trial and product candidates liability claims that could have a material adverseeffect on our business.
RisksRelated to this Offering and Ownership of Our Securities
Themarket price of our securities may be highly volatile, and you may not be able to resell your Ordinary Shares or Warrants at or abovethe initial public offering price.
Priorto this offering, there has not been a public market for our securities. Although we have applied to list our Ordinary Shares and Warrantson Nasdaq, an active trading market for the Ordinary Shares or Warrants may not develop or be sustained. If an active trading marketfor our Ordinary Shares or Warrants does not develop following this offering, you may not be able to sell your Ordinary Shares or Warrantsquickly or at the market price. The initial public offering price for the Units will be determined by negotiations between us and representativeof the underwriters and may not be indicative of prices that will prevail in the trading market.
Thetrading price of each of our Ordinary Shares and Warrants is likely to be volatile. The following factors, in addition to other riskfactors described in this section, may have a significant impact on the market price of such securities:
| ● | inability to obtain the approvals necessary to commence clinical trials; |
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| ● | unsatisfactory results of clinical trials; |
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| ● | announcements of regulatory approval or the failure to obtain it, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process; |
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| ● | announcements of innovations or new product candidates by us or our competitors; |
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| ● | adverse actions taken by regulatory authorities with respect to our clinical trials, manufacturing supply chain or sales and marketing activities; |
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| ● | any adverse changes to our relationship with manufacturers or suppliers; |
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| ● | any intellectual property infringement actions in which we may become involved; |
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| ● | achievement of expected product candidates sales and profitability or our failure to meet expectations; |
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| ● | our commencement of, or involvement in, litigation; |
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| ● | any major changes in our board of directors or management; |
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| ● | our ability to recruit and retain qualified regulatory, research and development personnel; |
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| ● | legislation in the United States relating to the sale or pricing of medical devices; |
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| ● | the depth of the trading market in our securities; |
| ● | termination of the lock-up agreements or other restrictions limiting our ability or that of any of our existing shareholders to sell our Ordinary Shares (or any other securities that we may issue, if any) after this offering; |
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| ● | economic weakness, including inflation, or political instability in particular foreign economies and markets; |
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| ● | business interruptions resulting from a local or worldwide pandemic, such as COVID-19, geopolitical actions, including war and terrorism, or natural disasters; |
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| ● | the granting or exercise of employee stock options or other equity awards; and |
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| ● | changes in investors’ and securities analysts’ perception of the business risks and conditions of our business. |
Inaddition, the stock market in general, and the Nasdaq in particular, have experienced extreme price and volume fluctuations that haveoften been unrelated or disproportionate to the operating performance of small companies. Broad market and industry factors may negativelyaffect the market price of our securities, regardless of our actual operating performance. Further, a systemic decline in the financialmarkets and related factors beyond our control may cause our share price to decline rapidly and unexpectedly.
TheWarrants are speculative in nature.
Exceptas otherwise set forth therein, the Warrants offered in this offering do not confer any rights of Ordinary Share ownership on their holders,such as voting rights, but rather merely represent the right to acquire Ordinary Shares at a fixed price for a limited period of time.Specifically, commencing on the date of issuance, holders of the Warrants may exercise their right to acquire Ordinary Shares and payan exercise price of $ (based on an assumed public offering price of $ per Unit, the midpoint of the range set forth on the cover page of this prospectus) per Ordinary Share, 100% of the public offering priceper Unit, prior to five years from the date of issuance, after which date any unexercised Warrants will expire and have no further value.There can be no assurance that the market price of our Ordinary Shares will continue to equal or exceed the exercise price of the Warrantsoffered by this prospectus. In the event that our Ordinary Shares price does not exceed the exercise price of such Warrants during theperiod when such Warrants are exercisable, the Warrants may not have any value.
Thereis no established market for the Warrants being offered in this offering.
Thereis no established trading market for the Warrants offered in this offering. Although we have applied to list the Warrants on Nasdaq therecan be no assurance that there will be an active trading market for the Warrants. Without an active trading market, the liquidity ofthe Warrants will be limited.
Futuresales of our Ordinary Shares could reduce the market price of our Ordinary Shares.
Substantialsales of our Ordinary Shares on Nasdaq, including following this offering, may cause the market price of our Ordinary Shares to decline.Sales by us or our security holders of substantial amounts of our Ordinary Shares, or the perception that these sales may occur in thefuture, could cause a reduction in the market price of our Ordinary Shares.
Theissuance of any additional Ordinary Shares or any securities that are exercisable for or convertible into Ordinary Shares, may have anadverse effect on the market price of our Ordinary Shares and will have a dilutive effect on our existing shareholders and holders ofOrdinary Shares.
Ourexecutive officers, directors and principal shareholders will maintain the ability to exert significant control over matters submittedto our shareholders for approval.
Asof August 10, 2022, our executive officers, directors and principal shareholders who own more than 5% of our outstanding Ordinary Shares,in the aggregate, beneficially own shares representing approximately 90% of our share capital. As a result, if these shareholders wereto act together, they would be able to exert significant influence over all matters submitted to our shareholders for approval (includinga prospective acquisition or other change of control of our company), as well as our management and affairs.
Managementwill have broad discretion as to the use of the proceeds from this offering.
Ourmanagement will have broad discretion in the allocation of the net proceeds and could use them for purposes other than those contemplatedat the time of this offering and as described in the section titled “Use of Proceeds.” Our shareholders may not agreewith the manner in which our management chooses to allocate and spend the net proceeds.
Wemay be a “passive foreign investment company”, or PFIC, for U.S. federal income tax purposes in the current taxable yearor may become one in any subsequent taxable year. There generally would be negative tax consequences for U.S. taxpayers that are holdersof our Equity Securities if we are or were to become a PFIC.
Basedon the projected composition of our income and valuation of our assets, we believe that we were likely a PFIC for 2021, although definitivedetermination has been made and may likely be a PFIC in the current or any subsequent taxable year, although there can be no assurancein this regard. The determination of whether we are a PFIC is made on an annual basis and will depend on the composition of our incomeand assets from time to time. We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (1)at least 75% of our gross income is “passive income” or (2) on quarterly average at least 50% of our assets by value producepassive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things,certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange ofproperty that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds,including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the incomeand assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. Thetests for determining PFIC status are applied annually and it is difficult to make accurate projections of future income and assets whichare relevant to this determination. In addition, our PFIC status may depend in part on the market value of our Equity Securities. Accordingly,there can be no assurance that we currently are not or will not become a PFIC in the future. If we are a PFIC in any taxable year duringwhich a U.S. taxpayer holds our Equity Securities (including Warrants, which are treated as PFIC stock), such U.S. taxpayer would besubject to certain adverse U.S. federal income tax rules. In particular, if the U.S. taxpayer did not make an election to treat us asa “qualified electing fund”, or QEF, or make a “mark-to-market” election, then “excess distributions”to the U.S. taxpayer, and any gain realized on the sale or other disposition of our Equity Securities by the U.S. taxpayer: (1) wouldbe allocated ratably over the U.S. taxpayer’s holding period for our Equity Securities; (2) the amount allocated to the currenttaxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income;and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for theapplicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to theresulting tax attributable to each such other taxable year. In addition, if the U.S. Internal Revenue Service, or the IRS, determinesthat we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. taxpayerto make a timely QEF or mark-to-market election. U.S. taxpayers that have held our Equity Securities during a period when we were a PFICwill be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. taxpayer whomade a timely QEF or mark-to-market election. A U.S. taxpayer can make a QEF election by completing the relevant portions of and filingIRS Form 8621 in accordance with the instructions thereto. We do not intend to notify U.S. taxpayers that hold our Equity Securitiesif we believe we will be treated as a PFIC for any taxable year in order to enable U.S. taxpayers to consider whether to make a QEF election.In addition, we do not intend to furnish such U.S. taxpayers annually with information needed in order to complete IRS Form 8621 andto make and maintain a valid QEF election for any year in which we are a PFIC. A QEF election and a “mark-to-market” electionwill each be unavailable with respect to our Warrants. U.S. taxpayers that hold our Equity Securities are strongly urged to consult theirtax advisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them ofmaking a QEF or mark-to- market election with respect to our Equity Securities in the event that we are a PFIC. See “Taxation—U.S.Federal Income Tax Considerations—Passive Foreign Investment Companies” for additional information.
Ifa United States person is treated as owning at least 10% of our shares, such holder may be subject to adverse U.S. federal income taxconsequences.
Ifa United States person is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of ourshares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation”in our Company (if any). A United States shareholder of a controlled foreign corporation may be required to annually report and includein its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income”and investments in U.S. property by controlled foreign corporations, whether or not we make any distributions. An individual that isa United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions orforeign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. A failure to comply with these reportingobligations may subject you to significant monetary penalties and may prevent the statute of limitations with respect to your U.S. federalincome tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist investorsin determining whether such investors are treated as a United States shareholder with respect to any of such controlled foreign corporationsor furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax payingobligations. A United States investor should consult their own advisors regarding the potential application of these rules to its investmentin the shares.
Asa foreign private issuer, we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwiseapplicable Nasdaq requirements, and we will not be subject to certain U.S. securities laws including, but not limited to, U.S. proxyrules and the filing of certain Exchange Act reports.
Asa foreign private issuer, we will be permitted, and intend, to follow certain home country corporate governance practices instead ofthose otherwise required by the Nasdaq Stock Market for domestic U.S. issuers. Following our home country governance practices as opposedto the requirements that would otherwise apply to a U.S. company listed on The Nasdaq Global Market may provide less protection to youthan what is accorded to investors under the listing rules of Nasdaq applicable to domestic U.S. issuers.
Asa foreign private issuer, we will be exempt from the rules and regulations under the Securities Exchange Act of 1934, or the ExchangeAct, related to the furnishing and content of proxy statements, including the applicable compensation disclosure requirements. Nevertheless,pursuant to regulations promulgated under the Israeli Companies Law, 5759-1999, or the Israeli Companies Law, we are required to disclosethe annual compensation of our five most highly compensated office holders on an individual basis. Such disclosure will not be as extensiveas that required of a U.S. domestic issuer. Our officers, directors and principal shareholders will also be exempt from the reportingand short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required underthe Exchange Act to file reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whosesecurities are registered under the Exchange Act and we will be exempt from filing quarterly reports with the SEC under the ExchangeAct. Moreover, we will not be required to comply with Regulation FD, which restricts the selective disclosure of material information,although we intend to voluntarily adopt a corporate disclosure policy substantially similar to Regulation FD. These exemptions andleniencies will reduce the frequency and scope of information and protections to which you may otherwise have been eligible in relationto a U.S. domestic issuer.
Wewould lose our foreign private issuer status if a majority of our shares are owned by U.S. residents and a majority of our directorsor executive officers are U.S. citizens or residents or we fail to meet additional requirements necessary to avoid loss of foreign privateissuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher.If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuerforms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We may also be requiredto modify certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such conversionand modifications will involve additional costs. In addition, we would lose our ability to rely upon exemptions from certain corporategovernance requirements on U.S. stock exchanges that are available to foreign private issuers.
Weare an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our OrdinaryShares less attractive to investors.
Weare an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirementsthat are applicable to other public companies that are not emerging growth companies.
Foras long as we remain an emerging growth company we are permitted and intend to rely on exemptions from certain disclosure requirementsthat are applicable to other public companies that are not “emerging growth companies.” These exemptions include:
| ● | not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; |
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| ● | Section 107 of the JOBS Act, which provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay such adoption of new or revised accounting standards. As a result of this adoption, our financial statements may not be comparable to companies that comply with the public company effective date; |
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| ● | not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; |
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| ● | reduced disclosure obligations regarding executive compensation; and |
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| ● | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
Wewill remain an emerging growth company until the earliest of: (i) the last day of our fiscal year during which we have total annualgross revenues of at least $1.07 billion; (ii) December 31, 2025; (iii) the date on which we have, during the previousthree-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “largeaccelerated filer” under the Exchange Act. We have opted out of the extended transition period made available to emerging growthcompanies to comply with newly adopted public company accounting requirements.
Whenwe are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussedabove. We cannot predict if investors will find our Ordinary Shares less attractive as a result of our reliance on exemptions under theJOBS Act. If some investors find our Ordinary Shares less attractive as a result, there may be a less active trading market for our OrdinaryShares and our share price may be more volatile.
Ifyou purchase securities in this offering, you will incur immediate and substantial dilution in the book value of your shares.
Theoffering price of the Ordinary Shares is substantially higher than the net tangible book value per share of our Ordinary Shares. Therefore,if you purchase securities in this offering, you will pay a price per Ordinary Share that substantially exceeds our net tangible bookvalue per Ordinary Share after this offering. To the extent outstanding options or warrants are exercised, you will incur further dilution.Based on an assumed public offering price of $ per Unit, which is the midpoint of theprice range set forth on the cover page of this prospectus, you will experience immediate dilution of $ per Ordinary Share, representing the difference between our pro forma net tangible book value per Ordinary Share after giving effectto this offering and the offering price. See “Dilution” for further information.
RisksRelated to Israeli Law and Our Operations in Israel
Ourheadquarters and other significant operations are located in Israel, and, therefore, our results may be adversely affected by political,economic and military instability in Israel.
Ourexecutive offices, research and development laboratories are located in Ra’anana, Israel. In addition, the majority of our keyemployees, officers and directors are residents of Israel. If these or any future facilities in Israel were to be damaged, destroyedor otherwise unable to operate, whether due to war, acts of hostility, earthquakes, fire, floods, hurricanes, storms, tornadoes, othernatural disasters, employee malfeasance, terrorist acts, power outages or otherwise, or if performance of our research and developmentis disrupted for any other reason, such an event could delay our clinical trials or, if our product candidates are approved and we chooseto manufacture all or any part of them internally, jeopardize our ability to manufacture our product candidates as promptly as our prospectivecustomers will likely expect, or possibly at all. If we experience delays in achieving our development objectives, or if we are unableto manufacture an approved product candidates within a timeframe that meets our prospective customers’ expectations, our business,prospects, financial results and reputation could be harmed.
Political,economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948,a number of armed conflicts have taken place between Israel and groups in its neighboring countries. In addition, several countries,principally in the Middle East, restrict doing business with Israel, and additional countries may impose restrictions on doing businesswith Israel and Israeli companies whether as a result of hostilities in the region or otherwise. Any hostilities involving Israel, terroristactivities, political instability or violence in the region or the interruption or curtailment of trade or transport between Israel andits trading partners could adversely affect our operations and results of operations and the market price of our Ordinary Shares.
Ourcommercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the MiddleEast. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused byterrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or, if maintained, will be sufficientto compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business,financial condition and results of operations.
Further,our operations could be disrupted by the obligations of our employees to perform military service. Currently, the three full-time employeesand one part-time contractor of the Company are not required to perform reserve military service. However, any future employee and/orcontractor of the Company which will reside in Israel may be required to perform reserve militarily reservists, and may be called uponto perform military reserve duty of up to 36 days per year (and in some cases more) until they reach the age of 40 (and in somecases, up to the age of 45 or older). Additionally, they may be called to active duty at any time under emergency circumstances. In responseto increased tension and hostilities in the region, there were, at times, call-ups of military reservists, and it is possible that therewill be additional call-ups in the future. Our operations could be disrupted by the absence of these employees and/or any future Israelicontractors due to military service. Such disruption could occur and, therefore, harm our business and operating results.
Ouroperations are subject to currency and interest rate fluctuations.
Althoughour functional currency is the U.S. dollar, and our financial records are maintained in U.S. dollars, we also incur expenses in Eurosand New Israeli Shekels. In the future, we expect that a substantial portion of our revenues will be generated in U.S. dollars, Eurosand other foreign currencies, although we currently incur a significant portion of our expenses in currencies other than U.S. dollars,mainly New Israeli Shekels. As a result, we are affected by foreign currency exchange fluctuations through both translation risk andtransaction risk, and our financial results may be affected by fluctuations in the exchange rates of currencies in the countries in whichour prospective product candidates may be sold.
Wereceived Israeli government grants for certain of our research and development activities, the terms of which may require us to pay royaltiesand to satisfy specified conditions in order to manufacture product candidates and transfer technologies outside of Israel. If we failto satisfy these conditions, we may be required to pay penalties and refund grants previously received.
Ourresearch and development efforts have been financed in part through royalty-bearing grants in an aggregate amount of $620,000 that wereceived from the IIA during 2007-2010. The last IIA-approved research and development grants ended on December 31, 2018. With respectto the royalty-bearing grants we are committed to pay royalties at a rate between 3% and 4.5% on sales proceeds from our product candidatesthat were developed under IIA programs up to the total amount of grants received, linked to the U.S. dollar and bearing interest at anannual rate of LIBOR applicable to U.S. dollar deposits. As of August 10, 2022, our contingent liabilities regarding IIA grants receivedby us were in an aggregate amount of $736,000 (including accumulated interest). We are further required to comply with the requirementsof the Israeli Encouragement of Industrial Research, Development and Technological Innovation Law, 5744-1984, as amended, and relatedregulations, or the Research Law, with respect to those past grants. When a company develops know-how, technology or product candidatesusing IIA grants, the terms of these grants and the Research Law restrict the transfer or license of such know-how, and the transferof manufacturing or manufacturing rights of such product candidates, technologies or know-how outside of Israel, without the prior approvalof the IIA. Therefore, the discretionary approval of an IIA committee would be required for any transfer or license to third partiesinside or outside of Israel of know how or for the transfer outside of Israel of manufacturing or manufacturing rights related to thoseaspects of such technologies. We may not receive those approvals. Furthermore, the IIA may impose certain conditions on any arrangementunder which it permits us to transfer technology or development.
Thetransfer or license of IIA-supported technology or know-how outside of Israel and the transfer of manufacturing of IIA-supported productcandidates, technology or know-how outside of Israel may involve the payment of significant amounts, depending upon the value of thetransferred or licensed technology or know-how, our research and development expenses, the amount of IIA support, the time of completionof the IIA-supported research project and other factors. These restrictions and requirements for payment may impair our ability to sell,license or otherwise transfer our technology assets outside of Israel or to outsource or transfer development or manufacturing activitieswith respect to any product candidates or technology outside of Israel. It should be noted that an event of change of control may beconsidered a transfer of our technology or assets and therefore require the prior approval of the IIA before completing such a transaction.The IIA may also require potential acquirers to execute undertakings to procure our continued adherence to the terms of the IIA grantsand/or impose other restrictions on such transactions. Furthermore, the consideration available to our shareholders in a transactioninvolving the transfer outside of Israel of technology or know-how developed with IIA funding (such as a merger or similar transaction)may be reduced by any amounts that we are required to pay to the IIA.
Provisionsof Israeli law and our amended and restated articles of association may delay, prevent or otherwise impede a merger with, or an acquisitionof, us, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
Israelicorporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvalsfor transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such typesof transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date on which a mergerproposal is filed by each merging company with the Israel Registrar of Companies and at least 30 days have passed from the dateon which the shareholders of both merging companies have approved the merger. In addition, a majority of each class of securities ofthe target company must approve a merger. Moreover, a tender offer for all of a company’s issued and outstanding shares can onlybe completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion ofthe tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless,following consummation of the tender offer, the acquirer would hold at least 98% of the Company’s outstanding shares. Furthermore,the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following thecompletion of the tender offer, claim that the consideration for the acquisition of the shares does not reflect their fair market value,and petition an Israeli court to alter the consideration for the acquisition accordingly, unless the acquirer stipulated in its tenderoffer that a shareholder that accepts the offer may not seek such appraisal rights, and the acquirer or the company published all requiredinformation with respect to the tender offer prior to the tender offer’s response date.
Furthermore,Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does nothave a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-freeshare exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstancesbut makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two yearsfrom the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certainrestrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires,the tax becomes payable even if no disposition of the shares has occurred. These provisions could delay, prevent or impede an acquisitionof us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.
Itmay be difficult to enforce a judgment of a U.S. court against us and our executive officers and directors in Israel or the United States,to assert U.S. securities laws claims in Israel or to serve process on our executive officers and directors and these experts.
Wewere incorporated in Israel. Substantially all of our executive officers and directors reside outside of the United States, and all ofour assets and most of the assets of these persons are located outside of the United States. Therefore, a judgment obtained against us,or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not becollectible in the United States and may not be enforced by an Israeli court. It also may be difficult for you to effect service of processon these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally,it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws in Israel.Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the mostappropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine thatIsraeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law mustbe proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also begoverned by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficultyassociated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreigncourt.
Ouramended and restated articles of association to be effective upon the closing this offering will provide that unless the Company consentsotherwise, the competent courts of Tel Aviv, Israel shall be the sole and exclusive forum for substantially all disputes between theCompany and its shareholders under the Companies Law and the Israeli Securities Law.
Thecompetent courts of Tel Aviv, Israel shall be the exclusive forum for (i) any derivative action or proceeding brought on behalf of theCompany, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Companyto the Company or the Company’s shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the CompaniesLaw or the Israeli Securities Law, 5728-1968 (the “Israeli Securities Law”). This exclusive forum provisions is intendedto apply to claims arising under Israeli Law and would not apply to claims brought pursuant to the Securities Act or the Exchange Actor any other claim for which United States federal courts would have exclusive or concurrent jurisdiction. Such exclusive forum provisionin our amended and restated articles of association will not relieve the Company of its duties to comply with federal securities lawsand the rules and regulations thereunder, and shareholders of the Company will not be deemed to have waived the Company’s compliancewith these laws, rules and regulations. This exclusive forum provision may limit a shareholders ability to bring a claim in a judicialforum of its choosing for disputes with the Company or its directors or other employees which may discourage lawsuits against the Company,its directors, officers and employees and may result in increased costs for claims required to be brought before Israeli courts.
Yourrights and responsibilities as a shareholder will be governed in key respects by Israeli laws, which differs in some material respectsfrom the rights and responsibilities of shareholders of U.S. companies.
Therights and responsibilities of the holders of our Ordinary Shares are governed by our amended and restated articles of association andby Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholdersin U.S. companies. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercisingits rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in such company,including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s amendedand restated articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related partytransactions requiring shareholder approval, as well as a general duty to refrain from discriminating against other shareholders. Inaddition, a shareholder who is aware that it possesses the power to determine the outcome of a vote at a meeting of the shareholdersor to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company.However, Israeli law does not define the substance of this duty of fairness. There is limited case law available to assist us in understandingthe nature of these duties or the implications of these provisions. These provisions may be interpreted to impose additional obligationsand liabilities on holders of our Ordinary Shares that are not typically imposed on shareholders of U.S. companies.
GeneralRisk Factors
Ourbusiness and operations would suffer in the event of computer system failures, cyber attacks or a deficiency in our cybersecurity.
Despitethe implementation of security measures intended to secure our data against impermissible access and to preserve the integrity and confidentialityof our data, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses,malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet,attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a securitybreach or disruption, particularly through cyber attacks or cyber intrusion, including by computer hackers, foreign governments, andcyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from aroundthe world have increased. If such an event were to occur and cause interruptions in our operations, it could result in a material disruptionof our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials couldresult in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extentthat any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosureof confidential or proprietary information, we could incur material legal claims and liability, including under data privacy laws suchas the GDPR, damage to our reputation, and the further development of our drug candidates could be delayed.
Ourfuture success depends in part on our ability to retain our senior management team and to attract, retain and motivate other qualifiedpersonnel.
Weare highly dependent on the members of our senior management team. The loss of their services without a proper replacement may adverselyimpact the achievement of our objectives. Our employees may leave our employment at any time. Recruiting and retaining other qualifiedemployees, consultants and advisors for our business, including scientific and technical personnel, will also be critical to our success.There is currently a shortage of skilled personnel in our industry, which is likely to continue for the foreseeable future. As a result,competition for skilled personnel is intense, and the turnover rate can be high. We may not be able to attract and retain personnel onacceptable terms given the competition among numerous medical device and pharmaceutical companies for individuals with similar skillsets. In addition, failure to succeed in preclinical studies or clinical trials may make it more challenging to recruit and retain qualifiedpersonnel. The inability to recruit and retain qualified personnel, or the loss of the services of any members of our senior managementteam without proper replacement, may impede the progress of our research, development and commercialization objectives. We do not maintainkey man insurance for our senior management team.
Wewill continue to incur significant increased costs as a result of operating as a public company in the United States, and our managementwill be required to devote substantial time to new compliance initiatives.
Asa public company whose Ordinary Shares are listed in the United States, we are subject to an extensive regulatory regime, requiring us,among other things, to maintain various internal controls and facilities and to prepare and file periodic and current reports and statements,including reports on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-OxleyAct of 2002. Complying with these requirements will be costly and time consuming. We will need to retain additional employees to supplementour current finance staff, and we may not be able to do so in a timely manner, or at all. In the event that we are unable to demonstratecompliance with our obligations as a public company in a timely manner, or are unable to produce timely or accurate financial statements,we may be subject to sanctions or investigations by regulatory authorities, such as the SEC or The Nasdaq Global Market, and investorsmay lose confidence in our operating results and the price of our Ordinary Shares could decline.
Ourindependent registered public accounting firm was not engaged to perform an audit of our internal control over financial reporting, andas long as we remain an emerging growth company, as such term is defined in the Jumpstart Our Business Startups Act of 2012, or the JOBSAct, we will be exempt from the requirement to have an independent registered public accounting firm perform such audit. Accordingly,no such opinion was expressed or will be expressed any during any such period. Once we cease to qualify as an emerging growth companyour independent registered public accounting firm will be required to attest to our management’s annual assessment of the effectivenessof our internal controls over financial reporting, which will entail additional costs and expenses.
Furthermore,we are only in the early stages of determining formally whether our existing internal control over financial reporting systems are compliantwith Section 404 and whether there are any material weaknesses or significant deficiencies in our existing internal controls. Thesecontrols and other procedures are designed to ensure that information required to be disclosed by us in the reports that we file withthe SEC is disclosed accurately and is recorded, processed, summarized and reported within the time periods specified in SEC rules andforms.
Wehave never paid cash dividends on our share capital, and we do not anticipate paying any cash dividends in the foreseeable future.
Wehave never declared or paid cash dividends on our Ordinary Shares. We currently anticipate that we will retain future earnings for thedevelopment, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeablefuture. As a result, capital appreciation, if any, of our Ordinary Shares will be investors’ sole source of gain for the foreseeablefuture. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholdingtaxes.
Ifsecurities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if theyadversely change their recommendations or publish negative reports regarding our business or our shares, our share price and tradingvolume could decline.
Thetrading market for our Ordinary Shares will be influenced by the research and reports that industry or securities analysts may publishabout us, our business, our market or our competitors. We do not have any control over these analysts and we cannot provide any assurancethat analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendationregarding our shares, or provide more favorable relative recommendations about our competitors, our share price would likely decline.If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibilityin the financial markets, which in turn could cause our share price or trading volume to decline.
SPECIALNOTE REGARDING FORWARD-LOOKING STATEMENTS
Thisprospectus contains forward-looking statements concerning our business, operations and financial performance and condition, as well asour plans, objectives and expectations for our business operations and financial performance and condition. Any statements containedherein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-lookingstatements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,”“continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,”“may,” “objective,” “plan,” “predict,” “potential,” “positioned,”“seek,” “should,” “target,” “will,” “would,” and other similar expressionsthat are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.These forward-looking statements include, but are not limited to, statements about:
| ● | the ability of our clinical trials to demonstrate safety and efficacy of our future product candidates, and other positive results; |
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| ● | the timing and focus of our future preclinical studies and clinical trials, and the reporting of data from those studies and trials; |
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| ● | the size of the market opportunity for our future product candidates, including our estimates of the number of patients who suffer from the diseases we are targeting; |
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| ● | the success of competing therapies that are or may become available; |
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| ● | the beneficial characteristics, safety, efficacy and therapeutic effects of our future product candidates; |
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| ● | our ability to obtain and maintain regulatory approval of our future product candidates; |
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| ● | our plans relating to the further development of our future product candidates, including additional disease states or indications we may pursue; |
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| ● | existing regulations and regulatory developments in the United States and other jurisdictions; |
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| ● | our plans and ability to obtain or protect intellectual property rights, including extensions of patent terms where available and our ability to avoid infringing the intellectual property rights of others; |
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| ● | the need to hire additional personnel and our ability to attract and retain such personnel; |
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| ● | our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; |
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| ● | our dependence on third parties; |
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| ● | our financial performance; |
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| ● | the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements; |
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| ● | our ability to generate revenue and profit margin under our anticipated contracts which is subject to certain risks; |
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| ● | difficulties in our and our partners’ ability to recruit and retain qualified physicians and other healthcare professionals, and enforce our non-compete agreements with our physicians; and |
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| ● | our ability to restructure our operations to comply with future changes in government regulation. |
Forward-lookingstatements are based on our management’s current expectations, estimates, forecasts and projections about our business and theindustry in which we operate and our management’s beliefs and assumptions, and are not guarantees of future performance or developmentand involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or allof our forward-looking statements in this prospectus may turn out to be inaccurate. Important factors that may cause actual results todiffer materially from current expectations include, among other things, those listed under “Risk Factors” and elsewherein this prospectus. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements.
Theforward-looking statements included in this prospectus speak only as of the date of this prospectus. Although we believe that the expectationsreflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performanceand events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, weassume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available inthe future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SECafter the date of this prospectus. See “Where You Can Find More Information.”
USEOF PROCEEDS
Weestimate that the net proceeds from the sale of Securities in this offering will be approximately $ million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, based onan assumed initial public offering price of $ per Unit, which is the midpoint of the price rangeset forth on the cover page of this prospectus. If the underwriters exercise their option to purchase up to an additional OrdinaryShares and warrants in full, we estimate that the net proceeds to us from this offering will be approximately $ million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00increase (decrease) in the assumed initial public offering price of $ per Unit wouldincrease (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions andestimated offering expenses payable by us, by $ million, assuming that the number of Unitsoffered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of Unitswe are offering. An increase (decrease) of 1.0 million in the number of Units we are offering would increase (decrease) the netproceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expensespayable by us, by $ million, assuming the assumed initial public offering price stays the same.
Wecurrently expect to use the net proceeds from this offering for the following purposes:
| ● | approximately $ million to complete the preclinical and clinical development and submit a 510(k) application to the FDA for our PL-14, PL-15 and PL-16 product candidates; |
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| ● | approximately $ million to complete in vitro feasibility as well as preclinical studies of corticosteroid, benzodiazepine, and naloxone for our T&T platform technology product candidates; and |
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| ● | the remainder for working capital and general corporate purposes and possible future acquisitions. |
Althoughwe currently anticipate that we will use the net proceeds from this offering as described above, there may be circumstances where a reallocationof funds is necessary. Due to the uncertainties inherent in the clinical development and regulatory approval process, it is difficultto estimate with certainty the exact amounts of the net proceeds from this offering that may be used for any of the above purposes ona stand-alone basis. Amounts and timing of our actual expenditures will depend upon a number of factors, including our sales, marketingand commercialization efforts, regulatory approval and demand for our product candidates, operating costs and other factors describedunder “Risk Factors” in this prospectus. Accordingly, our management will have flexibility in applying the net proceeds fromthis offering. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base ourdecisions on how to use the proceeds.
Basedon our current plans, we believe that our existing cash and cash equivalents will be sufficient to enable us to fund our operating expensesand capital expenditure requirements through June 2022. We anticipate that these funds, together with the net proceeds of this offering,will be sufficient to fund our operating expenses and capital expenditure requirements through 30 months after the completion of thisoffering. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resourcessooner than we currently expect. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation– Liquidity and Capital Resources – Financings Requirements”.
Pendingour application of the net proceeds from this offering, we plan to invest such proceeds in short-term, investment-grade, interest-bearingsecurities and depositary institutions.
DIVIDENDPOLICY
Wehave never declared or paid any cash dividends to our shareholders of our Ordinary Shares, and we do not anticipate or intend to paycash dividends in the foreseeable future. Payment of cash dividends, if any, in the future will be at the discretion of our board ofdirectors in compliance with applicable legal requirements and will depend on a number of factors, including future earnings, our financialcondition, operating results, contractual restrictions, capital requirements, business prospects, our strategic goals and plans to expandour business, applicable law and other factors that our board of directors may deem relevant.
TheIsraeli Companies Law imposes further restrictions on our ability to declare and pay dividends. See “Description of Share Capital—Dividendand Liquidation Rights” for additional information.
Paymentof dividends may be subject to Israeli withholding taxes. See “Taxation—Material Israeli Tax Considerations” for additionalinformation.
CAPITALIZATION
Thefollowing table sets forth our cash and cash equivalents and our capitalization as of December 31, 2021:
| ● | Pro Forma data gives effect to the following events as if each event had occurred on or before December 31, 2021: (i) the conversion of 2,180,201 preferred shares into 2,180,201 Ordinary Shares, and (ii) the issuance of Ordinary Shares pursuant to the 2022 SAFE Agreements (defined below), based on an assumed offering price of $ per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus; |
| ● | on a pro forma as adjusted basis to give effect to the additional issuance of Units in this offering, at an assumed public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses, as if the sale of the securities had occurred on December 31, 2021. |
Thepro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual public offeringprice and other terms of this offering determined at pricing.
Youshould read this table in conjunction with the sections titled “Selected Financial Data” and “Management’s Discussionand Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewherein this prospectus.
| | As of December 31, 2021 | |
U.S. dollars in thousands | | Actual | | | Pro Forma | | | Pro Forma As Adjusted (1) | |
| | (Unaudited) | |
| | | | | | | | | | | | |
Temporary equity, par value NIS 0.04 per share; 2,180,201 shares authorized, 2,180,201 shares issued and outstanding, actual; and no shares authorized, issued and outstanding pro forma; and pro forma as adjusted | | $ | 248 | | | | | | | | | |
| | | | | | | | | | | | |
Shareholders’ equity: | | | | | | | | | | | | |
Ordinary shares, par value NIS 0.04 per share; 36,000,000 shares authorized, 27,187,585 shares issued and outstanding; 36,000,000 shares authorized and 29,367,786 shares issued and outstanding, pro forma; 36,000,000 shares authorized and shares issued and outstanding, pro forma, as adjusted | | $ | 326 | | | | | | | | | |
Additional paid-in capital | | $ | 1,565 | | | | | | | | | |
Accumulated deficit | | $ | (2,142 | ) | | | | | | | | |
Total shareholders’ equity (deficit) | | $ | (251 | ) | | | | | | | | |
| | | | | | | | | | | | |
Total capitalization | | $ | (3 | ) | | | | | | | | |
| (1) | Each $1.00 increase or decrease in the assumed initial public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, respectively, the amount of cash, cash equivalents and short-term deposits, total shareholders’ (deficiency) equity and total capitalization by $ million, assuming the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of Units we are offering. An increase or decrease of 1.0 million in the number of Units we are offering would increase or decrease, respectively, the amount of cash, cash equivalents and short-term deposits, total shareholders’ (deficiency) equity and total capitalization by $ million, assuming the assumed initial public offering price per Unit, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing. |
Thenumber of the Ordinary Shares to be issued and outstanding immediately after this offering as shown above assumes that all of the OrdinaryShares offered hereby are sold, and is based on 29,367,786 Ordinary Shares issued and outstanding as of the date of this prospectus.This number excludes:
| ● | 1,465,289 Ordinary Shares issuable upon the exercise of options to directors, employees and consultants under our incentive option plan outstanding as of such date, with an exercise price at a range of $0.0326-$0.0544 per share, of which 1,132,766 were vested as of such date (including 533,528 options which vests upon the completion of this offering); and |
| ● | such number of Ordinary Shares issuable upon the exercise of options representing 2.5% of the Company’s post-initial public offering issued and outstanding shares which shall vest and become exercisable over a total period of three years commencing on the grant date on a monthly basis in equal installments which will be granted to Company’s Chief Executive Officer subsequent to the completion of this offering. |
| ● | 3,518,010 Ordinary Shares reserved for future issuance under our incentive option plan. |
DILUTION
Ifyou invest in our securities, your interest will be immediately diluted to the extent of the difference between the initial public offeringprice per ordinary share in this offering and the pro forma as adjusted net tangible book value per ordinary share after this offering.Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the net tangiblebook value per ordinary share. As of December 31, 2021, we had a historical net tangible book value of $(251,000), or $(0.01) per ordinaryshare. Our net tangible book value per share represents total tangible assets less total liabilities, divided by the number of OrdinaryShares outstanding on December 31, 2021.
Ourpro forma net tangible book value as of December 31, 2021 was $ million, or $ per ordinary share. Pro forma net tangible book value per share represents total tangible assets less total liabilities, divided by thenumber of Ordinary Shares outstanding as of December 31, 2021, after giving effect to (i) the conversion of 2,180,201 preferred sharesinto 2,180,201 Ordinary Shares; and (ii) the issuance of Ordinary Shares pursuant to the 2022 SAFE Agreements (defined below), basedon an assumed offering price of $ per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus.
Aftergiving additional effect to the sale of Units in this offering at an assumed initial public offering price of $ per Unit, which is themidpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts andcommissions and estimated offering expenses, our pro forma as adjusted net tangible book value at December 31, 2021 would have been $ per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to existing shareholders and immediate dilution of $ per ordinaryshare to new investors.
Thefollowing table illustrates this dilution per ordinary share:
Assumed initial public offering price per Unit | | | | | $ | | |
Historical net tangible book value per share as of December 31, 2021 | | | $ | (0.01 | ) | | | | |
Increase in net tangible book value per share attributable to the pro forma adjustments described above | | | | | | | | | |
Pro forma net tangible book value per share | | | | | | | | | |
Increase in net tangible book value per share attributable to new investors participating in this offering | | | $ | | | | | | |
Pro forma as adjusted net tangible book value per share after this offering | | | | | | | $ | | |
Dilution per share to new investors participating in this offering | | | | | | | $ | | |
Thepro forma and pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initialpublic offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial publicoffering price of $ per Unit, which is the midpoint of the price range set forth on thecover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value as of December 31, 2021 afterthis offering by approximately $ per ordinary share, and would increase (decrease) dilutionto investors in this offering by $ per ordinary share, assuming that the number of Unitsoffered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discountsand commissions and estimated offering expenses payable by us. We may also increase or decrease the number of Units we are offering.An increase (decrease) of 1.0 million in the number of Units we are offering would increase (decrease) our pro forma as adjustednet tangible book value as of December 31, 2021 after this offering by approximately $ per ordinary share, and would decrease (increase) dilution to investors in this offering by approximately $ per ordinary share, assuming the assumed initial public offering price per ordinary share remains the same, after deducting the estimatedunderwriting discounts and commissions and estimated offering expenses payable by us.
Ifthe underwriters exercise in full their option to purchase additional Ordinary Shares and Warrants, the pro forma as adjusted net tangiblebook value will increase to $ per ordinary share, representing an immediate increase in pro forma as adjusted net tangible book valueto existing shareholders of $ per ordinary share and an immediate dilution of $ per ordinaryshare to new investors participating in this offering.
Thefollowing table shows, as of December 31, 2021, on a pro forma as adjusted basis, the number of Ordinary Shares purchased from us aspart of the Units, the total consideration paid to us and the average price paid per share by existing shareholders and by new investorspurchasing Units in this offering at an assumed initial public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwritingdiscounts and commissions and estimated offering expenses payable by us:
| | Shares | | | Total Consideration | | | Average Price Per Ordinary | |
| | Number | | | Percent | | | Amount | | | Percent | | | Share | |
Existing shareholders | | | 29,367,786 | | | | | % | | $ | 2,476,000 | | | | | % | | $ | |
New investors | | | | | | | | % | | $ | | | | | | % | | $ | | |
Total | | | | | | | 100.0 | % | | $ | | | | | 100 | % | | $ | | |
A$1.00 increase (decrease) in the assumed initial public offering price of $ per Unit (the midpointof the price range set forth on the cover page of this prospectus) would increase (decrease) the total consideration paid by investorsparticipating in this offering, total consideration paid by all shareholders and the average price per share paid by all shareholdersby approximately $ million, $ millionand $ , respectively, assuming that the number of Units offered by us, as set forth on thecover page of this prospectus, remains the same and before deducting the estimated underwriting discounts and commissions and estimatedoffering expenses payable by us. Similarly, a 1.0 million share increase (decrease) in the number of Units offered by us, as setforth on the cover of this prospectus, would increase (decrease) the total consideration paid by investors participating in this offering,total consideration paid by all shareholders and the average price per share paid by all shareholders by approximately $ million, $ million and $ , respectively, assumingthe assumed initial public offering price of $ per Unit (the midpoint of the price rangeset forth on the cover page of this prospectus) remains the same, and after deducting the estimated underwriting discounts and commissionsand estimated offering expenses payable by us.
Thenumber of the Ordinary Shares to be issued and outstanding immediately after this offering as shown above assumes that all of the OrdinaryShares offered hereby are sold, and is based on 29,367,786 Ordinary Shares issued and outstanding as of the date of this prospectus.This number excludes:
| ● | 1,465,289 Ordinary Shares issuable upon the exercise of options to directors, employees and consultants under our incentive option plan outstanding as of such date, with an exercise price at a range of $0.0326-$0.0544 per share, of which 1,132,766 were vested as of such date (including 533,528 options which vests upon the completion of this offering); and |
| ● | such number of Ordinary Shares issuable upon the exercise of options representing 2.5% of the Company’s post-initial public offering issued and outstanding shares which shall vest and become exercisable over a total period of three years commencing on the grant date on a monthly basis in equal installments which will be granted to Company’s Chief Executive Officer subsequent to the completion of this offering. |
| ● | 3,518,010 Ordinary Shares reserved for future issuance under our incentive option plan. |
Tothe extent that outstanding options are exercised, new options or warrants are issued or we issue additional Ordinary Shares in the future,there will be further dilution to new investors. We may choose to raise additional capital due to market conditions or strategic considerationseven if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capitalthrough the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our equityholders.
Inaddition, in January 2022 and in June 2022, we signed Simple Agreements for Future Equity, or the 2022 SAFE Agreements, with severalexisting investors, or the SAFE Investors, of the Company for an aggregate amount of $709,952. Pursuant to the terms of the 2022 SAFEAgreements, upon consummation of a Qualified Equity Financing (which is defined as at least $300,000 aggregate proceeds), we will issueto each SAFE Investor the number of most senior class of shares issued in the Qualified Equity Financing equal to the Investment Amountdivided by the discount price (which is defined as the lowest price per SAFE share sold in the Equity Financing discounted by to 20%).Upon the completion of this offering, and based on an assumed conversion price equal to $ , the midpoint of theprice range set forth on the cover page of this prospectus, we expect to issue Ordinary Shares upon the automatic conversion of the SAFEs.All share capital information in this prospectus assumes or gives effect to such issuance of shares as if it has already occurred.
MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Youshould read the following discussion in conjunction with our audited financial statements including the related notes thereto, beginningon page F-1 of this prospectus. In addition to historical information, this discussion contains forward-looking statements thatinvolve risks and uncertainties. You should read the sections of this prospectus titled “Risk Factors” and “SpecialNote Regarding Forward-Looking Statements” for a discussion of the factors that could cause our actual results to differ materiallyfrom our expectations.
Overview
Weare a development stage biotech company specializing in the development of innovative hydrogels delivered in the form of nasal sprays,and form a thin hydrogel-based shield containment barrier in the nasal cavity that can provide a barrier against viruses and allergensfrom contacting the nasal epithelial tissue. Our proprietary C&C hydrogel technology, comprised of a mixture of naturally occurringbuilding blocks, is delivered in the form of nasal sprays, and potentially functions as a “biological mask” with a thin shieldcontainment barrier in the nasal cavity. We are further developing certain aspects of our C&C hydrogel technology such as the bioadhesionand prolonged retention at the nasal deposition site for intranasal delivery of drugs. We refer to our separate platform technology thatis focused on nasal delivery of APIs as T&T.
Wehave experienced net losses since our inception in 2005. We incurred net losses of $711,000 and $73,000 for the years ended December 31,2021 and December 31, 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $2.1 million. We anticipate thatwe will continue to incur significant losses for the foreseeable future as our operating expenses and capital expenditures increase substantiallydue to our continued investment in our research and development activities and as we hire additional employees over the coming years.Furthermore, upon closing of this offering, we expect to incur additional expenses associated with operating as a U.S. public company,including significant legal, accounting, investor relations and other expenses.
Forfurther information regarding our business and operations, see “Business” below.
Componentsof Operating Results
Revenues
Wehave not recognized any revenue to date and we do not expect to generate revenue from the sale of product candidates in the near future.
Researchand Development Expenses
Researchand development activities related to our product candidates are our primary focus. We do not believe that it is possible at this timeto accurately project total expenses required for us to reach the point at which we will be ready to out-license our technologies. Developmenttimelines, the probability of success and development costs can differ materially from expectations. In addition, we cannot forecastwhether and when collaboration arrangements will be entered into, if at all, and to what degree such arrangements would affect our developmentplans and capital requirements. We expect our research and development expenses to increase over the next several years as our developmentprogram progresses. We would also expect to incur increased research and development expenses if we were to identify and develop additionaltechnologies.
Researchand development expenses include the following:
| ● | employee-related expenses, such as salaries and share-based compensation; |
| ● | expenses relating to outsourced and contracted services, such as consulting, research and advisory services; |
| ● | supply and development costs; |
| ● | expenses incurred in operating our small-scale equipment; and |
| ● | costs associated with regulatory compliance. |
Werecognize research and development expenses as we incur them.
Generaland Administrative Expenses
Generaland administrative expenses consist primarily of personnel costs, related to directors, executive, finance, and human resource functions,facility costs and external professional service costs, including legal, accounting, marketing and audit services and other consultingfees.
Weanticipate that our general and administrative expenses will increase in the future as we increase our administrative headcount and infrastructureto support our continued research and development programs and the potential commercialization of our product candidates. We also anticipatethat we will incur increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliancewith Nasdaq and SEC requirements, director and officer insurance premiums, director compensation, and other costs associated with beinga public company.
FinanceExpenses, Net
Ournet financing expenses consist primarily of differences in the exchange rate between NIS and the U.S. Dollar.
IncomeTaxes
Wehave yet to generate taxable income in Israel. As of December 31, 2021, our operating tax loss carryforwards were approximately NIS 6.8million ($2.1 million). We anticipate that we will continue to generate tax losses for the foreseeable future and that we will beable to carry forward these tax losses indefinitely to future taxable years. Accordingly, we do not expect to pay taxes in Israel untilwe have taxable income after the full utilization of our carry forward tax losses.
Resultsof Operations
Ourresults of operations have varied in the past and can be expected to vary in the future due to numerous factors. We believe that period-to-periodcomparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance.
Ourresults of operations for the years ended December 31, 2021 and 2020 were as follows:
| | For the Years Ended December 31, | |
(U.S. dollars in thousands except share and per share data) | | 2021 | | | 2020 | |
Statement of Operations: | | | | | | |
Research and Development Expenses | | | (245 | ) | | | (38 | ) |
General and Administrative Expenses | | | (458 | ) | | | (34 | ) |
Operating Loss | | | (703 | ) | | | (72 | ) |
Financing Expenses | | | (8 | ) | | | (1 | ) |
Net Loss and Comprehensive Loss | | | (711 | ) | | | (73 | ) |
Basic and Diluted Net Loss per Share | | | (0.05 | ) | | | (0.03 | ) |
Weighted average number of shares outstanding used in computing basic and diluted net loss per share | | | 14,727,407 | | | | 4,109,443 | |
Researchand Development Expenses
Thefollowing table describes the breakdown of our research and development expenses for the indicated periods:
| | For the Years Ended December 31, | |
(U.S. dollars in thousands except share and per share data) | | 2021 | | | 2020 | |
Subcontractors and consultants | | $ | 61 | | | $ | 25 | |
Payroll and related expenses | | | 19 | | | | 10 | |
Share based payment | | | 162 | | | | - | |
Patents | | | 3 | | | | 3 | |
Total research and development expenses | | $ | 245 | | | $ | 38 | |
YearEnded December 31, 2021 Compared to Year Ended December 31, 2020
Ourresearch and development expenses for the years ended December 31, 2021 and 2020 were $245,000 and $38,000, respectively. The increaseof $207,000, or 544%, is mainly attributed to an increase of $162,000 in share based payment due to options grant during 2021, an increase$36,000 from subcontractors and consultants’ expenses and from $9,000 in payroll and related expenses due to increase in our researchactivity and increase in number of employees.
Generaland Administrative Expenses
Thefollowing table describes the breakdown of our general and administrative expenses for the indicated periods:
| | For the year ended December 31, | |
(U.S. dollars in thousands) | | 2021 | | | 2020 | |
| | | | | | |
Payroll and related expenses | | $ | 138 | | | $ | 19 | |
Professional services | | | 281 | | | | 8 | |
Share based payment | | | 22 | | | | - | |
Others | | | 17 | | | $ | 7 | |
| | $ | 458 | | | | 34 | |
Ourgeneral and administrative expenses for the years ended December 31, 2021 and 2020 were $458,000 and $34,000, respectively. The increaseof $424,000, or 1,247%, is mainly attributed to an increase in professional services and payroll and related expenses. The increase ismainly related to an increase in the company’s research and development activity, business activity and initial public offering-relatedactivity, which necessitated more administrative expenses.
FinancingExpenses
Ourfinancing expenses for the years ended December 31, 2021 and 2020, were immaterial.
CriticalAccounting Policies and Estimates
Wedescribe our significant accounting policies and estimates in Note 2 to our annual financial statements contained elsewhere in thisprospectus.
Weprepare our financial statements in accordance with U.S. GAAP.
Inpreparing these financial statements, management has made judgments, estimates and assumptions that affect the application of our accountingpolicies and the reported amounts recognized in the financial statements. On a periodic basis, we evaluate our estimates, including thoserelated to share-based compensation and derivatives. We base our estimates on historical experience, authoritative pronouncements andvarious other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
Forthe periods included in the financial statements, we do not believe there are critical accounting estimates that are subject to uncertaintyor that have significantly changed during the relevant periods.
Recently-IssuedAccounting Pronouncements
Certainrecently-issued accounting pronouncements are discussed in Note 2, Significant Accounting Policies, to the financial statementsincluded in elsewhere in this registration statement, regarding the impact of the U.S. GAAP standards as issued by the FASB that we willadopt in future periods in our financial statements.
EmergingGrowth Company Status
Wequalify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Anemerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally topublic companies. These provisions include:
| ● | a requirement to present only two years of audited financial statements in addition to any required interim financial statements and correspondingly reduced Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure; |
| ● | to the extent that we no longer qualify as a foreign private issuer, (i) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (ii) exemptions from the requirement to hold a non-binding advisory vote on executive compensation, including golden parachute compensation; |
| ● | an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; and |
| ● | an exemption from compliance with the requirement that the Public Company Accounting Oversight Board has adopted regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements. |
Wemay take advantage of these exemptions for up to five years or until such earlier time that we are no longer an emerging growth company.We would cease to be an emerging growth company upon the earliest to occur of: (i) the last day of the fiscal year in which we havetotal annual gross revenues of $1.07 billion or more; (ii) the date on which we have issued more than $1.0 billion innonconvertible debt during the previous three years; (iii) the date on which we are deemed to be a large accelerated filer underthe rules of the SEC; or (iv) the last day of the fiscal year following the fifth anniversary of this offering. We may choose totake advantage of some but not all of these exemptions. Section 107 of the JOBS Act provides that an “emerging growth company”can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with newor revised accounting standards. This means that an “emerging growth company” can delay the adoption of certain accountingstandards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transitionperiod to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerginggrowth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for newor revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financialsto those of other public companies more difficult
Liquidityand Capital Resources
Sinceour inception, we have incurred losses and negative cash flows from our operations. For the year ended December 31, 2021, we incurreda net loss of $711,000 while net cash of $492,000 was used in our operating activities. As of December 31, 2021, we had working capitalof $370,000, and an accumulated deficit of $2,142,000. As of December 31, 2021, our cash and cash equivalents totaled approximately $523,000.We believe that after the completion of this offering our cash and cash equivalents will enable us to fund our operations for at leastthe next 12 months.
ThroughDecember 31, 2021, we have financed our operations primarily through private placements. Total invested capital as of December 31, 2021was $2.5 million, which included Ordinary Shares, preferred shares and option to purchase Ordinary Shares.
Thefollowing table summarizes our statement of cash flows for the years ended December 31, 2021 and 2020:
| | For the Years Ended December 31, | |
(U.S. dollars in thousands except share and per share data) | | 2021 | | | 2020 | |
Net cash used in operating activities | | $ | (492 | ) | | | (73 | ) |
Net cash used in investing activities | | | (19 | ) | | | (6 | ) |
Net cash provided by financing activities | | | 1,024 | | | | 89 | |
Increase in cash and cash equivalents | | $ | 513 | | | | 10 | |
Netcash used in operating activities
Netcash used in operating activities was $492,000 and $73,000 for the years ended December 31, 2021 and 2020, respectively. The $419,000increase was attributable primarily to the increase in our net loss, due to increase in Company’s activity.
Netcash used in investing activities
Netcash provided by financing activities was $1,024,000 and $89,000 for the years ended December 31, 2021 and 2020, respectively. The increasewas due to an increase in financing activity related to Share purchase agreements.
Netcash provided by financing activities
Netcash provided by financing activities was $1,024,000 and $89,000 for the years ended December 31, 2021 and 2020, respectively. The increasewas due to an increase in financing activity related to Share purchase agreements.
FundingRequirements
Wehave incurred losses and cash flow deficits from operations since the inception, resulting in an accumulated deficit at December 31,2021 of approximately $2.1 million. We anticipate that we will continue to incur net losses for the foreseeable future. We believe thatour existing cash and cash equivalents will be sufficient to fund our projected cash needs until June 2022. To meet future capital needs,we would need to raise additional capital through equity or debt financing or other strategic transactions. However, any such financingmay not be on favorable terms or even available to us. Our failure to obtain sufficient funds on commercially acceptable terms when neededwould have a material adverse effect on our business, results of operations and financial condition. Our forecast of the period of timethrough which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks anduncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We havebased our estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than we currentlyanticipate.
Ourfuture capital requirements will depend on many factors, including, but not limited to:
| ● | the progress and costs of our research and development activities; |
| ● | the costs of development and expansion of our operational infrastructure; |
| ● | our ability, or that of our collaborators, to achieve development milestones and other events or developments under potential future licensing agreements; |
| ● | the amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements with respect to our technologies; |
| ● | the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; |
| ● | the costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves, once our technologies are developed and ready for commercialization; |
| ● | the costs of acquiring or undertaking development and commercialization efforts for any future product candidates or technology; |
| ● | the magnitude of our general and administrative expenses; and |
| ● | any additional costs that we may incur under future in- and out-licensing arrangements relating to our technologies and futures product candidates. |
Untilwe can generate significant recurring revenues, we expect to satisfy our future cash needs through capital raising or by out-licensingand/or co-developing applications of one or more of our product candidates. We cannot be certain that additional funding will be availableto us on acceptable terms, if at all. If funds are not available on favorable terms, or at all, we may be required to delay, reduce thescope of or eliminate research or development efforts or plans for commercialization with respect to our technologies and make necessarychange to our operations to reduce the level of our expenditures in line with available resources. This may raise substantial doubtsabout our ability to continue as a going concern.
Weare a development-stage biotech company and it is not possible for us to predict with any degree of accuracy the outcome of our researchand development efforts. As such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties,demands, commitments or events that are reasonably likely to have a material effect on our net loss, liquidity or capital resources,or that would cause financial information to not necessarily be indicative of future operating results or financial condition. However,to the extent possible, certain trends, uncertainties, demands, commitments and events are described herein.
ContractualObligations
Asof December 31, 2021, we had the following contractual obligations:
During2007-2010 we received funding from the IIA (previously known as Officer of Chief Scientist) for its participation in research and developmentcosts, based on budgets approved by the IIA, subject to the fulfillment of specified milestones. The Company is committed to pay royaltiesto the IIA on proceeds from sale of product candidates in the research and development of which the IIA participates by way of grants.Royalties between 3% and 4.5% are payable on sales of developed product candidates funded, up to 100% of the funding received by theCompany, linked to US dollar and bearing LIBOR interest rate. In the case of failure of a financed project, the Company is not obligatedto pay any such royalties to the IIA. The total grant amount received from the IIA, including interest, as of December 31, 2020 is $715,000.
OnSeptember 1, 2021, we signed a consulting agreement with its Chief Executive Officer. According to the agreements, the Chief ExecutiveOfficer is entitle to receive among other things: (i) a one-time NIS 150,000 (approximately USD 48) bonus upon completion of the Company’sinitial public offering, (ii) options representing 0.5% of our pre-initial public offering issued and outstanding shares which will vestupon the completion of our initial public offering and become exercisable for a period of 5 years, and (iv) options representing 2.5%of our post-initial public offering issued and outstanding shares which shall vest and become exercisable over a total period of threeyears commencing on the grant date on a monthly basis in equal installments.
Quantitativeand Qualitative Disclosures About Market Risk
LiquidityRisk
Liquidityrisk is the risk that we will encounter difficulty in meeting the obligations associated with our financial liabilities that are settledin cash. Cash flow forecasting is performed in our operating entity level. We monitor forecasts of our liquidity requirements to ensurewe have sufficient cash to meet operational needs. We may be reliant on our ability to raise additional investment capital from the issuanceof both debt and equity securities to fund our business operating plans and future obligations.
Creditrisk
Creditrisk is the risk of financial loss to us if a debtor or counterparty to a financial instrument fails to meet its contractual obligations,and arises mainly from our receivables.
Werestrict exposure to credit risk in the course of our operations by investing only in bank deposits.
Equityprice risk
Aswe have not invested in securities riskier than short-term bank deposits, we do not believe that changes in equity prices pose a materialrisk to our holdings. However, decreases in the market price of our Ordinary Shares could make it more difficult for us to raise additionalfunds in the future or require us to raise funds at terms unfavorable to us.
Inflationrisk
Wedo not believe that inflation has had a material effect on our business, financial condition or results of operations in the reportingperiod. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher coststhrough hedging transactions. Our inability or failure to do so could harm our business, financial condition and results of operations.
ForeignCurrency Exchange Risk
Currencyfluctuations could affect us through increased or decreased costs, mainly for goods and services acquired outside of Israel. Currencyfluctuations did not have a material effect on our results of operations during years ended December 31, 2021 and 2020.
BUSINESS
Overview
Weare a development stage biotech company specializing in the development of innovative medical device hydrogels delivered in the formof nasal sprays, which form a thin hydrogel-based shield containment barrier in the nasal cavity that can provide a barrier against virusesand allergens from contacting the nasal epithelial tissue. Our C&C, hydrogel technology, comprised of a mixture of naturally occurringbuilding blocks, is delivered in the form of nasal sprays, and potentially functions as a “biological mask” with a thin shieldcontainment barrier in the nasal cavity. We are further developing certain aspects of our proprietary C&C hydrogel technology suchas the bioadhesion and prolonged retention at the nasal deposition site for intranasal delivery of drugs. We refer to our separate platformtechnology that is focused on nasal delivery of APIs, as T&T.
OurProduct Candidates
Ournasal hydrogels have been designed to serve as a non-invasive and fast-acting system. The hydrogels are formulated as an innovative mixtureof mucoadhesive polymers (e.g., sodium alginate) which are GRAS by the FDA. Our mucoadhesive polymers derived from seaweed polysaccharidespossess promising features as they are renewable, biodegradable, biocompatible, and environment friendly. The formulated hydrogel issprayed into the nose to create a physical barrier with long-lasting adhesion to the mucosal membranes. Our polymers have an atomic massmuch higher than the upper cell penetration limit, the polymers will simply lay on top of the cells and act as a physical barrier toviruses and allergens from contacting the nasal epithelial tissue, as opposed to penetrating the cells and causing a chemical reaction.Therefore, the C&C product candidates are not expected to be considered as drugs by the FDA but as medical devices.
Ourleading technologies are C&C and T&T. The C&C provides a barrier against a wide range of allergen particulates and viruses.
PL-14– Nasal Allergies Blocker
| o | We expect our PL-14 product candidate to be regulated as a Class II medical device by the FDA under its 510(k) pathway. |
| o | Our PL-14 product candidate is scheduled to initiate preclinical safety trials in the third quarter of 2022. In addition, pivotal clinical trials on our PL-14 product candidate is expected to commence in the first quarter of 2023, following which we plan to submit a 510(k) application for FDA clearance. |
| o | For our PL-14 product candidate, we will pursue the 510(k) pathway which requires a manufacturer to demonstrate substantial equivalence to an FDA-cleared device (i.e., predicate device) to a subject device (i.e., our product candidate). This process for clearing our device with the FDA entails performing a medical device analysis of the product candidates (e.g., PL-14 product candidate) description, operational principle, potential accessories and proposed intended use, for the purpose of identifying a predicate device that has already been cleared by the FDA. Through this review, we found three possible predicate devices for establishing substantial equivalence, Alzair, Nasalease and Bentrio. There is no guarantee that PL-14 product candidate will advance in the FDA 510(k) process at the same rate as the aforementioned predicate devices or will reach commercialization. |
| o | The estimated timeline for obtaining 510(k) clearance for our PL-14 product candidate is based on the estimated time needed for the following activities: (i) GMP manufacturing of our clinical trial materials, which usually requires 9-12 months; (ii) Biocompatibility preclinical studies, which usually requires 3-6 months (although these studies may be performed concurrently with the GMP manufacturing mentioned above); (iii) Clinical trials, which usually requires 6-12 months; and (iv) FDA submission and clearance, which usually requires 3-12 months. Regarding FDA submission and clearance, generally 510(k) applicants can expect submission acceptance review decisions within 15 calendar days, substantive review decisions within 60 days, and final decisions within 90 days. In the case of our predicate devices for our PL-14 product candidate, Alzair, Nasalese and Bentrio, the FDA submission and clearance process took 86 and 140 days, respectively. For additional information, please see “Business – FDA clearance plan for our C&C product candidates.” |
PL-15– COVID-19 and PL-16 – Influenza Blockers
| o | We expect our PL-15 and PL-16 product candidates, which provide a barrier against COVID-19 and influenza from contacting the nasal epithelial tissue, respectively, to be regulated as a Class II medical device under a De Novo Classification request. |
| o | Our PL-15 and PL-16 product candidates are scheduled to initiate preclinical safety trials in the third quarter of 2022, feasibility clinical trials in the first quarter of 2023 and pivotal clinical trials in the third quarter of 2023. Following these trials, we plan to submit De Novo Classification requests for each product candidate. |
| o | Upon a review similar to the one performed for our PL-14 product candidate, we found that there were no potential predicate devices in the FDA’s database matching the proposed intended uses of our PL-15 and PL-16 product candidates. Because of this, we will pursue a De Novo Classification request for each product candidate. This pathway involves demonstrating that the product candidates provide a reasonable assurance of safety and effectiveness. During the first quarter following the closing of this offering, we intend to submit a Q-submission (Pre-submission) for each product candidate and request a pre-submission meeting with FDA’s CDRH to confirm the potential for this regulatory path. For more information, please see “Business – Our Product Candidates – The determination process for the C&C product candidates as a Class II medical devices.” |
| o | The estimated timeline for marketing authorization via De Novo Classification grant for our PL-15 & PL-16 product candidates is based on taking similar steps as the steps described above for obtaining 510(k) clearance for ourPL-1 product candidate. We estimate a longer period of time for the entire grant process for each of these product candidates due to possibly extended clinical trials requested by the FDA and also due to a longer review timeframe. For additional information, please see “Business – FDA clearance plan for our C&C product candidates.” |
Inthe event the FDA does not agree with our regulatory assessments regarding the C&C product candidates 510(k) for our PL-14 productcandidate, and Class II De Novo pathway for our PL-15& PL-16 product candidates), the FDA may require us to go through a lengthier,more rigorous examination than we had expected (such as PMA, which is the FDA process of scientific and regulatory review to evaluatethe safety and effectiveness of Class III medical devices. If we are required to pursue a PMA, the introduction of our product candidatesinto the market could be delayed. For more information, please see “Risks Related to the Discovery, Development and Clinical Testingof Product Candidates.”
Trapand Target ™ Product Candidates
Incontrast to our C&C product candidates, the hydrogel in the T&T product candidates is formulated differently in order to providefor sustained release of the API. The content of the hydrogel (quantity and quality) in the T&T product candidates is formulateddifferently than the content of C&C product candidates, and therefore enable different functions: physical barrier for the C&Cproduct candidates and API sustained release for the T&T product candidates. It is through these differences that we rationalizethe different regulatory treatment of our C&C and T&T product candidates.
TheT&T platform technology is designed to allow a long residence time and an intimate contact with the mucosal tissue for a targeteddelivery of medicines. We expect that our T&T platform product candidates will be regulated as a combination-product consisting ofa nasal sprayer and formulation consisting of a hydrogel and a generic API, which we intend to pursue under the FDA’s 505(b)(2)pathway. We aim to conduct feasibility studies for our T&T platform product candidates with corticosteroids, benzodiazepines andnaloxone, beginning in the second quarter of 2022 through the second quarter of 2023. Pre-clinical studies will follow and are expectedto begin in either the second or third quarter of 2023. Phase I clinical trials for each of the three product candidates of the T&Ttechnology are planned for the first quarter of 2025, subject to securing additional financing.
Thedetermination process for the C&C product candidates as a Class II medical devices
Accordingto the FDA, a product will be considered as a medical device, and subject to FDA regulation, if it meets the following criteria: 1) recognizedin the official National Formulary, or the United States Pharmacopoeia, or any supplement to them and 2) intended for use in the diagnosisof disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals; or 3) intendedto affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposesthrough chemical action within or on the body of man or other animals.
Becausethe intended use for each of our C&C product candidates is creating a physical barrier and its primary mode of action, or PMOA, isphysical, we believe that our C&C product candidates will be regulated as Class II medical devices. We believe that our PL-14 productcandidate can utilize the 510(k) pathway for alleviating allergic symptoms, and that our PL-15 and PL-16 product candidates can utilizethe De Novo Classification pathway for reducing the risk of nasal infections caused by COVID-19 and influenza, respectively.
Becauseour C&C product candidates’ mode of action is based on creating a physical barrier that is not associated to chemical actionwithin or on the body, we believe that our C&C product candidates will be classified by the FDA and similar regulatory bodies asa medical device.
Unless an exemption applies, any medical device that is to be marketed in the United States be cleared via submission of a premarket notification (i.e., 510(k)), for class II devices, or a PMA for class III devices. Alternatively, the device can be marketed following the granting of a De Novo Classification request for devices that do not have a legally marketed predicate device. We performed an FDA medical device analysis based on the PL-14 product candidate description along with potential accessories and the proposed intended use. Based on the abovementioned criteria we believe that our PL-14 product candidate’s regulatory classification is: 21 C.F.R. § 880.5045 “Medical recirculating air cleaner” (under the product code: NUP-Cream, Nasal, Topical, Mechanical Allergen Particle Barrier) which is FDA Class II requiring a 510(k) submission. This means a 510(k) submission for FDA review is required for clearance allowing it to be marketed. To provide the best possible predicate device to establish substantial equivalency within the 510(k) submission, a review of FDA’s 510(k) database for Product Code NUP was performed, which includes several possibilities for a potential predicate device, such as Alzair, Nasalese and Bentrio with intended uses of “promoting alleviation of mild allergic symptoms triggered by the inhalation of various airborne allergens.”
OurPL-15 and PL-16 product candidates are intended to provide a barrier against COVID-19 and influenza from contacting the nasal epithelialtissue, respectively. We performed a regulatory assessment review for our PL-15 and PL-16 product candidates where the intended use includesa “nasal mechanical virus blocker” and found that there are no valid predicate devices found in the FDA’s databasesmatching this intended use. The lack of available predicate devices, combined with the fact that our PL-15 and PL-16 product candidateshave similar risk profile as our PL-14 product candidate (due to three product candidates using the same ingredients and method of use),we believe that our PL-15 and PL-16 product candidates may be regulated as a Class II medical device if the FDA agrees and grants a DeNovo Classification request. In order to assess the likelihood of approval under a De Novo pathway, during the first quarter followingthe closing of this offering we intend to schedule a pre-submission meeting with the FDA, but have not yet communicated directly withthe FDA regarding any of its C&C product candidates.
The estimated timeline for obtaining 510(k) clearance for our C&C product candidates, is based on the estimated time needed for the following activities: (i) GMP manufacturing of our clinical trial materials, which usually requires 9-12 months; (ii) Biocompatibility preclinical studies, which usually requires 3-6 months (although these studies are performed concurrently with the GMP manufacturing mentioned above); (iii) Clinical trials, which usually requires 6-12 months; and (iv) FDA submission and clearance, which usually requires 3-12 months. Regarding FDA submission and clearance, generally 510(k) applicants can expect submission acceptance review decisions within 15 calendar days, substantive review decisions within 60 days, and final decisions within 90 days. Applicants with outstanding review issues will be notified within 100 days. However, the FDA’s time of review does not include time on “hold”, which includes any time spent by us responding to any FDA information requests, meaning that the total timeframe of the review process could take longer than anticipated. In the case of our predicate devices for our PL-14 product candidate, Alzair, Nasalese and Bentrio, the FDA submission and clearance process took 86 and 140 days, respectively. For additional information, please see “Business FDA clearance plan for our C&C product candidates.”
Furthermore,we believe that our PL-15 and PL-16 product candidates would nevertheless still be classified as medical devices (rather than drugs),even in the event the FDA does not agree with our regulatory assessments regarding the Class II De Novo pathway based on our review ofthe FDA’s September 2017 guidance document entitled “Classification of Products as Drugs and Devices & Additional ProductClassification Issues: Guidance for Industry and FDA Staff”. This guidance document notes that a key difference between the statutorydefinition of drugs and devices is that a device “does not achieve its primary intended purposes through chemical action withinor on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intendedpurposes”. The guidance further clarifies that the term “chemical action” is consistent with “pharmaceuticalaction” and also provides examples of products which have been determined to be devices, one of which is a polymer that providesa physical barrier (abdominal adhesion barrier).
Webelieve that our PL-15 and PL-16 product candidates will be regulated as medical device due to the following: (i) the mode of actionby which each of the PL-14 and PL-15 product candidates is creating a physical barrier, and achieving this barrier is not dependent onchemical action nor is it dependent on the product being metabolized; and (ii) the polymer used in the PL-15 and PL-16 product candidateshave molecular mass that is much higher than the upper cell penetration limit. Therefore, the polymers will simply lay on top of thecells and function as a physical barrier to viruses and allergens.
Thedetermination process for the T&T product candidates as a drug-device combination product
Incontrast to our C&C product candidates, the hydrogel in our T&T product candidates is formulated differently in order to providefor sustained release of the API. The content of the hydrogel (quantity and quality) in the T&T product candidates is formulateddifferently than to the content of C&C product candidates, and therefore enable different functions: physical barrier for the C&Cproduct candidates and API sustained release for the T&T product candidates. It is through these differences that we rationalizethe different regulatory treatment of our C&C and T&T product candidates.
TheT&T platform technology is designed to allow a long residence time for the API, and an intimate contact with the mucosal tissue fora targeted delivery of medicines. We expect that our T&T platform product candidates will be regulated as a drug-device combinationproduct consisting of a nasal sprayer (the medical device) and a formulation that consists of a hydrogel and a generic API (the drug),which we intend to pursue under the FDA’s 505(b)(2) pathway. We aim to conduct feasibility studies for our T&T platform productcandidates with corticosteroids, benzodiazepines and naloxone, beginning in the second quarter of 2022 through the second quarter of2023. Pre-clinical studies will follow and are expected to begin in either the second or third quarter of 2023. Phase I clinical trialsfor each of the three product candidates of the T&T technology are planned for the first quarter of 2025, subject to securing additionalfinancing.
Backgroundrelated to the C&C and T&T technologies
Thenasal cavity is a large, air-filled space above and behind the nose in the middle of the face. Each cavity is the continuation of oneof the two nostrils. The nasal cavity is the uppermost part of the respiratory system and provides the nasal passage for inhaled airfrom the nostrils to the nasopharynx and rest of the respiratory tract. The nasal mucosa, also called respiratory mucosa, lines the entirenasal cavity, from the nostrils to the pharynx. A dynamic layer of mucus overlies the nasal epithelium (the outermost layer ofcells of the nasal mucosa).
Thenasal sub-mucosa underlies the basement membrane. This layer is made up of glands which secrete watery substances and mucus, nerves,an extensive network of blood vessels and cellular elements like blood plasma. The entire mucosa is highly concentrated with blood vesselsand contains large venous-like spaces; bodies which have a vein-like appearance and swell and congest in response to allergy or infection.
Schematicillustrations of the mucosal tissue (left) and nasal cavity anatomy (right)
Thenasal mucosa plays an important role in regulating the immune responses to allergens and other airborne pathogens, which enter the nose.Normally, it prevents allergens and pathogens from penetrating the nasal cavity and deleterious infections or allergic reactions. Healthyintact mucus is covering the nasal cavity and provides a physical barrier against biological assaults due to its viscous and adhesiveproperties. Upon extensive exposure to biological assaults the mucus may fail to provide the necessary defense which results in infectionor allergic reaction. For this manner, mucoadhesive polymers can contribute to a better functionality in defense from biological assaults.
Theterm ‘mucoadhesion’ refers to the adhesion of specific polymers to the surface of the mucosal layer. The mucosal layer ismade up of mucus, a viscoelastic fluid, which is secreted by the epithelial cells. A mucoadhesion polymer helps to promote the adheringof a given formulation to the nasal mucosa by physically interacting with the mucosa. Various properties impact the mucoadhesive of polymers,such as: (i) molecular weight; (ii) chain length; (iii) viscosity; (iv) degree of cross-linking; (v) spatial conformation; (vi) flexibilityof polymer chains; (vii) concentration; (viii) charge and degree of ionization – anion>cation>non-ionic; (ix) degree of hydration;and (x) pH.
Themechanism of mucoadhesion is characterized by to two steps: contact stage and consolidation stage. The first contact stage is characterizedby the initial contact between the polymers and the mucous membrane, with spreading and initiating a deep contact with the mucus layer.In the second consolidation step, the polymers are activated by the presence of moisture and as they hydrate they become mucoadhesive.Our innovative technologies consist of a unique mixture of mucoadhesive polysaccharides polymers creating a 3-dimentional network structureto better interact with mucosal tissues.
Moreover,the highly vascularized nature of the nasal cavity enabled an alternative administration route of drugs and has gained interest amongpharmaceutical companies as a means of advanced method to increase residence time in the nasal cavity.
Captureand Contain TM (“C&C”)
Weare constantly exposed to airborne contaminations, and as we breathe, these pathogens and allergens may cause serious health issues.Our proprietary C&C is based on natural 3-D polymeric network tailored to optimally adhere to the nasal mucosal surface. The polymericnetwork creates a physical barrier that captures and contains biological assaults such as particulate allergen or viruses from interactingwith the nasal epithelial tissue.
TheC&C technology consist of mucoadhesive polymers mixture optimized for the purposes of coverage and adherence to the nasal cavityas well as capturing and containing the biological assaults based on physical interactions.
Ourproduct candidate is presented in a liquid form, which allows a rapid interaction between the polymers and the mucosa and avoid the irritatingeffect of powdered based formulations. In addition, our product candidate is negatively charged to allow a high degree of mucoadhesivness.Moreover, its unique structure allows a high degree of capturing and containing of variable types of biological assaults. The productcandidates’ pH was adjusted to further decrease the viral viability without damaging the nasal mucosal tissue.
Theinnovative formulation is expected to provide a barrier against viruses and allergens from contacting the nasal epithelial tissue forapproximately six hours after each nasal administration without any adverse side effects. The potential blocking of initial colonizationcan reduce the viral load, which helps the immune system to better control the infection. The same concept applies for blocking allergensfrom interacting with epithelial tissue.
Asa physical barrier, our lead product candidates have the potential advantages:
| ● | optimal coverage of nasal cavity |
| ● | up to 6h of protection after each application |
Withrespect to COVID-19, the virus tends to become firmly established in the nasal cavity. Then, in some cases, the virus is aspirated intothe lungs where it may cause more serious disease, including potentially fatal pneumonia.
Withrespect to the COVID-19, our C&C product candidates is designed to protect the upper respiratory tract in conjunction with additionalpreventative measures such as vaccination, wearing masks, keeping social distance and maintaining proper hygiene to decrease the probabilityof serious disease.
FDAclearance plan for our C&C product candidates
Weperformed a regulatory assessment review for our PL-15 and PL-16 product candidates where the intended use includes a “nasal mechanicalvirus blocker”. There are no regulatory classifications or predicate devices found in the FDA’s databases matching this intendeduse. We believe the regulatory pathway will be considered a Class II medical device without substantial equivalence, which would requirea De Novo Classification request. During the first quarter following the closing of this offering we intend to schedule an FDA Pre-submissionmeeting for both our PL-15 and PL-16 product candidates to discuss whether both would be considered as Class II medical device and toensure FDA agreement with the proposed testing plan.
PL-14– Nasal Allergies
OurPL-14 product candidate is scheduled to initiate its preclinical safety trials in the third quarter of 2022. We expect pivotal clinicaltrial to commence a few months afterward, in the first quarter 2023, following which we plan to submit a 510(k) application for blockingallergens from contacting the nasal epithelial tissue to the FDA.
PL-15– COVID-19
OurPL-15 product candidate is scheduled to undergo preclinical safety trials in the third quarter of 2022. We expect feasibility clinicaltrial to commence in the first quarter 2023. We expect that the pivotal clinical study to commence in the third quarter 2023, followingwhich we plan to submit a De Novo Classification request for blocking SARS-CoV-2 from contacting the nasal epithelial tissue to the FDA.
PL-16- Influenza
OurPL-16 product candidate is scheduled to undergo preclinical safety trials in the third quarter of 2022. We expect feasibility clinicaltrial to commence in the first quarter 2023. We expect pivotal clinical trial to commence in the third quarter 2023, following whichwe plan to submit a De Novo Classification request for blocking Influenza from contacting the nasal epithelial tissue to the FDA.
StudyResults
Overthe last 12 months our formulations have been tested for their efficacy to block different types of biological assaults from interactingwith host cells. For this purpose, we used a validated and well accepted cultured cells in vitro blocking assays, to evaluatethe potential of the formulation to block the human coronavirus 229E and Influenza H1N1 virus, as well as the house dust mite Der P1and the timothy grass Phl P1 allergens. The studies have been conducted mainly by our service partner PharmaSeed Ltd., Israel’slargest GLP-certified pre-clinical CRO specializing in translational and regenerative studies. The main goal of these studies was toevaluate our formulations for their potential to prevent cell mortality as a consequence of viral infection, or to decrease the anti-inflammatorycytokines secretion following allergens encounter. Together with the biological effect of the formulations, we evaluated their cytotoxicityeffect using cytotoxic cells assay on variable cell lines (MRC5, MDCK and A549).
Theviral or allergen blocking assay was performed by using specific host cells, susceptible to viral infection or allergen interaction.The host cells were treated with our formulation and challenged by viral infection or allergens. The viability of non-treated or treatedcells was monitored using 3-(4,5-dimethylthiazol-2-yl)-2,5-diphenyltetrazoliumbromide (MTT) to determine the formulations’ effectiveconcentrations.
Whiledeterminations of safety and efficacy are solely within the authority of the FDA and comparable regulatory bodies, we believe that basedon the results of the aforementioned studies, our formulations presented a consistent and significant (p-value < 0.05) barrier effect,as expressed in the viral blocking assays with the preservation of 100% of cell viability compare to significantly lower cell viabilityof cells infected with human coronavirus 229E and Influenza H1N1 (31% and 5%, respectively). In addition, our formulation presented barrieractivity against the house dust mite allergen Der P1 and the timothy grass allergen Phl P1 from interacting with the host cells. Thisbarrier effect was expressed with the inhibition of IL-8 secretion, an important protein related to inflammation, where it plays a keyrole in the recruitment of neutrophils and other immune cells to the site of infection.
Inall tested cell lines (MRC5, MDCK and A549), no significant cytotoxicity was observed when compared to the untreated cells.
Thecharts below represent six, unique studies performed to demonstrate the reduction of inflammation in various cell lines after applicationwith our C&C product candidates polymers. Our polymers have a mass of around 100,000 Daltons, or 100,000 Da. According to the ScientificJournal of Medicine, molecules above 1,000 Da, cannot penetrate cell lines. Because our polymers have an atomic mass much higher thanthe upper cell penetration limit, the polymers will simply sit on top of the cells and reduce exposure to allergens and viruses, as opposedto actually penetrating the cells and causing a chemical reaction.
UT– Untreated cells
UT+A– Untreated cells challenged with allergen
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Figure 1 - The effect of the C&C technology (PL-14) in reduction the IL-8 secretion in response to dust mite allergen Der P1. A lower bar indicates lower inflammation (lowercase letters are significantly different from each other (P< 0.05)). | Figure 2 - The effect of the C&C technology (PL-14) in reduction the IL-8 secretion in response to timothy grass allergen Phl P1. A lower bar indicates lower inflammation (lowercase letters are significantly different from each other (P< 0.05)) |
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Figure 3 - The effect of the C&C technology (PL-14) in reduction the IL-8 secretion in response to European hornbeam allergen Car B1. A lower bar indicates lower inflammation (lowercase letters are significantly different from each other (P< 0.05) | Figure 4 - The effect of the C&C technology (PL-14) in reduction the IL-8 secretion in response to European dust mite allergen Der F1. A lower bar indicates lower inflammation (lowercase letters are significantly different from each other (P< 0.05)) |
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Figure 5 - The effect of the C&C technology (PL-15) in protection of the cells against human corona virus. A higher bar indicates higher degree of protection (lowercase letters are significantly different from each other (P< 0.05)) | Figure 6 - The effect of the C&C technology (PL-16) in protection of the cells against influenza virus. A higher bar indicates higher degree of protection (lowercase letters are significantly different from each other (P< 0.05)) |
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Figure 7 - The effect of the C&C technology (PL-15) in protection of the cells against SARS-CoV-2 Omicron BA.1 virus. A higher bar indicates higher degree of protection (lowercase letters are significantly different from each other (P< 0.05)) | |
Trapand Target ™ (T&T)
Noveldelivery systems are required to address unmet clinical needs. In circumstances where local or systemic administration may not be thebest approach, nasal drug delivery may be a viable option. Intranasal administration is an attractive option for local and systemic deliveryof many therapeutic agents.
Advantagesof intranasal drugs delivery
Thenasal cavity is an important target for local and systemic drug administration as well as targeting the central nervous system. Due tohighly vascularization of the nasal mucosa, liquids or particles that attach to this surface can act either locally or be absorbed intothe bloodstream. To treat localized diseases including congestion, sinusitis, and allergic reactions, a variety of drugs such as corticosteroidsand antihistamines often are administered to the nasal cavity. The first cranial nerve, or olfactory nerve, is the only point where thecentral nervous system is exposed to the body’s mucosa, and it is one of six nerves that branch into the nose cavity. This meansthat medications can be absorbed directly into the brain, bypassing the blood-brain barrier.
Althoughthere are many advantages for delivering medicines intranasally, there are also a few drawbacks, such as quick evacuation from the nasalcanal, limited bioavailability, and difficulty getting a big enough dosage due to the limited absorption area. Our T&T technologyis developed to address the abovementioned drawbacks to further improve the efficiency of intranasal administration. Based on our C&Chydrogel technology, we adjusted specific characteristic parameters and established the T&T drug delivery system for intranasal targeteddrugs.
Whiledeterminations of safety and efficacy are solely within the authority of the FDA and comparable regulatory bodies, the T&T platformdelivery technology consist of a mucoadhesive polymers mixture designed to allow a long residence time and an intimate contact with themucosal tissue for what we believe to be an effective delivery of medicines. The T&T platform can be tailored for different moleculesto address their specific challenges thus believed to induce improved therapeutic effect. The T&T technology has been designed toenable mucoadhesion and prolonged retention at the deposition site by tailoring the physicochemical properties through composition, concentrationand crosslinking of the key polymers of the formulation appears pivotal for the potential development as nasal medicinal product candidates.
TheT&T platform is optimized into two main applications: local and systemic delivery.
Locallyacting nasal product candidates
Severalnasal products are present on the market for the treatment of local ailments of the nose. In general, they are nasal sprays and the principalAPIs contained in such products are antihistamines, corticosteroids and vasoconstrictors.
Corticosteroids
Amongthe locally acting nasal products, intranasal corticosteroids, or INCS, are particularly interesting for their clinical and commercialvalue, being indicated as primary or adjunct therapy for treating nasal congestion, allergic/non-allergic rhinitis, acute rhinosinusitis,chronic rhinosinusitis with or without nasal polyposis and adenoid hypertrophy.
Theefficacy and safety profiles of INCS for adults and pediatric patients is well established. The bioavailability of the CS can be increaseddue to the bioadhesion and viscosity of our formulations. Patents related to INCS products on the market expired recently in additionto the usage of CS as a promising treatment to COVID-19 symptoms create an opportunity for market penetration.
Weaim to conduct feasibility studies for the corticosteroids product candidate of the T&T technology beginning in the second quarterof 2022 through the second quarter of 2023. The feasibility studies may include drug loading capacity, release kinetics profile of theAPIs, stability and local toxicity. Based on these feasibility studies we will identify the leading candidates that will be further optimizedto be tested in preclinical studies for safety and efficacy evaluation.
Systemicallyacting nasal product candidates
Thehigh vascularization and high permeability of the nasal mucosa enabling systemic distribution of drugs. Nasal drug products on the marketnow include several indications such as hormone replacement therapy, osteoporosis, migraine, prostate cancer and vaccination againstinfluenza. Because nasal administration avoids first-pass metabolism and the gastrointestinal tract, it is used for the delivery of APIswith low bioavailability, including peptides and proteins.
Webelieve that our T&T hydrogel technology can be compatible with drugs related to the central nervous system and significantly improvetheir bioavailability. We identify a need for improved delivery system for benzodiazepines drugs as well as for the opioid antagonistnaloxone. We are currently evaluating the feasibility of these candidates in collaboration with one of the members of our ScientificAdvisory Board, Prof. Fabio Sonvico (Pharmaceutical Technology, University of Parma, Italy), and will select our lead candidate to proceedto preclinical and clinical evaluations.
Benzodiazepines
Benzodiazepines,or BZDs, are widely recommended drugs in many countries around the world, as they are used to lessen anxiety, seizures, relax muscles,induce rest, or as sedatives for general anesthesia or sedation before medical procedure. Intranasal administration of benzodiazepines)is advantageous for home treatment of prolonged seizures, for pre-hospital treatment of seizures by emergency medical technicians, andfor care of severely cognitively and behaviorally impaired patients when patient cooperation may be restricted.
Weare planning to conduct feasibility studies for the BZD product candidates utilizing the T&T technology beginning in the second quarterof 2022 through the second quarter of 2023. We will explore the effect of drug loading, release kinetics profile, stability, and localtoxicity. Based on these feasibility studies we will identify two or three leading candidates that will be further optimized and be testedin preclinical studies for safety and efficacy. Based on the pre-clinical studies results we will proceed to conduct Phase I clinicaltrial.
Naloxone– an Opioid Antagonist
Thecurrent opioid overdose epidemic can be attributed to fentanyl and other super-potent opioids found in substantial numbers of recentoverdoses. Providing Naloxone immediately after a person experiences respiratory depression can reverse opioid toxicity. It is possibleto administer Naloxone by injection or intranasally. Ampoules and prefilled syringes of Naloxone injectables are available. In comparisonwith naloxone injectables, naloxone nasal spray provides several advantages to community usage, including ease of administration, minimaltraining requirements, and no risk of needlestick injuries. In the event of an overdose of opioids in the community, Naloxone nasal spraymight be used for emergency rescue treatment. Patients who may witness an opioid overdose or are at risk of opioid overdose are advisedto carry naloxone nasal spray for use in the event of an opioid overdose emergency.
Webelieve that the characteristic of our T&T derived formulations may provide an improved uptake profile and bioavailability of naloxonethrough intranasal administration due to its mucoadhesive and viscous properties. We aim to conduct feasibility studies for the naloxoneproduct candidate of the T&T technology beginning in the second quarter of 2022 through the second quarter of 2023. The feasibilitystudies may include drug loading capacity, release kinetics profile of the APIs, stability and local toxicity. Based on these feasibilitystudies we will identify the leading candidates that will be further optimized to be tested in preclinical studies for safety and efficacyevaluation. Based on the pre-clinical study results we plan to proceed to Phase I clinical trial.
OurStrengths
Webelieve that our experienced results-oriented management team, promising IP portfolio, scalable robust business model and multiple productcandidates validating our technologies gives us a distinct advantage in the marketplace.
| ● | People: Our leadership team has a vast industry experience. Our management team has over 15 years (on average) of experience in life science companies. Our board of directors have vast experience in the life sciences industry as well as strong financial background. We believe that the holistic knowhow of our group will strongly contribute to a successful path from clinical development, regulatory approvals and commercialization of our product candidates. In addition, our management is supported by our Scientific Advisory Board which is an advisory panel of world-renowned academics and thought leaders with expertise in drug delivery systems, Chemistry and Pharmaceuticals. |
| ● | Process: We are developing and optimizing set of business processes including pre-clinical and clinical development, quality and regulatory processes. These processes can contribute shortening the time to market of our future product candidates position us with a competitive value in the competition landscape. The regulatory path for the C&C product candidates will be Class II 510 (k). With regards to the T&T platform technology development process our feasibility set of studies is well defined and accepted in the intranasal delivery industry. We focus on already approved APIs (corticosteroids, benzodiazepines and naloxone) to shorten the clinical and regulatory processes time towards 505(b)(2) approval. |
| ● | Adaptable Technology: Our C&C hydrogel technology is tunable and can provide a solution against a wide range of biological assaults based on its versatile morphological properties. Our T&T drug delivery platform is designed to allow a long residence time and an intimate contact with the mucosal tissue for a targeted delivery of medicines. The T&T platform can be tailored for different drugs to address their specific challenges thus believed to induce improved therapeutic effect. Both technologies are relatively easily adjusted and can potentially provide solutions in a rapid manner to new medicinal challenges. |
MarketOpportunities
Webelieve that our technologies have the potential to provide solutions to a broad range of unmet needs in the healthcare market. Withour C&C technology, we aim to introduce solutions to address common medical and public health challenges, such as allergic rhinitisand nasal viral infections, including COVID-19. Looking towards the future, the COVID-19 pandemic highlighted the need for action atthe global level to invest in technologies, tools and solutions that will help overcome the next world health crisis. We believe ourtechnology can play an important role in aiding nations and global organizations to combat viral outbreaks. While people across the worldhave become accustomed to preventative measures such as vaccination, wearing masks, keeping social distance and maintaining proper hygiene,we believe that there is an obvious need for a broader arsenal of more technologically advanced tools to help protect people as theyreturn to normal routine.
Withour T&T technology, we aim to address challenges in the markets of: allergic and non-allergic rhinitis by local intranasal deliveryof corticosteroids; for systemic delivery of CNS related drugs for the growing markets of combatting opioid overdose using intranasalnaloxone, and benzodiazepines for seizure clusters.
C&CTechnology Market Opportunities
Thehuman body is under constant external threats. Allergens, viruses and other toxins commonly penetrate our body’s defenses, firstthrough its mucosal membranes, such as the lining of the mouth, nose, and eyes. While our immune system is typically well-equipped tofend-off or manage such threats, even common colds, influenza, and allergies continue to affect hundreds of millions of people everyyear.
Nasalgels and nasal sprays have emerged as a promising approach to block viruses and allergens from contacting the nasal epithelial tissue.Nasal spray market is expected to gain market growth in the forecast period of 2020 to 2027. Data Bridge Market Research analyses themarket to account to $22.71 billion by 2027 growing at a compound annual growth rate, or CAGR, of 6.12% in the above-mentioned forecastperiod. The growing cases of allergic rhinitis and infections will help in driving the growth of the nasal spray market.
Changinglifestyle across the globe, improving patient compliance, growing geriatric population, increasing level of pollution, painless way ofadministrating drug will likely accelerate the growth of the nasal spray market in the forecast period of 2020-2027. On the other hand,adoption of nasal spray as an effective route of drug administration and rising demand for self-administration will further boost variousopportunities that will lead to the growth of the nasal spray market in the above-mentioned forecast period.
Marketfor SARS-CoV-2/COVID-19
Asof December 2021, more than 281 million cases of COVID-19 have been reported worldwide, including 5.4 million deaths. COVID-19 is oneof the deadliest pandemics in recent history. While global vaccination efforts has curbed new infections, even complete vaccination isn’ta guarantee against further spreading and contracting of the disease. Certain variants of COVID-19 are also considered to cause moreinfections and spread faster than the original strain of the virus, and the CDC expects that additional variants of the virus will continueto occur. Furthermore, the efficacy of vaccinations is limited by time. For example, with respect to the Pfizer-BioNTech COVID-19 vaccines,booster doses are recommended for certain adults after six months post vaccination. Also, vaccination efforts in emerging and developingcountries are lagging significantly, posing the risk of causing new growth of infections and deaths.
Accordingto various reports by leading research institutes, including MarketsandMarkets and InsightAce, the global COVID-19 therapeutics marketsize was valued at $5.26 billion in 2020 and it is forecast to reach USD 25.6 billion in 2030, recording a CAGR of 10.7% during the forecastingperiod.
Marketfor Influenza and Common Cold Viruses
TheWorld Health Organization, or the WHO, introduced a Global Influenza Strategy in 2019 to combat the 1 billion cases worldwide, 3-5 millionof which are typically severe, and 290,000-650,000 influenza-related respiratory deaths. In terms of market size, the cold and flu drugmarket was valued at $13.16 billion in 2019 and is estimated to reach $24.55 billion by 2027, growing at a CAGR of 8.06% from 2020 to2027.
Marketfor Allergic Rhinitis
Allergicrhinitis is another vexing health problem and troubling factor in global health care. It causes discomfort, illness, and even disabilityto hundreds of millions of people worldwide, with an estimated prevalence ranging from 10% to 20% in the United States and Europe. Accordingly,global per capita healthcare spending has increased exponentially due to the myriads of potential treatments and diagnostic methods.This has resulted in a call for more effective, better quality, and more rapid diagnostic methods, which, in turn, creates significantmarket and growth opportunities for players offering new effective treatment options. The global therapeutic market for allergic rhinitiswas valued at $13.5 billion in 2020 and is projected to reach $18.1 billion by 2028, growing at a CAGR of 2.64% from 2021 to 2028.
Oneof the fastest-growing nasal gel sections is an allergen blocker. The global allergen blocker market was valued at $133.5 in 2020 andwill reach $170.9 million by the end of 2027, growing at a CAGR of 4.2% during 2021-2027. The nasal gel market is growing because ofthe increase in allergic rhinitis and infections, which drives the market’s growth. By change in lifestyle, the growth of the elderlypopulation in need of special care, the growing population, and the painless delivery of medication drugs are the factors that boostthe growth of the nasal gel market. With the growing demand for self-administration and improved patient compliance, the adoption ofnasal sprays also contributes to widening the global nasal get market.
TheC&C technology serviceable available market is the segments of nasal blockers derived from the COVID-19, influenza, common cold andnasal allergies markets. It can be estimated that the nasal blockers market including viral blocking blockers is significantly higherthan the allergen nasal blocker market.
Prospectivestudies have demonstrated that a key driver for patients preferring a nasal spray is speed of onset. The ease of administration of theintranasal products plays a vital role in improving their compliance. Several factors driving the growth of intranasal markets. Someof which related to the general intranasal markets while other related to more specific intranasal markets such as the nasal blockersand drug delivery.
Driversfor the general intranasal market
| ● | Ongoing R&D activities as well as private and government investments in the healthcare industry to introduce novel strategies to treat complex allergies and to deliver drug alternatively are expected to positively impact the intranasal market’s revenue growth. |
| ● | In recent years, the disparities in healthcare, medical remedies, and treatments have led to an increasing number of people choosing to self-medicate with over-the-counter drugs rather than see a doctor. |
| ● | According to med health publications, the fear of needles in children and the safe injection of vaccinations into the body by nasal spray stimulate market growth of other intranasal products. For the population of people with a phobia for needles, a gel or sprays is a massive relief for them. Most people prefer other forms of medication or drug delivery rather than injecting. |
| ● | Rising adoption of nasal sprays due to ease of administration. |
Driversfor the Capture and Contain TM related markets
| ● | Driven by rising incidences of influenza, growing awareness and the need for new drugs and treatment across the globe, COVID-19 treatment is still in its introduction phase, but it can be expected to become a significant market given the current global pandemic status. As Described in the markets size and forecast, the allergic rhinitis and influenza preventative markets are expected to sue to this trend. |
| ● | The increasing adoption rate of OTC products is leading to high market penetration and is boosting the growth of the global nasal market. An increasing number of pharmaceuticals companies, supermarkets, drug stores, and retail stores offer many opportunities for the market’s growth. According to Australian Health Direct, more than 200 viruses worldwide can cause cold, and adults are susceptible to these viruses about 2 to 4 times a year. The same source also suggests that cold and influenza symptoms are generally mild to moderate and self-limiting, which propels the demand for prevention approaches, fueling the growth of the nasal barriers market. |
| ● | The debilitating effects of influenza and the effect of the global pandemic have been the major growth factors for effective blockers. The coronavirus pandemic infested fear due to its viral nature, which encouraged people to get vaccinated against influenza to improve their immune system and to seek multiple solutions while facing the challenge of the COVID-19 pandemic. |
| ● | Growing awareness regarding allergy immunotherapy, increased public awareness regarding regular medical check-ups, and increased healthcare expenditure are other key factors contributing to the market’s revenue growth. |
T&Ttechnology market opportunities
Theglobal market for Intranasal Drug Delivery estimated at $49.5 billion in the year 2020, is projected to reach a revised size of $71.3Billion by 2026, growing at a CAGR of 6.2%. Increasing patient preference for nasal drug delivery because of easy administration andbetter efficacy and growing adoption of self-administration practices are some of the major factors driving the growth of the nasal drugdelivery technology market. Intranasal drug delivery is one of the most preferred drug delivery routes among patients and healthcareproviders. This can be majorly attributed to the non-invasive nature of this route of delivery and the fact that drug absorbability ishigher through the nasal route. Intranasal drug delivery is one of the most preferred drug delivery routes among patients and healthcareproviders. This can majorly be attributed to the non-invasive nature of this route of delivery and the fact that drug absorbability ishigher through the nasal route. In addition, the nasal route offers a less hostile environment as compared to the gastro-intestinal route;this enables better absorption of drugs. Moreover, nasal drug delivery, unlike some other routes of drug delivery, does not require anysterile method for administering drugs into the body. The easy administration of these drugs plays a crucial role in improving complianceto drug therapies among patients, which in turn drives patient outcomes. Considering these factors, the preference for nasal drug deliveryis increasing among patients and healthcare providers.
Rangeof nasal spray products available in the US, the nasal cavity is mainly used for treatment of local diseases of the upper respiratorytract such as nasal congestion, nasal infections and nasal allergic diseases e.g., allergic rhinitis. However, in the last decades thenasal cavity has also been exploited for systemic delivery of small molecular weight drugs, especially where a rapid onset of actionis required. Examples of such marketed nasal products are drugs for treatment of migraine such as, zolmatriptan (Zomig®), sumatriptan(Imitrex®) and butorphanol tartrate (Stadol NS), treatment of severe pain such as fentanyl (PecFent®; Instanyl®), for smokingcessation (Nicorette®) and for treatment of menopausal symptoms (Aerodiol®).
Theintranasal formulations market is segmented by different types of dosage forms. As can be seen in graph below, the overall market isgrowing with each segment foreseen to keep its proportion. The T&T technology formulations refer to the nasal gel segment.
Intranasalcorticosteroids market opportunities
Thetopical nasal products market is estimated at a value of $5 billion. More than half of this market is for corticosteroids (as shown above).INCS remain the most effective treatment option for nasal symptoms associated with moderate to severe allergic rhinitis.
Theglobal market of INCS is expected to notably expend in the period 2021-2028. Rising predominance of intra-nasal related complexitiescounting nasal-polyps, nasal-rhinitis and chronic sinusitis, that require ongoing treatment, are anticipated to be drivers for INCS market.Moreover, additional indications of INCS being approved for different types of nasal problems and elevated autoimmune diseases will stimulatethe growth of the market.
NorthAmerica holds the largest segment of INCS market in terms of income. Key manufacturers of INCS products are located in North Americawhich allows easier penetration and strong marketing positioning.
OurServiceable Available Market for local intranasal delivery of corticosteroids is the segments of intranasal gels and nasal corticosteroidsmarkets which we believe to be approximately $700 million.
IntranasalBenzodiazepines market opportunities
Themarket size for benzodiazepines was estimated at $3.55 billion in 2020 and is expected to reach $4.25 billion by 2028 which reflect aCAGR of 2.27% during this period.
Thegrowing cases related to diseases such as insomnia, muscle spasms and anxiety is driving the growth of the benzodiazepine market. Therising demand for alprazolam (a prescription medication indicated for the treatment of anxiety disorder) also stimulate market growth.Treating of seizure clusters is crucial due to the fact that if left untreated, seizure clusters can elevate the chance of neurologicaldamage, injuries, continuing seizures, and status epilepticus.
Thesedrugs are widely acceptable around the world. The market for BZD is extensively growing as nervousness, seizures, sleep disorders aswell as concern of stress and related conditions become more prevalent. In addition, greater number of BZD solutions are being chosenas preferred treatment compared to other psychoactive drugs have stimulate the market for benzodiazepines. According to the WHO, around50 million people worldwide have epilepsy, making it one of the most common neurological diseases globally. Nearly 80% of people withepilepsy live in low- and middle-income countries. 30% of uncontrolled epilepsy patients also experience seizure clusters. The marketfor high income countries can be estimated around 10 million patients. The Market for Benzodiazepines for seizure clusters is estimatedto be around $700 million.
IntranasalNaloxone market opportunities
Opioidabuse is one of the leading causes of drug overdose and death globally. Naloxone is an opioid antagonist designed to rapidly reverseopioid overdose. The growing need for an effective treatment and rising number of opioid dependent patients driving the growth of naloxonemarket in the United States. More than 25 million people are being affected annually making it a serious global concern.
Theglobal naloxone market estimated at $3.5 billion in 2020 and expected to grow to $7.3 billion in 2029, at a CAGR of 9.7%.
Thelargest share in the global naloxone market is within North America due to constant increase in painkillers prescriptions. The UnitedStates economic burden due to opioid prescriptions abuse is estimated at $78.5 billion per year. As of today, to our knowledge, naloxoneis the solely effective drug available for opioid overdose treatment.
Theintranasal naloxone spray is being purchased by emergency service providers, hospitals and other entities such as organizations, soletraders, and partnerships. Naloxone intranasal spray market is estimated in 2021 at around $350 million, its CAGR from 2020-2021 wasapproximately 23%. The noticeable growth of the market expected to retain a CAGR of 22% to reach $785 million in 2025.
Driversfor the Trap and Target TM related markets
| ● | Surging interest in controlled and/or sustained release drug delivery systems across many therapeutic areas is a key factor expected to contribute to the intranasal drug delivery market growth. |
| ● | Recent technological developments contribute to the growth of the U.S. intranasal drug delivery market. |
| ● | During the past few years there is a trend towards an increased approvals of intranasal treatment for various disorders, this trend assumed to boost this market growth. |
Driversfor the corticosteroids intranasal market
| ● | Increasing number of people suffering from allergic rhinitis together with inflammation of the nose is a major factor driving the global INCS market. |
| ● | Prevalence of allergic rhinitis in children found to be increased in several regions and is projected to drive the INCS market. |
Driversfor the benzodiazepines intranasal market
| ● | Rise in prevalence of anxiety and seizures is a major driver of the global benzodiazepine drugs market. Current lifestyle and urban life have made peoples’ lives more stressful, which leads to mental disorders such as depression, anxiety, panic, and maniac conditions |
| ● | Increased adoption of generic drugs and comparatively higher prescriptions for benzodiazepines in general, as compared to other psychoactive drugs, also drive the intranasal BZD market. |
Driversfor the naloxone intranasal market
| ● | Growing prevalence of opioid overdoses results in increased number of deaths involving synthetic opioids in recent years. |
| ● | Government campaigns in the U.S. regarding the awareness of opioid dependence and related risks increased during the past years which create a driven force to the intranasal market of naloxone. |
Competition
Thepharmaceutical and medical device industries are characterized by constantly introduced new technologies, strong competition and variousinnovative products that may be similar to ours being developed by several pharmaceutical and medical device companies, public and privateuniversities and research organizations.
Ourcompetitors, either alone or through their strategic partners, have substantially greater name recognition and financial, technical,manufacturing, marketing and human resources than we do and significantly greater experience and infrastructure in the research and developmentof medical devices, obtaining the FDA and other regulatory clearances of those devices and commercializing those devices around the world.
Competitionrelated to the C&C TM technology
Weface competition at various levels and from various competitors. This includes competition based on different forms of treatment, includingvaccination or allergen immunotherapy, protective gear, such as face masks, and remedies that merely treat symptoms. Our main competitorsare companies promoting nasal barrier products, which are described in the chart below:
Thefeatures described above are translated to product candidates characteristics of non-drip, non-irritate, optimal coverage of the nasalcavity and relatively long retention on the nasal epithelial tissue. We believe that a product candidates with these characteristicswill make for an easy-to-use product candidates.
Competitionrelated to the T&T TM technology
Intranasalcorticosteroids for allergic/non-allergic rhinitis
Themost preferred treatment for allergic rhinitis is the INCS approach. Although all INCSs are considered safe and effective for this indication,different products differ in formulation form (e.g., powder, gel or liquid solution), potency, molecular structure features and physicochemicaland pharmacokinetic properties that may result in differences in clinical efficacy and safety. We believe that the T&T technologycan bring a value proposition to the selected drugs by improving its bioavailability profile.
Someof the dominant players in the global INCS market include Sanofi, GlaxoSmithKline plc. Merck Sharp Dohme, McNeil Consumer Healthcare,Sunovion Pharmaceuticals Inc, Teva Branded Pharm, Ivax Pharmaceuticals Incorporated, AstraZeneca and more. In addition, presence of smalland local manufacturers across the countries will account for competitiveness in intranasal corticosteroids market.
Intranasalbenzodiazepines for seizure clusters
Thefirst intransal BZD first product Nayzilam® (midazolam) nasal spray by UCB Biopharma SPRL was approved by the FDA in November 2019for the acute treatment of intermittent, stereotypic episodes of frequent seizure activity (i.e., seizure clusters, acute repetitiveseizures) that are distinct from a patient’s usual seizure pattern in patients with epilepsy aged 12 years or older. Net salesin the United States in the first six months of 2020 were $12.6 million, $17.25 in second quarter of 2020 and 24.15 in first quarterof 2021, representing a growth of ~ 40% between each quarter.
Intranasalnaloxone for opioid overdose
TheFDA approved on April 2019 the first generic naloxone hydrochloride nasal spray, commonly known as Narcan®,a life-saving medication that can stop or reverse the effects of an opioid overdose. Narcan sales in the US in 2020 was $311 million.In the third quarter of 2021 Narcan® nasal spray sales reached $133 million, 50% increasewith regards to the equivalent quarter of 2020.
InApril 2021, the FDA have approved an 8 mg dose naloxone hydrochloride nasal spray (Kloxxado®;Hikma Pharmaceuticals) for the emergency treatment of known or suspected opioid overdose in adult and pediatric patients. This productis a higher dosage of naloxone hydrochloride than the 2 mg and 4 mg dosage product previously approved by the FDA (Narcan®).
Bioavailabilityand rapid onset are among the desirable features for intranasal naloxone and several companies around the globe have nasal naloxone aspart of its development pipeline: Emergent BioSolutions, Pfizer, Teva Pharmaceutical Industries Ltd., Opiant Pharmaceuticals, Hikma Pharmaceuticals,Nasus Pharma, Amphastar Pharmaceuticals, Indivior PLC, Samarth Pharma Pvt. Ltd., Troikaa Pharmaceuticals Ltd., and Neon LaboratoriesLimited.
Manufacturing
Wecurrently rely on and expect to continue to rely on third parties for the supply of raw materials and to manufacture supplies for clinicaltrials of our product candidates. For the foreseeable future, we expect to continue to rely on such third parties for the manufactureof our product candidates on a clinical and thereafter on commercial scale, if any of our product candidates receive regulatory approvalor clearance.
Regulation
GovernmentRegulation and Approval Process
Accordingto FDA guidelines, a product will be considered as a medical device, and subject to FDA regulation, if it meets the definition of a medicaldevice per Section 201(h) of the FFDCA
PerSection 201(h) of the FFDCA, a medical device is an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent,or other similar or related article, including a component part, or accessory which is:
| ● | recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them; |
| ● | intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals; or |
| ● | intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals. |
Inaddition, it must not achieve its primary intended purpose(s) through chemical action within or on the body of humans or other animals.Further, it cannot be dependent upon being metabolized for the achievement of its primary intended purposes.
Becausethe intended use for each of our C&C product candidates is creating a physical barrier and its PMOA is physical, we believe thatour C&C product candidates will be regulated as Class II medical devices. We believe that our PL-14 product candidate can utilizethe 510(k) pathway for alleviating allergic symptoms, and that our PL-15 and PL-16 product candidates can utilize the De Novo Classificationpathway for reducing the risk of nasal infections caused by COVID-19 and influenza, respectively.
DeviceApproval Process
Unless an exemption applies, any medical device that is to be marketed in the United States be cleared via submission of a premarket notification (i.e., 510(k)) for Class II devices, or a PMA for Class III devices. Alternatively, the device can be marketed following the granting of a De Novo Classification request for devices that do not have a legally marketed predicate device. We performed an FDA medical device analysis based on our PL-14 product candidate’s description, along with potential accessories and the proposed intended use. We believe our PL-14 product candidate’s classification is: 21 C.F.R. § 880.5045 “Medical recirculating air cleaner” (under the product code: NUP-Cream, Nasal, Topical, Mechanical Allergen Particle Barrier) which is FDA Class II requiring a 510(k) submission. This means a 510(k) submission for FDA review is required for clearance allowing it to be marketed. To provide the best possible predicate device to establish substantial equivalency within the 510(k) submission, a review of FDA’s 510(k) database for Product Code NUP was performed, which includes several possibilities for a potential predicate device, such as Alzair, Nasalese and Bentrio with intended uses of “promoting alleviation of mild allergic symptoms triggered by the inhalation of various airborne allergens”.
Toobtain 510(k) clearance, a company must submit a premarket notification demonstrating substantial equivalence between the proposed device,and a legally marketed “predicate” device, which is defined as a legally marketed device, that (i) was legally marketed priorto May 28, 1976, for which the FDA has not yet called for submission of a PMA application; (ii) has been reclassified from Class IIIto Class II or Class I; (iii) has been cleared through the 510(k) premarket notification process; or (iv) has been previously determinedto be exempt from the 510(k) process.
Substantial equivalence means that the proposed device has the same intended use and the same technological characteristics as the predicate device, or if the new device has different technological characteristics, that the device is as safe and effective as the predicate device and does not raise different questions of safety and effectiveness. We have identified three such predicate devices, Alzair, Nasalese and Bentrio, and plan to reference them in our planned 510(k) submission.
OurPL-15 and PL-16 product candidates are intended to provide a barrier against COVID-19 and influenza from contacting the nasal epithelialtissue, respectively. We performed a regulatory assessment review for our PL-15 and PL-16 product candidates where the intended use includesa “nasal mechanical virus blocker” and found that there are no valid predicate devices found in the FDA’s databasesmatching this intended use. The lack of available predicate devices, combined with the fact that our PL-15 and PL-16 product candidateshave similar risk profile as our PL-14 product candidate (due to three product candidates using the same ingredients and method of use),we believe that our PL-15 and PL-16 product candidates may be regulated as a Class II medical device if FDA agrees and grants a De NovoClassification request. In order to assess the likelihood of approval under a De Novo pathway, during the first quarter following theclosing of this offering we intend to schedule a pre-submission meeting with the FDA, but have not yet communicated directly with theFDA regarding any of its C&C product candidates.
The estimated timeline for obtaining 510(k) clearance for our C&C product candidates, is based on the estimated time needed for the following activities: (i) GMP manufacturing of our clinical trial materials, which usually requires 9-12 months; (ii) Biocompatibility preclinical studies, which usually requires 3-6 months (although these studies are performed concurrently with the GMP manufacturing mentioned above); (iii) Clinical trials, which usually requires 6-12 months; and (iv) FDA submission and clearance, which usually requires 3-12 months. Regarding FDA submission and clearance, generally 510(k) applicants can expect submission acceptance review decisions within 15 calendar days, substantive review decisions within 60 days, and final decisions within 90 days. Applicants with outstanding review issues will be notified within 100 days. However, the FDA’s time of review does not include time on “hold”, which includes any time spent by us responding to any FDA information requests, meaning that the total timeframe of the review process could take longer than anticipated. In the case of our predicate devices for our PL-14 product candidate, Alzair, Nasalese and Bentrio, the FDA submission and clearance process took 86 and 140 days, respectively. For additional information, please see “Business – FDA clearance plan for our C&C product candidates.”
Manyforeign countries in which we intend to market our PL-14 product candidate have regulatory bodies and restrictions similar to those ofthe FDA. International sales are subject to foreign government regulation, the requirements of which vary substantially from countryto country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA clearance andthe requirements may differ.
Inorder to sell our product candidates in member states of the European Union, or the EU, our product candidates must comply with the generalsafety and performance requirements of the EU Medical Devices Regulation, or Regulation (EU) No 2017/745), which repeals and replacesthe EU Medical Devices Directive (Council Directive 93/42/EEC).
Compliancewith these requirements is a prerequisite to be able to affix the CE mark to our product candidates, without which they cannot be soldor marketed in the EU. All medical devices placed on the market in the EU must meet the general safety and performance requirements laiddown in Annex I to the EU Medical Devices Regulation including the requirement that a medical device must be designed and manufacturedin such a way that, during normal conditions of use, it is suitable for its intended purpose. Medical devices must be safe and effectiveand must not compromise the clinical condition or safety of patients, or the safety and health of users and – where applicable– other persons, provided that any risks which may be associated with their use constitute acceptable risks when weighed againstthe benefits to the patient and are compatible with a high level of protection of health and safety, taking into account the generallyacknowledged state of the art. The European Commission has adopted various standards applicable to medical devices. These include standardsgoverning common requirements, such as sterilization and safety of medical electrical equipment and product candidates standards forcertain types of medical devices. There are also harmonized standards relating to design and manufacture. While not mandatory, compliancewith these standards is viewed as the easiest way to satisfy the general safety and performance requirements as a practical matter, asit creates a rebuttable presumption that the device satisfies the general safety and performance requirements.
Todemonstrate compliance with the general safety and performance requirements we must undergo a conformity assessment procedure, whichvaries according to the type of medical device and its (risk) classification. As a general rule, demonstration of conformity of medicaldevices and their manufacturers with the general safety and performance requirements must be based, among other things, on the evaluationof clinical data supporting the safety and performance of the product candidates during normal conditions of use. Specifically, a manufacturermust demonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks,and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claimsmade about the performance and safety of the device are supported by suitable evidence. Except for low-risk medical devices (Class I),where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its product candidateswith the general safety and performance requirements (except for any parts which relate to sterility, metrology or reuse aspects), aconformity assessment procedure requires the intervention of an organization accredited or designated by a member state of the EU toconduct conformity assessments, or a notified body. Depending on the relevant conformity assessment procedure, the notified body wouldtypically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices.If satisfied that the relevant product candidates conforms to the relevant essential requirements, the notified body issues a certificateof conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the CE Markto the device, which allows the device to be placed on the market throughout the EU. If we fail to comply with applicable EU laws andregulations, and corresponding EU member state laws, we would be unable to affix the CE mark to our product candidates, which would preventus from selling them within the EU.
Theaforementioned EU rules are generally applicable in the EEA, which consists of the 27 EU member states plus Norway, Liechtenstein andIceland. Non-compliance with the above requirements would also prevent us from selling our product candidates in these three countries.
Manufacturersmust demonstrate that their devices conform to the relevant essential requirements through a conformity assessment procedure. The natureof the assessment depends upon the classification of the device. The classification rules are mainly based on three criteria: the lengthof time the device is in contact with the body, the degree of invasiveness, and the extent to which the device affects the anatomy. Conformityassessment procedures for all but the lowest risk classification of devices involve a notified body. Notified bodies are often privateentities and are authorized or licensed to perform such assessments by government authorities. Manufacturers usually have some flexibilityto select a notified body for the conformity assessment procedures for a particular class of device and to reflect their circumstances,e.g., the likelihood that the manufacturer will make frequent modifications to its product candidates. Conformity assessment proceduresrequire an assessment of available clinical evidence, literature data for the product candidates, and post-market experience in respectof similar product candidates already marketed. Notified bodies also may review the manufacturer’s quality systems. If satisfiedthat the product candidates conforms to the relevant essential requirements, the notified body issues a certificate of conformity, whichthe manufacturer uses as a basis for its own declaration of conformity and application of the CE Mark. Application of the CE Mark allowsthe general commercializing of a product candidates in the EU. The product candidates can also be subjected to local registration requirements,depending on the country.
InMay 2017, the EU adopted a new Medical Devices Regulation (EU) 2017/745 (MDR), which will repeal and replace the MDD with effect fromMay 26, 2021. The MDR clearly envisages, among other things, stricter controls of medical devices, including strengthening of the conformityassessment procedures, increased expectations with respect to clinical data for devices and pre-market regulatory review of high-riskdevices. The MDR also envisages greater control over notified bodies and their standards, increased transparency, more robust devicevigilance requirements, and clarification of the rules for clinical investigations. Under transitional provisions, medical devices withnotified body certificates issued under the MDD prior to May 26, 2021, may continue to be placed on the market for the remaining validityof the certificate, until May 27, 2024, at the latest. After the expiry of any applicable transitional period, only devices that havebeen CE marked under the MDR may be placed on the market in the EU.
PharmaceuticalApproval Process (nasal delivery)
Theclinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export, and marketing,among other things, of our product candidates are subject to extensive regulation by governmental authorities in the United States andother countries. The FDA, under the FFDCA, regulates pharmaceutical products and medical devices in the United States.
Thesteps required before a drug may be approved for marketing in the United States generally include:
| ● | the completion of pre-clinical laboratory tests and animal tests conducted under GLP regulations; |
| ● | the submission to the FDA of an Investigational New Drug, or IND application for human clinical testing, which must become effective before human clinical trials commence; |
| ● | the performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication and conducted in accordance with current GCPs; |
| ● | the submission to the FDA of a NDA; |
| ● | the FDA’s acceptance of the NDA; |
| ● | satisfactory completion of an FDA inspection of the manufacturing facilities at which the product candidates is made to assess compliance with cGMPs; and |
| ● | the FDA’s review and approval of an NDA prior to any commercial marketing or sale of the drug in the United States. |
Thetesting and approval process requires substantial time, effort, and financial resources, and the receipt and timing of any approval areuncertain.
Pre-clinicalstudies include laboratory evaluations of the product candidate, as well as animal studies to assess the potential safety and efficacyof the product candidate. The results of the pre-clinical studies, together with manufacturing information and analytical data, are submittedto the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the INDprior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed.
Clinicaltrials involve the administration of the product candidates to healthy volunteers or patients with the disease to be treated under thesupervision of a qualified principal investigator. Clinical trials are conducted under protocols detailing, among other things, the objectivesof the study, the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinicaltrial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewedand approved by an independent IRB, either centrally or individually at each institution at which the clinical trial will be conducted.The IRB will consider, among other things, ethical factors, the safety of human subjects, and the possible liability of the institution.There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries. The FDA,the IRB, or the clinical trial sponsor may suspend or terminate clinical trials at any time on various grounds, including a finding thatthe subjects or patients are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independentgroup of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This groupprovides authorization for whether or not a trial may move forward at designated checkpoints based on access to certain data from thestudy. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.
Clinicaltrials are typically conducted in three sequential phases prior to approval, but the phases may overlap. These phases generally includethe following:
| ● | Phase 1. Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion, and pharmacodynamics. |
| ● | Phase 2. Phase 2 clinical trials usually involve studies in a limited patient population to (1) evaluate the efficacy of the product candidate for specific indications, (2) determine dosage tolerance and optimal dosage, and (3) identify possible adverse effects and safety risks. |
| ● | Phase 3. If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 studies, the clinical trial program will be expanded to Phase 3 clinical trials to further demonstrate clinical efficacy, optimal dosage, and safety within an expanded patient population at geographically dispersed clinical study sites. |
Phase4 clinical trials are conducted after approval to gain additional experience from the treatment of patients in the intended therapeuticindication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwiserequested by the FDA in the form of post-market requirements or commitments. Failure to promptly conduct any required Phase 4 clinicaltrials could result in withdrawal of approval.
Theresults of pre-clinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together withdetailed information on the manufacture, composition, and quality of the product candidates, are submitted to the FDA in the form ofan NDA requesting approval to market the product candidates. The NDA must be accompanied by a significant user fee payment. The FDA hassubstantial discretion in the approval process and may refuse to accept any application or decide that the data is insufficient for approvaland require additional pre-clinical, clinical, or other studies.
Inaddition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data to assess the safety andeffectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administrationfor each pediatric subpopulation for which the product candidates is safe and effective. The FDA may grant deferrals for submission ofdata or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for whichorphan designation has been granted. However, if only one indication for a product candidates has orphan designation, a pediatric assessmentmay still be required for any applications to market that same product candidates for the non-orphan indication(s).
Oncethe NDA submission has been submitted, the FDA has 60 days after submission of the NDA to conduct an initial review to determine whetherit is sufficient to accept for filing. Under the Prescription Drug User Fee Act, the FDA sets a goal date by which it plans to completeits review. This is typically 12 months from the date of submission of the NDA application. The review process is often extended by FDArequests for additional information or clarification. Before approving an NDA, the FDA will inspect the facilities at which the productcandidates is manufactured and will not approve the product candidates unless the manufacturing facility complies with cGMPs and mayalso inspect clinical trial sites for the integrity of data supporting safety and efficacy. The FDA may also convene an advisory committeeof external experts to provide input on certain review issues relating to risk, benefit, and interpretation of clinical trial data. TheFDA is not bound by the recommendations of an advisory committee, but generally follows such recommendations in making its decisions.The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing orinformation. The FDA may require post-marketing testing and surveillance to monitor the safety or efficacy of a product candidates.
Afterthe FDA evaluates the NDA and conducts inspections of manufacturing facilities where the drug product candidates and/or its API willbe produced, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of thedrug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of theapplication is complete and the application is not ready for approval. A Complete Response Letter may require additional clinical dataand/or an additional pivotal Phase 3 clinical trial(s), and/or other significant, expensive and time-consuming requirements related toclinical trials, pre-clinical studies, or manufacturing. Even if such additional information is submitted, the FDA may ultimately decidethat the NDA does not satisfy the criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategy,or REMS, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use,such as restricted distribution methods, patient registries, and other risk minimization tools. The FDA also may condition approval on,among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct oneor more post-market studies or clinical trials. Such post-market testing may include Phase 4 clinical trials and surveillance to furtherassess and monitor the product candidate’s safety and effectiveness after commercialization.
FDARegulation of Combination Product Candidates
TheFDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or moreregulated components, e.g., drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, orotherwise combined or mixed and produced as a single entity; (2) two or more separate product packaged together in a single package oras a unit and comprised of drug and device product, device and biological product, or biological and drug product; (3) a drug, device,or biological product candidates packaged separately that according to its investigational plan or proposed labeling is intended foruse only with an approved individually specified drug, device, or biological product where both are required to achieve the intendeduse, indication, or effect and where upon approval of the proposed product the labeling of the approved product would need to be changed,e.g., to reflect a change in intended use, dosage form, strength, route of administration, or significant change in dose; or (4) anyinvestigational drug, device, or biological product packaged separately that according to its proposed labeling is for use only withanother individually specified investigational drug, device, or biological product where both are required to achieve the intended use,indication, or effect.
TheFDA is divided into various “Centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Centerfor Biologics Evaluation and Research, or CBER, or the CDRH. Different Centers review drug, biologic, or device applications.
TheFDA is charged with assigning a Center with primary jurisdiction, or a lead Center, for review of a combination product. That determinationis based on the primary mode of action, or PMOA, of the combination product. Thus, if the PMOA of a device-biologic combination productis attributable to the biologic product, CBER, which is responsible for premarket review of the biologic product, would have primaryjurisdiction for the combination product. If there are two independent modes of action, neither of which is subordinate to the other,the FDA makes a determination as to which center to assign the product based on consistency with other combination product raising similartypes of safety and effectiveness questions or to the center with the most expertise in evaluating the most significant safety and effectivenessquestions raised by the combination product.
TheFDA has also established an Office of Combination Product to address issues surrounding combination product and provide more certaintyto the regulatory review process. That office serves as a focal point for combination product issues for agency reviewers and industry.It is also responsible for developing guidance and regulations to clarify the regulation of combination product, and for assignment ofthe FDA center that has primary jurisdiction for review of combination product where the jurisdiction is unclear or in dispute.
Afterformally establishing the PMOA through an applicant’s Request for Designation, the Center that regulates that portion of the productthat generates the PMOA becomes the lead evaluator. When evaluating an application, a lead Center may consult other centers but stillretain complete reviewing authority, or it may collaborate with another Center, wherein the lead Center assigns concurrent review ofa specific section of the application to another Center, delegating its review authority for that section.
Typically,the FDA requires a single marketing application submitted to the Center selected to be the lead evaluator, although the agency has thediscretion to require separate applications to more than one Center. One reason to submit multiple evaluations is if the applicant wishesto receive some benefit that accrues only from approval under a particular type of application, like new drug product or orphan drugexclusivity. If multiple applications are submitted, each may be evaluated by a different lead Center. When submitting multiple applications,the applicant may be subject to the payment of two user fees, but a waiver of such fees may be obtained under certain limited circumstances.
TheFDA may subject a combination product to two or more sets of legal authorities, e.g., drug/device, biologic/device, drug/biologic drug,but it has the authority to deem one set of legal authorities sufficient. FDA’s standard of review for a combination product applicationand the applicable legal authority or authorities will depend on a case-by-case basis evaluation of the scientific and technical issuesand risk profile relevant to a combination product and its constituent parts. Because of the breadth and complexity of this analysisin each case, no single regulatory paradigm is appropriate for all combination product.
Afterreceiving FDA approval or clearance, an approved or cleared product must comply with post-market safety reporting requirements applicableto the product based on the application type under which it received marketing authorization. In the case of current good manufacturingpractices, or cGMP, the applicant may take one of two approaches: (1) complying with cGMP for each constituent part, or (2) a streamlinedapproach specific to combination product, subject to certain limitations.
Webelieve the FDA will classify the nasal hydrogels used as a drug delivery platform as a combination product subject to the primary jurisdictionof the CDER.
TheHatch-Waxman Amendments
505(b)(2)NDAs
TheFDA is authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) permits the filing ofan NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and forwhich the applicant has not obtained a right of reference from the data owner. The applicant may rely upon the FDA’s findings ofsafety and efficacy for an approved product that acts as the “listed drug.” The FDA may also require 505(b)(2) applicantsto perform additional studies or measurements to support the change from the listed drug. The FDA may then approve the new product forall, or some, of the conditions of use for which the branded reference drug has been approved, or for a new condition of use sought bythe 505(b)(2) applicant.
AbbreviatedNew Drug Applications (“ANDAs”)
TheHatch-Waxman amendments to the FDCA established a statutory procedure for submission and FDA review and approval of ANDAs for genericversions of listed drugs. An ANDA is a comprehensive submission that contains, among other things, data and information pertaining tothe active pharmaceutical ingredient (“API\I”), drug product formulation, specifications and stability of the generic drug,as well as analytical methods, manufacturing process validation data, and quality control procedures. Premarket applications for genericdrugs are termed abbreviated because they generally do not include clinical data to demonstrate safety and effectiveness. However, ageneric manufacturer is typically required to conduct bioequivalence studies of its test product against the listed drug. Bioequivalenceis established when there is an absence of a significant difference in the rate and extent for absorption of the generic product andthe reference listed drug. For some drugs, other means of demonstrating bioequivalence may be required by the FDA, especially where therate or extent of absorption is difficult or impossible to measure. The FDA will approve an ANDA application if it finds that the genericproduct does not raise new questions of safety and effectiveness as compared to the reference listed drug. A product is not eligiblefor ANDA approval if the FDA determines that it is not bioequivalent to the reference listed drug if it is intended for a different useor if it is not subject to, and requires an approved Suitability Petition.
PatentExclusivity and Orange Book Listing
Inseeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are required to list with the FDA certain patents whoseclaims cover the applicant’s product. Upon approval of an NDA, each of the patents listed in the application for the drug is thenpublished in the Orange Book. Any applicant who files an ANDA seeking approval of a generic equivalent version of a drug listed in theOrange Book or a 505(b)(2) NDA referencing a drug listed in the Orange Book must certify to the FDA (i) that there is no patentlisted with the FDA as covering the relevant branded product, (ii) that any patent listed as covering the branded product has expired,(iii) that the patent listed as covering.
Thebranded product will expire prior to the marketing of the generic product, in which case the ANDA will not be finally approved by theFDA until the expiration of such patent or (iv) that any patent listed as covering the branded drug is invalid or will not be infringedby the manufacture, sale or use of the generic product for which the ANDA is submitted. A notice of the Paragraph IV certification mustbe provided to each owner of the patent that is the subject of the certification and to the holder of the approved NDA to which the ANDAor 505(b)(2) application refers. The applicant may also elect to submit a “section viii” statement certifying that its proposedlabel does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent.
Ifthe reference NDA holder and patent owners assert a patent challenge directed to one of the Orange Book listed patents within 45 daysof the receipt of the Paragraph IV certification notice, the FDA is prohibited from approving the application until the earlier of 30 monthsfrom the receipt of the Paragraph IV certification, expiration of the patent, settlement of the lawsuit or a decision in the infringementcase that is favorable to the applicant. The ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivitylisted in the Orange Book for the branded reference drug has expired, as described in further detail below.
Non-PatentExclusivity
Inaddition to patent exclusivity, the holder of the NDA for the listed drug may be entitled to a period of non-patent exclusivity,during which the FDA cannot approve an ANDA or 505(b)(2) application that relies on the listed drug.
Forexample, a drug that is considered a new chemical entity (NCE) at the time of approval may be awarded a five-year period of marketingexclusivity, starting at the time of product approval. An ANDA or 505(b)(2) application referencing that drug may not be approved untilthe five-year period expires. Also, an ANDA or 505(b)(2) application referencing that drug may not be filed with the FDA until theexpiration of five years, unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submitits application four years following the original product approval.
Adrug, including one approved under Section 505(b)(2), may obtain a three-year period of exclusivity for a particular conditionof approval, or change to a marketed product, such as a new formulation for a previously approved product, if one or more new clinicalstudies (other than bioavailability or bioequivalence studies) was essential to the approval of the application and was conducted/sponsoredby the applicant.
Pricingand Reimbursement
Successfulcommercialization of our product candidates depends, in part, on the availability of governmental and third-party payor reimbursementfor the cost of our product candidates. Government authorities and third-party payors increasingly are challenging the price of medicalproducts and services. On the government side, there is a heightened focus, at both the federal and state levels, on decreasing costsand reimbursement rates for Medicaid, Medicare, and other government insurance programs. This has led to an increase in federal and statelegislative initiatives related to drug prices, which could significantly influence the purchase of pharmaceutical products, resultingin lower prices and changes in products demand. If enacted, these changes could lead to reduced payments to pharmaceutical manufacturers.Many states have also created preferred drug lists and include drugs on those lists only when the manufacturers agree to pay a supplementalrebate. If our current product candidates or future drug candidates are not included on these preferred drug lists, physicians may notbe inclined to prescribe them to their Medicaid patients, thereby diminishing the potential market for our product candidates.
Inaddition, third-party payors have been imposing additional requirements and restrictions on coverage and limiting reimbursementlevels for pharmaceutical products. Third-party payors may require manufacturers to provide them with predetermined discounts fromlist prices and limit coverage to specific pharmaceutical products on an approved list, or formulary, which might not include all ofthe FDA-approved pharmaceutical products for particular indications. Third-party payors may challenge the price and examinethe medical necessity and cost-effectiveness of pharmaceutical products in addition to their safety and efficacy. Manufacturersmay need to conduct expensive pharmaco-economic studies in order to demonstrate the medical necessity and cost-effectiveness ofpharmaceutical products in addition to the costs required to obtain the FDA approvals. Adequate third-party reimbursement may notbe available to enable manufacturers to maintain price levels sufficient to realize an appropriate return on their investment in drugdevelopment.
HealthcareReform
Inthe United States, there have been several federal and state proposals during the last several years regarding the pricing of pharmaceuticalproducts, government control, and other changes to the healthcare system of the United States. It is uncertain what other legislativeproposals may be adopted or what actions federal, state, or private payors may take in response to any healthcare reform proposals orlegislation. We cannot predict the effect such reforms may have on our business, and no assurance can be given that any such reformswill not have a material adverse effect.
Byway of example, in March 2010, the ACA was signed into law, which, among other things, includes changes to the coverage and paymentfor drug products under government health care programs. The law includes measures that (i) significantly increase Medicaid rebatesthrough both the expansion of the program and significant increases in rebates, (ii) substantially expand the Public Health System(340B) program to allow other entities to purchase prescription drugs at substantial discounts, (iii) extend the Medicaid rebaterate to a significant portion of Managed Medicaid enrollees, (iv) assess a rebate on Medicaid Part D spending in the coverage gapfor branded and authorized generic prescription drugs, and (v) levy a significant excise tax on the industry to fund the healthcarereform.
Inaddition to the changes brought about by the ACA, other legislative changes have been proposed and adopted, including aggregate reductionsof Medicare payments to providers of 2% per fiscal year and reduced payments to several types of Medicare providers. Moreover, therehas recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, whichhas resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things,bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs and reform governmentprogram reimbursement methodologies for drug products. At the state level, legislatures have increasingly passed legislation and implementedregulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictionson certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importationfrom other countries and bulk purchasing.
HealthcareRegulations
Pharmaceuticalcompanies are subject to various federal and state laws that are intended to combat health care fraud and abuse and that govern certainof our business practices, especially our interactions with third-party payors, healthcare providers, patients, customers and potentialcustomers through sales and marketing or research and development activities. These include anti-kickback laws, false claims laws,sunshine laws, privacy laws, and FDA regulation of advertising and promotion of pharmaceutical products.
Anti-kickbacklaws, including the federal Anti-Kickback Statute, make it a criminal offense knowingly and willfully to offer, pay, solicit, or receiveany remuneration to induce or reward the referral of an individual for, or the purchase, order or recommendation of, any good or servicereimbursable by, a federal health care program (including our product candidates). The federal Anti-Kickback Statute has been interpretedto apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers onthe other. Although there are several statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution,the exceptions, and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing,or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. In addition, a person or entity doesnot need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. Moreover, the governmentmay assert that a claim, including items or services resulting from a violation of the federal Anti-Kickback Statute, constitutes a falseor fraudulent claim for purposes of the False Claims Act. The penalties for violating the federal Anti-Kickback Statute include administrativecivil money penalties, imprisonment for up to five years, fines of up to $25,000 per violation, and possible exclusion from federal healthcareprograms such as Medicare and Medicaid. The federal civil and criminal false claims laws, including the civil False Claims Act, prohibitknowingly presenting, or causing to be presented, claims for payment to the federal government (including Medicare and Medicaid) thatare false or fraudulent (and, under the Federal False Claims Act, a claim is deemed false or fraudulent if it is made pursuant to anillegal kickback). Manufacturers can be held liable under these laws if they are deemed to “cause” the submission of falseor fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label.Actions under the False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the nameof the government. Violations of the False Claims Act can result in significant monetary penalties, including fines ranging from $11,665to $22,331 for each false claim assessed after June 19, 2020, and treble damages. The federal government is using the False Claims Act,and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical companies throughout thecountry, for example, in connection with the promotion of products for unapproved uses and other improper sales and marketing practices.The government has obtained multi-million and multi-billion dollar settlements under the False Claims Act, in addition to individualcriminal convictions under applicable criminal statutes. In addition, companies have been forced to implement extensive corrective actionplans and have often become subject to consent decrees or corporate integrity agreements, severely restricting the manner in which theyconduct their business. Given the significant size of actual and potential settlements, it is expected that the government will continueto devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraudand abuse laws.
TheFederal Civil Monetary Penalties Law prohibits, among other things, the offering or transferring of remuneration to a Medicare or Medicaidbeneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier ofMedicare or Medicaid payable items or services. Noncompliance can result in civil money penalties of up to $20,866 for each wrongfulact, assessment of three times the amount claimed for each item or service, and exclusion from the federal healthcare programs.
Federalcriminal statutes prohibit, among other actions, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcarebenefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefitprogram, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing orcovering up a material fact or making any materially fictitious or fraudulent statement in connection with the delivery of or paymentfor healthcare benefits, items or services. Like the federal Anti-Kickback Statute, the ACA amended the intent standard for certainhealthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specificintent to violate it in order to have committed a violation.
Analogousstate and foreign laws and regulations, including state anti-kickback and false claims laws, may apply to products and servicesreimbursed by non-governmental third-party payors, including commercial payors. Additionally, there are state laws that requirepharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant complianceguidance promulgated by the federal government or that otherwise restrict payments that may be made to healthcare providers as well asstate and foreign laws that require drug manufacturers to report marketing expenditures or pricing information.
Sunshinelaws, including the Federal Open Payments law enacted as part of the ACA, require pharmaceutical manufacturers to disclose payments andother transfers of value to physicians and certain other health care providers or professionals, and in the case of some state sunshinelaws, restrict or prohibit certain such payments. Pharmaceutical manufacturers are required to submit reports to the government by the90th day of each calendar year. Failure to submit the required information may result in civil monetary penalties of up to an aggregateof not less than $10,000, but not more than $100,000 per year (or up to an aggregate of $1.150 million per year for “knowingfailures”) for all payments, transfers of value or ownership, or investment interests not reported in an annual submission, andmay result in liability under other federal laws or regulations. Certain states and foreign governments require the tracking and reportingof gifts, compensation, and other remuneration to physicians.
Privacylaws, such as the privacy regulations implemented under HIPAA, restrict covered entities from using or disclosing protected health information.Covered entities commonly include physicians, hospitals, and health insurers from which we may seek to acquire data to aid in our research,development, sales and marketing activities. Although pharmaceutical manufacturers are not covered entities under HIPAA, our abilityto acquire or use protected health information from covered entities may be affected by privacy laws. Specifically, HIPAA, as amendedby HITECH, and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, imposesspecified requirements relating to the privacy, security, and transmission of individually identifiable health information.
Amongother things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” definedas independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connectionwith providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposedagainst covered entities, business associates, and possibly other persons, and gave state attorneys general new authority to file civilactions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associatedwith pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances,many of which differ from each other in significant ways, thus complicating compliance efforts.
TheFDA regulates the sale and marketing of prescription drug products and, among other things, prohibits pharmaceutical manufacturers frommaking false or misleading statements and from promoting products for unapproved uses. There has been an increase in government enforcementefforts at both the federal and state level. Numerous cases have been brought against pharmaceutical manufacturers under the FederalFalse Claims Act, alleging, among other things, that certain sales or marketing-related practices violate the Anti-Kickback Statute orthe FDA’s regulations, and many of these cases have resulted in settlement agreements under which the companies were required tochange certain practices, pay substantial fines and operate under the supervision of a federally appointed monitor for a period of years.Due to the breadth of these laws and their implementing regulations and the absence of guidance in some cases, it is possible that ourpractices might be challenged by government authorities. Violations of fraud and abuse laws may be punishable by civil and criminal sanctions,including fines, civil monetary penalties, as well as the possibility of exclusion of our product candidates from payment by federalhealth care programs.
GovernmentPrice Reporting
Governmentregulations regarding reporting and payment obligations are complex, and we are continually evaluating the methods we use to calculateand report the amounts owed with respect to Medicaid and other government pricing programs. Our calculations are subject to review andchallenge by various government agencies and authorities, and it is possible that any such review could result either in material changesto the method used for calculating the amounts owed to such agency or the amounts themselves. Because the process for making these calculations,and our judgments supporting these calculations, involve subjective decisions, these calculations are subject to audit. In the eventthat a government authority challenges or finds ambiguity with regard to our report of payments, such authority may impose civil andcriminal sanctions, which could have a material adverse effect on our business. From time to time, we conduct routine reviews of ourgovernment pricing calculations. These reviews may have an impact on government price reporting and rebate calculations used to complywith various government regulations regarding reporting and payment obligations.
Manygovernments and third-party payors reimburse the purchase of certain prescription drugs based on a drug’s AWP. In the pastseveral years, state and federal government agencies have conducted ongoing investigations of manufacturers’ reporting practiceswith respect to AWP, which they have suggested have led to excessive payments by state and federal government agencies for prescriptiondrugs. We and numerous other pharmaceutical companies have been named as defendants in various state and federal court actions allegingimproper or fraudulent practices related to the reporting of AWP.
DrugPedigree Laws
Stateand federal governments have proposed or passed various drug pedigree laws which can require the tracking of all transactions involvingprescription drugs from the manufacturer to the pharmacy (or other dispensing) level. Companies are required to maintain records documentingthe chain of custody of prescription drug products, beginning with the purchase of such products from the manufacturer. Compliance withthese pedigree laws requires the implementation of extensive tracking systems as well as heightened documentation and coordination withcustomers and manufacturers. While we fully intend to comply with these laws, there is uncertainty about future changes in legislationand government enforcement of these laws. Failure to comply could result in fines or penalties, as well as loss of business that couldhave a material adverse effect on our financial results.
FederalRegulation of Patent Litigation Settlements and Authorized Generic Arrangements
Aspart of the Medicare Prescription Drug Improvement and Modernization Act of 2003, companies are required to file with the U.S. FederalTrade Commission (“FTC”) and the U.S. Department of Justice (the “DOJ”) certain types of agreements entered intobetween brand and generic pharmaceutical companies related to the settlement of patent litigation or manufacture, marketing and saleof generic versions of branded drugs. This requirement could affect the manner in which generic drug manufacturers resolve intellectualproperty litigation and other disputes with brand pharmaceutical companies and could result generally in an increase in private-party litigationagainst pharmaceutical companies or additional investigations or proceedings by the FTC or other governmental authorities.
Other
TheU.S. federal government, various states and localities have laws regulating the manufacture and distribution of pharmaceuticals, as wellas regulations dealing with the substitution of generic drugs for branded drugs. Our operations are also subject to regulation, licensingrequirements, and inspection by the states and localities in which our operations are located or in which we conduct business.
Certainof our activities are also subject to FTC enforcement actions. The FTC also enforces a variety of antitrust and consumer protection lawsdesigned to ensure that the nation’s markets function competitively, are vigorous, efficient, and free of undue restrictions. Federal,state, local and foreign laws of general applicability, such as laws regulating working conditions, also govern us.
Inaddition, we are subject to numerous and increasingly stringent federal, state and local environmental laws and regulations concerning,among other things, the generation, handling, storage, transportation, treatment and disposal of toxic and hazardous substances, thedischarge of pollutants into the air and water and the cleanup of contamination. We are required to maintain and comply with environmentalpermits and controls for some of our operations, and these permits are subject to modification, renewal, and revocation by the issuingauthorities. Our environmental capital expenditures and costs for environmental compliance may increase in the future as a result ofchanges in environmental laws and regulations or increased manufacturing activities at any of our facilities. We could incur significantcosts or liabilities as a result of any failure to comply with environmental laws, including fines, penalties, third-party claims,and the costs of undertaking a clean-up at a current or former site or at a site to which our wastes were transported. In addition,we have grown in part by acquisition, and our diligence may not have identified environmental impacts from historical operations at siteswe have acquired in the past or may acquire in the future.
IntellectualProperty
Werely on a combination of intellectual property law and contractual restrictions to establish and protect proprietary technology and dataused in the development and realization of our product candidates. Provisional patent applications were filed in the United States andare intended to protect and support current and future developments of our technologies and corresponding product candidates. The existingapplications as well as the new applications that will be filed aim to pursue patent protection for formulations, unique properties,modes of administration as well as specific indications that will be developed in corporation with other partners.
Alist of our provisional patent applications filed in the United States is described in the table below:
Filing Date | | Application No. | | Status | | Title | | Type |
06/05/2021 | | 63/184883 | | Submitted | | Formulations and methods for preventing viral infections by corona viruses | | United States, Provisional |
08/31/2021 | | 63/260738 | | Submitted | | Mucoadhesive Polymers for Nasal Drug Delivery | | United States, Provisional |
11/24/2021 | | 63/264539 | | Submitted | | Mucoadhesive Polymers for Nasal Drug Delivery | | United States, Provisional |
02/23/2022 | | 63/268,384 | | Submitted | | MUCOADHESIVE POLYMERS FOR NASAL DRUG DELIVERY | | United States, Provisional |
Oursuccess and ability to compete successfully depend on our ability to effectively protect, maintain, and defend our intellectual propertyand operate without infringing on the proprietary rights of others. As an additional defense mechanism, we seek to limit disclosuresabout our intellectual property strictly to a need-to-know basis and then, only to the minimum extent possible. In addition, before disclosingany proprietary information to employees, partners, contractors, and regulators, we insist on executing stringent confidentiality andnon-disclosure agreements. Employees, who work in research and product candidates development are also required to waive all rights totheir work products and execute non-compete agreements.
Grantsfrom the Israeli Innovation Authority
TaxBenefits and Grants for Research and Development
Underthe Israeli Encouragement of Research, Development and Industrial Initiative Technology Law, 5744-1984, as amended, and related regulations,or the Research Law, research and development programs which meet specified criteria and are approved by the IIA are eligible for grantsof up to 50% of the project’s expenditure, as determined by the research committee, in exchange for the payment of royalties fromthe revenues generated from the sale of product candidates and related services developed, in whole or in part pursuant to, or as a resultof, a research and development program funded by the IIA. The royalties are generally at a range of 3.0% to 5.0% of revenues until theentire IIA grant is repaid, together with an annual interest generally equal to the 12 months London Interbank Offered Rate applicableto dollar deposits that are published on the first business day of each calendar year.
Theterms of the Research Law also require that the manufacture of product candidates developed with government grants be performed in Israel.The transfer of manufacturing activity outside Israel may be subject to the prior approval of the IIA. Under the regulations of the ResearchLaw, assuming we receive approval from the Chief Scientist to manufacture our IIA-funded product candidates outside Israel, we may berequired to pay increased royalties. The increase in royalties depends upon the manufacturing volume that is performed outside of Israelas follows:
ManufacturingVolume Outside of Israel Royalties to the Chief Scientist as a Percentage of Grant
Up to 50% | 120% |
Between 50% and 90% | 150% |
90% and more | 300% |
Ifthe manufacturing is performed outside of Israel by us, the rate of royalties payable by us on revenues from the sale of product candidatesmanufactured outside of Israel will increase by 1% over the regular rates. If the manufacturing is performed outside of Israel by a thirdparty, the rate of royalties payable by us on those revenues will be equal to the ratio obtained by dividing the amount of the grantsreceived from the Office of the Chief Scientist and our total investment in the project that was funded by these grants. The transferof no more than 10% of the manufacturing capacity in the aggregate outside of Israel is exempt under the Research Law from obtainingthe prior approval of the IIA. A company requesting funds from the IIA also has the option of declaring in its IIA grant applicationan intention to perform part of its manufacturing outside Israel, thus avoiding the need to obtain additional approval. On January 6,2011, the Research Law was amended to clarify that the potential increased royalties specified in the table above will apply even inthose cases where the IIA approval for transfer of manufacturing outside of Israel is not required, namely when the volume of the transferredmanufacturing capacity is less than 10% of total capacity or when the company received an advance approval to manufacture abroad in theframework of its IIA grant application.
Theknow-how developed within the framework of the Chief Scientist plan may not be transferred to third parties outside Israel without theprior approval of a governmental committee charted under the Research Law. The approval, however, is not required for the export of anyproduct candidates developed using grants received from the Chief Scientist. The IIA approval to transfer know-how created, in wholeor in part, in connection with an IIA-funded project to a third party outside Israel where the transferring company remains an operatingIsraeli entity is subject to payment of a redemption fee to the IIA calculated according to a formula provided under the Research Lawthat is based, in general, on the ratio between the aggregate IIA grants to the company’s aggregate investments in the projectthat was funded by these IIA grants, multiplied by the transaction consideration. The transfer of such know-how to a party outside Israelwhere the transferring company ceases to exist as an Israeli entity is subject to a redemption fee formula that is based, in general,on the ratio between the aggregate IIA grants to the total financial investments in the company, multiplied by the transaction consideration.According to the January 2011 amendment, the redemption fee in case of transfer of know-how to a party outside Israel will be based onthe ratio between the aggregate IIA grants received by the company and the company’s aggregate R&D expenses, multiplied bythe transaction consideration. According to regulations promulgated following the 2011 amendment, the maximum amount payable to the IIAin case of transfer of know-how outside Israel shall not exceed 6 times the value of the grants received plus interest, and in the eventthat the receiver of the grants ceases to be an Israeli corporation such payment shall not exceed six times the value of the grants receivedplus interest, with a possibility to reduce such payment to up to three times the value of the grants received plus interest if the R&Dactivity remains in Israel for a period of three years after payment to the IIA.
Transferof know-how within Israel is subject to an undertaking of the recipient Israeli entity to comply with the provisions of the ResearchLaw and related regulations, including the restrictions on the transfer of know-how and the obligation to pay royalties, as further describedin the Research Law and related regulations.
Theserestrictions may impair our ability to outsource manufacturing, engage in change of control transactions or otherwise transfer our know-howoutside Israel and may require us to obtain the approval of the IIA for certain actions and transactions and pay additional royaltiesto the IIA. In particular, any change of control and any change of ownership of our Ordinary Shares that would make a non-Israeli citizenor resident an “interested party,” as defined in the Research Law, requires a prior written notice to the IIA in additionto any payment that may be required of us for transfer of manufacturing or know-how outside Israel. If we fail to comply with the ResearchLaw, we may be subject to criminal charges.
OtherTax Benefits
TaxBenefits on Capital Expenditures for Research and Development
Israelitax law allows, under certain conditions, a tax deduction for expenditures, including capital expenditures, for the year in which theyare incurred. Expenditures are deemed related to scientific research and development projects, if:
| ● | The expenditures are approved by the relevant Israeli government ministry, determined by the field of research; |
| ● | The research and development must be for the promotion of the company; and |
| ● | The research and development is carried out by or on behalf of the company seeking such tax deduction. |
Theamount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientificresearch and development projects. No deduction under these research and development deduction rules is allowed if such deduction isrelated to an expense invested in an asset depreciable under the general depreciation rules of the Income Tax Ordinance, 1961. Expendituresnot so approved are deductible in equal amounts over three years.
Fromtime to time, we may apply the Office of the Chief Scientist for approval to allow a tax deduction for all research and development expensesduring the year incurred. There can be no assurance that such an application will be accepted.
Lawfor the Encouragement of Capital Investments, 5719-1959
TheLaw for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentivesfor capital investments in production facilities (or other eligible assets).
TaxBenefits for Preferred Companies
TheInvestment Law grants tax benefits for income generated by a “Preferred Company” through its “Preferred Enterprise”(as such terms are defined in the Investment Law) The definition of a Preferred Company includes a company incorporated in Israel thatis not fully owned by a governmental entity, and that has, among other things, Preferred Enterprise status and is controlled and managedfrom Israel. A Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to its income derived by its PreferredEnterprise, unless the Preferred Enterprise is located in a specified development zone, in which case the rate will be 7.5%.
Dividendspaid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at source at the rate of 20% or suchlower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is requiredto be withheld.
Propertyand Facilities
Ourmain business activities are conducted in Israel. Our offices, research and development are located at 5 Ha-Tidhar Street, Raanana, Israel,where we occupy approximately 35 square meters (approximately 378 square feet). Our lease is a month-to-month lease with no current expirationdate. Our monthly rent payment as of January 2022, was approximately NIS 4,500 (approximately $1,450).
Weconsider that our current office space is sufficient to meet our anticipated needs for the foreseeable future and is suitable for theconduct of our business.
Employees
Asof August 10, 2022, we had five members of senior management (including our Chief Executive Officer), of which one is a full-time employee,three are a part-time contractors and one is full-time contractor (our Chief Executive Officer). None of our employees located in Israelare represented by labor unions or covered by collective bargaining agreements. However, in Israel, we are subject to certain Israelilabor laws, regulations and national labor court precedent rulings, as well as certain provisions of collective bargaining agreementsapplicable to us by virtue of extension orders issued in accordance with relevant labor laws by the Israeli and Industry of Economy andwhich apply such agreement provisions to our employees even though they are not part of a union that has signed a collective bargainingagreement.
Allof our employment and consulting agreements include employees’ and consultants’ undertakings with respect to non-competitionand assignment to us of intellectual property rights developed in the course of employment and confidentiality. The enforceability ofsuch provisions is limited by Israeli law.
LegalProceedings
Weare not currently subject to any legal proceedings
MANAGEMENT
ExecutiveOfficers and Directors
Thefollowing table sets forth information regarding our executive officers and directors, including their ages as of August 9, 2022:
Name | | Age | | Position |
Tomer Izraeli | | 44 | | Chief Executive Officer, Director |
Nir Ben Yosef | | 47 | | Chief Financial Officer |
Dr. Eyal S. Ron | | 67 | | Chief Technology Officer |
Dr. Tidhar Turgeman | | 42 | | Chief R&D Officer |
Daphna Avital | | 55 | | Chief People Officer |
Dr. Roy Borochov | | 47 | | Director |
Liron Carmel | | 38 | | Director |
Oz Adler | | 35 | | Director |
Raul Srugo | | 58 | | Director |
Liat Sidi | | 47 | | Director Nominee |
Yehonatan Zalman Vinokur | | 44 | | Director Nominee |
TomerIzraeli, Chief Executive Officer, Director
Mr.Tomer Izraeli has served as our Chief Executive Officer since January 2005 and a director since January 2005. Prior to that, Mr.Izraeli served as Department Manager in Lapidot Medical Ltd. from 2013 to 2021. Mr. Izraeli has a BSc in chemical engineering and anMBA from the Ben Gurion University of the Negev.
NirBen Yosef, Chief Financial Officer
Nir Ben Yosef, has been our Chief Financial Officer since December 2021. Mr. Ben Yosef serves as our Chief Financial Officer pursuant to an agreement that we have with Shimony Yosef Certified Public Accountant (Isr.), with whom Mr. Ben Yosef is a partner since 2011. Mr. Ben Yosef has served as the Chief Financial Officer of ENvizion Medical Ltd. (TASE: ENVM.TA) from January to October 2021. Mr. Ben Yosef also holds a B.A. degree in Accounting and Business Management from The College of Management, Israel.
Dr.Eyal S. Ron, Chief Technology Officer
Dr.Eyal S. Ron has served as our Chief Technology Officer since March 2020. Dr. Ron has also served as the Chief Technical Officer andCo-Founder of Rich PSC since 2020. Dr. Ron has extensive experience in executive roles for various biomedical companies. This experienceincludes serving as: Chief Technical Officer and Co-founder for Gelesis Inc. from 2006 to 2019, Chief Technical Officer for CombinentBiomedical Systems from 1994 to 2015, Chief Operating Officer for Oxford Pharmaceutical Services from 2003 to 2007, Chief Technical Officerfor Palmetto Pharmaceuticals from 1999 to 2017, Chief Technical Officer and Co-founder for Flo from 2015 to 2019, and Chief TechnicalOfficer and Co-founder for GelMed / Gel Sciences from 1994 to 1997. Dr. Ron has served as a director of Pharmedica Ltd since 2008. Previously,has also served as a director of Acuity Bio from 2009 until 2021, and of GelMed / Gel Sciences from 1994 to 1997. Dr. Ron has a BSc fromTel Aviv University and a Ph.D. from Brandeis University and a post doctorate from MIT.
Dr.Tidhar Turgeman, Chief R&D Officer
Dr.Tidhar Turgeman has served as our Chief R&D Officer since December 2020. Prior to that, Mr. Turgeman served as an Innovativedrug delivery technologies products development manager at ADAMA from 2017 to 2020 and as a research leader at Evogene from 2014 to 2017.Mr. Turgeman has a Ph.D degree from Ben-Gurion University of the Negev.
DaphnaAvital, Chief People Officer
Ms.Daphna Avital has served as our Chief People Officer since August 2021. Since 2019, Ms. Avital has served as an independent consultantto Allergan and Astellas among other biotechnology companies. Prior to that, Ms. Avital served as Regional Human Resources and Learning&Development Manager in Allergan from 2016 to 2018. From 2008 to 2014, Ms. Avital served as Human Resources Director of AstraZeneca andAllegran. Ms. Avital holds an MA in Organizational Consulting from the College of Management Academic Studies, is a certified Group Facilitatorfrom IDC and a Logotherapy Associate.
Dr.Roy Borochov, Director
Dr.Roy Borochov has served as our director since September 2021. Prior to that, Dr. Borochov served as Chief Executive Officer of MercuryInvestment Fund since 2020. Previously, Dr. Borochov served as Head of Agriculture for Prospera Technologies from 2018 to 2020 and ChiefTechnology Officer of Forrest Innovations from 2016 until 2017. Dr. Borochov has served as a director of Peas of Bean and Venda Roboticssince 2021. Dr. Borochov has a Ph.D. from the Hebrew University of Jerusalem.
LironCarmel, Director
Mr.Liron Carmel has served as our director since July 2020. Mr. Carmel has served as Chief Executive Officer of Medigus Ltd. (Nasdaq:MDGS) since April 2019. Mr. Carmel has vast experience in business and leadership across multiple industries, including bio pharma, internettechnology, oil & gas exploration & production, real estate and financial services. In addition, he serves as chairmanof the Israel Tennis Table Association. Mr. Carmel served as the chief executive officer and director of CannaPowder (PINK: CAPD), abio-pharma company dedicated to developing and applying innovative technology in the cannabinoid field, from 2017 and 2018. Mr. Carmelpreviously served as a director of Chiron Refineries Ltd. (TASE: CHR), a company engaged in consulting and initiation of transactionsin the refineries field, and as a director of Gix (TASE: GIX) which operates in the field of software development, marketing and distributionto internet users. He also served as vice president business development at Yaad Givatayim development, a municipal corporation dedicatedto initiate, develop and establish projects of public importance. Prior to Yaad Givatayim, Mr. Carmel served as an investment managerand as a research and strategy analyst at Excellence Nessuah, one of the leading companies in the field of provident and advanced studiesfunds in Israel.
OzAdler, Director
Mr.Oz Adler has served as our director since September 2021. Mr. Adler has served as the Chief Financial Officer of SciSparc Ltd. sinceApril 2018, and the Chief Executive Officer of SciSparc, and prior to that, from September 2017, he served as Vice President of Financeat SciSparc. Additionally, Mr. Adler currently serves on the board of directors of Elbit Imaging Ltd (TASE: EMITF.TA, OTC: EMITF), ClearmindMedicine Inc. (CSE: CMND, FSE: CWYO, OTC: CMNDF), Jeff’s Brands Ltd. And Charging Robotics Ltd. Previously, Mr. Adler served asthe Chief Financial Officer of Medigus Ltd. from December 2012 and August 2017. Before this, Mr. Adler worked in the audit departmentof Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, from 2012 to 2017. Mr. Adler is a certified public accountantin Israel and holds a B.A. degree in Accounting and Business Management from The College of Management, Israel.
RaulSrugo, Director
Mr.Raul Srugo has served as our director since May 2006. Since December 2019, Mr. Srugo has served the president of the Foundation forthe Encouragement and Development of the Construction Industry in Israel. In addition, since February 2019, Mr. Srugo has served as thepresident of the Contractors Association “Boney-Haaretz”. Since October 2014, Mr. Srugo has served as the chairman of theCICA Safety Committee of the International Contractors Association and as the Chairman of Sufiya Hotels Ltd. Previously, Mr. Srugo servedas the chairman of the Maccabi Rishon Lezion Handball Association from June 2016 to June 2019, the chairman of the Contractors Associationin Rishon Lezion, Israel from 2014 to2018, and the Vice President of the Builders of the Land from 2006 to 2010. Mr. Srugo holds a Bachelorof Industrial Engineering and Management at Ben Gurion University and an Executive MBA at the Recanati School of Management at Tel AvivUniversity.
LiatSidi, Director Nominee
Ms.Liat Sidi will join our Board of Directors upon the consummation of this offering. Ms. Sidi has served as a director at ScisparcLtd. (OTCMKTS: SPRCF) since June 2020. Ms. Sidi has served as the accountant of Foresight Autonomous Holdings Ltd. (NASDAQ and TASE:FRSX) since September 2016. In addition, Ms. Sidi additionally provides accounting services for various public and private companiessuch as: Panaxia israel laboratories ltd, Soho real estate ltd, Pure food ltd and others. Ms. Sidi holds a B.A. degree in Tax, financeand accounting studies from the Ramat Gan College of Accounting
Yehonatan Zalman Vinokur, Director Nominee
Mr.Yehonatan Zalman Vinokur will join our Board of Directors upon the consummation of this offering. Mr. Vinokur has served as the ChiefExecutive Officer and Owner of Danny Zeevi Insurance Agency, LTD. since 2017. In addition, since 2002, Mr. Vinokur has worked as a financialadviser for Topick Finance. Mr. Vinokur has a B.A. in Business Management from The College of Management Academic Studies in Rishon LeTsiyon.
ScientificAdvisory Board
Prof.Smadar Cohen has served as a member of our scientific advisory board since October 2005. Prof. Cohen currently serves as the Claireand Harold Oshry Professor Chair in Biotechnology at Ben-Gurion University, as Founder of the Avram and Stella Goldstein-Goren Departmentof Biotechnology Engineering at Ben-Gurion University, and as a founder and director of the regenerative medicine and stem cell ResearchCenter of Ben-Gurion University. Professor Cohen’s research focuses on the advancement and development of novel bio-inspired materialsas nano-sized delivery systems for therapeutics and as scaffolds in regenerative medicine. Professor Cohen has been invited to givenover 100 lectures and seminars, as well as chaired 30 sessions of international scientific conferences in the field of biomaterials anddrug delivery systems, has 29 issued U.S. patents, is the author of over 120 papers in peer-reviewed scientific journals, co-authoreda book on Cardiac Tissue Engineering and edited two books. She serves as the Associate Editor of the Annals of Biomedical EngineeringJournal, is an executive board member of the biomedical journal Tissue Engineering, and is a member of the editorial board of the biomedicaljournal Biomatter. She is on the scientific advisory board of several bio-nano-technology companies and serves as a member of the Magnet/Magneton/NofarCommittee of the Israel Ministry of Economics.
Prof.Avi Schroeder, has served as a member of our scientific advisory board since July 2021. Prof. Schroeder is a tenured Associate Professorof Chemical Engineering at the Technion – Israel Institute of Technology, he heads the Laboratory for Targeted Drug Delivery andPersonalized Medicine Technologies. Prof. Schroeder has years of experience in nanotechnology and personalized medicine, has translationalexperience with the development of liposome-based clinical systems. He is an author of over 50 research papers, an inventor of 19 patents a co-founder of multiple Technion spin-out startup companies, including PEEL Therapeutics, Barcode Diagnostics and ViAqua Therapeutics,and the recipient of 20 national and international innovation awards. Prof. Schroeder is a member of Israel Young National Academy ofSciences, President of the Israel Institute of Chemical Engineers, and an appointed member of the Israel National Council for CivilianResearch and Development.
Prof.Fabio Sonvico has served as a member of our scientific advisory board since November 2021. Prof. Sonvico is an Associate Professorin the Food and Drug Department of the University of Parma, Italy. Prof. Sonvico is highly experienced in the development of intranasaland pulmonary routes and products. He has published more than 75 papers in international journals on advanced drug delivery topics andhe is also author of 6 book chapters and 5 patents focusing on innovative drug delivery systems. Prof. Sonvico is appointed asan Invited Professor at the Faculty of Medicine and Pharmacy of the University of Lyon.
Prof.Nancy Agmon-Levin has served as a member of our scientific advisory board since March 2022. Professor Agmon-Levin serves as the Headof the Clinical Immunology, Angioedema and Allergy Unit, at the Lupus and Autoimmune Diseases Clinic. Professor Agmon is a graduate ofthe Hadassah Medical School at Hebrew University, and completed her fellowship in Clinical Immunology at the German Cancer Research Center(DKFZ), in Heidelberg, Germany. Prof. Agmon- Levin’s major field of interest are autoimmune diseases (lupus, antiphospholipid syndrome),immune system diseases (urticaria, angioedema, immune deficiency, Granulomatous Disease), allergies in children and adults, immunotherapy.Professor Agmon-Levin is the author of 123 published works.
FamilyRelationships
Thereare no family relationships between any members of our executive management and our directors.
Arrangementsfor Election of Directors and Members of Management
Ourboard of directors consists of directors, each of whom will continue to serve pursuant to their appointment until the annual generalmeeting of our shareholders in which his or her term expires. We are not a party to, and are not aware of, any voting agreements amongour shareholders. In addition, there are no family relationships among our executive officers and directors. See “Related PartyTransactions” for additional information.
Compensation
Thefollowing table presents in the aggregate all compensation we paid to all of our directors and senior management as a group for the yearended December 31, 2021. The table does not include any amounts we paid to reimburse any of such persons for costs incurred in providingus with services during this period.
Allamounts reported in the table below reflect our cost, in thousands of U.S. dollars. Amounts paid in NIS are translated into U.S. dollarsat the rate of NIS 3.23 = U.S. $1.00, based on the average representative rate of exchange between the NIS and the U.S. dollar as reportedby the Bank of Israel during such period of time.
| | Salary, bonuses and Related Benefits | | | Pension, Retirement and Other Similar Benefits | | | Share Based Compensation | |
All directors and senior management as a group, consisting of four persons as of December 31, 2021. | | $ | 194.5 | | | $ | 25.6 | | | $ | 127.1 | |
Asof December 31, 2021, 1,145,849 options were granted to our directors and executive officers.
Asapproved by our board of directors and our shareholders in September 2021, subsequent to the completion of this offering our Chief ExecutiveOfficer, Tomer Izraeli, will receive an IPO bonus of options to purchase such number of Ordinary Shares representing 2.5% of the ourpost-initial public offering issued and outstanding shares, which shall vest and become exercisable over a total period of three yearscommencing on the grant date on a monthly basis in equal installments.
Forso long as we qualify as a foreign private issuer, we will not be required to comply with the proxy rules applicable to U.S. domesticcompanies regarding disclosure of the compensation of certain executive officers on an individual basis. Pursuant to the Companies Law,we will be required, after we become a public company, to disclose the annual compensation of our five most highly compensated officerson an individual basis. This disclosure will not be as extensive as that required of a U.S. domestic issuer. We intend to commence providingsuch disclosure, at the latest, in the annual proxy statement for our first annual meeting of shareholders following the closing of thisoffering, which will be filed under cover of a report on Form 6-K.
Employmentand Consulting Agreements with Executive Officers
Wehave entered into written employment and consulting agreements with each of our executive officers. All of these agreements contain customaryprovisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of thenoncompetition provisions may be limited under applicable law. In addition, we intend to enter into indemnification agreements, subjectto the listing of our securities on Nasdaq, with each executive officer and director pursuant to which we will indemnify each of themup to a certain amount and to the extent that these liabilities are not covered by directors and officers insurance.
Fora description of the terms of our options and option plans, see “Management—Equity Incentive Plan” below.
Directors’Service Contracts
Otherthan with respect to our directors that are also executive officers, we do not have written agreements with any director providing forbenefits upon the termination of his employment with our company.
Differencesbetween the Companies Law and Nasdaq Requirements
Corporationsincorporated under the laws of the State of Israel whose shares are publicly traded, including companies with shares listed on Nasdaq,are considered public companies under Israeli law and are required to comply with various corporate governance requirement under Israelilaw relating to such matters as the composition and responsibilities of the audit committee and the compensation committee (subject tocertain exceptions we intend to utilize), and a requirement to have an internal auditor. These requirements are in addition to the corporategovernance requirements imposed by the rules of the Nasdaq Stock Market and other applicable provisions of the US Securities laws towhich we will become subject (as a foreign private issuer) upon the closing of this offering and the listing of our Ordinary Shares andWarrants on Nasdaq. Under those rules, we may elect to follow certain corporate governance practices permitted under the Companies Lawin lieu of compliance with corresponding corporate governance requirements otherwise imposed by the Nasdaq Stock Market rules for U.S.domestic issuers.
Inaccordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the Nasdaq Stock Market rules, wehave elected to follow the provisions of the Companies Law, rather than the Nasdaq Stock Market rules, with respect to the followingrequirements:
| ● | Quorum. While the Nasdaq Stock Market rules require that the quorum for purposes of any meeting of the holders of a listed company’s ordinary voting stock, as specified in the company’s bylaws, be no less than 33 1/3% of the company’s outstanding ordinary voting stock, under Israeli law, a company is entitled to determine in its articles of association the number of shareholders and percentage of holdings required for a quorum at a shareholders meeting. Our amended and restated articles of association provide that a quorum of two or more shareholders holding at least 25% of the voting rights in person or by proxy is required for commencement of business at a general meeting. However, the quorum set forth in our amended and restated articles of association with respect to an adjourned meeting consists of at least one shareholders present in person or by proxy. |
| ● | Compensation of officers. Israeli law and our amended and restated articles of association do not require that the independent members of our board of directors (or a compensation committee composed solely of independent members of our board of directors) determine an executive officer’s compensation, as is generally required under the Nasdaq Stock Market rules with respect to the chief executive officer and all other executive officers. Instead, compensation of executive officers is determined and approved by our compensation committee and our board of directors, and in certain circumstances by our shareholders, either in consistency with our office holder compensation policy or, in special circumstances in deviation therefrom, taking into account certain considerations stated in the Companies Law. See “Management—Board Practices—Approval of Related Party Transactions under Israeli Law” for additional information. |
| ● | Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, rather than seeking approval for corporation actions in accordance with Nasdaq Listing Rule 5635. In particular, under this Nasdaq Stock Market rule, shareholder approval is generally required for: (i) an acquisition of shares/assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rights or if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leading to a change of control; (iii) adoption/amendment of equity compensation arrangements (although under the provisions of the Companies Law there is no requirement for shareholder approval for the adoption/amendment of the equity compensation plan); and (iv) issuances of 20% or more of the shares or voting rights (including securities convertible into, or exercisable for, equity) of a listed company via a private placement (and/or via sales by directors/officers/5% shareholders) if such equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is required for, among other things: (i) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for any other position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (ii) extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval, and (iii) terms of employment or other engagement of the controlling shareholder of us or such controlling shareholder’s relative, which require special approval. In addition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies. |
| ● | Approval of Related Party Transactions. All related party transactions are approved in accordance with the requirements and procedures for approval of interested party acts and transaction as set forth in the Companies Law, which requires the approval of the audit committee, or the compensation committee, as the case may be, the board of directors and shareholders, as may be applicable, for specified transactions, rather than approval by the audit committee or other independent body of our board of directors as required under the Nasdaq Stock Market rules. See “Management—Board Practices—Approval of Related Party Transactions under Israeli Law” for additional information. |
| ● | Annual Shareholders Meeting. As opposed to the Nasdaq Stock Market Rule 5620(a), which mandates that a listed company hold its annual shareholders meeting within one year of the company’s fiscal year-end, we are required, under the Companies Law, to hold an annual shareholders meeting each calendar year and within 15 months of the last annual shareholders meeting. |
| ● | Distribution of periodic reports to shareholders; proxy solicitation. As opposed to the Nasdaq Stock Market rules, which require listed issuers to make such reports available to shareholders in one of a number of specific manners, Israeli law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website. In addition to making such reports available on a public website, we currently make our audited financial statements available to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt from the SEC’s proxy solicitation rules. |
BoardPractices
Introduction
Uponthe consummation of this offering, our board of directors will consist of seven members. We believe that Roy Borochov, Oz Adler, LiatSidi and Yehonatan Zalman Vinokur are “independent” for purposes of the Nasdaq Stock Market rules. Our amended and restatedarticles of association provide that the number of board of directors’ members shall be set by the general meeting of the shareholdersprovided that it will consist of not less than two and not more than nine. Pursuant to the Companies Law, the management of our businessis vested in our board of directors. Our board of directors may exercise all powers and may take all actions that are not specificallygranted to our shareholders or to management. Our executive officers are responsible for our day-to-day management and have individualresponsibilities established by our board of directors. Our Chief Executive Officer is appointed by, and serves at the discretion of,our board of directors, subject to the consulting agreement that we have entered into with him. All other executive officers are appointedby our Chief Executive Officer. Their terms of employment are subject to the approval of the board of directors’ compensation committeeand of the board of directors, and are subject to the terms of any applicable employment or consulting agreements that we may enter intowith them.
Eachdirector, except external directors that may be required to be appointed under the Companies Law under certain circumstances, will holdoffice until the next annual general meeting of our shareholders following his or her appointment, or until he or she resigns or unlesshe or she is removed by a majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certainevents, in accordance with the Companies Law and our amended and restated articles of association.
Inaddition, under certain circumstances, our amended and restated articles of association allow our board of directors to appoint directorsto fill vacancies on our board of directors or in addition to the acting directors (subject to the limitation on the number of directors),until the next annual general meeting or special general meeting in which directors may be appointed or terminated. External directorsmay be elected for up to two additional three-year terms after their initial three-year term under the circumstances described below,with certain exceptions as described in “External Directors” below. External directors may be removed from office only underthe limited circumstances set forth in the Companies Law.
Underthe Companies Law, any shareholder holding at least one percent of our outstanding voting power may nominate a director. However, anysuch shareholder may make such a nomination only if a written notice of such shareholder’s intent to make such nomination has beengiven to our board of directors. Any such notice must include certain information, including the consent of the proposed director nomineeto serve as our director if elected, and a declaration that the nominee signed declaring that he or she possesses the requisite skillsand has the availability to carry out his or her duties. Additionally, the nominee must provide details of such skills, and demonstratean absence of any limitation under the Companies Law that may prevent his or her election, and affirm that all of the required election-informationis provided to us, pursuant to the Companies Law.
Underthe Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financialexpertise. In determining the number of directors required to have such expertise, our board of directors must consider, among otherthings, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that theminimum number of directors of our company who are required to have accounting and financial expertise is two.
Theboard of directors must elect one director to serve as the chairman of the board of directors to preside at the meetings of the boardof directors, and may also remove that director as chairman. Pursuant to the Companies Law, neither the chief executive officer nor anyof his or her relatives is permitted to serve as the chairman of the board of directors, and a company may not vest the chairman or anyof his or her relatives with the chief executive officer’s authorities. In addition, a person who reports, directly or indirectly,to the chief executive officer may not serve as the chairman of the board of directors; the chairman may not be vested with authoritiesof a person who reports, directly or indirectly, to the chief executive officer; and the chairman may not serve in any other positionin the company or a controlled company, but he or she may serve as a director or chairman of a controlled company. However, the CompaniesLaw permits a company’s shareholders to determine, for a period not exceeding three years from each such determination, that thechairman or his or her relative may serve as chief executive officer or be vested with the chief executive officer’s authorities,and that the chief executive officer or his or her relative may serve as chairman or be vested with the chairman’s authorities.Such determination of a company’s shareholders requires either: (1) the approval of at least a majority of the shares of thoseshareholders present and voting on the matter (other than controlling shareholders and those having a personal interest in the determination)(shares held by abstaining shareholders shall not be considered); or (2) that the total number of shares opposing such determinationdoes not exceed 2% of the total voting power in the company. Currently, we have a separate chairman and chief executive officer.
Theboard of directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees of the board,and it may, from time to time, revoke such delegation or alter the composition of any such committees, subject to certain limitations.Unless otherwise expressly provided by the board of directors, the committees shall not be empowered to further delegate such powers.The composition and duties of our audit committee, financial statement examination committee and compensation committee are describedbelow.
Theboard of directors oversees how management monitors compliance with our risk management policies and procedures, and reviews the adequacyof the risk management framework in relation to the risks faced by us. The board of directors is assisted in its oversight role by aninternal auditor. The internal auditor undertakes both regular and ad hoc reviews of risk management controls and procedures, the resultsof which are reported to our audit committee.
ExternalDirectors
Underthe Companies Law, except as provided below, companies incorporated under the laws of the State of Israel that are publicly traded, includingIsraeli companies with shares listed on the Nasdaq, are required to appoint at least two external directors who meet the qualificationrequirements set forth in the Companies Law. The definitions of an external director under the Companies Law and independent directorunder Nasdaq Stock Market rules are similar such that it would generally be expected that our two external directors will also complywith the independence requirement under Nasdaq Stock Market rules.
Pursuantto regulations under the Companies Law, the board of directors of a company such as us is not required to have external directors if:(i) the company does not have a controlling shareholder (as such term is defined in the Companies Law); (ii) a majority of the directorsserving on the board of directors are “independent,” as defined under Nasdaq Rule 5605(a)(2); and (iii) the company followsNasdaq Rule 5605(e)(1), which requires that the nomination of directors be made, or recommended to the board of directors, by a NominatingCommittee of the board of directors consisting solely of independent directors, or by a majority of independent directors. The Companymeets all these requirements. Our board of directors has resolved to adopt the corporate governance exemption set forth above, and accordinglywe will not have external directors as members of our board of directors.
IndependentDirectors Under the Companies Law
An“independent director” is either an external director or a director who meets the same non-affiliation criteria as an externaldirector (except for (i) the requirement that the director be an Israeli resident (which does not apply to companies such as ours whosesecurities have been offered outside of Israel or are listed outside of Israel) and (ii) the requirement for accounting and financialexpertise or professional qualifications), as determined by the audit committee, and who has not served as a director of the companyfor more than nine consecutive years. For these purposes, ceasing to serve as a director for a period of two years or less would notbe deemed to sever the consecutive nature of such director’s service.
Regulationspromulgated pursuant to the Companies Law provide that a director in a public company whose shares are listed for trading on specifiedexchanges outside of Israel, including Nasdaq, who qualifies as an independent director under the relevant non-Israeli rules and whomeets certain non-affiliation criteria, which are less stringent than those applicable to independent directors as set forth above, wouldbe deemed an “independent” director pursuant to the Companies Law provided: (i) he or she has not served as a director formore than nine consecutive years; (ii) he or she has been approved as such by the audit committee; and (iii) his or her remunerationshall be in accordance with the Companies Law and the regulations promulgated thereunder. For these purposes, ceasing to serve as a directorfor a period of two years or less would not be deemed to sever the consecutive nature of such director’s service.
Furthermore,pursuant to these regulations, such company may reappoint a person as an independent director for additional terms, beyond nine years,which do not exceed three years each, if each of the audit committee and the board of directors determine, in that order, that in lightof the independent director’s expertise and special contribution to the board of directors and its committees, the reappointmentfor an additional term is in the company’s best interest.
AlternateDirectors
Ouramended and restated articles of association provide, as allowed by the Companies Law, that any director may, subject to the conditionsset thereto including approval of the nominee by our board of directors, appoint a person as an alternate to act in his place, to removethe alternate and appoint another in his place and to appoint an alternate in place of an alternate whose office is vacated for any reasonwhatsoever. Under the Companies Law, a person who is not qualified to be appointed as a director, a person who is already serving asa director or a person who is already serving as an alternate director for another director, may not be appointed as an alternate director.Nevertheless, a director who is already serving as a director may be appointed as an alternate director for a member of a committee ofthe board of directors so long as he or she is not already serving as a member of such committee, and if the alternate director is toreplace an external director, he or she is required to be an external director and to have either “financial and accounting expertise”or “professional expertise,” depending on the qualifications of the external director he or she is replacing. A person whodoes not have the requisite “financial and accounting experience” or the “professional expertise,” dependingon the qualifications of the external director he or she is replacing, may not be appointed as an alternate director for an externaldirector. A person who is not qualified to be appointed as an independent director, pursuant to the Companies Law, may not be appointedas an alternate director of an independent director qualified as such under the Companies Law. Unless the appointing director limitsthe time or scope of the appointment, the appointment is effective for all purposes until the appointing director ceases to be a directoror terminates the appointment.
Committeesof the Board of Directors
Ourboard of directors has established two standing committees, the audit committee and the compensation committee.
AuditCommittee
Underthe Companies Law, we will be required to appoint an audit committee subject to the listing of our Ordinary Shares and Warrants on Nasdaq.The audit committee must be comprised of at least three directors, including all of the external directors, if applicable, (one of whommust serve as chair of the committee). The audit committee may not include the chairman of the board; a controlling shareholder of thecompany or a relative of a controlling shareholder; a director employed by or providing services on a regular basis to the company, toa controlling shareholder or to an entity controlled by a controlling shareholder; or a director who derives most of his or her incomefrom a controlling shareholder.
Inaddition, a majority of the members of the audit committee of a publicly traded company must be independent directors under the CompaniesLaw. Our audit committee will be comprised of, and.
Underthe Companies Law, our audit committee is responsible for:
| (i) | determining whether there are deficiencies in the business management practices of our company, and making recommendations to the board of directors to improve such practices; |
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| (ii) | determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under Companies Law) and establishing the approval process for certain transactions with a controlling shareholder or in which a controlling shareholder has a personal interest (see “Management—Board Practices—Approval of Related Party Transactions under Israeli law”); |
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| (iii) | determining the approval process for transactions that are “non-negligible” (i.e., transactions with a controlling shareholder that are classified by the audit committee as non-negligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would require the approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee; |
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| (iv) | examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities; |
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| (v) | examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; |
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| (vi) | establishing procedures for the handling of employees’ complaints as to deficiencies in the management of our business and the protection to be provided to such employees; and |
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| (vii) | where the board of directors approves the working plan of the internal auditor, examining such working plan before its submission to the board of directors and proposing amendments thereto. |
Ouraudit committee may not conduct any discussions or approve any actions requiring its approval (see “Management—Board Practices—Approvalof Related Party Transactions under Israeli law”), unless at the time of the approval a majority of the committee’s membersare present, which majority consists of independent directors under the Companies Law.
Ourboard of directors intends to adopt an audit committee charter to be effective upon the listing of our Ordinary Shares and Warrants onNasdaq setting forth, among others, the responsibilities of the audit committee consistent with the rules of the SEC and Nasdaq ListingRules (in addition to the requirements for such committee under the Companies Law), including, among others, the following:
| ● | oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in accordance with Israeli law; |
| ● | recommending the engagement or termination of the person filling the office of our internal auditor, reviewing the services provided by our internal auditor and reviewing effectiveness of our system of internal control over financial reporting; |
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| ● | recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our board of directors; and |
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| ● | reviewing and monitoring, if applicable, legal matters with significant impact, finding of regulatory authorities’ findings, receive reports regarding irregularities and legal compliance, acting according to “whistleblower policy” and recommend to our board of directors if so required. |
NasdaqStock Market Requirements for Audit Committee
Underthe Nasdaq Stock Market rules, we are required to maintain an audit committee consisting of at least three members, all of whom are independentand are financially literate and one of whom has accounting or related financial management expertise.
Asnoted above, the members of our audit committee will include , and . will serve as the chairman of our audit committee. Allmembers of our audit committee meet the requirements for financial literacy under the Nasdaq Stock Market rules. Our board of directorshas determined that each member of our audit committee is an audit committee financial expert as defined by the SEC rules and has therequisite financial experience as defined by the Nasdaq Stock Market rules.
Underthe Companies Law, our audit committee also carries out the duties of a financial statement examination committee. As such, the auditcommittee is responsible for: (i) estimations and assessments made in connection with the preparation of financial statements; (ii) internalcontrols related to the financial statements; (iii) completeness and propriety of the disclosure in the financial statements; (iv) theaccounting policies adopted and the accounting treatments implemented in material matters of the company; and (v) value evaluations,including the assumptions and assessments on which evaluations are based and the supporting data in the financial statements.
CompensationCommittee
Underthe Companies Law, the board of directors of any public company must establish a compensation committee. The compensation committee mustbe comprised of at least three directors, including all of the external directors (if any). The compensation committee is subject tothe same Companies Law restrictions as the audit committee as to: (a) who may not be a member of the committee; and (b) who maynot be present during committee deliberations as described above.
Ourcompensation committee, acting pursuant to a written charter, will consist of, and. Our compensation committee complies with the provisionsof the Companies Law, the regulations promulgated thereunder, and our amended and restated articles of association, on all aspects referringto its independence, authorities and practice. Our compensation committee follows home country practice as opposed to complying withthe compensation committee membership and charter requirements prescribed under the Nasdaq Stock Market rules.
Ourcompensation committee reviews and recommends to our board of directors: with respect to our executive officers’ and directors’:(1) annual base compensation (2) annual incentive bonus, including the specific goals and amounts; (3) equity compensation; (4) employmentagreements, severance arrangements, and change in control agreements and provisions; (5) retirement grants and/or retirement bonuses;and (6) any other benefits, compensation, compensation policies or arrangements.
Theduties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the termsof engagement of office holders, to which we refer as a compensation policy. Such policy must be adopted by the company’s boardof directors, after considering the recommendations of the compensation committee. The compensation policy is then brought for approvalby our shareholders, which requires a special majority (see “Management—Board Practices—Approval of Related Party Transactionsunder Israeli law”). Under the Companies Law, the board of directors may adopt the compensation policy if it is not approved bythe shareholders, provided that after the shareholders oppose the approval of such policy, the compensation committee and the board ofdirectors revisit the matter and determine that adopting the compensation policy would be in the best interests of the company. Underthe Companies Law, we are required to adopt an office holder compensation policy no later than 9 months from the consummation of thisoffering.
Thecompensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of executive officersand directors, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employmentor engagement. The compensation policy must relate to certain factors, including advancement of the company’s objectives, the company’sbusiness and its long-term strategy, and creation of appropriate incentives for executives. It must also consider, among other things,the company’s risk management, size and the nature of its operations. The compensation policy must furthermore consider the followingadditional factors:
| ● | the education, skills, expertise and accomplishments of the relevant director or executive; |
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| ● | the director’s or executive’s roles and responsibilities and prior compensation agreements with him or her; |
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| ● | the relationship between the cost of the terms of service of an office holder and the average median compensation of the other employees of the company (including those employed through manpower companies), including the impact of disparities in salary upon work relationships in the company; |
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| ● | the possibility of reducing variable compensation at the discretion of the board of directors; and the possibility of setting a limit on the exercise value of non-cash variable compensation; and |
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| ● | as to severance compensation, the period of service of the director or executive, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company. |
Thecompensation policy must also include the following principles:
| ● | with the exception of office holders who report directly to the chief executive officer, the link between variable compensation and long-term performance and measurable criteria; |
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| ● | the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation at the time of its grant; |
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| ● | the conditions under which a director or executive would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements; |
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| ● | the minimum holding or vesting period for variable, equity-based compensation; and |
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| ● | maximum limits for severance compensation. |
Thecompensation policy must also consider appropriate incentives from a long-term perspective.
Thecompensation committee is responsible for: (1) recommending the compensation policy to a company’s board of directors for its approval(and subsequent approval by the shareholders); and (2) duties related to the compensation policy and to the compensation of a company’soffice holders, including:
| ● | recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years); |
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| ● | recommending to the board of directors periodic updates to the compensation policy; |
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| ● | assessing implementation of the compensation policy; |
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| ● | determining whether the terms of compensation of certain office holders of the company need not be brought to approval of the shareholders; and |
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| ● | determining whether to approve the terms of compensation of office holders that require the committee’s approval. |
Ourcompensation policy will be designed to promote our long-term goals, work plan and policy, retain, motivate and incentivize our directorsand executive officers, while considering the risks that our activities involve, our size, the nature and scope of our activities andthe contribution of an officer to the achievement of our goals and maximization of profits, and align the interests of our directorsand executive officers with our long-term performance. To that end, a portion of an executive officer compensation package is targetedto reflect our short and long-term goals, as well as the executive officer’s individual performance. On the other hand, our compensationpolicy will include measures designed to reduce the executive officer’s incentives to take excessive risks that may harm us inthe long-term, such as limits on the value of cash bonuses and equity-based compensation, limitations on the ratio between the variableand the total compensation of an executive officer and minimum vesting periods for equity-based compensation.
Ourcompensation policy will also address our executive officer’s individual characteristics (such as his or her respective position,education, scope of responsibilities and contribution to the attainment of our goals) as the basis for compensation variation among ourexecutive officers, and considers the internal ratios between compensation of our executive officers and directors and other employees.For example, the compensation that may be granted to an executive officer may include: base salary, annual bonuses, equity-based compensation,benefits and retirement and termination of service arrangements. All cash bonuses are limited to a maximum amount linked to the executiveofficer’s base salary. In addition, our compensation policy will provide for maximum permitted ratios between the total variable(cash bonuses and equity-based compensation) and non-variable (base salary) compensation components, in accordance with an officer’srespective position with the company.
Anannual cash bonus may be awarded to executive officers upon the attainment of pre-set periodic objectives and individual targets. Theannual cash bonus that may be granted to executive officers other than our chairman or Chief Executive Officer may be based entirelyon a discretionary evaluation. Our Chief Executive Officer will be entitled to recommend performance objectives to such executive officers,and such performance objectives will be approved by our compensation committee (and, if required by law, by our board of directors).
Theperformance measurable objectives of our chairman and Chief Executive Officer will be determined annually by our compensation committeeand board of directors. A less significant portion of the chairman’s and/or the Chief Executive Officer’s annual cash bonusmay be based on a discretionary evaluation of the chairman’s or the Chief Executive Officer’s respective overall performanceby the compensation committee and the board of directors based on quantitative and qualitative criteria.
Theequity-based compensation under our compensation policy for our executive officers (including members of our board of directors) willbe designed in a manner consistent with the underlying objectives in determining the base salary and the annual cash bonus, with itsmain objectives being to enhance the alignment between the executive officers’ interests with our long-term interests and thoseof our shareholders and to strengthen the retention and the motivation of executive officers in the long term. Our compensation policywill provide for executive officer compensation in the form of share options or other equity-based awards, such as restricted sharesand phantom, options, in accordance with our equity incentive plan then in place. Share options granted to executive officers shall besubject to vesting periods in order to promote long-term retention of the awarded executive officers. The equity-based compensation shallbe granted from time to time and be individually determined and awarded according to the performance, educational background, prior businessexperience, qualifications, role and the personal responsibilities of the executive officer.
Inaddition, our compensation policy will contain compensation recovery provisions which allows us under certain conditions to recover bonusespaid in excess, will enable our Chief Executive Officer to approve an immaterial change in the terms of employment of an executive officer(provided that the changes of the terms of employment are in accordance our compensation policy) and will allow us to exculpate, indemnifyand insure our executive officers and directors subject to certain limitations set forth thereto.
Ourcompensation policy will also provide for compensation to the members of our board of directors either: (i) in accordance with the amountsprovided in the Companies Regulations (Rules Regarding the Compensation and Expenses of an External Director) of 2000, as amended bythe Companies Regulations (Relief for Public Companies Traded in Stock Exchange Outside of Israel) of 2000, as such regulations may beamended from time to time; or (ii) in accordance with the amounts determined in our compensation policy.
InternalAuditor
Underthe Companies Law, the board of directors of an Israeli public company must appoint an internal auditor nominated by the audit committee.We intend to appoint our internal auditor within 90 days following the consummation of this offering. The role of the internal auditoris to examine, among other things, whether a company’s actions comply with the law and proper business procedure. The audit committeeis required to oversee the activities, and to assess the performance of the internal auditor as well as to review the internal auditor’swork plan. An internal auditor may not be an interested party or office holder, or a relative of any interested party or office holder,and may not be a member of the company’s independent accounting firm or its representative. The Companies Law defines an interestedparty as a holder of 5% or more of the outstanding shares or voting rights of a company, any person or entity that has the right to appointat least one director or the general manager of the company or any person who serves as a director or as the general manager of a company.
Remunerationof Directors
Underthe Companies Law, remuneration of directors is subject to the approval of the compensation committee, thereafter by the board of directorsand thereafter, unless exempted under the regulations promulgated under the Companies Law, by the general meeting of the shareholders.In case the remuneration of the directors is in accordance with regulations applicable to remuneration of the external directors thensuch remuneration shall be exempt from the approval of the general meeting. Where the director is also a controlling shareholder, therequirements for approval of transactions with controlling shareholders apply.
FiduciaryDuties of Office Holders
TheCompanies Law imposes a duty of care and a duty of loyalty on all office holders of a company.
Theduty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position wouldhave acted under the same circumstances. The duty of care of an office holder includes a duty to use reasonable means to obtain:
| ● | information on the advisability of a given action brought for his approval or performed by him by virtue of his position; and |
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| ● | all other important information pertaining to these actions. |
Theduty of loyalty of an office holder requires an office holder to act in good faith and for the benefit of the company, and includes aduty to:
| ● | refrain from any conflict of interest between the performance of his duties in the company and his performance of his other duties or personal affairs; |
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| ● | refrain from any action that is competitive with the company’s business; |
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| ● | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and |
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| ● | disclose to the company any information or documents relating to the company’s affairs which the office holder has received due to his position as an office holder. |
Insurance
Underthe Companies Law, a company may obtain insurance for any of its office holders against the following liabilities incurred due to actshe or she performed as an office holder, if and to the extent provided for in the company’s articles of association:
| ● | breach of his or her duty of care to the company or to another person, to the extent such a breach arises out of the negligent conduct of the office holder; |
| ● | a breach of his or her duty of loyalty to the company, provided that the office holder acted in good faith and had reasonable cause to assume that his or her act would not prejudice the company’s interests; and |
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| ● | a financial liability imposed upon him or her in favor of another person. |
Priorto the consummation of this offering, we intend to purchase directors’ and officers’ liability insurance, providing totalcoverage of $10 million for the benefit of all of our directors and officers.
Indemnification
TheCompanies Law and the Israeli Securities Law, 5728-1968, or the Securities Law, provide that a company may indemnify an office holderagainst the following liabilities and expenses incurred for acts performed by him or her as an office holder, either pursuant to an undertakingmade in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:
| ● | a financial liability imposed on him or her in favor of another person by any judgment concerning an act performed in his or her capacity as an office holder, including a settlement or arbitrator’s award approved by a court; |
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| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder (a) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (1) no indictment (as defined in the Companies Law) was filed against such office holder as a result of such investigation or proceeding; and (2) no financial liability as a substitute for the criminal proceeding (as defined in the Companies Law) was imposed upon him or her as a result of such investigation or proceeding, or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; or (b) in connection with a monetary sanction; |
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| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder or imposed on him or her by a court: (1) in proceedings that the company institutes, or that another person institutes on the company’s behalf, against him or her; (2) in a criminal proceeding of which he or she was acquitted; or (3) as a result of a conviction for a crime that does not require proof of criminal intent; and |
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| ● | expenses incurred by an office holder in connection with an Administrative Procedure under the Securities Law, including reasonable litigation expenses and reasonable attorneys’ fees. An “Administrative Procedure” is defined as a procedure pursuant to chapters H3 (Monetary Sanction by the Israeli Securities Authority), H4 (Administrative Enforcement Procedures of the Administrative Enforcement Committee) or I1 (Arrangement to prevent Procedures or Interruption of procedures subject to conditions) to the Securities Law. |
TheCompanies Law also permits a company to undertake in advance to indemnify an office holder, provided that if such indemnification relatesto financial liability imposed on him or her, as described above, then the undertaking should be limited and shall detail the followingforeseen events and amount or criterion:
| ● | to events that in the opinion of the board of directors can be foreseen based on the company’s activities at the time that the undertaking to indemnify is made; and |
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| ● | in amount or criterion determined by the board of directors, at the time of the giving of such undertaking to indemnify, to be reasonable under the circumstances. |
Wehave entered into indemnification agreements with all of our directors and with all members of our senior management. Each such indemnificationagreement provides the office holder with indemnification permitted under applicable law and up to a certain amount, and to the extentthat these liabilities are not covered by directors and officers insurance.
Exculpation
Underthe Companies Law, an Israeli company may not exculpate an office holder from liability for a breach of his or her duty of loyalty, butmay exculpate in advance an office holder from his or her liability to the company, in whole or in part, for damages caused to the companyas a result of a breach of his or her duty of care (other than in relation to distributions), but only if a provision authorizing suchexculpation is included in its articles of association. Our amended and restated articles of association provide that we may exculpate,in whole or in part, any office holder from liability to us for damages caused to the company as a result of a breach of his or her dutyof care, but prohibit an exculpation from liability arising from a company’s transaction in which our controlling shareholder orofficer has a personal interest. Subject to the aforesaid limitations, under the indemnification agreements, we exculpate and releaseour office holders from any and all liability to us related to any breach by them of their duty of care to us to the fullest extent permittedby law.
Limitations
TheCompanies Law provides that we may not exculpate or indemnify an office holder nor enter into an insurance contract that would providecoverage for any liability incurred as a result of any of the following: (1) a breach by the office holder of his or her duty of loyaltyunless (in the case of indemnity or insurance only, but not exculpation) the office holder acted in good faith and had a reasonable basisto believe that the act would not prejudice us; (2) a breach by the office holder of his or her duty of care if the breach was carriedout intentionally or recklessly (as opposed to merely negligently); (3) any act or omission committed with the intent to derive an illegalpersonal benefit; or (4) any fine, monetary sanction, penalty or forfeit levied against the office holder.
Underthe Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensationcommittee and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders.
Ouramended and restated articles of association permit us to exculpate (subject to the aforesaid limitation), indemnify and insure our officeholders to the fullest extent permitted or to be permitted by the Companies Law.
Theforegoing descriptions summarize the material aspects and practices of our board of directors. For additional details, we also referyou to the full text of the Companies Law, as well as of our amended and restated articles of association, which are exhibits to thisregistration statement of which this prospectus forms a part, and are incorporated herein by reference.
Thereare no service contracts between us, on the one hand, and our directors in their capacity as directors, on the other hand, providingfor benefits upon termination of service.
Approvalof Related Party Transactions under Israeli Law
General
Underthe Companies Law, we may approve an action by an office holder from which the office holder would otherwise have to refrain, as describedabove, if:
| ● | the office holder acts in good faith and the act or its approval does not cause harm to the company; and |
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| ● | the office holder disclosed the nature of his or her interest in the transaction (including any significant fact or document) to the company at a reasonable time before the company’s approval of such matter. |
Disclosureof Personal Interests of an Office Holder
TheCompanies Law requires that an office holder disclose to the company, promptly, and, in any event, not later than the board meeting atwhich the transaction is first discussed, any direct or indirect personal interest that he or she may have and all related material informationknown to him or her relating to any existing or proposed transaction by the company. If the transaction is an extraordinary transaction,the office holder must also disclose any personal interest held by:
| ● | the office holder’s relatives; or |
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| ● | any corporation in which the office holder or his or her relatives holds 5% or more of the shares or voting rights, serves as a director or general manager or has the right to appoint at least one director or the general manager. |
Anoffice holder is not, however, obliged to disclose a personal interest if it derives solely from the personal interest of his or herrelative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinary transactionis a transaction:
| ● | not in the ordinary course of business; |
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| ● | not on market terms; or |
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| ● | that is likely to have a material effect on the company’s profitability, assets or liabilities. |
TheCompanies Law does not specify to whom within us nor the manner in which required disclosures are to be made. We require our office holdersto make such disclosures to our board of directors.
Underthe Companies Law, once an office holder complies with the above disclosure requirement, the board of directors may approve a transactionbetween the company and an office holder, or a third party in which an office holder has a personal interest, unless the articles ofassociation provide otherwise and provided that the transaction is in the company’s interest. If the transaction is an extraordinarytransaction in which an office holder has a personal interest, first the audit committee and then the board of directors, in that order,must approve the transaction. Under specific circumstances, shareholder approval may also be required. Generally, a person who has apersonal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be present atsuch a meeting unless the chairman of the audit committee or board of directors (as applicable) determines that he or she should be presentin order to present the transaction that is subject to approval. A director who has a personal interest in a transaction, which is consideredat a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter, unless a majorityof members of the board of directors or the audit committee, as the case may be, has a personal interest. If a majority of the boardof directors has a personal interest, then shareholder approval is generally also required.
Disclosureof Personal Interests of a Controlling Shareholder
Underthe Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company.Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including aprivate placement in which a controlling shareholder has a personal interest, as well as transactions for the provision of services whetherdirectly or indirectly by a controlling shareholder or his or her relative, or a company such controlling shareholder controls, and transactionsconcerning the terms of engagement and compensation of a controlling shareholder or a controlling shareholder’s relative, whetheras an office holder or an employee, require the approval of the audit committee or the compensation committee, as the case may be, theboard of directors and a majority of the shares voted by the shareholders of the company participating and voting on the matter in ashareholders’ meeting. In addition, the shareholder approval must fulfill one of the following requirements or a special majority:
| ● | at least a majority of the shares held by shareholders who are not controlling shareholders and have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or |
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| ● | the shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no more than 2% of the voting rights in the company. |
Inaddition, any extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interestwith a term of more than three years requires the abovementioned approval every three years; however, such transactions not involvingthe receipt of services or compensation can be approved for a longer term, provided that the audit committee determines that such longerterm is reasonable under the circumstances.
TheCompanies Law requires that every shareholder that participates, in person, by proxy or by voting instrument, in a vote regarding a transactionwith a controlling shareholder, must indicate in advance or in the ballot whether or not that shareholder has a personal interest inthe vote in question. Failure to so indicate will result in the invalidation of that shareholder’s vote.
Theterm “controlling shareholder” is defined in the Companies Law as a shareholder with the ability to direct the activitiesof the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholderholds 50% or more of the voting rights in a company or has the right to appoint 50% or more of the directors of the company or its generalmanager. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholderwho holds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company.For this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated.
Approvalof the Compensation of Directors and Executive Officers
Thecompensation of, or an undertaking to indemnify, insure or exculpate, an office holder who is not a director requires the approval ofthe company’s compensation committee, followed by the approval of the company’s board of directors, and, if such compensationarrangement or an undertaking to indemnify, insure or exculpate is inconsistent with the company’s stated compensation policy,or if the said office holder is the chief executive officer of the company (subject to a number of specific exceptions), then such arrangementis subject to the approval of our shareholders, subject to a special majority requirement.
Directors.Under the Companies Law, the compensation of our directors requires the approval of our compensation committee, the subsequent approvalof the board of directors and, unless exempted under the regulations promulgated under the Companies Law, the approval of the generalmeeting of our shareholders. If the compensation of our directors is inconsistent with our stated compensation policy, then, providedthat those provisions that must be included in the compensation policy according to the Companies Law have been considered by the compensationcommittee and board of directors, shareholder approval by a special majority will be required.
Executiveofficers other than the chief executive officer. The Companies Law requires the approval of the compensation of a public company’sexecutive officers (other than the chief executive officer) in the following order: (i) the compensation committee, (ii) the company’sboard of directors, and (iii) only if such compensation arrangement is inconsistent with the company’s stated compensation policy,the company’s shareholders by a special majority. However, if the shareholders of the company do not approve a compensation arrangementwith an executive officer that is inconsistent with the company’s stated compensation policy, the compensation committee and boardof directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide detailedreasons for their decision.
Chiefexecutive officer. Under the Companies Law, the compensation of a public company’s chief executive officer is requiredto be approved by: (i) the company’s compensation committee; (ii) the company’s board of directors, and (iii) the company’sshareholders by a special majority. However, if the shareholders of the company do not approve the compensation arrangement with thechief executive officer, the compensation committee and board of directors may override the shareholders’ decision if each of thecompensation committee and the board of directors provides detailed reasons for their decision. In addition, the compensation committeemay exempt the engagement terms of a candidate to serve as the chief executive officer from shareholders’ approval, if the compensationcommittee determines that the compensation arrangement is consistent with the company’s stated compensation policy, that the chiefexecutive officer did not have a prior business relationship with the company or a controlling shareholder of the company, and that subjectingthe approval to a shareholder vote would impede the company’s ability to attain the candidate to serve as the company’s chiefexecutive officer (and provide detailed reasons for the latter).
Theapproval of each of the compensation committee and the board of directors, with regard to the office holders and directors above, mustbe in accordance with the company’s stated compensation policy; however, under special circumstances, the compensation committeeand the board of directors may approve compensation terms of a chief executive officer that are inconsistent with the company’scompensation policy provided that they have considered those provisions that must be included in the compensation policy according tothe Companies Law and that shareholder approval was obtained by a special majority requirement.
Dutiesof Shareholders
Underthe Companies Law, a shareholder has a duty to refrain from abusing his power in the company and to act in good faith and in an acceptablemanner in exercising his rights and performing his obligations toward the company and other shareholders, including, among other things,in voting at general meetings of shareholders (and at shareholder class meetings) on the following matters:
| ● | amendment of the articles of association; |
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| ● | increase in the company’s authorized share capital; |
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| ● | merger; and |
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| ● | the approval of related party transactions and acts of office holders that require shareholder approval. |
Ashareholder also has a general duty to refrain from oppressing other shareholders. The remedies generally available upon a breach ofcontract will also apply to a breach of the above mentioned duties, and in the event of oppression of other shareholders, additionalremedies are available to the injured shareholder.
Inaddition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and anyshareholder that, under a company’s articles of association, has the power to appoint or prevent the appointment of an office holder,or has another power with respect to a company, is under a duty to act with fairness towards the company. The Companies Law does notdescribe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply inthe event of a breach of the duty to act with fairness, taking the shareholder’s position in the company into account.
EquityIncentive Plan - 2021 Equity Incentive Plan
Wemaintain one equity incentive plan – the 2021 Incentive Plan. As of March 30, 2022, the number of options allotted is 1,465,289.In addition. The number of options that have vested and have not yet been exercised or expired are 1,132,766 (including 533,528 optionwhich vests upon this offering).
Our2021 Incentive Plan was adopted by our board of directors in February 2021 and expires on February 2031. Our employees, directors, officer,consultants, advisors, suppliers and any other person or entity whose services are considered valuable to us are eligible to participatein this plan.
Our2021 Incentive Plan is administered by our board of directors, regarding the granting of options and the terms of option grants, includingexercise price, method of payment, vesting schedule, acceleration of vesting and the other matters necessary in the administration ofthese plan. Eligible Israeli employees, officers and directors, would qualify for provisions of Section 102(b)(2) of the Israeli IncomeTax Ordinance (New Version), 5721 –1961, or the Tax Ordinance. Pursuant to such Section 102(b)(2), qualifying options and sharesissued upon exercise of such options are held in trust and registered in the name of a trustee selected by the board of directors. Thetrustee may not release these options or shares to the holders thereof for two years from the date of the registration of the optionsin the name of the trustee. Under Section 102, any tax payable by an employee from the grant or exercise of the options is deferred untilthe transfer of the options or Ordinary Shares by the trustee to the employee or upon the sale of the options or Ordinary Shares, andgains may qualify to be taxed as capital gains at a rate equal to 25%, subject to compliance with specified conditions (which rate maybe increased by an additional 3% surtax depending on the individual income amounts). Our Israeli non-employee service providers and controllingshareholders may only be granted options under Section 3(9) of the Tax Ordinance, which does not provide for similar tax benefits. The2021 Incentive Plan also permits the grant to Israeli grantees of options that do not qualify under Section 102(b)(2).
Upontermination of employment without Cause, as defined in the 2021 Incentive Plan, all unvested options will expire, and all vested optionswill generally be exercisable for three (3) months following termination, or such other period as determined by the plan administrator,subject to the terms of the 2021 Incentive Plan and the governing option agreement.
Upontermination of employment due to death, retirement or absolute disability, all the vested options at the time of termination will beexercisable for 12 months following termination, or such other period as determined by the plan administrator, subject to the terms ofthe 2021 Incentive Plan and the governing option agreement.
PRINCIPALSHAREHOLDERS
Thefollowing table sets forth information with respect to the beneficial ownership of our Ordinary Shares as of May 3, 2022 by:
| ● | each person or entity known by us to own beneficially 5% or more of our outstanding Ordinary Shares; |
| ● | each of our directors and executive officers individually; and |
| ● | all of our directors and executive officers as a group. |
Thebeneficial ownership of our Ordinary Shares is determined in accordance with the rules of the SEC and generally includes any shares overwhich a person exercises sole or shared voting or investment power, or the right to receive the economic benefit of ownership. For purposesof the table below, we deem Ordinary Shares issuable pursuant to options that are currently exercisable or exercisable within 60 daysof August 9, 2022 to be outstanding and to be beneficially owned by the person holding the options for the purposes of computing thepercentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the percentage ownership ofany other person. Percentage of shares beneficially owned before this offering is based on 29,367,786 Ordinary Shares issued and outstandingas of August 9, 2022. The number of Ordinary Shares deemed issued and outstanding after this offering is based on Ordinary Shares aspart of the Units which includes the Ordinary Shares offered hereby but assumes no exercise of the underwriter’s over-allotmentoption.
Asof August 9, 2022 and based on their reported registered office, none of our shareholders were U.S. persons. We have also set forth belowinformation known to us regarding any significant change in the percentage ownership of our Ordinary Shares by any major shareholdersduring the past three years. Except where otherwise indicated, we believe, based on information furnished to us by such owners, thatthe beneficial owners of the Ordinary Shares listed below have sole investment and voting power with respect to such shares.
Followingthe closing of this offering, all of our shareholders, including the shareholders listed below, will have the same voting rights attachedto their Ordinary Shares, and neither our principal shareholders nor our directors and executive officers will have different or specialvoting rights with respect to their Ordinary Shares. See “Description of Share Capital—Voting Rights.” A descriptionof any material relationship that our principal shareholders have had with us or any of our predecessors or affiliates within the pastthree years is included under “Certain Relationships and Related Party Transactions.”
Unlessotherwise noted below, the address of each shareholder, director and executive officer is c/o Polyrizon Ltd., 5 Ha-Tidhar Street, Raanana,4366507 Israel.
| | Ordinary Shares | | | Percentage of Ordinary Shares beneficially owned | |
Name of beneficial owner 5% or greater shareholders: | | beneficially owned | | | Before offering | | | After offering | |
| | | | | | | | | | | | |
Raul Srugo (1) | | | 11,911,176 | | | | 40.6 | % | | | | % |
Medigus Ltd. (2) | | | 10,067,790 | | | | 34.3 | % | | | | |
Tomer Izraeli | | | 2,592,475 | | | | 8.8 | % | | | | |
Ofakim Hi-Tech Ventures Ltd. (3) | | | 1,842,577 | | | | 6.3 | % | | | | |
| | | | | | | | | | | | |
Directors and executive officers Who are not 5% holders: | | | | | | | | | | | | |
Eyal S. Ron | | | 329,891 | | | | 1.1 | % | | | | % |
Tidhar Turgema | | | 371,871 | | | | 1.3 | % | | | | % |
Daphna Avital | | | - | | | | - | % | | | | % |
Oz Adler | | | | _ | | | - | % | | | | % |
Roy Borochov | | | - | | | | - | | | | | |
Liron Carmel | | | - | | | | - | | | | | |
Nir Ben Yosef | | | 27,250 | | | | * | % | | | | |
All directors and executive officers as a group (9 persons) | | | 27,143,030 | | | | 89.8 | % | | | | % |
| * | Indicates beneficial ownership of less than 1% of the total Ordinary Shares outstanding. |
| (1) | Consists of 11,911,176 Ordinary Shares registered in the name of Mr. Srugo’s mother, Sara Srugo. |
| (2) | The address of Medigus Ltd. is Omer Industrial Park No. 7A, P.O. Box 3030, 8496500, Israel. Medigus is a publicly traded company. To the best of our knowledge, Medigus does not have any controlling shareholders. The chief executive officer of Medigus is Liron Carmel. |
| (3) | The address of Ofakim Hi-Tech Ventures Ltd. is 1 Givat Ha Tahmoshet, 6702101, Israel. The controlling shareholder of Ofakim is Capital Point Ltd. The chief executive officer of Capital Point Ltd. is Yossi Tamar. Mr. Tamar may be deemed to have beneficial ownership of the shares held by Ofakim Hi-Tech Ventures by virtue of his position with Capital Point Ltd. |
CERTAINRELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Thefollowing is a description of the material terms of those transactions with related parties to which we, or our subsidiaries, are party.
PrivatePlacements of our Securities
MedigusLtd. Share Purchase Agreements
OnJuly 15, 2020, we entered into a share purchase agreement with Medigus Ltd., or Medigus, pursuantto which we issued a total of 915,514 of our Ordinary Shares for aggregate gross proceeds of $100,000.
Aspart of the July 15, 2020 agreement, Medigus was granted with an option, or the Original Option, to purchase 3,107,223 ordinary sharesfor $1,000,000. The Original Option would become exercisable immediately and expires at the earlier of April 23, 2023 or immediatelyprior to the consummation by us of equity financing in an amount no less than $500,000 based on a pre-money valuation of at least $10,000,000.
Aspart of the Share Purchase Agreement executed on July 15, 2020 with Medigus, an exclusive reseller agreement was signed (on the samedate) between the Company and Medigus, whereby, Medigus shall have an exclusive, worldwide, sub-licensable right to promote, market andresell certain product candidates of the Company to customers. The license commencement date shall be the date upon which the Companyreceives FDA approvals with regards to those product candidates and will continue for a period of four years. In consideration of suchlicense, the Company will be entitled to receive annual royalty payments equal to 10% of (i) the proceeds from actual sales (excludingrebates and returns) of the product candidates by Medigus in any calendar year, less (ii) the aggregate price paid for such productcandidates and less (iii) Medigus’ operating expenses relating to the sale of such product candidates, as determined ingood faith by Medigus.
OnMarch 9, 2021, we entered into the March 2021 Private Placement withcertain investors, including Medigus, pursuant to which issued an aggregate of 7,668,712 Ordinary Shares, at a price per share of $0.0326for aggregate net proceeds of $250,000.
OnDecember 15, 2021, we and Medigus entered into an addendum to the July 15, 2020 purchase agreement, or the Addendum, pursuant to which,Medigus was granted a new option, or the New Option to invest an amount of $2,000,000 at a price per share equal to 125% the price pershare at the initial public offering. The New Option is only exercisable subject to the successful completion of an initial public offeringand for a period of 3 years thereafter, subsequently, the Original Option will be terminated and become null and void. As part of theAddendum, Medigus undertook not to exercise the Original Option until the earlier of: (i) the consummation of the initial public offering;or (ii) if no initial public offering is consummated, June 30, 2022. If the New Option becomes effective as a result of the consummationof an initial public offering, the Original Option shall terminate.
Oneof our Directors, Liron Carmel, is the Chief Executive Officer of Medigus. Medigus currently beneficially holds 10,067,790 or 34.3% ofour Ordinary Shares.
August2021 Share Purchase Agreement
OnAugust 25, 2021, we entered into a Share Purchase Agreementwith certain investors, including certain of our directors and officers, pursuant to which we issued 14,328,396 Ordinary Shares, at aprice per share of $0.0544 for aggregate net proceeds of $779,971.
2022SAFE Agreements
InJanuary 2022 and in June 2022, we signed the 2022 SAFE Agreements with the SAFE Investors of the Company for an aggregate amount of $709,952.Pursuant to the terms of the January 2022 SAFE Agreements, upon consummation of a Qualified Equity Financing (which is defined as atleast $300,000 aggregate proceeds), we will issue to each SAFE Investor the number of most senior class of shares issued in the QualifiedEquity Financing equal to the Investment Amount divided by the discount price (which is defined as the lowest price per SAFE share soldin the Equity Financing discounted by to 20%).
TheSAFE Investors include, Reuven Srugo Construction Company Ltd., or Reuven Construction,which is owned in part by Raul Srugo, one of our Directors, and also includes Medigus, one of our greater than 5% shareholders.
Loanswith Related Parties
Loanswith Medigus
OnJanuary 12, 2021, we entered into a loan agreement with Medigus, pursuant to which Medigus agreed to loan us NIS 50,000 (approximately$15,432) with an annual interest rate of approximately 4%, or the January Medigus Loan. We agreed to repay the January Medigus Loan fromconsideration received from a future equity financing or by conversion of the loan to shares of the company in accordance with the termsand conditions of such equity financing, at the discretion of the company. The maturity date of the loan was June 30, 2021.
OnFebruary 2, 2021, we entered into a loan agreement with Medigus, pursuant to which Medigus agreed to loan us NIS 30,000 (approximately$9,259) with an annual interest rate of approximately 4%, or the February Medigus Loan, and with the January Medigus Loan, the MedigusLoans. We agreed to repay the February Medigus Loan from consideration received from da future equity financing or by conversion of theloan to shares of the company in accordance with the terms and conditions of such equity financing, at the discretion of the company.The maturity date of the loan was June 30, 2021.
Inassociation with the March 2021 Private Placement, the Medigus Loans were converted into Ordinary Shares as part of this transactionand were repaid in full by such conversion.
Loanwith Reuven Srugo Construction
OnMarch 1, 2021, we entered into a loan agreement with Reuven Construction, pursuant to which Reuven Construction agreed to loan us NIS30,000 (approximately $9,259) with an annual interest rate of approximately 4%, or the Reuven Construction Loan. We agreed to repay theReuven Construction Loan from consideration received from a future equity financing or by conversion of the loan to shares of the companyin accordance with the terms and conditions of such equity financing, at the discretion of the company. The maturity date of the loanwas June 30, 2021.
Inassociation with the March 2021 Private Placement, the Reuven Srugo Construction Loan was converted into Ordinary Shares as part of thistransaction and were repaid in full by such conversion.
ReuvenConstruction is owned in part by Raul Srugo, one of our Directors.
Agreementsand Arrangements With, and Compensation of, Directors and Executive Officers
Wehave entered into written employment and consulting agreements with each of our executive officers. All of these agreements contain customaryprovisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of thenoncompetition provisions may be limited under applicable law. In addition, we have entered into agreements with each executive officerand director pursuant to which we have agreed to indemnify each of them up to a certain amount and to the extent that these liabilitiesare not covered by directors and officers insurance.
Options
Sinceour inception, we have granted options to purchase our Ordinary Shares to our officers and certain of our directors. Such option agreementsmay contain acceleration provisions upon certain merger, acquisition, or change of control transactions. We describe our option plansunder “Management—Equity Incentive Plan.” If the relationship between us and an executive officer or a director isterminated, except for cause (as defined in the various option plan agreements), options that are vested will generally remain exercisablefor three months after such termination.
DESCRIPTIONOF SHARE CAPITAL
Thefollowing descriptions of our share capital and provisions of our amended and restated articles of association which will be effectiveupon the closing of this offering are summaries and do not purport to be complete. A form of our amended and restated articles of associationwill be filed with the SEC as an exhibit to our registration statement, of which this prospectus forms a part. The description ofthe Ordinary Shares reflects changes to our capital structure that will occur upon the closing of this offering.
General
Asof the date of this prospectus, our authorized share capital consisted of 36,000,000 Ordinary Shares, NIS 0.04 par value, of which 29,367,786Ordinary Shares were issued and outstanding as of such date. All of our outstanding Ordinary Shares have been validly issued, fully paidand non-assessable. Our Ordinary Shares are not redeemable and are not subject to any preemptive right.
Ourregistration number with the Israeli Registrar of Companies is 513637025.
SinceJanuary 2019, we have issued an aggregate of 23,522,088 Ordinary Shares.
Inaddition to Ordinary Shares, in the last three years, we have granted options to purchase an aggregate of 1,465,289 Ordinary Shares todirectors, officers and employees with exercise prices ranging between $0.03 and $0.05 per share under our 2021 Plan. As of the dateof this prospectus, the total outstanding amount of options under the 2021 Plan is 1,465,289.
Inaddition, we currently have 2,180,201 Preferred Shares issued and outstanding, which will automatically convert into 2,180,201 OrdinaryShares upon the completion of this offering. In addition, following the conversion of the foregoing Preferred Shares into Ordinary Shares,and upon the adoption of our amended and restated articles of association to be effective upon the closing of this offering, we willno longer have any authorized preferred shares available for issuance.
Allof our outstanding Ordinary Shares are validly issued, fully paid and non-assessable. Our Ordinary Shares are not redeemable and do nothave any preemptive rights.
AllOrdinary Shares have identical voting and other rights in all respects.
ThePowers of the Directors
OurBoard of Directors shall direct our policy and shall supervise the performance of our Chief Executive Officer and his actions. Our Boardof Directors may exercise all powers that are not required under the Companies Law or under our amended and restated articles of associationto be exercised or taken by our shareholders.
RightsAttached to Shares
OurOrdinary Shares shall confer upon the holders thereof:
| ● | equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attend the meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote; |
| ● | equal right to participate in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a per share pro rata basis; and |
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| ● | equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis. |
Electionof Directors
Pursuantto our amended and restated articles of association, our directors are divided into three classes with staggered three-year terms. Eachclass of directors consists, as nearly as possible, of one-third of the total number of directors constituting the entire board of directors(other than the external directors, to the extent applicable). At each annual general meeting of our shareholders, the election or re-electionof directors following the expiration of the term of office of the directors of that class of directors is for a term of office thatexpires on the third annual general meeting following such election or re-election, such that at each annual general meeting the termof office of only one class of directors expires. Each director will hold office until the annual general meeting of our shareholdersin which his or her term expires, unless they are removed by a vote of 65% of the total voting power of our shareholders at a generalmeeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our articles. Externaldirectors, if applicable, are elected for an initial term of three years, may be elected for additional terms of three years each undercertain circumstances, and may be removed from office pursuant to the terms of the Companies Law. See “Management—Board Practices—ExternalDirectors.”
Annualand Special Meetings
Underthe Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year, at such time and placewhich shall be determined by our Board of Directors, that must be no later than 15 months after the date of the previous annual generalmeeting. All meetings other than the annual general meeting of shareholders are referred to as special general meetings. Our Board ofDirectors may call special meetings whenever it sees fit and upon the request (i) any two of our directors or such number of directionsequal to ¼ of the directors then at office (ii) anyshareholder or shareholders holding at least five percent (5%) or a higher percent of our outstanding and issued shares and 1% of ouroutstanding voting rights or (iii) any shareholder or shareholders holding at least five percent (5%) of our outstanding voting rights.
Subjectto the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at generalmeetings are the shareholders of record on a date to be decided by the board of directors, which may be between four and twenty one daysprior to the date of the meeting. Resolutions regarding the following matters must be passed at a general meeting of our shareholders:
| ● | amendments to our amended and restated articles of association; |
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| ● | the exercise of our Board of Director’s powers by a general meeting if our Board of Directors is unable to exercise its powers and the exercise of any of its powers is required for our proper management; |
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| ● | appointment or termination of our auditors; |
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| ● | appointment of directors, including external directors; |
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| ● | approval of acts and transactions requiring general meeting approval pursuant to the provisions of the Companies Law (mainly certain related party transactions) and any other applicable law; |
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| ● | increases or reductions of our authorized share capital; |
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| ● | a merger (as such term is defined in the Companies Law); and |
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| ● | a dissolution of the company by its shareholders (as such term is defined in the Company’s Law). |
Notices
TheCompanies Law and our amended and restated articles of association require that a notice of any annual or special shareholders meetingbe published in at least two widely circulated newspapers, in addition to the company’s internet website, at least 21 days priorto the meeting, and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions withoffice holders or interested or related parties, approval of the company’s general manager to serve as the chairman of the boardof directors or an approval of a merger, notice must be provided at least 35 days prior to the meeting.
Quorum
Aspermitted under the Companies Law, the quorum required for our general meetings consists of at least two shareholders present in person,by proxy, written ballot or voting by means of electronic voting system, who hold or represent between them at least 25% of the totaloutstanding voting rights. If within half an hour of the time set forth for the general meeting a quorum is not present, the generalmeeting shall stand adjourned the same day of the following week, at the same hour and in the same place, or to such other date, timeand place as prescribed in the notice to the shareholders and in such adjourned meeting, if no quorum is present within half an hourof the time arranged, any number of shareholders participating in the meeting, shall constitute a quorum.
Ifa special general meeting was summoned following the request of a shareholder, and within half an hour a legal quorum shall not havebeen formed, the meeting shall be canceled.
Adoptionof Resolutions
Ouramended and restated articles of association provide that all resolutions of our shareholders require a simple majority vote, unlessotherwise required under the Companies Law or our amended and restated articles of association. A shareholder may vote in a general meetingin person, by proxy, by a written ballot.
ChangingRights Attached to Shares
Unlessotherwise provided by the terms of the shares and subject to any applicable law, any modification of rights attached to any class ofshares must be adopted by the holders of a majority of the shares of that class present a general meeting of the affected class or bya written consent of all the shareholders of the affected class.
Theenlargement of an existing class of shares or the issuance of additional shares thereof, shall not be deemed to modify the rights attachedto the previously issued shares of such class or of any other class, unless otherwise provided by the terms of the shares.
Limitationson the Right to Own Securities in Our Company
Thereare no limitations on the right to own our securities.
ProvisionsRestricting Change in Control of Our Company
Thereare no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventinga change in control of our company or that would operate only with respect to a merger, acquisition or corporate restructuring involvingus (or our Subsidiary). However, as described below, certain provisions of the Companies Law may have such effect.
TheCompanies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have thetransaction approved by its board of directors and, unless certain requirements described under the Companies Law are met, a vote ofthe majority of shareholders, and, in the case of the target company, also a majority vote of each class of its shares. Forpurposes of the shareholder vote of each party, unless a court rules otherwise, the merger will not be deemed approved if shares representinga majority of the voting power present at the shareholders meeting and which are not held by the other party to the merger (or by anyperson or group of persons acting in concert who holds 25% or more of the voting power or the right to appoint 25% or more of the directorsof the other party) vote against the merger. If, however, the merger involves a merger with a company’s own controlling shareholderor if the controlling shareholder has a personal interest in the merger, then the merger is instead subject to the same Special Majorityapproval that governs all extraordinary transactions with controlling shareholders. Upon the request of a creditor of either partyto the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a resultof the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further giveinstructions to secure the rights of creditors. If the transaction would have been approved by the shareholders of a merging companybut for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may stillapprove the merger upon the petition of holders of at least 25% of the voting rights of a company. For such petition to be granted, thecourt must find that the merger is fair and reasonable, taking into account the value of the parties to the merger and the considerationoffered to the shareholders. In addition, a merger may not be completed unless at least (1) 50 days have passed from the time thatthe requisite proposals for approval of the merger were filed with the Israeli Registrar of Companies by each merging company and (2)30 days have passed since the merger was approved by the shareholders of each merging company.
TheCompanies Law also provides that, subject to certain exceptions, an acquisition of shares in an Israeli public company must be made bymeans of a “special” tender offer if as a result of the acquisition (1) the purchaser would become a controlling shareholderif there is no controlling shareholder in the company or (2) the purchaser would become a holder of 45% or more of the voting rightsin the company, unless there is already a holder of more than 45% of the voting rights in the company. These requirements do not applyif, in general, the acquisition (1) was made in a private placement that received shareholders’ approval, subject to certain conditions,(2) was from a controlling shareholder in the company which resulted in the acquirer becoming a controlling shareholder in the company,or (3) was from a holder of more than 45% of the voting rights in the company which resulted in the acquirer becoming a holder of morethan 45% of the voting rights in the company. A “special” tender offer must be extended to all shareholders. In general,a “special” tender offer may be consummated only if (1) at least 5% of the voting power attached to the company’s outstandingshares will be acquired by the offeror and (2) the offer is accepted by a majority of the offerees who notified the company of theirposition in connection with such offer (excluding the offeror, controlling shareholders, holders of 25% or more of the voting rightsin the company or anyone on their behalf, or any person having a personal interest in the acceptance of the tender offer). If a specialtender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or suchcontrolling person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enterinto a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entityundertook to effect such an offer or merger in the initial special tender offer.
If,as a result of an acquisition of shares, the acquirer will hold more than 90% of an Israeli company’s outstanding shares or ofcertain class of shares, the acquisition must be made by means of a tender offer for all of the outstanding shares, or for all of theoutstanding shares of such class, as applicable. In general, if less than 5% of the outstanding shares, or of applicable class, are nottendered in the tender offer and more than half of the offerees who have no personal interest in the offer tendered their shares, allthe shares that the acquirer offered to purchase will be transferred to it by operation of law. However, a tender offer will also beaccepted if the shareholders who do not accept the offer hold less than 2% of the issued and outstanding share capital of the companyor of the applicable class of shares. Any shareholders that was an offeree in such tender offer, whether such shareholder accepted thetender offer or not, may request, by petition to an Israeli court, (i) appraisal rights in connection with a full tender offer, and (ii)that the fair value should be paid as determined by the court, for a period of six months following the acceptance thereof. However,the acquirer is entitled to stipulate, under certain conditions, that tendering shareholders will forfeit such appraisal rights.
Lastly,Israeli tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorablythan U.S. tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Sharesfor shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock swap.
ExclusiveForum
Ourarticles of association provide that unless we consent in writing to the selection of an alternative forum, the federal district courtsof the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arisingunder the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suchSecurities Act actions, and accordingly, both state and federal courts have jurisdiction to entertain such claims. While the federalforum provision in our articles of association does not restrict the ability of our shareholders to bring claims under the SecuritiesAct, we recognize that it may limit shareholders’ ability to bring a claim in the judicial forum that they find favorable and mayincrease certain litigation costs, which may discourage the filing of claims under the Securities Act against the Company, its directorsand officers. However, the enforceability of similar forum provisions (including exclusive federal forum provisions for actions, suitsor proceedings asserting a cause of action arising under the Securities Act) in other companies’ organizational documents has beenchallenged in legal proceedings, and there is uncertainty as to whether courts would enforce the exclusive forum provisions in our articlesof association. Any person or entity purchasing or otherwise acquiring any interest in our share capital shall be deemed to have noticeof and to have consented to the choice of forum provision of our articles of association described above. It is clarified that the federaldistrict courts of the United States of America shall be the exclusive forum for suits brought to enforce a duty or liability createdby the Exchange Act or the rules and regulations thereunder.
Ouramended and restated articles of association to be effective upon the closing of this offering also provide that unless we consent inwriting to the selection of an alternative forum, the competent courts in Tel Aviv, Israel shall be the exclusive forum for any derivativeaction or proceeding brought on behalf of the Company, any action asserting a breach of a fiduciary duty owed by any of our directors,officers or other employees to the Company or our shareholders or any action asserting a claim arising pursuant to any provision of theCompanies Law or the Israeli Securities Law.
Changesin Our Capital
Thegeneral meeting may, by a simple majority vote of the shareholders attending the general meeting:
| ● | increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting; |
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| ● | cancel any registered share capital which have not been taken or agreed to be taken by any person; |
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| ● | consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares; |
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| ● | subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed; and |
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| ● | reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consent required, by the Companies Law. |
DESCRIPTIONOF SECURITIES WE ARE OFFERING
Units
Weare offering the Units at the initial assumed public offering price of $___ per Unit. Each Unit consists of one share of Ordinary Shareand a Warrant to purchase one Ordinary Share at an exercise price equal to $___ (based on an assumed public offering price of $____ perUnit, the midpoint of the range set forth on the cover page of this prospectus), which is 100% of the public offering price of the Units.The Ordinary Shares and Warrants may be transferred separately immediately upon issuance.
OrdinaryShares
Thematerial terms and provisions of our Ordinary Shares are described under the caption “Description of Share Capital” in thisprospectus.
WarrantsIncluded in the Units
Thefollowing summary of certain terms and provisions of the Warrants offered hereby is not complete and is subject to, and qualified inits entirety by, the provisions of the warrant agent agreement between us and _______, as warrant agent, and the form of Warrant, bothof which are filed as exhibits to the registration statement of which this prospectus is a part. Prospective investors should carefullyreview the terms and provisions set forth in the warrant agent agreement, including the annexes thereto, and form of Warrant.
Exercisability.The Warrants are exercisable at any time after their original issuance and at any time up to the date that is five years after theiroriginal issuance. The Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executedexercise notice and, at any time a registration statement registering the issuance of the Ordinary Shares underlying the warrants underthe Securities Act is effective and available for the issuance of such shares, by payment in full in immediately available funds forthe number of Ordinary Shares purchased upon such exercise. If a registration statement registering the issuance of the Ordinary Sharesunderlying the Warrants under the Securities Act is not effective or available the holder may, in its sole discretion, elect to exercisethe Warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of Ordinary Sharesdetermined according to the formula set forth in the Warrant. No fractional shares will be issued in connection with the exercise ofa Warrant. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exerciseprice.
ExerciseLimitation. A holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates)would beneficially own in excess of 4.99% of the number of Ordinary Shares outstanding immediately after giving effect to the exercise,as such percentage ownership is determined in accordance with the terms of the Warrants. However, any holder may increase or decreasesuch percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effectiveuntil 61 days following notice from the holder to us.
ExercisePrice. The exercise price per whole Ordinary Share purchasable upon exercise of the Warrants is $ per share, which is 100% of the public offering price of the Units. The exercise price is subject to appropriate adjustment in the eventof certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our OrdinaryShares and also upon any distributions of assets, including cash, stock or other property to our stockholders.
Subjectto certain exemptions outlined in the Warrant, for a period until the later of: (i) two years from the date of issuance of the Warrant,or (ii) on the date no Qualified Holders hold any Warrants, if the Company shall sell, enter into an agreement to sell, or grant anyoption to purchase, or sell, enter into an agreement to sell, or grant any right to reprice, or otherwise dispose of or issue (or announceany offer, sale, grant or any option to purchase or other disposition) any Ordinary Shares or convertible security, at an effective priceper share less than the exercise price of the Warrant then in effect, or a Dilutive Issuance, the exercise price of the Warrant shallbe reduced to equal the effective price per share in such Dilutive Issuance; provided, however, that in no event shall the exercise priceof the Warrant be reduced to an exercise price lower than 50% of public offering price per Unit in this offering. On the date that is90 calendar days immediately following the initial issuance date of the Warrants, the exercise price of the Warrants will adjust to beequal to the Reset Price, provided that such value is less than the exercise price in effect on that date. The Reset Price is equal tothe greater of (a) 50% of the initial exercise price (as adjusted for share splits, share dividends, recapitalizations and similar eventspursuant to Section 3(a) of the Warrants) of the Warrants on the issuance date or (b) 100% of the lowest volume weighted average priceper Ordinary Share occurring during the 90 calendar days following the issuance date of the Warrants. The lowest Reset Price is $ , which is 50% of the offering price, based on an assumed public offering price of $ per Unit, the midpoint of the price range of the Units, per Ordinary Share.
AdditionalWarrants. Additionally, in the event of any adjustment under the Warrants results in a reduction of the exercise price, in the aggregate,to 50% of the initial exercise price, then, in connection with such adjustment, each Qualified Holder (each holder, including each beneficialholder of Warrants, taken together with all affiliates of such holder and/or beneficial holder that purchased at least Warrants (based on an assumed public offering price of $ per Unit, the midpoint of the price range of the Units) in connection with this offering shall receive one-half of one Additional Warrantfor each one Qualified Warrant held by such holder on the date of adjustment. The term Qualified Warrants means at least Warrants purchased as part of a Unit in connection with this offering by any Warrant holder, including each beneficial holder of theWarrants, taken together with all affiliates of such Warrant holder and/or beneficial holder. The maximum number of Warrants subjectto such adjustment by a given Qualified Holder will be limited to the number of Warrants purchased by such Qualified Holder in connectionwith this offering. Such Additional Warrants shall be on substantially the same terms as the as-adjusted Warrant; provided, however,that the term of the Additional Warrants shall be five (5) years from the issuance date and such Additional Warrants will not be tradablewarrants.
Transferability.Subject to applicable laws, the Warrants may be offered for sale, sold, transferred or assigned without our consent.
ExchangeListing. We have applied to list our Ordinary Shares and Warrants on Nasdaq, under the symbols “ ”and “ ,” respectively. No assurance can be giventhat our application will be approved or that a trading market will develop.
WarrantAgent. The Warrants will be issued in registered form under a warrant agent agreement between ________, as warrant agent, and us.The Warrants shall initially be represented only by one or more global warrants deposited with the warrant agent, as custodian on behalfof The Depository Trust Company, or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed byDTC.
ForcedRedemption. If at any time the closing price per share of the Ordinary Shares shall exceed 200% of the exercise price then ineffect for ten consecutive trading days on each of which the daily dollar volume of the Ordinary Shares equals or exceeds $3,500,000,the Company, at its option, may redeem the Warrants, in whole or in part, at a price of $0.001 per share (subject to adjustment as providedtherein, the “Redemption Price”). The Company may exercise its redemption right by giving a redemption notice to the holderno more than and no less than calendar days before the date fixed specified in the redemption notice for redemption. On and after 5:00p.m. (New York City time) on the date fixed for redemption, a holder shall have no rights with respect to its Warrant except to receivethe Redemption Price.
FundamentalTransactions. In the event of a fundamental transaction, as described in the Warrants and generally including any reorganization,recapitalization or reclassification of our Ordinary Shares, the sale, transfer or other disposition of all or substantially all of ourproperties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding OrdinaryShares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Ordinary Shares,the holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or otherproperty that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction withoutregard to any limitations on exercised contained in the Warrants.
Rightsas a Stockholder. Except as otherwise provided in the Warrants or by virtue of such holder’s ownership of our Ordinary Shares,the holder of a Warrant does not have the rights or privileges of a holder of our Ordinary Shares, including any voting rights, untilthe holder exercises the Warrant.
GoverningLaw. The Warrants and the warrant agent agreement are governed by New York law.
Representative’sWarrants
See“Underwriting — Representative’s Warrants” for a description of the warrants we have agreed to issue to the representativeof the underwriters in this offering, subject to the completion of the offering.
SHARESELIGIBLE FOR FUTURE SALE
Priorto this offering, no public market existed for our Ordinary Shares. Sales of substantial amounts of our Ordinary Shares following thisoffering, or the perception that these sales could occur, could adversely affect prevailing market prices of our Ordinary Shares andcould impair our future ability to obtain capital, especially through an offering of equity securities. Assuming that the underwritersdo not exercise in full their option to purchase additional Ordinary Shares with respect to this offering and assuming no exercise ofoptions outstanding following this offering, we will have an aggregate of Ordinary Shares outstanding upon the closing of this offering.Of these shares, the Ordinary Shares sold in this offering will be freely tradable without restriction or further registration underthe Securities Act, unless purchased by “affiliates” (as that term is defined under Rule 144 of the Securities Act,or Rule 144), who may sell only the volume of shares described below and whose sales would be subject to additional restrictionsdescribed below.
Theremaining Ordinary Shares will be held by our existing shareholders and will be deemed to be “restricted securities” underRule 144. Subject to certain contractual restrictions, including the lock-up agreements described below, restricted securities mayonly be sold in the public market pursuant to an effective registration statement under the Securities Act or pursuant to an exemptionfrom registration under Rule 144, Rule 701 or Rule 904 under the Securities Act. These rules are summarized below. Salesof these shares in the public market after the restrictions under the lock-up agreements lapse, or the perception that those sales mayoccur, could cause the prevailing market price of our Ordinary Shares to decrease or to be lower than it might be in the absence of thosesales or perceptions.
Eligibilityof Restricted Shares for Sale in the Public Market
Approximately29,367,786 of our Ordinary Shares will be eligible for resale pursuant to Rule 144 after 90 days following the pricing of thisoffering as follows:
| ● | with respect to non-affiliates of our company who will hold an aggregate of 4,940,237 Ordinary Shares upon the consummation of this offering, following the expiration of a non-affiliate’s six-month holding period and subject to our compliance with the current public information requirements under Rule 144; and |
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| ● | with respect to affiliates of our company who will hold an aggregate of 24,427,549 Ordinary Shares upon the consummation of this offering, following the expiration of an affiliate’s six-month holding period and subject to our compliance with the current public information requirements under Rule 144, and subject to the volume, manner of sale and other limitations under Rule 144 applicable to securities held by affiliates. |
Ineach case, the shares will also be subject to the contractual restrictions arising under the lock-up agreements described below.
Allof the Ordinary Shares sold in this offering will be eligible for immediate sale upon the closing of this offering. Certain of our existingshareholders, including entities affiliated with certain of our directors and beneficial owners of greater than 5% of our share capital,have indicated an interest in purchasing up to an aggregate of $27 million of Ordinary Shares in this offering at the initial publicoffering price per share. However, because indications of interest are not binding agreements or commitments to purchase, the underwritersmay determine to sell more, less or no shares in this offering to any of these shareholders, or any of these shareholders may determineto purchase more, less or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchasedby these shareholders as they will on any other shares sold to the public in this offering.
Lock-UpAgreements
We,all of our directors and executive officers and holders of substantially all of our outstanding Ordinary Shares and our Ordinary Sharesissuable upon the exercise of options and warrants have signed lock-up agreements. Pursuant to such lock-up agreements, such personshave agreed, subject to certain exceptions, not to sell or otherwise dispose of Ordinary Shares or any securities convertible into orexchangeable for Ordinary Shares for a period of 180 days after the date of this prospectus without the prior written consent ofthe representative of the underwriters in this offering, which may, in its sole discretion, at any time without prior notice, releaseall or any portion of the Ordinary Shares from the restrictions in any such agreement.
Rule144
SharesHeld for Six Months
Ingeneral, under Rule 144 as currently in effect, and subject to the terms of any lock-up agreement, commencing 90 days afterthe closing of this offering, a person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned ourOrdinary Shares for six months or more, including the holding period of any prior owner other than one of our affiliates (i.e., commencingwhen the shares were acquired from our company or from an affiliate of our company as restricted securities), is entitled to sell ourshares, subject to the availability of current public information about us. In the case of an affiliate shareholder, the right to sellis also subject to the fulfillment of certain additional conditions, including manner of sale provisions and notice requirements, andto a volume limitation that limits the number of shares to be sold thereby, within any three-month period, to the greater of:
| ● | 1% of the number of Ordinary Shares then outstanding; or |
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| ● | the average weekly trading volume of our Ordinary Shares on Nasdaq during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
Thesix month holding period of Rule 144 does not apply to sales of unrestricted securities. Accordingly, persons who hold unrestrictedsecurities may sell them under the requirements of Rule 144 described above without regard to the six-month holding period, evenif they were considered our affiliates at the time of the sale or at any time during the ninety days preceding such date.
SharesHeld by Non-Affiliates for One Year
UnderRule 144 as currently in effect, a person (or persons whose shares are aggregated) who is not considered to have been one of ouraffiliates at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for atleast one year, including the holding period of any prior owner other than one of our affiliates, is entitled to sell his, her or itsshares under Rule 144 without complying with the provisions relating to the availability of current public information or with anyother conditions under Rule 144. Therefore, unless subject to a lock-up agreement or otherwise restricted, such shares may be soldimmediately upon the closing of this offering.
Rule 701
Ingeneral, under Rule 701, any of our employees, directors, officers, consultants or advisors who received or purchased Ordinary Sharesfrom us under our incentive option plan or other written agreement before the closing of this offering is entitled to resell these shares.
TheSEC has indicated that Rule 701 will apply to typical share options granted by an issuer before it becomes subject to the reportingrequirements of the Exchange Act, along with the shares acquired upon exercise of these options, including exercises after the closingof this offering. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictionsdescribed above (see “Lock-Up Agreements”), may be sold beginning 90 days after the closing of this offering in relianceon Rule 144 by:
| ● | persons other than affiliates, without restriction; and |
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| ● | affiliates, subject to the manner-of-sale, current public information and filing requirements of Rule 144, in each case, without compliance with the six-month holding period requirement of Rule 144. |
TAXATION
Thefollowing description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or dispositionof our Ordinary Shares. You should consult your own tax advisor concerning the tax consequences of your particular situation, as wellas any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.
ISRAELITAX CONSIDERATIONS AND GOVERNMENT PROGRAMS
Thefollowing is a description of the material Israeli income tax consequences of the ownership of our Ordinary Shares. The following alsocontains a description of material relevant provisions of the current Israeli income tax structure applicable to companies in Israel,with reference to its effect on us. To the extent that the discussion is based on new tax legislation which has not been subject to judicialor administrative interpretation, there can be no assurance that the tax authorities will accept the views expressed in the discussionin question. The discussion is not intended, and should not be taken, as legal or professional tax advice and is not exhaustive of allpossible tax considerations.
Thefollowing description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or dispositionof our Ordinary Shares. Shareholders should consult their own tax advisors concerning the tax consequences of their particular situation,as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
GeneralCorporate Tax Structure in Israel
TheCompany is subject to a corporate tax rate is 23%. However, the effective tax rate payable by a company that derives income from a PreferredEnterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company are generally subject to the prevailingcorporate tax rate.
Capitalgains derived by an Israeli resident company are subject to tax at the prevailing corporate tax rate. Under Israeli tax legislation,a corporation will be considered as an “Israeli resident company” if it meets one of the following: (i) it was incorporatedin Israel; or (ii) the control and management of its business are exercised in Israel.
Lawfor the Encouragement of Industry (Taxes), 5729-1969
TheLaw for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several taxbenefits for “Industrial Companies.”
TheIndustry Encouragement Law defines an “Industrial Company” as an Israeli resident-company, of which 90% or more of its incomein any tax year, other than income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “IndustrialEnterprise” is defined as an enterprise whose principal activity in a given tax year is industrial production.
Thefollowing corporate tax benefits, among others, are available to Industrial Companies:
| ● | amortization of the cost of purchased a patent, rights to use a patent, and know-how, which are used for the development or advancement of the company, over an eight-year period, commencing on the year in which such rights were first exercised; |
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| ● | under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies; and |
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| ● | expenses related to a public offering are deductible in equal amounts over three years. |
Eligibilityfor benefits under the Industry Encouragement Law is not contingent upon approval of any governmental authority.
TaxBenefits and Grants for Research and Development
Underthe Israeli Encouragement of Research, Development and Industrial Initiative Technology Law, 5744-1984, as amended, and related regulations,or the Research Law, research and development programs which meet specified criteria and are approved by the IIA are eligible for grantsof up to 50% of the project’s expenditure, as determined by the research committee, in exchange for the payment of royalties fromthe revenues generated from the sale of products and related services developed, in whole or in part pursuant to, or as a result of,a research and development program funded by the IIA. The royalties are generally at a range of 3.0% to 5.0% of revenues until the entireIIA grant is repaid, together with an annual interest generally equal to the 12 months London Interbank Offered Rate applicable to dollardeposits that is published on the first business day of each calendar year.
Theterms of the Research Law also require that the manufacture of products developed with government grants be performed in Israel. Thetransfer of manufacturing activity outside Israel may be subject to the prior approval of the IIA. Under the regulations of the ResearchLaw, assuming we receive approval from the Chief Scientist to manufacture our IIA-funded products outside Israel, we may be requiredto pay increased royalties. The increase in royalties depends upon the manufacturing volume that is performed outside of Israel as follows:
Manufacturing Volume Outside of Israel | | Royalties to the Chief Scientist as a Percentage of Grant | |
| | | |
Up to 50% | | | 120 | % |
Between 50% and 90% | | | 150 | % |
90% and more | | | 300 | % |
Ifthe manufacturing is performed outside of Israel by us, the rate of royalties payable by us on revenues from the sale of product candidatesmanufactured outside of Israel will increase by 1% over the regular rates. If the manufacturing is performed outside of Israel by a thirdparty, the rate of royalties payable by us on those revenues will be equal to the ratio obtained by dividing the amount of the grantsreceived from the Office of the Chief Scientist and our total investment in the project that was funded by these grants. The transferof no more than 10% of the manufacturing capacity in the aggregate outside of Israel is exempt under the Research Law from obtainingthe prior approval of the IIA. A company requesting funds from the IIA also has the option of declaring in its IIA grant applicationan intention to perform part of its manufacturing outside Israel, thus avoiding the need to obtain additional approval. On January 6,2011, the Research Law was amended to clarify that the potential increased royalties specified in the table above will apply even inthose cases where the IIA approval for transfer of manufacturing outside of Israel is not required, namely when the volume of the transferredmanufacturing capacity is less than 10% of total capacity or when the company received an advance approval to manufacture abroad in theframework of its IIA grant application.
Theknow-how developed within the framework of the Chief Scientist plan may not be transferred to third parties outside Israel without theprior approval of a governmental committee charted under the Research Law. The approval, however, is not required for the export of anyproduct candidates developed using grants received from the Chief Scientist. The IIA approval to transfer know-how created, in wholeor in part, in connection with an IIA-funded project to third party outside Israel where the transferring company remains an operatingIsraeli entity is subject to payment of a redemption fee to the IIA calculated according to a formula provided under the Research Lawthat is based, in general, on the ratio between the aggregate IIA grants to the company’s aggregate investments in the projectthat was funded by these IIA grants, multiplied by the transaction consideration. The transfer of such know-how to a party outside Israelwhere the transferring company ceases to exist as an Israeli entity is subject to a redemption fee formula that is based, in general,on the ratio between the aggregate IIA grants to the total financial investments in the company, multiplied by the transaction consideration.According to the January 2011 amendment, the redemption fee in case of transfer of know-how to a party outside Israel will be based onthe ratio between the aggregate IIA grants received by the company and the company’s aggregate R&D expenses, multiplied bythe transaction consideration. According to regulations promulgated following the 2011 amendment, the maximum amount payable to the IIAin case of transfer of know how outside Israel shall not exceed 6 times the value of the grants received plus interest, and in the eventthat the receiver of the grants ceases to be an Israeli corporation such payment shall not exceed six times the value of the grants receivedplus interest, with a possibility to reduce such payment to up to three times the value of the grants received plus interest if the R&Dactivity remains in Israel for a period of three years after payment to the IIA.
Transferof know-how within Israel is subject to an undertaking of the recipient Israeli entity to comply with the provisions of the ResearchLaw and related regulations, including the restrictions on the transfer of know-how and the obligation to pay royalties, as further describedin the Research Law and related regulations.
Theserestrictions may impair our ability to outsource manufacturing, engage in change of control transactions or otherwise transfer our know-howoutside Israel and may require us to obtain the approval of the IIA for certain actions and transactions and pay additional royaltiesto the IIA. In particular, any change of control and any change of ownership of our Ordinary Shares that would make a non-Israeli citizenor resident an “interested party,” as defined in the Research Law, requires a prior written notice to the IIA in additionto any payment that may be required of us for transfer of manufacturing or know-how outside Israel. If we fail to comply with the ResearchLaw, we may be subject to criminal charges.
TaxBenefits for Research and Development
Israelitax law allows, under certain conditions, a tax deduction for expenditures, including capital expenditures, for the year in which theyare incurred. Expenditures are deemed related to scientific research and development projects, if:
| ● | The expenditures are approved by the relevant Israeli government ministry, determined by the field of research; |
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| ● | The research and development must be for the promotion of the company; and |
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| ● | The research and development is carried out by or on behalf of the company seeking such tax deduction. |
Theamount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientificresearch and development projects. No deduction under these research and development deduction rules is allowed if such deduction isrelated to an expense invested in an asset depreciable under the general depreciation rules of the income Tax Ordinance, 1961. Expendituresnot so approved are deductible in equal amounts over three years.
Fromtime to time we may apply the Office of the Chief Scientist for approval to allow a tax deduction for all research and development expensesduring the year incurred. There can be no assurance that such application will be accepted.
Lawfor the Encouragement of Capital Investments, 5719-1959
TheLaw for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentivesfor capital investments in production facilities (or other eligible assets).
TaxBenefits
TheInvestment Law grants tax benefits for income generated by a “Preferred Company” through its “Preferred Enterprise”(as such terms are defined in the Investment Law) The definition of a Preferred Company includes a company incorporated in Israel thatis not fully owned by a governmental entity, and that has, among other things, Preferred Enterprise status and is controlled and managedfrom Israel. A Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to its income derived by its PreferredEnterprise, unless the Preferred Enterprise is located in a specified development zone, in which case the rate will be 7.5%.
Dividendspaid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at source at the rate of 20% or suchlower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is requiredto be withheld.
Taxationof our Shareholders
CapitalGains Taxes Applicable to Non-Israeli Resident Shareholders. A non-Israeli resident who derives capital gains from the sale of sharesin an Israeli resident company will be exempt from Israeli tax so long as the shares were not held through a permanent establishmentthat the non-resident maintains in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemption if Israeliresidents: (i) have a controlling interest of 25% or more in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitledto, 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
Additionally,a sale of securities by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable taxtreaty. For example, under Convention Between the Government of the United States of America and the Government of the State of Israelwith respect to Taxes on Income, as amended, or the United States-Israel Tax Treaty, the sale, exchange or other disposition of sharesby a shareholder who is a United States resident (for purposes of the treaty) holding the shares as a capital asset and is entitled toclaim the benefits afforded to such a resident by the U.S.-Israel Tax Treaty, or a Treaty U.S. Resident, is generally exempt from Israelicapital gains tax unless: (i) the capital gain arising from such sale, exchange or disposition is attributed to real estate located inIsrael; (ii) the capital gain arising from such sale, exchange or disposition is attributed to royalties; (iii) the capital gain arisingfrom the such sale, exchange or disposition is attributed to a permanent establishment in Israel, under certain terms; (iv) such TreatyU.S. Resident holds, directly or indirectly, shares representing 10% or more of the voting capital during any part of the 12-month periodpreceding the disposition, subject to certain conditions; or (v) such Treaty U.S. Resident is an individual and was present in Israelfor 183 days or more during the relevant taxable year.
Insome instances where our shareholders may be liable for Israeli tax on the sale of their Ordinary Shares, the payment of the considerationmay be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from taxon their capital gains in order to avoid withholding at source at the time of sale.
Taxationof Non-Israeli Shareholders on Receipt of Dividends. Non-Israeli residents are generally subject to Israeli income tax on the receiptof dividends paid on our Ordinary Shares at the rate of 25%, which tax will be withheld at source, unless relief is provided in a treatybetween Israel and the shareholder’s country of residence. With respect to a person who is a “substantial shareholder”at the time of receiving the dividend or on any time during the preceding twelve months, the applicable tax rate is 30%. A “substantialshareholder” is generally a person who alone or together with such person’s relative or another person who collaborates withsuch person on a permanent basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation.“Means of control” generally include the right to vote, receive profits, nominate a director or an executive officer, receiveassets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. However,a distribution of dividends to non-Israeli residents is subject to withholding tax at source at a rate of 20% if the dividend is distributedfrom income attributed to a Preferred Enterprise, unless a reduced tax rate is provided under an applicable tax treaty. For example,under the United States-Israel Tax Treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder of ourOrdinary Shares who is a Treaty U.S. Resident is 25%. However, generally, the maximum rate of withholding tax on dividends, not generatedby a Preferred Enterprise, that are paid to a United States corporation holding 10% or more of the outstanding voting capital throughoutthe tax year in which the dividend is distributed as well as during the previous tax year, is 12.5%, provided that not more than 25%of the gross income for such preceding year consists of certain types of dividends and interest. Notwithstanding the foregoing, dividendsdistributed from income attributed to an Preferred Enterprise are not entitled to such reduction under the tax treaty but are subjectto a withholding tax rate of 15% for a shareholder that is a U.S. corporation, provided that the condition related to our gross incomefor the previous year (as set forth in the previous sentence) is met. If the dividend is attributable partly to income derived from aPreferred Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portionsof the two types of income. We cannot assure you that we will designate the profits that we may distribute in a way that will reduceshareholders’ tax liability.
U.S.FEDERAL INCOME TAX CONSIDERATIONS
THEFOLLOWING SUMMARY IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSIDERED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR INVESTOR. EACH PROSPECTIVEINVESTOR SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PERSONAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIPAND SALE OF THE EQUITY SECURITIES OFFERED BY THIS PROSPECTUS, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAXLAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
Subjectto the limitations described in the next two paragraphs, the following discussion summarizes the material U.S. federal income tax consequencesto a “U.S. Holder” arising from the purchase, ownership and sale of the Ordinary Shares and Warrants being offered by thisprospectus, which we collectively refer to as “Equity Securities”. For this purpose, a “U.S. Holder” isa holder of Equity Securities that is: (1) an individual citizen or resident of the United States, including an alien individual whois a lawful permanent resident of the United States or meets the substantial presence residency test under U.S. federal income tax laws;(2) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) or a partnership (other than a partnershipthat is not treated as a U.S. person under any applicable U.S. Treasury regulations) created or organized under the laws of the UnitedStates or the District of Columbia or any political subdivision thereof; (3) an estate, the income of which is includable in gross incomefor U.S. federal income tax purposes regardless of its source; (4) a trust if a court within the United States is able to exercise primarysupervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions ofthe trust; or (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasuryregulations.
Thissummary does not purport to be a comprehensive description of all of the U.S. federal income tax considerations that may be relevantto a decision to purchase our Equity Securities. This summary generally considers only U.S. Holders that will own our Equity Securitiesas capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal tax consequences toa person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder.This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, or the Code, final, temporary and proposedU.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof, and the UnitedStates-Israel Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactivebasis, and all of which are open to differing interpretations. This summary does not discuss the potential effects, whether adverse orbeneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis. We will not seek a ruling from theInternal Revenue Service, or the IRS, with regard to the U.S. federal income tax treatment of an investment in our Equity Securitiesby U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.
Thisdiscussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. holder basedon such holder’s particular circumstances and in particular does not discuss any estate, gift, generation-skipping transfer, state,local, excise or foreign tax considerations. In addition, this discussion does not address the U.S. federal income tax treatment of aU.S. Holder who is: (1) a bank, life insurance company, regulated investment company, or other financial institution or “financialservices entity;” (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our Equity Securities inconnection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5)a U.S. Holder that holds our Equity Securities as a hedge or as part of a hedging, straddle, conversion or constructive sale transactionor other risk-reduction transaction for U.S. federal income tax purposes; (6) a tax-exempt entity; (7) real estate investment trustsor grantor trusts; (8) a U.S. Holder that expatriates out of the United States or a former long-term resident of the United States; or(9) a person having a functional currency other than the U.S. dollar. This discussion does not address the U.S. federal income tax treatmentof a U.S. Holder that owns, directly, indirectly or constructively, at any time, Ordinary Shares representing 10% or more of the stock(by vote or value) of our Company.
Ifa partnership (including any entity or arrangement treated as a partnership for United States federal income tax purposes) holds ourEquity Securities, the tax treatment of a person treated as a partner in the partnership for United States federal income tax purposesgenerally will depend on the status of the partner and the activities of the partnership. Partnerships (and other entities or arrangementsso treated for United States federal income tax purposes) and their partners should consult their own tax advisors.
Eachprospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing,holding or disposing of our EQUITY securities, including the effects of applicable state, local, foreign or other tax laws and possiblechanges in the tax laws.
Allocationof Purchase Price Between Ordinary Shares and Accompanying Warrants
ForU.S. federal income tax purposes, with respect to each Unit, the Ordinary Shares and Warrants acquired in this prospectus will be treatedas an “investment unit” consisting of one Ordinary Share and two Warrants, with each Warrant exercisable into one OrdinaryShare. The purchase price for each investment unit will be allocated between these two components in proportion to their relative fairmarket values at the time the Unit is purchased by the U.S. Holder. This allocation of the purchase price for each Unit will establishthe U.S. Holder’s initial tax basis for U.S. federal income tax purposes in each security included in each Unit. The separationof components of each Unit should not be a taxable event for U.S. federal income tax purposes. U.S. Holders should consult their taxadvisors regarding the allocation of the purchase price for a Unit.
Exerciseand Expiration of Warrants
Ingeneral, a U.S. Holder will not recognize gain or loss for U.S. federal income tax purposes upon the exercise of Warrants into OrdinaryShares. The U.S. federal income tax treatment of a cashless exercise of Warrants into our Ordinary Shares is unclear. U.S. Holders shouldconsult their tax advisors regarding the U.S. federal income tax consequences of a cashless exercise of Warrants.
Theexpiration of a Warrant will be treated as if the U.S. Holder sold or exchanged the Warrant and recognized a capital loss equal to theU.S. Holder’s tax basis in the Warrant.
CertainAdjustments to the Warrants
UnderSection 305 of the Code, an adjustment to the number of Ordinary Shares issued on the exercise of the Warrants, or an adjustment to theexercise price of the Warrants, may be treated as a constructive distribution to a U.S. Holder of the Warrants if, and to the extentthat, such adjustment has the effect of increasing such U.S. Holder’s proportionate interest in our “earnings and profits”or assets, depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution ofcash or other property to our shareholders). An adjustment to the Warrants that could result in a constructive distribution to a U.S.Holder would be treated as described under “Taxation of Dividends Paid on Ordinary Shares” below, and the tax treatment ofdistributions on the Warrants is unclear. Any resulting withholding tax attributable to deemed dividends would be collected from otheramounts payable or distributable to the U.S. Holder. U.S. Holders should consult their tax advisors regarding the proper treatment ofany adjustments to and distributions on the Warrants.
Taxationof Dividends Paid on Ordinary Shares
Wedo not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion underthe heading “Passive Foreign Investment Companies” below and the discussion of “qualified dividend income” below,a U.S. Holder, other than certain U.S. Holders that are U.S. corporations, will be required to include in gross income as ordinary incomethe amount of any distribution paid on the Ordinary Shares (including the amount of any Israeli tax withheld on the date of the distribution),to the extent that such distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federalincome tax purposes. The amount of a distribution which exceeds our earnings and profits will be treated first as a non-taxable returnof capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares to the extent thereof, and then capital gain. We do notexpect to maintain calculations of our earnings and profits under U.S. federal income tax principles and, therefore, U.S. Holders shouldexpect that the entire amount of any distribution generally will be reported as dividend income.
Ingeneral, preferential tax rates for “qualified dividend income” and long-term capital gains are applicable for U.S. Holdersthat are individuals, estates or trusts. For this purpose, “qualified dividend income” means, inter alia, dividends receivedfrom a “qualified foreign corporation.” A “qualified foreign corporation” is a corporation that is entitled tothe benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS has statedthat the United States-Israel Tax Treaty satisfies this requirement and we believe we areeligible for the benefits of that treaty.
Inaddition, our dividends will be qualified dividend income if our Ordinary Shares are readily tradable on Nasdaq or another establishedsecurities market in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividendis paid or in the prior year, as a PFIC, as described below under “Passive Foreign Investment Companies.” A U.S. Holder willnot be entitled to the preferential rate: (1) if the U.S. Holder has not held our Ordinary Shares for at least 61 days of the 121 dayperiod beginning on the date which is 60 days before the ex-dividend date, or (2) to the extent the U.S. Holder is under an obligationto make related payments with respect to positions in substantially similar or related property. Any days during which the U.S. Holderhas diminished its risk of loss on our Ordinary Shares are not counted towards meeting the 61-day holding period. Finally, U.S. Holderswho elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligiblefor the preferential rate of taxation.
Theamount of a distribution with respect to our Ordinary Shares will be measured by the amount of the fair market value of any propertydistributed, and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid byus in NIS, if any, will be included in the income of U.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effecton the date the dividend is includible in the income of the U.S. Holder, and U.S. Holders will have a tax basis in such NIS for U.S.federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS into U.S. dollars or otherwisedisposes of them, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinaryexchange gain or loss.
Dividendspaid with respect to our Ordinary Shares will be treated as foreign source income, which may be relevant in calculating the holder’sforeign tax credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to specificclasses of income. For this purpose, dividends that we distribute generally should constitute “passive category income,”or, in the case of certain U.S. Holders, “general category income.” A foreign tax credit for foreign taxes imposed on distributionsmay be denied if holders do not satisfy certain minimum holding period requirements. The rules relating to the determination of the foreigntax credit are complex, and U.S. Holders should consult their tax advisor to determine whether and to what extent such holder will beentitled to this credit.
Taxationof the Sale, Exchange or other Disposition of Equity Securities
Exceptas provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange orother disposition of our Equity Securities, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference betweensuch U.S. Holder’s tax basis for the Equity Securities, determined in U.S. dollars, and the U.S. dollar value of the amount realizedon the disposition (or its U.S. dollar equivalent determined by reference to the spot rate of exchange on the date of disposition, ifthe amount realized is denominated in a foreign currency). The gain or loss realized on the sale, exchange or other disposition of EquitySecurities will be long-term capital gain or loss if the U.S. Holder has a holding period of more than one year at the time of the disposition.Individuals who recognize long-term capital gains may be taxed on such gains at reduced rates of tax. The deduction of capital lossesis subject to various limitations.
PassiveForeign Investment Companies
Basedon the projected composition of our income and valuation of our assets, we believe that we were likely a PFIC for 2021, although no definitivedetermination has been made, and may likely be a PFIC in the current taxable year, although there can be no assurance in this regard. Because PFIC status is based on our income, assets and activities for the entire taxable year, and our market capitalization, itis not possible to determine whether we will be characterized as a PFIC for the December 31, 2022 taxable year until after the closeof the taxable year. If we were classified as a PFIC in any taxable year, a U.S. Holder would be subject to special rules with respectto distributions on and sales, exchanges and other dispositions of the Ordinary Shares. We will be treated as a PFIC for any taxableyear in which at least 75 percent of our gross income is “passive income” or at least 50 percent of our gross assets duringthe taxable year, assuming we were not a controlled foreign corporation for the year being tested, based on the average of the fair marketvalues of the assets determined at the end of each quarterly period, are assets that produce or are held for the production of passiveincome. Passive income for this purpose generally includes, among other things, dividends, interest, rents, royalties, gains from commoditiesand securities transactions, and gains from assets that produce passive income. However, rents and royalties received from unrelatedparties in connection with the active conduct of a trade or business are not considered passive income for purposes of the PFIC test.In determining whether we are a PFIC, a pro rata portion of the income and assets of each corporation in which we own, directly or indirectly,at least a 25% interest (by value) is taken into account.
Excessdistribution rules
Ifwe were a PFIC with respect to a U.S. Holder, then unless the holder makes one of the elections described below, a special tax regimewould apply to the U.S. Holder with respect to (a) any “excess distribution” (generally, aggregate distributions in any yearthat are greater than 125% of the average annual distribution received by the holder in the shorter of the three preceding years or theholder’s holding period for the Ordinary Shares) and (b) any gain realized on the sale or other disposition of the Ordinary Shares.Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (a)the excess distribution or gain had been realized ratably over the U.S. Holder’s holding period, (b) the amount deemed realizedin each year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than incomeallocated to the current period or any taxable period before we became a PFIC, which would be subject to tax at the U.S. Holder’sregular ordinary income rate for the current year and would not be subject to the interest charge discussed below), and (c) the interestcharge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. A U.S.Holder that is not a corporation will be required to treat any such interest paid as “personal interest,” which is not deductible.In addition, dividend distributions would not qualify for the lower rates of taxation applicable to long-term capital gains discussedabove under “Taxation of Dividends Paid on Ordinary Shares”.
AU.S. Holder that holds the Ordinary Shares at any time during a taxable year in which we are classified as a PFIC generally will continueto treat such Ordinary Shares as shares in a PFIC, even if we no longer satisfy the income and asset tests described above, unless theU.S. Holder elects to recognize gain, which will be taxed under the excess distribution rules as if such Ordinary Shares had been soldon the last day of the last taxable year for which we were a PFIC.
Certainelections by a U.S. Holder would alleviate some of the adverse consequences of PFIC status and would result in an alternative treatmentof the Ordinary Shares, as described below. However, we do not currently intend to provide the information necessary for U.S. Holdersto make “QEF elections,” as described below, and the availability of a “mark-to-market election” with respectto the shares is a factual determination that will depend on the manner and quantity of trading of our Ordinary Shares, as describedbelow.
QEFelection
Ifwe were a PFIC, the rules above would not apply to a U.S. Holder that makes an election to treat our Ordinary Shares as stock of a “QEF.A U.S. Holder that makes a QEF election is required to include in income its pro rata share of our ordinary earnings and net capitalgain as ordinary income and long-term capital gain, respectively, subject to a separate election to defer payment of taxes, which deferralis subject to an interest charge. A U.S. Holder makes a QEF election generally by attaching a completed IRS Form 8621 to a timely filedUnited States federal income tax return for the year beginning with which the QEF election is to be effective (taking into account anyextensions). A QEF election can be revoked only with the consent of the IRS. In order for a U.S. Holder to make a valid QEF election,we must annually provide or make available to the holder certain information. We do not intend to provide to U.S. Holders the informationrequired to make a valid QEF election and we currently make no undertaking to provide such information.
Ifwe were classified as a PFIC, under Treasury Regulations, if a U.S. Holder has an option, warrant, or other right to acquire stock ofa PFIC (such as the Warrants being offered pursuant to this prospectus), such option, warrant or right is considered to be PFIC stock.However, a U.S. Holder of an option, warrant or right to acquire stock of a PFIC may not make a QEF election that will apply to the option,warrant or other right to acquire PFIC stock. In addition, under Treasury Regulations, if a U.S. Holder holds an option, warrant or otherright to acquire stock of a PFIC, the holding period with respect to shares of stock of the PFIC acquired on exercise of such option,warrant or other right will include the period that the option, warrant or other right was held. Each U.S. Holder should consult itsown tax advisor regarding the application of the PFIC rules to the Warrants.
Mark-to-marketelection
Ifwe were a PFIC, the rules above also would not apply to a U.S. Holder that makes a “mark-to-market” election with respectto the Ordinary Shares, but this election will be available with respect to the Ordinary Shares only if they meet certain minimum tradingrequirements to be considered “marketable stock” for purposes of the PFIC rules. Ordinary Shares will be marketable stockif they are regularly traded on a national securities exchange that is registered with the SEC or on a non-U.S. exchange or market thatmeets certain requirements under the Treasury regulations. Ordinary Shares generally will be considered regularly traded during any calendaryear during which they are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Anytrades that have as their principal purpose meeting this requirement will be disregarded.
AU.S. Holder that makes a valid mark-to-market election for the first tax year in which the holder holds (or is deemed to hold) our OrdinaryShares and for which we are a PFIC will be required to include each year an amount equal to the excess, if any, of the fair market valueof such Ordinary Shares the holder owns as of the close of the taxable year over the holder’s adjusted tax basis in such OrdinaryShares. The U.S. Holder will be entitled to a deduction for the excess, if any, of the holder’s adjusted tax basis in the OrdinaryShares over the fair market value of such Ordinary Shares as of the close of the taxable year, but only to the extent of any net mark-to-marketgains with respect to such Ordinary Shares included by the U.S. Holder under the election for prior taxable years. The U.S. Holder’sbasis in such Ordinary Shares will be adjusted to reflect the amounts included or deducted pursuant to the election. Amounts includedin income pursuant to a mark-to-market election, as well as gain on the sale, exchange or other taxable disposition of such OrdinaryShares, will be treated as ordinary income. The deductible portion of any mark-to-market loss, as well as loss on a sale, exchange orother disposition of our Ordinary Shares to the extent that the amount of such loss does not exceed net mark-to-market gains previouslyincluded in income, will be treated as ordinary loss.
Themark-to-market election applies to the taxable year for which the election is made and all subsequent taxable years, unless the OrdinaryShares cease to be treated as marketable stock for purposes of the PFIC rules or the IRS consents to its revocation. The excess distributionrules described above generally will not apply to a U.S. Holder for tax years for which a mark-to-market election is in effect. However,if we were a PFIC for any year in which the U.S. Holder owns the Ordinary Shares but before a mark-to-market election is made, the interestcharge rules described above would apply to any mark-to-market gain recognized in the year the election is made.
Amark-to-market election will be unavailable with respect to our Warrants.
PFICreporting obligations
AU.S. Holder of PFIC stock must generally file an annual information return on IRS Form 8621 (Information Return by a Shareholder of aPassive Foreign Investment Company or Qualified Electing Fund) containing such information as the U.S. Treasury Department may require.The failure to file IRS Form 8621 could result in the imposition of penalties and the extension of the statute of limitations with respectto U.S. federal income tax.
U.S.Holders are urged to consult their tax advisors as to our status as a PFIC, and the tax consequences to them if we were a PFIC, includingthe reporting requirements and the desirability of making, and the availability of, a QEF election or a mark-to-market election withrespect to the Equity Securities.
Taxon Net Investment Income
U.S.Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (includingdividends on and gains from the sale or other disposition of our Equity Securities), or in the case of estates and trusts on their netinvestment income that is not distributed to beneficiaries of the estate or trust. In each case, the 3.8% Medicare tax applies only tothe extent the U.S. Holder’s total adjusted income exceeds applicable thresholds. You should consult your own tax advisor regardingthe application of backup withholding and the availability of and procedures for obtaining an exemption from backup withholding in yourparticular circumstances.
InformationReporting and Withholding
AU.S. Holder may be subject to backup withholding at a rate of 24% with respect to cash dividends and proceeds from a disposition of ourEquity Securities. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures.Backup withholding will not apply with respect to payments made to designated exempt recipients, such as corporations and tax-exemptorganizations. Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liabilityof a U.S. Holder, provided that the required information is timely furnished to the IRS.
CertainU.S. Holders with interests in “specified foreign financial assets” (including, among other assets, our Equity Securities,unless such Equity Securities are held on such U.S. Holder’s behalf through a financial institution) may be required to file aninformation report with the IRS if the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000at any time during the taxable year (or such higher dollar amount as may be prescribed by applicable IRS guidance); and may be requiredto file a Report of Foreign Bank and Financial Accounts, or FBAR, if the aggregate value of the foreign financial accounts exceeds $10,000at any time during the calendar year. You should consult your own tax advisor as to the possible obligation to file such informationreport.
UNDERWRITING
AegisCapital Corp., or Aegis, is acting as the representative of the underwriters and the book-running manager of this offering. Under theterms of an underwriting agreement, which is filed as an exhibit to the registration statement, each of the underwriters named belowhas severally agreed to purchase from us the respective number of Units shown opposite its name below:
Underwriter | | Number of Units | |
Aegis Capital Corp. | | | | |
Theunderwriting agreement provides that the underwriters’ obligation to purchase Units depends on the satisfaction of the conditionscontained in the underwriting agreement including:
| ● | the representations and warranties made by us to the underwriters are true; |
| | |
| ● | there is no material change in our business or the financial markets; and |
| | |
| ● | we deliver customary closing documents to the underwriters. |
UnderwritingCommissions and Discounts and Expenses
Thefollowing table shows the per Unit and total underwriting discounts and commissions we will pay to Aegis. These amounts are shown assumingboth no exercise and full exercise of the underwriters’ option to purchase additional securities.
| | | | | Total | |
| | Per Unit | | | No Exercise | | | Full Exercise | |
Public offering price | | | | | | $ | | | | $ | | |
Underwriting discounts and commissions to be paid by us (8%): | | | | | | $ | | | | $ | | |
Non-accountable expense allowance (1%) (1) | | | | | | $ | | | | $ | | |
Proceeds, before expenses, to us | | | | | | $ | | | | $ | | |
| (1) | We have agreed to pay a non-accountable expense allowance to the representative equal to 1% of the gross proceeds we received in this offering. |
Wehave also agreed to reimburse the underwriters for certain of their expenses, including “roadshow”, diligence, and reasonablelegal fees and disbursements, in an amount not to exceed $150,000 in the aggregate.
Weestimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately$ .
Over-AllotmentOption
Wehave granted the representative of the underwriters an option to purchase from us, up to additional Ordinary Shares, and/or up to anadditional Warrants, within 45 days from the date of this prospectus to cover over-allotments, if any. The purchase price to be paidper additional Ordinary Share will be equal to the public offering price of one Unit (less $0.001 allocated to each Warrant), less theunderwriting discount, and the purchase price to be paid per additional Warrant will be $0.001.
DiscretionaryAccounts
Theunderwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-UpAgreements
Pursuantto certain “lock-up” agreements, the Company, its executive officers, directors and all holders of the Company’s OrdinaryShares and securities exercisable for or convertible into its Ordinary Shares outstanding immediately prior to the closing of this offering,have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of orannounce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, inwhole or in part, the economic risk of ownership of, directly or indirectly, engage in any short selling of any Ordinary Shares or securitiesconvertible into or exchangeable or exercisable for any Ordinary Shares, whether currently owned or subsequently acquired, without theprior written consent of the underwriters, for a period of 180 days from the closing date of the offering.
Representative’sWarrants
TheCompany has agreed to issue to Aegis or its designees Representative’s Warrants to purchase up to a total of 6% of the OrdinaryShares sold in this offering (excluding the shares sold through the exercise of the over-allotment option). The Representative’sWarrants and underlying Ordinary Shares are included in this prospectus. The Representative’s Warrants are exercisable at $ per share (125% of the public offering price) commencing six months from the closing date of the offering and shall expire on a datewhich is no more than five (5) years from the commencement of sales of the offering in compliance with FINRA Rule 5110. The Representative’sWarrants have been deemed compensation by FINRA and are therefore subject to a 6-month lock-up pursuant to Rule 5110 of FINRA. Theunderwriters (or their permitted assignees under the Rule) will not sell, transfer, assign, pledge, or hypothecate these warrants orthe securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put, or call transaction that wouldresult in the effective economic disposition of the Representative’s Warrants or the underlying securities for a period of 180days from the commencement of sales of the offering. The Representative’s Warrants will provide for one-time demand registrationrights and piggyback registration rights for a period of five years from the offering date, and may be exercised as to all, or a lessernumber of Ordinary Shares, and if there is no effective registration statement is available for the warrants, will be exercisable ona cashless basis. The exercise price and number of shares issuable upon exercise of the Representative’s Warrants may be adjustedin certain circumstances including in the event of a stock dividend, extraordinary cash dividend or the Company’s recapitalization,reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuancesof Ordinary Shares at a price below the warrant exercise price.
SecurityIssuance Standstill
Fora period of 18 months after the closing date of the Offering, the Company shall not, without prior written consent of Aegis, issue, enterinto any agreement to issue or announce the issuance or proposed issuance of any Ordinary Shares or securities convertible or exercisableinto Ordinary Shares and except for offerings with Aegis, for 18 months after the closing date of the Offering, the Company shall noteffect or enter into an agreement to effect any issuances of Ordinary Shares or securities convertible or exercisable into Ordinary Sharesinvolving an at-the-market offering or variable rate transaction. In no event shall any transaction within this 18 months period resultin the sale of securities at an effective offering price less than that of the public offering price of the Units.
ElectronicOffer, Sale and Distribution of Shares
Aprospectus in electronic format may be made available on the websites maintained by the underwriters, if any, participating in this offeringand the underwriters participating in this offering may distribute prospectuses electronically. The underwriters may agree to allocatea number of shares for sale to its online brokerage account holders. Internet distributions will be allocated by the underwriters thatwill make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the informationon these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectusforms a part, has not been approved or endorsed by us or the underwriters in their capacity as underwriters, and should not be reliedupon by investors.
Stabilization
Inconnection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-coveringtransactions, penalty bids and purchases to cover positions created by short sales.
| ● | Stabilizing transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress. |
| | |
| ● | Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares in the open market. |
| | |
| ● | Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the over- allotment option. If the underwriters sell more shares than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering. |
| ● | Penalty bids permits the underwriters to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions. |
Thesestabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market priceof the Company’s Ordinary Shares or preventing or retarding a decline in the market price of its Ordinary Shares. As a result,the price of the Company’s Ordinary Shares or warrants in the open market may be higher than it would otherwise be in the absenceof these transactions. Neither the Company nor the underwriters make any representation or prediction as to the effect that the transactionsdescribed above may have on the price of the Company’s Ordinary Shares. These transactions may be effected on Nasdaq,in the over-the-countermarket or otherwise and, if commenced, may be discontinued at any time.
PassiveMarket Making
Inconnection with this offering, the underwriters may engage in passive market making transactions in the Company’s Ordinary Shareson Nasdaq in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or salesof the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not inexcess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’sbid, then that bid must then be lowered when specified purchase limits are exceeded.
OtherRelationships
Theunderwriters and their respective affiliates may, in the future provide various investment banking, commercial banking and other financialservices for the Company and its affiliates for which they have received, and may in the future receive, customary fees. However, exceptas disclosed in this prospectus, the Company has no present arrangements with the underwriters for any further services.
OfferRestrictions Outside the United States
Otherthan in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offeredby this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not beoffered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection withthe offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will resultin compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes areadvised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus.This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus inany jurisdiction in which such an offer or a solicitation is unlawful.
EXPENSES
Setforth below is an itemization of the total expenses, excluding underwriting discounts, expected to be incurred in connection with theoffer and sale of the securities offered by us. With the exception of the SEC registration fee and the FINRA filing fee, all amountsare estimates:
SEC registration fee | | $ | | |
Nasdaq listing fee | | $ | | |
FINRA filing fee | | $ | | |
Transfer agent fees and expenses | | $ | | |
Printer fees and expenses | | $ | | |
Legal fees and expenses | | $ | | |
Accounting fees and expenses | | $ | | |
Miscellaneous | | $ | | |
Total | | $ | | |
LEGALMATTERS
Thevalidity of the issuance of our Ordinary Shares offered in this prospectus and certain other matters of Israeli law will be passed uponfor us by Keren Law Firm. Certain matters of U.S. federal law will be passed upon for us by McDermott Will & Emery LLP, New York,New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Sichenzia Ross Ference LLP,with respect to U.S. federal law.
EXPERTS
Thefinancial statements of Polyrizon Ltd. as of December 31, 2021 and 2020, and for each of the two years in the period ended December 31,2021, included in this prospectus have been audited by Brightman Almagor Zohar & Co., a member firm in the Deloitte global network,an independent registered public accounting firm, as stated in their report. Such financial statements are included in reliance uponthe report of such firm given their authority as experts in accounting and auditing.
ENFORCEMENTOF CIVIL LIABILITIES
Weare incorporated under the laws of the State of Israel. Service of process upon us and upon our directors and officers and the Israeliexperts named in this registration statement, most of whom reside outside of the United States, may be difficult to obtain within theUnited States. Furthermore, because substantially all of our assets and substantially all of our directors and officers are located outsideof the United States, any judgment obtained in the United States against us or any of our directors and officers may not be collectiblewithin the United States.
Wehave been informed by our legal counsel in Israel, Keren Law Firm, that it may be difficult to assert U.S. securities law claims in originalactions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoningthat Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, itmay determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicableU.S. law must be proved as a fact which can be a time-consuming and costly process. Certain matters of procedure will also be governedby Israeli law.
Wehave irrevocably appointed Puglisi & Associates as our agent to receive service of process in any action against us in any U.S. federalor state court arising out of this offering or any purchase or sale of securities in connection with this offering. Subject to specifiedtime limitations and legal procedures, Israeli courts may enforce a U.S. judgment in a civil matter which, subject to certain exceptions,is non-appealable, including a judgment based upon the civil liability provisions of the Securities Act and the Exchange Act and includinga monetary or compensatory judgment in a non-civil matter, provided that among other things:
| ● | the judgment was obtained after due process before a court of competent jurisdiction, according to the laws of the state in which the judgment was given and the rules of private international law currently prevailing in Israel; |
| ● | the prevailing law of the foreign state in which the judgment was rendered allows for the enforcement of judgments of Israeli courts; |
| | |
| ● | adequate service of process has been effected and the defendant has had a reasonable opportunity to be heard and to present his or her evidence; |
| | |
| ● | the judgment is not contrary to public policy of Israel, and the enforcement of the civil liabilities set forth in the judgment is not likely to impair the security or sovereignty of Israel; |
| | |
| ● | the judgment was not obtained by fraud and do not conflict with any other valid judgments in the same matter between the same parties; |
| | |
| ● | an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in the foreign court; and |
| | |
| ● | the judgment is enforceable according to the laws of Israel and according to the law of the foreign state in which the relief was granted. |
Ifa foreign judgment is enforced by an Israeli court, it generally will be payable in Israeli currency, which can then be converted intonon- Israeli currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount ina non-Israeli currency is for the Israeli court to issue a judgment for the equivalent amount in Israeli currency at the rate of exchangein force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection, the amount ofthe judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli consumer price index plus interestat the annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk of unfavorableexchange rates.
WHEREYOU CAN FIND MORE INFORMATION
Wehave filed with the SEC a registration statement on Form F-1 under the Securities Act relating to this offering of our OrdinaryShares. This prospectus does not contain all of the information contained in the registration statement. The rules and regulations ofthe SEC allow us to omit certain information from this prospectus that is included in the registration statement. Statements made inthis prospectus concerning the contents of any contract, agreement or other document are summaries of all material information aboutthe documents summarized, but are not complete descriptions of all terms of these documents. If we filed any of these documents as anexhibit to the registration statement, you may read the document itself for a complete description of its terms.
OurSEC filings are available to the public at the SEC’s website at http://www.sec.gov. Upon completion of this offering,we will be subject to the information reporting requirements of the Exchange Act that are applicable to foreign private issuers, andunder those requirements will file reports with the SEC.
Uponcompletion of this offering, we will be subject to the information reporting requirements of the Exchange Act that are applicable toforeign private issuers, and under those requirements are filing reports with the SEC. Those other reports or other information may beinspected without charge at the locations described above. As a foreign private issuer, we will be exempt from the rules under the ExchangeAct related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exemptfrom the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we willnot be required under the Exchange Act to file reports and financial statements with the SEC as frequently or as promptly as U.S. companieswhose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscalyear, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independentregistered public accounting firm, and will submit to the SEC, on Form 6-K, unaudited quarterly financial information.
Wemaintain a corporate website at www.polyrizon-biotech.com. Information contained on, or that can be accessed through, our websitedoes not constitute a part of this prospectus. We have included our website address in this prospectus solely as an inactive textualreference. We will post on our website any materials required to be so posted on such website under applicable corporate or securitieslaws and regulations, including, posting any XBRL interactive financial data required to be filed with the SEC and any notices of generalmeetings of our shareholders.
POLYRIZONLTD. FINANCIAL STATEMENTS
ASOF DECEMBER 31, 2021
U.S.DOLLARS IN THOUSANDS
INDEX
REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Tothe Shareholders and Board of Directors of Polyrizon Ltd.
Opinionon the Financial Statements
Wehave audited the accompanying balance sheets of Polyrizon Ltd. (the “Company”) as of December 31, 2021 and 2020, the relatedstatements of comprehensive loss, changes in shareholders’ deficit and cash flows for each of the two years in the period endedDecember 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financialstatements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020 and the resultsof its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principlesgenerally accepted in the United States of America.
GoingConcern
Theaccompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note1B to the financial statements, the Company’s lack of revenues and accumulated operating losses raise substantial doubt about itsability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1B. The financialstatements do not include any adjustments that might result from the outcome of this uncertainty.
Basisfor Opinion
Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securitieslaws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Weconducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Companyis not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits,we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinionon the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Ouraudits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to erroror fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regardingthe amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significantestimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our auditsprovide a reasonable basis for our opinion.
/s/Brightman Almagor Zohar & Co.
CertifiedPublic Accountants
AFirm in the Deloitte Global Network
TelAviv, Israel
April 14, 2022
(except for subsequent events described in Note 11b, 11c and 11d asto which the date is August 10, 2022)
Wehave served as the Company’s auditor since 2022.
POLYRIZONLTD.
BALANCESHEETS
U.S.dollars in thousands (except share and per share data)
| | Note | | As of December 31, | |
| | | | 2021 | | | 2020 | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | | | $ | 523 | | | $ | 10 | |
| | | | | | | | | | |
Other current assets | | | | | 21 | | | | 9 | |
| | | | | | | | | | |
Total current assets | | | | | 544 | | | | 19 | |
| | | | | | | | | | |
Property and equipment, net | | | | | 18 | | | | 5 | |
| | | | | | | | | | |
Deferred offering costs | | 3 | | | 125 | | | | - | |
| | | | | | | | | | |
Total assets | | | | $ | 687 | | | $ | 24 | |
| | | | | | | | | | |
Liabilities and shareholders’ equity | | | | | | | | | | |
| | | | | | | | | | |
Current liabilities: | | | | | | | | | | |
Employees and payroll-related liabilities | | | | $ | 18 | | | $ | 8 | |
Accrued expenses | | | | | 156 | | | | - | |
Derivative warrant liability | | 8 | | | 516 | | | | - | |
| | | | | | | | | | |
Total current liabilities | | | | | 690 | | | | 8 | |
| | | | | | | | | | |
Temporary equity: | | 5 | | | | | | | | |
Preferred shares, NIS 0.04 par value; Authorized: 2,180,201 shares; Issued and outstanding: 2,180,201 shares as of December 31, 2021 and 2020; | | | | | 248 | | | | 248 | |
| | | | | | | | | | |
Shareholders’ deficit: | | 6 | | | | | | | | |
Ordinary shares, NIS 0.04 par value; Authorized: 36,000,000 and 20,000,000 shares as of December 31, 2021 and 2020, respectively; Issued and outstanding: 27,187,585 and 4,601,011 shares as of December 31, 2021 and 2020, respectively; | | | | | 326 | | | | 49 | |
Additional paid-in capital | | | | | 1,565 | | | | 1,150 | |
Accumulated deficit | | | | | (2,142 | ) | | | (1,431 | ) |
| | | | | | | | | | |
Total shareholders’ deficit | | | | | (251 | ) | | | (232 | ) |
| | | | | | | | | | |
Total liabilities, temporary equity and shareholders’ deficit | | | | $ | 687 | | | $ | 24 | |
Theaccompanying notes are an integral part of the financial statements.
POLYRIZONLTD.
STATEMENTSOF COMPREHENSIVE LOSS
U.S.dollars in thousands (except share and per share data)
| | Note | | For the Year Ended December 31, | |
| | | | 2021 | | | 2020 | |
| | | | | | | | |
Operating expenses: | | | | | | | | | | |
Research and development expenses | | 9a | | $ | 245 | | | $ | 38 | |
General and administrative expenses | | 9b | | | 458 | | | | 34 | |
| | | | | | | | | | |
Operating loss | | | | | 703 | | | | 72 | |
| | | | | | | | | | |
Financial expense | | 9c | | | 8 | | | | 1 | |
| | | | | | | | | | |
Net loss and comprehensive loss | | | | $ | 711 | | | $ | 73 | |
| | | | | | | | | | |
Basic and diluted net loss per share | | 10 | | $ | 0.05 | | | $ | 0.03 | |
| | | | | | | | | | |
Weighted average number of shares of ordinary share used in computing basic and diluted net loss per share | | | | | 14,727,407 | | | | 4,109,443 | |
Theaccompanying notes are an integral part of the financial statements.
POLYRIZONLTD.
STATEMENTOF CHANGES IN SHAREHOLDERS’ DEFICIT
U.S.dollars in thousands (except share data)
| | Preferred shares | | | Ordinary shares | | | Additional paid-in | | | Accumulated | | | Total shareholders’ | |
| | Number | | | Amount | | | Number | | | Amount | | | capital | | | deficit | | | deficit | |
| | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2019 | | | 2,180,201 | | | | 248 | | | | 3,685,497 | | | $ | 38 | | | $ | 1,072 | | | $ | (1,358 | ) | | $ | (248 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of shares and options, net of issuance costs | | | — | | | | — | | | | 915,514 | | | $ | 11 | | | $ | 78 | | | | - | | | | 89 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (73 | ) | | | (73 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2020 | | | 2,180,201 | | | $ | 248 | | | | 4,601,011 | | | $ | 49 | | | $ | 1,150 | | | $ | (1,431 | ) | | $ | (232 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of shares, net of issuance costs | | | — | | | | — | | | | 21,997,108 | | | $ | 270 | | | $ | 754 | | | | — | | | | 1,024 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share based payment | | | — | | | | — | | | | 589,466 | | | | 7 | | | | 177 | | | | — | | | | 184 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Recognition of derivative warrant liability upon change of warrant terms (see Note 8) | | | — | | | | — | | | | — | | | | — | | | | (516 | ) | | | — | | | | (516 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (711 | ) | | | (711 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2021 | | | 2,180,201 | | | $ | 248 | | | | 27,187,585 | | | $ | 326 | | | $ | 1,565 | | | $ | (2,142 | ) | | $ | (251 | ) |
Theaccompanying notes are an integral part of the financial statements.
POLYRIZONLTD.
STATEMENTSOF CASH FLOWS
U.S.dollars in thousands
| | For the Year Ended December 31, | |
| | 2021 | | | 2020 | |
Cash flows from operating activities | | | | | | |
| | | | | | |
Net loss | | $ | (711 | ) | | $ | (73 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
Depreciation | | | 6 | | | | 1 | |
Share based payment | | | 184 | | | | - | |
Change in: | | | | | | | | |
Other current assets | | | (12 | ) | | | (9 | ) |
Deferred offering costs | | | (125 | ) | | | - | |
Employees and payroll-related liabilities | | | 10 | | | | - | |
Accrued expenses | | | 156 | | | | 8 | |
| | | | | | | | |
Net cash used in operating activities | | | (492 | ) | | | (73 | ) |
| | | | | | | | |
Cash flows from investing activities | | | | | | | | |
| | | | | | | | |
Purchase of property and equipment | | | (19 | ) | | | (6 | ) |
| | | | | | | | |
Net cash used in investing activities | | | (19 | ) | | | (6 | ) |
| | | | | | | | |
Cash flows from financing activities | | | | | | | | |
| | | | | | | | |
Proceeds from issuance of shares, net of issuance costs | | | 1,024 | | | | 89 | |
| | | | | | | | |
Net cash provided by financing activities | | | 1,024 | | | | 89 | |
| | | | | | | | |
Change in cash and cash equivalents | | | 513 | | | | 10 | |
Cash and cash equivalents at the beginning of the year | | | 10 | | | | - | |
| | | | | | | | |
Cash and cash equivalents at the end of the year | | $ | 523 | | | $ | 10 | |
| | | | | | | | |
Non-cash financing activities: | | | | | | | | |
Reduction of additional paid-in capital and recognition of derivative warrant liability (see Note 8) | | $ | 516 | | | $ | - | |
Theaccompanying notes are an integral part of the financial statements.
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
| a. | Polyrizon Ltd. (the “Company”) was incorporated and commenced its business operations in January 2005. The Company is a development stage biotech company specializing in the development of nasal hydrogels to provide a barrier from the interaction of biological assaults, including a new strain of coronavirus (“COVID-19”) and influenza, as well as allergens and other airborne pathogens with the nasal epithelial tissue. The Company’s proprietary Capture and Contain (“C&C”) hydrogel technology is delivered in the form of nasal sprays, and form a thin hydrogel-based shield containment barrier in the nasal cavity that can provide a barrier against viruses and allergens from contacting the nasal epithelial tissue. Due to lack of resources, the Company suspended its operations in 2016. In connection with the COVID-19 pandemic, the Company resumed its operations in 2020. |
| b. | Going concern and management plans |
Theaccompanying financial statements are prepared assuming the Company will continue as a going concern, which contemplates the realizationof assets and liquidation of liabilities in the normal course of business. To date, the Company has not generated revenues from its activitiesand has incurred substantial operating losses. Management expects the Company to continue to generate substantial operating losses forthe foreseeable future until it completes development of its product candidates and obtains regulatory approvals to market such productcandidates.
Suchconditions raise substantial doubts about the Company’s ability to continue as a going concern for at least a year after the issuancedate of the accompanying financial statements. Management plans to address these conditions by raising funds from its current investorsas well as outside potential investors. However, there is no assurance that such funding will be available to the Company or that itwill be obtained on terms favorable to the Company or will provide the Company with sufficient funds to meet its objectives. The accompanyingfinancial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts orthe amount or classification of liabilities that may be required should the Company be unable to continue as a going concern.
| c. | In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets, including in Israel. The pandemic has resulted in authorities implementing numerous measures to try to contain the spread of the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. While the COVID- 19 pandemic did not materially affect the Company’s financial results and business operations for the year ended December 31, 2021, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to numerous uncertainties. The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary. |
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES |
| a. | Basis of presentation: |
Thefinancial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.GAAP”).
| b. | Use of estimate in preparation of financial statements: |
Thepreparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptionsthat affect the amounts reported in the financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions.The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information availableat the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosureof contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reportingperiods. Actual results could differ from those estimates.
| c. | Financial statements in United States dollars: |
TheCompany’s functional currency is the U.S. dollar (“dollar” or “$”) since the dollar is the currency ofthe primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future. Transactionsand balances denominated in dollars are presented at their original amounts. Transactions and balances denominated in currencies otherthan dollars have been re-measured to dollars and the differences were recorded as foreign exchange gain or loss.
| d. | Cash and cash equivalents: |
Cashequivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months orless at acquisition.
| e. | Property and equipment, net: |
Propertyand equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over theestimated useful lives of the assets at the following rates:
| | % | |
Computers and electronic equipment | | | 33 | |
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| f. | Impairment of long-lived assets: |
Propertyand equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset maynot be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to thefuture undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment tobe recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of December31, 2021, no impairment indicators have been identified.
| g. | Research and development expenses: |
Researchand development expenses are charged to the statements of comprehensive loss as incurred.
| h. | Fair Value Measurements: |
Fairvalue is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transactionbetween market participants at the reporting date. Assets and liabilities recorded at fair value in the financial statements are categorizedbased upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly relatedto the amount of subjectivity with the inputs to the valuation of these assets or liabilities as follows:
Level1 - Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurementdate;
Level2 - Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable inputs for similar assetsor liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identicalor similar assets of liabilities in markets that are not active;
Level3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assetsor liabilities.
TheCompany’s derivative warrant liability is measured at fair value at each reporting date and is classified within Level 3 of thefair value hierarchy because its fair values is estimated by utilizing valuation models and significant unobservable inputs.
Thecarrying values of Company’s financial assets and liabilities, including cash and cash equivalents, other current assets, employeesand payroll-related liabilities and accrued expenses approximate their fair value due to the short-term maturity of these instruments.
TheCompany accounts for income taxes using the liability method whereby deferred tax asset and liability account balances are determinedbased on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax ratesand laws that will be in effect when the differences are expected to reverse.
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
TheCompany provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. As of December31, 2021, and 2020, a full valuation allowance was provided by the Company.
Therecognition and measurement of a liability for uncertain tax positions contains a two-step approach. The first step is to evaluate thetax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is morelikely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution ofany related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50%likely to be realized upon ultimate settlement. As of December 31, 2021, and 2020, no liability for unrecognized tax benefits was recorded.
TheCompany’s liability for severance pay is pursuant to Section 14 of the Israeli Severance Compensation Act, 1963 (“Section14”), pursuant to which all the Company’s employees are included under Section 14, and are entitled only to monthly deposits,at a rate of 8.33% of their monthly salary, made in the employee’s name with insurance companies. Under Israeli employment law,payments in accordance with Section 14 release the Company from any future severance payments in respect of those employees. The fundis made available to the employee at the time the employer-employee relationship is terminated, regardless of cause of termination. Theseverance pay liabilities and deposits under Section 14 are not reflected in the balance sheets as the severance pay risks have beenirrevocably transferred to the severance funds.
| k. | Share-based payment transactions: |
TheCompany accounts for share-based compensation in accordance with ASC 718, “Compensation - Stock Compensation” (“ASC718”), which requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisiteservice periods in the Company’s consolidated statement of comprehensive loss.
TheCompany recognizes compensation expenses for the value of its awards granted based on the vesting attribution approach over the requisiteservice period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grantand revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
TheCompany estimates the fair value of share options granted using the Black-Scholes option pricing model. The option-pricing model requiresa number of assumptions, including the expected share price volatility, free risk interest rate, dividends and the expected option term.Expected volatility was calculated based upon historical volatility of the Company. The expected option term represents the period thatthe Company’s share options are expected to be outstanding and is determined based on the simplified method until sufficient historicalexercise data will support using expected life assumptions. The risk-free interest rate is based on the yield from U.S. treasury bondswith an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends. As a result,the dividend rate was zero.
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| l. | Basic and diluted loss per share: |
Basicloss per share is computed by dividing the net loss by the weighted average number of ordinary shares, par value NIS 0.04 per share (“OrdinaryShares”) outstanding during the period. Diluted loss per share is computed by dividing the net loss by the weighted average numberof Ordinary Shares outstanding together with the number of additional Ordinary Shares that would have been outstanding if all potentiallydilutive Ordinary Shares had been issued. Since the Company was in a loss position for the period presented, basic net loss per shareis the same as diluted net loss per share since the effects of potentially dilutive securities are antidilutive.
| m. | Recently accounting pronouncements: |
Asan “emerging growth company,” the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delayadoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable toprivate companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed belowreflect this election.
InFebruary 2016, the FASB issued ASU 2016-02 “Leases” (“ASU 2016-02”) to increase transparency and comparabilityamong organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasingarrangements. For operating leases, the ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initiallymeasured at the present value of the lease payments, on its balance sheet. ASU 2016-02 retains the current accounting for lessors anddoes not make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee. This ASU2016-02 will be effective for the Company beginning January 1, 2022, and interim periods in fiscal years beginning January 1, 2023.
Asof December 31, 2021, the Company is not engaged in any lease arrangement, however, the adoption of the standard will result in the Companyrecognizing an operating lease right-of-use asset and lease liability on its balance sheets with respect to future lease arrangements.
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
NOTE 3: | DEFERRED OFFERING COSTS |
TheCompany capitalizes certain legal and other third-party fees that are directly related to the Company’s in-process equity financingsuntil such financings are consummated, including the Company’s IPO. After the consummation of the equity financing, these costswill be recorded as a reduction of the gross proceeds. As of December 31, 2021, there were $125 of deferred offering costs on the balancesheet. There were no deferred offering costs capitalized as of December 31, 2020.
| a. | Tax rates applicable to the Company: |
Taxable income of the Company is subject to the Israeli Corporate tax rate which was 23% for the years ended December 31, 2021 and 2020. |
| b. | Net operating loss carry forward: |
Asof December 31, 2021 and 2020, the Company had net operating loss carry forwards for Israeli income tax purposes of approximately $2,166and $1,611, respectively. Net operating loss carry forwards in Israel may be carried forward indefinitely and offset against futuretaxable income.
| c. | Deferred income taxes: |
Deferredincome taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financialreporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets areas follows:
| | December 31, | |
| | 2021 | | | 2020 | |
Deferred tax assets: | | | | | | |
Net operating loss carry forward | | $ | 498 | | | $ | 371 | |
Other temporary differences | | | 22 | | | | 6 | |
| | | | | | | | |
Deferred tax asset before valuation allowance | | | 520 | | | | 376 | |
Valuation allowance | | | (520 | ) | | | (376 | ) |
| | | | | | | | |
Net deferred tax asset | | $ | - | | | $ | - | |
Inassessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion ofthe deferred tax assets will not be realized.
Theultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in whichtemporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recordeda full valuation allowance as of December 31, 2021 and 2020.
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
NOTE 4: | TAXES ON INCOME (Cont.) |
| d. | Reconciliation of income tax expenses: |
Thereconciliation of income tax benefit computed at statutory tax rate to income tax expense is as follows:
| | December 31, | |
| | 2021 | | | 2020 | |
Income tax benefit computed at statutory tax rate | | | (163 | ) | | | (17 | ) |
Change in valuation allowance | | | 163 | | | | 17 | |
| | | | | | | | |
Income tax expenses | | $ | - | | | $ | - | |
| e. | As of December 31, 2021, the Company had final tax assessments for tax years prior to and including the tax year ended December 31, 2017. |
InSeptember 2012, the Company’s Article of Association was amended to reflect the agreement reached between the Company and certainholders of preferred shares issued in November 2008 (the “2008 Preferred Shares”) following an investment of NIS 2,780 (approximately$894) (the “Original Issue Price”), to issue 2,180,201 shares of a new class of preferred shares (the “Preferred Shares”)in exchange for the 2008 Preferred Shares.
Holdersof the Preferred Shares are entitled in the event of: (i) any liquidation, dissolution or winding up of the Company, whether voluntaryor involuntary; or (ii) any Deemed Liquidation Event (as defined in Company’s Article of Association) to receive out of the assetsof the Company available for distribution to its shareholders (the “Distributable Assets”), prior to the holders of any classor series of shares of the Company, an amount (in cash, cash equivalents or, if applicable, securities) equal to 15% of the DistributableAssets. Afterwards, the holders of the Preferred Shares are also entitled to participate with all other ordinary shareholders and receivea proportionate amount from the remainder of aforementioned assets available for distribution, provided that the holders of preferredshares are not entitled to receive in the aggregate more than 2.75 times the Original Issue Price (adjusted for certain recapitalizationevents) plus annual interest on the Original Issue Price, at an annual rate of 4%, compounded annually from the date of the issuanceof the 2008 Preferred Shares.
Additionally,prior to and in preference to the distribution of any dividends to the holders of any class or series of shares of the Company, eachof the holders of the Preferred Shares are entitled to receive for each preferred share held by them an amount equal to the OriginalIssue Price, plus annual interest at an annual rate of 6% of the Original Issue Price (adjusted for certain recapitalization events)calculated from the date of issuance of the 2008 Preferred Shares (the “Dividend Preference”). Afterwards, the holders ofthe Preferred Shares are also entitled to participate with all other holders of Ordinary Shares in the receipt of any additional dividendsdistributed pro rata in accordance with their respective shareholdings in the Company. No dividends is to be paid on any other classof shares, unless the Dividend Preference has been paid in full.
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
NOTE 5: | TEMPORARY EQUITY (Cont.) |
Theserights attached to the Preferred Shares expire upon completion of an Initial Public Offering (“IPO”), or earlier, in theevent holders of the Preferred Shares have received, in the aggregate, through any distribution (including dividend distribution), amountsequal to the Original Issue Price, adjusted to changes in the Israeli consumer index, plus annual interest at a rate of 5%, compoundedannually from the date of the issuance of the 2008 Preferred Shares. Upon successful completion of an IPO, the Preferred Shares are tobe converted to 2,180,201 Ordinary Shares. Once so converted, the Preferred Shares are no longer available for issuance.
ThePreferred shares only confer upon their holders the rights specified above and do not confer upon their holders the right to participateand vote in general shareholder meetings of the Company.
ADeemed Liquidation Event, as defined in Company’s Article of Association, includes change of controls events in which shareholdersof the Company, immediately prior to the event, hold less than 50% of the voting power in the Company (or the surviving entity) afterthe event, as well as events in which the Company sells substantially all of its assets. In the occurrence of a Deemed Liquidation Event,all of the Distributable Assets legally available for distribution among the shareholders of the Company would be distributed inaccordance with the preference described above.
Althoughthe Preferred Shares are not redeemable, in the occurrence of a Deemed Liquidation Event, which may occur not solely within the Company’scontrol, the holders of the Preferred Shares are entitled to the preference amounts before distribution to other shareholders (as providedabove) and hence effectively redeem the preference amount.
Asa result of these in-substance contingent redemption rights, the preferred shares are classified outside of Shareholders’ deficit.
ThePreferred Shares were recorded at their fair value as of their issuance date (September 2012). The Company did not subsequently adjustthe carrying values of the Preferred Shares to the deemed liquidation value of such shares since a Deemed Liquidation Event was not probableof occurring.
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
NOTE 6: | SHAREHOLDERS’ DEFICIT |
OrdinaryShares confer upon their holders the right to participate and vote in general shareholder meetings of the Company and the right to receivedividends, if any, declared by the Company, and rights to receive a distribution of assets upon liquidation in the preference order describedabove.
SharesIssuances:
| 1. | On July 15, 2020, the Company entered into a securities purchase agreement with an investor (the “July 2020 Investor”) pursuant to which the Company issued 915,514 Ordinary Shares for gross proceeds of $100 and incurred issuance expenses of $11. |
Aspart of the agreement, the July 2020 Investor was granted with a warrant (the “Original Warrant”) to purchase 3,107,223 OrdinaryShares for $1,000. The Original Warrant is exercisable immediately and expires at the earlier of April 23, 2023 or immediately priorto the consummation by the Company of an equity financing in an amount of no less than $500 based on a pre-money valuation of at least$10,000. As of July 15, 2020 and December 31, 2020, the Company concluded the Original Warrant meets the accounting criteria of equityclassification, as the exercise price and amount of shares to be issued upon exercise of the Original Warrant are fixed.
OnDecember 15, 2021, the Company and the July 2020 Investor entered into an addendum to the agreement pursuant to which the July 2020 Investoragreed, that the Original Warrant will expire upon the successful completion of an IPO and, for as long as an IPO is not successfullycompleted, the Original Warrant may not be exercised prior to June 30, 2022. Additionally, pursuant to the addendum, the July 2020 Investorwas granted a new warrant (the “New Warrant”), which is only exercisable subject to the successful completion of an IPO,to invest an aggregate amount of up to $2,000 at an exercise price to be determined which shall be equal to 125% of the price per sharein an IPO. The New Warrant expires 3 years after the date of a successful completion of an IPO. See also Note 8.
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
NOTE 6: | SHAREHOLDERS’ DEFICIT (Cont.) |
| 2. | In March 2021, the Company entered into a securities purchase agreement with certain investors and shareholders (the “March 2021 SPA”) pursuant to which the Company issued 7,688,712 Ordinary Shares in exchange for gross proceeds of $250. |
Additionally,as part of the March 2021 SPA, the Company issued 589,466 Ordinary Shares to the Company’s chief executive officer (“CEO”).The Company recorded a share-based compensation expense of $19 in the statements of comprehensive loss for the year ended December 31,2021 in respect of the grant issuance.
| 3. | On August 25, 2021, the Company entered into a securities purchase agreement with certain investors and shareholders pursuant to which the Company issued 14,328,396 Ordinary Shares for gross proceeds of $780. |
OnFebruary 19, 2021, the Board of Directors approved the adoption of the 2021 Share Option Plan (the “2021 Plan”). Under the2021 Plan, the Company may grant share options to its officers, directors, employees and consultants. Each share option granted shallbe exercisable at such times and terms and conditions as the Board of Directors may specify in the applicable option agreement (eachan “Option Agreement”). Upon the adoption of the 2021 Plan, the Company reserved for issuance 1,428,799 Ordinary Shares.On November 14, 2021, the Board of Directors approved an increase to the Company’s reserved shares for issuance under the 2021Plan so that the current number of ordinary shares reserved for issuance under the 2021 Plan is 3,500,000 Ordinary Shares.
BetweenAugust and December 2021, the Company’s Board of Directors approved a grant of 1,465,289 options to purchase 1,465,289 OrdinaryShares to Company’s employee and officers with an exercise prices ranging between $0.0326 and $0.0544 per share. The vesting periodfor the options granted range from six months to four years. In addition, certain officers and employees have a clause under their OptionAgreement according to which all of the unvested options become fully vested upon successful completion of an IPO and additionally, uponthe successful completion of a merger, acquisition or reorganization of the Company with other entity, change in the ownership of more50%, involuntary termination by the Company, or any other similar event. As such, 611,028 options with exercise prices ranging between$0.0326 and $0.0544 per share will become fully vested upon successful completion of an IPO.
Expensesrecognized in the financial statements
| | Year ended December 31, 2021 | | | Year ended December 31, 2020 | |
| | | | | | |
Research and development expenses | | $ | 162 | | | $ | - | |
General and administrative expenses | | | 22 | | | | - | |
Total | | | 184 | | | | - | |
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
NOTE 6: | SHAREHOLDERS’ DEFICIT (Cont.) |
Thefair value of the Company’s share options granted was estimated using the black-Scholes option pricing model using the followingrange assumptions:
Description | | 2021 |
| | |
Risk-free interest rate | | 0.36% - 0.88% |
Expected volatility | | 88.52% - 94.62% |
Dividend yield | | 0 |
Contractual life | | 5-7 |
Exercise price | | 0.0326 - 0.0544 |
Asummary of the status of the Company’s option plan as of December 31, 2021 and changes during the year then ended are presentedbelow:
| | 2021 | |
| | Number of share option | | | Weighted average exercise price | |
| | | | | | |
Options outstanding at beginning of year | | | - | | | $ | | |
Granted | | | 1,465,289 | | | | 0.04 | |
| | | | | | | | |
Options outstanding at beginning of year | | | 1,465,289 | | | | 0.04 | |
| | | | | | | | |
Options exercisable at year end | | | 389,288 | | | $ | 0.04 | |
NOTE 7: | COMMITMENTS AND CONTINGENT LIABILITIES |
From2007 through 2010, the Company received funding from the Israeli Innovation Authority ("IIA", previously known as Officer ofChief Scientist) for its participation in research and development costs, based on budgets approved by the IIA, subject to the fulfillmentof specified milestones. The Company is committed to pay royalties to the IIA on proceeds from sale of product candidates in the researchand development of which the IIA participates by way of grants. According to the IIA’s fundings terms, royalties between 3% and4.5% are payable on sales of developed product candidates funded, up to 100% of the funding received by the Company, linked to US dollarand bearing LIBOR interest rate. In the case of failure of a financed project, the Company is not obligated to pay any such royaltiesto the IIA. The total funding received from the IIA including interest as of December 31, 2021 is $734.
OnSeptember 1, 2021, the Company signed a consulting agreement with its CEO. According to the agreement, the CEO is entitled to receive(i) a monthly salary, (ii) a one-time NIS 150 thousand (approximately $48) bonus upon completion of the Company's IPO, (iii) optionsrepresenting 0.5% of the Company's pre-IPO issued and outstanding shares which will vest upon the completion of the Company's IPO andbecome exercisable for a period of 5 years, and (iv) options representing 2.5% of the Company's post-IPO issued and outstanding shareswhich shall vest and become exercisable over a total period of three years commencing on the grant date on a monthly basis in equal installments.
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
NOTE 8: | DERIVATIVE WARRANT LIABILITY |
Asdiscussed in Note 6, on December 15, 2021, the Company and the July 2020 Investor amended the terms of the existing warrant in July 2020.
Theamended warrant did not meet the US GAAP criteria for equity classification as the number of shares to be issued upon exercise of thewarrant and the exercise price of the warrant depend on the share price in the IPO, as well as on whether the IPO is successfully completed. Accordingly, the amended warrant was initially recognized as a liability at fair value, as of December 15, 2021, with a correspondingreduction in additional paid-in capital. The warrant is subsequently measured at fair value at each reporting date with changes in fairvalue recognized as finance expenses in the statements of comprehensive loss.
Asummary of significant unobservable inputs (Level 3 inputs) used in measuring the warrant issued as of December 15, 2021 and December31, 2021 are as follows:
| | As at December 31, 2021 and December 15, 2021 | |
Expected volatility | | | 93.76 | % |
Risk free rate | | | 0.97 | % |
Expected life (years) | | | 3.5 | |
Dividend yield | | | 0 | % |
Thefollowing table presents changes in the fair value of the derivative warrant liability recorded in respect of the warrants:
Initial recognition of derivative warrant liability upon change in terms | | $ | 516 | |
| | | | |
Changes in fair value | | | - | |
| | | | |
Balance as of December 31, 2021 | | $ | 516 | |
NOTE 9: | SELECTED STATEMENTS OF OPERATIONS DATA |
| a. | Research and development expenses: |
| | Year ended December 31, | |
| | 2021 | | | 2020 | |
| | | | | | |
Subcontractors and consultants | | $ | 61 | | | $ | 25 | |
Share based payment | | | 162 | | | | - | |
Payroll and payroll related | | | 19 | | | | 10 | |
Other | | | 3 | | | | 3 | |
| | | | | | | | |
| | $ | 245 | | | $ | 38 | |
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
NOTE 9: | SELECTED STATEMENTS OF OPERATIONS DATA (Cont.) |
| b. | General and administrative expenses: |
| | Year ended December 31, | |
| | 2021 | | | 2020 | |
| | | | | | |
Payroll and payroll related | | $ | 138 | | | $ | 19 | |
Professional services | | | 281 | | | | 8 | |
Share based payment | | | 22 | | | | - | |
Others | | | 17 | | | | 7 | |
| | | | | | | | |
| | $ | 458 | | | $ | 34 | |
| | Year ended December 31, | |
| | 2021 | | | 2020 | |
| | | | | | |
Exchange rate differences | | $ | 6 | | | $ | 1 | |
Bank fees | | | 2 | | | | - | |
| | | | | | | | |
| | $ | 8 | | | $ | 1 | |
POLYRIZONLTD.
NOTESTO FINANCIAL STATEMENTS
U.S.dollars in thousands, except share and per share data
Theloss and the weighted average number of shares used in computing basic and diluted net loss per share is as follows:
| | Year ended December 31, | |
| | 2021 | | | 2020 | |
| | | | | | |
Numerator: | | | | | | |
Net loss applicable to shareholders of Ordinary Shares | | $ | 711 | | | $ | 73 | |
Interest accrued on Preferred Shares | | | 44 | | | | 44 | |
Total loss attributed to Ordinary Shares | | | 755 | | | | 117 | |
| | | | | | | | |
Denominator: | | | | | | | | |
Number of Ordinary Shares used in computing basic and diluted net loss per share | | | 14,727,407 | | | | 4,109,443 | |
Net loss per share of Ordinary Share, basic and diluted | | $ | 0.05 | | | $ | 0.03 | |
NOTE 11: | SUBSEQUENT EVENTS |
| a) | The Company evaluated subsequent events through April 14, 2022, the date these financial statements were available to be issued except for items b, c and d as to which the date is August 10, 2022. |
In January 2022, the Company signed Simple Agreements for Future Equity (each, a “SAFE”) with several existing investors (each, a “SAFE Investor”) of the Company for an aggregate amount of $250 (Investment Amount). Pursuant to the terms of the SAFE Agreements, upon consummation of a Qualified Equity Financing (which is defined as at least $300 aggregate proceeds to the Company), the Company will issue to each SAFE Investor the number of most senior class of shares issued in the Qualified Equity Financing equal to the Investment Amount divided by the discount price (which is defined as the lowest price per SAFE share sold in the Equity Financing discounted by to 20% (the “Discount Rate”).
Ifthere is an equity financing which doesn’t qualify as a Qualified Equity Financing, each SAFE Investor will have the right to optionallyconvert the outstanding Investment Amount into the number of most senior class of shares issued calculated based on the purchase amountdivided by the discount price.
TheSAFEs also provides that the investor has the right to automatically receive Ordinary Shares in the case of change of control event (a“Liquidity Event”). In the case of a Liquidity Event the investors are entitled to the number of Ordinary Shares equal tothe investment Amount divided by the price per share of the Ordinary Shares sold or registered in a Liquidity Event multiplied by theDiscount Rate or the fair market value of the Ordinary Shares at the Liquidity Event multiplied by the Discount Rate.
Ifan IPO is consummated before the expiration or termination of the SAFEs, the SAFE Investors will automatically receive, immediately priorto and subject to, the unconditional closing of such IPO, from the Company, a number of Ordinary Shares, equal to the investment amountdivided by the price per share determined by the underwriter of the IPO.
Ifthe Investment Amount has not been converted prior to July 31, 2023 then on such date, the SAFE will be automatically converted intosuch number of the most senior class of shares of the Company then outstanding, equal to, the Investment Amount, divided by the lowestprice per share actually paid to the Company for such most senior class of shares of the Company then outstanding, discounted by 20%,rounded up to the nearest whole number. The SAFEs may not be repaid in cash.
Inthe event of a (i) a voluntary termination of operations, (ii) a general assignment for the benefit of the Company’s creditors,or (iii) any other liquidation, dissolution or winding up of the Company (excluding a Liquidity Event), whether voluntary or involuntary(the “Dissolution Event), following payment of all senior debt, the investor is entitled to receive an amount equal to the InvestmentAmount due and payable immediately prior to the occurrence of the Dissolution Event.
| b) | On May 30, 2022, the Company entered into a collaboration agreement with SciSparc Ltd., or SciSparc (Nasdaq: SPRC), a specialty clinical-stage pharmaceutical company focusing on the development of therapies to treat disorders of the central nervous system. As part of the collaboration, the Company will work with SciSparc to develop a unique technology for the treatment of pain, based on SciSparc's SCI-160 platform and Company’s T&T platform technology. |
Under the collaboration agreement, SciSparc will pay development fees to the Company of up to a total of $2,550 upon the completion of certain milestones as set forth in the agreement, as well as royalties in the low single digits upon sales of products under the agreement and additional royalties for sales under any sublicense by SciSparc.
| c) | In June 2022, the Company signed an additional SAFE with several existing investors (each, a “SAFE Investor”) of the Company for an aggregate amount of $459 (Investment Amount) with the same terms as January SAFE (refer to Note 11a above). |
| d) | On July 18, 2022, the Company signed a collaboration agreement with NurExone Biologic Inc., or NurExone, pursuant to which the Company will use its T&T platform technology to develop formulations, conduct analytical development and produce technical batches of a tailored intranasal delivery system. The intranasal system is being designed for delivery of NurExone’s ExoTherapy to patients with traumatic spinal cord injuries and may also be relevant to other indications through intranasal exosome delivery. Pursuant to the collaboration agreement, NurExone will cover the costs of the formulation development in an estimated amount of $220 in three installments upon development success and expects to be able to perform a biological efficacy study of the intranasal system within three quarters. NurExone shall pay development fees to the Company of up to a total of $3,350 upon completion of certain milestones as set forth in the agreement, including the payment of an aggregate of $500 upon successful completion of a Phase 2 clinical trial. Moreover, NurExone shall pay royalties based on any product sales resulting from the collaboration agreement. In advanced stages of the collaboration, the Company may assist NurExone with regulatory submissions for the United States and Europe. Manufacturing and marketing rights for formulations under the collaboration agreement are exclusive to NurExone. |
PARTII
INFORMATIONNOT REQUIRED IN PROSPECTUS
Item 6.Indemnification of Directors, Officers and Employees.
Indemnification
TheIsraeli Companies Law 5759-2999, or the Companies Law, and the Israeli Securities Law, 5728-1968, or the Securities Law, provide thata company may indemnify an office holder against the following liabilities and expenses incurred for acts performed by him or her asan office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of associationinclude a provision authorizing such indemnification:
| ● | a financial liability imposed on him or her in favor of another person by any judgment concerning an act performed in his or her capacity as an office holder, including a settlement or arbitrator’s award approved by a court; |
| | |
| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder (a) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (1) no indictment (as defined in the Companies Law) was filed against such office holder as a result of such investigation or proceeding; and (2) no financial liability as a substitute for the criminal proceeding (as defined in the Companies Law) was imposed upon him or her as a result of such investigation or proceeding, or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; or (b) in connection with a monetary sanction; |
| | |
| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder or imposed on him or her by a court (1) in proceedings that the company institutes, or that another person institutes on the company’s behalf, against him or her; (2) in a criminal proceedings of which he or she was acquitted; or (3) as a result of a conviction for a crime that does not require proof of criminal intent; and |
| | |
| ● | expenses incurred by an office holder in connection with an Administrative Procedure under the Securities Law, including reasonable litigation expenses and reasonable attorneys’ fees. An “Administrative Procedure” is defined as a procedure pursuant to chapters H3 (Monetary Sanction by the Israeli Securities Authority), H4 (Administrative Enforcement Procedures of the Administrative Enforcement Committee) or I1 (Arrangement to prevent Procedures or Interruption of procedures subject to conditions) to the Securities Law. |
TheCompanies Law also permits a company to undertake in advance to indemnify an office holder, provided that if such indemnification relatesto financial liability imposed on him or her, as described above, then the undertaking should be limited and shall detail the followingforeseen events and amount or criterion:
| ● | to events that in the opinion of the board of directors can be foreseen based on the company’s activities at the time that the undertaking to indemnify is made; and |
| | |
| ● | in amount or criterion determined by the board of directors, at the time of the giving of such undertaking to indemnify, to be reasonable under the circumstances. |
Weintend to enter, into indemnification agreements with all of our directors and with all members of our senior management subject to thelisting of our securities on Nasdaq. Each such indemnification agreement will provide the office holder with indemnification permittedunder applicable law and up to a certain amount, and to the extent that these liabilities are not covered by directors and officers insurance.
Exculpation
Underthe Companies Law, an Israeli company may not exculpate an office holder from liability for a breach of his or her duty of loyalty, butmay exculpate in advance an office holder from his or her liability to the company, in whole or in part, for damages caused to the companyas a result of a breach of his or her duty of care (other than in relation to distributions), but only if a provision authorizing suchexculpation is included in its articles of association. Our amended and restated articles of association provide that we may exculpate,in whole or in part, any office holder from liability to us for damages caused to the company as a result of a breach of his or her dutyof care, but prohibit an exculpation from liability arising from a company’s transaction in which our controlling shareholder orofficer has a personal interest. Subject to the aforesaid limitations, under the indemnification agreements, we exculpate and releaseour office holders from any and all liability to us related to any breach by them of their duty of care to us to the fullest extent permittedby law.
Limitations
TheCompanies Law provides that the Company may not exculpate or indemnify an office holder nor enter into an insurance contract that wouldprovide coverage for any liability incurred as a result of any of the following: (1) a breach by the office holder of his or her dutyof loyalty unless (in the case of indemnity or insurance only, but not exculpation) the office holder acted in good faith and had a reasonablebasis to believe that the act would not prejudice us; (2) a breach by the office holder of his or her duty of care if the breach wascarried out intentionally or recklessly (as opposed to merely negligently); (3) any act or omission committed with the intent to derivean illegal personal benefit; or (4) any fine, monetary sanction, penalty or forfeit levied against the office holder.
Underthe Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensationcommittee and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders.
Ouramended and restated articles of association permit us to exculpate (subject to the aforesaid limitation), indemnify and insure our officeholders to the fullest extent permitted or to be permitted by the Companies Law.
Item 7.Recent Sales of Unregistered Securities.
Setforth below are the sales of all securities by the Company since the Company’s incorporation in February 2018, which were not registeredunder the Securities Act. The Company believes that each of such issuances was exempt from registration under the Securities Act in relianceon Section 4(a)(2) of the Securities Act, Rule 701 and/or Regulation S under the Securities Act.
InJanuary 2022 and in June 2022, we signed the2022 SAFE Agreements with the SAFE Investors of the Company for an aggregate amount of $709,952.Upon the consummation of this offering we will convert the SAFE Agreements into Ordinary Shares at a price per share representing a 20%discount to the price per share in this offering.
Pursuantto a Share Purchase Agreement executed on August 25, 2021, we issued an aggregate of 14,328,396 Ordinary Shares to the certain investorslisted thereto, at a price per share of $0.0544 for aggregate net proceeds of $779,971.
Pursuantto a Share Purchase Agreement executed on March 9, 2021, we issued an aggregate of 7,668,712 Ordinary Shares to the certain investorslisted thereto, at a price per share of $0.0326 for aggregate net proceeds of $250,000.
Pursuantto a Share Purchase Agreement executed on July 15, 2020, we issued 915,514 Ordinary Shares to the certain investors listed thereto, ata price per share of $0.01026453 for aggregate net proceeds of $10,000.
Additionally,since January 1, 2019, we have granted share options to employees, directors, consultants and service providers under our Equity IncentivePlan 2021 covering an aggregate of 4,928,799 Ordinary Shares, with exercise prices ranging from $0.0326 to $0.0544 per share.
Nounderwriters were employed in connection with the securities issuances set forth in this Item.
Item 8.Exhibits and Financial Statement Schedules.
(a)Exhibits. See the Exhibit Index attached to this registration statement, which is incorporated by reference herein.
(b)Financial Statement Schedules. Schedules not listed above have been omitted because the information required to be set forth thereinis not applicable or is shown in the financial statements or notes thereto.
Item9. Undertakings.
a.The undersigned registrant hereby undertakes:
1.To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
| i. | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
| ii. | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and |
| iii. | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
2.That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemedto be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shallbe deemed to be the initial bona fide offering thereof.
3.To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at thetermination of the offering.
4.To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-Fat the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required bySection 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effectiveamendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other informationin the prospectus is at least as current as the date of those financial statements.
5.That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed by the registrantpursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed partof and included in the registration statement; and each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7)as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x)for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of andincluded in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or thedate of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liabilitypurposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of theregistration statement relating to the securities in the registration statement to which that prospectus relates, and the offering ofsuch securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement madein a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporatedby reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with atime of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statementor prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
6.That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distributionof the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuantto this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securitiesare offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller tothe purchaser and will be considered to offer or sell such securities to such purchaser:
| i. | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| ii. | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| iii. | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| iv. | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
b.The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements certificatesin such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
c.Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controllingpersons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion ofthe Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is,therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrantof expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action,suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, theregistrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriatejurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed bythe final adjudication of such issue.
d.The undersigned registrant hereby undertakes that:
1.For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filedas part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuantto Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the timeit was declared effective.
2.For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form ofprospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securitiesat that time shall be deemed to be the initial bona fide offering thereof.
EXHIBITINDEX
* | Filed Herewith. |
| |
** | To be filed by amendment. |
SIGNATURES
Pursuantto the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe thatit meets all of the requirements for filing on Form F-1 and has duly caused this Registration Statement to be signed on its behalfby the undersigned, thereunto duly authorized, in Raanana, Israel on this 10th day of August, 2022.
| POLYRIZON LTD. |
| | |
| By: | /s/ Tomer Izraeli |
| | Tomer Izraeli, Chief Executive Officer |
POWEROF ATTORNEY
Theundersigned officers and directors of Polyrizon Ltd. hereby constitute and appoint Tomer Izraeli and Nir Ben Yosef with full powerof substitution, our true and lawful attorney-in-fact and agent to take any actions to enable the Company to comply with the SecuritiesAct, and any rules, regulations and requirements of the SEC, in connection with this Registration Statement on Form F-1, includingthe power and authority to sign for us in our names in the capacities indicated below any and all further amendments to this registrationstatement and any other registration statement filed pursuant to the provisions of Rule 462 under the Securities Act.
Pursuantto the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities andon the dates indicated.
Signature | | Title | | Date |
| | | | |
/s/ Tomer Izraeli | | Chief Executive Officer, Director | | August 10, 2022 |
Tomer Izraeli | | (Principal Executive Officer) | | |
| | | | |
/s/ Nir Ben Yosef | | Chief Financial Officer | | August 10, 2022 |
Nir Ben Yosef | | (Principal Financial and Accounting Officer) | | |
| | | | |
/s/ Dr. Roy Borochov | | Director | | August 10, 2022 |
Dr. Roy Borochov | | | | |
| | | | |
/s/ Liron Carmel | | Director | | August 10, 2022 |
Liron Carmel | | | | |
| | | | |
/s/ Oz Adler | | Director | | August 10, 2022 |
Oz Adler | | | | |
| | | | |
/s/ Raul Srugo | | Director | | August 10, 2022 |
Raul Srugo | | | | |
SIGNATUREOF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuantto the requirements of the Securities Act of 1933, as amended, the undersigned, the duly authorized representative in the United Statesof Polyrizon Ltd., has signed this Registration Statement on this 10th day of August, 2022.
| Puglisi & Associates |
| |
| Authorized U.S. Representative |
| |
| /s/ Donald J. Puglisi |
| Name: Donald J. Puglisi |
| Title: Managing Director |
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