FOAMIX PHARMACEUTICALS LTD.
FORM 10-K
TABLE OF CONTENTS
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DEFINITIONS
Unless otherwise indicated, all references to the “company,“company,” “we,“we,” “us,“us,” “our”“our” and “Foamix”“Foamix” refer to Foamix Pharmaceuticals Ltd. and its subsidiary, Foamix Pharmaceuticals Inc., a Delaware corporation.
References to the “Companies Law”“Companies Law” are to Israel’sIsrael’s Companies Law, 5759-1999, as currently amended;amended;
References to the “Exchange Act”“Exchange Act” are to the Securities Exchange Act of 1934, as amended;amended;
References to the “FDA”“FDA” are to the United States Food and Drug Administration;
References to “NASDAQ”“Nasdaq” are to the NASDAQNasdaq Global Stock Market;Market;
References to “ordinary shares”“ordinary shares” are to our ordinary shares, par value of NIS 0.16 per share;
References to the “SEC”“SEC” are to the United States Securities and Exchange Commission;
References to the “Securities Act”“Securities Act” are to the Securities Act of 1933, as amended; and
References to “U.S. dollars”“U.S. dollars” and “$“$” are to currency of the United States of America, and references to “NIS”“NIS” are to New Israeli Shekels.
USE OF TRADEMARKS
“Foamix”Foamix”, the Foamix logo and other trademarks or service marks of Foamix appearing in this Annual Report on Form 10-K are the property of Foamix. This Form 10-KAnnual Report also contains trade names, trademarks and service marks of others, which are the property of their respective owners. We do not intend our use or display of other companies’companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
FORWARD-LOOKING STATEMENTS
This annual reportAnnual Report contains express or implied “forward-looking statements”“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other U.S. Federal securities laws.
These forward-looking statements include, but are not limited to, statements regarding the following matters:
| U.S. Food and Drug Administration, or FDA, approval of, or other regulatory action in the |
| the commercial launch of current or future product candidates; |
| our ability to achieve favorable pricing for our product candidates; |
| our expectations regarding the commercial supply of our product candidates; |
| third-party payor reimbursement for our product candidates; |
| our estimates regarding anticipated expenses, capital requirements and needs for additional financing; |
| the |
| the timing, cost or other aspects of the commercialization of our product candidates; |
| the completion of, and receiving favorable results of, clinical trials for our product candidates; |
| application for and issuance of patents to us by the United States Patent and Trademark Office, or |
| the timing, costs or results of litigation to protect our intellectual property portfolio; |
| · | development and approval of the use of our product candidates for additional indications; and |
| our expectations regarding licensing, business transactions and strategic operations. |
In some cases, forward-looking statements are identified by terminology such as “may,” “will,” “could,” “should,” “expects,” “plans,” “anticipates,” “believes,” “intends,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially from those projected. These statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. In addition, historic results of scientific research and clinical and preclinical trials do not guarantee that the conclusions of future research or trials would not be different, and historic results referred to in this Annual Report on Form 10-K may be interpreted differently in light of additional research and clinical and preclinical trials results. The forward-looking statements contained in this annual report are subject to risks and uncertainties, including those discussed under “Item 1A—Risk“Risk Factors” and in our other filings with the Securities and Exchange Commission, or the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we are under no duty to (and expressly disclaim any such obligation to) update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this annual report.
STATEMENTS BY RESEARCH OR FORECAST FIRMS
We do not endorse or adopt any third-partythird party research or forecast firms’firms’ statements or reports referred to in this annual report and assume no responsibility for the contents or opinions represented in such statements or reports, nor for the updating of any information contained therein.
Overview
We are a late clinical-stage specialty pharmaceutical company focused on developing and commercializing our proprietary, innovative and differentiated topical drug candidates for dermatological therapy. Our lead product candidate, FMX101 (4% minocycline foamfoam), is being developed for the treatment of acne, rosacea and other skin conditions. Our lead product candidates, FMX101 for moderate-to-severe acne and our second product candidate, FMX103 (1.5% minocycline foam), is being developed for the treatment of moderate-to-severe papulopustular rosacea,rosacea. Both product candidates are novel topical foam formulations of the antibiotic minocycline. Based onminocycline and were developed using our Molecule Stabilizing Technology, a proprietary foam platform designed to optimize the topical delivery of minocycline, an active pharmaceutical ingredient, or API, that is currently available only in oral form despite its prevalent use in dermatology.
We announced positive top-line results demonstrated infrom both of our Phase II and Phase III clinical trials for each of FMX101 and FMX103 in the second half of 2018. We submitted our Phase II clinical trialnew drug application, or NDA, to the U.S. Food and Drug Administration, or FDA, for FMX101 in December 2018, and expect to submit an NDA for FMX103 in mid-2019. Despite the considerable U.S. market opportunities for acne and rosacea, we believe these product candidates have the potential to provide a fast, effective and well-tolerated treatment for their respective indications, whichmarkets are currently underserved and commonly treated by oral prescription products such as oral minocycline oraland doxycycline and various other non-foamnon-minocycline topical therapies. If approved, we believe FMX101 and FMX103 have the potential to provide a first-in-class, effective and well-tolerated topical treatment for the tens of millions of people who suffer from their respective indications.
Our corporate strategy is to develop and solidify a commercial presence in acne and rosacea by obtaining FDA approval for, and launching our lead product candidates, FMX101 and FMX103, in the United States. We may also enter into partnerships with third parties to reach other geographic territories or therapeutic fields through their respective sales forces and infrastructure. Following these near-term goals, we intend to grow beyond these indications into other dermatological indications, and to diversify our product and commercial development beyond minocycline and the tetracycline class of antibiotics. We are currently investingdeveloping additional foam and other topical products for acne, rosacea and other dermatology indications in vehicle platforms designed to enhance delivery of their respective APIs. We are also evaluating diversifying into synergistic technologies and specialties either on our own or through partnerships.
FMX101 is a product candidate containing micronized minocycline hydrochloride, an antibiotic in the majoritytetracycline class, in a 4% concentration for the treatment of moderate-to-severe acne vulgaris. The API is suspended in our efforts and resources to advanceMolecule Stabilizing Technology foam vehicle, an elegant, light-feeling topical foam that is easily spread across wide areas of the skin. In September 2018, we announced our third pivotal Phase III clinical trial of FMX101 (Study 22) for FMX101FX2017-22) met both of its co-primary endpoints, demonstrating a statistically significant reduction in the U.S. We announcednumber of inflammatory lesions and a statistically significant improvement in patients’ Investigator’s Global Assessment, or IGA, scores, a metric commonly used to measure efficacy in acne trials. These positive results followed the first patient enrolled in this trial on August 3, 2017. We expect to have top-line results from this trial in the third quarter of 2018. In March of 2017, we announced the results of the double-blind stage of our initial two initial Phase III clinical trials. Statistical significance was demonstratedtrials of FMX101 that we announced in 2017 wherein both co-primary efficacy endpoints were met in one studytrial (Study 05), however, statistical significance was demonstrated inFX2014-05) but only one of the two co-primary efficacy endpoints showed statistical significance in the second studyother trial (Study 04)FX2014-04). Statistical significance was also demonstrated for FMX101 compared to vehicle in the pooled analysis of the co-primary endpoints as well as key secondary endpoints. TheWe embarked on our third Phase III trial was initiated(Study FX2017-22) following a Type B meeting conducted with the FDA in June of 2017. During this meeting, wewhich the FDA confirmed that achieving statistically significantreplicating the results for FMX101 versus vehicle in both co-primary efficacy endpoints in a third independent clinicalof our Study FX2014-05 trial would be sufficient for establishinglikely support an efficacy claim.claim for FMX101. In addition to the positive Study FX2017-22 efficacy results, very few safety adverse events (and no treatment-related serious adverse events) were observed both in Study FX2017-22 and in the 40-week open label safety portion of Studies FX2014-04 and FX20410-05 that we concluded in January 2018.
FMX103 is a product candidate also containing micronized minocycline hydrochloride suspended in our Molecule Stabilizing Technology A previous Phase II clinical trialvehicle, at a lower 1.5% concentration, for the treatment of FMX101 also demonstrated clinically and statistically significant results in all primary and secondary endpoints. moderate-to-severe papulopustular rosacea. In JanuaryNovember 2018, we announced the completionthat both of a long-term safety study that was an extension of our two initial Phase III clinical trials for FMX101. The resultsFMX103 (Studies FX2016-11 and FX2016-12) met each of their co-primary endpoints, demonstrating a statistically significant reduction in inflammatory lesion counts and IGA treatment success of approximately 50% from the study showed FMX101 to be well-toleratedbaseline. There were no treatment-related serious adverse events, very few reported adverse events and to have an acceptable safety profile.
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We developed FMX101 and FMX103 using our proprietary Molecule Stabilizing Technology foam-based technology platform that was optimized for delivery of minocycline hydrochloride, a characteristically unstable small molecule, through the skin. We are currently developing in-house a pipeline of other innovative products to enhance our minocycline platform, including FCD105, a product candidate for the treatment of acne vulgaris that combines minocycline with a retinoid and which we successfully completedanticipate evaluating in a Phase II clinical trial with FDX104,(Study FX2016-40) beginning in mid-2019. We are also currently reviewing potential acquisitions of pipeline products at various stages of development that could be incorporated into our proprietary doxycycline foamvehicle for the management of moderate-to-severe rash associated with epidermal growth factor receptor inhibitor (EGFRI) anticancer treatments, and we are currently assessing our various options with regard to this product candidate, including seeking out licensing opportunities for it. We have also successfully completed a Phase II clinical trial of FMX102, our minocycline foam for the treatment of impetigo, including impetigo caused by methicillin-resistant staphylococcus aureus, or MRSA. However, as described in previous reports,optimized delivery.
In addition, we have been contemplating the commercial viabilityother proprietary delivery technologies in development that enable topical delivery of this product candidate for some time, given its limited market dominated by generic products, and following additional analysis of its potential we have recently decided to discontinue its further development in light of our current priorities and our other ongoing research and development efforts.
surfactant-free foam platform that supports our lead product candidates.2
We have also out-licensed other foam technology platforms to other third parties to develop branded pharmaceutical products containing different APIs for potential commercialization that are involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.”the early stages of development.
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Product Candidates and Pipeline
The following chart provides a summary of the developmental pipeline for our lead product candidates:
Product Candidate | Preclinical | Phase | Phase III | Anticipated Milestones | |
| FMX101 (4%) for |   | ·Positive top-line results ·Long-term safety study completed | ·PDUFA (Q4 2019) | ||
FMX103 (1.5%) for |  | ·Positive top-line results (Studies FX2016-11 and FX2016-12) | ·Long term safety study completion ·NDA filing (mid 2019) | ||
FCD105 for Moderate-to-Severe Acne Vulgaris |  | ·IND meeting request submitted (Q4 2018) | ·Initiation of Phase II | ||
FMX109 for Moderate to Severe Acne Vulgaris |  | ·IND for clinical proof of principle submitted (1H 2019) | ·Initiation of Phase | ||
| FMX110 for Rosacea | | ||||
FMX101 for moderate-to-severe acne
Our lead product candidate, FMX101 (4% minocycline foam 4%foam), is a novel topical foam formulation of minocycline for the treatment of moderate-to-severe acne. In 2018, we completed our third pivotal Phase III clinical trial (Study FX2017-22) for FMX101 and announced that we received positive top-line results from this trial in the third quarter of 2018. In January 2018, we announced the completion of a long-term safety study that was an extension of our two initial Phase III clinical trials for FMX101. The results from the long-term safety study showed FMX101 to be well-tolerated and to have an acceptable safety profile. On December 21, 2018, we announced the submission of an NDA for FMX101.
We initiated a third Phase III trial for FMX101 (Study FX2017-22) following our announcement in March 2017 of results from our two initial Phase III clinical trials for FMX101. In the previous Phase III clinical trials, statistical significance was observed in both co-primary efficacy endpoints in one study (Study FX2014-05); however, in the other study (Study FX2014-04), statistical significance was demonstrated in only one of the co-primary efficacy endpoints. Statistical significance was also demonstrated for FMX101 compared to vehicle in the pooled analysis of the co-primary endpoints as well as key secondary endpoints for Studies FX2014-04 and FX2014-05. Study FX2017-22 was initiated following a Type B meeting conducted with the FDA in June 2017. During this meeting, we confirmed that achieving statistically significant results for FMX101 versus vehicle in both co-primary efficacy endpoints in a third independent clinical trial could be sufficient for establishing an efficacy claim in an NDA submission.
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Market opportunity
Acne is characterized by areas of scaly red skin, non-inflammatory blackheads and whiteheads, inflammatory lesions, papules and pustules and occasionally boils and scarring. It affects approximately 40 to 50 million people in the U.S.United States alone, of whom approximately 10 million suffer from moderate-to-severe acne. For most people, acne diminishes over time and tends to disappear or decrease by age 25. However, some individuals continue to suffer from acne well into their 30s, 40s and later.
The current U.S. market size for treatment of acne is considerable and estimated at approximately $3 billion, presenting significant unmet needs of patients and healthcare providers to be addressed. We believe that our FMX101 product candidate for this indication, if approved, may provide a new treatment alternative for patients and healthcare providers who are unsatisfied with their current therapies.
Limitations of oral minocycline for acne
Oral minocycline, such as Solodyn, has been widely prescribed for the treatment of moderate-to-severe acne. According to the product label of Solodyn, inflammatory lesions were reduced by 44% at week 12, and a positive effect on the reduction of non-inflammatory acne lesions versus vehicle was not demonstrated. According to its product label, the most common adverse systemic side effects of Solodyn include diarrhea, dizziness, drowsiness, indigestion, lightheadedness, loss of appetite, nausea, sore mouth, throat or tongue and vomiting.
In 2009, the FDA added oral minocycline to its Adverse Event Reporting System, a list of medications under investigation by the FDA, due to its severe side effects. In 2011, we conducted a blind survey of 40 U.S. dermatologists. The results of the survey revealed that 90% of the dermatologists surveyed who prescribed oral minocycline were concerned about its side effects, and 76% of these dermatologists stated they would prefer prescribing a topical minocycline product over an existing oral medication, assuming the topical treatment was safe, effective and approved by the FDA.
FMX101 clinical trials
FMX101 third Phase IIIII clinical trial
In August 2017, we announced the dosing of the first patient in connection with the FMX101our third Phase IIIII acne clinical trial, known as Study FX2017-22, a double-blind, vehicle-controlled, multi-center trial conducted at approximately 80 sites throughout the trial was conducted in compliance with the International Conference of Harmonization, or ICH, good clinical practice, or GCP, guidelines and applicable Israel Ministry of Health regulations. The trial protocol complied with the procedures, criteria and endpoints specified by the FDA’s 2005 draft industry guidance for acne trials. Because minocycline, the active ingredient in FMX101, is a well-known drug with an established safety profile, the ethical committee for our Phase II clinical trial and the Israeli Ministry of Health allowed us to conduct the Phase II clinical trial of FMX101 without having first conducted a Phase I clinical trial.United States.
In addition,February 2018, we completedheld a single-center, non-randomized, open-label study to evaluate multiple dose topical administration of FMX101 4% minocycline foam in 20 subjects with ages ranging from 9 years to 16 years 11 months years of age with moderate to severe acne vulgaris. The objectives were to characterize minocycline pharmacokinetics after administration of FMX101 4% once daily for 7 days under maximal use conditions and to evaluate the safety and tolerability.
In November 2016May 2018, we completed patient enrollment resulting in an intent-to-treat population of 961a total of 1,507 patientswith moderate-to-severe acne, enrolled betweenwith 1,488 patients in the two trials. Patientsintent-to-treat population in Study FX2017-22. In January 2018, we prospectively excluded 19 patients from the intent-to-treat population due to data integrity issues identified at one clinical trial site following an audit, investigation and termination of the site. We notified the FDA of our audit findings and of the termination of the clinical trial site in February 2018, in advance of our Type B meeting with the FDA. We do not believe that the exclusion of the 19 patients from the intent-to-treat population for Study FX2017-22 is material to our clinical trial results, our clinical trials generally or to our company as a whole. In the Phase III clinical trial, patients were randomized on a 2:1:1 basis, (active compound versus vehicle-only), initially into a 12-week double-blind, multi-center phase where they were treated topically once daily with either FMX101 (minocycline foam 4%) or the respective foam vehicle. vehicle foam. The two co-primaryprimary efficacy endpoints of both trials were: (1) the absolute change from baseline in inflammatory lesion counts in each treatment group at week 12; and (2) the proportion of patients achieving success at week 12 based as defined by an IGA score of 0 “clear” or 1 “almost clear” and at least a two-grade improvement from baseline at week 12; and (2) the mean change from baseline in inflammatory lesion counts in each treatment group at week 12. Safety evaluation includesincluded reported adverse events, assessments of tolerability, clinical laboratory tests and vital signs. Patients who completed the 12-week double-blind portion of the trials had the option to continue in a long-term open-label safety extension, aimed at evaluating the safety of intermittent use of FMX101 for up to nine additional months.
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In August 2018, we received a letter from the FDA’s Division of Dermatology requesting information on the canister, foaming pump and other device constituent parts of our FMX101 product candidate. The letter referred to FMX101 as a combination product and requested information relating to the quality and design control of the device, including (1) the device description documentation, (2) the design control documentation, (3) the traceability documentation and (4) additional considerations related to the biocompatibility and sterility of the product candidate. We have provided the requested information to the FDA as part of our NDA submission using readily available data derived and generated from our Study FX2017-22.
In September 2018, we announced positive top-line results of Study FX2017-22. The study met both co-primary endpoints of (a) absolute change from baseline in inflammatory lesion count at week 12, and (b) investigator global assessment treatment success (IGA 0/1) at week 12, and at least a 2-grade improvement (decrease) from baseline. The mean inflammatory lesion count at baseline was 30.7 and 30.8 for the FMX101 and vehicle treatment groups, respectively. The proportion of subjects with an IGA score of 3 (“moderate”) or 4 (“severe”) at baseline was 84.0% and 16.0%, respectively, in the FMX101 treatment group and 83.5% and 16.5%, respectively, in the vehicle treatment group. The co-primary efficacy assessment showed a statistically significant mean reduction in inflammatory lesion count at week 12 relative to baseline of -16.93 lesions for the FMX101 treatment group and -13.40 lesions for the vehicle treatment group. In addition, in respect of the second co-primary endpoint, the proportion of subjects that achieved IGA treatment success at week 12 was 30.80% for the FMX101 treatment group and 19.63% for the vehicle treatment group.
The following charts show the reduction of inflammatory lesion count from baseline for FMX101 4% and vehicle treatment groups in each of Studies 04 and 05 and on a pooled basisStudy FX2017-22 at week 12:12, and compared to Study FX2014-05, which is the comparison discussed in our Type B meeting with the FDA, in which the FDA confirmed that replicating the results of Study FX2014-05 on such endpoint would likely support an efficacy claim for FMX101:
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The following charts show the percentage of patients who met the IGA treatment success criterion at week 12 (defined as at least a 2 grade point reduction from baseline IGA score and a final score of “clear”“clear” (0) or “almost clear”“almost clear” (1)) for FMX101 4% and vehicle treatment groups in each of Studies 04 and 05 and on a pooled basisStudy FX2017-22 at week 12:12, compared to Study FX2014-05, as explained above:
The safety and tolerability of FMX101 thirdwere also evaluated and the safety profile of FMX101 in Study FX2017-22 was found to be consistent with that observed in the two prior Phase III trials. The most commonly reported adverse events in Study FX2017-22 related to upper respiratory tract infections. There were no treatment-related serious adverse events. In these trials, FMX101 was observed to have a generally favorable safety profile and to be generally well tolerated. Based on the efficacy and safety profile observed in clinical studies to date, we believe FMX101, if approved, may present an attractive option for the treatment of moderate-to-severe acne.
In December 2018, we submitted an NDA to the FDA seeking approval for FMX101 for the treatment of inflammatory lesions of non-nodular moderate-to-severe acne vulgaris in patients 9 years of age and older. The submission followed the successful outcomes in our Phase III clinical trial
FMX101 initial two Phase III trial for FMX101.clinical trials
FMX101 open-label safety extension study
| · | Non-dermal adverse events were comparable in type and frequency with those reported during the double-blinded portion of Studies |
| · | Application site adverse events occurred in less than 2% of patients during the additional 40 weeks of open-label |
| · |
Efficacy was also measured as a secondary endpoint in the open-label study for FMX101, and was based on summary statistics from observed cases. During the study, patients were allowed to discontinue therapy with FMX101 if they believed their acne was under control. Patients could re-start therapy as needed and were also allowed to use other acne medications concomitantly. As a result, no claim of statistical difference was made between any of the treatment arms,arms; however, notable findings were observed:
| · | At week 52, 37.7% of patients from Study |
| · | At week 52, patients from Study |
| · | At week 52, patients from Study |
FMX103 for moderate-to-severe papulopustular rosacea
Our product candidate FMX103 minocycline(minocycline foam 1.5%,) is a novel topical foam formulation of minocycline for the treatment of moderate-to-severe papulopustular rosacea.
Market opportunity
Papulopustular rosacea is a chronic skin disease causing inflammatory lesions (papules and pustules) on the face. It can create psychosocial burdens, such as embarrassment, anxiety and low self-esteem that adversely affect quality of life. Rosacea is most frequently seen in adults between 30 and 50 years of age and affects more than 16 million people in the U.S.United States alone. There is no known cure for rosacea and the exact root cause of the disease remains unknown as well, though both genetic and environmental factors are thought to have an impact on its outbreak. Mild papulopustular rosacea is currently treated by topical antimicrobials (such as metronidazole, clindamycin and ivermectin) or azelaic acid, while the mainstaymainstays for the treatment of moderate-to-severe rosacea are systemic antibiotics such as minocycline and doxycycline.
The current U.S. market size for treatment of rosacea is estimated to be approximately $1.0$1 billion, and we believe that our FMX103 product candidate for this indication, if approved, can offer advantages over other currently available products.may provide a new treatment alternative for patients and healthcare providers who are unsatisfied with their current therapies.
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FMX103 clinical trials
FMX103 Phase III clinical trials
In December 2016, we conducted a pre-IND meeting with the FDA to confirm that our clinical and non-clinical programs outlined were sufficient to submit an IND and to begin our Phase III clinical trials, utilizing the results of toxicology, pharmacology and human safety studies that were completed for FMX101.
Studies FX2016-11 and FX2016-12 were identical, double-blind, randomized, vehicle-controlled studies that enrolled a total of 1,522 patients (Study FX2016-11: 751 patients, Study FX2016-12: 771 patients) with moderate-to-severe papulopustular rosacea across 100 sites in the United States. Patients were randomized 2:1 (1.5% minocycline foam versus vehicle)into a 12-week double-blind vehicle-controlled phase. Patients are randomized on a 2:1 basis (1.5% minocycline foam versus vehicle) andphase where they were treated once daily for 12 weeks inwith either FMX103 minocycline foam (1.5%) or the initial double-blind portions of the trials.respective vehicle foam. The primaryco-primary efficacy endpoints are were: (a) the dichotomized IGA score where treatment success is defined as at least a 2-step improvement resulting in a 0 (clear) or 1 (almost clear) score at week 12 compared to day 0 / baseline, and (b) the absolute change in the inflammatory lesion count at week 12 compared to day 0 / baseline. Safety evaluation will include
In November 2018, we announced positive topline results from these two Phase III clinical trials for FMX103.
In Study FX2016-11, the mean inflammatory lesion count at baseline was 28.5 and 29.0 for the FMX103 and vehicle treatment groups, respectively, and the proportion of patients with an IGA score at baseline of 3 (“moderate”) or 4 (“severe”) was 89.7% and 10.3%, respectively, in the FMX103 treatment group, and 86.7% and 13.3%, respectively, in the vehicle treatment group. The co-primary efficacy assessment showed a statistically significant mean reduction in inflammatory lesion count at week 12 relative to baseline of -17.57 lesions for the FMX103 treatment group and -15.65 lesions for the vehicle treatment group. In addition, in respect of the second co-primary endpoint, the proportion of subjects that achieved IGA treatment success at week 12 was 52.1% for the FMX103 treatment group and 43.0% for the vehicle treatment group.
In Study FX2016-12, the mean inflammatory lesion count at baseline was 30.0 and 30.2 for the FMX103 and vehicle treatment groups, respectively, and the proportion of patients with an IGA score at baseline of 3 (“moderate”) or 4 (“severe”) was 86.2% and 13.8%, respectively, in the FMX103 treatment group, and 82.9% and 17.1%, respectively, in the vehicle treatment group. The co-primary efficacy assessment showed a statistically significant mean reduction in inflammatory lesion count at week 12 relative to baseline of -18.54 lesions for the FMX103 treatment group and -14.88 lesions for the vehicle treatment group. In addition, in respect of the second co-primary endpoint, the proportion of subjects that achieved IGA treatment success at week 12 was 49.1% for the FMX103 treatment group and 39.0% for the vehicle treatment group.
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The following charts show the reduction of inflammatory lesion count from baseline for FMX103 and vehicle treatment groups in each of Studies FX2016-11 and FX2016-12 at week 12:
The following charts show the percentage of patients who met the IGA treatment success criterion at week 12 (defined as at least a 2 grade point reduction from baseline IGA score and a final score of “clear” (0) or “almost clear” (1)) for FMX103 and vehicle treatment groups in each of Studies FX2016-11 and FX2016-12 at week 12:
The safety and tolerability of FMX103 were also evaluated. The most commonly reported adverse events assessmentsin the clinical trials related to upper respiratory tract infections. There were no treatment-related serious adverse events. FMX103 was observed in the clinical trials to have a generally favorable safety profile and appeared to be generally well tolerated. Based on the efficacy and safety profile observed in clinical studies to date, we believe FMX103, if approved, may present an attractive option for the treatment of tolerability, clinical laboratory testsmoderate-to-severe papulopustular rosacea.
Studies FX2016-11 and vital signs. The two double-blinded efficacy trials will beFX2016-12 were followed by anstudy FX2016-13 (Study FX2016-13), a 40-week, open-label safety extension study (Study 13) to evaluate the long-term safety of FMX103.The open-label safety study enrolled a total of 505 patients, all of whom had completed 12 weeks of FMX103 or vehicle treatment in the preceding double-blind studies (FX2016-11 or FX2016-12). Patients continued for up to an additional 40 weeks.weeks of open-label treatment with FMX103.
| · | Non-cutaneous adverse events were comparable in type and frequency with those reported during the double-blinded portion of FX2016-11 and FX2016-12. The |
| · | Cutaneous adverse events occurred in 1% or less of patients during the |
| · |
Open label efficacy was also assessed throughout the 40-week FMX103 treatment course. The key efficacy findings from the study were:
| · | Mean absolute reduction of inflammatory lesion count when compared to baseline of the |
| · | The proportion of subjects achieving IGA treatment success at Week 52 defined as at least a 2-step improvement resulting in a 0 (clear) or 1 (almost clear) score compared to baseline of the preceding double-blinded study (FX2016-11 or FX2016-12) was 81.6% for subjects treated with FMX103 for 52 weeks and 76.0% for subjects treated for 40 weeks (all observed cases). |
We intend to submit an NDA for FMX103 in mid-2019.
FMX103 Phase II clinical trials
We initiated Studies FX2016-11 and vehicle) on the prevention of rash based on clinical importance reached statistical significance (p<0.05, Wilcoxon Signed-Rank test). MESTT-based analyses had similar but non-statistically significant results. FDX104 was well-tolerated during the study. No drug-related systemic adverse events were recorded. Local reactions were noted in 5 patients, all were mild and 4 were resolved before the end of the study.
FMX103. The trial was completedfurther showed a statistically significant improvement in 2012IGA scores. FMX103 also appeared to be generally well-tolerated, with no report of serious adverse events or drug related systemic adverse events. A few patients overall exhibited treatment-related dermal adverse events and showed that approximately 80%four of the patients in both groups met the clinical success criteria after three days of treatment. Clinical response at the end of the treatment (on day 7) was 92% for the 1% dosage and 100% for the 4% dosage, and all patients (100%) showed success by the fourteenth day of the trial. In a post-hoc analysis of the clinical trial results, eleven of the patients in this trial were also diagnosed with methicillin-resistant staphylococcus aureus (MRSA). Bacteriological success was reached in all 11 patients by the end of the trial and no presence of MRSA was detected. The safety and tolerability profile of the drug was favorable, and no drug-related side effects were reported duringthem consequently discontinued the trial.
Development and License Agreements
Parallel to the development of our product candidates, we have entered into development and license agreements with various pharmaceutical companies, including Bayer HealthCare AG,LEO, Mylan N.V. and Actavis Laboratories,plc, combining our emulsion-based foam technology with drugs selected by the licensee to create new product offerings for patients. Each license agreement entitles us to service payments, contingent payments and royalties from sales of any new products that are commercialized. Each agreement is exclusive only to the specific drug that is licensed, leaving us the rights to commercialize and develop products with other drugs for the same indications using our proprietary foam technology while also allowing the licensee to apply the new products to any indication with its specific drug.
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In September 2015, Bayer began selling Finacea® Foam (azelaic acid) 15%, ora product based on our foam technology called Finacea in the U.S.United States. Finacea is a prescription topical drug which was developed through a collaboration between Bayer and Foamix. It is the first prescription product developed using our proprietary technology that has been approved by the FDA for sale in the U.S.United States. Bayer listed in the Orange Book several patents that were licensed from Foamixus in connection with the development of Finacea Foam.Finacea. According to our initial license agreement with Bayer, we are entitled to receive royalties and certain contingent payments upon the commercialization of Finacea. On September 4, 2018, LEO acquired Finacea from Bayer. As part of the acquisition, our license agreement with Bayer with respect to Finacea was assigned to LEO. LEO has assumed all of the rights and responsibilities of Bayer under the license agreement as it relates to Finacea, including the payment of royalties to us and rights and obligations related to patent litigation matters. In 20172018, we werereceived (or became entitled to receive) a total of $3.5 million from Bayer in royalties from sales of Finacea. In January 2018Finacea from both Bayer and Foamix filed a complaint alleging patentLEO. Together with LEO, we are litigating against affiliates of Teva, Perrigo and Taro Pharmaceuticals Industries Ltd., or Taro, respectively, for their alleged infringement under the patent laws of the United States that arises outcertain of the submission by defendant Teva of an ANDA to the FDA seeking approval to manufacture and sell a generic version of Bayer’s Finacea Foam. In February 2018 Bayer and Foamix filed a complaint alleging patent infringement under U.S. patent law arising from Perrigo’s our patents following their submission of an ANDA to the FDA seeking approval to manufacture and sell a generic version of Bayer’s Finacea. See also “Item1A—“Risk Factors—RisksFactors-Risks Related to Our Intellectual Property—WeProperty-We have received notice letters of ANDAs submitted for drug products that are generic versions of Finacea Foam and we are involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful”unsuccessful.”
Our total revenues from all development, collaboration and license agreements from our inception to December 31, 20172018 were approximately $28.1$31.7 million.
Additional Research and Development
In addition to FMX101 for the treatment of moderate-to-severe acne, FMX103 for the treatment of moderate-to-severe rosacea and licensed products resulting from our development and license agreements with various pharmaceutical companies, we are developing a series of product candidates for various indications to which we own worldwide rights, and which are all based on formulations and adaptations of our patented, versatile foam platforms or other dosage forms. See “Business–Product Candidates and Pipeline.”
We intend to selectively proceed into clinical trials with these formulations under the FDA’sFDA’s 505(b)(2) regulatory pathway wherever possible,necessary to expedite FDA approval, and according to our identification of unmet needs and potential market opportunities.
Our research and development expenses totaled $64.5 million, $57.8 million and $25.9 million in 2018, 2017 and $10.7 million in 2017, 2016, and 2015, respectively. In the ordinary course of business, we enter into agreements with third parties such as contract research organizations, or CROs, medical institutions, clinical investigators and contract laboratories, to conduct our clinical trials and aspects of our research and preclinical testing. These CROs and other third parties provide us with project management, monitoring, regulatory consulting and investigative services, and their fees are part of our research and development expenses.
Intellectual Property
Our intellectual property and proprietary technology are essential to the development, manufacture, and sale of FMX101 and FMX103 and our future pipeline products.product candidates. We seekare committed to protectprotecting our intellectual property rights, core technologies and other know-how, through a combination of patents, trademarks, trade secrets, non-disclosure and confidentiality agreements, licenses, assignments of invention and other contractual arrangements with our employees, consultants, partners, suppliers, customers and others. Additionally, we rely on our research and development program, clinical trials, know-how and marketing and distribution programs to advance our products.
We submit applications directly or under the Patent Cooperation Treaty, or PCT, which is an international patent law treaty that provides a unified procedure for filing a single initial patent application to seek patent protection for an invention simultaneously in any one of the designated member states. Although a PCT application does not issue as a patent, it allows the applicant to seek protection in any of the member states through national-phase applications.
We also submit applications for a single European patent application covering the EU member states. If granted, the European patent must be validated in each national member state in which the patent is to continue and becomes a bundle of individual national patents.
Our most important patents are several U.S. patents relating to our lead product candidates, FMX101 and FMX103 which are expected to remain in effect until 2030. These patents relate to a composition of matter comprising a claim to a formulation of a tetracycline antibiotic, which can include minocycline or doxycycline, and therefore, may be less protective than patents that claim a new drug. We also have patent applicationspatents claiming compositions of matter, which relate to FMX101 and FMX103, pending in each of the following international markets:Australia, Canada, Great Britain, Israel and Mexico, and patent applications in Canada, the European Union, India and Mexico.
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Our other patents granted in the U.S.United States have claims relating to certain formulations of our foam platforms and other technology, including emulsion foams, hydrophobic foams, hydroalcoholic and aqueous foams.
Our FMX101 and FMX103 product candidates are based on a different foam technology platform and different patents than those listed in the Orange Book for the foam technology used in Finacea.
As of December 31, 20172018, we had a patent portfolio of 165175 granted patents in certain countries worldwide, including 6268 granted patents in the U.S.United States. Additionally, as of December 31, 20172018, we had over 40 pending patent applications worldwide, of which over 3025 are pending in the U.S.,United States, describing and claiming our various foam basedfoam-based platforms and other technology. Our other pending applications relate to various foam platforms such as emulsion foam, hydrophobic foam, hydro-alcoholic foam and water-free foams, as well as specialty foams (such as potent solvent foams).foams.
Competition
The medical and pharmaceutical industries in which we operate are intensely competitive and subject to significant technological change and changes in practice. While we believe that our innovative technology, knowledge, experience and resources provide us with competitive advantages, we may face competition from many different sources with respect to FMX101, FMX103 and our other pipeline products or any product candidates that we may seek to develop or commercialize in the future. Possible competitors may include pharmaceutical companies, academic and medical institutions, governmental agencies and public and private research institutions. These prospective competitors have the ability to effectively discover, develop, test and obtain regulatory approvals for products that compete with ours, as well as the ability to effectively commercialize, market and promote approved products, including communicating the effectiveness, safety and value of products to actual and prospective customers and medical staff.
On-marketed products that could compete with our FMX103 product candidate include: (A) branded and generic oral products containing minocycline, Oracea (doxycycline, Galderma) and (B) topical products such as all forms of metrogel/metronidazole available as a branded or generic product, Soolantra (ivermectin, Galderma), Finacea (azaleic acid, LEO), Rhofade (oxymetazoline, Allergan), Mirvaso (brimonidine, Galderma).
In addition, new products are currently being developed that may compete with our FMX101 and FMX103 product candidates, if they are approved, including: generic versions of any of the endabove on-marketed products and, specifically for acne: Altreno (tretinoin, Ortho Derm), Seysara (sarecycline, Almirall). In December 2017, Hovione Farmaciencia SA, a private company, announced the commencement of 2014 we became aware that a privately-held active pharmaceutical ingredient and drug product intermediate manufacturer, Hovione, had submitted an IND for Phase I and II clinical trials of a newtrial for its topical gel suspension containing minocycline non-hydrochloride for the treatment of inflammatory skin disease, including acne and rosacea. On December 4 2017, Hovione announced the commencement of a Phase II clinical trial for the treatment of moderate to severe papulopustular rosacea. In 2015 we became aware that another company,October 2018, BioPharmX Corporation (NYSE MKT: BPMX), wasinitiated its Phase IIb clinical trial of BPX-04, a 1% topical minocycline gel formulation for the treatment of moderate-to-severe papulopustular rosacea. BioPharmX is also developing a topical hydrophilicminocycline gel containing minocycline hydrochlorideformulation for the treatment of acne known as BPX-01. BioPharmX announced the results of its Phase IIa andvulgaris, which is currently in Phase IIb clinical trials for BPX-01 in April 2016 and May 2017, respectively, and in November 2017 it announced that it had gained concurrence with FDA on the design of a planned Phase III clinical trial for BPX-01 for treatment of acne. Earlier that year, in September 2017, BioPharmX announced interim results of a feasibility study with BPX-01 for treatment of rosacea, later renamed BPX-04.trials. If ultimately approved and launched in the U.S.,United States, these products would becomecould be direct competitors to FMX101 and FMX103.
Further, we are developing certain topical products with various licensees combining our proprietary technology with a drug selected by the licensee. While the licenses we grant are exclusive with respect to the specific drug which is licensed, our agreements with these licensees allow them to commercialize the licensed developed products for any topical dermatological application, not just for the specific indication for which each product was originally intended. If any such licensed product proves to be effective for moderate-to severe acne, impetigo, rosacea chemotherapy-induced rash, or any other indication that we are pursuing with FMX101, FMX103 or our other product candidates, we may face competition from these licensees, as they are not bound by non-compete restrictions.licensees. Although we believe that FMX101, FMX103 and our other product candidates can outperform the licensed products in the specific indications our product candidates are targeting, such licensed products may nevertheless pose a competitive challenge, as they will have the benefit of our foam technology coupled with the licensees’licensees’ potentially greater resources, experience and brand recognition, extensive marketing channels and other capabilities, and possibly the advantage of entering the market before us.
In addition to products that are currently available, other products may be introduced to treat acne, rosacea impetigo and other skin disorders during the time that we engage in necessary development. Accordingly, if one of our pipeline products is approved, our main challenge in the market would be to convince dermatologists, pediatricians or other physicians seeking alternatives to oral or other existing treatments to use our product instead. While we are still in the preliminary stages, based on our studies, we believe that our pipeline products could be more effective than the current non-topical alternatives and exhibit significantly less adverse side effects.effects based on our studies to date.
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Commercialization
We are currently building a commercial infrastructure to support the potential sales of our product candidates in the United States, and may partner with third parties outside the United States to launch our products in other geographic territories or therapeutic classes. Our intent is to build a commercial sales force specifically targeting dermatologists and other healthcare practitioners who diagnose and manage acne and rosacea patients. We also plan to deploy marketing and targeting efforts using data analytics and consumer outreach vehicles that we believe are underutilized. We expect our sales force will be supported by a centralized, internal team who will direct and manage our marketing and sales efforts, and coordinate market access and payor relationships as well as manage the supply chain. In order to be ready to launch our product candidates once approved, we expect to invest significant financial and management resources to build our commercial operations even before our product candidates are approved.
As part of our commercialization planning, we are currently building our internal sales, marketing, market access and distribution infrastructure. Market research, data analysis and strategic launch planning have been conducted on our near-to-market product portfolio. We have established the market entry strategy for FMX101, preliminary physician targeting models, and portfolio strategies to capitalize on infrastructure synergies. FMX103 market entry planning and comprehensive portfolio commercial plans will begin development in the second half of 2019.
We are conducting landscape assessment research on the market access environment for FMX101 to complete a market access strategy. We are also evaluating the optimal price range for FMX101 and FMX103, that will reflect their benefits relative to alternative treatments while remaining affordable to potential customers and reimbursable by governments and third-party payors.
Additionally, continuous efforts are deployed to identify unmet needs in the dermatology market, assess their commercial potential and advise on the prioritization of the development of our future product candidates accordingly.
We have entered into a packaging and supply distribution contract with Sharp Corporation, with whom we have contracted to package and distribute our FMX101 product candidate for commercial distribution, if we receive regulatory approval.
Government Regulation
Our business is subject to extensive government regulation. Regulation by governmental authorities in the U.S.United States and other jurisdictions is a significant factor in the development, manufacture and marketing of our foam delivered treatments and in our ongoing research and development activities.
Product approval process in the U.S.United States
Review and approval of drugs
In the U.S.,United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA and implementing regulations and other laws, including the Public Health Service Act.regulations. Drugs require the submission of an NDA, and approval by the FDA prior to being marketed in the U.S.United States. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant to a variety of administrative or judicial sanctions and enforcement actions brought by the FDA, the Department of Justice or other governmental entities. Possible sanctions may include the FDA’sFDA’s refusal to approve pending NDAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties.
The process required by the FDA prior to marketing and distributing a drug in the U.S.United States generally involves the following:
| · | completion of laboratory tests, animal studies and formulation studies in compliance with the |
| · | submission to the FDA of an application for an investigational new drug application, or IND, |
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| · | approval by an independent institutional review board, or IRB, at each clinical site before each trial may be initiated; |
| · | performance of adequate and well-controlled human clinical trials in accordance with |
| · | preparation and submission to the FDA of an NDA or supplemental NDA; |
| · | satisfactory completion of an FDA advisory committee review, if applicable; |
| · | satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product or components thereof are produced, to assess compliance with current good manufacturing processes, or cGMP, and to assure that the facilities, methods and controls are adequate to preserve the |
| · | payment of user fees and FDA review and approval of the NDA. |
Preclinical studies
Preclinical studies include laboratory evaluation, as well as animal studies to assess the potential safety and efficacy of the product candidate. Preclinical safety tests must be conducted in compliance with the FDA’sFDA’s GLP regulations. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND which must become effective before clinical trials may be commenced.
Clinical trials in support of an NDA
Clinical trials involve the administration of an investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written trial protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.
In addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the trial at least annually. The IRB must review and approve, among other things, the trial protocol and informed consent information to be provided to trial subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their ClinicalTrials.gov website.
Clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
| Phase I: | The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage. |
| Phase II: | The drug is administered to a limited patient population to identify possible short-term adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. |
| Phase III: | The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. |
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Submission of an NDA to the FDA
The results of the preclinical studies and clinical trials, together with other detailed information, including information on the manufacture, control and composition of the product, are submitted to the FDA as part of an NDA requesting approval to market the product candidate for a proposed indication. Under the Prescription Drug User Fee Act, as amended, applicants are required to pay fees to the FDA for reviewing an NDA. These user fees, as well as the annual fees required for commercial manufacturing establishments and for approved products, can be substantial. The NDA review fee alone exceeded $2,038,000 for fiscal year 2017, subject to certain limited deferrals, waivers and reductions that may be available. The manufacturer or sponsor under an approved NDA are also subject to annual product and establishment user fees, currently exceeding $97,000 per product and $512,000 per establishment for fiscal year 2017. Although these fees were reduced from fiscal year 2016, they are typically increased annually. Each NDA submitted to the FDA for approval is typically reviewed for administrative completeness and reviewability within 45 to 60 days following submission of the application. If found complete, the FDA will “file”“file” the NDA, thus triggering a full review of the application. The FDA may refuse to file any NDA that it deems incomplete or not properly reviewable at the time of submission.
Before approving an NDA, the FDA may inspect the facilities at which the product is manufactured or facilities that are significantly involved in the product development and distribution process, and will not approve the product unless cGMP compliance is satisfactory. The FDA may deny approval of an NDA if applicable statutory or regulatory criteria are not satisfied, or may require additional testing or information, which can delay the approval process. FDA approval of any application may include many delays or may never be granted. If a product is approved, the approval will impose limitations on the indicated uses for which the product may be marketed, may require that warning statements be included in the product labeling, may require that additional studies or trials be conducted following approval as a condition of the approval, may impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a risk management plan,evaluation and mitigation strategies (REMS) , or impose other limitations.
Once a product is approved, marketing the product for other indicated uses or making certain manufacturing or other changes requires FDA review and approval of a supplementsupplemental NDA or a new NDA, which may require additional clinical data and review fees. In addition, further post-marketing testing and surveillance to monitor the safety or efficacy of a product may be required. Also, product approvals may be withdrawn if compliance with regulatory standards is not maintained or if safety or manufacturing problems occur following initial marketing. In addition, new government requirements may be established that could delay or prevent regulatory approval of our product candidatecandidates under development.
505(b)(2) NDAs
As an alternative path to FDA approval for modifications to formulations or uses of productsactive ingredients previously approved by the FDA, an applicant may submit an NDA under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FDCA. Section 505(b)(2) was enacted as part of the Hatch-Waxman Amendments and permits the filing of an NDA where at least some of the information required for approval comes from FDA’s conclusions of safety or efficacy from studies or trials not conducted by or for the applicant.applicant, and for which the applicant has not received a right of reference If the 505(b)(2) applicant can establish that reliance on FDA’sthe FDA’s previous findings of safety and effectiveness is scientifically appropriate, it may eliminate the need to conduct certain preclinical studies or clinical trials of the new product. The FDA may also require companies to perform additional studies or measurements, including clinical trials, to support the change from the approved reference, or “listed”“listed” drug. The FDA may then approve the new product candidate for all, or some, of the label indications for which the reference drug has been approved, as well as for any new indication sought by the 505(b)(2) applicant.
Notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), over the last few years, some pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA changes its interpretation of Section 505(b)(2), or if the FDA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any Section 505(b)(2) NDA that we submit.
The Orange Book
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are considered to be therapeutically equivalent to the listed drug, are commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug in accordance with state law.
To the extent that a Section 505(b)(2) NDA relies on clinical trials conducted for a previously approved drug product or the FDA’sFDA’s prior findings of safety and effectiveness for a previously approved drug product, the Section 505(b)(2) applicant must submit patent certifications in its Section 505(b)(2) application with respect to any patents for the previously approved product on which the applicant’sapplicant’s application relies that are listed in the FDA’s Publication of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the ‘Orange Book’.Orange Book. Specifically, the applicant must certify for each listed patent that, in relevant part, (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is not sought until after patent expiration; or (iv) the listed patent is invalid, unenforceable or will not be infringed by the proposed new product.
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A certification that the new product will not infringe the previously approved product’sproduct’s listed patent or that such patent is invalid or unenforceable is known as a Paragraph IV certification. If the applicant does not challenge one or more listed patents through a Paragraph IV certification, the FDA will not approve the Section 505(b)(2) NDA application until all the listed patents claiming the referenced product have expired. Further, the FDA will also not approve, as applicable, a Section 505(b)(2) NDA application until any non-patent exclusivity, such as, for example, five-year exclusivity for obtaining approval of a new chemical entity, three-year exclusivity for an approval based on new clinical trials, or pediatric exclusivity, listed in the Orange Book for the referenced product, has expired.
If the Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the owner of the referenced NDA for the previously approved product and relevant patent holders within 20 days after the Section 505(b)(2) NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement suit against the Section 505(b)(2) applicant. Under the FDCA, the filing of a patent infringement lawsuit within 45 days of receipt of the notification regarding a Paragraph IV certification automatically prevents the FDA from approving the Section 505(b)(2) NDA until the earliest to occur of 30 months beginning on the date the patent holder receives notice, expiration of the patent, settlement of the lawsuit, or until a court deems the patent unenforceable, invalid or not infringed. Even if a patent infringement claim is not brought within the 45-day period, a patent infringement claim may be brought under traditional patent law, but it does not invoke the 30-month stay.
Moreover, in cases where a Section 505(b)(2) application containing a Paragraph IV certification is submitted after the fourth year of a previously approved drug’s five-year exclusivity period and the patent holder brings suit within 45 days of notice of certification, the 30-month period is automatically extended to prevent approval of the Section 505(b)(2) application until the date that is seven and one-half years after approval of the previously approved reference product. The court also has the ability to shorten or lengthen either the 30 month or the seven and one-half year period if either party is found not to be reasonably cooperating in expediting the litigation.
Exclusivity
In addition to patent protections applicable to a listed drug, a Section 505(b)(2) application may be subject to periods of statutory market exclusivity afforded to an approved new drug. Statutory market exclusivity provides the holder of an approved NDA limited protection from new competition in the marketplace for the innovation represented by its approved drug product, and precludes approval of certain 505(b)(2) applications for prescribed periods of time. Exclusivity is available for new chemical entities, as well as for significant changes in already approved drug products, such as a new use. FDA may refuse to approve a Section 505(b)(2) application to the extent it is subject to the market exclusivity.
Post-approval requirements
Any drug products for which we receive FDA approval will be subject to continuing regulation by the FDA. Certain requirements include, among other things,inter alia, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information on an annual basis or more frequently for specific events, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements. These promotion and advertising requirements include, among others, standards for direct-to-consumer advertising, prohibitions against promoting drugs for uses or patient populations that are not described in the drug’sdrug’s approved labeling, known as “off-label“off-label use,” and other promotional activities, such as those considered to be false or misleading. Failure to comply with FDA requirements can have negative consequences, including the immediate discontinuation of noncomplying materials, adverse publicity, enforcement letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Such enforcement may also lead to scrutiny and enforcement by other government and regulatory bodies.
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Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not encourage, market or promote such off-label uses. As a result, “off-label promotion”“off-label promotion” has formed the basis for litigation under the Federal False Claims Act, or FCA, violations of which are subject to significant civil fines and penalties. In addition, under the federal Physician Payments Sunshine Act, manufacturers of certain prescription products are required to disclose annually to the CenterCenters for Medicaid and Medicare anyServices, or CMS payments or transfers of value made to physicians“covered recipients” and teaching hospitals, in the U.S. under the federal Physician Payment Sunshine Act.and ownership or investment interests held by covered recipients and their immediate family members. Reportable payments and transfers of value may be direct or indirect, in cash or kind, for any reason, and are required to be disclosed even if the paymentstransfers are not related to thean approved product. Failure to fully disclose or notcomply with the Physician Payments Sunshine Act could result in time reporting could lead to penalties up to $1.15 million per year.
The manufacturing of any of our products will be required to comply with applicable FDA manufacturing requirements contained in the FDA’sFDA’s cGMP regulations. The FDA’sFDA’s cGMP regulations require, among other things, quality control and quality assurance, as well as the corresponding maintenance of comprehensive records and documentation. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are also required to register their establishments and list any products they make with the FDA and to comply with related requirements in certain states. These entities are further subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.
Discovery of problems with a product after approval may result in serious and extensive restrictions on a product, manufacturer or holder of an approved NDA, as well as lead to potential market disruptions. These restrictions may include recalls, suspension of a product until the FDA is assured that quality standards can be met, and continuing oversight of manufacturing by the FDA under a “consent“consent decree,” which frequently includes the imposition of costs and continuing inspections over a period of many years, as well as possible withdrawal of the product from the market. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.
The FDA also may require post-marketing testing, or Phase IV testing, as well as risk minimization action plans and surveillanceREMS to monitor the effects of an approved product or place conditions on an approval that could otherwise restrict the distribution or use of our products.
Pediatric trials and exclusivity
Even when not pursuing a pediatric indication, under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With enactment of the Food and Drug Administration Safety and Innovation Act, or the FDASIA, in 2012, sponsors must also submit pediatric trial plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric trials the applicant plans to conduct, including trial objectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA, and the FDA’sFDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.
The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in the FDASIA.
Separately, in the event the FDA makes a written request for pediatric data relating to a drug product, an NDA sponsor who submits such data may be entitled to pediatric exclusivity. Pediatric exclusivity is another type of non-patent marketing exclusivity in the U.S.United States and, if granted, provides for the attachment of an additional 6 months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity.
Patent term restoration and extension
A patent claiming a new drug product may be eligible for a limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the “Hatch-Waxman“Hatch-Waxman Act,” which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration period granted is typically one-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of aan NDA and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’sproduct’s approval date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection with one of the approvals. The U.S. Patent and Trademark OfficeUSPTO reviews and approves the application for any patent term extension or restoration in consultation with the FDA. Since the active pharmaceutical ingredients of our FMX101 FMX102,and FMX103 and FDX104product candidates are already known and marketed in tablet form, the patents supporting these products maywere not be eligible for the said patent term extension, if applicable.extension.
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Review and approval of drug products outside the U.S.United States
In addition to regulations in the U.S.,United States, we will be subject to a variety of foreign regulations governing manufacturing, clinical trials, commercial sales and distribution of our future products. Whether or not we obtain FDA approval for a product candidate, we must obtain approval of the product by the comparable regulatory authorities of foreign countries before commencing clinical trials or marketing in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
Pharmaceutical coverage, pricing and reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In the U.S.United States and other markets, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of coverage and adequate reimbursement from third-party payers. Third-party payersthird party payors. Third party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payerpayor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payerpayor will pay for the drug product. Third-party payersThird party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication.
In March 2010, the President of the U.S.United States signed one of the most significant healthcare reform measures in decades. The healthcare reform law, also known as the Affordable Care Act, or ACA, substantially changes the way healthcare will be financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. This comprehensive legislative overhaul was expected to extend coverage to approximately 36 million previously uninsured Americans. However, the individual mandate was recently repealed by Congress in The Tax Cuts and Jobs Act of 2017, or the Tax Act, tax reform bill that was signed into law in December 2017.2017 and became effective January 1, 2019. The Joint Committee on Taxation estimates that the repeal will result in over 13 million Americans losing their health insurance coverage over the next ten years and is likely to lead to increases in insurance premiums. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas ruled that the individual mandate is a critical and inseverable feature of the ACA, and because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. While neither the Texas District Court Judge, Trump administration nor CMS have stated that the ruling will have an immediate effect, it is unclear how this decision, subsequent appeals, if any, and other efforts to repeal and replace the ACA will impact the ACA.
The ACA requires the pharmaceutical industry to share in the costs of reform by increasing Medicaid rebates and expanding Medicaid rebates to cover Medicaid managed care programs, among other things. The ACA also includes funding of pharmaceutical costs for Medicare patients in excess of the prescription drug coverage limit and below the catastrophic coverage threshold. UnderThe Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, pharmaceutical companies are obligatedeffective January 1, 2019, to fund 50% of the patient obligation for branded prescription pharmaceuticals inclose this gap, oralso known as the “donut hole.”hole”. Additionally, an excise tax was levied against certain branded pharmaceutical products. The tax is specified by statute to be approximately $3.5 billion in 2017, $4.2 billion in 2018 and $2.8 billion each year thereafter. The tax is to be apportioned to qualifying pharmaceutical companies based on an allocation of their governmental programs as a portion of total pharmaceutical government programs. The Administration is currently looking atexpected to evaluate drug pricing and the Medicare parts B and D programs in terms of policy changes in the next session of Congress.
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In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies or trials that compare the cost-effectiveness of a particular drug candidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure on health care costs in general, and particularly on prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements.
Healthcare laws and regulations
Healthcare providers, physicians and third-party payersthird party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements with healthcare providers, third-party payersthird party payors and other customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictions under applicable federal and state healthcare laws and regulations include the following:
| · | the federal healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made, in whole or in part, under a federal healthcare program such as |
| · | the federal |
| · | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program, including any 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 statements or representations, or making false statements relating to healthcare |
| · | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and |
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| · | the federal |
| · | analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental |
Manufacturing, Supply and Production
We do not own or operate manufacturing facilities for the production of our product candidates, nor docandidates; however, we have plans tomay develop our own manufacturing operations in the foreseeable future. We currently rely on third-partythird party contract manufacturers for all of our required raw materials, active ingredients and finished products for our preclinical research and clinical trials, including the Phase III clinical trials for FMX101, FMX103 and our additional product candidates, as applicable. We have contractual relationships for the manufacture of clinical supplies of FMX101 and FMX103, and for commercial supplies if these products are approved. If FMX101, FMX103 or any of our other product candidates are approved by any regulatory agency, we intend to enter into additional agreements with one or more third-partythird party contract manufacturers as secondary manufacturers for the commercial production of these products. We, and our contract manufacturers, are developing the validation processes, methods, tests and or controls suitable for commercial scale manufacturing of our various product candidates and for defining their properties. Changes in manufacturing scale or the manufacturer may require changes to processes, methods, tests and or controls, which may take time to develop, validate and implement.
Development stage and commercial quantities of any products that we develop will need to be manufactured in facilities, and by processes, that comply with the requirements of the FDA and the regulatory agencies of other jurisdictions in which we are seekingseek approval. We currently employ internal and external resources to manage our manufacturing contractors. The relevant manufacturers of our drug products for our current preclinical and clinical trials have advised us that they are compliant with both Good Laboratory Practices, or GLP, and current Good Manufacturing Practices, or cGMP.
Our product candidates, if approved, may not be producible in sufficient commercial quantities, in compliance with regulatory requirements or at an acceptable cost. We and our contract manufacturers are, and will be, subject to extensive governmental regulation in connection with the manufacture of any pharmaceutical products or medical devices.device constituent components. We and our contract manufacturers must ensure that all of the processes, methods and equipment are compliant with cGMP and cGLP for drugs on an ongoing basis, as mandated by the FDA and foreign regulatory authorities, and conduct extensive audits of vendors, contract laboratories and suppliers.
We use, and we intend to continue to use, leading providers of manufacturing services to the global pharmaceutical industry, to scale-up and validate a robust manufacturing process to support commercialization and distribution of our products if approved by the FDA.
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Environmental, Health and Safety Matters
We are subject to extensive environmental, health and safety laws and regulations in a number of jurisdictions, primarily Israel, governing, among other things, (i) the use, storage, registration, handling, emission and disposal of chemicals, waste materials and sewage; and (ii) chemical, air, water and ground contamination, air emissions and the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals, waste materials and sewage. Our operations at our Rehovot research and development facility use chemicals and produce waste materials and sewage. Our activities require permits from various governmental authorities including, local municipal authorities, the Ministry of Environmental Protection and the Ministry of Health. The Ministry of Environmental Protection and the Ministry of Health, local authorities and the municipal water and sewage company conduct periodic inspections in order to review and ensure our compliance with the various regulations.
These laws, regulations and permits could potentially require the expenditure by us of significant amounts for compliance or remediation. If we fail to comply with such laws, regulations or permits, we may be subject to fines and other civil, administrative or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities. In addition, we may be required to pay damages or civil judgments in respect of third-partythird party claims, including those relating to personal injury (including exposure to hazardous substances we use, store, handle, transport, manufacture or dispose of), property damage or contribution claims. Some environmental, health and safety laws allow for strict, joint and several liability for remediation costs, regardless of comparative fault. We may be identified as a responsible party under such laws. Such developments could have a material adverse effect on our business, financial condition and results of operations.
In addition, laws and regulations relating to environmental, health and safety matters are often subject to change. In the event of any changes or new laws or regulations, we could be subject to new compliance measures or to penalties for activities which were previously permitted. For instance, Israeli regulations were promulgated in 2011 relating to the discharge of industrial sewage into the sewer system. These regulations establish new and potentially significant finesfees for discharging forbidden or irregular sewage into the sewage system.
The operations of our subcontractors and suppliers are also subject to various Israeli and foreign laws and regulations relating to environmental, health and safety matters, and their failure to comply with such laws and regulations could have a material adverse effect on our business and reputation, result in an interruption or delay in the development or manufacture of our product candidates, or increase the costs for the development or manufacture of our product candidates.
Employees
As of February 5, 2018,1, 2019, we had a total of 7581 employees, 7180 of whom are full-time employees, 49 of whom were primarily engaged in research and development activities. A total of 118 employees have an M.D. or Ph.D. degree. None of our employees are represented by a labor union, and we consider our employee relations to be good.
Financial and Segment Information
We operate our business as a single segment, as defined by generally accepted accounting principles. Our financial information is included in the consolidated financial statements and the related notes (see “Item 8—notes. See “Financial Statements and Supplementary Data”).Data” for further information.
Legal Proceedings
Our legal and commercial name is Foamix Pharmaceuticals Ltd. (formerly Foamix Ltd.). We were originally incorporated as a limited liability company under the laws of the State of Israel on January 19, 2003.2003 as Foamix Ltd. We are registered with the Israeli Registrar of Companies. Our registration number is 51-336881-1. Article 3 of our articlesArticles of associationAssociation provides that our objectives are to conduct all types of business as are permitted by law.
Our corporate structure consists of Foamix Pharmaceuticals Ltd. and Foamix Pharmaceuticals Inc., our wholly-owned U.S. subsidiary, which was incorporated on May 6, 2014, under the laws of the State of Delaware, and which is intended to serve as our marketing and sales arm in the U.S.United States.
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We continue to be a “foreign private issuer” as defined in Rule 3b-4 of the Exchange Act, and became subject to the rules and regulations under the Exchange Act applicable to U.S. domestic issuers. As a result, we are filing an Annual Report on Form 10-K beginning with the fiscal year ended December 31, 2017. Our annual reports for prior years were filed on Form 20-F.
Our principal executive offices are located at 2 Holzman St., Weizmann Science Park, Rehovot 7670402, Israel, and our telephone number is +972-8-9316233. Our website is www.foamix.com. The information contained on, or that can be accessed through, our website does not constitute a part of this formAnnual Report and is not incorporated by reference herein. Foamix Pharmaceuticals Inc., our wholly-owned subsidiary, was incorporated on May 6, 2014 under the laws of the State of Delaware, with the intent to serve as our marketing and sales arm in the U.S.United States. Foamix Pharmaceuticals Inc. has been appointed as our agent for service of process in the United States and is located at 520 U.S. Highway 22, Suite 305, Bridgewater, New Jersey 08807.
In conducting our business, we face many risks that may interfere with our business objectives. Some of these risks could materially and adversely affect our business, financial condition and results of operations. In particular, we are subject to various risks resulting from changing economic, political, industry, business and financial conditions. The risks and uncertainties described below are not the only ones we face.
You should carefully consider the following factors and other information in this annual report. If any of the negative events referred to below occur, our business, financial condition and results of operations could suffer. In any such case, the trading price of our ordinary shares could decline.
Risks Related to Our Business and Industry
We are largely dependent on the success of our lead product candidates, FMX101 and FMX103 for the treatment of acne and rosacea.rosacea, respectively.
We have invested a majority of our efforts and financial resources in the research and development of FMX101 for the treatment of moderate-to-severe acne and FMX103 for the treatment of moderate-to-severe papulopustular rosacea, which have both completed Phase IIIII clinical trials. We continue to dedicate our resources toward (i) announcing top-line results from our third pivotal Phase III clinical trialobtaining approval of an NDA by the FDA for FMX101 in the third quarter of 2018 and filing a new drug application, or NDA, with the FDA by the end of the first half of 2019; (ii) announcing top-line results from our two pivotal Phase III clinical trialssubmitting an NDA to the FDA for FMX103 by the end of the third quarter or in the beginning of the fourth quarter of 2018 and completing such trials in 2019;mid-2019; and (iii) advancing our other pipeline candidates. The success of our business depends largely on our ability to fund, execute and complete the development of, obtain regulatory approval for and successfully commercialize FMX101 and FMX103 in a timely manner. If we fail to do so, we may not be able to obtain adequate funding to continue to operate our business.
We have not finalized our Phase III clinical programs for any of our product candidates, nor have we applied forobtained regulatory approvals to market any of our product candidates, and we may be delayed in obtaining or fail to obtain such regulatory approvals and to commercialize our product candidates.
The process of developing, obtaining regulatory approval for and commercializing our product candidates is long, complex, costly and uncertain, and delays or failure can occur at any stage, as evident from our recent experience. In March 2017 we suffered a setback in our Phase III clinical program for FMX101 for treatment of moderate-to-severe acne, following the announcement of mixed top-line results from our two pivotal Phase III clinical trials in this product candidate, known as Studies 04 and 05. Although FMX101 demonstrated statistical significance compared to vehicle on the co-primary endpoint of absolute reduction in inflammatory lesions in both Studies 04 and 05, and further demonstrated statistical significance in the co-primary endpoint of investigator global assessment (IGA) treatment success compared to baseline in Study 04 and on a pooled analysis basis, FMX101 failed to demonstrate statistical significance in the co-primary endpoint of IGA treatment success on a standalone basis in Study 05. Consequently, we were compelled to launch a third pivotal Phase III clinical trial for FMX101, in which we are seeking to replicate the results of Study 04 in a larger patient population and confirm the efficacy of FMX101, in order to proceed with the filing of an NDA for this lead product candidate.
stage. Furthermore, the research, testing, manufacturing, labeling, marketing, sale and distribution of drugs are subject to extensive and rigorous regulation by the FDA, and foreign regulatory agencies. These regulations are agency-specific and differ by jurisdiction. We are not permitted to market any of our product candidates in the U.S.United States until we receive approval of aan NDA from the FDA, or in any foreign countries until we receive the requisite approval from the respective regulatory agencies in such countries. To gain approval of an NDA or other equivalent regulatory approval, we must provide the FDA or relevant foreign regulatory authority with clinical data that demonstrates the continued safety purity and potencyefficacy of the product for the intended indication.
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We have not received formal regulatory clearance to file an NDA withmarket FMX101 or FMX103 from the FDA, or from comparable applications to foreign regulatory authorities. Our other product candidates are at earlier stages of development and therefore subject to similar or even greater uncertainty and risk than FMX101 and FMX103.
Although we received positive Phase III clinical trials often produce unsatisfactorytrial results even though prior clinical trials were successful, as we have witnessed in the case of Study 04 for FMX101 as described above. Moreover,and FMX103, the results of those clinical trials may be unsatisfactory to the FDA or foreign regulatory authorities even if we believe those clinical trials to bewere successful. The FDA or applicable foreign regulatory agencies may suspend one or all of our clinical trials or require that we conduct additional clinical, nonclinical, manufacturing, validation or drug product quality studies and submit that data before considering or reconsidering any NDA or similar foreign regulatory application we may submit. Depending on the extent of these additional studies, approval of any applications that we submit may be significantly delayed, or may require us to expend more resources than we have available. It is also possible that additional studies we conduct may not be considered sufficient by the FDA or applicable foreign regulatory agencies to provide regulatory approval.
If any of these outcomes occur, we would not receive approval for FMX101, FMX103 or our other product candidates and may be forced to cease operations.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to each of FMX102, FMX103 and FDX104, in each case outsidebe reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including beginning on December 22, 2018, the U.S., government has shut down several times and certain regulatory agencies, such as the results of which may not be predictive of future trial results.
If the FDA does not conclude that FMX101 or FMX103 satisfy the requirements under Section 505(b)(2) of the Federal Food Drug and Cosmetics Act, or Section 505(b)(2), or if the requirements for thisthese product candidatecandidates under Section 505(b)(2) are not as we expect, the approval pathway for this product candidate 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.
We expect to completehave completed our pivotal Phase III trials for FMX101 and we have commenced pivotal Phase III trials for FMX103 under the FDA’sFDA’s 505(b)(2) regulatory pathway. 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 Federal Food, Drug and Cosmetic Act, or FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant, and for which the applicant has not received a right of reference, which could expedite the development program for FMX101 and FMX103 by potentially decreasing the amount of clinical data that we would need to generate in order to obtain FDA approval. If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway, we may need to conduct additional clinical trials, provide additional data and information, and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for these product candidates, and complications and risks associated with these product candidates, would likely increase significantly. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market more quickly than our product candidates, which would likely harm our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, our product candidates may not receive the requisite approvals for commercialization.
In addition, notwithstanding the approval of certain products by the FDA under Section 505(b)(2) over the last few years, certain competitors and others have objected to the FDA’sFDA’s interpretation of Section 505(b)(2). If the FDA’sFDA’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 prevent the 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 approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval of our NDAs for up to 30 months depending on the outcome of any litigation. It is not uncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. In addition, even if we are able to utilize the Section 505(b)(2) regulatory pathway for FMX101 and FMX103, there is no guarantee this would ultimately lead to faster product development or earlier approval.
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Moreover, even if theseour product candidates are approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses for which the product may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products.
We may not receive regulatory exclusivity for our product candidates under the Hatch-Waxman Act since our lead product candidates are based on an “old antibiotic” and therefore potential competitors may develop generic versions of our product(s) after launch that, if approved, could compete directly with our product(s) sooner that we expect.
Statutory exclusivity provides the holder of an approved NDA limited protection from new competition in the marketplace for the innovation represented by its approved drug product, and precludes approval of certain 505(b)(2) applications and ANDAs, including for a generic version of the drug product, for prescribed periods of time. During the exclusivity period, the FDA may not approve a Section 505(b)(2) application or ANDA to the extent it is subject to exclusivity, or in the case of exclusivity for a new chemical entity may not receive a Section 505(b)(2) application or ANDA. Changes to a drug resulting from new clinical studies (other than bioavailability studies) that were “essential to approval,” and conducted or sponsored by the applicant, such as a new dosage form, strength, route of administration, dosing regimen or indication, are associated with a three-year period of exclusivity during which the FDA cannot approve an ANDA or 505(b)(2) application for the change.
Drugs based on an “old antibiotic,” such as minocycline, are subject to an additional limitation and will not receive three-year exclusivity for a “condition of use” that was approved before October 8, 2008. Prior to 2008, drugs based on an “old antibiotic” were not eligible for Hatch-Waxman Act exclusivity. In 2008, the Q1 Program Supplemental Funding Act of 2008 made drugs containing old antibiotics eligible for three-year exclusivity under certain conditions, but excluded from eligibility for that exclusivity any “condition of use” approved for such drugs before October 8, 2008. The statute does not define “condition of use” but the U.S. District Court has provided recent guidance in Viropharma, Inc. v. Hamburg, 898 F. Supp.2d (District of Columbia, 2012). In Viropharma, the court held that a supplemental new drug approval for the drug Vancocin was not eligible for three-year exclusivity because the supplemental new drug application at issue did not constitute a “significant new use” for the drug. The court held that the “inclusion of more specific dosing information that was within the range specified in the prior label,” “new instructions on monitoring patients’ renal function,” and “new instructions for the continuation of treatment in older patients” did not effect a “significant new use” but rather served only to “refine labeling regarding already approved conditions of use.” The FDA also emphasized that had the company sought approval for a new indication or a new dosing regimen, it would have had to comply with other statutory requirements (including by providing new pediatric data), and that since the company did not have to provide the clinical data, it did not merit the three-year exclusivity for old antibiotics.
We believe that the clinical data submitted for our product candidates will satisfy the exclusivity requirements for old antibiotics. Our Phase III clinical trials for FMX101 provide new clinical (including new pediatric) data that supports a topical route of administration, a new dosing regimen and a significantly lower concentration of minocycline than the prior oral form. FMX103 is indicated for the treatment of moderate-to-severe papulopustular rosacea, which is a new indication for minocycline. While we believe that any clinical data submitted to support FMX101, FMX103 and each of our other pipeline products containing an old antibiotic will provide the required new significant benefits and uses to qualify for the three-year non-patent exclusivity, if the FDA and the U.S. courts do not agree with us, the product candidate would not be protected by three-year exclusivity under the Hatch Waxman Act. While we would continue to be able to enforce our patents against infringement by third-parties, including a 30-month or any further stay or injunction from a court during the pendency of litigation, the FDA could approve an ANDA for a generic version of our product and a company could launch the product at risk, which would allow a generic into the market sooner than we expect. In addition, even if the FDA awards three-year exclusivity to each of these products, its scope will depend on how the FDA defines the exclusivity-protected change. If the FDA defines this change more narrowly than we anticipate, the three-year exclusivity could provide less protection against generic competition than expected.
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Because our Phase IIIII clinical trials for the other product candidatesFMX101 and FMX103 were not conducted head-to-head with the current standard of care drugs, the comparison of our results to those of existing drugs, and the conclusions we have drawn from such comparisons, may be inaccurate, and the FDA may require our Phase III trials to be controlled against such drugs.
None of our initial two Phase III clinical trials for FMX101 or Phase II clinical trial forand FMX103 nor our third Phase III trial for FMX101 or our two Phase III trials for FMX103 which are currently under way, were or are being conducted in head-to-head comparison with the drugs considered the current standard of care for the relevant indications, namely Solodyn for moderate-to-severe acne, Bactroban for impetigo,and topical antimicrobials (such as such as Metrogel, generic metronidazole and Finacea) for rosacea and oral doxycycline for chemotherapy induced rash.rosacea. This means that none of the patient groups participating in these trials were or are being treated with the standard of care drugs alongside the groups treated with our product candidates. Instead, we have compared the results of our clinical trials with historical data from prior clinical trials conducted for the standard of care drugs, as presented in their respective product labels.
Direct comparison generally provides more reliable information about how two or more drugs compare, and reliance on indirect comparison for evaluating their relative efficacy or other qualities is problematic due to a lack of objective or validated methods to assess trial similarity. For example, the various trials were likely conducted in different countries with different demographic features and in patients with different baseline conditions and different hygiene standards, among other relevant asymmetries. Therefore, the conclusions we have drawn from comparing the results of our trials with those published in the product labels for these current standardsstandard of care drugs, including conclusions regarding the relative efficacy and expediency of FMX101 FMX102,and FMX103, and FDX104, may be distorted by the inaccurate methodology of the comparison.
The FDA may require the Phase III clinical trials of our product candidates to be controlled against the drugs that are currently considered the standards of care for the treatment of the relevant indications, instead of being controlled against a placebovehicle that does not contain minocycline or against a different dosage of our minocycline foam, as was the case in our Phase II clinical trials. Furthermore, even if the FDA does not impose such a requirement in connection with our Phase III clinical trials, the FDA generally requires adequate, well-controlled head-to-head clinical trials to support comparative claims regarding marketed products. As a result, we may decide to conduct comparative studies of FMX101, FMX103 or any of our other product candidates that are commercialized in the future to support comparative claims used in the marketing of those product candidates. Significant additional time and expense will be required to design and conduct any head-to-head trials.trials, and any such trials may face difficulty in patient enrollment due to their complexity. For example, in the case of FMX101 for moderate-to-severe acne, the standard of care is an oral drug, Solodyn, whereas FMX101 is a topical drug. To conduct a double blinddouble-blind study comparing the two treatments, all patients would need to receive both modalities, with either the oral or topical treatment consisting of a placebo, increasing the complexity and cost. If we are unable to conduct head-to-head trials for one or more of our product candidates, even if such product candidates are approved for marketing in the U.S.,United States, we will not be able to make claims comparing such product candidates to the current standards of care or other competitor products which may negatively impact sales of these products.
Our ability to finance our operations and generate revenues depends on the clinical and commercial success of FMX101, FMX103 and our other product candidates and failure to achieve such success will negatively impact our business.
Our near-term prospects, including our ability to finance our operations and generate revenues, depend on the successful development, regulatory approval and commercialization of FMX101 and FMX103, as well as our other product candidates. The clinical and commercial success of FMX101, FMX103 and our other product candidates depends on a number of factors, many of which are beyond our control, including:
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| · | the prevalence and severity of adverse events associated with FMX101, FMX103 and our other product candidates; |
| · | the timely and satisfactory performance by third party contractors of their obligations in relation to our clinical |
| · | our success in educating dermatologists, pediatricians and patients about the benefits, administration and use of FMX101, FMX103 and our other product candidates, if approved; |
| · | our ability to raise additional capital on acceptable terms in order to achieve our goals; |
| · | the availability, perceived advantages, relative cost, safety and efficacy of alternative and competing treatments; |
| · | the effectiveness of our marketing, sales and distribution strategy and operations, as well as that of our current and future licensees; |
| · | our ability to develop, validate and maintain a commercially viable manufacturing process that is compliant with current good manufacturing practices, or cGMP; |
| · | our ability to take advantage of the 505(b)(2) regulatory pathway and obtain regulatory marketing exclusivity for our products, under the Hatch-Waxman Act; |
| · | our ability to obtain protect and enforce our intellectual property rights with respect to FMX101, FMX103 or our other product candidates; |
| · | our ability to bring an action timely for patent infringement arising out of the filing of ANDAs by generic companies seeking approval to market generic versions of our products before the expiry of our patents; and |
| · | our ability to avoid third party claims of patent infringement or intellectual property violations. |
If we fail to achieve these objectives or to overcome the challenges presented above, many of which are beyond our control, in a timely manner, we could experience significant delays or an inability to successfully commercialize our product candidates. Accordingly, we may not be able to generate sufficient revenues through the sale of FMX101, FMX103 or our other product candidates to enable us to continue our business.
We may encounter delays in completing clinical trials for FMX101, FMX103 and our other product candidates and may even be prevented from commencing such trials due to factors that are largely beyond our control.
We have in the past and may in the future experience delays in completing our ongoing clinical trials and in commencing future clinical trials. We have already experienced significant delays in our Phase III clinical program for FMX101 for acne, first due to quality control issues with certain active ingredients supplied to us by a third party and more recently due to insufficient results in one of the co-primary endpoints, namely IGA treatment success, in one of the two initial Phase III trials. We have also experienced a delay in ourtrials, after which we conducted an additional Phase IIIII clinical trial with FMX102 for impetigo that took place in Israel, due to our difficulty in enrolling a sufficient number of pediatric patients with the necessary severity of the disease to participate in the trial. Such difficulties may arise again in future trials for other indications and for our other product candidates.
We rely on contract research organizations, or CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we have agreements governing the committed activities of our CROs, we have limited influence over their actual performance. A failure of one or more of our clinical trials can occur at any time during the clinical trial process. Clinical trials can be delayed or aborted for a variety of other reasons, including delay or failure to:
| · | obtain regulatory approval to commence a trial; |
| · | reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which may be subject to extensive negotiation and vary significantly among different CROs and trial sites; |
| · | obtain institutional review board, or IRB, approval at each site; |
| · | enlist suitable patients to participate in a trial; |
| · | have patients complete a trial or return for post-treatment follow-up; |
| · | ensure clinical 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; |
| · | address any conflicts with new or existing laws or regulations; |
| · | add a sufficient number of clinical trial sites; or |
| · | manufacture sufficient quantities of the product candidate for use in clinical trials. |
Patient enrollment is also a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’clinicians’ and patients’patients’ perceptions as to the potential advantages of the drug being studied in relation to available alternatives, including any new drugs or treatments that may be approved for the indications we are investigating.
We may also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the trial’strial’s data safety monitoring board, by the FDA or by the applicable foreign regulatory authorities. Such authorities may suspend or terminate one or more of our clinical trials due to a number of factors, including our failure to conduct the clinical trial in accordance with relevant regulatory requirements or clinical protocols, inspection of the clinical trial operations or trial site by the FDA or foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
If we experience delays in carrying out or completing any clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business and financial condition. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
FMX101, FMX103 and other product candidates may produce undesirable side effects that we may not have detected in our Phase II clinical trials or initial Phase III trials. This could prevent us from gaining marketing approval or market acceptance for this product candidate, or from maintaining such approval and acceptance, and could substantially increase commercialization costs and even force us to cease operations.
To date, FMX101 and FMX103 have so farnot been shown in Phase I and Phase II to have noassociated with drug-related systemic side effects and only a few cases of mild and temporary skin reactions have been reported, most of which disappeared on their own within 12 weeks from the beginning of the treatment. FMX101 has further demonstrated thisand FMX103 have both been observed to have a generally favorable safety profile, in its initial Phase III trialswith the most commonly reported adverse events related to upper respiratory tract infections, and extended open-label safety study.there were no treatment-related serious adverse events reported. Nonetheless, in further Phase III clinical trials, which involve large patient populations, and upon commercialization of FMX101, FMX103 or other product candidates, if approved, the clinical exposure of the drugs will be significantly expanded to a wider and more diverse group of patients than those participating in the clinical trials, which may reveal undesirable side effects caused by these products that were not previously observed or reported in the current clinical trials.
The FDA and foreign regulatory agency regulations require that we report certain information about adverse medical events if our products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date on which we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the FDA or a foreign regulatory agency could take action including criminal prosecution, the imposition of civil monetary penalties or seizure of our products.
Additionally, in the event we discover the existence of adverse medical events or side effects caused by one of our product candidates, a number of other potentially significant negative consequences could result, including:
| · | the FDA or foreign regulatory authorities may suspend or withdraw their approval of the product; |
| · | the FDA or foreign regulatory authorities may require the addition of labeling statements, such as warnings or contraindications or distribution and use restrictions; |
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| · | the FDA or foreign regulatory authorities may require us to issue specific communications to healthcare professionals, such as letters alerting them to new safety information about our product, changes in dosage or other important information; |
| · | the FDA or foreign regulatory authorities may issue negative publicity regarding the affected product, including safety communications; |
| · | we may be limited with respect to the safety-related claims that we can make in our marketing or promotional materials; |
| · | we may be required to change the way the product is administered, conduct additional preclinical studies or clinical trials or restrict or cease the distribution or use of the product; |
| · | perception of our products by physicians and patients may be adversely affected; and |
| · | we could be sued and held liable for harm caused to patients. |
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase commercialization costs or even force us to cease operations.
Even if FMX101, FMX103 or our other product candidates receive marketing approval, we may continue to face future developmental and regulatory difficulties. In addition, we are subject to government regulations and we may experience delays in obtaining required regulatory approvals to market our proposed product candidates.
Even if we complete clinical testing and receive approval of any regulatory filing for FMX101, FMX103 or any of our other product candidates, the FDA or applicable foreign regulatory agency may grant approval contingent on the performance of additional costly post-approval clinical trials risk mitigation requirements and surveillance requirementsor REMS to monitor the safety or efficacy of the product, which could negatively impact us by reducing revenues or increasing expenses, and cause the approved product candidate not to be commercially viable. Absence of long-term safety data may further limit the approved uses of our products, if any.
The FDA or applicable foreign regulatory agency may also approve FMX101, FMX103 or any of our other product candidates for a more limited indication or a narrower patient population than we originally requested, or may not approve the labeling that we believe is necessary or desirable for the successful commercialization of our product candidates. Furthermore, any such approved product will remain subject to extensive regulatory requirements, including requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, distribution and recordkeeping.
If we fail to comply with the regulatory requirements of the FDA or other applicable foreign regulatory authorities, or if we discover previously unknown problems with any approved commercial products, manufacturers or manufacturing processes, are discovered, we could be subject to administrative or judicially imposed sanctions or other setbacks, which could require us to take corrective actions, including the following:to:
| · | suspend or impose restrictions on operations, including costly new manufacturing requirements; |
| · | refuse to approve pending applications or supplements to applications; |
| · | suspend any ongoing clinical trials; |
| · | suspend or withdraw marketing approval; |
| · | seek an injunction or impose civil or criminal penalties or monetary fines; |
| · | seize or detain products; |
| · | ban or restrict imports and exports; |
| · | issue warning letters or untitled letters; |
| · | suspend or impose restrictions on operations, including costly new manufacturing requirements; or |
| · | refuse to approve pending applications or supplements to applications. |
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In addition, various aspects of our operations are subject to federal, state or local laws, rules and regulations, any of which may change from time to time. Costs arising out of any regulatory developments could be time-consuming and expensive and could divert management resources and attention and, consequently, could adversely affect our business operations and financial performance.
Even if FMX101, FMX103 or our other product candidates receive regulatory approval, they may fail to achieve the broad degree of physician adoption and use and market acceptance necessary for commercial success.
Even if we obtain FDA or foreign regulatory approvals for FMX101, FMX103 or any of our other product candidates, the commercial success of such products will depend significantly on their broad adoption and use by dermatologists, pediatricians and other physicians for approved indications, including, in the case of FMX101 and FMX103, for the treatment of moderate-to-severe acne moderate-to-severand moderate-to-severe rosacea, andrespectively, as well as any other therapeutic indications that we may seek to pursue.
Moreover, if the treatment of acne with FMX101 or rosacea with FMX103 is deemed to be an elective procedure, the cost of which is borne by the patient, it will not be reimbursable through government or private health insurance.
The degree and rate of physician and patient adoption of FMX101, FMX103 and any of our other product candidates, if approved, will depend on a number of factors, including:
| · | the clinical indications for which the product is approved; |
| · | the safety and efficacy of our product as compared to existing therapies for those indications; |
| · | the prevalence and severity of adverse side effects; |
| · | patient satisfaction with the results and administration of our product and overall treatment experience, including relative convenience, ease of use and avoidance of, or reduction in, adverse side effects; |
| · | patient demand for the treatment of moderate-to-severe acne and rosacea or other indications; |
| · | overcoming biases of physicians and patients towards [existing??] topical treatments for moderate-to-severe acne, rosacea or other indications and their willingness to adopt new therapies for these indications; |
| · | the cost of treatment in relation to alternative treatments, the extent to which these costs are covered and adequately reimbursed by third party payors, and |
| · | proper training and administration of our products by dermatologists, pediatricians and medical staff; |
| · | the revenues and profitability that our products will offer physicians as compared to alternative therapies; and |
| · | the effectiveness of our sales and marketing efforts, especially the success of any targeted marketing efforts directed toward dermatologists, pediatricians, other physicians, clinics and any direct-to-consumer marketing efforts we may initiate. |
We may decide not to continue developing or commercializing any of our product candidates at any time during development or after approval, which would reduce or eliminate our potential return on investment for those product candidates.
We have in the past and may again in the future decide to discontinue the development of any of our product candidates in our pipeline or not to continue to commercialize any of our product candidates. In December 2017, we discontinued further in-house development of FMX102 for the treatment of impetigo and FMX104 for the treatment of chemotherapy-induced rash due to our reassessment of the limited market opportunities for these products in light of our then-existing limited cash and resources. In the future, we may discontinue development of other product candidates for a variety of reasons, such as the appearance of new technologies that make our product less commercially viable, an increase in competition from generic or other competing products, changes in or failure to comply with applicable regulatory requirements, the discovery of unforeseen side effects during clinical development or after the approved product has been marketed or the occurrence of adverse events at a rate or severity level that is greater than experienced in prior clinical trials. If we discontinue a program in which we have invested significant resources, such as our decision to discontinue further in-house development of FMX102 for the treatment of impetigo and FDX104 for the treatment of chemotherapy induced rash, we will not receive any return on our investment and we will have missed the opportunity to have allocated those resources to other product candidates in our pipeline that may have had potentially more productive uses.
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If FMX101, FMX103 or any of our other product candidates are approved for use but fail to achieve the broad degree of physician adoption and market acceptance necessary for commercial success, our operating results and financial condition will be adversely affected.
Our ability to market FMX101 and FMX103, if approved, may be limited to use for the treatment of moderate-to-severe acne or moderate-to-severe rosacea, respectively, in the U.S., and if we want to expand the indications for which we may market FMX101 or the territories in which we may market these products, we will need to obtain additional regulatory approvals, which may not be granted.
We plan to seek regulatory approval in the U.S.United States for FMX101 and FMX103 for the treatment of moderate-to-severe acne and moderate-to-severe rosacea, respectively, in the U.S.respectively. If FMX101 is approved, the FDA will likely restrict our ability to market or advertise FMX101 and FMX103 for other indications, which could limit physician and patient adoption. We may seek to promote and commercialize our products, FMX101 and FMX103 in Europe as well,or in other jurisdictions through third party partnerships, by applying for marketing approval from the European Medicines Agency, or EMA, or in other respective jurisdictions, or we may develop new or additional uses or protocols for FMX101 or FMX103 in the future, but we may not receive the clearances required to do so. If we proceeded to submit for marketing approval in Europeother territories, we or our partners would likely be required to conduct additional clinical trials or studies to support approvals for such additional jurisdictions or indications, which would be time consuming and expensive, and may produce results that do not support regulatory approvals.
Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The marketing approval process in other countries may include all of the risks detailed above regarding FDA approval in the U.S.United States as well as other risks. In particular, in many countries outside the U.S.,United States, it is required that a product receivesreceive pricing and reimbursement approval before the product can be commercialized. This can result in substantial delays in such countries. In other countries, product approval depends on showing superiority to an approved alternative therapy. This may lead to conducting complex clinical trials that require additional significant resources.
None of our products are currently approved for sale in any jurisdiction, including the U.S.United States or any international markets. If we fail to comply with regulatory requirements in the U.S.United States or any international market we decide to enter, or to obtain and maintain required approvals, or if regulatory approvals in the U.S.United States or the relevant international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be harmed.
Marketing approval in one jurisdiction does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one jurisdiction may have a negative effect on the regulatory process in others. Failure to obtain a marketing approval in other countries or any delay or setback in obtaining such approval would impair our ability to obtain approval for our product candidates in the United States or to develop foreign markets for FMX101 and FMX103.our products. This would reduce our target market andcould limit the full commercial potential of FMX101, and FMX103.FMX103 or our other products.
If we are not successful in developing, acquiring regulatory approval for and commercializing additional product candidates beyond FMX101 or FMX103, our ability to expand our business and achieve our strategic objectives will be impaired.
Although we will devote a substantial portion of our resources on the continued clinical testing and potential approval of FMX101 for the treatment of moderate-to-severe acne and FMX103 for the treatment of moderate-to-severe rosacea, another key element of our strategy is to discover, develop and commercialize a portfolio of products based on our proprietary foam platforms to serve additional dermatology indications and therapeutic markets. We are seeking to do so through our internal research programs, but our resources are limited, and those that we haveour current programs are primarily geared towards clinical testing and seeking regulatory approval for FMX101 and FMX103. We may also explore strategic collaborations for the development or acquisition of new products and product candidates, but we may not be successful in entering into such relationships. While we have completed two initialthree Phase III clinical trials and commenced a third Phase III clinical trial for our lead product candidate, FMX101, for the treatment of moderate-to-severe acne, and have commenced two Phase III clinical trials for FMX103 for the treatment of rosacea, all of our other potential product candidates remain in earlier stages of development. Research programs to identify product candidates require substantial technical, financial and human resources, regardless of whether any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including:
| · | the research methodology used may not be successful in identifying potential product candidates; |
| · | competitors may develop alternatives that render our product candidates obsolete or less attractive; |
| · | product candidates we develop may nevertheless be covered by third |
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| · | a product candidate may in a subsequent trial be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria; |
| · | a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; |
| · | a product candidate may not be accepted as safe and effective by patients, the medical community or third party payors, if applicable; |
| · | intellectual property rights, such as patents, which are necessary to protect our interests in a product candidate, may be difficult to obtain or unobtainable; |
| · | intellectual property rights, such as patents, may fail to provide adequate protection, may be challenged and one or more claims may be revoked or the patent may be held to be invalid; and |
| · | intellectual property rights of third parties may potentially block our entry into certain markets, or make such entry economically impracticable. |
Our product candidates, if approved, will face significant competition and our failure to compete effectively may prevent us from achieving significant market penetration and expansion.
If we receive marketing approval, the expected indication of FMX101 will be moderate-to-severe acne and the expected indication of FMX103 will be moderate-to-severe rosacea. The facial aesthetic market in general, and the market for acne treatments in particular, is highly competitive and dynamic, and is characterized by rapid and substantial technological development and product innovations. FMX101, if approved, may face significant competition from other acne products, including oral drugs such as Solodyn, Doryx, Dynacin, Acticlate and Minocin, and topical anti-acne drugs such as Acanya, Ziana, Epiduo, Benzaclin, Aczone and Differin. FMX103, if approved, may face significant competition from other rosacea products, including oral drugs such as Oracea®Oracea®, and topical anti-rosacea drugs such as Metrogel, Soolantra and Finacea, all of which have been approved for marketing and are currently available to consumers. If approved, FMX101 and FMX103 may also compete with non-prescription anti-acne and rosacea products and unapproved and off-label treatments.
There are also several potential competing products currently under development. One of such potential competing products is a new topical gel suspension containing minocycline non-hydrochloride for the treatment of inflammatory skin disease, including acne and rosacea, developed by Hovione, a manufacturer of active pharmaceutical ingredients and drug product intermediates, which product candidate is currently undergoing a Phase II clinical trial for the treatment of moderate-to-severe papulopustular rosacea. Another such potential competing product is a topical hydrophilic gel containing minocycline hydrochloride for the treatment of acne, known as BPX-01, developed by BioPharmX Corporation, for which BioPharmX has completed Phase IIa and Phase IIb clinical trials and has obtained FDA approvalinput for the design of a planned Phase III clinical trial. BioPharmX has also announced interim results ofinitiated a feasibilityPhase IIb study with BPX-01 for a topical minocycline gel named BPX-04 for the treatment of rosacea, later renamed BPX-04.rosacea. If ultimately approved and launched in the U.S., these products would become direct competitors to FMX101 and FMX103.
To compete successfully in the acne and rosacea treatment markets, we will have to demonstrate that FMX101 is safe and effective for the treatment of moderate-to-severe acne and FMX103 is safe and effective for the treatment of moderate-to-severe rosacea, and that they do not infringe the intellectual property rights of any third parties. Competing in the acne and rosacea markets could result in price-cutting, reduced profit margins and loss of market share, any of which would harm our business, financial condition and results of operations.
Due to less stringent regulatory requirements, there are many more acne products and procedures available for use in international markets than are approved for use in the U.S.United States. There are also fewer limitations on the claims that our competitors in international markets can make about the effectiveness of their products and the manner in which they can market them. As a result, if we partner with other companies in these markets and launch our products, we may face more competition in these markets than in the U.S.United States.
In addition, even if we are able to commercialize our product candidates, we may not be able to price them competitively with current standard of care products or their price may drop considerably due to factors outside our control. If this happens or the price of materials and manufacture increases dramatically, our ability to continue to operate our business would be materially harmed and we may be unable to commercialize FMX101 or FMX103 successfully.
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We have agreements with third party licensees to develop new product candidates for them utilizing our foam technology, and our ability to benefit from such product candidates, or from product candidates that we are developing independently of such licensees, could be impaired or delayed if our licensees’ efforts to develop and commercialize these product candidates are unsuccessful.
In parallel to our core business focused on the development of FMX101, FMX103 and other product candidates, we are pursuing development and license agreements with various pharmaceutical companies for the development and commercialization of product candidates that combine our proprietary technology with the licensees’licensees’ drugs for the treatment of various indications. These license agreements generally provide rights to the licensees for a single active pharmaceutical ingredient, and grant the licensee exclusivity in the development and commercialization of the specific licensed product candidates incorporating such active pharmaceutical ingredient. Our entitlement to contingent payments and royalties from such potential product candidates is therefore dependent upon the licensees’licensees’ performance of their responsibilities and their continued cooperation in developing and commercializing the potential product candidates.
Our licensees may not cooperate with us or perform their obligations under our agreements with them. Furthermore, the obligations of the licensees under such agreements are, for the most part, limited to ‘commercially‘commercially reasonable efforts,’ and they do not face penalties or other repercussions for failing to develop or commercialize the relevant product candidates within the designated timetable other than potentially forfeiting their rights to the relevant product candidate and assigning such rights to us. However, there is no guarantee that we will be able to develop, manufacture or commercialize successfully any such product candidate assigned to us. We cannot control the scope or timing of the resources that will be devoted by our licensees to performing their responsibilities under our agreements with them. Our licensees may choose to pursue alternative technologies in preference to those being developed with us. Several of these agreements may also be terminated for convenience by the licensee. The development and commercialization of these licensed product candidates, as well as the anticipated contingent payments and royalties we hope to generate from them, will be delayed or never obtained if the licensees fail to conduct their responsibilities in a timely manner or in accordance with applicable regulatory requirements, or if they breach their agreements with us. Disputes with our licensees could also impair our reputation or result in development delays, decreased revenues and litigation expenses.
Furthermore, our licensees may encounter adverse outcomes in the process of developing or commercializing their product candidates, and any such outcomes or delays may adversely affect our ability to seek approval for our product candidates or to commercialize our other products. For example, adverse events reported in connection with the use of our licensee’s products that incorporate our technology could negatively affect the perception by regulators, physicians or patients of our platform, which may impair our ability to advance the development of our product candidates and the commercialization of other products.
We have granted several of our licensees the right to commercialize the licensed products for any indication, including acne and rosacea, which may allow them to compete against us using our own technology.
The licenses we granted to several of our licensees, with whom we are developing certain topical products based on our technology and the licensees’licensees’ proprietary drugs, allow them to commercialize the developed products for any topical application, and not only for the specific indication for which each product was originally intended. If any such licensed products prove to be effective for moderate-to-severe acne, rosacea or any other indication that we are pursuing with FMX101, FMX103 or other product candidates, we may face competition from these licensed products, as the licensees are not bound by any non-compete restrictions.products.
Healthcare reforms by governmental authorities and related reductions in pharmaceutical pricing, reimbursement and coverage by third-partythird party payors may adversely affect our business.
We expect the healthcare industry to face increased limitations on reimbursement, rebates and other payments as a result of healthcare reform, which could adversely affect third-partythird party coverage of our products and how much or under what circumstances healthcare providers will prescribe or administer our products, if approved.
In both the U.S.United States and other countries, sales of our products, if approved for marketing, will depend in part upon the availability ofcoverage and adequate reimbursement from third-partythird party payors, which include governmental authorities, managed care organizations and other private health insurers. Third-partyThird party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services.
Increasing expenditures for healthcare have been the subject of considerable public attention in the U.S.United States Both private and government entities are seeking ways to reduce or contain healthcare costs. Numerous proposals that would effect changes in the U.S. healthcare system have been introduced or proposed in Congress and in some state legislatures, including reducing reimbursement for prescription products and reducing the levels at which consumers and healthcare providers are reimbursed for purchases of pharmaceutical products.
Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect the price we can receive for those products. Any reduction in reimbursement that results from federal legislation or regulation may also result in a similar reduction in payments from private payors, as private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates.
Significant developments that may adversely affect pricing in the U.S.United States include the enactment of federal healthcare reform laws and regulations, including the ACA and the Medicare Prescription Drug Improvement and Modernization Act of 2003. Changes toin the healthcare system enacted as part of healthcare reform in the U.S.,United States, as well as the increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, may result in increased pricing pressure by influencing, for instance, the reimbursement policies of third-partythird party payors. While healthcare reform legislation may have increased the number of patients who are expected to have insurance coverage for our product candidates, provisions such as the assessment of a branded pharmaceutical manufacturer fee and an increase in the amount of rebates that manufacturers pay for coverage of their drugs by Medicaid programs may have an adverse effect on us. It is uncertain how current and future reforms in these areas will influence the future of our business operations and financial condition.
In 2017, a new administration, which had promised to repeal and replace the ACA, took office in the United States. For example, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law. More recently, in July 2018, CMS published a final rule permitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas ruled that the individual mandate is a critical and inseverable feature of the ACA, and because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. While neither the Texas District Court Judge, Trump administration nor CMS have stated that the ruling will have an immediate effect, it is unclear how this decision, subsequent appeals, if any, and other efforts to repeal and replace the ACA will impact the ACA. Although we cannot predict the form of any such replacement of the ACA may take, or the full effect on our business of the enactment of additional legislation pursuant to healthcare and other legislative reform, we believe that legislation or regulations that would reduce reimbursement for, or restrict coverage of, our products could adversely affect how much or under what circumstances healthcare providers will prescribe or administer our products. This could materially and adversely affect our business by reducing our ability to generate revenues, raise capital, obtain additional licensees and market our products. In addition, we believe the increasing emphasis on managed care in the U.S.United States has and will continue to put pressure on the price and usage of pharmaceutical products, which may adversely impact product sales.
Recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several U.S. Congressional inquiries and proposed federal legislation designed to, among other things, bring more transparency to product pricing, reduce the cost of certain products under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies. At the state level, individual states in the United States are also increasingly passing legislation and implementing regulations designed to control product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures.
It is likely that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for a pharmaceutical manufacturer’s products or additional pricing pressure.
It will be difficult for us to profitably sell FMX101, FMX103 or our other product candidates if reimbursement for these products is limited by government authorities and third-partythird party payor policies.
In addition to any healthcare reform measures which may affect reimbursement, market acceptance and sales of FMX101, FMX103 and our other product candidates, if approved, will depend on the reimbursement policies of government authorities and third-partythird party payors. Government authorities and third-partythird party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for, and establish reimbursement levels.
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and these third-partythird party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that reimbursement will be available for FMX101 or FMX103, or, if reimbursement is available, the level of reimbursement.
Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. In addition, third-partythird party payors are likely to impose strict requirements for reimbursement in order to limit off-label use of a higher priced drug. Reimbursement by a third-partythird party payor may depend upon a number of factors including the third-party payor’sthird party payor’s determination that use of a product is:
| · | a covered benefit under its health plan; |
| · | safe, effective and medically necessary; |
| · | appropriate for the specific patient; |
| · | cost-effective; and |
| · | neither experimental nor investigational. |
Obtaining coverage and reimbursement approval for a product from a government or other third-partythird party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to the payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for our product candidates, if approved. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our future products. If reimbursement is not available, or is available only to limited levels, we may not be able to commercialize our product candidates, profitably or at all, even if approved.
Legislative or regulatory healthcare reforms in the U.S.United States may make it more difficult and costly for us to obtain regulatory clearance or approval of our product candidates and to produce, market, and distribute our products after clearance or approval is obtained.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory clearance or approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of FMX101, FMX103 or any of our other product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things,inter alia, require:
| · | changes to manufacturing methods; |
| · | recall, replacement, or discontinuance of one or more of our products; and |
| · | additional recordkeeping. |
Each of these would likely entail substantial time and cost and could materially harm/adversely affect our business and our financial results.
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.
We anticipate that we will continue to expend substantial resources for the foreseeable future for the clinical development and regulatory approval forand commercialization of FMX101 and FMX103. We also wish to continue the development of other indications and product candidates. However, we may not have sufficient funds to carry out and complete all of these plans, and may need to raise additional funds for such purposes.
These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, and manufacturing and supply, as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any of our product candidates.
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We believe that the net proceeds from our initial and follow-on public offerings will allow us to fund our operating expenses and capital expenditure requirements throughout the Phase III clinical trialsour NDA application and approval process for our lead product candidate, FMX101 forand FMX103, which we expect to announce top-line results in the third quarter of 2018 and to complete by the end of 2018. Such proceeds should also fund our Phase III clinical program for FMX103, for which we expect to announce top-line results by the end of the third quarter or in the beginning of the fourth quarter of 2018 and to complete in 2019. However, our operating plan may change as a result of many factors currently unknown to us, as recently exhibited by our need to commence a third pivotal Phase III clinical trial for FMX101 due to inconclusive results in the co-primary endpoint of IGA treatment success in one of the two initial trials.us. We may therefore need to seek additional capital sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations or additional license arrangements. Such financings may result in dilution to shareholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
Our future capital requirements depend on many factors, including:
| · | the results of the clinical trials of our |
| · | the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates; |
| · | the number and characteristics of any additional product candidates we develop or acquire; |
| · | the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical trials; |
| · | the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales and distribution costs; |
| · | the cost of manufacturing our product candidates and any products we successfully commercialize, and maintaining our related facilities; |
| · | our ability to establish and maintain strategic collaborations, licensing or other arrangements and the terms of and timing of such arrangements; |
| · | the degree and rate of market acceptance of any future approved products; |
| · | the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products or treatments; |
| · | any product liability or other lawsuits related to our products; |
| · | the expenses needed to attract and retain skilled personnel; |
| · | the costs associated with being a public company; |
| · | the costs associated with evaluation of our product candidates; |
| · | the costs associated with evaluation of third party intellectual property; |
| · | the costs associated with obtaining and maintaining licenses; |
| · | the costs associated with obtaining, protecting and enforcing intellectual property, such as costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, litigation costs, including |
| · | the timing, receipt and amount of sales of, or royalties on, future approved products, if any. |
Additional capital may not be available when we need it, on terms that are acceptable to us or at all. If adequate funds are not available to us on a timely basis, we may be required to:
| · | delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for |
| · | delay, limit, reduce or terminate our research and development activities; or |
| · | delay, limit, reduce or terminate our establishment of manufacturing, sales and marketing or distribution capabilities or other activities that may be necessary to commercialize FMX101, FMX103 or any of our other product candidates. |
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If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our existing shareholders will be diluted and the terms of any new equity securities may have a preference over our ordinary shares. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or making capital expenditures or specified financial ratios, any of which could restrict our ability to commercialize our product candidates or operate as a business.
We have a limited operating history and have incurred significant losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future. We have only fourtwo product candidates that have completed anyPhase III clinical trials and have no sales, which, together with our limited operating history, make it difficult to assess our future commercial viability.
We are a small clinical-stage specialty pharmaceutical company with a limited operating history. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are not profitable and have incurred losses in each year since we commenced operations in 2003. We have only a limited operating history upon which you can evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical industry.
To date, we have not obtained any regulatory approvals for any of our product candidates or generated any revenues from product sales relating to FMX101, FMX103 or any of our other product candidates. We have generated revenues only from service payments, and contingent payments paid towards or in the course of projects carried out under several of our development and license agreements with various pharmaceutical companies. We have also received (and continue to receive) royalty payments with respect to Finacea,®, a prescription foam product that we developed in collaboration with Bayer.Bayer under a license agreement which was assigned to LEO in September 2018.
We continue to incur significant research and development and other expenses related to our ongoing clinical trials and operations. We have recorded a net loss of $74.2 million, $65.7 million $29.3 million and $16.5$29.3 million for the twelve monthsyears ended December 31, 2018, 2017 2016 and 2015,2016, respectively. As of December 31, 20172018, we had an accumulated deficit of $141.3$215,409 million and had a working capital surplus of $59.3$90.7 million. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase substantially as we continue our development of, and seek regulatory approvals for, FMX101, FMX103 and our other product candidates, and begin to commercialize such product candidates.
Our ability to achieve revenues and profitability is dependent on our ability to complete the development of our product candidates, obtain necessary regulatory approvals and successfully manufacture, market and commercialize our products. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, may adversely affect the market price of our ordinary shares and our ability to raise capital and continue operations.
We currently contract with third party subcontractors and suppliers for certain compounds and components necessary to produce FMX101 and FMX103 for clinical trials and expect to continue to do so to support commercial scale production if one or more of such product candidates is approved. This increases the risk that we will not have sufficient quantities of FMX101 and FMX103 or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We currently rely on third party subcontractors and suppliers for certain compounds and components necessary to produce FMX101and FMX103 for our clinical trials, including minocycline and other active ingredients, excipients used in the formulation of the foam, delivery apparatus comprising canisters, valves and propellants. We expect to continue to rely on these or other subcontractors and suppliers to support our commercial requirements if FMX101 and FMX103 or any of our other product candidates is approved for marketing by the FDA or foreign regulatory authorities.
Reliance on third party subcontractors and suppliers entails a number of risks, including reliance on the third party for regulatory compliance and quality assurance, the possible breach of the manufacturing or supply agreement by the third party, the possibility that the supply is inadequate or delayed, , the risk that the third party may enter the field and seek to compete and may no longer be willing to continue supplying, and the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. In addition, third party subcontractors and suppliers may not be able to comply with cGMP or quality system regulation, or QSR, or similar regulatory requirements outside the U.S. If any of these risks transpire, we may be unable to timely retain alternate subcontractors or suppliers on acceptable terms and with sufficient quality standards and production capacity, which may disrupt and delay our clinical trials or the manufacture and commercial sale of our product candidates, if approved.
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Our failure or the failure of our third party subcontractors and suppliers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates that we may develop.
Although we have not experienced unique difficulties in procuring compounds and components for FMX101, FMX103 or any other product candidates, and while we are acting to secure additional suppliers for such compounds and components, we could experience such difficulties in the future.
We will rely on third parties and consultants to assist us in conducting our trials and studies. If these third parties or consultants will not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize our product candidates.
We do not have the ability to independently perform all aspects of our preclinical studies and clinical trials. We will relyhave relied on medical institutions, clinical investigators, contract laboratories, collaborative partners and other third parties, such as CROs, to assist us in conducting our Phase III clinical trials for FMX101 and FMX103, and expect to continue doing so with regard to studies and clinical trials for our other product candidates. The third parties with whom we contract for execution of our clinical trials play a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, these third parties are not our employees, and except for contractual duties and obligations, we will have limited ability to control the amount or timing of resources that they devote to our programs.
Although we rely on these third parties to conduct certain aspects of our Phase III clinical trials and other studies and clinical trials, we remain responsible for ensuring that each of our clinical trials and preclinical studies is conducted in accordance with its investigational plan and protocol. Moreover, the FDA and foreign regulatory authorities require us to comply with regulations and standards, commonly referred to as current good clinical practices, or GCPs, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial subjectspatients are adequately informed of the potential risks of participating in clinical trials. We also rely on our consultants to assist us in the execution, including data collection and analysis of our clinical trials.
In addition, the execution of clinical trials and preclinical studies, and the subsequent compilation and analysis of the data produced, will require coordination among these various third parties. In order for these functions to be carried out effectively and efficiently, it will be imperative that these parties communicate and coordinate with one another, which may prove difficult to achieve. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. Our agreement with these third parties may inevitably enable them to terminate such agreements upon reasonable prior written notice under certain circumstances.
If the third parties or consultants that assist us in conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to conduct additional clinical trials or enter into new arrangements with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed or terminated or may need to be repeated. If any of the foregoing were to occur, we may not be able to obtain, or may be delayed in obtaining, regulatory approval for the product candidates being tested in such trials, and will not be able to, or may be delayed in our efforts to, successfully commercialize these product candidates.
We have no experience manufacturing our product candidates at full commercial scale. If our product candidates are approved, we intend to outsource our manufacturing to third parties, and will face certain risks associated with such outsourcing.
We have a small-scale integrated research, development and testing facility located at our corporate headquarters in Rehovot, Israel. However, we have not equipped our facility with manufacturing capabilities other than small scale manufacture, and do not currently plan to do so. We do not have experience in manufacturing our product candidates at commercial scale, and ifIf our product candidates are approved, we will outsource all or a significant portion of the manufacturing of our products to third parties, including our drug substances and finished dose forms. Reliance on third parties to manufacture our products entails various risks, including the possibility of increased costs associated with the large- scale production of our products. These risks are similar to those involved in our current use of subcontractors and suppliers for certain compounds and components necessary to produce FMX101, FMX103 and any other of our other product candidates, as explained above.
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We have research and development supply arrangements in place with two suppliers for the supply of our API, and with ASM Aerosol-Service AG, for the supply of our finished product. We are currently negotiating commercial supply agreements with our API suppliers and with ASM Aerosol-Service AG. If we are unsuccessful in outsourcingfinalizing our manufacturing tonegotiations with these third parties, who areor if our suppliers breach any of our supply agreements, or do not remain compliant with regulatory requirements, we may encounter delays or additional costs in achieving our commercialization objectives, which could materially damage our business and financial position.
We currently have limitedare building our marketing capabilities and no sales organization.organization to commercialize our products. If our product candidates are approved, and we are unable to establish sales and marketing capabilitiesnot successful in commercializing FMX101, FMX103 or any of our other product candidates, either on our own or through collaborations with one or more third parties, our revenues will suffer and we will be unable to successfully commercialize FMX101, FMX103 or any other of our other product candidates, if approved, or generate product revenues.incur significant additional losses.
There are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of our product candidates.
We may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems in the United States or in lieu of our own sales force and distribution systems.systems in other countries. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize FMX101, FMX103 or any of our other product candidates.
To establish our sales and marketing infrastructure and manufacturing capabilities, we will also need to increase the size of our organization, and we may experience difficulties in managing this expansion.
As of February 1, 20182019, we had 75two sales and marketing employees. We have hired a Chief Commercial Officer but we will need to continue to expand our managerial, operational, financesales and othermarketing resources in order to manage our operations and clinical trials, continue our development activities and commercialize FMX101, FMX103 and any other product candidates, if approved. Our management, personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our expansion strategy requires that we:
Due to our limited financial resources and our limited experience in managing a company with such anticipated expansion, we may not be able to effectively manage the expansion of our sales and marketing operations or recruit and train additional qualified personnel. The physical expansion of our sales and marketing operations may lead to significant costs and may divert our management and business development resources. Any inability to manage expansion could delay the execution of our development and strategic objectives, or disrupt our operations.
We currently develop our clinical drug products exclusively in one research and development facility and may utilize this facilitylocated in the future to support commercial production if our product candidates are approved.Rehovot, Israel. If this or any future facility or our equipment were to be damaged or destroyed, or if we experience a significant disruption in our operations for any other reason, our ability to continue to operate our business wouldcould be materially harmed.
We currently research and develop our product candidates primarily in our laboratory located in Rehovot, Israel.
If this or any future facility were to be damaged, destroyed or otherwise unable to operate, whether due to war, acts of hostility, earthquakes, fire, floods, hurricanes, storms, tornadoes, other natural disasters, employee malfeasance, terrorist acts, power outages or otherwise, or if performance of our research and development facility is disrupted for any other reason, such an event could delay our clinical trials or, if our product candidates are approved and we choose to manufacture all or any part of them internally, jeopardize our ability to manufacture our products as promptly as our prospective customers will likely expect, or possibly at all.trials. If we experience delays in achieving our development objectives, or if we are unable to manufacture an approved product within a timeframe that meets our prospective customers’customers’ expectations, our business, prospects, financial results and reputation could be materially harmed.
Currently, we maintain insurance coverage totaling $1.33$2.4 million against damage to our property and equipment and $5.8$5.4 million in workers compensation coverage, subject to deductibles and other limitations. If we have underestimated our insurance needs with respect to an interruption, or if an interruption is not subject to coverage under our insurance policies, we may not be able to cover our losses.
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If product liability lawsuits are brought against us, we may incur substantial liabilities that may not be fully covered by our insurance policies and we may be required to limit commercialization of any of our other products we develop.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
| · | decreased demand for FMX101, FMX103 or any of our other product candidates or products we develop; |
| · | injury to our reputation and significant negative media attention; |
| · | withdrawal of clinical trial participants or cancellation of clinical trials; |
| · | costs to defend the related litigation, which may be only partially recoverable even in the event of successful defense; |
| · | a diversion of |
| · | substantial monetary awards to trial participants or patients; |
| · | regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions; |
| · | loss of revenues; and |
| · | the inability to commercialize any products we develop. |
Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the commercialization of FMX101, FMX103 or any other product we may develop. We currently carry generalclinical trials insurance of $10 million and third party liability insurance up to an amount of $10$1.35 million per annum. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain approval for marketing of one or more of FMX101, FMX103 or any other product we may develop, we intend to expand our insurance coverage to include their sale; however, we may be unable to obtain this liability insurance on commercially reasonable terms.
If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop FMX101, FMX103 or any of our other product candidates, conduct our clinical trials and commercialize FMX101, FMX103 or any of our other products we develop.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We believe that our future success is highly dependent upon the contributions of our senior management, particularly our Chief Executive Officer, as well as our senior technologists and scientists. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline or completion of our planned clinical trials or the commercialization of FMX101, FMX103 or any of the clinical development of our other product candidates.
Although we have not historically experienced unique difficulties in attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the pharmaceutical field is intense due to the limited number of individuals who possess the skills and experience required by our industry. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output.
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We have incurred, and will continue to incur significant increased costs as a result of operating as a public company in the U.S.,United States, and our management will be required to devote substantial time to new compliance initiatives.
As a public company in the U.S.,United States, we are subject to an extensive regulatory regime, requiring us to maintain various internal controls 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-Oxley Act of 2002, or Section 404. Complying with these requirements is costly and time consuming. In the event that we are unable to demonstrate compliance with our obligations as a public company in the U.S.United States 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 U.S. Securities and Exchange Commission,SEC, or the NASDAQNasdaq Global Market, and investors may lose confidence in our operating results and the price of our ordinary shares could decline.
Our independent registered public accounting firm was not engaged to perform an audit of our internal control over financial reporting, and as long as we remain an “emerging“emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we are exempt from the requirement to have an independent registered public accounting firm perform such audit. Accordingly, no such opinion was expressed. Once we cease to qualify as an “emerging“emerging growth company,” our independent registered public accounting firm will need to attest to our management’s annual assessment of the effectiveness of our internal controls over financial reporting, which will entail additional costs and expenses.
Our business involves the use of hazardous materials and we and our third party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our research and development activities and our third party subcontractors’subcontractors’ and suppliers’suppliers’ activities involve the controlled storage, use and disposal of hazardous materials owned by us, including minocycline and doxycycline, key 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 disposal of these hazardous materials. We are licensed by the Israeli Ministry of Health to manufacture small batches of product in topical dose form for our Phase I, II and III clinical trials. In some cases, these hazardous materials are stored at our and our subcontractors’subcontractors’ facilities pending their use and disposal.
Despite our efforts, we cannot eliminate the risk of contamination. This could cause an interruption of our commercialization efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by us and our subcontractors and suppliers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and 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 our future compliance.
We may in the future beare subject to various U.S. federal, state and state laws pertaining toforeign health care fraud and abuse laws, including anti-kickback, self-referral, false claims and fraud laws, health information privacy and security, and transparency laws and any violations by us of such laws could result in finessubstantial penalties. Additionally, any challenge to or other penalties.investigation into our practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm our business.
| · | the U.S. federal Anti-Kickback Statute, which prohibits knowingly and willfully offering, soliciting, receiving, or paying remuneration directly or indirectly, in cash or in kind to induce or reward either the referral of an individual for, or the purchase, order or recommendation of goods or services for which payment may be made in whole or part by Medicare, Medicaid or other federal health care programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced price items and services. The intent standard under the federal Anti-Kickback Statute was amended by the ACA to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it, in order to have committed a violation. Moreover, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil FCA. Additionally, many states have similar laws that apply to their state health care programs as well as private payors. Violations of the federal and state anti-kickback laws can result in exclusion from federal and state health care programs and substantial civil and criminal penalties. |
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| · | the federal civil and criminal false claims laws and civil monetary penalties laws, including the False Claims Act, or FCA, prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false, fictitious or fraudulent claims for payment from Medicare, Medicaid or other federal healthcare programs, and knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. Private individuals or “whistleblowers” can bring FCA “qui tam” actions on behalf of the government and may share in recovered amounts. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. |
| · | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program, including any 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 statements or representations, or making false statements relating to healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation; |
| · | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, which imposes privacy, security transmission and breach reporting obligations with respect to individually identifiable health information, including PHI, upon “covered entities” subject to the law, such as health plans, healthcare clearinghouses and certain healthcare providers, and their respective business associates that perform services on their behalf that involve individually identifiable health information, including PHI. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions; and |
| · | the federal Physician Payments Sunshine Act, which requires certain manufacturers of prescription drugs, devices and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to annually report to CMS information related to payments and other transfers of value to physicians, dentists, optometrists, podiatrists, chiropractors, and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members; and |
| · | analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third party payors, including private insurers; state laws that require drug companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local laws that require the licensure of sales representatives; state laws that require drug manufacturers to report information related to drug pricing or payments and other transfers of value to healthcare providers or marketing expenditures and pricing information; data privacy and security laws and regulations in foreign jurisdictions that may be more stringent than those in the United States (such as the European Union, which adopted the General Data Protection Regulation, which became effective in May 2018); state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; and state laws related to insurance fraud in the case of claims involving private insurers. |
State and federal authorities have aggressively targeted medical technologypharmaceutical companies for alleged violations of these anti-fraud statutes,fraud and abuse laws based on improper research or consulting contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other improper promotional practices. Companies targeted in such prosecutions have paid substantial fines in the hundreds of millions of dollars or more, have been forced to implement extensive corrective action plans, and have often become subject to consent decrees or integrity agreements that severely restrictingrestrict the manner in which they conduct their business. If we becomeDue to the targetbreadth of these laws, the narrowness of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are subject, it is possible that some of our current or future practices might be challenged under one or more of these laws. Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. Any such an investigation or prosecution basedsettlement could increase our costs or otherwise have an adverse effect on our contractual relationships with providersbusiness. Even an unsuccessful challenge or institutions, orinvestigation into our marketingpractices could cause adverse publicity, and promotional practices, we could face similar sanctions, which would materially harm our business.be costly to respond to.
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Also, the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Our internal control policies and procedures may not protect us from reckless or negligent acts committed by our employees, future distributors, licensees or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact on our business, results of operations and reputation.
If our operations are found to be in violation of any of the healthcare laws or regulations described above or any other healthcare regulations that apply to us, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment, additional reporting obligations and oversight if we becomes subject to a corporate integrity agreement or consent decree, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and pursue our strategy.
Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.
Although we believe the market for acne and rosacea therapies is less vulnerable to unfavorable economic conditions due to the significant discomfort and distress that these conditions inflict, our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. We currently have very limited visibility regarding the prospects of FMX101, FMX103 or our other product candidates becoming eligible for reimbursement by any government or third party payor and the possible scope of such reimbursement, and we must assume that demand for these product candidates may be tied to discretionary spending levels of our targeted patient population.
A severe or prolonged economic downturn could result in a variety of risks to our business, including weakened demand for FMX101, FMX103 or any of our other product candidates, if approved, and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services.
Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
Exchange rate fluctuations between the U.S. dollar and the New Israeli shekelShekel may negatively affect our earnings.
The dollar is our functional and reporting currency. However, a significant portion of our operating expenses are incurred in Israeli shekels.NIS. As a result, we are exposed to the risks that the shekelNIS may appreciate relative to the dollar, or, if the shekelNIS instead devalues relative to the dollar, that the inflation rate in Israel may exceed such rate of devaluation of the shekel,NIS, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the dollar cost of our operations in Israel would increase and our dollar-denominated results of operations would be adversely affected. We cannot predict any future trends in the rate of inflation or deflation in Israel or the rate of devaluation or appreciation of the shekelNIS against the dollar. For example, the rate of appreciation of the shekelNIS depreciated against the dollar by 8.1% in 2018, which depreciation was 11.6% and 1.5%partly offset by inflation at the rate of 0.8% that year, while in 2017 and 2016, respectively,the NIS appreciated 11.6% against the dollar, which appreciation was offsetfurther amplified by inflation in Israel at a rate of 0.4% in 2017 and compounded by deflation at a rate of -0.2% in 2016.that year. If the dollar cost of our operations in Israel increases, our dollar-measured results of operations will be adversely affected. Our operations also could be adversely affected if we are unable to effectively hedge against currency fluctuations in the future.
Risks Related to Our Intellectual Property
If our efforts to obtain, protect or enforce our patents and other intellectual property rights related to FMX101, FMX103 or any of our other product candidates are not adequate, we may not be able to compete effectively and we otherwise may be harmed.
Our commercial success depends in part on our ability to obtain and maintain patent protection and other intellectual property rights and to utilize trade secret protection for our intellectual property and proprietary technologies, our products and their uses, as well as our ability to operate without infringing upon the proprietary rights of others. We rely upon a combination of patents, trade secret protection and confidentiality agreements, assignment of invention agreements and other contractual arrangements to protect the intellectual property related to FMX101, FMX103 and our other development programs. Limitations on the scope of our intellectual property rights may limit our ability to prevent third parties from designing around such rights and competing against us. For example, our patents do not claim a new compound. Rather, the active pharmaceutical ingredients of our products are existing compounds and our granted patents and pending patent applications are directed to, among other things, novel formulations of these existing compounds that are dispensed as a foam. Accordingly, other parties may compete with us, for example, by independently developing or obtaining competing topical formulations that design around our patent claims, or by using formulations from expired patents but which may contain the same active ingredients, or by seeking to invalidate our patents. Moreover, any disclosure to or misappropriation by third parties of our confidential proprietary information, unless we have sufficient patent and/or trade secret protection and we are able to enforce such rights successfully, could enable competitors to quickly duplicate or surpass our technological achievements, eroding our competitive position in our market.
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We currently have several granted patents related to FMX101 and FMX103 in the U.S.,United States, which are expected to remain in effect until 2030. These patents relate to a composition of matter comprising a claim to a formulation of a tetracycline antibiotic which can include minocycline or doxycycline, and therefore may be less protective than patents that claim a new drug. We also have patents granted claiming compositions of matter relating to FMX101 and FMX103 in each of the following international markets Australia, Canada, Great Britain, Israel, and Israel,Mexico and we have patent applications claiming compositions of matter relating to FMX101 and FMX103 pending in Canada, the European Union, India and Mexico.
As of December 31, 20172018, we had 165175 granted patents and over 40 patent applications pending worldwide covering our various foam-based platforms and other technology. However, the patent applications that we own or license may fail to result in granted patents in the U.S. or foreign jurisdictions, or if granted the patent claims may fail to prevent a potential infringer from marketing its product or be deemed invalid andor held unenforceable by a court. Competitors and others in the field of topically-administered therapies comprising an active ingredient in foam presentation have created a substantial amount of scientific publications, patents and patent applications and other materials relating to their technologies. Our ability to obtain and maintain valid and enforceable patents depends on various factors, including interpretation of our technology and the prior art and whether the differences between them allow our technology to be patentable. Patent applications and patents granted from them are complex, lengthy and highly technical documents that are often prepared under very limited time constraints and may not be free from errors or words that make their interpretation uncertain. The existence of errors in a patent may have a materially adverse effect on the patent, its scope and its enforceability. Our pending patent applications may not issue, andor the scope of the claims of patent applications that do issue may be too narrow or inadequate to protect our competitive advantage. Also, our granted patents may be subject to challenges or construed in a way that may not provide adequate protection.
Even if these patents do successfully issue, third parties may challenge the validity, enforceability or scope of such granted patents or any other granted patents we own or license, which may result in such patents being narrowed, invalidated or held unenforceable. For example, patents granted by the European Patent Office may be opposed by any person within 9 months from the publication of their grant. Also, patents granted by the U.S. Patent and Trademark Office, or USPTO, may be subject to review, reexamination and other challenges. Changes to the patent laws of the U.S. in 2012 provide additional procedures for third parties to challenge the validity of patents issuing from patent applications including post-grant review, which generally applies to patents first filed after March 15, 2013. A post-grant review petition must be filed on or prior to the date which is 9 months after the patent is granted. The procedures also expand and reform the proceedings for challenging issued patents on grounds of prior art and publications, also known as inter partes review, or IPR. For patents filed after March 15, 2013, a petition for IPR may be filed the later of 9 months after grant of the patent or after a post-grant review proceeding on the patent has terminated. For patents filed prior to March 15, 2013, the rules regarding IPR filing remain unchanged and an IPR petition may be filed any time following issuance of the patent.
Furthermore, efforts to enforce our patents could give rise to challenges to their validity or unenforceability in court proceedings. If the patents and patent applications we hold or pursue with respect to FMX101, FMX103 or any of our other product candidates are challenged, it could put one or more patents at risk of being invalidated, or interpreted narrowly and threaten our competitive advantage for FMX101, FMX103 or any of our other product candidates. Furthermore, even if they are not challenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. To meet such challenges, which are part of the risks and uncertainties of developing and marketing product candidates, we may need to evaluate third party intellectual property rights and, if appropriate, to seek licenses for such third party intellectual property or to challenge such third party intellectual property, which may be costly and may or may not be successful, which could also have a material adverse effect on the commercial potential for FMX101, FMX103 and any of our other product candidates.
Further, if we encounter delays in our clinical trials or in seeking marketing approval of our products, the period of time during which we could market FMX101, FMX103 or any of our other product candidates under patent protection could be reduced.
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Since patent applications in the U.S.United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to (i) file any patent application related to FMX101, FMX103 or any of our other product candidates or (ii) conceive and invent any of the inventions claimed in our patents or patent applications.
Furthermore, for applications filed before March 16, 2013, or patents issuing from such applications, an interference proceeding can be invoked by a third party, or instituted by the USPTO, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications and patents. As of March 16, 2013, the U.S.United States transitioned to a “first-to-file”“first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO under the new first-to-file system before we did, could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party.
The change to “first-to-file”“first-to-file” from “first-to-invent”“first-to-invent” is one of the changes to the patent laws of the U.S.United States. resulting from the Leahy-Smith America Invents Act, or AIA, signed into law on September 16, 2011. Among some of the other changes to the patent laws are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. Because ofUntil recently, a lower evidentiary standard was applied in certain USPTO proceedings compared to the evidentiary standard in U.S. federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficientclaim. Under the new final rule, effective for petitions filed on or after November 13, 2018, the USPTO PTAB is to hold a claim invalid even thoughapply the same evidenceclaim construction standard applied by civil courts under 35 USC §282(b) in IPR, post-grant review, and the transitional program for covered business method patents proceedings. The impact this may be insufficient to invalidatehave in practice on the claim if first presented in a district court action. Accordingly, a third party may attempt to use and outcome of USPTO proceedings is uncertain. Because of lower costs and the USPTO procedures to invalidate our patent claimsfact that would not have been invalidated if first challenged by the third party as a defendant in a district court action. USPTO statistics indicate that a high rate of challenged claims are being invalidated in these USPTO procedures.procedures, they may continue to be a popular and effective means of challenging patents.
Even where patent, trade secret and other intellectual property laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain. Moreover, any actions we may bring to enforce our intellectual property against our competitors could provoke them to bring counterclaims against us, and our competitors have intellectual property portfolios of their own, some of which are substantial.include substantial patent portfolios. An unfavorable outcome could have a material adverse effect on our business and could result in the challenged patent or one or more of its claims being interpreted narrowly or invalidated, or held not to be infringed, or one or more of our patent applications may be not be granted.
We also rely on trade secret protection and confidentiality agreements to protect our know-how, data and information prior to filing patent applications and during the period before they are published. We additionally rely on trade secret protection and confidentiality agreements to protect proprietary know-how that we consider may be preferably maintained as a trade secret rather than the subject of a patent application. We further rely on trade secret protection and confidentiality agreements to protect proprietary know-how that may not be patentable, processes for which patents may be difficult to obtain or enforce and other elements of our product development processes that involve proprietary know-how, information or technology that is not covered by patents.
In an effort to protect our trade secrets and other confidential information, we incorporate confidentiality provisions in all our employees’employees’ agreements and require our consultants, contractors and licensees to which we disclose such information to execute confidentiality agreements upon the commencement of their relationships with us. These agreements require that confidential information, as defined in the agreement and disclosed to the individual by us during the course of the individual’sindividual’s relationship with us, be kept confidential and not disclosed to third parties for an agreed term. These agreements, however, may not provide us with adequate protection against accidental or improper use or disclosure of confidential information, and these agreements may be breached. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. A breach of confidentiality could significantly affect our competitive position and we could lose our trade secrets or they could become otherwise known or be independently discovered by our competitors. Also, to the extent that our employees, consultants or contractors use any intellectual property owned by others in their work for us, disputes may arise as to the rights in any related or resulting know-how and inventions. Additionally, others may independently develop the same or substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and other confidential information. Any of the foregoing could deteriorate our competitive advantages, undermine the trade secret and contractual protections afforded to our confidential information and have material adverse effects on our business.
Cybersecurity disruptions may impact our business operations if it becomes a target for such activities.
We may be subject to attempted cybersecurity disruptions from a variety of threat actors. If our systems for protecting against cybersecurity disruptions prove to be insufficient, our employees or third parties could be adversely affected. Such cybersecurity disruptions could cause damage or destroy assets, compromise business systems, result in proprietary information and trade secrets being altered, lost or stolen; result in employee or third-party information being compromised, or otherwise disrupt business operations. Significant costs to remedy the effects of such a cybersecurity disruption may be incurred by us, as well as in connection with resulting regulatory actions and litigation, and such disruption may harm relationships with third parties and impact our business reputation.
Changes in U.S. or foreign patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other companies in the markets in which we participate, our success is heavily dependent on intellectual property, particularly patents. The strength of patents in the pharmaceutical field involves complex legal and scientific questions and in the U.S.United States and many foreign jurisdictions patent policy and case law also continues to evolve and change and the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. This uncertainty includes changes to the patent laws through eitherone or more of legislative action to change statutory patent law, rule changes and practice directions issued by National Patent Offices, or court action that may reinterpret or expand on existing law in ways affecting the scope or validity of granted patents, or both.patents. Particularly in recent years in the U.S.,United States, there have been several major legislative developments and court decisions that have affected patent laws in significant ways and there may be more developments in the future that may weaken or undermine our ability to obtain patents or to enforce our existing and future patents.
We have agreed to share ownership in certain patents that may result from our development and license agreements with certain major pharmaceutical companies, which may detract from our rights to such patents.
We have agreed with several of the pharmaceutical companies with whom we are developing certain topical products, based on our foam technology and the licensees’licensees’ active ingredients, to jointly own and have an undivided interest in patents that arise from the relevant projects, where the licensee made its own material contributions to the invention. In certain agreements, we have further agreed that inventions achieved exclusively or primarily by the licensees in the course of the development without significant contribution by us will be owned solely by them, and they will be allowed to file patent applications covering such inventions without our participation.
We have granted certain licensees the right to provide input during the prosecution of licensed patent applications. We have further granted certain licensees the primary right to enforce several of our existing patents, which we have licensed to these licensees to allow them to commercialize or continue to commercialize our jointly-developed product, in the event that any infringement of the licensed patents adversely affects the licensees’licensees’ ability to utilize the licenses for the purpose they were granted. Such rights may detract from our rights and title to such patents.patents and we may as a result have little or no control or say in any proceedings concerning them. In addition, any negative proceedings against our technology could impact any or all of our licensees, and we may be considered or found to be contractually responsible for the payment of certain claims and losses as a result of such impact.
If we infringe or are alleged to infringe or otherwise violate intellectual property rights of third parties, our business could be harmed.
Our research, development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate patents owned or controlled by other parties. Competitors in the field of topical and oral drugs for the treatment of acne impetigo,or rosacea chemotherapy-induced rash and other indications have developed large portfolios of patents and patent applications relating to our business. In particular, there are patents held by third parties that relate to theformulations with minocycline-based and doxycycline-based products and to methods of treatment with minocycline-based and doxycycline-based products for indications we are pursuing with our product candidates, namely FMX101, FMX103 and any other of our other product candidates. There may be granted patents that could be asserted against us in relation to such product candidates. There may also be granted patents held by third parties that may be infringed or otherwise violated by our other product candidates and activities, and we do not know whether or to what extent we aremay be infringing or otherwise violating third party patents. There may also be third party patent applications that if approved and granted as patents may be asserted against us in relation to FMX101, FMX103 or any of our other product candidates or activities. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages and legal fees. Further, if a patent infringement suit were brought against us, we could be temporarily or permanently enjoined or otherwise forced to stop or delay research, development, manufacturing or sales of the product candidate that is the subject of the suit.
As a result of patent infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third parties. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property, or such rights might be restrictive and limit our present and future activities. Ultimately, we or a licensee could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.
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There has been and there currently is substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical industry. In addition to possible infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference, derivation, review, re-examination or other post-grant proceedings declared or granted by the USPTO and similar proceedings in foreign countries, regarding intellectual property rights with respect to our current or any future products. The cost and burden to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings and their outcome could impair our ability to compete in the marketplace and impose a substantial financial burden on us. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition or results of operations.
Furthermore, several of our employees were previously employed at universities or other pharmaceutical companies, including potential competitors. While we take steps to prevent our employees from using the proprietary information or know-how of others that is not in the public domain or that has not already been independently developed by us earlier, we may be subject to claims that we or these employees have inadvertently or otherwise used or disclosed intellectual property, trade secrets or other proprietary information of any such employee’semployee’s former employer. Litigation may be necessary to defend against these claims and, even if we are successful in defending ourselves, could result in substantial costs to us or be distracting to our management. If we do not succeed with respect to any such claims, in addition to paying monetary damages and possible ongoing royalties, we may lose valuable intellectual property rights or personnel.
If we are unable to protect our trademarks from infringement, our business prospects may be harmed.
We own trademarks that identify “Foamix”,“Foamix” and have registered these trademarks in the U.S.United States and Israel. We also own and have filed applications for trademarks in the United States that represent the proposed commercial name(s) of our drug product candidates. Although we take steps to monitor the possible infringement or misuse of our trademarks, it is possible that third parties may infringe, dilute or otherwise violate our trademark rights. Any unauthorized use of our trademarks could harm our reputation or commercial interests. In addition, our enforcement against third-partythird party infringers or violators may be unduly expensive and time-consuming, and the outcome may be an inadequate remedy.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents of our licensors, which could be expensive and time-consuming.
Competitors may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file infringement claims to stop third party infringement or unauthorized use. This can be expensive and burdensome, particularly for a company of our size, andas well as time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology or method at issue on the grounds that our patent claims do not cover its technology or method or that the factors necessary to grant an injunction against an infringer are not satisfied.
We have received notice letters of ANDAs submitted for drug products that are generic versions of Finacea Foamfoam and we are involved in lawsuits to protect orand enforce our patents, which could beare expensive, time consuming and may be unsuccessful.
Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming. The infringing party may deny any infringement or challenge the patents as invalid or unenforceable. Litigation proceedings may also fail, and even if successful, they may result in substantial costs and distraction of our management and other employees.
For example, we and Bayer have received Paragraph IV Certification Notice Letters from each of Teva and Perrigo, were received dated November 20, 2017 and January 4, 2018, respectively in connection with Bayer’s Finacea Foam.Finacea. A Paragraph IV Certification Notice Letter notifies the FDA that one or more patents listed in the FDA’sFDA’s Orange Book is allegedly invalid, unenforceable or will not be infringed by an ANDA product. In the case at hand, boththe letters were directed against several of our U.S. patents and stated that each of Teva and Perrigo had submitted to the FDA an ANDA for an azelaic acid foam composition which is a generic version of Finacea Foam. We and Bayer responded byFinacea.
Complaints were jointly filing complaintsfiled against each of Teva and Perrigo with the U.S. District Court for the District of Delaware, filed January 4, 2018 and February 15, 2018, respectively, asserting, among other things, that each of Teva and Perrigo had infringed our patents, as listed in their Paragraph IV Notice Letters, by seeking FDA approval to manufacture and sell a generic version of Bayer’s Finacea Foam prior to expiration of these patents. Since the complaints were filed within the 45-day period required under the Hatch WaxmanHatch-Waxman Act, we were granted a 30-month stay which precludes a genericTeva from receiving final FDA approval of a generic version of Finacea Foam prior to May 2020.2020 and Perrigo from receiving final FDA approval of a generic version of Finacea prior to July 2020, unless a court enters a judgment that the patents are invalid or not infringed.
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We and LEO have also recently received Paragraph IV Certification Notice Letters from Taro, dated December 20, 2018 and January 18, 2019, in connection with Finacea, stating Taro had submitted to the FDA an ANDA for an azelaic acid foam composition which is a generic version of Finacea. A complaint has been filed within the 45- day period, and a 30-month stay will preclude Taro from receiving final FDA approval of a generic version of Finacea prior to June 2021, unless a court enters judgment that the patents are invalid or not infringed. These proceedings should proceed separately from those with Teva and Perrigo.
Pursuant to our licensing agreement with Bayer,LEO, this litigation is in the sole control of Bayer,LEO and we are currently unable to predict its outcome. Potentially,The substitution of Finacea Foam in favor of generic versions is likelyhas the potential to have a negative impact on future commercialization of Finacea Foam and to result in a loss of license revenue. Furthermore, in any infringement proceeding, including the foregoing, a court may decide that a patent of ours, or one or more claims of such patent, is not valid or is unenforceable, or may refuse to stop the other party from using the supposedly infringing technology on the grounds that our patents, or one or more claims of such patents, do not cover such technology. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could also put one or more of our pending patent applications at risk of not issuing. There can be no assurance that our product candidates will not be subject to the same risks.
An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
Interference, derivation review, or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions with respect to our patent applications or those of our licensors or licensees. Litigation or USPTO proceedings brought by us may fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign, litigation or USPTO or foreign patent office proceedings, may result in substantial costs and distraction to our management. Moreover, proceedings may be appealed and obtaining a final resolution can take a long time and substantial resources. We may not be able, alone or with our licensors or licensees, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the U.S.
Furthermore, because of the substantial amount and extent of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or proceedings. In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our ordinary shares could be significantly harmed.
We may not obtain intellectual property rights or otherwise be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all or most countries throughout the world would be prohibitively expensive. We primarily file patent applications in the U.S.,United States, and may file in some other selected jurisdictions on a case-by-case basis. As a result, our intellectual property rights in countries outside the U.S.United States. are generally significantly less extensive than those in the U.S.United States. In addition, the laws of some foreign countries and jurisdictions, particularly of certain developing countries and jurisdictions, do not protect intellectual property rights to the same extent as federal and state laws in the U.S.,United States, and these countries and jurisdictions may limit the scope of what can be claimed, and in some cases may even force us to grant a compulsory license to competitors or other third parties. Consequently, we may not be able to prevent third parties from practicing our inventions outside the U.S.,United States, or from selling or importing products made using our inventions in and into the U.S.United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not sought or obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but protection and enforcement is not as strong as that in the U.S.United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Moreover, competitors or others may raise legal challenges to our intellectual property rights or may infringe upon our intellectual property rights, including through means that may be difficult to prevent or detect.
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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Further, third parties may prevail in their claims against us, which could potentially result in the award of injunctions or substantial damages against us. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
In addition, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in domestic and foreign intellectual property laws and practice.
Under applicable employment laws, we may not be able to enforce covenants not to compete.
We generally enter into non-competition agreements as part of our employment agreements with our employees. These agreements generally prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us.
For example, Israeli labor courts place emphasis on freedom of employment and have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the protection of a company’scompany’s trade secrets or other intellectual property.
Risks Related to Our Ordinary Shares
We do not know whether a market for our ordinary shares will be sustained and as a result it may be difficult for holders of our ordinary shares to sell their shares.
Although our ordinary shares are quoted on the NASDAQNasdaq Global Market, an active trading market for our shares may not be sustained. The lack of an active market may impair the ability of holders of our ordinary shares ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable. The lack of an active market may also reduce the fair market value of our shares, and may cause the trading price of our ordinary shares to be more volatile. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies by using our shares as consideration.
The market price of our ordinary shares may be subject to fluctuation and holders of our ordinary shares could lose all or part of their investment.
The stock market in general and the market price of our ordinary shares in particular has been, and will likely continue to be, subject to fluctuation, whether due to, or irrespective of, our operating results and financial condition. For example, the price of our shares plummetedfell by more than 40% in a single trading day on March 27, 2017, following the announcement of somewhat mixed top-line results from our first two pivotal Phase III clinical trials for our lead product candidate FMX101 and then increased by more than 40% on September 11, 2018, following the announcement of successful results from our third Phase III clinical for treatment of moderate-to-severe acne.FMX101. The market price of our ordinary shares on the NASDAQNasdaq Global Market may fluctuate as a result of a number of factors, some of which are beyond our control, including, but not limited to:
| · | actual or anticipated variations in our and our |
| · | market acceptance of our products; |
| · | the mix of products that we sell and related services that we provide; |
| · | the success or failure of our licensees to develop, obtain approval for and commercialize our licensed products, for which we are entitled to contingent payments and royalties; |
| · | changes in earnings estimates or recommendations by securities analysts, if our ordinary shares are covered by analysts; |
| · | development of technological innovations or new competitive products by others; |
| · | announcements of technological innovations or new products by us; |
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| · | publication of the results of preclinical or clinical trials for FMX101, FMX103 or our other product candidates; |
| · | failure by us to achieve a publicly announced milestone; |
| · | delays between our expenditures to develop and market new or enhanced products and the generation of sales from those products; |
| · | the filing of ANDAs by generic companies seeking approval to market generic versions of our products and of our |
| · | developments concerning intellectual property rights, including our involvement in litigation brought by or against us, including patent infringement proceedings before national and state courts, and patent opposition and review proceedings before national patent offices; |
| · | regulatory developments and the decisions of regulatory authorities as to the approval or rejection of new or modified products; |
| · | changes in the amounts that we raise in financings or collaboration transactions and spend to develop, acquire or license new products, technologies or businesses; |
| · | changes in our expenditures to promote our products; |
| · | our sale or proposed sale, or the sale by our significant shareholders, of our ordinary shares or other securities in the future; |
| · | changes in key personnel; |
| · | success or failure of our research and development projects or those of our competitors; |
| · | the trading volume of our ordinary shares; and |
| · | general economic and market conditions and other factors, including factors unrelated to our operating performance. |
These factors and any corresponding price fluctuations may materially and adversely affect the market price of our ordinary shares and result in substantial losses being incurred by our investors. In the past, following periods of market volatility, public company shareholders have often instituted securities class action litigation. If we were involved in securities litigation, it could impose a substantial cost upon us and divert the resources and attention of our management from our business.
If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline.
The trading market for our ordinary shares relies in part on the research and reports that equity research analysts publish about us and our business, if at all. We do not have control over these analysts and we do not have commitments from them to write research reports about us. The price of our ordinary shares could decline if no research reports are published about us or our business, or if one or more equity research analysts downgrades our ordinary shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.
Future sales of our ordinary shares could reduce the market price of our ordinary shares.
If our shareholders, particularly our directors and their affiliates or our executive officers, sell a substantial number of our ordinary shares in the public market, the market price of our ordinary shares could decrease significantly. The perception in the public market that our shareholders might sell our ordinary shares could also depress the market price of our ordinary shares and could impair our future ability to obtain capital, especially through an offering of equity securities. In addition, the perception in the public market that we will need to issue new shares to raise capital and our sale of additional ordinary shares or similar securities in order to raise capital might have a similar negative impact on the share price of our ordinary shares. A decline in the price of our ordinary shares might impede our ability to raise capital through the issuance of additional ordinary shares or other equity securities, and may cause holders of our ordinary shares to lose part or all of their investment.
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We have never paid cash dividends on our share capital, and we do not anticipate paying any cash dividends in the foreseeable future.
We have never declared or paid cash dividends on our share capital, nor do we anticipate paying any cash dividends on our share capital in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our ordinary shares will be investors’investors’ sole source of gain for the foreseeable future. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding taxes.
We are an “emerging growth company” and a “smaller reporting company” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our ordinary shares less attractive to investors.
We are an “emerging“emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements that are applicable to other public companies that are not “emerging“emerging growth companies.” Most of such requirements relate to disclosures that we would otherwise be required to make, having ceased to be a foreign private issuer.make. For example, as an emerging growth company, and despite no longer being a foreign private issuer, we will not be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for up to five fiscal years after the date of our initial public offering.
We will remain an emerging growth company until the earliest of: (i) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0$1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the closing of our initial public offering;offering, specifically, December 31, 2019; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large“large accelerated filer”filer” under the Exchange Act.
We are also currently a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act. In the event that we are still considered a smaller reporting company when we cease being an emerging growth company, the disclosure we will be required to provide in our SEC filings will still be less than it would be if we were not considered either an emerging growth company or a smaller reporting company. For example, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings and have certain other decreased disclosure obligations in their SEC filings, including, among other things, being required to provide only two years of audited financial statements in annual reports.
When we are no longer deemed to be an emerging growth company or a smaller reporting company, we will not be entitled to the exemptions provideddiscussed above. Decreased disclosures in the JOBS Act discussed above.our SEC filings due to our status as an emerging growth company or a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our ordinary shares less attractive as a result of our reliance on exemptions under the JOBS Act.these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile.
Our U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company.
Generally, if, for any taxable year, 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets (which may be determined in part by the market value of our ordinary shares, which is subject to change) are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes.
Based on certain estimates of our gross income and gross assets, our use of proceeds of our initial public offering, and the nature of our business, we believe that we were not classified as a PFIC for the taxable year ended December 31, 2017,2018, and do not anticipate being classified as a PFIC for the taxable year ending December 31, 2018.2019. Because we currently hold, and expect to continue to hold, a substantial amount of cash and cash equivalents and other passive assets used in our business, and because the value of our gross assets is likely to be determined in large part by reference to our market capitalization, a decline in the value of our ordinary shares may result in our becoming a PFIC. Accordingly, we may be considered a PFIC for any taxable year.
If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Holders (as defined in “Item 10.E. Taxation—U.S.the section titled “U.S. Federal Income Tax Consequences”Considerations” in our annual reportmost recent prospectus supplement filed pursuant to Rule 424(b)(2) on September 14, 2018 under our shelf registration statement on Form 20-F for the year 2016, filed with the SEC on February 21, 2017)S-3 (registration statement no. 333-224084, declared effective April 12, 2018), and having interest charges apply to distributions by us and the proceeds of share sales. Certain elections exist that may alleviate some of the adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market treatment) of our ordinary shares; however, we do not intend to provide the information necessary for U.S. holders to make qualified electing fund elections if we are classified as a PFIC. See also “Item 10.E. Taxation—
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If a United States person is treated as owning at least 10% of our common shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a U.S. Holder (as defined in the section titled “U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Considerations” in our annual reportmost recent prospectus supplement filed pursuant to Rule 424(b)(2) on September 14, 2018 under our shelf registration statement on Form 20-FS-3 (registration statement no. 333-224084, declared effective April 12, 2018) is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our common shares, such U.S. Holder may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group. Because our group includes at least one U.S. subsidiary, if we were to form or acquire any non-U.S. subsidiaries in the future, they may be treated as controlled foreign corporations. A United States shareholder of a controlled foreign corporation may be required to annually report and include in 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 that controlled foreign corporation, regardless of whether that controlled foreign corporation, or we, make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. We cannot provide any assurances that we will assist investors in determining whether any non-U.S. subsidiaries that we may form or acquire in the future will be treated as controlled foreign corporations or whether any such investor would be treated as a United States shareholder with respect to any of such controlled foreign corporations. Further, we cannot provide any assurances that we will furnish to any investor information that may be necessary to comply with the reporting and tax paying obligations discussed above. Failure to comply with these reporting obligations may subject a U.S. Holder to significant monetary penalties and may extend the statute of limitations with respect to its U.S. federal income tax return for the year 2016, filedfor which reporting was due. U.S. Holders should consult their tax advisors regarding the potential application of these rules to their investment in our common shares.
Future changes to tax laws could materially adversely affect our company and reduce net returns to our shareholders.
Our tax treatment is subject to the enactment of, or changes in, tax laws, regulations and treaties, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities in jurisdictions in which we operate. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect our financial position and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our shareholders, and increase the complexity, burden and cost of tax compliance.
In addition, on December 22, 2017, U.S. federal tax legislation popularly known as the Tax Cuts and Jobs Act was signed into law, which significantly revised the Internal Revenue Code of 1986, as amended. The overall impact of the Tax Cuts and Jobs Act is uncertain and our business and financial condition could be adversely affected by it or as a result of interpretations thereof. It is uncertain if and to what extent various states will conform to the Tax Cuts and Jobs Act. The impact of this tax reform on holders of our common shares is also uncertain and could be adverse.
Tax authorities may disagree with our positions and conclusions regarding certain tax positions, resulting in unanticipated costs, taxes or non-realization of expected benefits.
A tax authority may disagree with tax positions that we have taken, which could result in increased tax liabilities. For example, the SEC on February 21, 2017.U.S. Internal Revenue Service or another tax authority could challenge our allocation of income by tax jurisdiction and the amounts paid between our affiliated companies pursuant to our intercompany arrangements and transfer pricing policies. Similarly, a tax authority could assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable connection, often referred to as a ‘‘permanent establishment’’ under international tax treaties, and such an assertion, if successful, could increase our expected tax liability in one or more jurisdictions. A tax authority may take the position that material income tax liabilities, interest and penalties are payable by us, in which case we expect that we might contest such assessment. Contesting such an assessment may be lengthy and costly and, if we were unsuccessful in disputing the assessment, the result could increase our anticipated effective tax rate.
Risks Related to Our Operations in Israel
Our headquarters, research and development and other significant operations are located in Israel and, therefore, our results may be adversely affected by political, economic and military instability in Israel.
Our headquarters and research and development facilities are located in Rehovot, Israel. In addition, a significant numbersome of our key employees, officers and directors are residents of Israel. Accordingly, 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, its neighboring countries and other organizations. Any hostilities involving Israel or the interruption or curtailment of trade or transport between Israel and its trading partners could adversely affect our operations and results of operations. Further, our operations could be disrupted by the obligations of personnel to perform military reserve service.
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Provisions of Israeli law and our amended and restated articles of association may delay, prevent or otherwise impede a merger with, or an acquisition of, us, even when the terms of such a transaction are favorable to us and our shareholders.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a tender offer for all of a company’scompany’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer unless, following consummation of the tender offer, the acquirer would hold at least 98% of the company’scompany’s outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights.
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.
It may be difficult to enforce a judgment of a U.S. court against us, our officers and directors in Israel or the U.S., to assert U.S. securities laws claims in Israel or to serve process on our officers and directors.
We are incorporated in Israel. A significant number of our executive officers and directors listed in this annual report reside outside of the U.S., and most of our assets and most of the assets of these persons are located outside of the U.S. 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 be collectible in the U.S. and may not be enforced by an Israeli court. It also may be difficult for you to effect service of process on these persons in the U.S. or to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law.
There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, holders of our ordinary shares may not be able to collect any damages awarded by either a U.S. or foreign court.
The rights and responsibilities of our shareholders are governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.
The rights and responsibilities of the holders of our ordinary shares are governed by our amended articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S.-based companies. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’scompany’s articles of association, increases in a company’scompany’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a vote at a meeting of the shareholders or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company with regard to such vote or appointment. There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. companies.
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None.
Our facilities in Israel, which house our corporate headquarters and our research and developments laboratories, are located at two sites in the Weizmann Science Park in Rehovot, Israel. Under a Lease Agreement with Gav Yam Lands Ltd., we are leasingWe currently lease approximately 2,199 square meters untilunder a lease that expires in December 31, 2020.
Our executive offices in the U.S.United States are located in Bridgewater, New Jersey. TheWe currently lease agreement was signed in October 2017,approximately 10,000 square feet of office space under a lease that expires in March 2019 and consists31, 2019. We have an option to extend our existing lease for an additional three years on similar conditions. We are currently re-negotiating the lease with our landlord for an additional 5,000 square feet of approximately 929 square metersoffice space in the same location. If we are not able to reach agreement, we will exercise our option to extend our existing lease prior to the expiration of space.our option on March 8, 2019.
We believe that our current office space and facilities in Israel and the U.S. is sufficientUnited States are adequate to meet our anticipatedcurrent needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms for the foreseeableour future and is suitable for the conduct of our business.growth.
From time to time, we may become party toinvolved in litigation or other legal proceedings relating to claimsthat we consider to be a part of arising from the ordinary course of our business. Other than the complaints filedThere are currently no claims or actions pending against Teva and against Perrigous that, in the United States (see above “Item 1A—Risk Factor—Risks Relatedopinion of our management, are likely to Our Intellectual Property—We have received notice letters of ANDAs submitted for drug products that are generic versions of Finacea Foam and we are involved in lawsuits to protect or enforcea material adverse effect on our patents, which could be expensive, time consuming and unsuccessful”) we are not currently involved in any legal proceedings. We may become involved in material legal proceedings in the future.business.
Not applicable.
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ITEM 5 —- MARKET FOR REGISTRANT’S ORDINARY SHARES, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our ordinary shares have been listed on the NASDAQNasdaq Global Market under the symbol “FOMX”“FOMX” since September 17, 2014. Prior to that date, there was no public trading market for our ordinary shares. Our initial public offering was priced at $6.00 per share.
| 2017 | High | Low | ||||||
| First quarter | 11.27 | 4.40 | ||||||
| Second quarter | 5.11 | 4.03 | ||||||
| Third quarter | 5.99 | 4.34 | ||||||
| Fourth quarter | 7.00 | 5.17 | ||||||
| 2016 | High | Low | ||||||
| First quarter | 8.45 | 5.48 | ||||||
| Second quarter | 7.67 | 5.70 | ||||||
| Third quarter | 10.40 | 6.16 | ||||||
| Fourth quarter | 11.26 | 7.12 | ||||||
Holders
As of February 26, 2018, the closing price per share of our ordinary shares on the NASDAQ Global Market was $6.24.
| Plan category | Number of securities to be issued upon exercise of warrants and rights | Weighted-average exercise price of outstanding warrants and rights | Number of securities remaining available for future issuance under equity compensation plans(1) | |||||||||
| Equity compensation plans approved by security holders | - | - | - | |||||||||
| Equity compensation plans not approved by security holders | 4,230,101 | $ | 5.65 | (2) | 2,076,088 | |||||||
| Total | 4,230,101 | $ | 5.65 | 2,076,088 | ||||||||
December 31, 2014* | December 31, 2015 | December 31, 2016 | December 31, 2017 | |||||||||||||
| Foamix Pharmaceuticals Ltd. | 100.00 | 115.69 | 158.35 | 85.73 | ||||||||||||
| NASDAQ Composite Index | 100.00 | 105.73 | 113.66 | 145.76 | ||||||||||||
| NASDAQ Biotechnology Index | 100.00 | 111.42 | 87.26 | 105.64 | ||||||||||||
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Our historical consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States and are presented in U.S. dollars. The selected historical consolidated financial information as of December 31, 20172018 and 20162017 and for the years ended December 31, 2018, 2017 2016 and 20152016 have been derived from, and should be read in conjunction with, theour consolidated financial statements of Foamix Pharmaceuticals Ltd. and notes thereto appearing elsewhere in this annual report.Annual Report. The selected financial data as of December 31, 2016, 2015 2014 and 20132014 and for the years ended December 31, 20142015 and 20132014 have been derived from our audited consolidated financial statements of the company not included in this annual report.Annual Report.
The information presented below is qualified by the more detailed historical consolidated financial statements set forth in this annual report, and should be read in conjunction with those consolidated financial statements, the notes thereto and the discussion under “Item“Item 7 — Management’s- Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations” included elsewhere in this annual report.Annual Report.
Consolidated Statement of Operations Data
| Year ended December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
| (in thousands of U.S. dollars, except loss per share) | ||||||||||||||||||||
Statements of operations data: | ||||||||||||||||||||
| Revenues | $ | 3,669 | $ | 5,527 | $ | 849 | $ | 5,414 | $ | 1,404 | ||||||||||
Cost of revenues(1) | 13 | 59 | 70 | 527 | 453 | |||||||||||||||
| Gross profit | 3,656 | 5,468 | 779 | 4,887 | 951 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
Research and development(1) | 57,779 | 25,897 | 10,680 | 3,557 | 1,086 | |||||||||||||||
Selling, general and administrative(1) | 11,491 | 9,221 | 7,029 | 2,964 | 1,221 | |||||||||||||||
| Total operating expenses | 69,270 | 35,118 | 17,709 | 6,521 | 2,307 | |||||||||||||||
| Operating loss | 65,614 | 29,650 | 16,930 | 1,634 | 1,356 | |||||||||||||||
| Net Loss | $ | 65,715 | $ | 29,336 | $ | 16,517 | $ | 11,484 | $ | 2,431 | ||||||||||
| Loss per share basic and diluted | 1.76 | 0.91 | 0.58 | 0.79 | 0.22 | |||||||||||||||
| Year ended December 31, | ||||||||||||||||||||
| 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
| (in thousands of U.S. dollars, except loss per share) | ||||||||||||||||||||
| Statements of operations data: | ||||||||||||||||||||
| Revenues | $ | 3,595 | $ | 3,669 | $ | 5,527 | $ | 849 | $ | 5,414 | ||||||||||
Cost of revenues(1) | - | 13 | 59 | 70 | 527 | |||||||||||||||
| Gross profit | 3,595 | 3,656 | 5,468 | 779 | 4,887 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
Research and development(1) | 64,474 | 57,779 | 25,897 | 10,680 | 3,557 | |||||||||||||||
Selling, general and administrative(1) | 14,013 | 11,491 | 9,221 | 7,029 | 2,964 | |||||||||||||||
| Total operating expenses | 78,487 | 69,270 | 35,118 | 17,709 | 6,521 | |||||||||||||||
| Operating loss | 74,892 | 65,614 | 29,650 | 16,930 | 1,634 | |||||||||||||||
| Net loss | $ | 74,163 | $ | 65,715 | $ | 29,336 | $ | 16,517 | $ | 11,484 | ||||||||||
| Loss per share basic and diluted | 1.70 | 1.76 | 0.91 | 0.58 | 0.79 | |||||||||||||||
(1) Includes share-based compensation expenses as follows:
| Year ended December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
| (in thousands of U.S. dollars) | ||||||||||||||||||||
| Cost of revenues | $ | 2 | $ | 3 | $ | 2 | $ | 15 | $ | 16 | ||||||||||
| Research and development | 1,711 | 1,135 | 588 | 80 | 59 | |||||||||||||||
| Selling, general and administrative | 2,453 | 1,774 | 1,187 | 102 | 430 | |||||||||||||||
| Total share-based compensation | $ | 4,166 | $ | 2,912 | $ | 1,777 | $ | 197 | $ | 505 | ||||||||||
| Year ended December 31, | ||||||||||||||||||||
| 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
| (in thousands of U.S. dollars) | ||||||||||||||||||||
| Cost of revenues | $ | - | $ | 2 | $ | 3 | $ | 2 | $ | 15 | ||||||||||
| Research and development | 2,054 | 1,711 | 1,135 | 588 | 80 | |||||||||||||||
| Selling, general and administrative | 3,266 | 2,453 | 1,774 | 1,187 | 102 | |||||||||||||||
| Total share-based compensation | $ | 5,320 | $ | 4,166 | $ | 2,912 | $ | 1,777 | $ | 197 | ||||||||||
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Consolidated Balance Sheet Data
| As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||||||||
| (in thousands of U.S. dollars, other than number of shares) | (in thousands of U.S. dollars, other than number of shares) | |||||||||||||||||||||||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||||||||||||||||||||||
| Balance sheet data: | ||||||||||||||||||||||||||||||||||||||||
Cash and investments(1) | $ | 76,412 | $ | 130,988 | $ | 103,779 | $ | 49,966 | $ | 2,308 | $ | 99,385 | $ | 76,412 | $ | 130,988 | $ | 103,779 | $ | 49,966 | ||||||||||||||||||||
Working capital(2) | 59,276 | 111,730 | 53,091 | 48,757 | 1,144 | 90,699 | 59,276 | 111,730 | 53,091 | 48,757 | ||||||||||||||||||||||||||||||
| Total assets | 80,254 | 135,635 | 105,245 | 51,277 | 3,086 | 103,731 | 80,254 | 135,635 | 105,245 | 51,277 | ||||||||||||||||||||||||||||||
| Total long-term liabilities | 1,425 | 379 | 385 | 381 | 4,917 | 1,081 | 1,425 | 379 | 385 | 381 | ||||||||||||||||||||||||||||||
| Total shareholders’ equity (capital deficiency) | 68,601 | 129,985 | 100,802 | 48,762 | (3,582 | ) | ||||||||||||||||||||||||||||||||||
| Total shareholders’ equity | 92,182 | 68,601 | 129,985 | 100,802 | 48,762 | |||||||||||||||||||||||||||||||||||
| Capital shares | $ | 1,576 | $ | 1,561 | $ | 1,284 | $ | 954 | $ | 471 | $ | 2,331 | $ | 1,576 | $ | 1,561 | $ | 1,284 | $ | 954 | ||||||||||||||||||||
| Number of ordinary shares | 37,498,128 | 37,167,791 | 30,639,134 | 22,443,934 | 11,408,490 | 54,351,140 | 37,498,128 | 37,167,791 | 30,639,134 | 22,443,934 | ||||||||||||||||||||||||||||||
(1) Cash and investments includes cash and cash-equivalents, restricted cash, bank deposits, marketable securities and restricted marketable securities.
(2) Working capital is defined as total current assets minus total current liabilities.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in the section entitled “Item 1A—Risk Factors”“Item 1A-Risk Factors”.
Company Overview
We are a late clinical-stage specialty pharmaceutical company focused on developing and commercializing our proprietary, innovative and differentiated topical drug candidates for dermatological therapy. Our lead product candidate, FMX101 (4% minocycline foamfoam), is being developed for the treatment of acne, rosacea and other skin conditions. Our lead product candidates, FMX101 for moderate-to-severe acne and our second product candidate, FMX103 (1.5% minocycline foam), is being developed for the treatment of moderate-to-severe papulopustular rosacea,rosacea. Both product candidates are novel topical foam formulations of the antibiotic minocycline. Based onminocycline and were developed using our Molecule Stabilizing Technology, a proprietary foam platform designed to optimize the topical delivery of minocycline, an active pharmaceutical ingredient, or API, that is currently available only in oral form despite its prevalent use in dermatology.
We announced positive top-line results demonstrated infrom both of our Phase II and Phase III clinical trials for each of FMX101 and FMX103 in the second half of 2018. We submitted our Phase II clinical trialnew drug application, or NDA, to the U.S. Food and Drug Administration, or FDA, for FMX101 in December 2018, and expect to submit an NDA for FMX103 in mid-2019. Despite the considerable U.S. market opportunities for acne and rosacea, we believe these product candidates have the potential of providing a fast, effective and well-tolerated treatment for their respective indications, whichmarkets are currently underserved and commonly treated by oral prescription products such as oral minocycline oraland doxycycline and various non-minocycline topical therapies. If approved, we believe FMX101 and FMX103 have the potential to provide a first-in-class, effective and well-tolerated topical treatment for the tens of millions of people who suffer from their respective indications.
Our corporate strategy is to develop and solidify a commercial presence in acne and rosacea by obtaining FDA approval for, and launching our lead product candidates, FMX101 and FMX103, in the United States. We may also enter into partnerships with third parties to reach other geographic territories or therapeutic fields through their respective sales forces and infrastructure. Following these near-term goals, we intend to grow beyond these indications into other dermatological indications, and to diversify our product and commercial development beyond minocycline and the tetracycline class of antibiotics. We are currently developing additional foam and other topical products for acne, rosacea and other dermatology indications in vehicle platforms designed to enhance delivery of their respective APIs. We are also evaluating diversifying into synergistic technologies and specialties either on our own or through partnerships.
FMX103 is a product candidate also containing micronized minocycline hydrochloride suspended in our Molecule Stabilizing Technology A previous Phase II clinical trialvehicle, at a lower 1.5% concentration, for the treatment of FMX101 also demonstrated clinically and statistically significant results in all primary and secondary endpoints. moderate-to-severe papulopustular rosacea. In JanuaryNovember 2018, we announced the completionthat both of a long-term safety study that was an extension of our two initial Phase III clinical trials for FMX101. The resultsFMX103 (Studies FX2016-11 and FX2016-12) met each of their co-primary endpoints, demonstrating a statistically significant reduction in inflammatory lesion counts and IGA treatment success of approximately 50% from the study showed FMX101 to be well-toleratedbaseline. There were no treatment-related serious adverse events, very few reported adverse events and to have an acceptable safety profile.
In addition, we have been contemplating the commercial viabilityother proprietary delivery technologies in development that enable topical delivery of this product candidate for some time, given its limited market dominated by generic products, and following additional analysis of its potential we have recently decided to discontinue its further development in light of our current priorities and our other ongoing research and development efforts.
We have also out-licensed other foam technology platforms to other third parties to develop branded pharmaceutical products containing different APIs for potential commercialization that are in a total amountthe early stages of $3.5 million on account of its sales of Finacea. Our total revenues from such agreements from our inception through December 31, 2017 were approximately $28.1 million.development.
To date, we have not yetonly submitted anyone product candidatescandidate for approval by regulatory authorities and we do not currently have rights, other than those under our license agreement with LEO Pharma A/S, or LEO, to any products that have been approved for marketing in any territory. We have financed our operations primarily through private and public placements of our ordinary shares, convertible loans and through fees, cost reimbursements and royalties received from development and licensing collaborations.our licensees. We have incurred significant losses since our inception in 2003. Our accumulated deficit at December 31, 20172018 was $141.3$215.4 million and our net loss for the year ended December 31, 20172018 was $65.7$74.2 million. A substantial amount of our net losses resulted from costs incurred in connection with our research and development programs and clinical trials and from general and administrative costs associated with our operations. The net losses and negative operating cash flows incurred to date, together with expected future losses, have had, and likely will continue to have, an adverse effect on our shareholders’shareholders’ equity and working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate offsetting revenue, if any. We expect to continue to incur significant expenses and operating losses for the foreseeable future.
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We do not expect to generate revenue from product sales unless and until we successfully complete clinical trials and obtain marketing approval from the FDA for one or more of our lead product candidates, FMX101 or FMX103. Accordingly, we anticipate that we will need to raise additional capital in order to complete the development and commercialization of FMX101 and FMX103 and to advance the development of our other product candidates. Until we can generate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs primarily through a combination of public and private equity offerings, debt or other structured financings, and entry into strategic collaborations. We may be unable to raise capital when needed or on attractive terms, which would force us to delay, limit, reduce or terminate our development programs or commercialization efforts. We will need to generate significant revenue to achieve and sustain profitability, and we may never be able to do so.
Revenues
To date, we have not generated any revenues from sales of FMX101, FMX103 or any of our other product candidates. We do not expect to commercially launch FMX101 or other product candidates or generate any revenues from sales of any of our product candidates before the end of 2019, until after completing their development and clinical testing and obtaining approvals for theirthe marketing of FMX101 in the U.S.United States. Our ability to generate revenues from sales will depend on the successful commercialization of FMX101, FMX103 and our other product candidates.
As of December 31, 2017,2018, we had generated cumulative revenues of approximately $28.1$31.7 million under development and license agreements, of which approximately $18.3$18.4 million were development service payments, approximately $3.1 million were contingent payments and $6.7$10.2 million were royalty payments. The royalties were paid in relation to Finacea. Our total revenues for the years ended December 31, 2018, 2017 and 2016 and 2015 were $3.6 million, $3.7 million and $5.5 million, and $849,000, respectively. We may become entitled to additional contingent payments, subject to achievement of the applicable clinical results by our other licensees. In light of the current phase of development under these agreements, we do not expect to receive significant payments in the near term, if at all. We are also entitled to additional royalties from net sales or net profits generated by other products to be developed under these agreements, if they are successfully commercialized. In those development and license agreements in which royalties are based on net sales, their rate ranges from 3% to 8.5%, and in the agreement in which royalties are based on net profits, their rate is 6%.
Cost of Revenues
Our total cost of revenues for the twelve monthsyears ended December 31, 2017 and 2016 were $13 thousand and 2015 were $13,000, $59,000 and $70,000,$59 thousand, respectively. There was no similar cost of revenues for the year ended December 31, 2018, as revenues in 2018 consisted almost entirely of royalties, which do not bear related cost of revenue.
We do not expect substantial changes in cost of revenue unless and until we obtain regulatory approval for our lead product candidates and begin serial production of such products, whether internally or through third party manufacturers, at which point we expect our cost of revenues to grow along with the growth of our sales and inventory needs.
Operating Expenses
Research and development expenses
Research and development activities are, and will continue to be, central to our business. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect to incur significant research and development costs to increase significantly forin the foreseeable future, asassuming our pipeline products progress into clinical trials. However, we do not believe that it is possible at this time to accurately project total program-specific expenses to reach commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will affect our clinical development programs and plans.
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Our research and development expenses relate primarily to the development of FMX101.FMX101 and FMX103. From January 1, 2007 until December 31, 2017,2018, we cumulatively spent approximately $104.9$169.4 million on research and development of FMX101, FMX103 and our other product candidates. Our total research and development expenses for the years ended December 31, 2018, 2017 2016 and 20152016 were approximately $64.5 million, $57.8 $25.9million and $10.7$25.9 million, respectively. We charge all research and development expenses to operations as they are incurred. We expect research and development expenses to increasedecrease in the near term due to the ongoingcompletion of the Phase III clinical trials for FMX101 and FMX103.
The successful development of FMX101, FMX103 and additionalour product candidates, excluding FMX101 and FMX103, is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of our technology for additional indications. This uncertainty is due to numerous risks and variables associated with developing products, including the uncertainty of:
| · | the scope, rate of progress and expense of our research and development activities; |
| · | preclinical results; |
| · | clinical trial results; |
| · | the terms and timing of regulatory approvals; and |
| · | our ability to file, prosecute, obtain, maintain, defend and enforce patents and other intellectual property rights and the expense of filing, prosecuting, obtaining, maintaining, defending and enforcing patents and other intellectual property rights; |
A change in the outcome of any of these variables with respect to the development of FMX101, FMX103 or our other product candidates could result in a significant change in the costs and timing associated with their development. For example, if the FDA or foreign regulatory authority were to require us to conduct preclinical studies and clinical trials beyond those which we currently anticipate for the completion of clinical development of our product candidates, or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional time and financial resources and time on the completion of the clinical development.
Research and development expenses consist primarily of:
| · | employee-related expenses, including salaries, benefits and related expenses, including share based compensation expenses; |
| · | expenses incurred under agreements with third parties, including subcontractors, suppliers and consultants that conduct regulatory activities, clinical trials and preclinical studies; |
| · | expenses incurred to acquire, develop and manufacture clinical trial materials; |
| · | facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other operating costs; and |
| · | other costs associated with preclinical and clinical activities and regulatory operations. |
We have managed to finance our research and development operations and expenses without the aid of government grants, other than a loan in the amount of approximately $450,000 received from the Israel-U.S. Bi-national Industrial Research and Development Foundation, or BIRD, in 2008, which was fully repaid in 2016. Accordingly, we are not subject to the provisions of the Law for Encouragement of Research and Development in the Industry, 5744-1984, nor to any directives issued by the Israel Innovation Authority, previously known as the Office of the Chief Scientist.Scientist of the Ministry of Economy.
Selling, general and administrative expenses
Our selling, general and administrative expenses consist principally of:
| · | employee-related expenses, including salaries, benefits and related expenses, including share based compensation expenses; |
| · | costs associated with market research and business development activities in preparation for future marketing and sales, including activities intended to select the most promising product candidates for further development and commercialization; |
| · | legal and professional fees for auditors and other consulting expenses not related to research and development activities or to market research or business development activities; |
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| · | cost of |
| · | information technology expenses; |
| · | depreciation of tangible fixed assets related to our general and administrative activities or to our market research and business development activities; and |
| · | costs associated with filing, prosecuting, obtaining and maintaining patents and other intellectual property. |
As part of our growth strategy, we have begun building up our dedicated U.S. marketing and business development team and infrastructure, and we intend to further increase such U.S. infrastructure, as well as expand our marketing effort to new markets. We therefore expect selling and marketing expenses to increase in absolute terms as a percentage of our revenues. Our total selling, general and administrative expenses for the years ended December 31, 2018, 2017 2016 and 20152016 were approximately $14.0 million, $11.5 $9.2million and $7.0$9.2 million, respectively.
Our ability to commercialize FMX101 and FMX103 successfully, if approved, is highly uncertain and depends on a number of factors, including market adoption of our product candidates by physicians and patients, market access uncertainty, our ability to scale to the opportunity and the existence of existing and future products that may compete with ours. As such, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary for successful commercialization of our product candidates, if approved.
Financial Income
Financial income consists primarily of gains from interest earned from our bank deposits and financial income on our marketable securities.
Taxes on Income
We have yet to generate taxable income in Israel, as we have historically incurred operating losses resulting in carry forward tax losses totaling approximately $88.6$146.7 million as of December 31, 2017.2018. During 2018 we incurred a carry forward tax loss in our U.S. subsidiary, Foamix Pharmaceuticals Inc. of $0.4 million. We anticipate that we will be able to carry forward these tax losses to future tax years. Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses. We provided a full valuation allowance with respect to the deferred tax assets related to these carry forward losses.
During 2018, 2017 2016 and 20152016, we incurred tax expenses of $0.2 million. $1.2 million $387,000 and $39,000,$0.4 million, respectively, related to our U.S. subsidiary, Foamix Pharmaceuticals Inc.
Comparison of the Year Ended December 31, 2018 to the Year Ended December 31, 2017
Revenues
Our total revenues decreased by $74 thousand, or 2%, from $3.7 million in the year ended December 31, 2017 to $3.6 million in the year ended December 31, 2018. The revenues for the year ended December 31, 2018 consist of royalty payments in the amount of $3.5 million and $62 thousand from contingent payments.
Cost of revenues
Our total cost of revenues for the year ended December 31, 2017 was $13 thousand and there was no cost of revenues for the year ended December 31, 2018, as revenues in 2018 consisted almost entirely of royalties, which bear no related cost of revenue.
Research and development expenses
Our research and development expenses for the year ended December 31, 2018 were $64.5 million, representing an increase of $6.7 million, or 11.6%, compared to $57.8 million for the year ended December 31, 2017. The increase in research and development expenses resulted primarily from an increase of $5 million in costs relating predominantly to FMX101 and FMX103 clinical trials; an increase of $0.6 million in consultant expenses and an increase of $0.4 million in payroll and payroll related expenses mostly due to increase in headcount, bonuses and share based compensation expenses.
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Selling, general and administrative expenses
Our general and administrative expenses for the year ended December 31, 2018 were $14.0 million, representing an increase of $2.5 million, or 21.7%, compared to $11.5 million for the year ended December 31, 2017. The increase in selling, general and administrative expenses resulted primarily from an increase of $1.1 million in consultant expenses mostly relating to pre-commercialization activities and an increase of $0.7 million in payroll and other payroll-related expenses mostly due to increase in headcount, bonuses and share based compensation expenses.
Operating loss
As a result of the foregoing, our operating loss for the year ended December 31, 2018, was $74.9 million, compared to an operating loss of $65.6 million for the year ended December 31, 2017, an increase of $9.3 million, or 14.2%.
Finance income
In the years ended December 31, 2018 and 2017, our financial income included mostly gains from marketable securities and interest earned on our bank deposits.
The finance expenses (income) by cash and non-cash components are as follows:
| Year ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| (in thousands of U.S. dollars) | ||||||||
| Interest on bank deposits | $ | (297 | ) | $ | (532 | ) | ||
| Gain from marketable securities, net | (688 | ) | (602 | ) | ||||
| Total income | (985 | ) | (1,134 | ) | ||||
| Less: | ||||||||
| Other expenses | 17 | 14 | ||||||
| Foreign exchange loss, net | 27 | 57 | ||||||
| Total expenses | 44 | 71 | ||||||
| Finance income, net | $ | (941 | ) | $ | (1,063 | ) | ||
Taxes on income
During 2018 and 2017, we did not generate taxable income in Israel and during 2018 we did not generate taxable income in our U.S. subsidiary, Foamix Pharmaceuticals Inc. However, we incurred tax expenses relating to our U.S. subsidiary, in the amount of $0.2 million and $1.2 million for the years ended December 31, 2018 and 2017, respectively. The decrease in tax expenses resulted primarily from a provision for uncertain tax positions recorded in 2017.
Net Loss
Our net loss for the year ended December 31, 2018 was $74.2 million, compared to $65.7 million for the year ended December 31, 2017, an increase of $8.5 million, or 12.9%.
Comparison of the Year endedEnded December 31, 2017 to the Year Ended December 31, 2016
Revenues
Our total revenues decreased by $1.8 million, or 32.7%, from $5.5 million in the year ended December 31, 2016 to $3.7 million in the year ended December 31, 2017. The decrease is mainly due to a decrease of $2.5 million in contingent payments from Buyer,Bayer, that were payable for 2016 due to Bayer’s achievement of certain sale targets during that year, offset by an increase in royalty payments in the amount of $565,000$0.6 million from Bayer for the sales of Finacea® Foam.Finacea.
Cost of revenues
Our total cost of revenues for the years ended December 31, 2017 and 2016 were $13,000was $13 thousand and $59,000,$59 thousand, respectively. The $46,000$46 thousand decrease in cost of revenues resulted primarily from a decrease in the number of our development projects.projects. Cost of revenues as a percentage of revenues for the years ended December 31, 2017 and 2016 was 0.4% and 1.1%, respectively. The decrease in the cost of revenues as a percentage of revenues was primarily due to thea decrease in the number of new development projects and thean increase in royalty payments, which do not bear relatedno cost of revenue.
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Research and development expenses
Our research and development expenses for the year ended December 31, 2017 were $57.8 million, representing an increase of $31.9 million, or 123%, compared to $25.9 million for the year ended December 31, 2016. The increase in research and development expenses resulted primarily from an increase of $28.0 million in costs relating predominantly to the FMX101 and FMX103 clinical trials and an increase of $3.0 million in payroll and payroll related expenses primarily due to an increase in headcount.
Selling, general and administrative expenses
Our general and administrative expenses for the year ended December 31, 2017 were $11.5 million, representing an increase of $2.3 million, or 25%, compared to $9.2 million for the year ended December 31, 2016. The increase in selling, general and administrative expenses resulted primarily from an increase of $1.9 million in payroll and other payroll-related expenses mostlymainly due to an increase in headcount and salary raises.
Operating loss
As a result of the foregoing, our operating loss for the year ended December 31, 2017, was $65.6 million, compared to an operating loss of $29.6 million for the year ended December 31, 2016, an increase of $36.0 million, or 122%.
Finance income
In the years ended December 31, 2017 and 2016, our financial income included mostly gains from marketable securities and interest earned on our bank deposits. In the year ended December 31, 2016, those gains were partially offset by expenses on the loan from the BIRD foundation fully repaid during the second quarter of 2016.
The finance expenses (income) by cash and non-cash components are as follows:
| Year ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands of U.S. dollars) | ||||||||
| Interest on bank deposits | $ | (532 | ) | $ | (536 | ) | ||
| Gain from marketable securities, net | (602 | ) | (401 | ) | ||||
| Non-cash foreign exchange profit, net | - | (24 | ) | |||||
| Total income | (1,134 | ) | (961 | ) | ||||
| Less: | ||||||||
| Other expenses | 14 | 17 | ||||||
| Finance expenses on BIRD loan | - | 243 | ||||||
| Non-cash foreign exchange loss, net | 57 | - | ||||||
| Total expenses | 71 | 260 | ||||||
| Finance income, net | $ | (1,063 | ) | $ | (701 | ) | ||
| Year ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands of U.S. dollars) | ||||||||
| Interest on bank deposits | $ | (532 | ) | $ | (536 | ) | ||
| Gain from marketable securities, net | (602 | ) | (401 | ) | ||||
| Non-cash foreign exchange profit, net | - | (24 | ) | |||||
| Total income | (1,134 | ) | (961 | ) | ||||
| Less: | ||||||||
| Other expenses | 14 | 17 | ||||||
| Finance expenses on BIRD loan | - | 243 | ||||||
| Non-cash foreign exchange loss, net | 57 | - | ||||||
| Total expenses | 71 | 260 | ||||||
| Finance income, net | $ | (1,063 | ) | $ | (701 | ) | ||
Taxes on income
During 2016 and 2017, and 2016, we havedid not generatedgenerate taxable income in Israel. However, we had incurred tax expenses in our U.S. subsidiary, Foamix Pharmaceuticals, Inc., in the amount of $1.2 million and $387,000$0.4 million for the years ended December 31, 2017 and 2016, respectively. The increase in tax expenses resulted from an increase in our provision for uncertain tax positions.
Net Loss
As a result of the foregoing, our net loss for the year ended December 31, 2017 was $65.7 million, compared to $29.3 million for the year ended December 31, 2016, an increase of $36.4 million, or 124%.
| Year ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| (in thousands of U.S. dollars) | ||||||||
| Other expenses | $ | 17 | $ | 23 | ||||
| Finance expenses on BIRD loan | 243 | * | ||||||
| Total expenses | 260 | 23 | ||||||
| Less: | ||||||||
| Interest on bank deposits | (536 | ) | (289 | ) | ||||
| Gain from marketable securities, net | (401 | ) | (180 | ) | ||||
| Non-cash foreign exchange profit, net | (24 | ) | (6 | ) | ||||
| Total income | (961 | ) | (475 | ) | ||||
| Finance income, net | $ | (701 | ) | $ | (452 | ) | ||
Liquidity
Since our inception, we have incurred losses from operations and negative cash flows from our operations. For the twelve monthsyear ended December 31, 2018, we incurred a net loss of $74.2 million, which included $68.7 million used for operating activities. For the year ended December 31, 2017, we incurred a net loss of $65.7 million, which included $53.2 million used for operating activity. For the twelve months ended December 31, 2016, we incurred a net loss of $29.3 million, which included $27.4 million used for operating activity.activities.
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As of December 31, 20172018 and December 31, 2016,2017, we had a working capital surplus of $59.3$90.7 million and $111.7$59.3 million, respectively, and an accumulated deficit of $215.4 million and $141.3 million, and $75.6 million, respectively.
Our principal source of liquidity as of December 31, 20172018 consisted of cash cash equivalents, restricted cash, bank deposits and marketable securitiesinvestments of $76.4$99.4 million.
On September 30, 2016,18, 2018, we completed anotheran additional follow-on offering under our amendedeffective shelf registration statement in which we sold 5,700,00011,670,000 ordinary shares for $9.50$6.00 per share, raising net proceeds, after expenses and underwriter commissions, of approximately $50.4$65.6 million. An additional 300,000 ordinary shares were sold by certain selling shareholders. In October 2016Upon closing of the offering, the underwriters partially exercised the option granted to them in the underwriting agreement and purchased an1,750,500 additional 411,959 ordinary shares at athe per share price of $9.50 per share.the offering. The proceeds from the exercise of the option, net of expenses and underwriter commissions, were approximately $3.7$9.8 million, bringing the total net proceeds from the offering to approximately $54.1$75.4 million.
We anticipate that with our existing cash and investments we will be able to fund our planned operating expenses and capital expenditure requirements for the third Phase III clinical trialthrough mid-2020. These planned expenses include: (a) any pre-commercialization and launch preparations for FMX101, whichassuming we expect to complete by the endreceive regulatory approval, (b) full development and filing of 2018, and for the two Phase III clinical trialsan NDA for FMX103, which we expect to complete bysubmit in mid-2019 and (c) certain pipeline development activities. We expect we will need additional funding to support our operating expenses and capital requirements for 2020 and beyond, including with regard to the endcommercialization of the third quarterany of 2019,our product candidates if regulatory approval is granted, and throughout the NDA filing for FMX101, whichto fund our internal and external research and development efforts. We have based this estimate on assumptions that may prove to be wrong, and we expect to complete by the end of 2019.could use our capital resources sooner than we currently expect.
Capital Resources
Overview
To date, we have financed our operations primarily through private and public placements of our ordinary shares, convertible loans and through fees, cost reimbursements and royalties received from our licensees.
From inception through December 31, 2017,2018, we have received net cash proceeds of approximately $187.7$280.1 million from the issuance of ordinary shares, preferred shares, exercise of options and warrants and from convertible loans.
Cash flows
The following table summarizes our statement of cash flows for the years ended December 31, 2018, 2017 December 31, 2016 and December 31, 2015:2016:
| Year ended December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | 2015 | Year Ended December 31, | |||||||||||||||||||||
| (in thousands of U.S. dollars) | 2018 | 2017 | 2016 | |||||||||||||||||||||
| Net cash (used in) / provided by: | (in thousands) | |||||||||||||||||||||||
| Operating activities | $ | (53,177 | ) | $ | (27,370 | ) | $ | (12,498 | ) | $ | (68,664 | ) | $ | (53,177 | ) | $ | (27,370 | ) | ||||||
| Investing activities | 37,755 | (15,018 | ) | (78,516 | ) | (11,755 | ) | 37,755 | (15,018 | ) | ||||||||||||||
| Financing activities | $ | 140 | $ | 55,031 | $ | 66,801 | $ | 92,374 | $ | 140 | $ | 55,031 | ||||||||||||
Net cash used in operating activities
The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and measurements and changes in components of working capital. Adjustments to net income for non-cash items consists mainly include depreciation and amortization andof share-based compensation.
Net cash used in operating activities was $68.7 million in the year ended December 31, 2018, compared to $53.2 million in the twelve monthsyear ended December 31, 2017 and compared to $27.4 million in the twelve months ended December 31, 2016 and compared to $12.5 of net cash used in operating activities in the twelve monthsyear ended December 31, 2015.2016. The increase was attributable primarily to the increase in company activity mostly related to clinical trials and payroll expenses.
Net cash used in investing activities
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Net cash provided by financing activities
Net cash provided by financing activities was $140,000$92.4 million in the twelve monthsyear ended December 31, 2018, an increase of $92.3 million from $0.1 million in the year ended December 31, 2017. The increase was attributable primarily to (i) the proceeds from the issuance of shares to OrbiMed based on the aforementioned securities purchase agreement, in an aggregate net amount of approximately $16.1 million after deducting offering expenses, (ii) an $0.8 million increase in proceeds from the exercise of warrants, and (iii) the proceeds from the issuance of shares in the follow-on offering which closed on September 18, 2018, of approximately $75.4 million after deducting offering expenses and underwriters’ commissions.
Net cash provided by financing activities was $0.1 million in the year ended December 31, 2017, a decrease of $54.9 million from $55.0 million in the twelve monthsyear ended December 31, 2016. The decrease was attributable primarily to the capital raised in our 2016 follow-on public offering.
Cash and funding sources
The table below summarizes our main sources of financing for the years ended December 31, 2018, 2017 2016 and 2015:2016:
Proceeds from our public offerings(1) | Proceeds from issuance of ordinary shares | Payments from licensees | Total | |||||||||||||
| (in thousands of U.S. dollars) | ||||||||||||||||
| Year ended December 31, 2017 | $ | - | $ | 161 | $ | 5,978 | $ | 6,139 | ||||||||
| Year ended December 31, 2016 | $ | 54,132 | $ | 1,407 | $ | 2,575 | $ | 58,114 | ||||||||
| Year ended December 31, 2015 | $ | 64,202 | $ | 2,629 | $ | 1,063 | $ | 67,894 | ||||||||
Proceeds from our underwritten public offerings(1) | Proceeds from our direct public offerings | Proceeds from issuance of ordinary shares | Payments from licensees | Total | ||||||||||||||||
| (in thousands of U.S. dollars) | ||||||||||||||||||||
| 2018 | $ | 75,356 | $ | 16,131 | $ | 887 | $ | 3,457 | $ | 95,831 | ||||||||||
| 2017 | $ | - | $ | - | $ | 161 | $ | 5,978 | $ | 6,139 | ||||||||||
| 2016 | $ | 54,132 | $ | - | $ | 1,407 | $ | 2,575 | $ | 58,114 | ||||||||||
__________________________
(1) Net of issuance costs.
Our sources of financing in the year ended December 31, 2018 totaled $95.8 million and consisted primarily of $75.4 million of net proceeds from our underwritten follow-on offering which closed in September 2018 and $16.1 million of net proceeds from our registered direct offering to OrbiMed.
Our sources of financing in the year ended December 31, 2017 totaled $6.1 million and consisted primarily of payments from licensees.
We currently have no ongoing material financial commitments, (suchsuch as lines of credit)credit, that may affect our liquidity over the next five years.
Funding requirements
We believe, based on our current business plan,anticipate that with our existing cash and investments we will enable usbe able to fund our planned operating expenses and capital expenditure requirements throughout the completionthrough mid-2020. These planned expenses and expenditures include: (a) full development and filing of our third pivotal Phase III clinical trialan NDA for our lead product candidate FMX101 and our two pivotal Phase III clinical trials for FMX103, the first of which we expect to complete bysubmit in mid-2019, (b) certain pipeline development activities, and (c) any pre-commercialization and launch preparations for FMX101 in anticipation of regulatory approval. We expect we will need additional funding to support our operating expenses and capital requirements for 2020 and beyond, including with regard to the endcommercialization of 2018our product candidates and the other two by the end of the third quarter of 2019,to fund our internal and the fullexternal research and development and NDA submission for FMX101. The full development and NDA submission for FMX103, as well as any future pipeline products, will require us to raise additional funds.efforts. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
Our present and future funding requirements will depend on many factors, including, among other things:inter alia:
| · | the progress, timing and completion of preclinical testing and clinical trials for |
| · | selling, marketing and patent-related activities undertaken in connection with the anticipated commercialization of FMX101, FMX103 and any other product candidates and costs involved in the development of an effective sales and marketing organization; |
| · | the time and costs involved in obtaining regulatory approval for FMX101, FMX103 and our other pipeline products and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of these products; |
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| · | the number of potential new products we identify and decide to develop; |
| · | the costs involved in filing and prosecuting patent applications and obtaining, maintaining and enforcing patents or defending against claims or infringements raised by third parties, and license royalties or other amounts we may be required to pay to obtain rights to third party intellectual property rights; and |
| · | the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of FMX101, FMX103 and any other pipeline product that is commercialized. |
Our capital expenditures for 2018, 2017 2016 and 20152016 amounted to $0.6 million, $1.5 million $424,000 and $500,000,$0.4 million, respectively. During 2017,2018, these expenditures were primarily related to laboratory equipment, computers and leasehold improvements and purchase of laboratory equipment.improvements.
Off-Balance Sheet Arrangements
As of December 31, 2017,2018, we did not have any off-balance sheet arrangements.
| Payments due by period | ||||||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Other | |||||||||||||||||||
| (in thousands of U.S. dollars) | ||||||||||||||||||||||||
Operating lease obligations(1) | $ | 2,322 | $ | 865 | $ | 1,457 | - | - | ||||||||||||||||
Liability for employee severance benefits(2) | $ | 437 | - | - | - | - | $ | 437 | ||||||||||||||||
| Total | $ | 2,759 | $ | 865 | $ | 1,457 | - | - | $ | 437 | ||||||||||||||
Critical Accounting Policies and Significant Judgments and Estimates
We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S.United States. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
While our significant accounting policies are more fully described in Note 2, Summary“Summary of Significant Accounting Policies,” to the consolidated financial statements included in “Item 8—“Financial Statements and Supplementary Data”Data” of this Annual Report, on Form 10-K, we believe that the following accounting policies arepolicy is the most critical to assist shareholders and investors reading the consolidated financial statements in fully understanding and evaluating our financial condition and results of operations. These policies relateThe policy relates to the more significant areas involving management’smanagement’s judgments and estimates and they requirerequires our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of the matters that are inherently uncertain.
Clinical trial accruals
Clinical trial costs are charged to research and development expense as incurred. We accrue for expenses resulting from obligations under contracts with clinical research organizations, or CROs. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided. Our objective is to reflect the appropriate trial expense in the consolidated financial statements by matching the appropriate expenses with the period in which services and efforts are expended. In the event advance payments are made to a CRO, the payments will be recorded as other assets, which will be recognized as expenses as services are rendered. The CRO contracts generally include pass-through fees including, but not limited to, regulatory expenses, investigator fees, travel costs and other miscellaneous costs. We estimate our clinical accruals based on reports from and discussion with clinical personnel and the CRO as to the progress or state of completion of the trials. We estimate accrued expenses as of each balance sheet date in the consolidated financial statements based on the facts and circumstances known at that time. Our clinical trial accrual is dependent, in part, upon the receipt of timely and accurate reporting from the CROs.
Recently Issued Accounting Pronouncements
Certain recently issued accounting pronouncements are discussed in Note 2, Summary“Summary of Significant Accounting Policies,” to the consolidated financial statements included in “Item 8—“Financial Statements and Supplementary Data”Data” of this Annual Report on Form 10-K.Report.
65
Market risk is the risk of loss related to changes in market prices, including interest rates, foreign exchange rates and prices of financial instruments, that may adversely impact our financial position, results of operations or cash flows. As of December 31, 20172018 we did not have any financial instruments sensitive to market risk. We, therefore, have little exposure to market risks in the ordinary course of our operations, and such risks are primarily related to changes in foreign currency exchange rates and in interest rates.
Foreign Currency Exchange Risk
The U.S. dollar is our functional and reporting currency. Although a substantial portion of our expenses (mainly salaries and related costs) are denominated in Israeli shekels,NIS, accounting for 11%13%, 21%,11% and 32%21% of our expenses in the years ended December 31, 2018, 2017 2016 and 2015,2016, respectively, almost all our revenues were generated under agreements denominated in U.S. dollars and our proceeds from our public offerings, share issuance and convertible loan agreements, which are the main source of our financing, are denominated in U.S. dollars. Furthermore, while we anticipate that a portion of our expenses, principally salaries and related personnel expenses in Israel, will continue to be denominated in shekels,NIS, we expect to incur an increasing amount of expenses in U.S. dollars as we expand our operations in the U.S. We also have expenses, although to a much lesser extent, in other non-dollar currencies, in particular the Euro.Swiss Franc. Moreover, for the next few years we expect that the substantial majority of our revenues, if any, will be denominated in U.S. dollars from the sale of FMX101, if approved, and potentially other product candidates in the U.S. Having the substantial majority of our revenues denominated in U.S. dollars while having a substantial portion of our expenses denominated in Israeli shekelsNIS and other non-U.S. currencies exposes us to risk associated with exchange rate fluctuations vis-à-vis the U.S. dollar. See “Item 1A—“Risk Factors—RisksFactors-Risks Related to Our Business and Industry—Industry-Exchange rate fluctuations between the U.S. dollar and the New Israeli shekelShekel may negatively affect our earnings.earnings.”
A devaluation of the shekelNIS in relation to the U.S. dollar has the effect of reducing the U.S. dollar amount of our expenses or payables that are payable in shekels,NIS, unless those expenses or payables are linked to the U.S. dollar. Conversely, any appreciation of the shekelNIS in relation to the U.S. dollar has the effect of increasing the U.S. dollar value of our unlinked shekelNIS expenses, which would have a negative impact on our profit margins. In 2017,2018, the value of the shekel appreciatedNIS depreciated in relation to the U.S. dollar by 11.6%8.1%, the effect of which was partially offset by inflation in Israel at athe rate of approximately 0.4%0.8%. In 2016,2017, the value of the shekelNIS appreciated in relation to the U.S. dollar by approximately 1.5%11.6%, the effect of which was compoundedamplified by deflationinflation in Israel at the rate of approximately -0.2%0.4%.
Because exchange rates between the U.S. dollar and the shekelNIS (as well as between the U.S. dollar and other currencies) fluctuate continuously, such fluctuations have an impact on our results and period-to-period comparisons of our results. The effects of foreign currency re-measurements are reported in our statements of operations.
The following table presents information about the changes in the exchange rates of the shekelNIS against the U.S. dollar:
| Shekel against the U.S. dollar | NIS against the U.S. dollar | ||||
| 2016 | 1.5% | ||||
| 2017 | 11.6% | 11.6 | % | ||
| 2018 | (8.1 | )% | |||
We will continue to monitor our exposure to currency fluctuations. Since February 2015, we engagehave engaged in currency hedging activities in order to reduce our exposure to currency fluctuations. Instruments that are used to hedge future risks may include foreign currency forward contract, swap contracts and options. These instruments may be used to selectively manage risks, but we may not be fully protected against material foreign currency fluctuations.
Inflation-Related Risks
We do not believe that the rate of inflation in Israel has had a material impact on our business to date, however,financial condition or results of operations during the years ended December 31, 2018 and 2017. However, our costs in Israel will increase if inflation in Israel exceeds the devaluation of the shekelNIS against the U.S. dollar or if the timing of such devaluation lags behind inflation in Israel.
66
FOAMIX PHARMACEUTICALS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
67
FOAMIX PHARMACEUTICALS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
INDEX
| Page | |
| F-2 | |
| F-3 | |
| F-5 | |
| F-6 | |
| F-7 | |
| F-8 | |
| F-10 |
To the shareholders and the board of directors of
FOAMIX PHARMACEUTICALS LTD.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Foamix Pharmaceuticals Ltd. and its subsidiarySubsidiary (the "Company") as of December 31, 20172018 and 2016,2017, and the related consolidated statements of operations, comprehensive loss, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017,2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiary as of December 31, 20172018 and 2016,2017, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172018 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management and Board of Directors.management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is 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 opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
| Tel-Aviv, Israel | /s/ Kesselman & Kesselman |
| February | Certified Public Accountants (Isr.) |
| A member firm of PricewaterhouseCoopers International Limited |
We have served as the Company's auditor since 2006.
Kesselman & Kesselman, Trade Tower, 25 Hamered Street, Tel-Aviv 6812508, Israel,
P.O Box 50005 Tel-Aviv 6150001 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il
F - 2
| December 31 | December 31 | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| A s s e t s | ||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||
| Cash and cash equivalents | $ | 15,956 | $ | 31,190 | $ | 27,868 | $ | 15,956 | ||||||||
| Restricted cash | 250 | 250 | 250 | 250 | ||||||||||||
| Short term bank deposits | 19,443 | 38,351 | 24,047 | 19,443 | ||||||||||||
| Investment in marketable securities (Note 4) | 31,797 | 43,275 | 46,669 | 31,797 | ||||||||||||
| Restricted investment in marketable securities (Note 4) | 290 | 261 | 268 | 290 | ||||||||||||
| Accounts receivable: | ||||||||||||||||
| Trade | 996 | 3,236 | 1,066 | 996 | ||||||||||||
| Other (Note 11a) | 772 | 438 | 999 | 772 | ||||||||||||
| TOTAL CURRENT ASSETS | 69,504 | 117,001 | 101,167 | 69,504 | ||||||||||||
| NON-CURRENT ASSETS: | ||||||||||||||||
| Investment in marketable securities (Note 4) | 8,533 | 17,532 | 150 | 8,533 | ||||||||||||
| Restricted investment in marketable securities (Note 4) | 143 | 129 | 133 | 143 | ||||||||||||
| Property and equipment, net (Note 5) | 2,042 | 938 | 2,235 | 2,042 | ||||||||||||
| Other | 32 | 35 | 46 | 32 | ||||||||||||
| TOTAL NON-CURRENT ASSETS | 10,750 | 18,634 | 2,564 | 10,750 | ||||||||||||
| TOTAL ASSETS | $ | 80,254 | $ | 135,635 | $ | 103,731 | $ | 80,254 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 3
FOAMIX PHARMACEUTICALS LTD.
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
| December 31 | ||||||||
| 2018 | 2017 | |||||||
| Liabilities and shareholders’ equity | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accruals: | ||||||||
| Trade | $ | 6,327 | $ | 6,436 | ||||
| Deferred revenues | - | 62 | ||||||
| Other (Note 11b) | 4,141 | 3,730 | ||||||
| TOTAL CURRENT LIABILITIES | 10,468 | 10,228 | ||||||
LONG-TERM LIABILITIES: | ||||||||
| Liability for employee severance benefits (Note 6) | 367 | 437 | ||||||
Other liabilities | 714 | 988 | ||||||
| TOTAL LONG-TERM LIABILITIES | 1,081 | 1,425 | ||||||
| TOTAL LIABILITIES | 11,549 | 11,653 | ||||||
COMMITMENTS (Note 7) | ||||||||
| SHAREHOLDERS' EQUITY: | ||||||||
Ordinary shares, NIS 0.16 par value - authorized: 90,000,000 ordinary shares as of December 31, 2018 and December 31, 2017; issued and outstanding: 54,351,140 and 37,498,128 ordinary shares as of December 31, 2018 and December 31, 2017, respectively | 2,331 | 1,576 | ||||||
| Additional paid-in capital | 305,303 | 208,364 | ||||||
| Accumulated deficit | (215,409 | ) | (141,281 | ) | ||||
| Accumulated other comprehensive loss | (43 | ) | (58 | ) | ||||
| TOTAL SHAREHOLDERS' EQUITY | 92,182 | 68,601 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 103,731 | $ | 80,254 | ||||
| December 31 | ||||||||
| 2017 | 2016 | |||||||
| Liabilities and shareholders’ equity | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Current maturities of bank borrowing (Note 8b) | $ | - | $ | 20 | ||||
| Accounts payable and accruals: | ||||||||
| Trade | 6,436 | 2,267 | ||||||
| Deferred revenues | 62 | - | ||||||
| Other (Note 11b) | 3,730 | 2,984 | ||||||
| TOTAL CURRENT LIABILITIES | 10,228 | 5,271 | ||||||
LONG-TERM LIABILITIES: | ||||||||
| Liability for employee severance benefits (Note 6) | 437 | 379 | ||||||
Other liabilities | 988 | - | ||||||
| TOTAL LONG-TERM LIABILITIES | 1,425 | 379 | ||||||
| TOTAL LIABILITIES | 11,653 | 5,650 | ||||||
COMMITMENTS (Note 7) | ||||||||
| SHAREHOLDERS' EQUITY: | ||||||||
Ordinary Shares, NIS 0.16 par value - authorized: 90,000,000 and 50,000,000 Ordinary Shares as of December 31, 2017 and December 31, 2016, respectively; issued and outstanding: 37,498,128 and 37,167,791 Ordinary Shares as of December 31, 2017 and December 31, 2016, respectively | 1,576 | 1,561 | ||||||
| Additional paid-in capital | 208,364 | 204,052 | ||||||
| Accumulated deficit | (141,281 | ) | (75,566 | ) | ||||
| Accumulated other comprehensive loss | (58 | ) | (62 | ) | ||||
| TOTAL SHAREHOLDERS' EQUITY | 68,601 | 129,985 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 80,254 | $ | 135,635 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F - 4
FOAMIX PHARMACEUTICALS LTD.
(U.S. dollars in thousands, except per share data)
| Year ended December 31 | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
REVENUES (Note 11c) | $ | 3,595 | $ | 3,669 | $ | 5,527 | ||||||
| COST OF REVENUES | - | 13 | 59 | |||||||||
| GROSS PROFIT | 3,595 | 3,656 | 5,468 | |||||||||
| OPERATING EXPENSES: | ||||||||||||
| Research and development | 64,474 | 57,779 | 25,897 | |||||||||
| Selling, general and administrative | 14,013 | 11,491 | 9,221 | |||||||||
| TOTAL OPERATING EXPENSES | 78,487 | 69,270 | 35,118 | |||||||||
| OPERATING LOSS | 74,892 | 65,614 | 29,650 | |||||||||
FINANCE INCOME, net (Note 11d) | (941 | ) | (1,063 | ) | (701 | ) | ||||||
| LOSS BEFORE INCOME TAX | 73,951 | 64,551 | 28,949 | |||||||||
INCOME TAX (Note 10) | 212 | 1,164 | 387 | |||||||||
| NET LOSS FOR THE YEAR | $ | 74,163 | $ | 65,715 | $ | 29,336 | ||||||
| LOSS PER SHARE BASIC AND DILUTED | $ | 1.70 | $ | 1.76 | $ | 0.91 | ||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE IN THOUSANDS | 43,660 | 37,376 | 32,263 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| Year ended December 31 | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
REVENUES (Note 11c) | $ | 3,669 | $ | 5,527 | $ | 849 | ||||||
| COST OF REVENUES | 13 | 59 | 70 | |||||||||
| GROSS PROFIT | 3,656 | 5,468 | 779 | |||||||||
| OPERATING EXPENSES: | ||||||||||||
| Research and development | 57,779 | 25,897 | 10,680 | |||||||||
| Selling, general and administrative | 11,491 | 9,221 | 7,029 | |||||||||
| TOTAL OPERATING EXPENSES | 69,270 | 35,118 | 17,709 | |||||||||
| OPERATING LOSS | 65,614 | 29,650 | 16,930 | |||||||||
FINANCE INCOME, net (Note 11d) | (1,063 | ) | (701 | ) | (452 | ) | ||||||
| LOSS BEFORE INCOME TAX | 64,551 | 28,949 | 16,478 | |||||||||
INCOME TAX (Note 10) | 1,164 | 387 | 39 | |||||||||
| NET LOSS FOR THE YEAR | $ | 65,715 | $ | 29,336 | $ | 16,517 | ||||||
| LOSS PER SHARE BASIC AND DILUTED | $ | 1.76 | $ | 0.91 | $ | 0.58 | ||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE IN THOUSANDS | 37,376 | 32,263 | 28,229 | |||||||||
F - 5
FOAMIX PHARMACEUTICALS LTD.
(U.S. dollars in thousands)
| Year ended December 31 | Year ended December 31 | |||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2018 | 2017 | 2016 | |||||||||||||||||||
| NET LOSS | $ | 74,163 | $ | 65,715 | $ | 29,336 | ||||||||||||||||||
| OTHER COMPREHENSIVE LOSS (INCOME): | $ | 65,715 | $ | 29,336 | $ | 16,517 | ||||||||||||||||||
| OTHER COMPREHENSIVE INCOME: | ||||||||||||||||||||||||
| Net unrealized losses (gains) from marketable securities | 5 | (65 | ) | 103 | (59 | ) | 5 | (65 | ) | |||||||||||||||
| Gains (losses) on marketable securities reclassified into net loss | - | 4 | (57 | ) | (5 | ) | - | 4 | ||||||||||||||||
| Net unrealized losses (gains) on derivative financial instruments | (146 | ) | (20 | ) | 5 | 74 | (146 | ) | (20 | ) | ||||||||||||||
| Gains on derivative financial instruments reclassified into net loss | 137 | 13 | - | |||||||||||||||||||||
| TOTAL OTHER COMPREHENSIVE LOSS (INCOME) | (4 | ) | (68 | ) | 51 | |||||||||||||||||||
| Gains (losses) on derivative financial instruments reclassified into net loss | (60 | ) | 137 | 13 | ||||||||||||||||||||
| TOTAL OTHER COMPREHENSIVE INCOME | (50 | ) | (4 | ) | (68 | ) | ||||||||||||||||||
| TOTAL COMPREHENSIVE LOSS | $ | 65,711 | $ | 29,268 | $ | 16,568 | $ | 74,113 | $ | 65,711 | $ | 29,268 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
F - 6
FOAMIX PHARMACEUTICALS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. dollars in thousands, except share data)
(U.S. dollars in thousands, except share data)
Ordinary shares | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive loss | Total | ||||||||||||||||||||
| Number of shares | Amounts | Amounts | ||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2015 | 22,443,934 | 954 | 77,600 | (29,713 | ) | (79 | ) | 48,762 | ||||||||||||||||
| CHANGES DURING 2015: | ||||||||||||||||||||||||
| Comprehensive loss | - | - | - | (16,517 | ) | (51 | ) | (16,568 | ) | |||||||||||||||
| Issuance of Ordinary Shares through a public offering, net of $4.8 million issuance costs (Note 9b) | 7,419,353 | 298 | 63,904 | - | - | 64,202 | ||||||||||||||||||
| Exercise of warrants (Note 9c) | 546,322 | 23 | 2,262 | - | - | 2,285 | ||||||||||||||||||
| Exercise of options and restricted share units (Note 9d) | 229,525 | 9 | 335 | - | - | 344 | ||||||||||||||||||
| Share-based compensation (Note 9d) | - | - | 1,777 | - | - | 1,777 | ||||||||||||||||||
| BALANCE AT DECEMBER 31, 2015 | 30,639,134 | 1,284 | 145,878 | (46,230 | ) | (130 | ) | 100,802 | ||||||||||||||||
| CHANGES DURING 2016: | ||||||||||||||||||||||||
| Comprehensive income (loss) | - | - | - | (29,336 | ) | 68 | (29,268 | ) | ||||||||||||||||
Issuance of Ordinary Shares through a public offering, net of $3.9 million issuance costs (Note 9b) | 6,111,959 | 260 | 53,872 | - | - | 54,132 | ||||||||||||||||||
| Exercise of warrants (Note 9c) | 257,137 | 10 | 1,285 | - | - | 1,295 | ||||||||||||||||||
| Exercise of options and restricted share units (Note 9d) | 159,561 | 7 | 105 | - | - | 112 | ||||||||||||||||||
| Share-based compensation (Note 9d) | - | - | 2,912 | 2,912 | ||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2016 | 37,167,791 | 1,561 | 204,052 | (75,566 | ) | (62 | ) | 129,985 | ||||||||||||||||
| CHANGES DURING 2017: | ||||||||||||||||||||||||
| Comprehensive income (loss) | - | - | - | (65,715 | ) | 4 | (65,711 | ) | ||||||||||||||||
| Exercise of warrants (Note 9c) | 191,793 | 8 | (8 | ) | - | - | - | |||||||||||||||||
| Exercise of options and restricted share units (Note 9d) | 138,544 | 7 | 154 | - | - | 161 | ||||||||||||||||||
| Share-based compensation (Note 9d) | - | - | 4,166 | - | - | 4,166 | ||||||||||||||||||
| BALANCE AT DECEMBER 31, 2017 | 37,498,128 | $ | 1,576 | $ | 208,364 | $ | (141,281 | ) | $ | (58 | ) | $ | 68,601 | |||||||||||
Ordinary shares | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive loss | Total | ||||||||||||||||||||
| Number of shares | Amounts | Amounts | ||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2016 | 30,639,134 | $ | 1,284 | $ | 145,878 | $ | (46,230 | ) | $ | (130 | ) | $ | 100,802 | |||||||||||
| CHANGES DURING 2016: | ||||||||||||||||||||||||
| Comprehensive income (loss) | - | - | - | (29,336 | ) | 68 | (29,268 | ) | ||||||||||||||||
Issuance of ordinary shares through a public offering, net of $3.9 million issuance costs (Note 9b) | 6,111,959 | 260 | 53,872 | - | - | 54,132 | ||||||||||||||||||
| Exercise of warrants (Note 9d) | 257,137 | 10 | 1,285 | - | - | 1,295 | ||||||||||||||||||
| Exercise of options and restricted share units (Note 9e) | 159,561 | 7 | 105 | - | - | 112 | ||||||||||||||||||
| Share-based compensation (Note 9e) | - | - | 2,912 | - | - | 2,912 | ||||||||||||||||||
| BALANCE AT DECEMBER 31, 2016 | 37,167,791 | 1,561 | 204,052 | (75,566 | ) | (62 | ) | 129,985 | ||||||||||||||||
| CHANGES DURING 2017: | ||||||||||||||||||||||||
| Comprehensive income (loss) | - | - | - | (65,715 | ) | 4 | (65,711 | ) | ||||||||||||||||
| Exercise of warrants (Note 9d) | 191,793 | 8 | (8 | ) | - | - | - | |||||||||||||||||
| Exercise of options and restricted share units (Note 9e) | 138,544 | 7 | 154 | - | - | 161 | ||||||||||||||||||
| Share-based compensation (Note 9e) | - | - | 4,166 | - | - | 4,166 | ||||||||||||||||||
BALANCE AT DECEMBER 31, 2017, as previously reported | 37,498,128 | $ | 1,576 | $ | 208,364 | $ | (141,281 | ) | $ | (58 | ) | $ | 68,601 | |||||||||||
Impact of initial adoption of new accounting standards (Note 4) | - | - | - | 35 | (35 | ) | - | |||||||||||||||||
| CHANGES DURING 2018: | ||||||||||||||||||||||||
| Comprehensive income (loss) | - | - | - | (74,163 | ) | 50 | (74,113 | ) | ||||||||||||||||
| Issuance of ordinary shares through a public offering, net of $5.2 million issuance costs (note 9c) | 13,420,500 | 599 | 74,757 | - | - | 75,356 | ||||||||||||||||||
| Issuance of ordinary shares through a securities purchase agreement, net of $39 issuance costs (note 9b) | 2,940,000 | 134 | 15,997 | - | - | 16,131 | ||||||||||||||||||
| Exercise of warrants (Note 9d) | 178,468 | 8 | 832 | - | - | 840 | ||||||||||||||||||
| Exercise of options and restricted share units (Note 9e) | 314,044 | 14 | 33 | - | - | 47 | ||||||||||||||||||
| Share-based compensation (Note 9e) | - | - | 5,320 | - | - | 5,320 | ||||||||||||||||||
| BALANCE AT DECEMBER 31, 2018 | 54,351,140 | $ | 2,331 | $ | 305,303 | $ | (215,409 | ) | $ | (43 | ) | $ | 92,182 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements
| Year ended December 31 | Year ended December 31 | |||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2018 | 2017 | 2016 | |||||||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||||
| Net Loss | $ | (65,715 | ) | $ | (29,336 | ) | $ | (16,517 | ) | $ | (74,163 | ) | $ | (65,715 | ) | $ | (29,336 | ) | ||||||
Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||||||||||||||||||||
| Depreciation and amortization | 221 | 143 | 87 | 319 | 221 | 143 | ||||||||||||||||||
| Loss from sale and disposal of fixed assets | 134 | 16 | 15 | 44 | 134 | 16 | ||||||||||||||||||
| Changes in marketable securities and bank deposits, net | 97 | 91 | 57 | 201 | 97 | 91 | ||||||||||||||||||
Changes in accrued liability for employee severance benefits, net of retirement fund profit | 57 | 14 | 35 | (70 | ) | 57 | 14 | |||||||||||||||||
| Share-based compensation | 4,166 | 2,912 | 1,777 | 5,320 | 4,166 | 2,912 | ||||||||||||||||||
| Non-cash finance income, net | (47 | ) | (1 | ) | (8 | ) | ||||||||||||||||||
| Non-cash finance expenses (income), net | 43 | (47 | ) | (1 | ) | |||||||||||||||||||
| Changes in operating asset and liabilities: | ||||||||||||||||||||||||
| Decrease (increase) in trade and other receivable | 1,915 | (2,889 | ) | 140 | (308 | ) | 1,915 | (2,889 | ) | |||||||||||||||
| Decrease (increase) in other non-current assets | 4 | - | (1 | ) | (14 | ) | 4 | - | ||||||||||||||||
| Increase in accounts payable and accruals | 5,003 | 1,680 | 1,917 | 238 | 5,003 | 1,680 | ||||||||||||||||||
| Increase in other liabilities | 988 | |||||||||||||||||||||||
| Increase (decrease) in other liabilities | (274 | ) | 988 | - | ||||||||||||||||||||
| Net cash used in operating activities | (53,177 | ) | (27,370 | ) | (12,498 | ) | (68,664 | ) | (53,177 | ) | (27,370 | ) | ||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||
| Purchase of fixed assets | (1,518 | ) | (424 | ) | (500 | ) | (567 | ) | (1,518 | ) | (424 | ) | ||||||||||||
| Proceeds from sale of fixed assets | 33 | - | - | 10 | 33 | - | ||||||||||||||||||
| Investment in bank deposits | (17,000 | ) | (23,000 | ) | (28,000 | ) | (39,000 | ) | (17,000 | ) | (23,000 | ) | ||||||||||||
| Investment in marketable securities | (22,839 | ) | (31,700 | ) | (72,518 | ) | (38,652 | ) | (22,839 | ) | (31,700 | ) | ||||||||||||
Proceeds from sale and maturity of marketable securities and bank deposits | 79,079 | 40,106 | 22,502 | 66,454 | 79,079 | 40,106 | ||||||||||||||||||
| Net cash provided by (used in) investing activities | 37,755 | (15,018 | ) | (78,516 | ) | (11,755 | ) | 37,755 | (15,018 | ) | ||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||
| Proceeds from issuance of ordinary shares through public offerings, net of issuance costs | - | 54,132 | 64,202 | |||||||||||||||||||||
| Proceeds from issuance of ordinary shares through a public offering, net of $5.2 million issuance costs | 75,356 | - | 54,132 | |||||||||||||||||||||
| Proceeds from issuance of ordinary shares through a securities purchase agreement, net of $39 issuance costs | 16,131 | - | - | |||||||||||||||||||||
| Proceeds from exercise of warrants | - | 1,295 | 2,285 | 840 | - | 1,295 | ||||||||||||||||||
| Proceeds from exercise of options | 161 | 112 | 344 | 47 | 161 | 112 | ||||||||||||||||||
Payments in respect of BIRD loan | - | (476 | ) | - | - | - | (476 | ) | ||||||||||||||||
| Payments in respect of bank borrowings | (21 | ) | (32 | ) | (30 | ) | - | (21 | ) | (32 | ) | |||||||||||||
| Net cash provided by financing activities | 140 | 55,031 | 66,801 | 92,374 | 140 | 55,031 | ||||||||||||||||||
| INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (15,282 | ) | 12,643 | (24,213 | ) | 11,955 | (15,282 | ) | 12,643 | |||||||||||||||
| EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 48 | 2 | *- | (43 | ) | 48 | 2 | |||||||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE YEAR | 31,440 | 18,795 | 43,008 | 16,206 | 31,440 | 18,795 | ||||||||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE YEAR | $ | 16,206 | $ | 31,440 | $ | 18,795 | $ | 28,118 | $ | 16,206 | $ | 31,440 | ||||||||||||
| Cash and cash equivalents | $ | 15,956 | $ | 31,190 | $ | 18,795 | $ | 27,868 | $ | 15,956 | $ | 31,190 | ||||||||||||
| Restricted cash | 250 | 250 | - | 250 | 250 | 250 | ||||||||||||||||||
TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH SHOWN IN STATEMENT OF CASH FLOWS | $ | 16,206 | $ | 31,440 | $ | 18,795 | $ | 28,118 | $ | 16,206 | $ | 31,440 | ||||||||||||
F - 8
FOAMIX PHARMACEUTICALS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
(U.S. dollars in thousands)
| Year ended December 31 | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS: | ||||||||||||
| Cashless exercise of warrants | 8 | - | 4 | |||||||||
| Exercise of restricted share units | 3 | 4 | - | |||||||||
| Property and equipment purchases included in accounts payable and accruals | 1 | 27 | - | |||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||
| Cash paid for taxes | 478 | 163 | 16 | |||||||||
| Interest received | 1,209 | 1,015 | 921 | |||||||||
| Interest paid | *- | 239 | *- | |||||||||
| Year ended December 31 | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS: | ||||||||||||
| Cashless exercise of warrants | 1 | 8 | - | |||||||||
| Exercise of restricted share units | 10 | 3 | 4 | |||||||||
| Property and equipment purchases included in accounts payable and accruals | - | 1 | 27 | |||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||
| Cash paid for taxes | 587 | 478 | 163 | |||||||||
| Interest received | 1,173 | 1,209 | 1,015 | |||||||||
| Interest paid | - | *- | 239 | |||||||||
* Represents an amount less than $1.
The accompanying notes are an integral part of these consolidated financial statements.
F - 9
FOAMIX PHARMACEUTICALS LTD.
(U.S. dollars in thousands, except share and per share amounts)
NOTE 1 - NATURE OF OPERATIONS
Foamix Pharmaceuticals Ltd. (hereinafter “Foamix”) is an Israeli company incorporated in 2003. Foamix’s shares are publicly traded on the NASDAQ under the symbol “FOMX”, since its initial public offering (“IPO”) in September, 2014.
Foamix is alate clinical-stage specialty pharmaceutical company operating in one segment - the developmentfocused on developing and commercialization of foam-based formulations, usingcommercializing its proprietary technology, which includes its foam platforms.topical drug candidates for dermatological therapy. Foamix develops its ownlead product candidates, mainlycandidate, FMX101 (4% minocycline foam), is being developed for the treatment of moderate-to-severe acne,acne. An additional product candidate, FMX103 (1.5% minocycline foam), is being developed for the treatment of moderate-to-severe papulo-pustular rosaceapapulopustular rosacea. Both product candidates are novel topical foam formulations of the antibiotic minocycline and other skin conditions. Itwere developed using Molecule Stabilizing Technology , a proprietary foam platform designed to optimize the topical delivery of minocycline, an active pharmaceutical ingredient, or API, that is currently available only in oral form despite its prevalent use in dermatology.
Foamix also licenseslicensed its technology under development and licensing agreements to various pharmaceutical companies for development of certain products combining Foamix's foam technology with the licensee’s proprietary drugs.
In May 2014, Foamix incorporated a wholly-owned subsidiarySubsidiary in the United States of America - Foamix Pharmaceuticals Inc. ("(hereinafter the subsidiary""Subsidiary"). The subsidiarySubsidiary was incorporated to assist Foamix with regard to marketing, regulatory affairs and business development relating its products and technology.
Since incorporation through December 31 2017,, 2018, Foamix and its subsidiarySubsidiary (hereinafter “the Company”) has incurred losses and negative cash flows from operations mainly attributable to its development efforts and has an accumulated deficit of $141,281.$215,409. The Company has financed its operations mainlyprimarily through the issuance of shares through private and public financing rounds, convertible loans royalties and payments received under development and licensing agreements. The Company's cash cash equivalents, deposits and marketable securitiesinvestments as of the issuance date of these financial statements, will allow the Company to fund its operating plan through at least the next 12 months. However, the Company expects to continue to incur significant research and development and other expenses related to its ongoing operations and in order to continue its future operations, the Company will need to obtain additional funding until becoming profitable. If the Company is unable to obtain such funding it will need to curtail or cease operations.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
The Company’s financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
| Use of estimates in the preparation of financial statements |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. As applicable to these financial statements, the most significant estimates and assumptions relate to the fair value of share-based compensation and clinical trialstrial accruals.
F - 10
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
| Functional currency |
The U.S. dollar (“dollar”) is the currency of the primary economic environment in which the operations of Foamix and the subsidiarySubsidiary are conducted. Almost all Company revenues and operational expenses are in dollars and the Company’s financing has been provided in dollars. Accordingly, the functional currency of the Company is the dollar.
Transactions and balances originally denominated in dollars are presented at their original amounts. Balances in non-dollar currencies are translated into dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-dollar transactions and other items in the statements of operations (indicated below), the following exchange rates are used: (i) for transactions - exchange rates at transaction dates or average rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation and amortization, etc.) - historical exchange rates. Currency transaction gains and losses are presented in financial income or expenses, as appropriate.
| Principles of consolidation |
The consolidated financial statements include the accounts of Foamix and its subsidiary.Subsidiary. Intercompany balances and transactions including profits from intercompany sales not yet realized outside the Company, have been eliminated upon consolidation.
| Cash and cash equivalents |
The Company considers as cash equivalents all short-term, highly liquid investments, which include short-term bank deposits with original maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash.
| Bank deposits |
Bank deposits with original maturity dates of more than three months but at balance sheet date are less than one year are included in short-term deposits. Bank deposits with maturity of more than one year are considered long-term. The interest rates on the Company’s deposits range between 1.0%-1.9%1.75%-3.15%. The fair value of bank deposits approximates the carrying value since they bear interest at rates close to the prevailing market rates.
| Marketable securities |
Marketable debt and mutual funds securities are classified as available for sale in accordance with ASC 320, Investments - Debt and Equity Securities.
are recorded at fair value. Management determines the appropriate classification of its investments in securities at the time of purchase and reevaluates such determinations at each balance sheet date.purchase. Classifications of debt securities in the balance sheet are determined based on the maturity date of the securities.
Dividend and interest income, including amortization of the premium and discount arising at acquisition, as well as realized gains and losses, are included in financial income.
F - 11
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
Unrealized gains, of available for sale securities, net of taxes, are reflected in other comprehensive income (loss). Unrealized losses considered to be temporary are reflected in other comprehensive income (loss); unrealized losses that are considered to be other-than-temporary are charged to income as an impairment charge. Realized gains and losses for both debt and equity securities are included in financial income, net.
Marketable Equity Securities:
The Company’s marketable equity securities are recorded at fair market value and, beginning January 1, 2018, following the adoption of ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10). Unrealized gains and losses are included in other income (expense), net in the consolidated statements of operations. Prior to January 1, 2018, unrealized gains, net of taxes, were reflected in other comprehensive income (loss) and unrealized losses were reflected in other comprehensive income (loss).
| Derivatives |
The Company purchases foreign exchange derivative financial instruments (written and purchased currency options). The transactions are designed to hedge the Company’s currency exposure.
The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheet at their fair value. Changes in the fair value of derivatives that are highly effective and designated as cash flow hedges are reported as a component of other comprehensive income or loss and reclassified into earnings in the same line-item associated with the forecasted transaction and in the same periods during which the hedged transaction impacts earnings.
For derivatives that qualify for hedge accounting, the cash flows associated with these derivatives are reported in the consolidated statements of cash flows consistently with the classification of cash flows from the underlying hedged items that these derivatives are hedging.
F - 12
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
| Property and equipment: |
| 1) | Property and equipment are stated at cost, net of accumulated depreciation and amortization. |
| 2) | The Company’s property and equipment are depreciated by the straight-line method on the basis of their estimated useful life. Annual rates of depreciation are as follows: |
| % | ||||
Computers | 15-33 | |||
Laboratory equipment | 7-20 | |||
Office furniture and equipment | 7-15 | |||
Vehicles | 15 | |||
Leasehold improvements are amortized by the straight-line method over the expected lease term, which is shorter than the estimated useful life of the improvements.
| Impairment of long-lived assets |
The Company tests long-lived assets for impairment whenever events or circumstances present an indication of impairment. If the sum of expected future cash flows (undiscounted and without interest charges) of the assets is less than the carrying amount of such assets, an impairment loss would be recognized. The assets would be written down to their estimated fair values, calculated based on the present value of expected future cash flows (discounted cash flows), or some other fair value measure.
For the three years ended December 31, 2017,2018, the Company did not recognize an impairment loss for its long-lived assets.
| Allowance for doubtful accounts |
The Company performs ongoing credit evaluations to estimate the need for maintaining reserves for potential credit losses. An allowance for doubtful accounts is recognized on a specific basis with respect to those amounts that the Company has determined to be doubtful of collection. No allowance for doubtful accounts was recorded in the three years ended December 31, 2017.2018.
| Contingencies |
Certain conditions may exist as of the date of the financial statements, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
Management applies the guidance in ASC 450-20-25 when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is recorded as accrued expenses in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material are disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantees are disclosed.
F - 13
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 2−SIGNIFICANT ACCOUNTING POLICIES (continued):
| Share-based compensation |
The Company accounts for employees’ and directors’ share-based payment awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment transactions is recognized as an expense over the requisite service period. As offrom January 1, 2017, forfeitures are recognized as they occur.
The Company elected to recognize compensation costs for awards conditioned only on continued service that have a graded vesting schedule using the straight-line method based on the multiple-option award approach.
When options and restricted share units (hereinafter “RSUs”) are granted as consideration for services provided by consultants and other non-employees, the grant is accounted for based on the fair value of the consideration received or the fair value of the awards issued, whichever is more reliably measurable. The fair value of the awards granted is measured on a final basis at the end of the related service period and is recognized over the related service period using the straight-line method.
| Revenue recognition |
On January 1, 2018 the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). According to the standard, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligation is satisfied.
An entity only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer, after considering any price concession expected to be provided to the customer, when applicable. At contract inception, the entity assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The entity then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The Company'sadoption of the new standards did not change the Company’s revenue recognition as the majority of the Company’s revenues are derivedin 2018 were driven from development androyalties from license agreements for development of products, developed combining the Company's foam technology with a drug selected by the licensee. The Company does not have future performance obligations under the license arrangements. The revenues are recorded based on the sales that occurred during the relevant period provided by licensees.
F - 14
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 2−SIGNIFICANT ACCOUNTING POLICIES (continued):
Prior to January 1, 2018 and before the adoption of the new standard, the Company's revenues also included development services driven from the development and license agreements. Revenue recognition from those agreements were recognized as follows:
The significant deliverables in the agreements between the Company and its licensees arewere the obligation of the Company to provide development services and the grant of an exclusive license to the specific product developed.
These deliverables arewere combined into one single unit of accounting for revenue recognition purposes since:
The Company’s development and license agreements entitle the Company to:
Revenues from Development Service Payments under development and license agreements arewere recognized as the services arewere provided. When the Company receivesreceived a portion of the Development Service Payment before performance of such services, these advances arewere recorded as deferred revenues and recognized as revenues as services arewere performed.
Contingent Payments arewere recognized when the licensee’s performance or achievement event occurs.
| Research and development costs |
Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of clinical trials, clinical trial supplies, salaries, share-based compensation expenses, payroll taxes and other employee benefits, lab expenses, consumable equipment and consulting fees. All costs associated with research and developments are expensed as incurred.
| Clinical trial accruals |
Clinical trial expenses are charged to research and development expense as incurred. The Company accrueaccrues for expenses resulting from obligations under contracts with clinical research organizations (CROs). The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided. The Company’s objective is to reflect the appropriate trial expense in the consolidated financial statements by matching the appropriate expenses with the period in which services and efforts are expended. In the event advance payments are made to a CRO, the payments are recorded as other assets, which will be recognized as expenses as services are rendered.
| Income taxes: |
| 1) | Deferred taxes |
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the foreseeable future. Given the Company’s losses, the Company has provided a full valuation allowance with respect to its deferred tax assets.
F - 15
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 2−SIGNIFICANT ACCOUNTING POLICIES (continued):
| 2) | Uncertainty in income tax |
The Company follows a two-step approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained based on technical merits. If this threshold is met, the second step is to measure the tax position as the largest amount that has more than a 50% likelihood of being realized upon ultimate settlement.
| Loss per share |
Net loss per share, basic and diluted, is computed on the basis of the net loss for the year divided by the weighted average number of commonordinary shares outstanding during the year. Diluted net loss per share is based upon the weighted average number of commonordinary shares and of commonordinary shares equivalents outstanding when dilutive. CommonOrdinary share equivalents include outstanding stock options and warrants which are included under the treasury share method when dilutive.dilutive.
The following share options, RSUs and warrants were excluded from the calculation of diluted net loss per ordinary share because their effect would have been anti-dilutive for the years presented (share data):
| Year ended December 31 | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Outstanding share options and RSUs | 4,230,101 | 2,698,875 | 2,124,951 | |||||||||
| Warrants | 1,394,558 | 1,807,800 | 2,064,937 | |||||||||
| Year ended December 31 | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Outstanding share options and RSUs | 4,812,800 | 4,230,101 | 2,698,875 | |||||||||
| Warrants | - | 1,394,558 | 1,807,800 | |||||||||
| Fair value measurement |
Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows:
| Level 1: | Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. |
| Level 2: | Observable prices that are based on inputs not quoted on active markets, but corroborated by market data or active market data of similar or identical assets or liabilities. |
| Level 3: | Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. |
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.
F - 16
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
| Concentration of credit risks |
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, restricted cash, bank deposits, marketable securities and certain receivables. The Company deposits cash and cash equivalents with highly rated financial institutions and, as a matter of policy, limits the amounts of credit exposure to any single financial institution. In addition, all marketable securities carry a high rating or are government insured. The Company has not experienced any material credit losses in these accounts and does not believe it is exposed to significant credit risk on these instruments.
| Comprehensive loss |
Comprehensive loss includes, in addition to net loss, unrealized holding gains and losses on available-for-sale debt securities and derivative instruments designated as cash flow hedge (net of related taxes where applicable). For the years ended December 31, 2017 and 2016, the comprehensive loss included also available-for-sale equity securities.
Reclassification adjustments for gain or loss of available for sales securities are included in finance expenses net in the statement of operations.operations.
| Newly issued and recently adopted accounting pronouncements: |
Accounting pronouncements adopted in 2017:2018:
| 1) |
The Company intends to adoptadopted the guidance usingas of January 1, 2018, under the modified retrospective approach, with the cumulative effect of initially applying the guidance recognized at the date of initial application, with effect from January 1, 2018.
| In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10), which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. |
F - 17
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
| In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 was issued to provide clarity and reduce both 1) diversity in practice and 2) cost and complexity when applying the guidance in Topic 718 to a change in the terms or conditions of a share-based payment award. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under Topic 718. The amendments in ASU 2017-09 are |
Accounting pronouncements that are not yet effective and have not been early adopted by the Company:
| 4) | In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). The new standard requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company plans to adopt the standard as of January 1, 2019 on a modified retrospective basis and will not restate comparative periods. The Company will elect the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows the Company to carryforward the historical lease classification. The Company will make an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. The Company expects that adoption of the standard will result in recognition of approximately $1,200 of lease assets and lease liabilities as of January 1, 2019 on the Company’s Consolidated Balance Sheets. |
| In |
F - 18
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 3 - FAIR VALUE MEASUREMENTS
The Company’s assets and liabilities that are measured at fair value as of December 31, 2017,2018, and December 31, 2016,2017, are classified in the tables below in one of the three categories described in note 2s2r above:
| December 31, 2018 | ||||||||||||||||||||||||
| Level 1 | Level 2 | Total | ||||||||||||||||||||||
| Marketable securities | $ | 991 | $ | 46,229 | $ | 47,220 | ||||||||||||||||||
| Currency options designated as hedging instruments (current liability) | - | $ | (3 | ) | $ | (3 | ) | |||||||||||||||||
| December 31, 2017 | December 31, 2017 | |||||||||||||||||||||||
| Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | |||||||||||||||||||
| Marketable securities | $ | 987 | $ | 39,776 | $ | 40,763 | $ | 987 | $ | 39,776 | $ | 40,763 | ||||||||||||
| Currency options designated as hedging instruments (current asset) | - | $ | 11 | $ | 11 | - | $ | 11 | $ | 11 | ||||||||||||||
| December 31, 2016 | ||||||||||||
| Level 1 | Level 2 | Total | ||||||||||
| Marketable securities | $ | 957 | $ | 60,240 | $ | 61,197 | ||||||
| Currency options designated as hedging instruments (current asset) | - | $ | 2 | $ | 2 | |||||||
The Company’s corporate debt securities are traded in markets that are not considered to be active, but are valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Accordingly, these assets are categorized as Level 2.
Foreign exchange risk management
The Company purchases and writes non-functional currency options in order to hedge the currency exposure on the Company’s cash flow. The currency hedged items are denominated in New Israeli Shekel (NIS). The purchasing and writing of options is part of a comprehensive currency hedging strategy with respect to salary and rent expenses denominated in NIS. These transactions are at zero cost for periods of up to one year. The counterparties to the derivatives are major banks in Israel. As of December 31, 2017,2018, the total hedged amount was NIS 5.312.8 million.
The derivative asset,liability, in the amount of $11$3 as of December 31, 2017,2018, qualifies as hedge accounting.
As of December 31, 2017,2018, the Company has a lien in the amount of $290$268 on the Company’s marketable securities and a lien in the amount $250 on the Company’s checking account, in respect of bank guarantees granted in order to secure the hedging transactions.
NOTE 4 - MARKETABLE SECURITIES
Marketable securities as of December 31, 2017,2018, and December 31, 2016,2017 consist mainly of debt and mutual funds securities. TheseThe debt securities are classified as available-for-sale and are recorded at fair value. Changes in fair value, net of taxes (if applicable), are reflected in other comprehensive loss. Realized gains and losses on sales of the securities, as well as premium or discount amortization, are included in the consolidated statement of operations as finance income or expenses.
As of January 1, 2018, following the adoption of ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10), equity securities with readily determinable fair value are measured at fair value. The changes in the fair value of equity investments are recognized through net income. Adoption of the standard was applied through a cumulative one-time adjustment of $35 to the accumulated deficit.
F - 19
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 4 - MARKETABLE SECURITIES (continued):
The following table sets forth the Company’s marketable securities:
| December 31 | December 31 | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Israeli mutual funds | $ | 987 | $ | 957 | $ | 991 | $ | 987 | ||||||||
| Certificates of deposit | 17,206 | 33,350 | 2,773 | 17,206 | ||||||||||||
| Government and agency bonds | 22,570 | 26,890 | ||||||||||||||
U.S Government and agency bonds | 25,215 | 22,570 | ||||||||||||||
U.S Treasury bills | 18,241 | - | ||||||||||||||
| Total | $ | 40,763 | $ | 61,197 | $ | 47,220 | $ | 40,763 | ||||||||
At December 31, 20172018 and 2016,2017, the fair value, cost and gross unrealized holding gains and losses of the marketable securities owned by the Company were as follows:
| December 31, 2017 | ||||||||||||||||
Fair value | Cost or Amortized cost | Gross unrealized holding loss | Gross unrealized holding gains | |||||||||||||
| Israeli mutual funds | $ | 987 | $ | 952 | $ | - | $ | 35 | ||||||||
| Certificates of deposit | 17,206 | 17,243 | 38 | 1 | ||||||||||||
| Government and agency bonds | 22,570 | 22,638 | 68 | - | ||||||||||||
| Total | $ | 40,763 | $ | 40,833 | $ | 106 | $ | 36 | ||||||||
| December 31, 2018 | ||||||||||||||||
Fair value | Cost or Amortized cost | Gross unrealized holding loss | Gross unrealized holding gains | |||||||||||||
Certificates of deposit | $ | 2,773 | $ | 2,790 | $ | 17 | $ | - | ||||||||
U.S Government and agency bonds | 25,215 | 25,236 | 22 | 1 | ||||||||||||
U.S Treasury bills | 18,241 | 18,243 | 3 | 1 | ||||||||||||
Total | $ | 46,229 | $ | 46,269 | $ | 42 | $ | 2 | ||||||||
| December 31, 2016 | December 31, 2017 | |||||||||||||||||||||||||||||||
Fair value | Cost or Amortized cost | Gross unrealized holding loss | Gross unrealized holding gains | Fair value | Cost or Amortized cost | Gross unrealized holding loss | Gross unrealized holding gains | |||||||||||||||||||||||||
| Israeli mutual funds | $ | 957 | $ | 952 | $ | - | $ | 5 | $ | 987 | $ | 952 | $ | - | $ | 35 | ||||||||||||||||
| Certificates of deposit | 33,350 | 33,408 | 68 | 10 | 17,206 | 17,243 | 38 | 1 | ||||||||||||||||||||||||
| Government and agency bonds | 26,890 | 26,901 | 13 | 2 | ||||||||||||||||||||||||||||
U.S. Government and agency bonds | 22,570 | 22,638 | 68 | - | ||||||||||||||||||||||||||||
| Total | $ | 61,197 | $ | 61,261 | $ | 81 | $ | 17 | $ | 40,763 | $ | 40,833 | $ | 106 | $ | 36 | ||||||||||||||||
As of December 31, 2017,2018, the unrealized losses attributed to the Company’s marketable securities were primarily due to credit spreads and interest rate movements. The Company has considered factors regarding other than temporary impaired securities and determined that there are no securities with impairment that is other than temporary as of December 31, 2017,2018, and December 31, 2016.
As of December 31, 2017,2018, and December 31, 2016,2017, the Company’s debt securities had the following maturity dates:
| Market value | ||||||||
| December 31 | ||||||||
2018 | 2017 | |||||||
Due within one year | $ | 46,079 | $ | 31,244 | ||||
1 to 2 years | 150 | 8,380 | ||||||
2 to 3 years | - | 152 | ||||||
Total | $ | 46,229 | $ | 39,776 | ||||
| Market value | ||||||||
| December 31 | ||||||||
2017 | 2016 | |||||||
| Due within one year | $ | 31,244 | $ | 42,708 | ||||
| 1 to 2 years | 8,380 | 14,513 | ||||||
| 2 to 3 years | 152 | 3,019 | ||||||
| Total | $ | 39,776 | $ | 60,240 | ||||
$433401 and $390$433 of the Company’s marketable securities were restricted as of December 31, 2017,2018, and December 31, 2016,2017, respectively, due to a lien in respect of bank guarantees granted to secure
hedging transaction and the Company’s rent agreement. Refer to note 7 and note 3.
| December 31 | ||||||||
| 2017 | 2016 | |||||||
| Cost: | ||||||||
| Leasehold improvements | $ | 902 | $ | 229 | ||||
| Computers and software | 299 | 187 | ||||||
| Laboratory equipment | 1,257 | 896 | ||||||
| Furniture | 288 | 96 | ||||||
| Vehicles | 106 | 198 | ||||||
| 2,852 | 1,606 | |||||||
| Less: | ||||||||
| Accumulated depreciation and amortization | 810 | 668 | ||||||
| Property and Equipment, net | $ | 2,042 | $ | 938 | ||||
F - 20
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 5 - PROPERTY AND EQUIPMENT(continued):
| December 31 | ||||||||
| 2018 | 2017 | |||||||
| Cost: | ||||||||
| Leasehold improvements | $ | 978 | $ | 902 | ||||
| Computers and software | 515 | 299 | ||||||
| Laboratory equipment | 1,399 | 1,257 | ||||||
| Furniture | 245 | 288 | ||||||
| Vehicles | 82 | 106 | ||||||
| 3,219 | 2,852 | |||||||
| Less: | ||||||||
| Accumulated depreciation and amortization | 984 | 810 | ||||||
| Property and Equipment, net | $ | 2,235 | $ | 2,042 | ||||
Depreciation and amortization expense totaled $319, $221 $143 and $87$143 for the years ended December 31, 2017,2018, December 31, 2016,2017 and December 31, 2015,2016, respectively.
During the years ended December 31, 2018, December 31, 2017 and December 31, 2016, the Company disposed of fixed assets in the net amount of $42, $104 and $16, respectively. Loss from Salessales of fixed assets for the yearyears ended December 31, 2018 and December 31, 2017 was $30.$2 and $30, respectively.
NOTE 6 - EMPLOYEE SEVERANCE BENEFITS
The Company's liability for severance pay for its Israeli employees is calculated pursuant to Israeli severance pay law based on the most recent salary of the employee multiplied by the number of years of employment, as of the balance sheet date, less amounts funded in each employee’s severance fund. Such liability is recorded on the Company’s balance sheet under “Liability for employee severance benefits” as if it were payable at each balance sheet date on an undiscounted basis. The Company partially secures this liability by purchasing insurance policies or establishing dedicated severance accounts within the relevant employees’ pension funds, and making monthly deposits under such policies or into such accounts. The value of these policies is recorded as an asset in the Company's balance sheet.
During 2014, all of the Israeli employees agreed to the terms of Section 14 of the Israeli Severance Pay Law, 1963, according to which all deposits in the pension fund and/or with the insurance company, thereafter, exempt the Company from any additional obligation. These deposits are accounted as defined contribution payments and therefore not recorded on the Company’s balance sheet. Once the employees agreed to the terms of Section 14, all amounts funded on behalf of the employees were released to their full ownership. The liability for employee severance benefits as of December 31, 2017,2018, represents the Company's obligation that has not been secured by deposits to employee severance funds.
The amount of severance payment expenses to Israel employees were $374, $244$592, $569 and $193$407 for the years ended December 31, 2018, December 31, 2017 and December 31, 2016, and December 31, 2015, respectively.
Beginning September 2017, the Company has retirement savings plans available to all employees of the Subsidiary, which are intended to qualify as deferred compensation plans under Section 401(k) of the Internal Revenue Code (the “401k“401(k) Plans”). The Company made contributions to these plans401(k) Plans during the yearyears ended December 31, 2018 and December 31, 2017 of approximately $35.$84 and $35, respectively.
During 2019, the Company expects to deposit approximately $930 with respect to employee’s severance benefits
F - 21
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 7 - COMMITMENTS
Lease agreement
The Company leases office space for its headquarters and research and development facilities in Israel and the United States of America under several lease agreements. The lease agreements for the facilities in Israel are linked to the Israeli CPI and expire in December 2020. The lease agreement in the United States is due to expire during March 2019.2019; however, the company has the option to renew the lease for an additional three years.
In July 2017, the Company has entered into operating lease agreement in connection with a number of vehicles. The lease periods are generally for three years and the payments are linked to the Israeli CPI. To secure the terms of the lease agreements, the Company has made certain prepayments to the leasing company, representing approximately three months of lease payments. These amounts have been recorded as other non-current assets.
Operating lease expenses for the years ended December 31, 2018, December 31, 2017 and December 31, 2016, and December 31, 2015, are as follows:
| Year Ended December 31 | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Rental expenses | $ | 645 | $ | 358 | $ | 352 | ||||||
| Vehicles lease expenses | $ | 22 | $ | - | $ | - | ||||||
| Year Ended December 31 | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
Office lease expenses | $ | 772 | $ | 645 | $ | 358 | ||||||
Vehicles lease expenses | $ | 100 | $ | 22 | $ | - | ||||||
Future minimum lease commitments under non-cancelable operating lease agreements are as follows:
| 2018 | $ | 865 | ||||||
| 2019 | 756 | $ | 746 | |||||
| 2020 and thereafter | 701 | |||||||
2020 | 682 | |||||||
2021 and thereafter | 21 | |||||||
| Total | $ | 2,322 | $ | 1,449 | ||||
The Company has a lien in the amount of $143$133 on the Company’s marketable securities in respect of bank guarantees granted in order to secure the lease agreements.
NOTE 8 - LOANS:
| a. | Loan from the BIRD foundation |
During the second quarter of 2016, the Company repaid the loan received from the Israel United States Binational Industrial Research and Development Foundation (the "BIRD foundation") upon the completion of a certain clinical development. The loan, received in instalments between 2008 and 2011, was denominated in USU.S. dollars and linked to the USU.S. Consumer Price Index.
| b. | Bank |
During 2014, the Company entered into several finance agreements with a bank in order to finance the purchase of vehicles (hereinafter “the loans”Loans”). The loans areLoans were denominated in NIS and bear interest at a rate per annum equal to Prime minus 0.5%. The loansLoans were fully repaid during 2017.
F - 22
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 9 - SHARE CAPITAL:
| a. | Rights of the Company’s ordinary shares |
Each ordinary share is entitled to one vote. The holders of ordinary shares are also entitled to receive dividends whenever funds are legally available, when and if declared by the Board of Directors. Since its inception, the Company has not declared any dividends.
| b. | Public offerings |
On September 30, 2016, the Company completed an additionala public offering in which 5,700,000 ordinary shares were sold at a price of $9.50 per share. On October 28, 2016, the underwriters partially exercised their ‘green shoe’ option and purchased 411,959 additional ordinary shares. The net proceeds, including the underwriters' option, were approximately $54,132, after deducting underwriter’s discounts, commissions and other offering expenses.
On September 18, 2018, the Company completed a public offering in which 11,670,000 ordinary shares were sold at a price of $6.00 per share. Upon closing of the offering, the underwriters exercised their ‘green shoe’ option at full and purchased 1,750,500 additional ordinary shares. The net proceeds, including the underwriters' option, were approximately $75,356, after deducting underwriter’s discounts, commissions and other offering expenses.
| c. | Securities Purchase Agreement |
On April 13, 2018, the Company entered into a Securities Purchase Agreement with an existing investor pursuant to which the Company agreed to issue and sell, in a registered offering, an aggregate of 2,940,000 ordinary shares at a purchase price of $5.50 per share. The net proceeds from the offering were $16,131 after deducting transaction expenses. The closing of the issuance and sale of these shares took place on April 16, 2018.
| d. | Warrants |
As defined in the warrant agreement dated May and June 2014, the warrants were exercisable until May 13, 2018 (“Expiration date”).2018. On the occasion where thethis date all outstanding warrants are not exercised by the Expiration date, and the fair value of share price on such day is higher than the warrant exercise price, the warrants shall be deemedwere automatically exercised by the warrant holder on a net issuance basis.
| Share-based compensation |
In May 2015, the Company's board of directors approved a new option plan (the "Plan") replacing the previous plan approved in 2009. The Plan includesinitially included a pool of 2,690,694 ordinary shares for grant to Company employees, consultants, directors and other service providers. During the years ended December 31, 2016 and December 31, 2017, a totalthe Board of Directors approved an accumulated increase of 2,900,000 ordinary shares was approved byto the board of directors and registered with the Securities and Exchange Commission.
Plan. As of December 31, 2017, 2,076,0882018, 1,179,346 shares remain available for grant under the Plan.
The Plan is designed to enable the Company to grant options to purchase Ordinary Sharesordinary shares and RSUs under various and different tax regimes including, without limitation: (i) pursuant and subject to Section 102 of the Israeli Tax Ordinance or any provision which may amend or replace it and any regulations, rules, orders or procedures promulgated thereunder and to designate them as either grants made through a trustee or not through a trustee; and (ii) pursuant and subject to Section 3(i) of the Israeli Tax Ordinance.
F - 23
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 9 - SHARE CAPITAL (continued):
The fair value of each option granted is estimated using the Black-Scholes option pricing method. The volatility is based on a combination of the Company’s historical volatility, historical volatilities of companies in comparable stages as well as companies in the industry, by statistical analysis of daily share pricing model. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the options granted in dollar terms. The Company’s management uses the contractual term or its expectations, as applicable, of each option as its expected life. The expected term of the options granted is derived from the output of the option pricing model and represents the period of time that granted options are expected to remain outstanding.
Options and RSUs granted to employees and directors:
In the three years ended December 31, 2018, December 31, 2017 and December 31, 2016, the Company granted options to employees and non-employees as follows:
| Year ended December 31, | ||||||||||||||||
| Award amount | Exercise price range | Vesting period | Expiration | |||||||||||||
| Employees: | ||||||||||||||||
| Options | $ | 4 years | 10 years | |||||||||||||
| RSU | - | 4 years | - | |||||||||||||
| Directors: | ||||||||||||||||
| Options | $ | 1 years | 10 years | |||||||||||||
| RSU | - | 3 years | - | |||||||||||||
| Year ended December 31, 2016 | |||||||||||||
| Award amount | Exercise price range | Vesting period | Expiration | ||||||||||
| Employees: | |||||||||||||
| Options | 715,310 | $6.04- $8.54 | 4 years | 10 years | |||||||||
| RSU | 25,000 | - | 4 years | - | |||||||||
| Directors: | |||||||||||||
| Options | 24,000 | $7.09 | 3 years | 10 years | |||||||||
| Consultants: | |||||||||||||
| Options | 4,800 | $6.34 | 4 years | 10 years | |||||||||
| Year ended December 31, 2015 | Year ended December 31, 2017 | ||||||||||||||||||||||||||||
| Award amount | Exercise price range | Vesting period | Expiration | Award amount | Exercise price range | Vesting period | Expiration | ||||||||||||||||||||||
| Employees: | |||||||||||||||||||||||||||||
| Options | 852,501 | $6.77- $10.88 | 4 years | 10 years | 1,162,558 | $5.22- $10.31 | 4 years | 10 years | |||||||||||||||||||||
| RSU | 216,050 | - | 4 years | - | 350,694 | - | 4 years | - | |||||||||||||||||||||
| Directors: | |||||||||||||||||||||||||||||
| Options | 27,000 | $10.80-$11.87 | 3 years | 10 years | 189,709 | $4.69- $4.76 | 4 years | 10 years | |||||||||||||||||||||
| RSU | 19,397 | - | 4 years | - | |||||||||||||||||||||||||
| Consultants: | |||||||||||||||||||||||||||||
| Year ended December 31, 2016 | |||||||||||||||||||||||||||||
| Award amount | Exercise price range | Vesting period | Expiration | ||||||||||||||||||||||||||
| Employees: | |||||||||||||||||||||||||||||
| Options | 4,000 | $10.88 | 4 years | 10 years | 715,310 | $6.04- $8.54 | 4 years | 10 years | |||||||||||||||||||||
| RSU | 83,800 | - | 4 years | - | 25,000 | - | 4 years | - | |||||||||||||||||||||
| Directors: | |||||||||||||||||||||||||||||
| Options | 24,000 | $7.09 | 3 years | 10 years | |||||||||||||||||||||||||
The fair value of options and RSUs granted to employeesduring 2018, 2017 and directors during 2017, 2016 was $3,953, $8,510 and 2015 was $8,510, $2,816, and $6,592 respectively. The fair value of options and RSUs granted to consultants during the years ended 2016 and 2015 was $42 and $686, respectively.
The fair value of RSUs granted to employees and directors is based on the share price on grant date.date and was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:
F - 24
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 9 - SHARE CAPITAL (continued):
| Year ended December 31 | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
Value of ordinary share | $4.09-$5.99 | $4.44-$10.12 | $5.9-$8.35 | |||||||||
Dividend yield | 0 | % | 0 | % | 0 | % | ||||||
Expected volatility | 61%-62.6 | % | 58.41%-61.7 | % | 60.3%-63.2 | % | ||||||
Risk-free interest rate | 2.75%-2.87 | % | 1.97%-2.16 | % | 1.25%-1.86 | % | ||||||
Expected term | 6 years | 6 years | 6 years | |||||||||
The total unrecognized share-based compensation cost at December 31, 2018 is $8,242, which is expected to be recognized over a weighted average period of two years.
Options and RSUs granted to consultants and service providers:
During the years ended December 31, 2018 and 2017 there were no grants of options and RSUs to consultants and service providers.
In the year ended December 31, 2016, the Company granted options as follows:
| Year ended December 31, 2016 | ||||||||||||||||
| Award amount | Exercise price range | Vesting period | Expiration | |||||||||||||
Options | 4,800 | $ | 6.34 | 4 years | 10 years | |||||||||||
The fair value of options and RSUs granted to consultants during the year ended December 31, 2016 was $42.
The fair value of options granted to employees and directors on the date of grantduring 2016, was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:
| Year ended December 31 | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Value of ordinary share | $4.44-$10.12 | $5.9-$8.35 | $6.96-$11.3 | |||||||||
| Dividend yield | 0 | % | 0 | % | 0 | % | ||||||
| Expected volatility | 58.41%-61.7 | % | 60.3%-63.2 | % | 60.1%-64.9 | % | ||||||
| Risk-free interest rate | 1.97%-2.16 | % | 1.25%-1.86 | % | 1.38%-1.98 | % | ||||||
| Expected term | 6 years | 6 years | 6 years | |||||||||
| December 31 | ||||||||
| 2016 | 2015 | |||||||
| Value of ordinary share | $11.1 | $8.11 | ||||||
| Dividend yield | 0 | % | 0 | % | ||||
| Expected volatility | 64.8 | % | 69.4 | % | ||||
| Risk-free interest rate | 2.38 | % | 2.27 | % | ||||
| Expected term | 9 years | 10 years | ||||||
| December 31 | ||||
| 2016 | ||||
Value of ordinary share | $11.1 | |||
Dividend yield | 0 | % | ||
Expected volatility | 64.8 | % | ||
Risk-free interest rate | 2.38 | % | ||
Expected term | 9 years | |||
In June, 2017, the Company entered into new agreements with Dr. Dov Tamarkin and Mr. Meir Eini to serve as consultants, pursuant tofollowing their resignation from their roles as Chief Executive Officer and Chief Innovation Officer of the Company (see also Note 13), pursuant to which all options and RSUs previously awarded to Dr. Dov Tamarkin and Mr. Meir Eini willwere to remain outstanding and continue to vest as though they remained employed by the Company through each applicable vesting date.
In addition to the new agreements with Dr. Dov Tamarkin and Mr. Meir Eini,above, during 2017, the Company entered into a similar agreement with another employee who has become a consultant to the Company. Pursuant to the agreement all options and RSUs previously awarded to the employee willwere to remain outstanding and continue to vest as though he remained employed by the Company through each applicable vesting date, as long as he remainsremained a consultant to the Company. On May 31, 2018 the consultant’s agreement was terminated and all unvested awards were forfeited.
F - 25
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 9 - SHARE CAPITAL (continued):
The retention of the options and RSUs was considered a Type III modification for share-based compensation, and, as a result, during the year ended December 31, 2017, the Company reversed all expense previously recorded for these retained awards in the amount of $2,037 and recorded the newadditional compensation expense in the amount of $1,058 over the new requisite service period.
On January 1, 2018, the Company and Dr. Tamarkin agreed to terminate the consulting agreement signed in June 2017. Pursuant to the termination, the Board of Directors resolved that all options and RSUs previously granted to Dr. Tamarkin shall continue to vest and may be exercised until their expiration date.
The retention of the options and RSUs was considered an additional Type III modification. As a result, on January 1, 2018, the Company remeasured the fair value of all outstanding options and RSUs granted to Dr. Tamarkin and recognized the fair value of the unvested options and RSUs as an immediate expense. The compensation expenses recorded on January 1, 2018, were $239.
Following changes in circumstances, including Mr. Eini’s resignation from his position as an observer to the Board of Directors, the Company reassessed the services provided by Mr. Eini and concluded they are not substantive in comparison to the value of the equity awards he received. Therefore, in January 2018, all expenses related to the awards previously granted to Mr. Eini were measured and the unrecognized amount of the fair value was fully recognized. The compensation expenses recorded in January 2018, were $494.
On November 19, 2018, the Company entered into a retirement agreement with one of its Directors pursuant to which all options previously awarded will remain outstanding and continue to vest throughout the vesting period subject to shareholders approval.
The retention of the options was considered a Type III modification. As a result, on November 19, 2018 the Company reversed all expense previously recorded for the unvested retained awards in the amount of $90 and recorded the new compensation expense in the amount of $47 as an immediate expense.
Summary of outstanding and exercisable options and RSUs:
The following table summarizes the number of options outstanding for the years ended December 31, 2017,2018, December 31, 20162017 and December 31, 2015,2016, and related information:
| Employees and directors | Consultants and service providers | Employees and directors | Consultants and service providers | |||||||||||||||||||||||||||||
| Number of options | USD(1) | Number of options | USD(1) | Number of options | USD(1) | Number of options | USD(1) | |||||||||||||||||||||||||
| Outstanding at January 1, 2015 | 904,250 | $ | 3.28 | 266,875 | $ | 2.10 | ||||||||||||||||||||||||||
| Granted | 879,501 | 7.72 | 4,000 | 10.88 | ||||||||||||||||||||||||||||
| Exercised | (29,525 | ) | 1.92 | (150,000 | ) | 1.92 | ||||||||||||||||||||||||||
Re-designated(2) | (27,000 | ) | 5.88 | 27,000 | 5.88 | |||||||||||||||||||||||||||
| Outstanding at December 31, 2015 | 1,727,226 | $ | 5.41 | 147,875 | $ | 3.24 | ||||||||||||||||||||||||||
| Outstanding at January 1, 2016 | 1,727,226 | $ | 5.41 | 147,875 | $ | 3.24 | ||||||||||||||||||||||||||
| Granted | 739,310 | 6.55 | 4,800 | 6.34 | 739,310 | 6.55 | 4,800 | 6.34 | ||||||||||||||||||||||||
| Forfeited | (20,000 | ) | 6.66 | (15,625 | ) | 7.98 | (20,000 | ) | 6.66 | (15,625 | ) | 7.98 | ||||||||||||||||||||
| Exercised | (69,444 | ) | 1.64 | - | - | (69,444 | ) | 1.64 | - | - | ||||||||||||||||||||||
| Outstanding at December 31, 2016 | 2,377,092 | $ | 5.87 | 137,050 | $ | 2.81 | 2,377,092 | $ | 5.87 | 137,050 | $ | 2.81 | ||||||||||||||||||||
| Granted | 1,352,267 | 7.47 | - | - | 1,352,267 | 7.47 | - | - | ||||||||||||||||||||||||
| Forfeited | (39,213 | ) | 7.93 | (8,800 | ) | 8.40 | (39,213 | ) | 7.93 | (8,800 | ) | 8.40 | ||||||||||||||||||||
| Exercised | (61,881 | ) | 2.63 | - | - | (61,881 | ) | 2.63 | - | - | ||||||||||||||||||||||
Re-designated(3) | (252,210 | ) | 7.71 | 252,210 | 7.71 | |||||||||||||||||||||||||||
Re-designated(2) | (252,210 | ) | 7.71 | 252,210 | 7.71 | |||||||||||||||||||||||||||
| Outstanding at December 31, 2017 | 3,376,055 | $ | 6.41 | 380,460 | $ | 5.93 | 3,376,055 | $ | 6.41 | 380,460 | $ | 5.93 | ||||||||||||||||||||
| Granted | 895,903 | 5.61 | - | - | ||||||||||||||||||||||||||||
| Forfeited | (150,240 | ) | 7.98 | (41,697 | ) | 8.12 | ||||||||||||||||||||||||||
| Exercised | (24,625 | ) | 1.92 | (67,500 | ) | 0.05 | ||||||||||||||||||||||||||
| Outstanding at December 31, 2018 | 4,097,093 | $ | 6.20 | 271,263 | $ | 7.05 | ||||||||||||||||||||||||||
| (1) | Weighted average price per share |
| (2) | Pursuant to change in status of |
F - 26
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 9 - SHARE CAPITAL (continued):
The following table summarizes the number of RSUs outstanding for the years ended December 31, 2018, December 31, 2017 and December 31, 2016:2016:
| Employees and directors | Consultants and service providers | |||||||
| Number of RSUs | ||||||||
| Outstanding at January 1, 2016 | 186,800 | 63,050 | ||||||
| Awarded | 25,000 | - | ||||||
| Vested | (69,117 | ) | (21,000 | ) | ||||
| Outstanding at December 31, 2016 | 142,683 | 42,050 | ||||||
| Awarded | 370,091 | - | ||||||
| Forfeited | (4,025 | ) | (550 | ) | ||||
| Vested | (43,038 | ) | (33,625 | ) | ||||
Re-designated(1) | (78,120 | ) | 78,120 | |||||
| Outstanding at December 31, 2017 | 387,591 | 85,995 | ||||||
| Employees and directors | Consultants and service providers | |||||||
| Number of RSUs | ||||||||
| Outstanding at January 1, 2016 | 186,800 | 63,050 | ||||||
| Awarded | 25,000 | - | ||||||
| Vested | (69,117 | ) | (21,000 | ) | ||||
Outstanding at December 31, 2016 | 142,683 | 42,050 | ||||||
| Awarded | 370,091 | - | ||||||
| Forfeited | (4,025 | ) | (550 | ) | ||||
| Vested | (43,038 | ) | (33,625 | ) | ||||
Re-designated(1) | (78,120 | ) | 78,120 | |||||
| Outstanding at December 31, 2017 | 387,591 | 85,995 | ||||||
| Awarded | 216,673 | - | ||||||
| Forfeited | (11,746 | ) | (12,150 | ) | ||||
| Vested | (161,648 | ) | (60,271 | ) | ||||
| Outstanding at December 31, 2018 | 430,870 | 13,574 | ||||||
| (1) | Pursuant to change in status of grantees from ‘employee’ and |
The following tables summarizes information concerning outstanding and exercisable options as of December 31, 2017:2018:
December 31, 2017 | |||||||||||||||||||||||||||||||||
| December 31, 2018 | December 31, 2018 | ||||||||||||||||||||||||||||||||
| Options outstanding | Options outstanding | Options exercisable | Options outstanding | Options exercisable | |||||||||||||||||||||||||||||
| Number of | Weighted | Number of | Weighted | Number of | Weighted | Number of | Weighted | ||||||||||||||||||||||||||
| options | average | options | Average | options | average | options | Average | ||||||||||||||||||||||||||
| Exercise | outstanding | remaining | exercisable | Remaining | outstanding | remaining | exercisable | Remaining | |||||||||||||||||||||||||
| prices per | at end of | contractual | at end of | contractual | at end of | contractual | at end of | contractual | |||||||||||||||||||||||||
| share (USD) | year | life | year | Life | year | Life | year | Life | |||||||||||||||||||||||||
| 0.048-1.312 | 268,125 | 1.90 | 268,125 | 1.90 | |||||||||||||||||||||||||||||
| 0.062-1.312 | 200,625 | 0.90 | 200,625 | 0.90 | |||||||||||||||||||||||||||||
| 1.92 | 258,587 | 4.08 | 252,650 | 4.03 | 227,400 | 2.97 | 227,400 | 2.97 | |||||||||||||||||||||||||
| 4.687-4.761 | 189,709 | 9.53 | - | - | |||||||||||||||||||||||||||||
| 5.216-5.879 | 810,175 | 8.75 | 253,600 | 6.98 | |||||||||||||||||||||||||||||
| 4.056-4.760 | 339,709 | 9.15 | 59,284 | 8.53 | |||||||||||||||||||||||||||||
| 5.022-5.879 | 1,067,235 | 8.13 | 521,344 | 7.41 | |||||||||||||||||||||||||||||
| 6.04-6.77 | 766,010 | 8.02 | 364,154 | 7.83 | 1,183,803 | 7.86 | 522,254 | 6.88 | |||||||||||||||||||||||||
| 7.093-8.545 | 757,126 | 7.82 | 365,032 | 7.66 | |||||||||||||||||||||||||||||
| 7.09-8.544 | 719,514 | 6.82 | 529,042 | 6.72 | |||||||||||||||||||||||||||||
| 10.217-11.868 | 706,783 | 8.85 | 80,719 | 7.59 | 630,070 | 7.86 | 325,770 | 7.68 | |||||||||||||||||||||||||
| 3,756,515 | 1,584,280 | 4,368,356 | 2,385,719 | ||||||||||||||||||||||||||||||
The aggregate intrinsic value of the total of both the outstanding and exercisable options as of December 31, 2017,2018, is $3,083 and $2,555 respectively.$964.
Share-based compensation expenses:
The following table illustrates the effect of share-based compensation on the statements of operations:
| Year ended December 31 | Year ended December 31 | |||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2018 | 2017 | 2016 | |||||||||||||||||||
| Cost of revenues | $ | 2 | $ | 3 | $ | 2 | $ | - | $ | 2 | $ | 3 | ||||||||||||
| Research and development expenses | 1,711 | 1,135 | 588 | 2,054 | 1,711 | 1,135 | ||||||||||||||||||
| Selling, general and administrative | 2,453 | 1,774 | 1,187 | 3,266 | 2,453 | 1,774 | ||||||||||||||||||
| $ | 4,166 | $ | 2,912 | $ | 1,777 | $ | 5,320 | $ | 4,166 | $ | 2,912 | |||||||||||||
F - 27
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 10 - INCOME TAX:
The Company is taxed under Israel and the United States of America tax laws:
| a. | Tax rates: |
| 1) | Income from Israel was taxed at the corporate tax rate of |
| 2) |
| b. | Tax assessments |
Foamix has tax assessments that are considered to be final through tax year 2012.2013.
| c. | Tax benefits under the Law for Encouragement of Industry (Taxation), 1969 |
Foamix believes that it currently qualifies as an "Industrial Company" under the above law. As such it is entitled to certain tax benefits, mainly the right to deduct share issuance costs over three years for tax purposes in the event of a public offering.
Foamix utilizes this tax benefit.
| d. | Losses for tax purposes carried forward to future years |
As of December 31, 2017,2018, Foamix had approximately $88.6$146.7 million of net carry forward tax losses in Israel, which are available to reduce future taxable income with no limited period of use. During 2018 the subsidiary incurred $0.4 million of net carry forward tax losses in the United States to reduce future taxable income with no limited period of use.
| e. | Subsidiary tax liability |
During 2018, 2017 2016 and 2015,2016, the US subsidiarySubsidiary incurred a tax expense in the amount of $212, $1,164 $387 and $39,$387, respectively.
| f. | Deferred income taxes: |
| December 31, | December 31, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| In respect of: | ||||||||||||||||
| Net operating loss carry forward | $ | 20,385 | $ | 11,512 | $ | 33,859 | $ | 20,385 | ||||||||
| Research and development | 9,856 | 4,147 | 12,932 | 9,856 | ||||||||||||
Share based compensation | 957 | 433 | ||||||||||||||
| Other | 608 | 332 | 164 | 175 | ||||||||||||
| Less - valuation allowance | (30,849 | ) | (15,991 | ) | (47,912 | ) | (30,849 | ) | ||||||||
| Net deferred tax assets | $ | - | $ | - | $ | - | $ | - | ||||||||
F - 28
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 10 - INCOME TAX (continued):
Realization of deferred tax assets is contingent upon sufficient future taxable income during the period that deductible temporary differences and carry forward losses are expected to be available to reduce taxable income. As the achievement of required future taxable income is not likely, the Company recorded a full valuation allowance.
Deferred tax has not been provided on taxes that would apply in the event of disposal of the investments in the subsidiary,Subsidiary, as it is the Company’s intention to hold this investment and not to realize it.
Foamix may incur an additional tax liability in the event of an inter-company dividend distribution from its subsidiary;Subsidiary; no additional deferred taxes have been provided, since it is the Company’s policy not to distribute in the foreseeable future, dividends which would result in additional tax liability.
Following is a reconciliation of the theoretical tax benefit, assuming all income is taxed at the statutory corporate tax rate applicable to Israeli corporations, and the actual tax expense:
| Year ended December 31 | Year ended December 31 | |||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2018 | 2017 | 2016 | |||||||||||||||||||
| Loss before income taxes | $ | 64,551 | $ | 28,949 | $ | 16,478 | $ | 73,951 | $ | 64,551 | $ | 28,949 | ||||||||||||
| Theoretical tax benefit on the above amount | (15,492 | ) | (7,237 | ) | (4,367 | ) | (17,009 | ) | (15,492 | ) | (7,237 | ) | ||||||||||||
| Decrease (increase) in tax refund resulting from: | ||||||||||||||||||||||||
| Reduction and different corporate tax rates | 711 | 1,965 | - | (101 | ) | 711 | 1,965 | |||||||||||||||||
| Non-deductible expenses and other permanent differences, mainly share based compensation expenses and issuance costs | 80 | (491 | ) | (585 | ) | (84 | ) | 80 | (491 | ) | ||||||||||||||
| Uncertain tax position | 988 | - | - | (98 | ) | 988 | - | |||||||||||||||||
| Net change in valuation allowance | 14,858 | 5,777 | 3,973 | 17,063 | 14,858 | 5,777 | ||||||||||||||||||
| Other | 19 | 373 | 1,018 | 441 | 19 | 373 | ||||||||||||||||||
| Actual tax expense | $ | 1,164 | $ | 387 | $ | 39 | $ | 212 | $ | 1,164 | $ | 387 | ||||||||||||
| g. |
ASC No. 740, Income Taxes, requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect the operating results of the Company.
The following table summarizes the activity of the Company unrecognized tax benefits:
Balance at January 1, 2017 | $ | - | ||
Increase in uncertain tax positions for the current year | 988 | |||
Balance at December 31, 2017 | $ | 988 | ||
Decrease in uncertain tax positions for the current year | (98 | ) | ||
Balance at December 31, 2018 | $ | 890 |
F - 29
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 10 - INCOME TAX (continued):
Year ended December 31, | ||||
| 2017 | ||||
| Balance at January 1, 2017 | $ | - | ||
| Increase in uncertain tax positions for the current year | 988 | |||
| Balance at December 31, 2017 | $ | 988 | ||
| h. | Roll forward of valuation allowance: |
| Balance at January 1, 2015 | $ | 6,241 | ||||||
| Additions | 3,973 | |||||||
| Balance at December 31, 2015 | $ | 10,214 | ||||||
Balance at January 1, 2016 | $ | 10,214 | ||||||
| Additions | 5,777 | 5,777 | ||||||
| Balance at December 31, 2016 | $ | 15,991 | $ | 15,991 | ||||
| Additions | 14,858 | 14,858 | ||||||
| Balance at December 31, 2017 | $ | 30,849 | $ | 30,849 | ||||
Additions | 17,063 | |||||||
Balance at December 31, 2018 | $ | 47,912 | ||||||
NOTE 11 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
Balance sheets:
| December 31 | ||||||||
| 2017 | 2016 | |||||||
| December 31 | ||||||||
| 2018 | 2017 | |||||||
| a. Account receivable - other: | ||||||||
| Institutions | $ | 446 | $ | 91 | ||||
| Prepaid expenses | 450 | 588 | ||||||
| Other | 103 | 93 | ||||||
| $ | 999 | $ | 772 | |||||
| Institutions | $ | 91 | $ | 174 | ||||
| Prepaid expenses | 588 | 246 | ||||||
| Other | 93 | 18 | ||||||
| $ | 772 | $ | 438 |
| b. Accounts payable and accruals - other: | ||||||||
| Accrued expenses | $ | 351 | $ | 1,622 | ||||
| Payroll and related institutions | 1,166 | 872 | ||||||
| Bonus accrual | 2,332 | 1,166 | ||||||
| Other | 292 | 70 | ||||||
| $ | 4,141 | $ | 3,730 | |||||
| Accrued expenses | $ | 1,622 | $ | 709 | ||||
| Payroll and related institutions | 872 | 581 | ||||||
| Bonus accrual | 1,166 | 1,661 | ||||||
| Other | 70 | 33 | ||||||
| $ | 3,730 | $ | 2,984 |
Statements of operations:
| c. | Revenues |
In the yearyears ended December 31, 2017 and 2016, the Company’s revenues were driven virtually all from one main customer. Based on the agreement with this customer, the Company is entitled to royalty payments with respect to sales of a product developed by the customer in collaboration with the Company.Company (“the Product”).
During 2018, a new customer acquired the Product and assumed all rights and responsibilities under the initial agreement. In the year ended December 31, 2018, virtually all revenues were driven from these two customers.
The following table provides a breakdown of the Company’s net revenues:
| Year ended December 31 | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
Development Service Payments | $ | 62 | $ | 140 | $ | 63 | ||||||
Contingent Payments | - | - | 2,500 | |||||||||
Royalties | 3,533 | 3,529 | 2,964 | |||||||||
Total revenues | $ | 3,595 | $ | 3,669 | $ | 5,527 | ||||||
F - 30
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 11 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
| Year ended December 31 | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Development Service Payments | $ | 140 | $ | 63 | $ | 596 | ||||||
| Contingent Payments | - | 2,500 | - | |||||||||
| Royalties | 3,529 | 2,964 | 253 | |||||||||
| Total revenues | $ | 3,669 | $ | 5,527 | $ | 849 | ||||||
| d. | Finance income, |
| Year ended December 31 | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Finance expenses: | ||||||||||||
| Finance expenses on BIRD loan | - | 243 | * | |||||||||
| Foreign exchange losses, net | 57 | - | - | |||||||||
| Other expenses | 14 | 17 | 23 | |||||||||
| Total finance expenses | 71 | 260 | 23 | |||||||||
| Finance income: | ||||||||||||
| Gains from securities, net | (602 | ) | (401 | ) | (180 | ) | ||||||
| Interest on bank deposits | (532 | ) | (536 | ) | (289 | ) | ||||||
| Foreign exchange gains, net | - | (24 | ) | (6 | ) | |||||||
| Total finance income | (1,134 | ) | (961 | ) | (475 | ) | ||||||
| $ | (1,063 | ) | $ | (701 | ) | $ | (452 | ) | ||||
| Year ended December 31 | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
Finance expenses: | ||||||||||||
| Finance expenses on BIRD loan | $ | - | $ | - | $ | 243 | ||||||
| Foreign exchange losses, net | 27 | 57 | - | |||||||||
| Other expenses | 17 | 14 | 17 | |||||||||
Total finance expenses | 44 | 71 | 260 | |||||||||
Finance income: | ||||||||||||
| Gains from securities, net | (688 | ) | (602 | ) | (401 | ) | ||||||
| Interest on bank deposits | (297 | ) | (532 | ) | (536 | ) | ||||||
| Foreign exchange gains, net | - | - | (24 | ) | ||||||||
Total finance income | (985 | ) | (1,134 | ) | (961 | ) | ||||||
| $ | (941 | ) | $ | (1,063 | ) | $ | (701 | ) | ||||
NOTE 12 - ENTITY-WIDE DISCLOSURE:
| a. | Net revenues by geographic area were as follows: |
| Year ended December 31 | Year ended December 31 | |||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2018 | 2017 | 2016 | |||||||||||||||||||
| Germany | $ | 3,529 | $ | 5,464 | $ | 253 | $ | 2,467 | $ | 3,529 | $ | 5,464 | ||||||||||||
| United States | 140 | 14 | 587 | 62 | 140 | 14 | ||||||||||||||||||
| France | - | 49 | 9 | - | - | 49 | ||||||||||||||||||
Denmark | 1,066 | - | - | |||||||||||||||||||||
| Total revenues | $ | 3,669 | $ | 5,527 | $ | 849 | $ | 3,595 | $ | 3,669 | $ | 5,527 | ||||||||||||
| b. | Revenues from principal customers - revenues from single customers that exceed 10% of total revenues in the relevant year: |
| Year ended December 31 | Year ended December 31 | |||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2018 | 2017 | 2016 | |||||||||||||||||||
| Customer A | $ | - | $ | - | $ | 86 | $ | 2,467 | $ | 3,529 | $ | 5,464 | ||||||||||||
| Customer B | $ | - | $ | 14 | $ | 366 | $ | 1,066 | $ | - | $ | - | ||||||||||||
| Customer C | $ | 3,529 | $ | 5,464 | $ | 253 | ||||||||||||||||||
| Customer D | $ | - | $ | - | $ | 135 | ||||||||||||||||||
F - 31
FOAMIX PHARMACEUTICALS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share amounts)
NOTE 13 - RELATED PARTY TRANSACTIONS
In June 2017, the Company entered into new agreements with Dr. Dov Tamarkin and Mr. Meir Eini pursuant to their resignation from their roles as Chief Executive Officer and Chief Innovation Officer of the Company, respectively, effective as of June 29, 2017. As part of the agreements, as of July 1, 2017, Dr. Tamarkin and Mr. Eini began to serve as consultants to the Company. In addition, Dr. Tamarkin and Mr. Eini will retainretained all outstanding stock options and RSUs as long as they serve as consultants of the Company and arewere entitled to cash severance payments in the total amount of $1,800, out of which approximately $600 was paid as of December 31, 2017.
$1,800. In January 2018, subsequent to balance sheet date, Dr. Tamarkin has reached an agreement with the Company pursuant to which he will discontinuediscontinued his services as Chief Scientific Advisor to the Company in addition toand resigned from his resignation fromposition as a Director on the board of directors.directors of the Company. However, the board agreed that all of options and RSUs previously granted to Dr. Tamarkin will continue to vest and may be exercised until their expiration date (see note 9e). In addition, in May 2018, the shareholders approved an addition, special, one-time cash payment of $193. This cash payment was a conversion of 137,428 options and 45,750 restricted share units included, but not granted, in Dr. Tamarkin’s initial retirement agreement.
In November 2018, the Company entered into a retirement agreement with one of its directors. Pursuant to the agreement and subject to shareholders approval, the director shall receive one-time compensation of $50 and will retain all of his equity awards (see note 9e).
F - 32
Supplemental Financial Information
Unaudited selected quarterly financial results for the years ended December 31, 20172018 and 20162017 were as follows:
| 2017 | 2016 | |||||||||||||||||||||||||||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||||||||||
(in thousands of U.S. dollars, other than loss per share) | ||||||||||||||||||||||||||||||||
| Revenues | $ | 927 | $ | 798 | $ | 901 | $ | 1,043 | $ | 745 | $ | 752 | $ | 2,544 | $ | 1,486 | ||||||||||||||||
| Cost of revenues | - | - | 11 | 2 | 31 | 12 | 8 | 8 | ||||||||||||||||||||||||
| Gross profit | 927 | 798 | 890 | 1,041 | 714 | 740 | 2,536 | 1,478 | ||||||||||||||||||||||||
| Operating loss | 14,570 | 16,593 | 17,828 | 16,623 | 4,562 | 8,122 | 5,946 | 11,020 | ||||||||||||||||||||||||
| Loss per share basic and diluted | $ | 0.39 | $ | 0.44 | $ | 0.47 | $ | 0.46 | $ | 0.15 | $ | 0.27 | $ | 0.19 | $ | 0.29 | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||||||||||
| Revenues | $ | 906 | $ | 964 | $ | 865 | $ | 860 | $ | 927 | $ | 798 | $ | 901 | $ | 1,043 | ||||||||||||||||
| Cost of revenues | - | - | - | - | - | - | 11 | 2 | ||||||||||||||||||||||||
| Gross profit | 906 | 964 | 865 | 860 | 927 | 798 | 890 | 1,041 | ||||||||||||||||||||||||
| Operating loss | 25,720 | 18,787 | 15,586 | 14,799 | 14,570 | 16,593 | 17,828 | 16,623 | ||||||||||||||||||||||||
| Loss per share basic and diluted | $ | 0.69 | $ | 0.46 | $ | 0.38 | $ | 0.26 | $ | 0.39 | $ | 0.44 | $ | 0.47 | $ | 0.46 | ||||||||||||||||
None.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(b)13a-15(e) and 15d-15(e) under the Exchange Act and regulations promulgated thereunder) as of December 31, 2017, or the Evaluation Date.2018. Based on such evaluation, those officers have concluded that, as of the Evaluation Date,December 31, 2018, our disclosure controls and procedures arewere effective in recording, processing, summarizing and reporting, on a timely basis, information required to be included in periodic filings underat the Exchange Act and that such information is accumulated and communicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.reasonable assurance level.
Changes in Internal Control Overover Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the yearfourth quarter ended December 31, 20172018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the company’scompany’s executive and financial officers and effected by the company’scompany’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes and includes those policies and procedures that (a) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
68
Our management assessed the effectiveness of our internal control over financial reporting, as of December 31, 2017.2018. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on our assessment, management believesconcluded that, as of December 31, 2017,2018, our internal control over financial reporting iswas effective based on these criteria.
As an emerging growth company, our auditors were not required to attest to, or report on, our management’s assessment of the effectiveness of our internal control over financial reporting, and therefore such attestation is not included in this an annual report on Form 10-K, in accordance with section 103 of the JOBS Act which amended section 404(b) of the Sarbanes-Oxley Act with regard to emerging growth companies.
On February 28, 2019, Dr. Dalia Meggido notified the board of directors of her intention to resign from the board of directors and from all committees thereof, effective as of immediately after the Company’s 2019 Annual General Meeting of Shareholders, which is currently expected to take place in April 2019. Dr. Meggido’s decision to resign was not due to any disagreement with the Company on any matter relating to the operations, policies (including accounting or financial policies) or practices of the Company. The Company expresses its appreciation for Dr. Meggido’s service as a member of the Board of Directors.
The following table sets forth information relating to our executive officers and directors as of December 31, 2017.2018. Unless otherwise stated, the address for our directors and executive officers is c/o Foamix Pharmaceuticals Ltd., 2 Holzman St., Weizmann Science Park, Rehovot 7670402, Israel.
| Name | Age | Position | ||
| Executive Officers | ||||
| David Domzalski | Chief Executive Officer and Director | |||
| Ilan Hadar, M.B.A. | Chief Financial Officer, Country Manager (Israel) | |||
| Mutya Harsch | 44 | General Counsel and Chief Legal Officer | ||
| Iain A. Stuart, Ph.D. | ||||
| Non-Executive Directors | ||||
| Stanley Hirsch, D.Phil. | Director, Chairman of the Board of Directors, Chairman of Nominating Committee | |||
| Sharon Barbari | 64 | Director | ||
| Rex Bright | Director, Chairman of the Compensation Committee | |||
| Director | ||||
| Director | ||||
Dalia Megiddo, M.D., M.B.A. | Director | |||
| Aharon Schwartz, Ph.D. | Director | |||
| Director, | ||||
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Our Executive Officers
David Domzalski has served as our Chief Executive Officer since July 2017. Mr. Domzalski has been with Foamixus since April 2014, and previously served as the Presidentpresident of our U.S. subsidiary, Foamix Pharmaceuticals Inc. (U.S. subsidiary).Previously, Mr. Domzalski was the Vice President of Sales and Marketing at LEO Pharm Inc. from 2009 to 2013. On January 1, 2018, Mr. Domzalski was also appointed as a director tomember of our board replacing Dr. Dov Tamarkin. He has 25 years of industry experience, previously holding positions as Vice President Sales and Marketing at LEO Pharma Inc. from 2009 to 2013, Senior Vice President and General Manager at Azur Pharma from 2008 to 2009, and Vice President Sales and Marketing at Warner Chilcott from 2003 to 2008.directors. Mr. Domzalski holds a B.A. in economics and political science from Muhlenberg College, Allentown, Pennsylvania.
Ilan Hadar has served as our Chief Financial Officer since February 2014 and as thewas also appointed our Israel Country Manager, apposition he has held since July 2017. Mr. Hadar has over 20 years of experience in executive financial positions, previously holding positions as Finance Director of the Israeli subsidiary of Pfizer from 2011 to 2013, as Finance Manager, Accounting and Reporting at the Israeli subsidiary of HP from 2007 to 2011, and prior to that as Finance Director of the Israeli subsidiary of BAE Systems. Mr. Hadar holds a B.A. in business administration and economics and an MBAM.B.A. from The Hebrew University of Jerusalem.
Mutya Harsch has served as our General Counsel and Chief Legal Officer since January 2019. She initially joined us in January 2018, and previously served as our General Counsel and Senior Vice President of Legal Affairs from January 2018 to January 2019. Ms. Harsch has over 19 years of legal experience, previously holding positions as Special Counsel, Mergers & Acquisitions at Cooley LLP from 2015 to 2017 and as a corporate lawyer at Davis Polk & Wardwell from 2005 to 2015. Ms. Harsch received her J.D. and B.A. from the University of California at Berkeley.
Iain Stuart, Ph.D. has served as our Chief Research & Development Officer since January 2019, and previously served as our Senior Vice President of Research & Development sincefrom August 2017 to January 2019 and previously served as our Vice President of Clinical Development sincefrom October 2016. Dr. Stuart has over 18 years of clinical development scientific affairs experience in multiple therapeutic classes with the last 8 years being focused exclusively in dermatology.2016 to 2017. Prior to joining Foamix,us, Dr. Stuart served asheld several positions including Vice President of Medical Strategy and Scientific Affairs at LEO Pharma. PriorPharma, Inc. from 2008 to this, Dr. Stuart served as Director, Clinical Operations – The Americas, also at LEO Pharma.2016. Dr. Stuart holds a Ph.D. from Glasgow Caledonian University in Scotland.
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Our Directors
Stanley Hirsch, D.Phil. has served as our director since February 2005 and as chairman of the board since May 2016. Dr. Hirsch has over 30 years of experience in executive positions, including director of business development for a privately held group of healthcare companies. He has also served as general manager of two diagnostics development companies. Dr. Hirsch has been CEO atserved as Chief Executive Officer of FuturaGene Ltd., and its predecessor company CBD Technologies Ltd., since 1989,1995, and has also held the position of General Manager of Portman Pharmaceutical Industries. Since the acquisition of FuturaGene Plc by Suzano Pulp and Paper, a major Brazilian industrial public corporation in July 2010, he also holds thehas held a position equivalent position ofto a vice president at Suzano, reporting to the CEO at Suzano. Dr. Hirsch currently serves as a directorchairman of the board of directors of OWC Pharmaceutical Research Crop (OTC: OWCP)Corp, a position he has held since July 2017. Dr. Hirsch holds a D. PhilPhil. in Cell Biology and Immunology from Oxford University, England.
Rex Bright has served as our director since our initial public offering that was completed in September 2014. Mr. Bright hasis currently retired, but previously held CEOchief executive officer positions in the health care industry for the past 21over 20 years. Mr. Bright was the co-founder and CEOChief Executive Officer of SkinMedica, a specialty pharmaceutical business that was later acquired by Allergan.Allergan in 2012. Mr. Bright has worked inalso held executive positions for Johnson & Johnson and GlaxoSmithKline. Mr. Bright haspreviously served as a director of RestorGenex Corporation until 2016 when the company was acquired. Mr. Bright holds a B.A. in Business Administration and Marketing from Drury University, Springfield, Missouri.University.
Stanley Stern has served as our director since our initial public offering that was completed in September 2014. Mr. Stern has 32over 30 years of experience as an investment banker, working primarily for Oppenheimer & Co, in a number of positions including head of investment banking. He also worked for STI Ventures, Salomon Brothers and C.E. Unterberg. In 2013, Mr. Stern founded Alnitak Capital Partners,. LLC. He currently serves as a director of Audiocodes (Nasdaq: AUDC) since December 2012, Sodastream (Nasdaq: SODA) since November 2015, Ormat Technologies, Inc. (NYSE: ORA) since February 2016 and Ekso Bionics Holdings, Inc. (OTCQB: Ekso).since March 2015. He was previously a member of the board of directors of Sodastream International Ltd. from November 2015 to December 2018. Mr. Stern holds a B.A. in Economics and Accounting from City University of New York, Queens College, and an M.B.A. from Harvard University.
Anna Kazanchyan, M.D. has served as our director since December 2014. Dr. Kazanchyan founded Saghmos Therapeutics in September 2016 and serves as its Chief Executive Officer and Chairwoman. She is also the founder and Managing Partner since 2004 of Primary i-Research, LLC. Previously, she was SVP, Business Development and Product Development at Ovid Therapeutics, a company focused on rare neurological disorders. Dr. Kazanchyan was previously Senior Biotechnology Analyst at Wachovia Securities, and was a member of the Biotechnology Equity Research teams at Goldman Sachs and Citigroup. She has served as a director of Innovate Biopharmaceuticals from February to June 2018. She received an M.D. from Harvard Medical School and a B.A. in biology, summa cum laude, from Clark University.
Aharon Schwartz, Ph.D. has served as our director since November 2014. Dr. Schwartz retired from Teva Pharmaceutical Industries Ltd. in 2011, where he served in a number of positions of increasing responsibility from 1975 until his retirement, most recently serving as its Vice President, Head of Teva Innovative Ventures from 2008 to 2011. Dr. Schwartz has been the chairman of the board of directors of BiolineRx Ltd. since 2003 and a director of Protalix BioTherapeutics, Inc. since 2015. From January 2013 through November 2017, he served as a director of Alcobra Ltd. Dr. Schwartz received his Ph.D. in organic chemistry in 1978 from the Weizmann Institute of Science, his M.Sc. in organic chemistry from the Technion and his B.Sc. in chemistry and physics from the Hebrew University of Jerusalem. Dr. Schwartz received a second Ph.D. in 2014 from the Hebrew University of Jerusalem in history and philosophy of science.
Dalia Megiddo, M.D. has served as our director since May 2016. On February 28, 2019, Dr. Megiddo submitted her resignation from the board, effective on the date of the Company’s 2019 annual general meeting of shareholders. Dr. Megiddo co-founded a number of pharmapharmaceutical companies, including Alcobra Ltd. (Nasdaq: ADHD), Bioblast-Pharma Ltd. (Nasdaq: ORPN) and Chiasma Ltd. (Nasdaq: CHMA). She currently serves as Managing Partner of Expedio Ventures, and previously ranled other life science investment funds, including Jerusalem Global Ventures and 7-Health. Dr. Megiddo serveshas been serving as a director of Bioblast-Pharma Ltd.Ltd. since 2012 and formerly served as a director of Alcobra Ltd. from 2013 to 2014. Dr. Megiddo holds an M.D. in Medicine from The Hebrew University of Jerusalem, and is a licensed specialist in family medicine. She also holds an M.B.A. degree from the Kellogg Recanati International School of Business (Tel Aviv University and North Western University).