| · | the FDA, institutional review boards, the European Union Notified Bodies,the FDA, institutional review boards (“IRBs”), the European Union regulatory authorities (the European Medicines Agency (“EMA”) and national authorities), the Israeli Ministry of Health, or other regulatory authorities do not approve a clinical study protocol or place a clinical study on hold;patients do not enroll in a clinical study or results from patients are not received at the expected rate; patients discontinue participation in a clinical study prior to the scheduled endpoint set forward in the clinical protocol at a higher than expected rate, especially if such discontinuations interfere with our ability to assess the efficacy of our product candidate; patients experience adverse events from our product candidate; | · | patients do not enroll in a clinical study or results from patient participants are not received at the expected rate; |
patients die during a clinical study for a variety of reasons that may or may not be related to our product candidate, including the advanced stage of their disease and other medical problems;third-party clinical investigators do not perform the clinical studies in accordance with the anticipated schedule or consistent with the clinical study protocol and good clinical practices or other third-party organizations do not perform data collection and analysis in a timely or accurate manner; | · | patients experience adverse events from our drug candidate; |
third-party clinical investigators engage in activities that, even if not directly associated with our clinical studies, result in their debarment, loss of licensure, or other legal or regulatory sanction;regulatory inspections of manufacturing facilities, which may, among other things, require us to undertake corrective action or suspend the clinical studies; changes in governmental regulations or administrative actions; the interim results of the clinical study, if any, are inconclusive or negative; and the study design, although approved and completed, is inadequate to demonstrate effectiveness and safety. | · | patients die during a clinical study for a variety of reasons that may or may not be related to our prospective therapeutic products, including the advanced stage of their disease and other medical problems; |
| · | third party clinical investigators do not perform the clinical studies in accordance with the anticipated schedule or consistent with the clinical study protocol and good clinical practices or other third party organizations do not perform data collection and analysis in a timely or accurate manner; |
| · | regulatory inspections of manufacturing facilities, which may, among other things, require us to undertake corrective action or suspend the clinical studies; |
| · | changes in governmental regulations or administrative actions; |
| · | the interim results of the clinical study, if any, are inconclusive or negative; and |
| · | the study design, although approved and completed, is inadequate to demonstrate effectiveness and safety. |
Our dependence upon clinical trials in developing our prospective therapeutic productsproduct candidate may impede us from reaching advanced stages of development, and might cause termination of all or part of our commercial operations. To date, the above describedaforementioned situations regarding potential delays in research and development activities and clinical trials have yet to occur in a manner whichthat adversely affects our research and development activities. Notwithstanding the foregoing, strict FDA criteria made patient recruitment for the superficial bladder cancer Phase IIb Clinical trials are expensive, time-consuming and difficult to design and implement. Clinical trials are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Because our product candidate is based on new technologies, we expect that it will require extensive research and development and have substantial manufacturing and processing costs. In addition, costs to treat potential side effects that may result from our product candidate may be significant. Accordingly, our clinical trial acosts could be significantly higher than for more difficult and time-consuming task than was initially expected. conventional therapeutic technologies or drug products.We have limited experience in conducting and managing clinical trials. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals for our prospective therapeutic products.product candidate. We may rely on third parties for clinical development activities and our reliance on third parties will reduce our control over these activities. Accordingly, third partythird-party contractors may not complete activities on schedule, or may not conduct clinical trials in accordance with regulatory requirements or our trial design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be required to replace them, which may have the effect of delayingdelay the affected trial. We may experience difficulties in identifying and recruiting suitable patients for clinical studies, and further, the clinical results and data that we obtain from any clinical testing that we may conduct in the future may not be reliable, any of which factor may significantly compromise our ability to develop a drug utilizing a target gene. our product candidate.We may experience difficulties in identifying and recruiting suitable patients for clinical studies because of the high demand for such patients’ involvement in current and future clinical trials for potential drugs. Further,drugs or because the supply of suitable patients may be low because of strict inclusion criteria requirements. The realization of any of the foregoing risks may significantly compromise our ability to develop a drug utilizing a target gene,our product candidate, which would adversely impact our potential revenues, results of operations and financial condition. We performed If serious adverse or undesirable side effects are identified during the development of our product candidate, we may need to abandon or limit our development of our product candidate. Our product candidate is in clinical development and its risk of failure is high. It is impossible to predict when or if our product candidate will prove effective or safe in humans or will receive regulatory approval. If our product candidate is associated with undesirable side effects or have characteristics that are unexpected, we may need to abandon its development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In our Phase I/IIa and Phase IIb1/2 clinical trials forpilot trial with 47 treated patients suffering from superficial bladder carcinomaNMIBC who had failed previous treatment, three patients experienced serious adverse events while receiving treatment: one reported myocardial infection, one reported hematuria (blood in urine), and pancreatic cancer, as wellone reported urinary retention, urinary tract infection and transurethral prostatectomy (a type of resection of the prostate gland). Only the hematuria was considered by the investigator to be possibly related to inodiftagene. In the Phase 1 study of inodiftagene as a monotherapy in 18 patients with NMIBC, one serious adverse event considered possibly related to study treatment, urinary urgency requiring hospitalization, occurred. Serious adverse events not considered to be related to study treatment in that study included one patient who reported hematuria and one patient who reported a broken leg, who also had an infected surgical wound after elective surgery to remove the metal plate used to treat the broken leg. In the Phase I/IIa clinical trial for2 study of inodiftagene in combination with BCG with 38 patients suffering from ovarian cancer without difficultiesNMIBC, one patient reported a serious adverse event of heart palpitations, which was considered by the investigator not to be related to either study treatment. The serious adverse events did not affect the validity of the study or result in enrolling subjectsa clinical hold being placed on the IND. In addition, such effects or adheringcharacteristics could cause an IRB or regulatory authority to study protocols. We might not commenceinterrupt, delay or halt clinical trials of our product candidate, require us to conduct additional clinical testing for anytrials or other tests or studies, and could result in a more restrictive label, or the delay or denial of our prospective therapeutic products andmarketing approval by the FDA or comparable foreign regulatory authorities.The commercial value of any clinical study that we may commence and conduct in the future will significantly depend upon our choice of medical indication and our selection of a patient population for our clinical study of an indication, and our inability to commence clinical testing or our choice of clinical strategy may significantly compromise our business prospects. Our ability to commence clinical studies depends upon successful completion of and positive scientific results from pre-clinical studies. In the event thatIf we successfully complete a clinical study, the commercial value of any such study will depend significantly depend upon our choice of indication and our selection of a patient population for that indication. Because the target genesour recombinant DNA plasmids are expected to be expressed in various types of cancer, our prototype molecules may have the ability to treat many different kinds of cancer. Thus, we may incorrectly assess the market opportunities of an indication or may incorrectly estimate or fail to appreciate fully appreciate the scientific and technological difficulties associated with treating an indication. Furthermore, the quality and robustness of the results and data of any clinical study that we may conduct in the future will depend upon our selection of a patient population for clinical testing. Our inability to commence clinical testing or our choice of clinical strategy may significantly compromise our business prospects. Our inability to address the chemistry, manufacturing and control concerns of regulatory bodies would significantly compromise our business prospects. In the event thatIf we commence additional clinical studies for any of our prospective therapeutic products,product candidate, our ability to successfully complete such clinical studies successfully and to apply for and obtain regulatory approval for marketing will depend upon our ability to develop an established manufacturing process assuring consistent production of a therapeutic product of a defined quality for all phases of clinical testing and for commercial production.production in accordance with current Good Manufacturing Practices (“cGMP”). Our inability to satisfy the chemistry, manufacturing and control concerns of regulatory bodies, such as the FDA, would either prevent us from completing clinical studies or prevent us from obtaining regulatory approval for marketing, either of which would significantly compromise our business prospects. If we, or if our service providers or any third partythird-party manufacturers, fail to comply with regulatory requirements, we or they could be subject to enforcement actions, which could affect adversely affect our ability to market and sell our prospective therapeutic products. product candidate.If we, or if our service providers or any third partythird-party manufacturers, fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to enforcement actions, which could adversely affect our ability to develop, market and sell our prospective therapeutic productsproduct candidate successfully and could harm our reputation and lead to reduced acceptance of our prospective therapeutic products.product candidate. These enforcement actions may include: restrictions on, or prohibitions against, marketing our product candidate; restrictions on importation of our product candidate; | · | restrictions on, or prohibitions against, marketing our prospective therapeutic products; |
suspension of review or refusal to approve new or pending applications;suspension or withdrawal of product approvals; | · | restrictions on importation of our prospective therapeutic products; |
product seizures;injunctions; and | · | suspension of review or refusal to approve new or pending applications; |
civil and criminal penalties and fines. | · | suspension or withdrawal of product approvals; |
| · | civil and criminal penalties and fines. |
If we, do notor if our service providers or any third-party manufacturers, fail to comply with laws regulating the protection of the environment and health and human safety, we or they could be subject to enforcement actions and our business prospects could be adversely affected. Our research and development activities, and the research and development activities of our service providers and third-party manufacturers may involve the use of hazardous materials and chemicals and we may maintain quantitiesor the maintenance of various flammable and toxic chemicals in our facilities in Israel. We may not have the requisite safety procedures in placechemicals. If we, or they, fail to adequately handle and dispose of these materials, and any such procedures that we have or may have in place to comply with applicable regulations cannot eliminate the risk of accidental contamination or injury. If an accident occurs, we may be held liable for resulting damages, which could be substantial. We also may be subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of bio-hazardous materials. We may incur substantial costs to comply with these laws or regulations, and substantial fines or penalties if we violate any of these laws or regulations,them, which could significantly compromise our business prospects. Risks Related to Competition and Commercialization of Our Prospective Therapeutic Products Product CandidateThe pharmaceutical and biotechnology market is highly competitive. If we are unable to compete effectively with existing products, new treatment methods and new technologies, we may be unable to commercialize any therapeutic products that we may develop in the future. The biotechnology market is highly competitive, is subject to rapid technological change and is significantly affected by existing rival drugs and medical procedures, new product introductions and the market activities of other participants. Pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations may pursue the research and development of technologies, drugs or other therapeutic products for the treatment of some or all of the diseases that we are targeting, or that we expect to target, including superficial bladder and pancreatic cancer.NMIBC. We also may face competition from products whichthat have already been approved and accepted by the medical community for the treatment of these same indications. We believe a significant number of products are currently under development, and may become commercially available in the future, for the treatment of some or all of the diseases that we are targeting or that we expect to target including superficial bladder and pancreatic cancer. target.Our competitors may develop products more rapidly or more effectively than us. Many of our competitors have: | 8 | · | much greater experience and much greater financial, technical and human resources than we have at every stage of the discovery, development, manufacture and commercialization process; |
| · | more extensive experience in pre-clinical testing, conducting clinical trials, obtaining and maintaining regulatory approvals and in manufacturing and marketing therapeutic products; |
much greater experience and much greater financial, technical and human resources than we have at every stage of the discovery, development, manufacture and commercialization process;more extensive experience in pre-clinical testing, conducting clinical trials, obtaining and maintaining regulatory approvals and manufacturing and marketing therapeutic products; | · | products that have been approved or are in late stages of development; |
established distribution networks; | · | established distribution networks; |
collaborative arrangements in our target markets with leading companies and research institutions; andentrenched and established relationships with healthcare providers and payors. | · | collaborative arrangements in our target markets with leading companies and research institutions; and |
| · | entrenched and established relationships with healthcare providers and payors. |
As a result of any of the foregoing factors, our competitors may develop or commercialize products with significant advantages over any therapeutic products that we may develop. If our competitors are more successful in commercializing their products than us, their success could adversely affect our competitive position and harm our business prospects. We may be unsuccessful in utilizing expedited or other similar regulatory pathways for marketing approval of our product candidate in the United States and Europe. For our current lead product candidate, we are currently pursuing regulatory pathways that would provide expedited marketing approval in the United States. Although we believe that we have developed our clinical trials based on a framework that would allow for expedited or other similar approval, the FDA may prohibit us from utilizing such regulatory approval pathways or require us to conduct additional, large clinical trials. In our leading indication, bladder cancer, we face competition from the current standard of care. The current standard of care has severe side effects. However, our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products, treatments or procedures that improve the standard of care and have fewer or less severe side effects. If such products are approved, the demand for our product candidate may be significantly reduced. Even if we receive regulatory approval to market our prospective therapeutic products,product candidate, the market may not be receptive to our prospective therapeutic productsproduct candidate upon theirits commercial introduction, which willwould prevent us from becoming profitable. We may have difficulties convincing the medical community and third partythird-party payors to accept and use any of our prospective therapeutic products that may be approved for commercialization in the future. Key participants in pharmaceutical marketplaces, such as physicians, third partythird-party payors and consumers, may not accept therapies utilizing the target genes.recombinant DNA plasmids. Even if such therapies are accepted by these participants, the medical community may not consider effectiveness and safety alone as a sufficient basis for prescribing our prospective therapeutic productsproduct in lieu of other alternative treatment methods and medications that are available. Other factors that we believe will affect market acceptance of our prospective therapeutic products include: | · | the timing of our receipt of any marketing approvals, the terms of any approvals and the countries in which approvals are obtained; |
| · | the safety, efficacy and ease of administration; |
| · | the success of physician education programs; |
| · | the availability of government and third party payor reimbursement; |
| · | the pricing of our prospective therapeutic products, particularly as compared to alternative treatment methods and medications; and |
| · | the extent to which alternative treatment methods and medications are more readily available as compared to the availability of any prospective therapeutic products that we may develop in the future. |
Any therapeutic products that we may develop may become subject to unfavorable pricing regulations, third partythird-party reimbursement practices or healthcare reform initiatives, thereby adversely affecting the profitability of our business. The regulations that govern pricing for new medical products vary widely from country to country. As a result, we might obtain regulatory approval for a product in a particular country, but then be subjectedsubject to pricing regulations in that country that delay ourthe commercial launch of the product and negatively impact the revenues we are able to generate from the sale of the product in that country. In addition, our ability to commercialize any approved products successfully will depend in part on the extent to which reimbursement for these products will be available from government health administration authorities, private health insurers and other organizations. Even if we succeed in bringing one or more therapeutic products to the market, these products may not be considered cost-effective, and the amount reimbursed for any products may be insufficient to allow us to sell our therapeutic productsthem on a competitive basis. If the price we are able to charge for any therapeutic products that we develop and for which we obtain regulatory approval is inadequate in light of our development and other costs, our profitability could be adversely affected.
Risks Related to Our Dependence on Third Parties We may not be able to execute our business strategy if we are unable to enter into or maintain our collaborations with other companies that can provide capabilities and funds for the development and commercialization of our prospective therapeutic products.
We do not have any capability for sales, marketing or distribution and have limited capabilities for product development including obtaining regulatory approval of any therapeutic product that we may develop. Accordingly, our current business strategy is to enter into collaborations with major pharmaceutical, biotechnology and other companies to jointly conduct advanced clinical development efforts for specific product candidates and to jointly commercialize them if they are approved. In such collaborations, we would expect our collaborators to provide substantial capabilities in clinical development, regulatory affairs, marketing and sales. We cannot guarantee whether and to what extent we will be able to enter into collaborative arrangements to develop and commercialize our prospective therapeutic products and to fund such development and commercialization, and any such collaborative arrangement that we may enter into may include terms and conditions that are unfavorable to us and we may be unsuccessful in maintaining any such collaborations that we enter into, which could significantly compromise our business prospects.
We rely on a limited number of third parties for the supply of BC-819, BC-821, polyethylenimineplasmids and other key raw materials required for our research and development activities and ifactivities. If we are unable to reach agreements with these third parties, or if we are unable to maintain our contractual relationships with these third parties, our research and development activities would be delayed. We rely on third parties for the provision ofto provide materials required for our research and development activities. Obtaining these materials requires various approvals as well as reaching a purchase or commercial agreement on acceptable terms with the provider of the materials. We may not be able to reach agreements with a sufficient number of suppliers or do so on terms acceptable to us. If we are unable to reach acceptable agreements with a sufficient number of suppliers of research materials, our research and development activities will be delayed and our ability to implement our business plan will be compromised. The manufacture of recombinant DNA plasmids in particular is a complicated and expensive process, which requires months of advance planning. We rely on a limited number of manufacturers for our supply. If any collaborator terminates or failswe are unable to perform its obligations under agreements with us,acquire the development and commercializationnecessary amount of plasmids to complete our prospective therapeutic productsclinical trials, our progress could be delayed or terminated. Our expected dependence on collaborators for capabilities and funding means that our business would be adversely affected if any collaborator terminates its collaboration agreement with us or fails to perform its obligations under any such agreement. Our current or future collaborations, if any, may not be scientifically or commercially successful. Disputes may arise in the future with respect to the ownership of rights to technology or therapeutic products developed with collaborators, which could have an adverse effect on our ability to develop and commercialize our prospective therapeutic products. If any collaborator terminates its collaboration with us, for breach or otherwise, it would be difficult for us to attract new collaborators and it could adversely affect how we are perceived in the business and financial communities. If any of these occur, the research, development and commercialization of one or more of our prospective therapeutic products could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue such development and commercialization on our own.
substantially.We have no manufacturing experience or resources and we must incur significant costs to develop this expertise or rely on third parties to manufacture our prospective therapeutic products. product candidate.We have no manufacturing experience. In order to develop products,our product candidate, apply for regulatory approvals and commercialize our prospective therapeutic products,product candidate, we will need to develop, contract for or otherwise arrange for the necessary manufacturing capabilities. Manufacturing of our prospective therapeutic productsproduct must comply with the current Good Manufacturing PracticecGMP requirements set forth in the Quality System Regulation.FDA’s Code of Federal Regulations. The manufacturing process for our prospective therapeutic productsproduct candidate is an element of the FDA approval process and we will need to contract with manufacturers who can satisfy the FDA requirements on an ongoing basis before we seek to obtain FDA approval. In addition, if we receive the necessary regulatory approval for any of our prospective therapeutic products,product candidate, we also expect to rely on third parties, including our collaborators, to manufacture our therapeutic products in quantities sufficient for clinical trials and commercial marketing. We may experience difficulty in obtaining adequate and timely manufacturing capacity for clinical trials and our commercial needs. If we are unable to obtain or maintain contract manufacturing for our prospective therapeutic products,product candidate, or are unable to do so on commercially reasonable terms, we may not be able to successfully develop and commercialize our prospective therapeutic products. product candidate.Risks Related to Our Operations If we are unable to retain Professor Abraham Hochberg and other qualified key management and scientists, staff consultants and advisors,employees, our ability to implement our business plan may be adversely affected. Our success largely depends on the skills, experience and efforts of certain of our senior management. The loss of the service of anyemployees, such as Dr. Frank Haluska, our Chief Executive Officer, Jonathan Burgin, our Chief Financial and Operating Officer, Dr. David Kerstein, our Chief Medical Officer, Dr. Ron Knickerbocker, our Senior Vice President of these persons, including Professor Abraham Hochberg,Clinical Development and Data Sciences, Sean Daly, our Vice President of Clinical Operations, or Dr. Michal Gilon Ohev-Zion, our Vice President of Research and Development, would likely significantly delay or prevent our achievement of product development and our other business objectives. OurAlthough we have employment agreements with our key personnel, including Professor Abraham Hochberg, are terminable byemployees, some of these employment agreements provide for at-will employment, which means that the employee upon the provision of 90 days or three months advance written notice to us.could terminate their employment with us at any time and, for certain employees, without notice. We do not carry key man life insurance on any of our executive officers or other key employees. Should Professor Hochberg cease his employment withofficers. Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us or should we otherwise lose his services, our ability to conductin formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. Under applicable employment laws, we may not be able to enforce covenants not to compete. Our employment agreements generally include covenants not to compete. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work. For example, Israeli courts have required employers seeking to enforce covenants not to compete to demonstrate that the competitive activities wouldof a former employee will harm one of a limited number of material interests of the employer, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such an interest will be significantly compromised. harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our competitiveness may be diminished.We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. Many of our employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies, including our potential competitors. Some of these employees may have executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with our senior management, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management. We are exposed to a risk of substantial loss due to claims that may be filed against us in the future because our insurance policies may not fully cover the risk of loss associated with our operations. We are exposed to the risk of having claims seeking monetary damages being filed against us for loss or harm suffered by participants of our clinical studies or for loss or harm suffered by users of any drug that may receive approval for commercialization in the future. In either event, the FDA or the regulatory authorities of other countries or regions may commence investigations of the safety and effectiveness of any such clinical trial or commercialized drug, the manufacturing processes and facilities or marketing programs utilized in respect of any such trial or drug, and may result in mandatory or voluntary recalls of any commercialized drug or other significant enforcement action such as limiting the indications for which any such drug may be used, or suspension or withdrawal of approval for any such drug. Investigations by the FDA or any other regulatory authority in other countries or regions also could delay or prevent the completion of any of our other clinical development programs. In the event that we are required to pay damages for any such claim, we may be forced to seek bankruptcy or to liquidate because our asset and revenue base may be insufficient to satisfy the payment of damages and any insurance that we have obtained or may obtain for product or clinical trial liability may not provide sufficient coverage against potential liabilities. Our current clinical trials insurance policy provides coverage in the amount of up to $5$10 million in the aggregate. Our business and operations would suffer in the event of system failures. Despite the implementation of security measures, our internal computer systems and those of our contract research organizations (“CROs”) and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product could be delayed. Risks Related to Government Regulation We may be subject to U.S. federal and state and also foreign healthcare fraud and abuse laws and regulations and other regulatory reforms, and a finding of our failure to comply with such laws, regulations and reforms could have a material adverse effect on our business. Our operations may be directly or indirectly affected by various broad U.S. federal and state healthcare fraud and abuse laws. These include the U.S. federal anti-kickback statute, which prohibits any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in return for or to induce the referring, ordering, leasing, purchasing or arranging for or recommending the ordering, purchasing or leasing of an item or service, for which payment may be made under U.S. federal healthcare programs, such as the Medicare and Medicaid programs. The U.S. federal anti-kickback statute is very broad in scope, and many of its provisions have not been uniformly or definitively interpreted by existing case law or regulations. In addition, many states have adopted laws similar to the U.S. federal anti-kickback statute, and some of these laws are broader than that statute in that their prohibitions are not limited to items or services paid for by a U.S. federal healthcare program but, instead, apply regardless of the source of payment. Violations of these laws could result in fines, imprisonment or exclusion from government-sponsored programs. Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm and diminished profits and future earnings. Healthcare providers, physicians and third-party payors play a primary role in the recommendation of any product for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following: the federal healthcare anti-kickback statute, as mentioned above, 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 under federal and state healthcare programs such as Medicare and Medicaid; the federal False Claims Act imposes civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; the federal transparency requirements under the Health Care Reform Law will require manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; and analogous state 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, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. Efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business. 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 the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the FDA 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.
Risks Related to Our Intellectual Property and Potential Litigation Our exclusive license to certain patentsPatents that we have licensed exclusively from Yissum Research Development Company of the Hebrew University of Jerusalem (“Yissum”) will expire, beginning in 2017 and if we cannot obtain extended marketing exclusivity, whether through the use of additional patents or government exclusivity regulations, we may face increased competition from third parties who will be able to licenseuse the patents that we have used in our research and development activities. Some of theSignificant patents underlying our lead product candidate, inodiftagene, included in the exclusive license that Yissum has granted to us will expire beginningbegan expiring in 2017, after which time, any one or more of our competitors could develop generic alternatives to our prospective drugs, to the extent that these are not subject to additional protections, such as orphan drug status and exclusivity of biological drugs in the US. United States and elsewhere, and patent restoration.We are required, and may be required in the future, to license patent rights from third partythird-party owners in order to develop our prospective therapeutic products in the future.products. If we cannot obtain such licenses, or if such owners do not properly maintain or enforce the patents underlying such licenses, our competitive position and business prospects will be harmed. We currently license technologies and other patents in conducting our research and development activities, and we may be required to obtain additional licenses in the future in the event thatif we believe it is necessary or useful for our business and our research and development efforts to use third partythird-party intellectual property or if our efforts would infringe upon the intellectual property rights of third parties. Additionally, shouldShould we succeed in obtaining any such license, our business prospects will depend in part on the ability of our licensors to obtain, maintain and enforce patent protection for our licensed intellectual property, in particular, those patents for which we secured exclusive rights such as the exclusive license granted to us by Yissum in connection with our research on the H19 gene.property. Our licensors may terminate our license, may not successfully prosecute or may fail to maintain their patent applications to whichthat we arehave licensed, may determine not to pursue litigation against other persons that are infringing these patents or may pursue such litigation less aggressively than we would. Without protection for the intellectual property that we have been licensed and that we may obtain licenseslicense in the future, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive position and harm our business prospects. If we fail to comply with our obligations under our license with Yissum or other licenses or related agreements thatto which we are currently a party to and that weor may enter intobe in the future, we could lose license rights that may be necessary for developing our target gene-basedplasmid-based therapeutic products. The exclusive license granted to us by Yissum and any license that we may enter into in the future in connection with our efforts to develop drugs utilizing the target genesrecombinant DNA plasmids may impose various development,development, commercialization, funding, royalty, diligence, sublicensing, insurance and other obligations on us. Our obligations under any of these license agreements could include, without limitation: royalty payments; annual maintenance fees; providing progress reports; maintaining insurance coverage; paying fees related to prosecution, maintenance and enforcement of patent rights; minimum annual payments; and undertaking diligent efforts to develop and to introduce therapeutic products into the commercial market as soon as practicable. | · | annual maintenance fees; |
| · | providing progress reports; |
| · | maintaining insurance coverage; |
| · | paying fees related to prosecution, maintenance and enforcement of patent rights; |
| · | minimum annual payments; and |
| · | performing commercially reasonable diligent efforts to develop and to introduce therapeutic products into the commercial market as soon as practicable. |
If we were to breach any of our material obligations as described above, the licensor may have the right to terminate the license which could result in our being unable to develop, manufacture and sell products that are covered by the licensed technology or a competitor’scompetitor gaining access to the licensed technology. Under the terms of the exclusive license granted to us by Yissum, Yissum has the right to terminate the license in the event thatif we become bankrupt or insolvent, or if our business is placed in the hands of a receiver, assignee or trustee. In addition, Yissum has the right to terminate the license for any material breach of the license by us in the event thatif we fail to remedy such material breach within ninety days of Yissum’s notice of our material breach, and its intent to terminate, provided that the material breach is curable within ninety90 days. In the event thatIf the material breach cannot be remedied within ninety90 days, Yissum may not terminate the license if we take reasonable commercial action to cure such breach as promptly as practicable. The Israeli Contract Law (Remedies for Breach of Contract) — 1970, defines the term “material breach” as a breach, with regards to which, it may be assumed that a reasonable person would not have entered into the specific agreement had that person foreseen the breach and the outcome thereof, or a breach which is specifically defined as material in the agreement. Acts whichthat may constitute a material breach of the license agreement by us may include, for example: the granting of sublicenses not in compliance with the provisions of the license agreement, a breach of our obligations to pay royalties and provide the necessary reports with respect thereto, a breach of our obligations not to disclose or misuse certain confidential information of Yissum, and a breach of our obligations to develop and commercialize the licensed technology (including our obligation to fund certain research and development activities) and to conduct patent prosecution and maintenance, as further described below. We have agreed to provide research and development funding to Yissum in connection with the license, which we may terminate upon 90 days prior written notice to Yissum. In such event, we are required to compensate Yissum for all expenses incurred by it prior to the notification date in connection with its research efforts and all additional expenses that Yissum had assumed the obligation to cover prior to the notification date.
In addition, we have agreed to prepare, register and maintain any patent application or patent that may arise out of our research and development efforts pursuant to our license with Yissum and to bear all expenses of preparation, registration and maintenance. We agreed to keep Yissum informed of filing and prosecutions pursuant to the agreement, including submission of copies of all official actions, relevant correspondence, applications, continuations or like proceedings, and responses thereto. We agreed to consult Yissum regarding any abandonment of the prosecution of patent applications arising out of the license. In the event that we decide not to commence or continue the process of patent registration in a certain country, we must notify Yissum of this decision. Yissum may then individually prepare, register and maintain any such patent. We must inform Yissum of our desire to assume the expenses incurred by Yissum in connection with its patent registration within 90 days from the date in which Yissum notifies us of its decision to prepare, register and maintain such patent. In the event that we decide not to assume these expenses, or in the absence of our reply within the above 90 day period, the exclusive, worldwide license granted to us by Yissum will no longer be applicable in such countries in which we elected not to file or to abandon the filing, prosecution or maintenance of patents pursuant to the license.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. We currently rely, and intend to rely in the future, on trade secrets, know-how and technology that are not protected by patents to maintain our competitive position. In order to protect our proprietary technology and processes, we also rely in part on confidentiality agreements with our collaborators, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such party. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive position and harm our business prospects. If we are not ableunable to obtain and enforce patent protection for our inventions, our ability to develop and commercialize our prospective therapeutic productsproduct will be harmed. Our success depends, to a considerable extent, on our ability to protect proprietary methods and technologies that we develop under the patent and other intellectual property laws of the United States and other countries, so that we may prevent others from unlawfully using our inventions and proprietary information. The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the U.S. Patent and Trademark Office or PTO,(the “PTO”) and its foreign counterparts use to grant patents are not always applied predictably or uniformly and may change. There also is no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents. Even if our rights are not directly challenged, disputes among third parties could lead to the weakening or invalidation of our intellectual property rights. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims that will be allowed with respect to any patents issued to us or to others. Additionally, the mere issuance of a patent does not guarantee that it is valid or enforceable against third parties. We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful. A third party may sue us for infringing its patent rights.rights or may claim that we have improperly obtained or used its confidential or proprietary information. Likewise, we may need to resort to litigation to enforce a patent issued or licensed to us or to determine the scope and validity of third partythird-party proprietary rights. In addition, during an infringement proceeding, a thirdcourt may decide that the patent rights we are asserting are invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, our licensors may claim thathave rights to file and prosecute such claims and we have improperly obtained or used its confidential or proprietary information.are reliant on them. The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be significant, and the litigation would divert our management’s efforts. From a financial perspective, there is a risk that we would not be able to sustain the costs of any such litigation and would be forced to seek bankruptcy or to liquidate because of our limited asset and revenue base. We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business. We may be subject to claims that former employees, collaborators or other third parties have an interest in, or right to compensation, with respect to our current patent and patent applications, future patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our products. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. A significant portion of our intellectual property has been developed by our employees in the course of their employment with us. Under the Israeli Patent Law, 5727-1967 (the “Patent Law”) inventions conceived by an employee in the course and as a result of or arising from his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee (the “Committee”) a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his or her inventions. Recent decisions by the Committee (which have been upheld by the Israeli Supreme Court on appeal) have created uncertainty in this area, as it held that employees may be entitled to remuneration for their service inventions despite having specifically waived any such rights. However, a recent decision by the Committee held that such right can be waived by the employee. The Committee further held that an explicit reference to the waived right is not necessary in every circumstance in order for the employee’s waiver of such right to be valid. Such waiver can be formalized in writing or orally or be implied by the actions of the parties in accordance with the rules of interpretation of Israeli contract law. We generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us. Although our employees have agreed to assign to us service invention rights and have specifically waived their right to receive any special remuneration for such assignment beyond their regular salary and benefits, we may face claims demanding remuneration in consideration for assigned inventions. Intellectual property rights do not necessarily address all potential threats to our competitive advantage. The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative: Others may be able to make products that are similar to ours, but that are not covered by the claims of the patents that we own or have exclusively licensed. We or our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed. We or our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions. Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights. It is possible that our pending patent applications will not lead to issued patents. Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors. Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets. We may not develop additional proprietary technologies that are patentable. The patents of others may have an adverse effect on our business. Should any of these events occur, they could significantly harm our business, results of operations and prospects. Risks Related to Our Operations in Israel If there are significant shifts in the political, economic and military conditions in Israel, it could have a material adverse effect on our operations. Our operations will be directly influenced by thecorporate headquarters and research and development facilities are located in Israel. In addition, certain of our employees, officers and directors are residents of Israel. Accordingly, political, economic and military conditions affectingin Israel at any given time. A changemay directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. In recent years, these have included hostilities from Hezbollah in Lebanon and between Israel and Hamas in the securityGaza Strip, which resulted in rockets being fired into Israel, causing casualties and politicaldisruption of economic activities. In addition, Israel faces threats from the civil war in Syria and from Iran. Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any armed conflict involving Israel could adversely affect our operations and inresults of operations, and any losses or damages incurred by us as the economyresult of such a conflict could impede the raising of the funds required to finance our research and development plans, to create joint ventures with third parties and could otherwise have a material adverse effect on our business, operating results and financial condition. Although Israel has entered into various agreements with Egypt, Jordan and the Palestinian Authority, there have been times since October 2000 when Israel has experienced an increase in unrest and terrorist activity. The establishment in 2006 of a government in the Palestinian Authority by representatives of the Hamas militant group has created additional unrest and uncertainty in the region. In mid-2006, there was a war between Israel and the Hezbollah in Lebanon, resulting in thousands of rockets being fired from Lebanon up to 50 miles into Israel. In January 2009, Israel attacked, during three weeks, Hamas strongholds in the Gaza strip, in reaction to rockets that were fired from Gaza up to 25 miles into Israel. In November 2012, Israel launched a seven-day operation against Hamas operatives in the Gaza strip in response to Palestinian groups launching over 100 rockets at Israel over a 24-hour period. Major hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could result in damage tobusiness. Furthermore, our facilities and likewise have a material adverse effect on our business, operating results and financial condition. Furthermore, several countries restrict business with Israeli companies. This may impair our ability to sell our prospective therapeutic products in certain countries.Our operations could be disrupted as a result ofby the obligationobligations of our personnel to perform military service.
All Some of our executive officers and key employees of our business residebased in Israel and some are requiredmay be called upon to perform annual military reserve duty and, in emergency circumstances, may be called forto immediate and unlimited active duty under emergency circumstances at any time.duty. Our operations could be disrupted by the absence forof a significant periodnumber of time of one or more of these officers or key employees due to military service. Any such disruptionservice, which could materially adversely affect our business and results of operationsoperations.Several countries, principally in the Middle East, restrict doing business with Israel and financial condition. Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise.Because a substantial portion of our revenues is expected to be generated in U.S. Dollars and Euros,currencies other than our potential revenue mayfunctional currency, we will be reduced dueexposed to fluctuations in currency exchange rate fluctuations. rates, which could negatively affect our financial condition.In the future, we expect that a substantial portion of our revenues will be generated in U.S. Dollars and Euros. Ourcurrencies other than our functional currency. We currently maintain our financial records are maintained, and the Company's financial records will be maintained, in NIS, which is theour functional currency, of the Company.and report our financial results in U.S. dollars. As a result, the Company'sour revenues for financial resultsstatement purposes might be affected by fluctuations in the exchange rates of currencies in the countries in which our prospective therapeutic products may be sold. Any Israeli government funding that we receive for research and development expenditures limits or prohibits our ability to manufacture products and transfer know-how outside of Israel and requires us to satisfy specified conditions. We have received royalty-bearing funding from the Israeli government through the Israel Innovation Authority (formerly the Office of the Chief Scientist of the Ministry of Economy) (“IIA”) for a significant portion of our research and development expenditures. Israeli law requires that products developed with government funding be manufactured in Israel, unless the IIA approves otherwise. Such approval, if given, is generally conditioned on an increase in the maximum amount of royalties to be paid to the IIA, with the exact ceiling dependent on the extent of the manufacturing to be conducted outside of Israel. Although products based on IIA-funded technologies and know-how may be sold freely, the transfer of or grant of any right (including liens) in the underlying IIA-funded technologies and know-how is restricted. Any such transfer is subject to the approval of the IIA and if the transfer is made outside of Israel, then it is generally conditioned on payment of a redemption fee, which may be substantial. If we fail to comply with the restrictions and conditions imposed in connection with IIA funding, we may be subject to the sanctions that are set forth under Israeli law, including the possible refund of any payments previously received together with interest and penalties, and in certain circumstances we may also be subject to criminal charges. The difficulties and cost of obtaining the approval of the IIA for the transfer of manufacturing rights, technology or know-how outside of Israel could prevent us from entering into strategic alliances or other transactions that provide for such a transfer, which in turn could adversely affect our business, results of operations and financial condition. Currency exchange controls may restrict our ability to utilize our cash flows. We intendexpect to receive proceeds from sales of any prospective therapeutic product we may develop, and also to pay a portion of our operational costs and expenses, in U.S. Dollars,dollars, Euros and other foreign currencies. However, we may be subject to existing or future rules and regulations on currency conversion. In 1998, the Israeli currency control regulations were liberalized significantly, and there are currently no currency controls in place. Legislation remains in effect, however, pursuant to which such currency controls could be imposed in Israel by administrative action at any time. We cannot assure that such controls will not be reinstated, andor if reinstated, that they would not have an adverse effect on our operations. The ability of any Israeli company to pay dividends is subject to Israeli law and the amount of cash dividends payable may be subject to devaluation in the Israeli currency.
The ability of an Israeli company to pay dividends is governed by Israeli law, which provides that cash dividends may be paid only out of retained earnings as determined for statutory purposes in Israeli currency. In the event of a devaluation of the Israeli currency against the U.S. Dollar, the amount in U.S. Dollars available for payment of cash dividends out of prior years’ earnings will decrease.
The termination or reduction of tax and other incentives that the Israeli Government provides to domestic companies may increase the costs involved in operating a company in Israel.
The Israeli Government currently provides tax and capital investment incentives to domestic companies, as well as grant and loan programs relating to research and development and marketing and export activities. In recent years, the Israeli Government has reduced the benefits available under these programs and the Israeli Governmental authorities have indicated that the government may in the future further reduce or eliminate the benefits of those programs. The Company currently takes advantage of these programs. There is no assurance that such benefits and programs would continue to be available in the future to the Company. If such benefits and programs were terminated or further reduced, it could have an adverse affect on our business, operating results and financial condition.
Any Israeli government grants that we receive for research and development expenditures limit or prohibit our ability to manufacture products and transfer know-how outside of Israel and require us to satisfy specified conditions.
We receive grants from the Israeli government through the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor, or the OCS, for the financing of a significant portion of our research and development expenditures. Israeli law requires that the manufacture of products developed with government grants be carried out in Israel, unless the OCS approves otherwise. Such approval, if given, is generally conditioned on an increase in the total amount to be repaid to the OCS, to an amount of up to 300% of the funds received, plus interest (the exact amount would depend on the extent of the manufacturing to be conducted outside of Israel). Transfer of OCS-funded technologies and know-how outside of Israel is restricted, unless conducted in accordance with the restrictions set forth under Israeli law (as specified in Item 4B). Israeli law further specifies that both the transfer of know-how as well as the transfer of intellectual property rights in such know-how are subject to the same restrictions, namely the approval of the OCS. Such approval, if given, might be subject to a special redemption fee which may be required to be paid to the Government of Israel.
If we fail to comply with the conditions imposed by the Office of the Chief Scientist, we may be subject to certain sanctions which are set forth under Israeli law, including the possible refund of any payments previously received, together with interest and penalties and in certain circumstances we may also be subject to criminal charges. The difficulties in obtaining the approval of the OCS for the transfer of manufacturing rights, technology, know-how and intellectual property rights in such know-how, outside of Israel, could prevent us from entering into strategic alliances or other transactions that provide for such a transfer which in turn could adversely affect our business, results of operations and financial condition.
Enforcing a U.S. judgment against our Companyus and our executive officers and directors, or asserting U.S. securities law claims in Israel, may be difficult. It may be difficult to affect service of process on some or all of our executive officers and directors. Furthermore, most of our assets and most of the assetsWe are incorporated in Israel. Some of our executive officers and directors reside in Israel and most of our assets are located outside of the United States. Therefore, a judgment obtained against us or any of themthese persons in the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It may also may be difficult for youto affect service of process on these persons in the United States or to assert U.S. securities lawlaws claims in original actions instituted in Israel. Even if an Israeli court agrees to hear such a claim, it may determine that Israeli, and not U.S., law is applicable to the claim. Under Israeli law, if U.S. law is found to be applicable to such a claim, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would be governed by Israeli law. There is little binding case law in Israel addressing these matters. Furthermore,Subject to specified time limitations and legal procedures, under the rules of private international law currently prevailing in Israel, Israeli courts might notmay enforce a final U.S. judgment in a civil matter, including judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us. Subject to certain time limitations, an Israeli court may declarebased upon the civil liability provisions of the U.S. securities laws and including a foreign civilmonetary or compensatory judgment enforceable only if it findsin a non-civil matter, provided that: | 18 | · | the judgment was rendered by a court which was, according to the laws of the state of the court, competent to render the judgment; |
| · | the judgment may no longer be appealed; |
| · | the obligation imposed by the judgment is enforceable according to the rules relating to the enforceability of judgments in Israel and the substance of the judgment is not contrary to public policy; and |
| · | the judgment is executory in the state in which it was given. |
Even if these conditions are satisfied and subject to exceptional cases, an Israeli court will not enforce a foreign judgment if it was givengiven;
the judgment was rendered by a court of competent jurisdiction under the rules of private international law prevailing in aIsrael; the laws of the state whose laws do notin which the judgment was given provide for the enforcement of judgments of Israeli courtscourts; adequate service of process has been effected and the defendant has had a reasonable opportunity to be heard; the judgment and the enforcement of the judgment are not contrary to the law, public policy, security or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel. AnIsrael; the judgment was not obtained by fraudulent means and does not conflict with any other valid judgment in the same matter between the same parties; and an action between the same parties in the same matter is not pending in any Israeli court also will not declareat the time the lawsuit is instituted in the foreign court. If a foreign judgment enforceable if: is enforced by an Israeli court, it generally will be payable in Israeli currency, which can then be converted into non-Israeli currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount in a non-Israeli currency is for the Israeli court to issue a judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli CPI plus interest at the annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk of unfavorable exchange rate fluctuations.Your rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S. corporations. Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S. corporations. In particular, each of our shareholders has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations toward us and other shareholders and to refrain from abusing its power in, among other things, voting at shareholder meetings on certain matters, such as an amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder has a duty to act in fairness toward us. Israeli law does not clearly define the substance of these duties, but these provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations. Provisions of Israeli corporate and tax law may deter acquisition transactions. The provisions of Israeli corporate law governing mergers, tender offers and other acquisition transactions differ in significant respects from analogous provisions of U.S. federal and state law, and may make such transactions difficult to effect. The need for IIA approval and the potential redemption fee payable if an acquiror wishes to transfer IIA-funded technologies and know-how outside of Israel may deter certain potential acquirors. Furthermore, Israeli tax considerations may make potential acquisition transactions unappealing to us, to our Israeli shareholders or to those of 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 various conditions, such as a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. 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 actual disposition of the shares has occurred. | 19 | · | the judgment was obtained by fraud; |
These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders. Risks Related to the ADSs and the Trading of the ADSs The ADS price may be volatile, and you may lose all or part of your investment. The trading price of the ADSs has fluctuated, and is likely to continue to fluctuate. The market price of the ADSs could be highly volatile and may fluctuate substantially as a result of many factors, including: actual or anticipated fluctuations in our results of operations; variance in our financial performance from the expectations of market analysts; announcements by us or our competitors of significant business developments, changes in distributor relationships, acquisitions or expansion plans; changes in the prices of our raw materials or the products we sell; our involvement in litigation; our sale of ADSs, ordinary shares or other securities in the future; the delisting of our ordinary shares from the TASE subsequent to our initial public offering; market conditions in our industry; changes in personnel; the trading volume of the ADSs; changes in the estimation of the future size and growth rate of our markets; and general economic and market conditions. In addition, the stock markets have experienced extreme price and volume fluctuations. Broad market and industry factors may materially harm the market price of the ADSs, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. If we were involved in any similar litigation, we could incur substantial costs and our management’s attention and resources could be diverted. | 20 | · | there is a finding of lack of due process; |
An active public trading market for the ADSs may not be sustained. We have requested that the TASE initiate the process to delist our ordinary shares. In accordance with applicable Israeli law and the rules of the TASE, the last day our ordinary shares will trade on the TASE will be June 13, 2019, and our ordinary shares will be delisted from the TASE on June 17, 2019. Until such delisting takes effect, our ordinary shares will continue to trade on the TASE while the ADSs will trade on the Nasdaq. Prior to the completion of our initial public offering, no public market existed for the ADSs. After the delisting of our ordinary shares from the TASE, we will be traded exclusively through the ADSs on the Nasdaq. An active public trading market for the ADSs may not be sustained. If an active market for the ADSs does not develop, it may be difficult for you to sell your ADSs. We have broad discretion as to the use of the net proceeds from our initial public offering and may not use such proceeds effectively. We expect the net proceeds from our initial public offering to meet our capital requirements until the second quarter of 2020. We currently intend to use the net proceeds from our initial public offering to develop our therapeutic and diagnostic products, namely inodiftagene, and for general corporate purposes, including working capital requirements. For more information, see “Item 5.B.—Liquidity and Capital Resources.” However, our management will have broad discretion in the application of the net proceeds. Our shareholders may not agree with the manner in which our management chooses to allocate the net proceeds from our initial public offering. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation. Pending their use, we may invest the net proceeds from our initial public offering in a manner that does not produce income. If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade the ADSs, the price of the ADSs could decline. The trading market for the ADSs relies in part on the research and reports that equity research analysts publish about us and our business. The price of the ADSs could decline if one or more securities analysts downgrade the ADSs or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business. As a foreign private issuer whose ADSs are listed on the Nasdaq, we intend to follow certain home country corporate governance practices instead of certain Nasdaq requirements. As a foreign private issuer whose ADSs are listed on the Nasdaq, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the rules of the Nasdaq. As permitted under the Companies Law pursuant to our articles of association, the quorum for an ordinary meeting of shareholders shall be the presence of at least two shareholders present in person, by proxy or by a voting instrument, who hold at least 25% of the voting power of our shares (and in an adjourned meeting, with some exceptions, a minimum of one shareholder) instead of 33 1⁄3% of our issued share capital as required under the Nasdaq corporate governance rules. We may also adopt and approve material changes to equity incentive plans in accordance with the Companies Law, which does not impose a requirement of shareholder approval for such actions. We intend to follow Israeli corporate governance practice instead of the Nasdaq requirements to obtain shareholder approval for certain dilutive events (such as issuances that will result in a change of control, certain transactions other than a public offering involving issuances of a 20% or greater interest in us and certain acquisitions of the stock or assets of another company). Accordingly, our shareholders may not be afforded the same protection as provided under the Nasdaq corporate governance rules. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the Nasdaq may provide less protection than is accorded to investors of domestic issuers. | 21 | · | the judgment was rendered by a court not competent to render it according to the laws of private international law in Israel; |
As a foreign private issuer, we are not subject to U.S. proxy rules and are exempt from certain reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. As a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors, and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Furthermore, although under regulations promulgated under the Companies Law, as an Israeli public company listed on the Nasdaq, we are required to disclose the compensation of our five most highly compensated officers on an individual basis, this disclosure is not as extensive as that required of U.S. domestic reporting companies. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC, as frequently or as promptly as U.S. domestic reporting companies whose securities are registered under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protections available to you in comparison to those applicable to a U.S. domestic reporting companies. If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we would incur significant legal, accounting and other expenses that we would not incur as a foreign private issuer. We would lose our foreign private issuer status if a majority of our shares are owned by U.S. residents and a majority of our directors or executive officers are U.S. citizens or residents or we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. We cannot assure you that at June 30, 2019, the next determination date of our foreign private issuer status, we will qualify as a foreign private issuer. If we cease to qualify as a foreign private issuer at this determination date, we will be required to begin reporting as a domestic issuer on January 1, 2020. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer, and we will be required to present our financial statements in accordance with U.S. GAAP instead of in accordance with IFRS as we currently do. We may also be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we would lose our ability to rely upon exemptions from certain Nasdaq corporate governance requirements that are available to foreign private issuers. The market price of the ADSs could be negatively affected by future sales of the ADSs. Sales by us or our shareholders of a substantial number of our ordinary shares or ADSs in the public markets, or the perception that these sales might occur, could cause the market price of the ADSs to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities. | 22 | · | the judgment is at variance with another judgment that was given in the same matter between the same parties and that is still valid; or |
As of the date of this Annual Report on Form 20-F, there are 37,099,352 ordinary shares, including 2,652,174 ADSs representing 13,260,870 ordinary shares outstanding. Of our issued and outstanding shares, all of the ADSs sold in our initial public offering will be freely transferable, except for any ADSs held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). 15,813,214 ordinary shares that are beneficially owned by shareholders are subject to lock-up agreements that restrict the holders’ ability to transfer the ADSs or the underlying ordinary shares until August 11, 2019, when the applicable lock-ups expire. After the expiration of the lock-up period, these shares can be resold into the public markets in accordance with the requirements of Rule 144 of the Securities Act, subject to certain volume limitations. Following the expiration of the lock-up restrictions described above, the number of ordinary shares or ADSs that are potentially available for sale in the open market will increase materially, which could make it harder for the value of our ordinary shares and ADSs to appreciate unless there is a corresponding increase in demand for our ordinary shares and ADSs. This increase in available shares could result in the value of your investment in the ADSs decreasing. In addition, a sale by us of additional ordinary shares, ADSs 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 or ADSs might impede our ability to raise capital through the issuance of additional ordinary shares, ADSs or other equity securities, and may cause you to lose part or all of your investment in our ordinary shares or ADSs. We do not intend to pay dividends in the foreseeable future. We do not anticipate paying any cash dividends on the ADSs. 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 the investors’ sole source of gain for the next several years. In addition, Israeli law limits our ability to declare and pay dividends, and may subject us to certain Israeli taxes. You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you. The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act, but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to affect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositary may deduct from such dividends or distributions its fees and may withhold an amount on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs. | 23 | · | at the time the action was brought in the foreign court, a suit in the same matter and between the same parties was pending before a court or tribunal in Israel. |
Item 4. InformationADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could augur less favorable results to the plaintiff(s) in any such action. The deposit agreement governing the ADSs representing our ordinary shares provides that holders and beneficial owners of ADSs irrevocably waive the right to a trial by jury in any legal proceeding arising out of or relating to the deposit agreement or the ADSs, including claims under federal securities laws, against us or the depositary to the fullest extent permitted by applicable law. If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge, the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court. However, we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York, which govern the deposit agreement, by a court of the State of New York or a federal court, which have non-exclusive jurisdiction over matters arising under the deposit agreement, applying such law. In determining whether to enforce a jury trial waiver provision, New York courts and federal courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs. In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in fraud or one that is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tort claim (as opposed to a contract dispute), none of which we believe are applicable in the case of the deposit agreement or the ADSs. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any provision of the federal securities laws. If you or any other holder or beneficial owner of ADSs brings a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may augur different results than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing. Holders of ADSs must act through the depositary to exercise their rights as our shareholders. Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law and our articles of association, the minimum notice period required to convene a shareholders’ meeting is no less than 35 or 14 calendar days, depending on the Company proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders of the ADSs may not receive sufficient notice of a shareholders’ meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, the depositary and its agents are not responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders’ meeting.You may be subject to limitations on transfer of your ADSs. Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement. As a result of becoming a public company, our management is required to devote substantial additional time to new compliance initiatives as well as to compliance with ongoing U.S. and Israeli reporting requirements. As a public company in the United States, we incur significant additional accounting, legal and other expenses that we did not incur before our initial public offering. We incur costs associated with corporate governance requirements of the SEC and the Nasdaq, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act. These rules and regulations increase our legal and financial compliance costs, introduce new costs such as investor relations, stock exchange listing fees and shareholder reporting, and make some activities more time consuming and costly. The implementation and testing of such processes and systems requires us to hire outside consultants and incur other significant costs. Furthermore, if we cease to qualify as a foreign private issuer, we would incur significant additional legal, accounting and other expenses in order to comply fully with the reporting requirements of the Exchange Act and Nasdaq applicable to U.S. domestic issuers. Any future changes in the laws and regulations affecting public companies in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, and the rules and regulations adopted by the SEC and the Nasdaq, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, if any, or as executive officers. Our U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company, or PFIC. Generally, if for any taxable year, 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income, we would be characterized as a PFIC for U.S. federal income tax purposes. We believe that we were a PFIC in 2017 and 2018 and, based on estimates of our gross income and gross assets, our intended use of the proceeds of our initial public offering, and the nature of our business, we believe that we will be classified as a PFIC for the taxable year ending December 31, 2019. Because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine with certainty whether we will be characterized as a PFIC for the 2019 taxable year until after the close of the year. Moreover, we must determine our PFIC status annually based on tests that are factual in nature, and our status in future years will depend on our income, assets and activities in those years. In any taxable year in which we are characterized as a PFIC for U.S. federal income tax purposes, a U.S. Holder, as defined in “Item 10.—Additional Information—Taxation—U.S. Federal Income Tax Consequences,” that owns ADSs could face adverse U.S. federal income tax consequences, including having gains realized on the sale of the ADSs classified as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on the ADSs by individuals who are U.S. Holders, and having interest charges apply to distributions by us and the proceeds of ADS sales. Certain elections exist that may alleviate some adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market treatment) of the ADSs. If we are a PFIC in any year, U.S. Holders may be subject to additional Internal Revenue Service (“IRS”) filing requirements, including the filing of IRS Form 8621, as a result of directly or indirectly owning stock of a PFIC. See “Item 10.—Additional Information—Taxation —U.S. Federal Income Tax Consequences.” We may be treated as a U.S. corporation for U.S. federal income tax purposes. For U.S. federal income tax purposes, a corporation generally is considered tax resident in the place of its incorporation. We are incorporated under the laws of the State of Israel and, therefore, we should be a non-U.S. corporation under this general rule. However, Section 7874 of the Internal Revenue Code of 1986, as amended (the “Code”), contains rules that may result in a foreign corporation being treated as a U.S. corporation for U.S. federal income tax purposes. The application of these rules is complex and there is little guidance regarding certain aspects of their application. Under Section 7874 of the Code, a corporation created or organized outside the United States will be treated as a U.S. corporation for U.S. federal tax purposes when (i) the foreign corporation directly or indirectly acquires substantially all of the properties held directly or indirectly by a U.S. corporation, (ii) the former shareholders of the acquired U.S. corporation hold at least 80% of the vote or value of the shares of the foreign acquiring corporation by reason of holding stock in the U.S. acquired corporation, and (iii) the foreign corporation’s “expanded affiliated group” does not have “substantial business activities” in the foreign corporation’s country of incorporation relative to its expanded affiliated group’s worldwide activities. For this purpose, “expanded affiliated group” generally means the foreign corporation and all subsidiaries in which the foreign corporation, directly or indirectly, owns more than 50% of the stock by vote and value, and “substantial business activities” generally means at least 25% of employees (by number and compensation), assets and gross income of our expanded affiliated group are based, located and derived, respectively, in the country of incorporation. We were incorporated on September 22, 2011 under the laws of the State of Israel for the purpose of a reincorporation merger (“Reincorporation”), which merged BTI with and into a wholly-owned subsidiary of BioCancell Ltd (“BioCancell”). For more information on the Reincorporation, see “Item 4 — History and Development of the Company.” We do not believe that we should be treated as a U.S. corporation as a result of the Reincorporation under Section 7874 of the Code because we believe that we have substantial business activities in Israel. However, the IRS may disagree with our conclusion on this point. In addition, there could be legislative proposals to expand the scope of U.S. corporate tax residence and there could be changes to Section 7874 of the Code or the Treasury Regulations promulgated thereunder that could result in us being treated as a U.S. corporation. If it were determined that we should be treated as a U.S. corporation for U.S. federal income tax purposes, we could be liable for substantial additional U.S. federal income tax on our taxable income since the Reincorporation. In addition, payments of dividends to non-U.S. holders may be subject to U.S. withholding tax. Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting, which could have a material adverse effect on the price of the ADSs. Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal controls, failing to remediate these deficiencies or weaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reported financial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, which could make the ADSs less attractive to investors. For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable to other public companies, including: an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act; and an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board (the “PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements. We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1.07 billion or more, (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt, (iii) December 31, 2024 or (iv) the date on which we are deemed a “large accelerated issuer” as defined in Regulation S-K of the Securities Act. We cannot predict if investors will find the ADSs less attractive because we may rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the market price of the ADSs may be more volatile. | ITEM 4. | Information On The Company |
A. History and Development of the Company We were incorporated on September 22, 2011 under the laws of the State of Israel for the purpose of the Reincorporation which merged BTI with and into a wholly-owned subsidiary of BioCancell. BTI was incorporated in the United States as a private company under the laws of the State of Delaware on July 26, 2004, and commenced operations on October 1, 2004. On October 18, 2004, BTI formed BioCancell Therapeutics Israel Ltd. ("BTIL") as its Israeli wholly-owned subsidiary. In 2006, BTI filed a prospectus for an initial public offering on the TASE and beginning August 17, 2006,The Reincorporation was publicly traded on the TASE. On June 23, 2009, BTI’s Registration Statement on Form S-1 was deemed effective by the SEC and as of that date it became a reporting company to the SEC.
On September 22, 2011, BioCancell Ltd. was formed in the State of Israel for the purpose of the Merger which merged BTI with and into a wholly-owned subsidiary of BioCancell Ltd. The Merger was completedconsummated on August 13,14, 2012, and BTI survived as a wholly-owned subsidiary of BioCancell Ltd. until it was formally dissolved in the stateState of Delaware on December 28, 2012. BTIL survivedFollowing the Merger andReincorporation, BioCancell became a wholly-ownedpublic company with its ordinary shares listed on the TASE. In August 2018, BioCancell changed its name to Anchiano Therapeutics Ltd. and its ordinary shares continue to be traded on the TASE under that name. Our principal executive offices are located at 1/3 High-Tech Village, Givat Ram, P.O. Box 392649, Jerusalem, 9139102 Israel and our telephone number is +972 (2) 548-6555.We wholly own a subsidiary, Anchiano Therapeutics Israel Ltd. (formerly BioCanCell Therapeutics Israel Ltd.), which itself wholly owns a Delaware-incorporated subsidiary, called Anchiano Therapeutics, Inc. (formerly BioCancell USA, Inc.) for the purpose of operating in the United States. Anchiano Therapeutics, Inc. is subject to the tax laws of the Israeli parent corporation, BioCancell Ltd. BioCancell Ltd.State of Delaware. Anchiano Therapeutics, Inc. acts as our agent for service of process in the United States, and BTIL are bothis located at Beck Science Center, 8 Hartom St., Har Hotzvim, Jerusalem 9777508, Israel (Tel: +972-2-548-6555). The Merger did not include any changeOne Kendall Square, Building 600, Suite 6-106, Cambridge, Massachusetts 02139 and the telephone number for Anchiano Therapeutics, Inc. is +1 (857) 259-4622.On January 7, 2019, we filed a registration statement in BTI's activities as it effectively became BioCancell Ltd., orconnection with an initial public offering of ADSs in the proportionUnited States and on February 12, 2019, the ADSs, representing our ordinary shares, commenced trading on the Nasdaq under the symbol “ANCN.” Our capital expenditures for the years ended December 31, 2018 and 2017 amounted to $0.2 million and $0.03 million, respectively. These capital expenditures were related primarily to laboratory equipment purchases. We anticipate our capital expenditures in 2019 to be financed from the proceeds of holdings of any securityholder, but was rather a technical step intendedour February 2019 initial public offering. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are available to solve the difficulties encountered bypublic through this website at http://www.sec.gov. In addition, since our obligationsordinary shares are traded on the TASE, we filed Hebrew language periodic and immediate reports with, and furnished information to, report to both the IsraelTASE and the Israeli Securities Authority ("ISA"(the “ISA”) andas required under the Israeli Securities Law, 5728-1968. Since the ADSs commenced trading on the Nasdaq, our reporting to the SEC, which made both managementTASE and fundraising unduly difficult. UnderISA is generally restricted to copies of our filings with the termsSEC. Copies of our filings with the ISA can be retrieved electronically through the MAGNA distribution site of the Merger, additional securities of BTI were exchanged, as follows: (a) Series 3 and Series 4 warrants were exchanged for Series 1 and Series 2 warrants of BioCancell Ltd.; (b) options under the employee option plans from 2004 and 2007, exercisable for shares of BTI, were exchanged for the said warrants exercisable for shares of BioCancell Ltd. under the 2011 BioCancell Ltd. Compensation Plan; and (c) warrants that were allotted to private investors in 2008 and 2010 were exchanged for warrants exercisable for BioCancell Ltd.'s shares. The convertible loans that BTI received in July 2008 were converted or repaid prior to the closing of the Merger. The shares of BTI resulting from the conversion of certain convertible loans were replaced by BioCancell Ltd.'s shares. For more information, see Item 6.E. Share Ownership – Employee Benefit Plans.
BTI shareholders’ rights prior to the Merger were governed by the Delaware General Corporation Law, the BTI certification of incorporation, BTI bylaws and certain provisions of the Companies Law that applied to BTI as a non-Israeli corporation whose shares are listed on TASE. Since the Merger was consummated, the rights of BioCancell Ltd. shareholders are governed by the Companies LawISA (www.magna.isa.gov.il) and the BioCancell Ltd. articles of association.TASE website (www.maya.tase.co.il).4.B. Business Overview
We aremaintain a development-stage biopharmaceutical company focusedcorporate website at www.anchiano.com. Information contained on, the discovery, development and commercialization of novel therapies for treating cancer-related diseases. Our research and development activities, performedor that can be accessed through, our website is not incorporated by the fully-owned subsidiary of BioCancell Ltd., namely BioCancell Therapeutics Israel Ltd., build upon the research of Professor Abraham Hochberg of the Hebrew University of Jerusalem, who isolated the human H19 gene and determined that it is expressed in over forty different forms of cancer, including superficial bladder carcinoma and pancreatic cancer, while laying dormant and non-expressed in non-cancerous cells. Professor Hochberg’s research discovered that genes such as H19 and IGF2 are significantly expressed in cancerous cells of adults. Research has also demonstrated that the H19 gene plays a significant role in the tumor development process by enabling tumor cells to survive under stress conditions, such as low serum and low oxygen levels, that are typical conditions of the environment in which cancerous cells develop. This survival supports the growth of the tumor and the development of metastases. A significant problem with each of the current methods for treatment of cancer is the return of tumors. Even the most aggressive anti-cancer drugs, such as those used in chemotherapy, destroy the tumor cells, but do not appear to treat the source of the tumor - generally a long process of accumulation of genetic mutations and the elusive cancer stem cells.
The research and understanding of the origin of cancer and metastases has progressed significantly in recent years. It is currently understood that embryogenesis, which is the process by which the embryo is formed and develops, and the process of the development of cancer, possess similar characteristics. The H19 gene is expressed and has a significant role in both processes.
In light of recently-achieved scientific breakthroughs in cancer research, and the role of the H19 gene in such processes, we believe that an anti-cancer drug based on the H19 gene has the potential to provide benefits that are competitive with existing treatment methods.
The Company’s Prospective Drugs
The Company is currently focused on developing its prospective drug, BC-819. The Company’s development of BC-819 builds upon the research of Professor Hochberg who discovered that the H19 gene is a diagnostic marker for cancerous growths, through the identification of the expression of the H19 gene. Based upon these discoveries, the Company has developed BC-819, which is a double-stranded DNA plasmid construct in which diphtheria toxin (DTA) is synthesized after entering a cell in which H19 transcription factors exist, destroying that cell alone. The regulatory region of the H19 gene is utilized instead to activate the intra-cellular synthesis of DTA. Once BC-819 enters an H19-positive cancer cell, the cell can offer no resistance and is marked for death. The net result of this mechanism is highly selective tumor cell destruction. The strong safety profile of BC-819 is due, in part, to the fact that it produces only the destructive “A” chain of diphtheria toxin inside cancerous cells. It lacks the ability to replicate itself and penetrate other cells (the “B” chain), and consequently only acts to destroy the cell in which it is produced. Therefore, this new therapeutic modality is specific for H19-positive cancer cells and thus far has not shown toxic effects on healthy cells — a safety feature that is unique when compared to currently available cancer treatments.
BC-819 has also demonstrated potential with respect to combination therapy when administered in combination with Gemzar in animals with pancreatic cancer.
The Company is developing two BC-819-based strategies. The first therapy is for bladder cancer wherein BC-819 is mixed with a transfection agent (to facilitate entry of BC-819 moleculesreference into the cancer cells) for bladder instillation. The second BC-819 approach is for advanced-stage cancers such as pancreatic cancer in which BC-819 is injected directly into the tumor. Different routes of administration are employed depending upon the type of tumor (intravesical administration for bladder cancer and intratumoral injection for pancreatic cancer). In addition, the Company is developing formulations for systemic administration.
Pursuant to an agreement with Yissum, Yissum has granted to the Company an exclusive, worldwide license for the use, development and commercialization of products using genes that the Company has determined to be target genes (H19 and IGF2) in consideration of which the Company has agreed to pay certain royalties to Yissum described elsewhere in this Annual Report on Form 20-F.
The Company’s primary strategic objective is20-F, and you should not consider information on our website to continue development of the Company’s prospective drug BC-819 for the treatment of superficial bladder carcinoma and pancreatic cancer, while broadening the scope of development to include additional applications.
In addition to pursuing clinical trials of BC-819 for the treatment of bladder and pancreatic cancer (as described in detail below), the Company is performing pre-clinical research related to the use of BC-819 for the treatment of various other forms of cancer as it seeks to develop additional drugs based on various implementations of the biotechnology developed by Professor Hochberg. Another aspect of the Company’s research and development activity is: BC-821, a potential therapeutic product that penetrates cancerous cells and activates the synthesis of DTA only in cells expressing either the H19 promoter or the P4 promoter of IGF2, which like the H19 target gene is expressed only in cancerous cells and not in healthy cells. It thus has the potential to serve as a second-generation product to BC-819, allowing the targeted destruction of cancer cells in a larger number of patients.
In pursuing its objectives, the Company may enter into strategic collaborations with third parties who have the expertise and the resources necessary for the performance of large scale clinical trials, who have well established marketing, distribution and manufacturing infrastructures for the late-stage development and commercialization of the Company’s prospective products.
Potentially Treatable Diseases
Superficial Bladder Carcinoma. Superficial bladder carcinoma is a specific form of bladder cancer resulting from the development and progression of non-muscle invasive cancerous tumors. The H19 gene is expressed at high levels in areas afflicted by superficial bladder carcinoma.
Pancreatic Cancer. Cancerous cells may develop in either the exocrine cells or the endocrine cells of the pancreas and the H19 gene is expressed at high levels in these cancerous regions.
The Company’s Research and Development
The Company’s research and development efforts include the following milestones:
Diagnostics — Use of H19 as a Diagnostic and Prognostic Tool. Professor Hochberg’s research team has discovered that the H19 gene serves as a diagnostic marker for cancerous growths, through the identification of the expression of the H19 gene. A highly sensitive method called In-Situ Hybridization Analysis (ISH) can detect even a single malignant cell expressing the H19 gene. ISH enables the detection of the expression of H19 in the examined tissue, a prerequisite for treatment with BC-819, while providing precise anatomic information regarding the location of the H19 in the tissue. The diagnostic marker enables the diagnosis of cancerous tumors in early stages, supporting the prognosis of the tumor.
Pre-Clinical Studies. Between the years 2000 and 2005, Professor Hochberg’s research team conducted extensive animal studies on BC-819, which was introduced into the bladders of bladder-carcinoma carrying rats (orthotropic model) and mice (heterotopic model). Significant tumor growth inhibition was observed after treatment. Between the years 2006 – 2007, Harlen Biotech Israel Ltd. conducted toxicology studies in rats and mice, in accordance with Good Laboratory Practices regulations. The studies included repeated injections at increasing dosages into the abdominal cavity of mice and intravesical administration into the urinary bladder of rats. The equivalent dosage given to the animals was higher than the expected human dosage. No gross pathological findings were evident in the intravesical administration study, and mild to moderate side effects were evident in the intraperitoneal administration study. In more recent experiments which were conducted in the laboratories of the University of Munich, lung cancer carrying mice were treated with BC-819. More tumor growth inhibition was observed in mice which were treated with BC-819 than in mice which did not receive treatment. The Company would consider further developmentbe part of this application subjectAnnual Report on Form 20-F.B. Business Overview Overview We are a clinical-stage biotechnology company committed to its available resources. In pre-clinical experiments of BC-819 alone asengineering a treatment for pancreatic cancer, a group of hamsters suffering from pancreatic cancer was treated with BC-819, and compared with a control group. The treated group displayed an average reduction of approximately 50% in the primary tumor volume, and a significant slowing in tumor progression comparedtargeted gene therapy to the control group. In addition, only one third of the treated group showed metastatic growths, while all of the animals in the control group developed metastases. In pre-clinical experiments of BC-819 used in sequence with the FDA-approved drug Gemzar (Gemcitabine), as compared to the use of Gemzar alone, as treatment for pancreatic cancer, results showed that in animals treated with the sequence of BC-819 and Gemzar, the volume of cancerous growths shrank significantly, in comparison with the animals treated with Gemzar alone. In addition, there was no appearance of metastases in the animals treated with the combination of BC-819 and Gemzar, while approximately 63% of animals treated with Gemzar alone showed metastatic growths.
In one pre-clinical experiment to evaluate the therapeutic potential of BC-819 to treat ovarian cancer, a group of mice suffering from ovarian cancer was treated with BC-819, and compared with a control group. Results showed that BC-819 treatment resulted in a reduction of tumor growth of approximately 40%. In another experiment, mice with ovarian ascites were injected with BC-819 and compared with a control group. After six days, five of the six control mice (83%) had died, compared to only two of the six mice (33%) treated with BC-819.
Compassionate Use Patients. BC-819 has been administered, under “compassionate use” provisions in Israel, to ovarian, liver and bladder cancer patients who had failed chemotherapy or other standard therapy, and were in the ultimate stages of cancer, and to urinary bladder and renal pelvis transitional cell carcinoma (TCC) patients who had failed chemotherapy and were candidates for surgical removal of their cancerous organs. In 2003, two patients with resistant bladder cancer were treated with BC-819. Prior to the BC-819 treatment, the patients underwent a resection (surgical removal) of tumors, which later returned. Both patients were treated by direct introduction of BC-819 into the bladder using a catheter. The BC-819 treatment resulted in a significant decrease of the superficial bladder tumor, no unwanted toxicity was demonstrated in healthy cells, no serious adverse side effects which can be related to the drug were diagnosed, and no BC-819 was detected in the patients’ blood.
Two additional patients with very large colon cancer metastases in their livers showed shrinkage of these tumors following treatment with BC-819 in 2004 and 2006. No unwanted toxicity was demonstrated in healthy cells and no severe adverse effects which can be related to the drug were diagnosed.
A patient suffering from ovarian cancer characterized by intra-peritoneal distribution of metastases and ascites (liquid containing cancerous cells that builds up in the peritoneum as a result of the cancer) was treated with BC-819 from 2007, after the failure of conventional chemotherapy treatment. In the framework of the treatments, the patient received a number of different doses of BC-819 administered by intra-peritoneal infusions via catheter. The results indicated that the drug caused no serious adverse events at any dosage, and a decrease of 50% in the ovarian cancer marker protein CA-125 in the patient’s blood was measured, as well as a significant decrease in the number of cancerous cells in the ascites. The patient survived for 21 months after the commencement of treatment.
A patient suffering from TCC in his renal pelvis, who had previously undergone surgical removal of his right kidney for this disease, and was a candidate for removal of his left kidney, was treated with BC-819 from the end of 2008. The results showed that no new growths were formed in the renal pelvis, and the treatment did not cause any serious adverse effects.
Phase I/IIa Clinical Trials. In 2006 – 2007, the Company conducted a Phase I/IIa, Dose-Escalation, Safety and Proof of Concept Study of BC-819 in Refractory Superficial Bladder Cancer. This study was designed to assess the safety and preliminary efficacy of BC-819 given by intravesical infusions into the bladder of 18 patients with superficial bladder cancer who had failed previous treatment. Escalating doses of 2 mg, 4 mg, 6 mg, 12mg and 20mg of BC-819 were utilized. No severe adverse side effects which can be related to the drug were diagnosed, other than in one case for which the reason was uncertain. This patient was hospitalized following complaint of urination urgency. The patient was released after two days and did not suffer additional adverse side effects during the treatment. No dose limiting toxicity was discovered. As a result of the Phase I/IIa study, the Company concluded that the optimal dose to be used in Phase II trials would be 20mg.
At the beginning of the BC-819 treatment of patients in this study, all of the bladder tumors were removed, except for one (the diameter of which was 0.5 cm to 1 cm), which was left as a marker to gauge the influence of the treatment, despite the fact thatimprove the standard of care for early-stage bladder cancer patients involves removing all tumors. The parameters for examination of the initial efficacy include the reappearance of tumors, elimination or decrease in the size of the marker,cancer. We have discovered and the aggravation of the disease. The Company examined efficacy in all patients participating in the trial, includingare developing a biologic agent, inodiftagene, that we believe can deliver a new treatment to patients who did not receive the optimal dose. Approximately 72% of the patients presented response to the treatment. The initial estimation of the drug’s efficacy indicateshave options that it has the ability to eliminate or decrease the size of tumors,are limited in effectiveness and to prevent the reappearance of new tumors. Approximately 56% of the patients finished the study without tumor recurrence. Reappearance of tumors was detected mainlyproblematic in patients who received doses which were substantially lower than the optimal dose. Intravesical administration of BC-819 resulted in complete ablation (removal) of the marker tumor without any new tumors in 4 of the 18 patients for a 22% overall complete response rate. The marker was eliminated, or reduced by at least 50%, in approximately 44% of the patients in the study. Only one patient reported aggravation of the disease, meaning aggravation of the stage or the appearance of high grade tumors. See below for details regarding the Phase IIb clinical trial of this therapy.
The Company commenced a Phase I/IIa clinical trial for treatment of ovariantoxicity. Bladder cancer in May 2009. The trial included 11 evaluable participants in three different treatment groups (60 mg, 120 mg and 240 mg), all of whom had failed treatment with platinum-based chemotherapy and possibly other types of treatment. Each participant received a cycle of three weekly treatments, and if there was no disease progression a month later, she received an additional treatment cycle.
In March 2012, the Company announced that it had achieved the primary endpoint of this trial, with the safety profile of the drug found to be satisfactory, even at the highest dosage (240 mg) which was administered three times. Patients receiving the highest dosage showed a decrease, and eventually absence, of ascites (a fluid containing cancerous cells that gathers in the abdominal cavity). This effect continued as long as the patients received treatment. Ascitic fluid is a significant side effect for ovarian cancer patients, which adversely affects their quality of life and indicates patient deterioration. In light of these results, the Company obtained regulatory approvals to expand the trial by treating an additional six patients, although it ultimately decided against this plan of action.
The Company commenced a Phase I/IIa clinical trial for treatment of pancreatic cancer in November 2009, and completed the trial in October 2010. The trial took place at sites including the University of Maryland, Baltimore and was partly funded by a $950,000 grant from the Israel-U.S. Binational Industrial Research and Development Fund. The trial included nine patients with unresectable, locally advanced pancreatic cancer, some of whom had received standard treatments prior to their inclusion in the trial, who each received four treatments over the course of two weeks. Three patients were included in a lower dosage cohort, each receiving four milligrams per treatment, while six others were included in a higher dosage cohort, each receiving eight milligrams per treatment. The results show that no toxicity limited the dose, and no patient reported pain or discomfort as a result of the drug, and therefore the optimal dose was fixed as the maximum dose given in the trial.
A statistical analysis of the results of this trial shows that the higher dosage given in the trial demonstrated greater efficacy than the lower dosage, and that the effect was stronger after three months from commencement than after one month. Specifically, within a month from commencement, the local tumor had not increased in size in eight out of the nine patients, but rather remained stable in both dosage cohorts. Six of the nine patients showed a reduction in the size of the local tumor when examined three months after the commencement of treatment. The reduction was significant (30% or more) in three out of six patients of the higher-dose cohort. These three patients also showed no metastatic disease, despite the fact that the clinical trial was aimed at the local tumor only. In addition, three months after commencement of treatment, two additional patients displayed stable tumor size and no metastatic disease, despite the length of time that had elapsed. In total, five patients displayed stable disease or a significant response after three months from commencement of treatment.
In general, an operation to remove pancreatic tumors (the Whipple procedure) offers patients the best chance for survival, but most patients are not operable on account of the complexity, location and size of the tumor. Following treatment with BC-819, two patients in the higher dosage cohort that were non-resectable, became resectable as a result of tumor shrinkage. The first had the tumor successfully removed at the University of Maryland Medical Center, Baltimore, MD. The second was operated upon, but the surgeon halted the operation upon discovery of liver metastases, in order to prevent unnecessary risk to the patient.
Based on the results of this clinical trial, and the results of a successful pre-clinical study announced on October 12, 2010 that examined the sequential administration of BC-819 with FDA-approved drug Gemzar (Gemcitabine) in animals as a treatment for pancreatic cancer, the Company received approval from the FDA for an international Phase IIb pancreatic cancer clinical trial in October 2011. See below for details regarding the Phase IIb clinical trial of this therapy.
Phase IIb Clinical Trials. Between 2008 and 2012, the Company conducted a Phase IIb clinical trial with patients suffering from superficial bladder cancer who had failed previous treatment. The trial was conducted in a U.S.-based medical center in Arizona at BCG Oncology, PC and at six medical centers in Israel. It included 39 evaluable patients, with an interim analysis performed between treatment of the first 18 and last 21 patients. Each participant received six weekly treatments of BC-819. Patients responding to the treatment were offered nine additional maintenance treatments over nine months. The primary endpoint approved by the FDA was lack of disease recurrence, three months after the commencement of treatment, in at least nine of the last 21 patients. The success criterion was the lack of recurrence in at least nine members of the second treatment group, and this parameter was also analyzed for all 39 participants in this trial.
In March 2013, the Company announced the results of the clinical trial, according to which 25 of the 39 participants (approximately 64%) showed no disease recurrence three months after the commencement of treatment (defined as a complete response), meaning that the Company met the aforementioned success criterion for the primary efficacy endpoint of the trial. In addition, of the 31 patients who completed 12 months from the commencement of treatment, 14 (approximately 45%) showed no disease recurrence, and of the 25 patients who completed 24 months from the commencement of treatment, ten (40%) showed no disease recurrence. The mean recurrence-free survival period was 12.1 months. More than 80% of participants retained quality of life throughout the clinical trial, as measured by the Karnofsky scale of patient performance, rather than the characteristic decline of day-to-day performance for bladder cancer patients receiving standard treatments. Of all the participants in the clinical trial, one patient underwent one serious adverse event (hematuria) that may possibly have been connected to the treatment (the administration of BC-819 to the bladder), from which the good safety profile of the drug can be inferred. On the basis of these results, preliminary contacts are taking place between the Company and a number of international pharmaceutical corporations with regard to the continued development and commercialization of the drug.
Between 2011 and 2012, the Company conducted a Phase IIb pancreatic cancer clinical trial. The trial was designed to examine the effect of BC-819 in sequence with the FDA-approved drug Gemcitabine in patients with locally-advanced, unresectable pancreatic cancer. This clinical trial included 11 participants (plus a twelfth who was not defined as evaluable by the clinical trial protocol), with five patients receiving a lower dosage of 8 mg, and six patients receiving a higher dosage of 12 mg. The primary endpoint of the trial was progression-free survival. In February 2013, the Company reported results of the first stage of this clinical trial, according to which nine of the 11 patients showed no disease progression three months after the commencement of treatment. Of these, none of the six patients in the high dose group showed disease progression, while two of the five in the low dose group did. The trial’s data and safety monitoring board (DSMB) determined that no serious adverse events were related to BC-819 (any serious adverse events were a result of the disease itself, the use of Gemcitabine or the manner of injection of BC-819 into the pancreatic growth), and that there was no difference in safety between the two dosage groups.
Subsequent studies, and additional data which are expected to be obtained from additional research and development activities may not corroborate previous findings with respect to safety and efficacy, which were obtained during the studies previously conducted. The FDA alone will determine whether the Company’s therapies are both safe and effective for commercial use in the United States after substantial additional clinical studies.
Regulatory Approvals. On August 15, 2010, the Company announced that the United States Department of Health and Human Services had granted orphan drug status to BC-819 for its use in treating pancreatic cancer. An “orphan drug” is a drug for a disease that affects a relatively small numbertypically causes symptoms early in its course and consequently presents the patient and the treating physician with an opportunity to gain control of peoplethe malignancy. However, the limitations of existing therapies, developed in the 1970s, often result in a population. In the U.S., an orphan drug is defined as oneprolonged series of unsuccessful treatments that treats a disease affecting less than 200,000 people each year. In order to encourage the development of drugs for such diseases, benefits and incentives can be granted to the drug developers. The main standard benefit for orphan drugsend in the U.S. isradical removal of the right to market the drug exclusively for 7 years from the date it is approved. Additional benefits include tax benefits on R&D expenses, and waived FDA fees.
On October 4, 2011, the Company received notification from the FDA that it had received "Fast Track" designation for itsbladder.Our lead product BC-819, ascandidate, inodiftagene, is a treatment for pancreatic cancer. The Fast Track designation refers to a process designed to facilitate development and expedite FDA review of drugs to treat serious diseases and fill an unmet medical need in order torecombinant DNA construct that will be able to offer such drugsadministered to patients earlier. This designationwhose therapy for early stage bladder cancer has failed: this is expectedgene therapy for bladder cancer. Preclinical studies and clinical trials completed so far have demonstrated that our product candidate can deliver a lethal gene specifically to help the Company shorten the development timeline for BC-819 asbladder cancer cells in a treatment for pancreaticpatient’s bladder. We have conducted clinical trials of inodiftagene in several malignancies, including bladder cancer, prior to final marketing approval by reducing the time taken to process clinical trial results by the FDA. Competition for the Company’s Prospective Therapeutic Products
The Company’s principal competitors in the field of research and development of drugs for the treatment of cancer types including superficial bladder carcinoma, pancreatic cancer, and ovarian cancer, include biotechnology and multinational pharmaceutical companies. The Company also competes with researchobserved anti-cancer activity in all of them. Based on our Phase 1 and academic institutions around the worldPhase 2 clinical trial results, we believe its most promising application is in the racetherapy of NMIBC in which it has the potential to discover genes, techniquesimprove patient outcomes substantially by delaying or in some cases eliminating disease progression, and consequently may significantly bettering patient quality of life. Although there can be no assurance, we also believe that the regulatory pathway to approval for commercialization and wide distribution of our product candidate in NMIBC, based on our interactions with the FDA and other patentable assets centralinternational regulators, is an extension of the clinical trial program we have undertaken to date, and that the researchpatient population for which our clinical development program is designed exhibits a significant unmet need for novel therapeutic approaches. Our proposed clinical development plan includes two pivotal clinical studies, either of which we believe may support FDA regulatory approval, and developmentwhich together will provide access to a large share of drugs for the treatment of such diseases.
Current competitionthis affected population and differentiate us from competitive approaches.Inodiftagene is a biological agent designed and formulated to deliver a toxic gene to bladder cells in a manner that results in the Company’s applications includes chemotherapygene being active only in the bladder tumor with consequent killing of the malignant cells. The engineered gene has been compounded with an agent that enhances and immunotherapy agents, both projectedoptimizes the efficiency of its delivery to tissue. In experiments we can demonstrate uptake of inodiftagene by 85% of target cells after a single exposure. We have tested inodiftagene in six clinical trials, three of which involved NMIBC patients, and we have observed substantial anti-tumor activity. The data from the three NMIBC trials demonstrate in Phase 1/2 and Phase 2 studies that: (i) inodiftagene causes complete responses in 33% of bladder cancer patients with unresected measurable tumors; (ii) one-year and two-year recurrence-free survival rates were 46% and 33%, respectively; and (iii) we can administer inodiftagene with BCG, the standard of care for NMIBC, with recurrence-free outcomes of 95% and 78% at three and six months, respectively. We believe that these studies support the potential for inodiftagene to provide new therapies for NMIBC patients. NMIBC affects a large population in the United States as well as worldwide. In 2018, it was expected that approximately 81,000 new cases of bladder cancer would be diagnosed in the United States. Nearly 141,000 new cases in the European Union are expected to be toxicdiagnosed in 2020. 75% of these cases will be NMIBC, the earliest stage in bladder cancer classification. The diagnosis of primary bladder cancer leads to a cycle of cystoscopic evaluation, surgical resection, and medical therapy, that is repeated as treatments fail successively and additional treatments are attempted. The standard medical treatment for NMIBC, BCG, is live tuberculosis bacteria that has been attenuated, or weakened in the laboratory, administered into the bladder. Most treatments with a safety profile inferiorBCG ultimately fail and result in tumor recurrence. Because of this prolonged natural history of early presentation and repeated treatment failures, it was estimated that in the United States in 2015, the latest year good estimates were available, about 710,000 patients will be living with bladder cancer. Moreover, it is the most costly cancer to treat in the United States, with annual costs that were estimated at over $4 billion in 2010, and costs of BC-819. As such, there is a clear medical and marketcare for an individual nearing $200,000. Despite the need for new agents such as the Company’s prospectiveapproaches to treat this disease, no drug BC-819 that demonstrate improved safety profiles. There are a number of treatment methods for treating these cancer types that would compete with any drug that the Company may develop and commercialize, including BC-819, which include:
Surgery. Surgery is the most common treatment method for invasive cancerous growths related to bladder cancer. Transurethral resection is the surgical method that is most often utilized for the removal of superficial bladder cancer tumors, but the high tumor recurrence rate renders this treatment method very expensive. It usually becomes infeasible at some stage of treatment, at which time the only remaining option to these patients is cystectomy (removal of the bladder).
For patients with pancreatic cancer, surgery offers the only known possibility of cure, but even this is effective in only a small number of patients (10 – 20%). Even when resection is possible, the median survival times of 13 – 25 months and five-year survival rates of 10 – 20% havehas been reported. Prognosis is poor because of a high rate of local recurrence and metastases despite resection.
Radiation Therapy. Radiation therapy involves the use of X-rays to destroy cancerous cells.
Chemotherapy. Chemotherapy uses special anti-cancer drugs that destroy cancerous cells. For bladder cancer patients, chemotherapy is administered directly into the bladder using a catheter for patients who are in the early stages of superficial bladder carcinoma. Chemotherapy is otherwise administered intravenously when superficial bladder carcinoma has become invasive.
To the best of the Company’s knowledge, some of the more commonly prescribed drugs used in intravesical chemotherapy are: Mitomycin-C, which is marketed by the Bristol-Myers Squibb Company and Supergene; Epirubicin, which is marketed by Pfizer, Inc.; and Doxorubicin, which is marketed by Ortho Biotech, Thiotepa (marketed by Bedford Laboratories), which is approved by the FDA for the treatment of superficial TCC,NMIBC since 1998. Patients with bladder cancer whose therapy has failed make up a large population of patients desperately in need of new therapies.There are two distinct populations of unmet need in the field of NMIBC treatment: (1) those patients for whom two treatments with standard BCG have failed, who are termed BCG-unresponsive, and Valrubicin (supplied(2) those for whom one BCG treatment has failed. Accordingly we are planning two pivotal clinical trials in NMIBC patients: (i) a single-arm Phase 2 study of inodiftagene in patients with BCG-unresponsive disease (the “Codex Clinical Trial”) and (ii) a randomized trial in patients whose disease has recurred after a single course of standard BCG therapy (the “Leo Clinical Trial”). Both of these studies have been reviewed by SYNCHEM OHG). To the bestFDA and other international regulatory bodies. The FDA has granted our program Fast Track designation for regulatory review. Additionally, the Phase 3 Leo Clinical Trial has been granted a SPA by the FDA as well. While there are several planned and ongoing trials that address the BCG-unresponsive patient population, in our view our clinical development program in patients whose disease recurs after a first course of BCG sets us apart and differentiates us from competitors. Based on market data, including a commissioned independent research study, we believe the potential market for inodiftagene, should it achieve regulatory approval for both indications in the United States, the European Union and Japan, is over $1.5 billion. We believe that the inodiftagene development program in early-stage bladder cancer may potentially allow us to meet the regulatory requirements for the development of a new therapy for this malignancy. Our Product Pipeline We have studied our product candidate inodiftagene, in patients with pancreatic cancer, ovarian cancer, and NMIBC, and we have studied it as a single agent or in combination with BCG. The following table summarizes the clinical development program of inodiftagene: | | PRODUCT | | TRIAL | | | | INDICATION | | CANDIDATE | | Phase 1 | | Phase 2 | | Phase 3 | | RESULTS | | NMIBC | | Inodiftagene | | Phase 1/2 | | | | | | No DLT, no MTD; 22% CR, 22% PR | | | | | | | Phase 2 | | | | 33% CR; 1-yr RFS 46% | | | | | | | Pivotal Phase 2 Codex Clinical Trial | | | | Initiation 4Q2018 | | | Inodiftagene with BCG | | | | Phase 2 | | | | Feasible; 3 month RFS 95%; 6 month RFS 78% | | | | | | | | | Pivotal Phase 3 Leo Clinical Trial | | Initiation planned 4Q2019, begin enrollment 1H2020 | | Pancreatic cancer | | Inodiftagene | | Phase 1/2 | | | | | | 2 PR in inodiftagene alone patients | | | Inodiftagene with gemcitabine | | | | Phase 2 | | | | 1 PR; median PFS 7.6-9.3 months | | Ovarian cancer | | Inodiftagene | | | | Phase 2 | | | | 1 CR of malignant ascites in compassionate use |
CR: complete response; DLT: dose-limiting toxicity; MTD: maximum tolerated dose; PFS: progression-free survival; PR: partial response; RFS: recurrence-free survival The emphasis of our development program is on NMIBC, and at this time, we do not plan additional studies in pancreatic or ovarian cancer. The six completed trials detailed above were conducted in leading academic medical centers in Israel, and the two pivotal studies, the Codex Clinical Trial and Leo Clinical Trial, will be conducted in the United States and internationally. The clinical trial results we have obtained demonstrate that inodiftagene has anti-cancer activity in bladder cancer, pancreatic cancer and ovarian cancer, all difficult-to-treat malignancies. Inodiftagene is well-tolerated, and side effects have been largely mild to moderate, and in bladder cancer patients involved primarily the lower urinary tract. The data suggests that the most promising application of inodiftagene is in the therapy of early-stage bladder cancer. Thus we have focused the development of inodiftagene in NMIBC. Non-muscle Invasive Bladder Cancer: The Problem Bladder cancer affects a very large population of patients in the United States and worldwide. It is the fourth most common cancer in men in the United States, being more common in men than in women, and is the fifth most common cancer in Europe overall. When incidence in the European Union and Japan is also considered, the combined global market encompasses an estimated 260,000 new cases per year. Despite being a common malignancy, it has not been the focus of new drug development. The last drug approved by the FDA for NMIBC was registered in 1998. New therapies are needed. 
Source: ACS Facts and Figures 2018. NMIBC is a cancer that is situated superficially in the lining of the Company’s knowledge, somebladder. Typically NMIBC is detected early in its course, when tumors are small, and because it is superficial, the most frequent first symptom of bladder cancer is blood in the patient’s urine. Evaluation by the physician involves visual examination of the inner surface of the bladder using a cystoscope, and diagnosis entails urine cytology, biopsy and pathological examination. Tumors are classified according to the depth they penetrate into the bladder, as illustrated below. The NMIBC subset of tumors is shown below, lettered in green. 
Non-muscle invasive tumors that involve only the inner surface of the bladder can be flat (“Tis," also known as carcinoma-in-situ (“CIS”)) or raised (“Ta”). A raised tumor can also begin to invade the next layer of the bladder (classed as a T1 lesion) and still be classified as NMIBC. Once tumors invade the inner or outer muscle layers, they are called muscle invasive bladder cancer (“MIBC”). Approximately 75% of bladder cancer cases are initially NMIBC. The urologist surgically removes the evident tumors that are resectable using the cystoscope by trans-urethral resection (“TUR”). Then, if the tumor characteristics lead it to be classified as intermediate or high risk for recurrence and progression, additional medical therapies are introduced through a catheter into the bladder. The FDA-approved standard therapeutic agent for intermediate and high-risk NMIBC is BCG, administered into the bladder after TUR over a one- to three-year course of treatment. Although initial results with BCG are good, side effects can be substantial, including urinary symptoms, bleeding from the bladder, bladder inflammation, fever, and in rare instances, contraction by the patient of tuberculosis, sepsis and death. The eventual relapse rates from the first course of therapy are estimated by experts in the field to be 50% by four years and as high as 70% by ten years. After a failed first treatment, urologic practice guidelines recommend that a second course of BCG be attempted. When used a second time, the efficacy of BCG falls. The relapse rate after a second course of BCG was approximately 75% at one year in a recent randomized study. Most patients, therefore, experience a failure of BCG treatment. As a result of the way BCG is used, there are two populations of unmet need in NMIBC treatment: (1) patients who have experienced recurrence following two courses of BCG, and (2) patients who have experienced recurrence following one course of BCG. This is illustrated below: 
The first unmet need in the treatment of the NMIBC is for patients who have been treated with two courses of BCG and then experienced recurrence. In this situation, there are no other medical therapies that are recommended as standard of care. Chemotherapy, immunotherapy and experimental treatments have been tested in these patients, but these are not approved. Patients whose NMIBC has failed to respond after two treatments with BCG are considered to have what is formally termed BCG-unresponsive NMIBC. Lacking a standard, FDA-approved therapeutic agent, treatment guidelines recommend that these patients undergo radical cystectomy, or bladder removal. Thus the first major unmet need in the NMIBC population is for new therapies for patients whose two courses of BCG treatment have been unsuccessful, who therefore need a third line of therapy, and who face the debility and compromised quality of life that accompany the removal of the bladder. The second unmet need in the treatment of the NMIBC is for patients earlier in their course of treatment, those whose first course of BCG therapy has failed. These patients are at very high risk for the subsequent failure of a second BCG treatment, and for becoming BCG-unresponsive. There is an opportunity to treat patients after their first treatment, in the second line, so as to prevent or delay ultimate recurrence and progression. The population of patients whose single course of BCG has failed comprises a larger population than those patients whose BCG therapies have failed twice. The FDA and leading urological societies have worked together to formulate an approach to developing new therapeutic agents for BCG-unresponsive disease. This approach has been published in several forums, including the FDA’sGuidance for Industry on BCG-unresponsive Nonmuscle Invasive Bladder Cancer(2018). Our pivotal clinical program has been developed in conjunction with key opinion leaders in the field of urological cancer, and in close consultation with the FDA, and is consistent with the published guidance. We believe our program is consistent with the FDA-delineated path to the regulatory approval of inodiftagene in both of these areas of unmet need.
Our Competitive Strengths Inodiftagene is a recombinant DNA plasmid-based agent designed and formulated to introduce a toxic gene into cells that is only activated in malignant cells, and when turned on in those cells, is lethal to them. It is a specifically targeted therapy. It is conceived to optimize efficacy and minimize side effects by focusing its cytotoxic effects in cancer cells only. Specifically, we believe our competitive strengths to be the following: | • | Inodiftagene is a targeted therapy.Our product candidate is designed so that its lethal payload is activated specifically in cancer cells. This has two effects. The first effect is that the anti-tumor effect is concentrated in the cancer. Inodiftagene delivers a potent toxin when it is internalized by cells. The toxin is not produced where it is not needed, in normal tissues in the bladder or elsewhere in the body. The second effect is that the cytotoxic effect is limited to the cancer. Normal bladder cells do not produce the toxin, and suffer no damage as a result of therapy. Data from our clinical trials are consistent with this proposed mechanism of action of inodiftagene. Side effects are typically mild to moderate, and comprise mainly bladder symptoms, because this is the only place where the toxin is produced. |
| • | Our clinical data strongly support the activity of inodiftagene against cancer.We have completed six clinical trials in patients with cancer: three in NMIBC patients and three in patients with ovarian or pancreatic cancer. We have demonstrated complete responses in unresected bladder cancer, as well as robust evidence of single-agent activity against the difficult-to-treat malignancies of pancreatic and ovarian cancer. The body of clinical data validates the anti-tumor mechanism of action of inodiftagene in multiple tumors types, and especially in bladder cancer. |
| • | Our development plan addresses two unmet NMIBC needs.We have expanded our development program so that we can investigate inodiftagene in two clinical settings concurrently. The BCG-unresponsive, third-line clinical setting is the subject of our first trial, the Codex Clinical Trial. This setting is attractive for drug development because it supports a single-arm clinical trial of modest size. The FDA has provided clear guidance for the development of new agents in BCG-unresponsive patients, and our clinical trial has been designed in accordance with FDA input. However, we have taken our agent a step further, studying its activity and safety when administered in combination with BCG. This second-line population is a larger patient population, and the unmet need here is no less substantial than in third-line patients. We plan to undertake a clinical trial in the second-line setting, the Leo Clinical Trial. The demonstration of the feasibility of administering inodiftagene in conjunction with BCG lays the foundation for clinical trials in the large population of newly diagnosed, first-line NMIBC patients who are candidates for standard BCG treatment. |
| • | We have positive FDA input on our pivotal development program.The FDA has stated that the single-arm Codex Clinical Trial may support approval in the BCG-unresponsive patient population. The FDA has granted us an SPA for the conduct of the Leo Clinical Trial. We believe this demonstrates that the eligible patent population, design, methods, and endpoints of the trial are all in keeping with the requirements for approval in patients whose first treatment with BCG has failed and who can be treated with BCG in combination with inodiftagene. Of note, the SPA does not guarantee that our trial results will be adequate to support approval. Both studies have also been reviewed and are supported by regulatory agencies in Canada and Europe. |
| • | We have experienced accomplished leadership with a history of successful drug development and U.S. and international approvals. Our leadership team has worked together in the past and has successfully developed two drugs for FDA and international approval. Our CMO, SVP and head of clinical development, and the VP and head of clinical operations formerly worked as members of our Chief Executive Officer’s clinical development team at ARIAD Pharmaceuticals, Inc., where they developed for regulatory approval ponatinib (Iclusig) for leukemia, and brigatinib (Alunbrig) for non-small cell lung cancer, both now owned and commercialized by Takeda Pharmaceutical Company Ltd. They conducted Phase 1, Phase 2 and Phase 3 trials in the United States and internationally, and pivotal Phase 2 and Phase 3 studies. They designed and prepared clinical trials, worked with the FDA and other regulatory agencies, and conducted the studies in the United States, Europe, Japan and China. They gathered and analyzed data, and prepared and submitted regulatory submissions for approval. |
Our Solution: Gene Therapy for NMIBC with Inodiftagene The biologically active ingredient of inodiftagene is a recombinant DNA plasmid that directs the expression of a potent toxin specifically in malignant cells but not in normal tissue. It has been designed to enable the delivery of a gene for a lethal bacterial toxin from diphtheria so that the toxin is specifically expressed and activated only in bladder cancer. This focuses the anti-cancer activity of the gene to only the cancer cells, and limits the side effects of the gene mainly to the malignant tissue and the bladder. We do this by exploiting the established biology of the H19 gene, which is turned off in most normal adult cells, but turned on at high levels primarily in malignant cells. The H19 gene has a restricted pattern of expression rendering it potentially useful for the targeted delivery of therapies to cancer. H19 is an example of a class of molecules called long non-coding RNAs that serve as regulatory elements in normal cells. It is also considered an oncofetal RNA gene and is highly expressed in the placenta during pregnancy, but not normally expressed in adult tissues. However, its expression is turned on in malignancy, in human bladder cancers, as well as in many other tumors, including ovarian cancer, pancreatic cancer, lung cancer, breast cancer, colon cancer, melanoma, brain cancer, leukemia, and others. H19 is a gene of fundamental importance to cancer cells. The abnormal upregulation of H19 expression in malignancy is due to alterations in availability and activity of factors in the cell that turn genes on and off, and the regulatory controls of the H19 gene that respond to these factors, the molecular switches, as it were, have been well characterized. These regulatory switches can be used to control whether a gene is turned on or off in a manner that prevents the gene from being on in normal tissues and that turns it on in malignant cells that express H19. Diphtheria toxin is a potent cellular toxin and is a favorable choice for anti-cancer targeting. Its biology and mechanisms of action are well understood. It is a toxin that potently and completely inhibits the ability of targeted cells to make normal proteins, thereby killing them. Single copies of this toxin are lethal to a cell. Moreover, the inhibitory activity of the toxin is encompassed entirely in the A chain of the molecule (DTA) while the B chain is necessary for cellular entry. The introduction and expression of the gene encoding DTA, as occurs with inodiftagene, is lethal to the target cell, but because it cannot transfer to neighboring tissue, not to surrounding cells. The structure of inodiftagene is illustrated below. The H19 regulatory sequences, which control the turning on of DTA expression, are represented in blue in the illustration below. They have been isolated and engineered using recombinant DNA techniques so that they are juxtaposed to the gene for DTA. The DTA gene is represented in green on the right in the illustration. 
When inodiftagene enters a tumor containing H19 expressing cells, the engineered gene becomes active, producing the lethal diphtheria toxin. Following administration into the bladder, cellular toxicity due to DTA expression is bladder cancer-specific. H19 is expressed in adults mostly in malignant tissue. Plasmid taken up in normal cells remains unexpressed. In addition, due to the absence of the B chain subunit, if toxin is released from dying cells it is not taken up by other normal cells. As a result, inodiftagene is a specifically targeted therapy for bladder cancer. Inodiftagene DNA is combined with Polyethylenimine (“PEI”). PEI facilitates the entry of inodiftagene into rapidly dividing cells and improves efficiency of transmission. Experiments in the laboratory demonstrate that inodiftagene complexed with PEI is efficiently taken into more commonly prescribed drugs usedthan 85% of cells following a single exposure.
Our Pre-clinical Data with Inodiftagene Laboratory studies have also confirmed that protein synthesis is inhibited in tumor cells treated with inodiftagene, and that inodiftagene attenuates the proliferation of cancer cellsin vitro. In animal models, inodiftagene is active against bladder cancer. Experiments show that DTA is produced in bladder tumors after treatment in the organ. In a rat tumor model, it was shown that bladder tumors growing in the bladder could be effectively treated with two administrations of inodiftagene.In vitrostudies with this cell line confirmed that the mechanism of action is via the dose-dependent expression of DTA driven by the H19 regulatory sequences. Additional studies were performed in a model of bladder carcinogenesis due to the ingestion of nitrosamine by rats. In this experimental model, rats reproducibly develop visible bladder tumors after approximately 20 weeks of nitrosamine dietary supplementation. Administration of inodiftagene is effective in reducing mean tumor dimensions and weight and leads to complete eradication of tumors in some animals. This is illustrated below, in which the animal in the left panel received control (placebo) therapy (see the tumors in the green circles), and the animal in the right panel was treated with inodiftagene. These data formed the basis for the initial clinical development of inodiftagene in patients with bladder cancer. 
Clinical studies have demonstrated that inodiftagene DNA is detectable after administration in patients’ bladder tumors and for more than 48 hours after a single two-hour exposure in patients’ urine. IND-Enabling Studies IND-enabling studies for inodiftagene included four repeated-dose non-clinical toxicology experiments conducted in accordance with Good Laboratory Practice (“GLP”) Regulations in mice and rats. In these studies, intraperitoneal (“IP”), intravesical, or intravenous (“IV”) administration of either inodiftagene (plasmid + PEI) or plasmid alone was employed to evaluate the toxicity. Inodiftagene (alone and in combination with PEI) was well tolerated and no mortality occurred in any of the test article-treated animals. In the two studies supporting the bladder cancer indication (inodiftagene administered in complex with PEI via IP or intravesical administration) the “no observed adverse event level” (“NOAEL”) of inodiftagene plasmid was determined to be >10 mg/kg in both mice and rats. Biodistribution and pharmacokinetics were evaluated as part of the GLP toxicology studies of inodiftagene via intravesical administration. Biodistribution of inodiftagene was primarily limited to the bladder and kidneys. Chemistry, manufacturing and controls studies are ongoing. Inodiftagene Clinical Trial Experience Our development of inodiftagene will focus on its utilization in NMIBC. However, we have also studied inodiftagene in other cancers in the clinic, testing it in patients with ovarian cancer and with pancreatic cancer. In both of these clinical settings, inodiftagene has demonstrated evidence of anti-cancer activity, supporting its mechanism of action against cancer. Clinical trials to date have been carried out in leading academic medical centers in Israel.
Studies in ovarian cancer and pancreatic cancer Our initial experience with ovarian cancer involved a patient diagnosed with ovarian cancer that was metastatic to the abdominal cavity and refractory to treatment, resulting in the accumulation of malignant ascites, or fluid. An ultrasound of her abdomen, showing ascites outlined in red, is shown in the first ultrasound below. Cells from her ascites were isolated and were shown to express H19, and thus she was deemed a candidate for compassionate use treatment with inodiftagene. Inodiftagene was instilled into her abdomen weekly for seven treatments, and then every two weeks for treatments eight through ten. Her initial treatment was associated with nausea, fever, and vomiting, but these symptoms resolved after the third instillation. The fluid decreased after treatment, and resolved completely after treatment ten. This is shown in the second ultrasound below, revealing no residual fluid. Although inodiftagene clearly has activity in this clinical circumstance, it is probable that the large volume of ascites present in most patients suffering from this stage of ovarian cancer precludes achieving effective concentrations of inodiftagene in ovarian cancer cells. 
We also have tested the drug in patients with pancreatic cancer. We conducted a Phase 1/2 dose-escalation study in patients with unresectable pancreatic cancer. The study enrolled nine patients with pancreatic cancer that had been deemed unresectable. Patients were administered escalating doses of inodiftagene either via computed-tomography (“CT”) guided injection, or via endoscopic ultrasound injection. Patients were assessed for response and for possible resection after injection. Nine patients completed screening and received treatment. Again the drug injection was well tolerated, and adverse events were mostly mild to moderate, with four adverse events being considered possibly related to the study drug. No serious adverse events occurred in patients treated with inodiftagene. Anti-tumor activity was evident: two of the nine patients, or approximately 22%, demonstrated partial responses following treatment with no other interventions. We conducted a second study of inodiftagene in patients with advanced localized pancreatic cancer eligible for chemotherapy treatment. In this study, patients were administered standard gemcitabine chemotherapy, and in conjunction received intratumoral injections of inodiftagene. Twelve patients were enrolled. The primary endpoint of the study was PFS, and median PFS was 9.3 months in patients who received 8 milligrams (mg) of inodiftagene, and 7.6 months in patients who received 12 mg of inodiftagene. One of 12 patients demonstrated a partial response, and eight patients had stable disease. In these patients receiving concurrent gemcitabine chemotherapy, Grade 3 (Severe) adverse events were reported in most patients, most attributable to the chemotherapy. Ten patients (83%) reported serious adverse events following treatment in the study, none were considered by the investigator to be related to inodiftagene, and one patient reported a serious adverse event considered to be related to gemcitabine. Response rates for standard gemcitabine chemotherapy in unresectable pancreatic cancer are MVAC (methotrexate, vinblastine, doxorubicin, cisplatin)typically less than 10%, Taxol, Carboplatin, Cisplatin and Gemcitabine. The chemotherapy treatment planPFS is typically in the range of four to six months. Again, activity is present in this difficult-to-treat malignancy. However, it is likely that delivery of inodiftagene uniformly to cells in a large pancreatic tumor will be suboptimal due to the constraints of having to inject the gene into only a subset of tumor cells at any single injection site.Studies in refractory ovarian cancer and unresectable pancreatic cancer both demonstrated activity of inodiftagene against the malignancy. These data strongly validate the mechanism of directing toxic therapy to tumors using H19. Studies in NMIBC NMIBC offers several advantages as a therapeutic target. First, for optimal activity, inodiftagene therapy requires contact with tumors so that the malignant cells internalize the gene. This is difficult to achieve in ovarian cancer with ascites, given the large volume of fluid in the abdomen, or in pancreatic cancer, includes shrinkinggiven the requirement for the injection of inodiftagene into only the part of the tumor volumethat is accessible radiologically. In bladder cancer, inodiftagene can be instilled into the bladder, allowing it to coat the extent that vascular involvement is lessened and resection is then rendered possible. Recently, many investigators have reported the utility of chemotherapy using gemcitabine, in which early studies showed that patients experienced an improvement in disease-related symptoms. However, the median survival time of 5.65 months and the 12-month survival rate of 18% for gemcitabine-treated patients is thought to be disappointing. The combination of gemcitabine and irradiation causes both acute and late toxicityentire lining of the gastrointestinal tract. Recently, folfirinox is increasingly being usedbladder where the tumor resides. Second, the standard of care in such patients with a substantially longer progression-free survival of 6.4 months as opposed to 2.3 months for gemcitabine alone. This improved efficacy, however, is accompanied by substantial toxicity not tolerated by many patients, especially the elderly. Immunotherapy. Immunotherapy is a method that employs a patient’s immune system to fight cancerous cells. Although the precise biological mechanism of activation is unknown, the administration of Bacille Calmette Guerin (BCG) is used to treat a number of superficial bladder cancer types because BCG is believed to stimulate a patient’s immune systemresect all papillary tumors of grade Ta or T1. The goal of therapy for these tumors is thus not to thwarteradicate established large tumors, but to prevent the growthemergence of cancerous cells.
Interferon. Interferons are human proteins that are introducedmicroscopic tumor recurrences; the macroscopic tumor has been removed. Inodiftagene will optimally have access to these microscopic recurrences when it is administered intravesically into the human bodybladder. Third, CIS tumors, which are typically identified but not resected, are flat lesions, only a few cells thick. This tumor geometry is optimal for contact with the DNA of inodiftagene, allowing the gene to access the malignant cells. Finally, the large patient population of NMIBC, coupled with the lack of available new and effective therapeutic agents, creates a substantial unmet need, and an opportunity for the novel approach of inodiftagene. For these reasons, NMIBC is an optimal target for inodiftagene therapy.We carried out three clinical trials in order to stimulate the host’s immune system to thwart the growthNMIBC: a Phase 1/2 study and a Phase 2 study of cancerous cells. Although the precise biological mechanisminodiftagene monotherapy, and a Phase 2 study of activation is unknown, it is believed that interferons impede or suspend the growth of cancerous cells, compromise the ability of cancerous cells to defend against the host’s immune system and strengthen the host’s immune system. Interferons have beeninodiftagene administered in combination with BCG. The Universitytwo monotherapy studies included a unique feature that allowed for assessment of Iowa hasthe responses of unresected papillary (Ta and T1) tumors: assessment of marker lesions. The standard approach to treating these tumors is to resect them via TUR so that no residual tumor is left behind. However, following TUR the ability of an investigational agent to cause tumor shrinkage cannot be evaluated directly. The FDA, in itsGuidance for Industry on BCG-unresponsive Nonmuscle Invasive Bladder Cancer(2018), recommends that studies should be conducted in which marker lesions are left in place after TUR to assess antitumor activity. This approach was utilized in both the monotherapy studies. Phase III1/2 study The initial Phase 1/2 study of inodiftagene was a dose-escalation study that enrolled patients with recurrent low-grade NMIBC. A total of 18 patients were treated with escalating doses. The mean age of patients was 71 years. Patients had a mean of five prior occurrences (range: one to 15 occurrences). Ten out of the 18 patients, or approximately 56%, had two or fewer recurrences in the past two years. 17 of the 18 patients, or approximately 94%, had received prior BCG, and several patients had also received various chemotherapeutic agents. This was a population of patients with multiple recurrent NMIBC refractory to prior BCG. At entry in this study, patients underwent resection of all disease except one marker lesion 0.5 to 1.0 centimeter, or cm, in size. Patients were then treated with intravesical inodiftagene. The response of the marker lesion was assessed at 12 weeks, and residual tumor was removed at that time. 
The primary efficacy assessment was overall response rate (complete and partial) as directly visualized by cystoscopy at week 12. In four of the 18 patients, or approximately 22%, complete responses were observed. A cystoscopic photograph of a lesion demonstrating complete tumor disappearance is shown above. In an additional four of the 18 patients, or approximately 22%, partial responses (>50% shrinkage) were observed. Total responses were observed in eight out of the 18 patients, or approximately 44%. H19 expression was detected in all patients at baseline. 12 of the 18 patients, or approximately 66.7%, were recurrence-free at three months, and approximately 44.4% and 33.3% were recurrence-free at 12 months and 24 months, respectively. In the initial Phase 1/2 study, inodiftagene was well-tolerated. No dose-limiting toxicities were observed or reported, and no deaths occurred during the study or during the follow-up period. The most frequently reported adverse events considered to be at least possibly related to inodiftagene for any dose cohort were mild to moderate in severity and were most commonly renal and urinary disorders. Mild bladder discomfort and painful urination, or dysuria, were reported in 11.1% and 16.7% of patients, respectively. Moderate dysuria and urination urgency were reported in 5.6% and 16.7% of the patients, respectively. Severe urination urgency was reported by one patient (5.6%) after the fourth intravesical treatment. In total, approximately 44% of patients had a urinary tract infection during the study, of which 17% were considered related to other investigational procedures such as the video-cystoscopy, catheterization, or surgical resection. Mild diarrhea, hypertension, and asthenia (physical weakness) were reported in 11.1%, 16.7 %, and 11.1% of patients, respectively. Laboratory adverse events considered possibly related to treatment included: increased blood creatinine (22.1%); leucopenia, or reduced white blood cells (11.1%); and increased alkaline phosphates, anemia, and leukocytes in the urine (5.6% each). One serious adverse event considered possibly related to study treatment, urinary urgency requiring hospitalization, occurred in the study. Phase 2 study Following the Phase 1/2 study, a Phase 2 study of inodiftagene was completed in patients with superficial bladder cancer of intermediate risk. The primary endpoint in this study was to determine tumor recurrence in resected patients. A secondary endpoint was response rate of marker lesions. Patients with histologically confirmed superficial bladder cancer with recurrent stage Ta (any grade) or T1 (low-grade) NMIBC were eligible to enter the study. Patients with CIS lesions were excluded. All patients had tumors that were H19 positive. Patients must have failed at least one prior conventional therapy including either BCG or chemotherapy and, as in the Phase 1 study, have one tumor ≤1.0 cm in diameter to serve as a “marker” tumor after removal of all other tumors. A total of 47 patients were treated in this study. Approximately 81%, or 38 patients, had received prior BCG therapy, and more than half of the patients received other therapies as well. 45% of the patients had received two or more prior treatments. Eight patients were not evaluable due to protocol violations and early withdrawal. At the time of primary assessment, 13 patients, or approximately 33% of the per-protocol treatment population, had complete disappearance of the marker lesion, and no new lesions were reported. 26 patients, or approximately 55%, in the intent-to-treat population and 64% of patients in the per-protocol population had no new lesions at three months (the primary endpoint). Median time to recurrence for both the ITT and per-protocol populations was approximately 11.3 months. As shown in the figure below, approximately 46% and 36% of patients were free of recurrence at 12 and 18 months, respectively, and 33% remained recurrence-free at 24 months. Treatment was very well tolerated. No patients discontinued because of treatment-related adverse events. 
The most commonly reported adverse events, similar to those experienced in the Phase 1/2 study, were renal and urinary disorders (29.8%), including urinary frequency (14.9%), painful urination (10.6%), urination urgency (6.4%), and urinary retention (6.4%), as well as urinary tract infections (10.6%). Other adverse events included increased blood potassium (10.6%) and lack of energy, chills, fever and nausea (6.4% each). Serious adverse events included urinary retention and a urinary tract infection in a patient who required TUR of the prostate; a myocardial infarction (heart attack), which was not considered to be related to the administration of inodiftagene; and hematuria (blood in urine) (2.1% each). Only the event of hematuria was considered by the treating investigator to be possibly related to the study treatment, though also probably related to study procedure. We also tested inodiftagene in combination with BCG. We carried out a Phase 2 study in 38 patients eligible for BCG treatment. Three different combination schedules were evaluated with a primary objective of evaluating the safety of the combination. The administration of inodiftagene in combination with BCG was feasible and well tolerated, with three severe adverse events reported, none of which were considered related to inodiftagene. Tumor recurrence rate and progressive disease rate were not statistically significantly different among the three regimens. The overall recurrence-free survival rate was 54%, and the progression-free survival (PFS) rate was 76%. At 18 months, the median time to recurrence and its confidence limits could not be calculated according to Kaplan-Meier survival analysis because a large percentage of patients had no recurrence. The overall recurrence-free survival and progression-free survival are illustrated in the table below. The three- and six-month RFS of the combination was 95% and 78%, respectively. These results compare favorably with the historical experience of BCG alone, which report three-month RFS of 51% to 85%. 
Administration of inodiftagene and BCG was well tolerated. Overall, 25 of the 38 patients, or approximately 65.8%, experienced adverse events during the study. The incidence of adverse events was similar among the treatment groups and most adverse events were mild. These included urinary tract infection (29%), dysuria (21%) and hematuria (13%). One patient (3%) had a serious event which occurred on the study after initiation of treatment. That patient had heart palpitations that were not considered related to either inodiftagene or BCG nor related to study procedures. Overall, 26% of patients experienced an adverse event related to BCG, while 11% of patients experienced an adverse event related to inodiftagene, which we believe suggests a relative advantage in safety profile of inodiftagene compared to the standard therapy of BCG. Summary of results in NMIBC clinical trials We conducted three clinical trials in patients with NMIBC and observed the following significant findings: Complete responses of unresected tumors occurred in all three studies. The complete response rates in unresected papillary marker lesions in the Phase 1/2 and Phase 2 trials were 22% and 33%, respectively. Although CIS patients were uncommon in our trials, six out of seven patients, or approximately 86%, exhibited a complete response. Recurrence-free survival (“RFS”) in the two monotherapy studies was consistent. In both studies the RFS at 24 months was approximately 33%. Inodiftagene can be given together with BCG. The combination Phase 2 study demonstrated that co-administration is feasible, and three-month RFS was 95%. Inodiftagene is well tolerated when given intravesically. Most adverse events are mild or moderate and involve the lower urinary tract. Systemic adverse events are uncommon. Although there can be no assurance, taken together and based on our discussions with regulators, we believe positive results in the pivotal clinical trials will likely support a path to examine the relative effectivenessFDA and wider regulatory approval for inodiftagene. Regulatory Pathway Because of the interferon/significant unmet need of patients with NMIBC whose therapy with BCG combinedhas failed, the FDA and the American Urological Association (the “AUA”) have worked together to devise guidelines for developing new agents for NMIBC. We have closely followed this guidance. Furthermore, we believe that the clear prescriptions provided by the FDA in this arena create a fertile landscape for the development of new agents in general, and inodiftagene in particular. Most BCG therapy for patients with NMIBC ultimately fails. A subgroup of patients whose BCG treatment fails repeatedly are defined in the literature and by the FDA as compared“BCG-unresponsive.” BCG-unresponsive patients are those patients with either persistent or recurrent high-grade NMIBC tumors who have been adequately treated, typically twice, with BCG. Apart from BCG therapy, no other standard-of-care medical treatments exist, and the currently recommended therapy for BCG-unresponsive NMIBC is cystectomy, either partial or radical. However, because of concomitant conditions, many patients are not candidates for major surgery such as cystectomy. These patients must currently rely on options with minimal effectiveness in this situation (such as instillations of chemotherapeutic agents or repeat TURs). The FDA and the AUA together convened a workshop to eachaddress the development of new therapies for patients with NMIBC in 2014. The workshop participants addressed the BCG-unresponsive patient population. They agreed that there was no consensus standard-of-care approach for these patients apart from cystectomy and that no therapy could be agreed upon to serve as a control for randomized clinical studies in this setting. Lacking the ability for investigators to conduct randomized controlled clinical trials, the participants recommended that single-arm Phase 2 studies could support regulatory approval for these patients. Moreover, for patients with CIS lesions, guidance on the desired endpoint was provided as well. It was recommended that a study achieving at least a 30% recurrence-free survival at 18 to 24 months, with a sample size with statistical confidence that excluded a lower boundary of 20%, would be appropriate. A more detailed FDA draft guidance document was published in November 2016 and finalized in February 2018, entitledBCG-Unresponsive Nonmuscle Invasive Bladder Cancer: Developing Drugs and Biologics for Treatment: Guidance for Industry, which re-states and extends the recommendations of the stand alone treatments. FDA/AUA workshop. The FDA recommends that early-stage development of agents for NMIBC should involve demonstration of activity against extant disease, for example, in marker lesion studies. The guidance defines BCG-unresponsive patients. Furthermore, the guidance states that for patients with unresponsive NMIBC for whom no standard therapy apart from radical cystectomy exists, a single-arm study design is appropriate, and the complete response rate and duration of complete response are relevant efficacy endpoints in patients with CIS. The final guidance further emphasized the study of CIS patients in single-arm trials and provides more detailed definitions of BCG-unresponsive disease and adequate BCG therapy. The definition provided for the BCG-unresponsive population was clarified, with the FDA recommending that the definition of treatment failure apply to patients who had failed one induction and one maintenance course of BCG at a minimum. In addition, it specified that a single-arm trial in the BCG-unresponsive patient population should employ a primary endpoint of complete response in CIS patients.Finally, the FDA has recommended that a development program that assesses response rate in a single arm trial design may require a confirmatory trial after approval. They commented that a randomized trial in a different population, and a design that tests BCG plus/minus the investigational drug, might be appropriate. These recommendations have provided, in essence, a road map to drug development and approval in this setting. We have followed this road map. We have employed marker lesions trial designs to demonstrate a complete response rate over 30%. We have also demonstrated RFS of over 30% at 24 months in our two monotherapy trials. Additionally, we have tested inodiftagene in combination with BCG as the foundation for a trial that could be confirmatory. We believe these initial clinical data are suggestive of antitumor activity that could attain FDA approval for BCG-unresponsive disease. Our Clinical Trial Program Our pivotal clinical trial program was developed with input from the FDA and from regulatory agencies in Canada, the United Kingdom, France, Spain and Germany. We submitted our IND application for inodiftagene in 2008. In 2015, the FDA granted Fast Track designation to inodiftagene. We undertook discussion with the FDA regarding our Phase 2 path to development at an “End of Phase 2” meeting in 2014. We also discussed our Phase 3 study of inodiftagene in combination with BCG with the FDA in 2014, and were granted an SPA at that time. In 2016, we discussed our program with Health Canada. We also met with the AEMPS (Spanish Agency of Medicines) in 2015, the Paul Ehrlich Institute in Germany in 2014, the MHRA (Medicines and Healthcare Regulatory Agency) in the United Kingdom in 2017, and the ANSM (French Medicines Regulatory Agency) in 2018. All of these discussions have resulted in concurrence with our proposed development plans. The Company is also aware of several new treatment methods for superficial bladder carcinoma, including photodynamic treatment, which kills cancerous cells using laser, and synergo technology, which combines hypothermia with chemotherapeutical substances, that have notfeedback from the regulatory agencies on our proposed registrational program in NMIBC has been approvedpositive. The Phase 2 Codex Clinical Trial in BCG-unresponsive patients was reviewed by the FDA. In 2014, the FDA indicated that the single-arm trial might provide evidence of effectiveness to support a marketing application. In addition, the FDA’s guidance entitledBCG-Unresponsive Nonmuscle Invasive Bladder Cancer: Developing Drugs and Biologics for Treatment Guidance for Industry(2018), states a single-arm clinical trial with complete response rate and duration of response as the primary endpoint can provide primary evidence of effectiveness to support a marketing application in BCG-unresponsive NMIBC. In September 2018, we updated the endpoint of the trial to reflect this FDA guidance, and the Codex Clinical Trial therefore embodies this design.The Companygranting of an SPA by the FDA is also awareimportant to the proposed clinical development program. While standard protocol review and acceptance by the FDA does not necessarily indicate concurrence by the FDA that the protocol will support a marketing application, an SPA agreement indicates concurrence by the FDA with the adequacy and acceptability of several drugsspecific critical elements of overall protocol design for a study intended to support a future marketing application. In granting the treatmentSPA in October 2014, the FDA indicated that the Codex Clinical Trial is adequately designed to provide necessary data to support a license application submission. The SPA is not an endorsement of pancreatic cancerprotocol details, does not affect approval, and does not guarantee that our trial results will lead to approval. European regulators have been supportive of the study conduct as well. The Agencia Española de Medicamentos y Productos Sanitarios (“AEMPS”) in various stagesSpain (in 2015), Health Canada (in 2016) and Medicines and Healthcare Products Regulatory Agency (“MHRA”) in the United Kingdom (in 2017) all concurred with the conduct of development, including: (i) AMG479, developed by Amgen Inc.; (ii) Xeloda, developed by F. Hoffmann-La Roche Ltd;the trials. The Paul-Ehrlich-Institut (“EI”) in Germany stated that depending on robustness of the studies, the combination of studies may form the basis for approval. Additionally, the Agence Nationale de Sécurité du Médicament et des Produits de Santé (“ANSM”) in France (in 2018), stated in regard to the Phase 2 Codex Clinical Trial that the single-arm trial design can be considered to support an approval in the pursued indication, and (iii) SOM230, developed by Novartis. Thethat the same applies to the Phase 3 Leo Clinical Trial.For both the Codex Clinical Trial and Leo Clinical Trial, approval will ultimately depend on the final results of the Company’sstudies concerning the efficacy and safety of our product candidate. Our clinical development program addresses two unmet needs of patients undergoing therapy with BCG for NMIBC. We are studying inodiftagene in the third line, BCG-unresponsive setting, with our Phase I/IIa bladder carcinoma2 Codex Clinical Trial. We are also studying inodiftagene in second line utilization, with our Phase 3 Leo Clinical Trial. These two studies provide pathways to regulatory approval in two discrete indications. The two trials are summarized below. 
The Codex Clinical Trial is a single-arm Phase 2 study designed in compliance with the FDA Guidance for Industry. It is a single-arm, open label study. The trial is illustrated below. Patients will be enrolled with BCG-unresponsive disease as defined by the FDA guidance. They will have received prior adequate BCG therapy, also defined in accordance with FDA specifications. Patients will undergo resection of all papillary tumors by TUR, and then receive inodiftagene administered intravesically. The agent will be given once weekly for ten weeks, followed by administration every three weeks for up to two years. The primary endpoint of the trial is complete response in CIS as assessed at 12 weeks and up to 48 weeks, supported by durability of response. Assessments will be performed by cystoscopy every 12 weeks. The trial is enrolling approximately 140 patients. 
An interim analysis for futility is planned after the first 35 patients, all of whom will have CIS. At least ten complete responses must be observed to move forward with the trial. The trial was initiated in December 2018. Depending upon patient enrollment, open label data is expected to be available in mid-2019, enrollment of the full interim analysis cohort is expected to be complete in the third quarter of 2019, and the full interim analysis is expected to be complete approximately in the fourth quarter of 2019. The Codex Clinical Trial is designed to gain approval for the indication of patients with high-grade, BCG-unresponsive NMIBC, those with third line disease. The Leo Clinical Trial is our second pivotal clinical study showedtrial, designed for registration in second line patients. It is an open-label randomized controlled clinical trial. It is illustrated below. Patients will be enrolled with intermediate-or high-grade NMIBC that is persistent or recurrent following a single course of BCG. This is a second line patient population. Subjects will be randomly assigned treatment with the safety profile of BC-819 is excellent. The incidence and severity of adverse events in this small study population were lower than published results for BCG and chemotherapy. For instance in a typical Phase III studystandard regimen of BCG, which is the standard of care for their condition, or a regimen of inodiftagene plus BCG. In the latter treatment, they will receive a standard administration of BCG. They will concurrently receive inodiftagene administered once weekly for ten weeks, then every three weeks. The treatment will last up to three years. The primary endpoint will be median time to high-grade recurrence, and epirubicin, adverse events included bloodthe trial is designed to demonstrate an improvement in median time to high-grade recurrence with the combination of inodiftagene and BCG as compared with BCG alone. Assessments will be performed by cystoscopy every 12 weeks. The trial is expected to enroll approximately 495 patients, or 297 patients per arm. 
Depending upon our ability to raise additional funding, the trial is expected to be initiated in the urinefourth quarter of 41%2019 and 28%to begin enrolling patients in the first half of 2020. Pivotal developmental program summary The Codex Clinical Trial and Leo Clinical Trial are designed together to meet the FDA’s published guidance regarding development of novel therapies for NMIBC. The Codex Clinical Trial is directed at the BCG-unresponsive, third line indication. As the FDA has stipulated that a single-arm trial design is appropriate, and has also provided guidance about the requisite response rate that will support approval, this trial is an uncontrolled Phase 2 for approval, and will enroll 140 patients. The results from this trial might ultimately support either full or accelerated approval. We believe that in either instance, our having available an ongoing confirmatory trial will improve the likelihood of approval. Thus we will also conduct the Phase 3 Leo Clinical Trial. The Leo Clinical Trial will thus serve two regulatory aims, providing data for a discrete indication in patients treated withwhose first course of BCG or epirubicin, respectively, while only 4%has failed, and also confirming the activity of patients treated with BC-819 displayed this symptominodiftagene in support of our Phase IIb2 data from the Codex Clinical Trial. Our Growth Strategy The key elements of our growth strategy are as follows: | • | Execute the clinical development program of inodiftagene through regulatory approval.Our first and highest priority is to execute the clinical development program of inodiftagene. We believe that there is a linear path to approval for our agent in two related but separate indications. We also believe that our preliminary clinical data in bladder cancer, in addition to evidence of activity in other solid tumors, support our program design. The FDA has provided positive input on our pivotal single-arm Codex Clinical Trial, which is under way, and has granted us an SPA endorsing the randomized Leo Clinical Trial. Regulatory agencies in the European Union and Canada have also reviewed our pivotal program with positive feedback (inodiftagene has not yet been approved in any marketing territory). Depending upon patient enrollment, we expect to gain interim data from the Codex Clinical Trial in the second half of 2019, and depending upon our ability to raise additional funding, we expect to start enrolling patients for the Leo Clinical Trial in the first half of 2020. |
| • | Develop the capability to commercialize inodiftagene in the United States.We believe that our competitive position in the NMIBC fields is strong as a result of our robust clinical data and our addressing the unmet need of second line patients with the unique randomized and SPA-endorsed Leo Clinical Trial. Based on market data, including third-party research that we commissioned, we believe the potential market for inodiftagene in the United States, the European Union and Japan in both third- and second-line patients exceeds $1.5 billion. As the trials near completion, we plan to recruit a commercial team to exploit this advantage, our goal being to commercialize inodiftagene in the United States. At this time, we do not have commercial capability. However, we believe that realizing the full commercial potential of inodiftagene in both third- and second-line patients will require us to develop such a capacity. We will likely concentrate our commercial efforts in the United States, and intend to begin laying the foundation for U.S. commercialization approximately two years before approval and launch. Concomitantly, we will seek non-U.S. commercial partners. The leadership team has experience and success in taking a company through the transition from a research focus to commercial capability, and we believe that the team can translate this to our Company. |
| • | Develop strategic partnerships around inodiftagene development and commercialization.The commercial potential of inodiftagene renders it an attractive asset for a strategic partnership. We intend to pursue partnership opportunities primarily for non-U.S. commercialization. We intend to consider regional partnerships as well, especially in Japan and China. Our leadership team has experience in gaining regulatory approval in Japan, and in developing business relationships in Japan, elsewhere in Asia and worldwide. |
| • | Expand the potential indications of inodiftagene.We intend to expand the clinical development program of inodiftagene to explore additional indications in bladder cancer, alone and in combination with BCG and additional novel agents. The most important of these is the use of inodiftagene in the treatment of newly diagnosed NMIBC patients, or first line patients. We intend to extend success in our Leo Clinical Trial in the second-line patient population to a similar trial design in newly diagnosed patients. Additional approaches are likely to include approaches to immunotherapy, especially using checkpoint inhibitors, as inodiftagene introduces a novel foreign diphtheria antigen, against which we are all immunized, into cancer cells. We also intend to explore other solid tumor indications, including ovarian cancer with malignant ascites, in which inodiftagene has already been demonstrated to be capable of inducing complete response. |
| • | Expand the pipeline of oncology therapeutic candidates.We intend to designate new product candidates in our research and development laboratories. We have engineered second-generation versions of inodiftagene, and have demonstrated activity of these molecules in several experimental settings. The second generation molecules have strong intellectual property protection. In addition, we will seek to identify appropriate candidates for in-licensing. The present clinical development team has experience with a variety of approaches to oncology therapy, including having successfully developed targeted therapies and immune-oncology treatments. |
| • | Grow our company into a fully capable biopharmaceutical company.Our vision is to build on the initial success of inodiftagene and to expand our capabilities to encompass all facets of oncology drug development, approval, and commercialization. Our focus will remain developing novel genetic and targeted therapies to lessen the burden of disease affecting those stricken with cancer. |
Manufacturing We do not own or operate manufacturing facilities for the production of our product candidate, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We rely on third-party contract manufacturers for all of our required raw materials and finished products for our preclinical research and clinical trial. Severe pain during urination was reportedtrials. We do not have any current contractual relationships for the manufacture of commercial supply of our product candidate. However, our current contract manufacturing partners have the ability to manufacture commercial quantities of our product candidate, and have expressed their interest in 26%doing so. We intend to enter into agreements with third-party contract manufacturers for the commercial production of inodiftagene. Development and 10%commercial quantities of patients treatedany products that we develop need to be manufactured in facilities utilizing processes that comply with BCG and epirubicin, respectively, whereas there were no such cases reported for BC-819. No local reactions caused cessation of treatment with BC-819, whereas 26% and 9% of patients treated with BCG and epirubicin, respectively, had to have treatment stopped due to local toxicities. The resultsthe requirements of the Company’s Phase I/IIa pancreatic cancer clinical study likewise showed an excellent safety profile,FDA and the regulatory agencies of other jurisdictions in which we are seeking approval. We currently employ internal resources to manage our manufacturing contractors. The manufacturers with no toxicity limiting the dose, no patient reporting pain or discomfort as a resultwhom we have contracted have advised us that they are compliant with cGMP. We and our contract manufacturers are subject to extensive governmental regulation, and must ensure that all of the drug,processes, methods and no adverse effects definitely relatedequipment are compliant with cGMP for drugs on an ongoing basis, in accordance with the requirements relevant for the clinical development phase. Intellectual Property Our intellectual property and proprietary technology are crucial to BC-819 were reported. When usingthe development, manufacture, and sale of our therapeutic products. We seek to protect our intellectual property, core technologies and other know-how through a plasmidcombination of patents, trade secrets, non-disclosure and confidentiality agreements, licenses, assignments of invention and other contractual arrangements with an expression cassette of the diphtheria toxin, no immune response will be encountered, as opposedour employees, consultants, scientific advisors, contractors and commercial partners. Additionally, we rely on our research and development program, clinical trials and know-how to when using a virus; moreover, people born in Western countries are routinely immunized against this toxin. Further, the Company’s treatments are not affected by multi-drug resistance effects (the ability of the cancer to develop resistance to treatment), a major problem in chemotherapy. Notwithstanding the foregoing, the FDA alone will determine whether BC-819 is both safe and effective for commercial use in the United States after substantial additional clinical studies.
Intellectual Property
As of the date of this Annual Report on Form 20-F, the Company'sadvance our products.Patents Our patent portfolio includes 60a total of 57 granted patents (including allowed patents) in five patent families (including divisional and continuing application patents), as well as 20 pending national phase applications. We also have 22 patents that have expired. Patents on the original active formulation of our lead product candidate, inodiftagene, expired during 2017 and 2018. New patent applications in six patent families in various stages of examination, 39 of which have been grantedfiled for new formulations that may comprise the active ingredient in inodiftagene, but may alternatively comprise other active materials. A formulation pursued in a priority application filed in 2015, which was followed by an international application that claims priority therefrom under the Patent Cooperation Treaty (the “PCT”) is based on a new complex, among others, of inodiftagene. This new complex was developed to improve the previous generation of inodiftagene that we had been using. The previous generation drug was administrated after mixing it with PEI at the patient’s bedside. The procedure demanded strict training and was very sensitive stability-wise. Our new ready to use complex of inodiftagene will make the administration process less complex and improve the stability of the drug. In 2017, the application entered the national phase. Approval of this patent in the United States, Europe, Israel, China, Norway, Australia, South Korea, Russia, Singapore, Mexico, Canada,selected jurisdictions would ensure product exclusivity until 2036. Pursuant to a license agreement with Yissum, described below, we have an exclusive, worldwide license for the Czech Republicdevelopment, use, manufacture and Brazil.commercialization of products arising out of patents owned by, and patent applications filed by, Yissum in connection with the H19 gene. All of the Company'sour patents and patent applications were licensed to itus from Yissum and are subject to the Yissum license agreement. Our patent portfolio includes the following: Product under development Inodiftagene (new formulation complex) — The table below detailspatents covering the original inodiftagene formulation have expired. Prior to their expiration, we filed a priority application in 2015, which was followed by an international application under the PCT disclosing a new complex, among others, for inodiftagene. The new complex was developed to improve the original formulation of inodiftagene, which was administered after mixing it with PEI at the patient’s bedside, in order to prevent destabilization. This procedure demanded strict personnel training. The new formulation is distributed ready to use, which simplifies the administration process and improves the stability of the drug. In 2017, the application entered the national phase. It was filed in Australia, Brazil, Canada, China, Hong Kong, Indonesia, Israel, Japan, Malaysia, Mexico, New Zealand, Philippines, Russia, Singapore, South Korea, Thailand, United States, Vietnam and the European Patent Office (“EPO”). Following EPO approval, the patent groupswould be granted in each individual EU member state to which we would apply, which would ensure product exclusivity until 2036.
Additional technologies BC-821 — Composition of matter and/or method claims patents have been granted in Australia, Austria, Belgium, Canada (allowance), China, Cyprus, France, Germany, Greece, India, Ireland, Israel, Italy, Japan, Latvia, Lithuania, Luxembourg, Monaco, Netherlands, Russia, Slovenia, South Korea, Spain, Sweden, Switzerland, United Kingdom and the United States, and are pending in Brazil. Cancer-Specific TNF-α and DTA mutual expression vector — Composition of matter and/or method claims patents were granted in France, Germany, Israel, Switzerland, United Kingdom and the United States. H19 targeted siRNA for cancer — Composition of matter and/or method claims patents were granted in Australia, Canada, China, France, Germany, India, Ireland, Israel, Italy, Japan, Spain, Switzerland, United Kingdom and the United States. H19 targeted siRNA for rheumatoid arthritis — Use patents were granted in Canada, France, Germany, Ireland, Israel, Switzerland, United Kingdom, and the United States. The expected expiration dates for our various patents may also be subject to extensions or adjustments of term available under applicable law that provide for longer periods of protection. While our policy is to obtain patents by application, license or otherwise, to maintain trade secrets and to seek to operate without infringing on the intellectual property rights of third parties, technologies related to whichour business have been rapidly developing in recent years. Additionally, patent applications that we may file or license from third parties may not result in the issuance of patents, and our current or future issued patents may be challenged, invalidated or circumvented. Therefore, we cannot predict the extent of claims that may be allowed or enforced against our patents, nor be certain of the Company's product candidates. Patent Group | | Product | | Expiration Dates | Use of the H19 gene as a tumor marker | | BC-819 | | | Between 03/07/2014 and 03/06/2015 | Methods and compositions for inducing tumor-specific cytotoxicity | | BC-819 | | | Between
10/03/2017
and
10/04/2018
| Constructs containing multiple expression cassettes for cancer therapy | | BC-821 | | | 10/23/2028 |
Pursuantpriority of inventions covered by pending third-party patent applications. If third parties prepare and file patent applications that also claim technology or therapeutics to an exclusivewhich we have rights, we may have to engage in proceedings to determine priority of invention, which could result in substantial costs to us, even if the eventual outcome is favorable. Moreover, because of the extensive time required for clinical development and regulatory review of products we may develop, it is possible that the patent or patents on which we rely to protect such products could expire or be close to expiration by the commencement of commercialization, thereby reducing the value of such patent. Loss or invalidation of certain of our patents, or a finding of unenforceability or limited scope of certain of our intellectual property, could have a material adverse effect on us. See “Item 3.—Key Information—Risk Factors—Risks Related to Our Intellectual Property and Potential Litigation.”In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and know-how can be difficult to protect. We seek to protect our proprietary processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. These agreements are designed to protect our proprietary information. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, such agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors or others. Exclusive license agreement with Yissum which is described in more detail below, the Company Yissum has granted us an exclusive, worldwide license for the development, use, manufacturingmanufacture and commercialization of products arising out of patents owned by, and patent applications filed by, Yissum in connection with the H19 and IGF2-P4 genes. AllOur latest patent applications were filed in 2016, and their approval would ensure product exclusivity for all our programs will range from 2026 to 2036. On November 14, 2005, we entered into a license agreement with Yissum, which was subsequently amended several times, most recently in November 2013. Yissum has granted us an exclusive, worldwide license for the development, use, manufacture and commercialization of products arising out of patents owned by, and patent applications filed by, Yissum in connection with the Company'sH19 and IGF2-P4 genes. Yissum retains right, title and interest in the products, technologies or other inventions arising out of our research and development of these patents and patent applications, were licensedexcept for intellectual property developed with funding from the IIA which will be owned by us and transferred to Yissum only upon our dissolution or upon a decision by the IIA that it from Yissum and are subjectno longer requires us to own the intellectual property developed with its funding. We have the right to grant sub-licenses to third parties in accordance with the terms set forth in the Yissum license agreement. Government Regulation
The Company's operationsWe have agreed to pay Yissum 4% of all “net sales” as royalties and 10% of the income that we receive from granting sub-licenses to third parties. We will pay half of these royalties on sales in countries in which no patent has been granted and a third party is selling identical products. We are subjectrequired to many governmental regulations.indemnify Yissum, the Hebrew University of Jerusalem, their employees, directors, officers, representatives and any other persons acting on their behalf under the license against any liability, including without limitation product liability, damages, losses or expenses, including reasonable legal fees and litigation expenses arising out of our actions or omissions in performing the Yissum license, including the use, development and manufacturing of patents arising out of it and the granting of sub-licenses thereunder, provided that any such loss was not caused by the intentional misconduct or gross negligence of the indemnitees. We have the right to terminate the Yissum license upon three months’ prior written notice provided that we have paid all amounts owing to Yissum under the license. Yissum has the right to terminate the license in the event that we become bankrupt, liquidated or insolvent, or if our business is placed in the hands of a receiver, liquidator, or trustee. In addition, Yissum has the right to terminate the license for any material breach of it by us in the event that we fail to remedy such material breach within ninety days of Yissum’s notice of our material breach, provided that the material breach is curable within 90 days. In the event that the Company completes Phase IIImaterial breach cannot be remedied within ninety days, Yissum may not terminate the license if we take reasonable commercial action to cure such breach as promptly as practicable. The termination of the license also entails termination of all licenses granted thereunder. Any termination of the license shall not terminate any of our obligations, including our obligation to pay royalties that matured prior to the effective date of termination. Marketing, Sales and Distribution Given our stage of development, we do not have any internal sales, marketing or distribution infrastructure or capabilities. In the event we receive regulatory approval for our product candidate, we intend, where appropriate, to pursue commercialization relationships, including strategic alliances and licensing, with pharmaceutical companies and other strategic partners, which are equipped to market and/or sell our product candidate, if any, through their well-developed sales, marketing and distribution organizations in order to gain access to global markets. In addition, we may out-license some or all of our worldwide patent rights to more than one party to achieve the fullest development, marketing and distribution of any products we develop. Over the longer term, we may consider ultimately building an internal marketing, sales and commercial infrastructure. Competition The pharmaceutical industry is characterized by rapidly evolving biotechnology and intense competition, which we expect will continue. Many companies are engaged in research and development of products that are similar to ours. In the event that one or more of our competitor’s programs are successful, the market for some of our drug products could be reduced or eliminated. Any product for which we obtain FDA approval must also compete for market acceptance and market share. We are aware of several products in the development pipeline targeted for NMIBC patients who have failed BCG treatment. Companies including Merck Sharp & Dohme Corp., Sesen Bio Inc., Telesta Therapeutics Inc., Heat Biologics, Inc., Viralytics Limited, AADi, LLC, UroGen Pharma Ltd., Halozyme Therapeutics, Inc., Astellas Pharma Inc., Cold Genesys, Inc., Altor BioScience Corporation, FKD Therapies Oy, Nippon Kayaku Co., Ltd., Spectrum Pharmaceuticals, Inc., Taris Biomedical LLC and Handok Inc. are conducting or have recently conducted clinical trials for products for the treatment of NMIBC. In addition, we are aware of several pharmaceutical companies developing drugs for muscle-invasive bladder cancer. We do not know whether these potential competitors are developing, or plan to develop, treatments or other indications that we are pursuing. In addition, we face competition from existing standards of treatment for bladder cancer. If we are not able to demonstrate that our products are at least as safe and effective as such courses of treatment, medical professionals may not adopt our products to replace or supplement the existing standard of care. The biopharmaceutical industry is intensely competitive and subject to rapid and significant technological change. Our potential competitors include large and experienced companies that enjoy significant competitive advantages over us, such as greater financial, research and development, manufacturing, personnel and marketing resources, greater brand recognition, and more experience and expertise in obtaining marketing approvals from the FDA and foreign regulatory authorities. These companies may develop new drugs to treat the indications that we target, or seek to have existing drugs approved for use for the treatment of the indications that we target. These potential competitors may therefore introduce competing products without our prior knowledge and without our ability to take preemptive measures in anticipation of their commercial launch. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in this industry. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis products that are more effective, easier to administer or less costly than our products. Government Regulation As a clinical-stage company, we are subject to extensive regulation by the various national health regulatory authorities, such as the FDA, Health Canada and other national, state and provincial regulatory agencies.
U.S. Food and Drug Administration. The research, development, and marketing authorization of drugs and other pharmaceutical products in the United States is subject to the Federal Food, Drug, and Cosmetic Act (the “FFDCA”) which empowers the FDA to require extensive non-clinical and clinical toxicity testing before a new drug or biologic is deemed safe and effective and receives marketing authorization. Biologic products, including cellular products, gene therapy products, and vaccines, are generally licensed under section 351 of the U.S. Public Health Service Act (the “PHSA”). Prior to commercialization, section 351 of the PHSA requires biologic manufacturers to submit a biologic license application to the FDA for review and approval. Under section 351 of the PHSA, all FFDCA provisions applicable to drug products also apply to biologic products, with the exception of the requirement to submit a new drug application (“NDA”). Following initial laboratory and animal testing that show that investigational use in humans is reasonably safe, biological products (like other drugs), can be studied in clinical trials in humans under an IND in accordance with the regulations at 21 CFR 312. If the data generated by the studies demonstrate that the product is safe and effective for its intended use, the data are submitted as part of the BLA. As indicated above, the FDA regulates gene therapy products as biologics and assigns primary review authority for such products to the Center for Biologics Evaluation and Research (“CBER”). The FDA defines human gene therapy products as all products that mediate their effects by transcription or translation of transferred genetic material, or by specifically altering host (human) genetic sequences. Based on this definition, we believe our product candidate, inodiftagene, is a gene therapy product and will require us to obtain a biologic license through the BLA process prior to commercialization. In order to satisfy FDA data requirements, an extensive battery of preclinical experiments to assess the safety of such new drugs are conducted, followed by two or three phases of clinical trials before they are considered for widespread human use. We seek to complete our pivotal clinical trials program successfully and to be in a position to manufacture and market the Company'sour prospective therapeutic products, thepharmaceutical products. The marketing authorization of suchour products would be conditionedconditional upon obtaining the consentapproval of health authorities in each of the countriescountry in which they would be marketed, including, but not limited to, the FDA and the European Agency for the Evaluation of Medicinal Products. In order to market the Company's products outside of the United States, the Company would have to comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in countries outside of the United States might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed below regarding FDA approval as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. United States Food and Drug Administration. The Company must obtain the approval of the FDA to market any drugs developed in the United States, as well as adhere to other U.S. and state regulations. If it seeks to market new drugs, it will be required to file a new drug application and obtain FDA approval.EMA. FDA regulations govern the following activities that the Companywe may perform, or that have been performed on itsour behalf, to ensure that any drugs that we it developsdevelop are safe and effective for their intended uses:
| 48 | · | pre-clinical (animal) testing including toxicology studies; |
| · | submission of an investigational new drug application (IND); |
pre-clinical (animal) testing including toxicology studies;submission of an IND; | · | human testing in clinical trials, Phases I, II and III; |
human testing in clinical trials, Phases 1, 2 and 3;recordkeeping and retention; | · | recordkeeping and retention; |
pre-marketing review through submission of a BLA;drug manufacturing, testing and labeling, which must comply with cGMP regulations; | · | pre-marketing review through submission of a new drug application (NDA); |
drug marketing, sales and distribution; andpost-marketing study commitments (Phase 4), post-marketing pharmacovigilance surveillance, complaint handling, reporting of deaths or serious injuries, product sample retention, manufacturing deviation reporting and repair or recall of drugs. Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions: | · | drug labeling and manufacturing, the latter of which must comply with current good manufacturing practice regulations; |
warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;disqualification of clinical investigator and/or sponsor from current and future studies; | · | drug marketing, sales and distribution; and |
clinical hold on clinical trials;operating restrictions, partial suspension or total shutdown of production; | · | post-marketing study commitments (Phase IV), post-marketing surveillance, complaint handling, reporting of deaths or serious injuries and repair or recall of drugs. |
refusal to approve a BLA;post-marketing withdrawal of approval; and | · | Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions: |
criminal prosecution. | · | warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties; |
| · | disqualification of clinical investigator and/or sponsor from current and future studies; |
| · | clinical hold on clinical trials; |
| · | operating restrictions, partial suspension or total shutdown of production; |
| · | refusal to approve an NDA; |
| · | post-marketing withdrawal of approval; and |
The FDA’s Pre-clinicalpre-clinical and IND Requirements. requirements.The first step to obtaining FDA approval of a new drug involves development, purification and pre-clinical testing of a pharmaceutically active agent in laboratory animals. Once sufficientappropriate pre-clinical data has been collectedgenerated to demonstrate that the drug is reasonably safe for initial usetesting in humans, an IND can be prepared and submitted to the FDA for review. In the IND review process, FDA physicians and scientists evaluate the proposed clinical trial protocol, chemistry and manufacturing control,controls, pharmacologic mechanisms of action of the drug and toxicological effects of the drug in animals andin vitro.vitro. Within 30 days of the IND’sIND submission, the drug review division of the FDA may contact the filer regarding potential concerns and, if necessary, implement a clinical hold until certain issues are resolved satisfactorily. If itthe FDA does not take any action, the filer may proceed with clinical trials on the 31st day.
Clinical Trials . trials.Clinical trials represent the ultimate pre-market testing ground for unapproved drugs, generally taking several years to complete. Before testing can begin, an institutional review board (IRB)IRB must have been reviewed and approved for the use of human subjects in the clinical trial. During clinical trials, an investigational compound is administered to humans and evaluated for its safety and effectiveness in treating, preventing or diagnosing a specific disease or condition. The clinical trials generally consist of Phase I,1, Phase II,2, and Phase III3 testing. During clinical trials, the FDA and IRB closely monitor the studies and may suspend or terminate trials at any time for a number of reasons, such as finding that patients are being exposed to an unacceptable health risk. The results of clinical trials comprise the single most important factorare critical factors in the approval or disapproval of a new drug.
Special Protocol Assessment.The SPA process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase 3 clinical trials that are intended to form the primary basis for determining a drug product’s efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial design and data analysis plans, within 45 days of receipt of the request. The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the drug with respect to effectiveness of the indication studied. All agreements and disagreements between the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting between the sponsor and the FDA. Even if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement under the following circumstances: public health concerns emerge that were unrecognized at the time of the protocol assessment, or the director of the review division determines that a substantial scientific issue essential to determining safety or efficacy has been identified after testing has begun; a sponsor fails to follow a protocol that was agreed upon with the FDA; or the relevant data, assumptions or information provided by the sponsor in a request for SPA change, are found to be false statements or misstatements, or are found to omit relevant facts. A documented SPA may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study. We have obtained an SPA with the FDA for our Phase 3 trial of inodiftagene in patients who failed BCG but are eligible for further BCG therapy. Agreement by the FDA to an SPA does not guarantee that the results of a study conducted in accordance with the agreement will be successful.
BLA Review . review.A BLA, requesting approval to market the drug for one or more indications, may be submitted to the FDA once sufficient data has been gathered through pre-clinical and clinical testing. A BLA includes all animal and human testing data and analyses of the data, as well as information about how the drug behaves in the human body and how it is manufactured. The BLA is reviewed by aan interdisciplinary team of FDA physicians, chemists, statisticians, microbiologists, pharmacologists and other experts, who evaluate whether the studies submitted show that the drug is safe and effective for its proposed use. The FDA reviewers may request further information, consult with outside experts or disagree with the filer’s findings or interpretation of the data. Each reviewer prepares a written evaluation, and the reviewing team discusses the evaluations. The FDA may assemble an external Oncology Drug Advisory Committee (“ODAC”) to review and provide an opinion on whether the product under review has an acceptable safety and efficacy profile. ODAC’s opinions are not binding on the FDA, but often have significant influence on the final FDA decision. Accelerated approval may be given to some new drugs for serious and life-threatening illnesses that lack satisfactory treatments. At the end of its review, the FDA may approve the new drug to be marketed or decide thatprovide a new drug is “approvable” or “not approvable.” In either of the latter cases,“complete response” letter, in which case the filer may meet with FDA officials to discuss and correct deficiencies.
Expedited review and approval.We have requested and received Fast Track Designation for the development of inodiftagene to treat bladder cancer. NDAs and BLAs receive either standard or priority review. A drug representing a significant improvement in the treatment, prevention or diagnosis of a disease may receive priority review. The FDA has various specific programs, including Fast Track, Breakthrough Therapy, Accelerated Approval and Priority Review, each of which is intended to expedite the process for reviewing drugs, and in certain cases involving Accelerated Review, permit approval of a drug on the basis of a surrogate endpoint. Even if a drug qualifies for one or more of these programs, the FDA may later decide that the drug no longer meets the conditions for qualification or that the time period for FDA review or approval will be shortened. Fast Track designation facilitates the development and expedites the review of drugs to treat serious or life-threatening diseases or conditions and fill unmet medical needs. Although this designation does not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated drug. If a product receives regulatory approval, the approval may be significantly limited to specific diseases, subpopulations, and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require us to conduct Phase 4 testing, which involves clinical trials designed to further assess a drug’s safety and/or effectiveness after BLA approval and may require testing and surveillance programs to monitor the safety of approved products which have been commercialized.
Pervasive and Continuing Regulationcontinuing regulation in the United States . States.After a drug is approved for marketing and enters the marketplace, numerous regulatory requirements continue to apply. These include, but are not limited to:The FDA’s cGMP regulations require manufacturers, including third-party manufacturers, to follow stringent requirements for the methods, facilities and controls used in manufacturing, processing, testing and packing of a drug product; Labeling regulations and the FDA prohibitions against the promotion of drug for unapproved uses (known as off-label uses), as well as requirements to provide adequate information on both risks and benefits during promotion of the drug; | · | The FDA’s current good manufacturing practice regulations require manufacturers, including third party manufacturers, to follow stringent requirements for the methods, facilities and controls used in manufacturing, processing and packing of a drug product; |
Approval of product modifications or use of the drug for an indication other than approved in the BLA;Adverse drug experience regulations, which require companies to report information on rare, latent or long-term drug effects not identified during pre-market testing; | · | Labeling regulationsPost-market testing and surveillance requirements, including Phase 4 trials, when necessary, to protect the public health or to provide additional safety and effectiveness data for the drug; and the FDA prohibitions against the promotion of drug for uncleared or unapproved uses (known as off-label uses), as well as requirements to provide adequate information on both risks and benefits during promotion of the drug; |
The FDA’s recall authority, whereby it can ask, or under certain conditions order, drug manufacturers to recall from the market a product that is in violation of governing laws and regulations. | · | Clearance or approval of product modifications or use of the drug for an indication other than approved in the BLA; |
| · | Adverse drug experience regulations, which require us to report information on rare, latent or long-term drug effects not identified during pre-market testing; |
| · | Post-market testing and surveillance requirements, including Phase IV trials, when necessary to protect the public health or to provide additional safety and effectiveness data for the drug; and |
| · | The FDA’s recall authority, whereby it can ask, or under certain conditions order, drug manufacturers to recall from the market a product that is in violation of governing laws and regulations. |
After a drug receives approval, any modification in conditions of use, active ingredient(s), route of administration, dosage form, strength or bioavailability, will require a new clearance or approval, for which it may be possible to submit a 505(b)(2)supplemental BLA, referring to pre-clinical and certain clinical studies presented in the drug’s original BLA, accompanied by additional clinical data necessary to demonstrate the safety and effectiveness of the product with the proposed changes. Additional clinical studies may be required for proposed changes.
Fraud and Abuse Lawsabuse laws in the United States. A variety of U.S. federal and state laws apply to the sale, marketing and promotion of drugs that are paid for, directly or indirectly, by U.S. federal or state healthcare programs such as Medicare and Medicaid. The restrictions imposed by these laws are in addition to those imposed by the FDA, the United StatesU.S. Federal Trade Commission and corresponding state agencies. Some of these laws significantly restrict or prohibit certain types of sales, marketing and promotional activities by drug manufacturers. Violation of these laws may result in significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties and exclusion or debarment from U.S.United States federal and state healthcare and other programs. Many private health insurance companies also prohibit payment to entities that have been sanctioned, excluded or debarred by U.S. federal agencies.Anti-Kickback Statutes
Anti-kickback statutes in the United States. The U.S. federal anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending of a good or service, for which payment may be made in whole or in part under a U.S.United States federal healthcare program such as the Medicare and Medicaid programs. The definition of “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, the furnishing of supplies or equipment, payments of cash and waivers of payments. Several courts have interpreted the statute’s intent requirement to mean that, if any one purpose of an arrangement involving remuneration is to induce referrals or otherwise generate business involving goods or services reimbursed in whole or in part under U.S. federal healthcare programs, the statute has been violated. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other U.S. federal healthcare programs. In addition, some kickback allegations have been claimed to violate the United StatesU.S. False Claims Act (as discussed below).The U.S. federal anti-kickback statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Recognizing that the statute is broad and may technically prohibit many innocuous or beneficial arrangements, the Office of Inspector General of the Department of Health and Human Services or OIG,(“OIG”) has issued a series of regulations, known as the “safe harbors.” These safe harbors set forth provisions that,which, if all their applicable requirements are met in form and substance, will assure healthcare providers and other parties that they will not be prosecuted under the federal anti-kickback statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy an applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG or the U.S.United States Department of Justice. Many states have adopted laws similar to the U.S. federal anti-kickback statute. Some of these state prohibitions are broader than the U.S. federal statute, and apply to the referral of patients and recommendations for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs. Government officials have focused certain enforcement efforts on marketing of healthcare items and services, among other activities, and have brought cases against individuals or entities with sales personnel who allegedly offered unlawful inducements to potential or existing physician customers in an attempt to procure their business. United States
U.S. False Claims Act . Act.The United StatesU.S. False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to the U.S.by a federal governmenthealthcare program or knowingly making, or causing to be made, a false statement or record in order to have a false claim paid.paid or avoiding, decreasing or concealing an obligation to pay money to the federal government. The U.S. federal government’s interpretation of the scope of the law has in recent years grown increasingly broad. Most states also have statutes or regulations similar to the United StatesU.S. False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these U.S. federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment. Several drug manufacturers have been prosecuted under the false claims laws for allegedly providing free drugs to physician customers with the expectation that the physician customers would bill U.S. federal programs for the product. In addition, several recent cases against drug manufacturers have alleged that the manufacturers improperly promoted their products for “off-label” use, outside of the scope of the FDA-approved labeling.United States Health Insurance Portability and Accountability Act of 1996. The United States
U.S. Health Insurance Portability and Accountability Act of 1996 or (HIPAA).HIPAA created a new U.S. federal healthcare fraud statute that prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government-sponsored programs. Among other things, HIPAA also imposes new criminal penalties for knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services, along with theft or embezzlement in connection with a healthcare benefits program and willful obstruction of a criminal investigation involving a U.S. federal healthcare offense.
U.S. Affordable Care Act Section 6002 (the Sunshine Act).Enacted in 2010 under the Affordable Care Act of 2010, Public Law No. 111-148 (the “ACA”), the Sunshine Act is a national disclosure program that promotes transparency by publishing data on the financial relationships between the healthcare industry (applicable manufacturers) and healthcare providers (physicians and teaching hospitals) on a publicly accessible website. The Sunshine Act requires that certain manufacturers of drugs, devices, biologicals, or medical supplies report payments or other transfers of value made to physicians and teaching hospitals as well as certain ownership or investment interests held by physicians or their immediate family members to the Centers for Medicare & Medicaid Services (CMS). A violation of this act may result in fines and/or civil liabilities. Any payment or transfer of value that is currently prohibited under the anti-kickback statute, the U.S. False Claims Act, or other health care fraud and abuse laws may still be subject to fines, sanctions, or lawsuit.
Regulations
Non-U.S. regulation.Marketing authorization requests outside of the United States are subject to regulatory approval of the respective authorities in Europe. the country in which we would like to market. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved prior to its marketing application approval. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority, satisfactory prices might not be approved for such product. In Europe, a company must obtain authorization from the European Agency for the Evaluation of Medicinal Products, commonly known as the European Medicines Evaluation Agency (EMEA) before marketing medicinal products. Authorization can be obtained through eitherone of the following pathways: (i) the “centralized” procedure, described in greater detail below, with applications made directly to the EMEAEMA leading to the grant of a European marketing authorization by the European Commission, (ii) the “decentralized procedure,” whereby companies may apply for simultaneous authorization in more than one EU country of medicinal products that have not yet been authorized in any EU country, or (ii)do not fall within the mandatory scope of the centralized procedure, (iii) the “mutual recognition” procedure, in which applications are made to one or more Member Statesmember states, leading to national marketing authorizations mutually recognized by other Member States. member states, or (iv) a “national authorization” application made to a single EU member state. Based on the nature of our products, the marketing authorization will be through the centralized procedure.The EMA is responsible for the centralized procedure, which results in a single marketing authorization that is valid across the European Union. Applications through the centralized procedure are submitted directly to the EMA. The procedure consists of three milestones: | (i) | Evaluation by a scientific committee for up to seven months, at the end of which the committee adopts an opinion on whether the drug should be approved for marketing. During this period, the EMA may send questions to the company, at which time the aforementioned review clock stops until answers are provided. |
| (ii) | Formal decision by the EMA’s Committee for Medicinal Products for Human Use, which is transmitted to the European Commission, which issues a formal decision on the authorization of the product. |
| (iii) | Marketing authorization: Once a European Community marketing authorization has been granted, the marketing-authorization holder can begin to make the medicine available to patients and healthcare professionals in all EU countries. |
Even after a company receives marketing authorization, EU law regulates the distribution, classification for supply, labeling and packaging, and advertising of medicinal products for human use. The EUEuropean Union also regulates the manufacture of medicinal products, requiring Good Manufacturing Practice requirements (cGMP)cGMP, set forth in the Quality System regulation. EU Guidelines to Good Manufacturing Practice — Medicinal Products for Human and Veterinary Use. EU pharmacovigilance directives and regulations require a company to establish post-market surveillance systems that include individual adverse reaction case reports, periodic safety update reports, and company-sponsored post-authorization safety studies. If a medicinal product’s overall risk and benefit profile is found to have changed significantly for any reason, it may be required to be varied, withdrawn, or have its use suspended.
Regulations in Israel. The Company'sOur clinical operations in Israel also are subject to approval by Israel’s Ministry of Health, andas well as the Helsinki Committee of each medical institution in which a clinical study is conducted. All phases of clinical studies conducted in Israel must be conducted in accordance with the Public Health Regulations (Medical Studies Involving Human Subjects, 1980), including amendments and addenda thereto, the Guidelines for Clinical Trials in Human Subjects issued by the Israel Ministry of Health (the "Guidelines"“Guidelines”) and the International Conference for Harmonized Tripartite Guideline for Good Clinical Practice. The regulations and the Guidelines stipulate that a medical study on humans will only be approved after the Helsinki Committee (“IRB”) at the hospital intending to perform the study has approved the medical study and notified the relevant hospital director in writing. In addition, certain clinical studies require the approval of the Ministry of Health. The Helsinki Committee will not approve the performance of the medical study unless it is satisfied that it has advantages to the study participants and society at large that justify the risk and inconvenience for the participants and that the medical and scientific information justifies the performance of the requested medical study. The relevant hospital director, and the Ministry of Health, if applicable, also must be satisfied that the study is not contrary to the Helsinki Declaration or to other regulations. The Ministry of Health also licenses and regulates the marketing of pharmaceuticals in Israel, requiring the relevant pharmaceutical to meet internationally recognized cGMP standards. A mutual recognition agreement, known as the Conformity Assessment and Acceptance of Industrial Products Agreement (the “ACAA”) coveringinter aliamedicinal products for human use, has been signed and became effective in 2013 between Israel and the European Community.Under the Israeli Law for the Encouragement of Industrial Research and Development, 1984 and related regulations which we refer to as the(the “Research Law”,) recipients of grants from the OCS, or, the "Recipient Company(ies)",IIA (“Recipient Companies”) are subject to certain obligations under the Research Law. The pertinent obligations currently are as follows: (i) the Recipient Company, is obligated to pay the OCSIIA royalties from the revenues generated from the sale of products (and related services) or services developed (in all or in part) according to, or as a result of, a research and development program funded by the OCSIIA (at rates which are determined under the Research Law, up to the aggregate amount of the total grants received by the OCS,IIA, plus annual interest (as determined in the Research Law)); (ii) Productsproducts developed as a result of OCS funded R&DIIA-funded research and development must, as a general matter, be manufactured in Israel. The Recipient Company is prohibited from manufacturing products developed using these OCSIIA grants outside of the State of Israel without receiving the OCS prior approval of the IIA (except for the transfer of less than 10% of the manufacturing capacity in the aggregate). If the Recipient Company receives approval to manufacture the products developed with government grants outside of Israel, it willmay be required to pay an increased total amount of royalties to OCS,the IIA, up to 300% of the grant amounts plus interest, depending on the manufacturing volume that is performed outside of Israel, as well as at a possibly increased royalty rate. A Recipient Company also has the option of declaring in its OCSIIA grant application its intention to exercise a portion of the manufacturing capacity abroad, thus avoiding the need to obtain additional approval. On January 6, 2011, the Knesset (the Israeli Parliament) passed an Amendment to the Research Law (the "Amendment"), under which it is clarified that even in the caseapproval for manufacture abroad and increased royalty amounts. Even where approval has been granted to manufacture outside Israel within the framework of approval of an R&Da research and development plan and in the case of the transfer of manufacturing at a rate that does not require the approval of the research committee (i.e., at a rate of up to 10%), a company is obligated with regard to the transfer of manufacturing outside of Israel, to pay increased royalties to the State of Israel, at the rates set forth in the Research Law;Law, with regard to the transfer of manufacturing outside of Israel; (iii) under the Research Law, the Recipient Company is prohibited from transferring OCS-financedIIA-financed technologies and related intellectual property rights outside of the State of Israel except under limited circumstances, and only with the approval of the Research Committee of the OCSIIA and subject to certain payment to the OCSIIA calculated according to formulae provided under the Research Law (as further detailed below); and (iv) any change of control in the Recipient Company and any change of ownership of the Recipient Company'sCompany’s ordinary shares that would make a non-Israeli citizen or resident an “interested party,” as defined in the Research Law, requires a prior written notice to the OCS. IIA.The restrictions under the Research Law will continue to apply even after our Company willwe repay the full amount of royalties payable pursuant to the grants. The CompanyWe may not receive the required approvals for any proposed transfer and, if received, ittransfer. If we do receive the approvals, we may be required to pay the OCSIIA a portion of the consideration that it receiveswe receive upon any sale of such technology to a non-Israeli entity. The scope of the support received, the royalties that the Company haswe have already paid to the OCS,IIA, the amount of time that has elapsed between the date on which the know-how was transferred and the date on which the OCSIIA grants were received and the sale price and the form of transaction will be taken into account in order to calculate the amount of the payment to the OCSIIA (as further detailed below). No assurances can be made that approval toof any such transfer, if requested, will be granted. In general, the Research Committee may approve transfer of know-how created in whole or in part in connection with OCS funded projectIIA-funded projects to third partyparties outside of Israel, in limited circumstances as follows: The IIA approval to transfer know-how created, in whole or in part, in connection with an IIA-funded project to a third party outside Israel where the transferring company remains an operating Israeli entity is subject to payment of a redemption fee to the IIA calculated according to a formula provided under the Research Law that is based, in general, on the ratio between the aggregate IIA grants to the company’s aggregate investments in the project that was funded by these IIA grants, multiplied by the transaction consideration. In addition, if the purchaser of the know-how gives the selling Israeli company the right to exploit the know-how by way of an exclusive, irrevocable and unlimited license, the Research Committee may approve such transfer in special cases without requiring a redemption fee payment. | 54 | · | The OCS approval to transfer know-how created, in whole or in part, in connection with an OCS-funded project to third party outside Israel where the transferring company remains an operating Israeli entity is subject to payment of a redemption fee to the OCS calculated according to a formula provided under the Research Law that is based, in general, on the ratio between the aggregate OCS grants to the company’s aggregate investments in the project that was funded by these OCS grants, multiplied by the transaction consideration. In addition, if the purchaser of the know-how gives the selling Israeli company the right to exploit the know-how by way of an exclusive, irrevocable and unlimited license, the Research Committee may approve such transfer in special cases without requiring a redemption fee payment.
|
The transfer of such know-how to a party outside Israel, where the transferring company ceases to exist as an Israeli entity, is subject to a redemption fee formula that is based, in general, on the ratio between aggregate IIA grants received by the company and the company’s aggregate research and development expenses, multiplied by the transaction consideration. The redemption fee paid to the IIA under the aforementioned formulae is capped and distinguishes between two scenarios: (i) in the event that the company sells its IIA-funded know-how, in whole or in part, or is sold as part of a merger and acquisition transaction, and subsequently ceases to conduct business in Israel, the maximum redemption fee under the aforementioned formulae shall be no more than six times the amount received (plus annual interest) for the applicable know-how being transferred, or the entire amount received, as applicable; and (ii) in the event that following the asset sale of IIA-funded know-how or merger and acquisition transfer transaction, the company continues to conduct its R&D activity in Israel (for at least three years following such transfer with at least 75% of the number of R&D employees employed for the six months prior to the know-how transfer), then the company is eligible for a reduced cap of the redemption fee of no more than three times the amounts received (plus annual interest) for the know-how being transferred, or the entire amount received, as applicable. In the event of an exchange of know-how, such that know-how is transferred outside of Israel in consideration for other know-how transferred to the company in Israel in a manner in which the IIA is convinced that the Israeli economy realizes a greater, overall benefit from the exchange of know-how. | · | The transfer of such know-how to a party outside Israel where the transferring company ceases to exist as an Israeli entity is subject to a new redemption fee formula that is based, in general, on the ratio between aggregate OCS grants received by the company and the company’s aggregate R&D expenses, multiplied by the transaction consideration. Such new formula enacted lately in the framework of the Amendment and came into effect on November 5, 2012 when the new Regulations for the Encouragement of Research and Development in the Industry (the Maximum Payment for the Transfer of Know-How in Accordance with Section 19B(b)(1) and (2)), 2012 (the "Cap Regulations") were promulgated. |
| · | The Cap Regulations establish a maximum payment of the redemption fee paid to the OCS under the above mentioned formulas and differentiates between two situations: (i) in the event that the company sells its OCS funded know-how, in whole or in part, or is sold as part of an M&A transaction, and subsequently ceases to conduct business in Israel, the maximum redemption fee under the above mentioned formulas shall be no more than 6 times the amount received (plus annual interest) for the applicable know-how being transferred, or the entire amount received, as applicable; (ii) in the event that following the transactions described above (i.e. asset sale of OCS funded know-how or transfer as part of an M&A transaction) the company continues to conduct its R&D activity in Israel (for at least three years following such transfer and keeps on staff at least 75% of the number of R&D employees it had for the six months before the know-how was transferred), then the company is eligible for a reduced cap of the redemption fee of no more than 3 times the amounts received (plus annual interest) for the applicable know-how being transferred, or the entire amount received, as applicable. |
| · | In the event of an exchange of know-how such that in exchange for the transfer of know-how outside of Israel, the recipient of the know-how transfers other know-how to the company in Israel in a manner in which the OCS is convinced that the Israeli economy realizes a greater, overall benefit from the exchange of know-how. |
The State of Israel does not own intellectual property rights in technology developed with OCSIIA funding and there is no restriction on the export of products manufactured using technology developed with OCSIIA funding. The technology is, however, subject to transfer of technology and manufacturing rights restrictions as described above. OCSIIA approval is not required for the export of any products resulting from the research or development. In addition, the OCSIIA is in the process of exploring the possibility of promulgating regulations, including the consideration due to the State of Israel for the granting of licenses to use know-how developed as a result of research financed by the OCS.IIA. Such regulations may have an effect on us in respect of the amount of our payments to the OCSIIA for the grant of sub-licenses to third parties. As of the date of filing of this Annual Report, weWe are currently unable to assess the effect, if any, of the promulgation of such regulations on us. A recent amendment to the Research Law made in August 2015 (“Amendment Seven”) has made it unclear whether the transfer of manufacturing rights and transfer of know-how will continue to be subject to the same limitations and obligations as described above after 2016. Amendment Seven came into effect on January 1, 2016. There are certain savings provisions under Amendment Seven, which provide that until one year after the members of the new council are appointed (which is created by virtue of Amendment Seven), the Research Law as it was in effect before the effective date of Amendment Seven and certain regulations, including inter alia, the regulations relating to royalty rates and transfer of know-how overseas will remain in effect. It is not possible to assess at this time the effect of Amendment Seven until implementing regulations will be promulgated.
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 (the “Hatch-Waxman Act”) which permits a patent restoration of up to five years for patent term lost during product development and 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 a BLA, plus the time between the submission date of a BLA 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’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 PTO reviews and approves the application for any patent term extension or restoration in consultation with the FDA.
Biosimilar products.As part of the ACA, under the subtitle of Biologics Price Competition and Innovation Act of 2009 (“BPCI”) a statutory pathway has been created for licensure, or approval, of biological products that are biosimilar to, and possibly interchangeable with, earlier biological products licensed under the Public Health Service Act. Also, under the BPCI, innovator manufacturers of original reference biological products are granted 12 years of exclusive use before biosimilars can be approved for marketing in the United States. The objectives of the BPCI are conceptually similar to those of the Hatch-Waxman Act, which established abbreviated pathways for the approval of drug products. The implementation of an abbreviated approval pathway for biological products is under the direction of the FDA and is currently subject to ongoing development. The FDA has published draft and final guidance documents on biosimilar product development. A biosimilar is defined in the BPCI and these documents as a biological product that is highly similar to an already approved biological product, notwithstanding minor differences in clinically inactive components, and for which there are no clinically meaningful differences between the biosimilar and the approved biological product in terms of safety, purity and potency. Under this proposed approval pathway, biological products are approved based on demonstrating they are biosimilar to, and in addition possibly interchangeable with, a biological product that is already approved by the FDA, which is called a reference product. The approval of a biologic product biosimilar to our Company.prospective products could have a materially adverse impact on our business, may be significantly less costly to bring to the market and may be priced significantly lower than our products, but such approval may only occur after our twelve-year exclusivity period.
Pharmaceutical coverage, pricing and reimbursement.Significant uncertainty exists as to the coverage and reimbursement status of any products for which we may obtain regulatory approval. In the 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 reimbursement from third-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 payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product. Third-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. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our prospective products, in addition to the costs required to obtain the FDA approvals. Additionally, our products may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In March 2010, a significant healthcare reform was signed into law in the United States. The healthcare reform law substantially changes the way healthcare will be financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The comprehensive $940 billion dollar overhaul is expected to extend coverage to approximately 32 million previously uninsured Americans. The healthcare reform law contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse, which will impact existing government healthcare programs and will result in the development of new programs, including Medicare payment for performance initiatives and improvements to the physician quality reporting system and feedback program. Additionally, the healthcare reform law, as limited by the United States Supreme Court’s decision in June 2012: Increases the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1%; Requires collection of rebates for drugs paid by Medicaid managed care organizations; and Imposes a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” to specified federal government programs. 4.C. There have been proposed in Congress a number of legislative initiatives regarding healthcare, including possible repeal of the healthcare reform law. At this time, it remains unclear whether there will be any changes made to the healthcare reform law, whether to certain provisions or its entirety. 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 agreeing on a reimbursement price. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular drug 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 set their own prices for drug products, but monitor and control company profits. The downward pressure on health care costs in general, particularly 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. Environmental, Health and Safety Matters We, our agents and our service providers, including our manufacturers, may be subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges, noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believe that our business, operations and facilities, including, to our knowledge, those of our agents and service providers, are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations. All information with respect to any chemical substance is filed and stored as a Material Safety Data Sheet, as required by applicable environmental regulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. However, significant expenditures could be required in the future if we, our agents or our service providers are required to comply with new or more stringent environmental or health and safety laws, regulations or requirements. C. Organizational Structure Our Subsidiaries
Our subsidiaries and the countries of their incorporation are as follows. All of our subsidiaries are wholly owned by the Company: follows:| Name | | Jurisdiction of Subsidiary
Incorporation | Country of Incorporation | | Parent | | % Ownership | | BioCancell Therapeutics Inc.* | Delaware, U.S. | BioCancellAnchiano Therapeutics Israel Ltd. | | | Israel | | | Anchiano Therapeutics Ltd. | | | 100 | % | | Anchiano Therapeutics, Inc. | | | Delaware | | | Anchiano Therapeutics Israel Ltd. | | | 100 | % |
*The entity was dissolved on December 28, 2012. For more information, see Item 4A.: History of the Company.
4.D.D. Property, Plant and Equipment Our officescorporate headquarters are located at Har Hotzvim,1/3 High-Tech Park, Givat Ram, Jerusalem, in buildings in whichIsrael, where we lease and occupy approximately 2,600 square feet of space that includes a total space of 183 square meters for a term expiring in September 2013. laboratory where we perform potency assays. We or our lessor may terminate the lease by giving three months’ notice to the other party. The office address is Beck Science Center, 3rd Floor, 8 Hartom St, Jerusalem 9777508 Israel. Our annual rent under the lease is NIS 192,000 plus VAT. Mostapproximately $60 thousand. We are also renting a laboratory where most of our research and development activities are conducted, and an office space in Jerusalem’s Har Hotzvim neighborhood where we intend to relocate our Israeli office. The Har Hotzvim laboratory and office space total approximately 15,400 square feet. The lease will expire in 2023, and we have an option to extend another five years. The current annual rent (including management fees) is approximately $0.4 million, and rent increases are linked to the Israeli Consumer Price Index. Our U.S. subsidiary’s office is located at 1 Kendall Square, Building 600, Suite 6-106, Cambridge, Massachusetts 02139, where we lease and occupy approximately 1,850 square feet of space. The lease term will expire at the end of 2021. The annual rent is approximately $0.1 million. We believe that our facilities are suitable and adequate for our current needs, however, we may need to obtain additional work area to address growth in the research laboratories of the Hebrew University of Jerusalem. N/A
future. | ITEM 4A. | Unresolved Staff Comments |
None. Item 5. Operating and Financial Review and Prospects
| ITEM 5. | Operating And Financial Review And Prospects |
Certain information contained in or incorporated by reference in the following Operating and Financial Review and Prospects contain “forward-looking statements” within the meaning of Section 27A of the Securities Act, of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.Act. Forward-looking statements include statements concerning the future of our industry, the progress of our product development, including research and development and clinical trials, and financing strategy. Actual results may differ materially from those projected in the forward-looking statements as a result of various factors including those discussed in the section entitled “Risk Factors,” and elsewhere in this Annual Report on Form 20-F. In some cases, these statements can be identified by terminologies such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” should,“should,” “plans,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “predicts,” “potential” other similar terms or the negative of these terms. Although we believe that the assumptions underlying the forward-looking statements contained in this Annual Report on Form 20-F are reasonable, they may be inaccurate and actual results could differ materially from those projected. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such statements should not be regarded as a representation by us or any other person that the results or conditions described in such statements will be achieved. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Overview
We focus our activities on the research and development of drugs for the treatment of various cancer types. The leading drug candidate developed by us, BC-819, has been tested for a number of cancer types in pre-clinical animal studies, compassionate use human trials and Phase I/IIa clinical trials. We are now performing a Phase IIb clinical trial on pancreatic cancer patients, Phase IIb clinical trial on bladder cancer patients, and a Phase I/IIa clinical trial on ovarian cancer patients.
We are a development stage company. Therefore, there is no certainty regarding our ability to complete the development of any of our product-candidates, receive regulatory permits and succeed in our marketing efforts. Our operations since inception have been directed primarily toward developing research and development activities, conducting pre-clinical and clinical testing of our product candidates, business strategies, raising capital, exploring marketing channels and recruiting personnel.
From our inception, we have raised a cumulative net amount of NIS 109,749 thousand, including amounts received as a result of the exercise of options by our employees, directors and consultants.
Private Offerings
Since the issue of the Company’s securities to the public for the first time, in August 2006, the Company has conducted several rounds of private issues, as detailed below:
| i. | In May 2008, the Company issued 650 thousand shares to CBI, for an overall consideration of NIS 2,288 thousand (at a price of NIS 3.52 per share). |
| ii. | In July 2008, the Company issued to CBI, Tikcro Technologies Ltd. (hereinafter: "Tikcro") and the Provident Fund for Employees of the Hebrew University of Jerusalem Ltd. (collectively, The "2008 investors"), together, approximately 1,223 thousand shares as well as warrants that are not registered for sale for the purchase of 6,281 shares in the Company, at an exercise price of between NIS 0.42 and NIS 0.87.1 In addition, the Company received convertible loans from the 2008 investors, in the total amount of $2.92 million, which, together with part of the interest which was added to the principal in lieu of immediate payment, were convertible into up to 14,181 thousand shares in the Company at a conversion price of NIS 0.87 per share2. The overall consideration for the Company within the framework of the 2008 investment, which is described above, amounted to $3,650 thousand (approximately NIS 12,650 thousand). |
| iii. | In March 2010, the Company issued a total of approximately 4,158 thousand shares in the Company, par value $0.01 each, to private and qualified investors, at a price of NIS 2.95 a share and for an overall consideration of NIS 12,265 thousand. In accordance with the terms of the issue, the investors were allocated 4,158 thousand warrants, which are convertible into shares of the Company at an exercise price of NIS 4.25 per share for a period of 4 years, for no additional consideration. |
| iv. | In January 2012, the Company issued a total of approximately 11,144 thousand shares of the Company, par value $0.01 each, to private and qualified investors, at a price of NIS 1.00 a share and for an overall consideration of NIS 11,144 thousand. |
| v. | On May 13, 2012, the Company signed an agreement with CBI in accordance with which, as Tikcro decided not to convert the convertible loan that it made available to the Company in July 2008 into shares of the Company, and the loan from Tikcro became repayable on July 30, 2012, CBI invested an identical amount in the Company to the balance of the loan from Tikcro – an amount of approximately $2,481 thousand, in consideration for the allocation of approximately 10,732 thousand shares of the Company at a price of NIS 0.87 per share. The consideration was used solely and exclusively for the repayment of the loan from Tikcro. |
| vi. | In addition, on July 30, 2012, CBI and the Provident Fund converted their convertible loans at a conversion price of NIS 0.87 per share, receiving in total approximately 4,937 thousand shares against the loan (principal and interest) in a cumulative amount of approximately $1.14 million. |
Public Offerings
In August of 2006, we issued securities on the TASE for the first time, consisting of shares, warrants (Series 1) and warrants (Series 2) to the public, as a means of financing the Company's operations. The gross consideration for the issuance of the securities amounted to approximately NIS 24,640 thousand.
In October of 2009, we published, in Israel, a shelf prospectus, in accordance with which we could offer: regular shares in the Company of 0.01 Dollar each and warrants (Series 3 to 7). In November 2010, we published a first shelf offer report under the shelf prospectus, within the framework of which 5,634,970 regular shares, 2,817,485 warrants (Series 3) and 2,817,485 warrants (Series 4) were actually issued. The immediate gross consideration that we amounted to NIS 18,595 thousand. During the course of the reporting period no warrants (Series 3) and (Series 4) were exercised and neither were convertible securities converted into shares.
In 2009, the Company sold a total of approximately 1,813 thousand treasury shares on the TASE, for an overall net consideration of NIS 6,127 thousand.
1
| The original exercise price was set at $0.716 per share, however this was reduced under protection mechanisms that were set in the terms of the warrants. The price was reduced to NIS 0.42 for CBI and NIS 0.87 for the other investors, however Tikcro has notified the Company of a claim, subject to arbitration, which, if successful, would reduce the price for all investors to NIS 0.42. |
2
| The original conversion price was set at $0.716 per share, however this was reduced to NIS 0.87 per share under protection mechanisms that were set in the terms of the convertible loans.
|
After the Merger, in which the common stock of the predecessor entity, BTI, was exchanged for ordinary shares of BioCancell Ltd, a public offering took place on November 12, 2012. The Company issued 37,362,000 shares to investors at a price of NIS 0.42 each, raising a gross total of NIS 15,692,040 (approximately $4,025,000), of which 36,905,000 shares were purchased by CBI, the Company’s largest shareholder and controlling party.
General Overview
As a result of the Merger, no change was experienced in our operations, nor in the interests of the existing shareholders, nor any material change in the financial statements. A. Operating Results We have incurred operating losses since inception, have not generated any product sales revenues and have not achieved profitable operations. Our net loss, accumulated during the development stage through December 31, 2012, aggregated NIS 112,754,2018, 2017 and 2016 totaled approximately $76.1 million, $62.9 million, and $53.1 million, respectively, and we expect to continue to incur substantial losses in future periods while we continue to testdevelop inodiftagene and prepareother potential product candidates. Our ability to continue as a going concern is dependent on various factors, and there is no assurance that we will be successful in our efforts to maintain a sufficient cash balance, or report profitable operations in the future, any of which could impact our ability to continue as a going concern. Any such inability to continue as a going concern may result in our shareholders losing their entire investment. Revenue To date, we have not generated any revenue. We do not expect to receive any revenue from our product candidates for the market. We believe thatcandidate unless and until we have sufficient cash to meet our planned operating needs until May 2013, based on our current cash levels. We are highly dependent on the success of our research, development and licensing efforts and, ultimately, uponobtain regulatory approval and market acceptancecommercialize our product candidate or enter into agreements with third parties to commercialize them. There can be no assurance that we will receive such regulatory approvals, and if our product candidate is approved, that we will be successful in commercializing them.Operating expenses Our operating expenses consist of two components: research and development expenses and general and administrative expenses. We anticipate that the costs for developing our product candidate will increase as we progress into registrational trials of our products under development. Our shortproduct candidate, inodiftagene.
Research and long-term capital requirements depend upon a variety of factors, including market acceptance for our technologies and product-candidates and various other factors. The continuation of our stages of development and the realization of assets related to our planned activities depend on future events, including the receipt of interim financing and achieving operational profitability in the future. It is not possible to forecast accurately the results of these activities. The biotechnology industry is characterized by strong competition, resulting in part from frequent technological changes. Entry into this market requires the investment of significant capital resources and continuous development. Our future success is dependent on several factors, including the quality of our product's technology, the product's price, and the creation of an advantage over the competition.
Our researchexpensesResearch and development activities are carried out by our Israeli subsidiary primarily through a laboratory research teamprimary focus. Products in the Hebrew Universitylater stages of Jerusalem. The laboratory is managed by our Chief Scientist, Prof. Abraham Hochberg. All of our assets are presently situated in Israel. Costs and Expenses
Research and Development Expenses
Research andclinical development generally have higher development costs are expensed as incurred. Researchthan those in earlier stages of clinical development, primarily due to the increased size and development costs comprise costs incurred in performingduration of later-stage clinical trials. We expect that our research and development activities, including salariesexpenses will increase as we prepare for, and related costs, consultants and sub-contractors costs,commence, registrational clinical trials costs, patent fees, materialsof inodiftagene. A key activity in progressing inodiftagene toward registrational trials is the development of large-scale manufacturing processes that are tailored specifically to our product candidate. In order to confirm the suitability of a new manufacturing facility and/or process, numerous experiments are needed. Moreover, the regulatory requirements in preparation for manufacturing a drug to be used in a registrational trial or for commercial use involve validation activities and depreciation costs. Completionextensive updates to our regulatory files, all of which are lengthy and costly activities. For these reasons, the development of manufacturing processes currently represents the largest portion of our research and development projects is subjectexpenses.Research and development expenses include the following: employee-related expenses, such as salaries and share-based compensation; expenses of developing manufacturing processes; expenses relating to a number of factors unknown and/or not underoutsourced and contracted services, such as external laboratories and consulting and advisory services; costs associated with pre-clinical activities; patent application and maintenance expenses; expenses incurred in operating our control, including, but not limitedlaboratories and small-scale equipment; and clinical development expenses, which include: supply, development and manufacturing costs relating to clinical trial expectationsmaterials; employee-related expenses, including salaries and share-based compensation and other expenses; and costs associated with clinical activities and regulatory compliance. We have received grants from the IIA in the framework of research and development programs for inodiftagene. These grants are subject to repayment through future royalty payments on any products resulting from these research and development programs. We must pay royalties of 3.0% to 5.0% on the revenues derived from sales of products developed in whole or in part using these IIA grants. The maximum aggregate royalties paid generally cannot exceed 100% of the FDA,grants we have received, plus annual interest generally equal to the participation12-month LIBOR applicable to U.S. dollar deposits, as published on the first business day of sufficient volunteers that meet inclusion criteriaeach calendar year. However, the transfer of production out of Israel, in clinical trials andwhole or in part, could increase the required grantingroyalty payment up to 200% of final market approval by the FDA. Therefore,total liability. The total amount of grants we have received from the nature and scopeIIA, including accrued LIBOR interest, as of costs needed to bring each of these projects to conclusion is not estimable. If the bladder cancer trials conclude successfully, we expect to receive final FDA approval and commence sales in 2017. On account of anticipated FDA fast-track development for life-saving drugs, we expect the ovarian and pancreatic cancer trial projects to conclude byDecember 31, 2018 and 2017 is approximately $4 million and as of December 31, 2016 is approximately $3.7 million. We have not paid any royalties to the IIA. We recognize research and development expenses as we incur them. We do not account separately for research and development costs by product. An intangible asset arising from the development of our product candidate is recognized if successful, for sales to commence shortly thereafter. Delays in completing a project on schedule would entail additional operating costs for the periodcertain capitalization conditions are met. As of delay, and could adversely affect our liquidity in the pre-sales period.December 31, 2018, we did not have any capitalized development costs.
General and Administrative Expenses administrative expensesGeneral and administrative expenses consist primarily of salaries, including share-based compensation travel and overhead costsrelated personnel expenses, professional service fees for financial,accounting, legal and bookkeeping, facilities, maintenance and insurance, board of directors’ fees and business development expenses. Share-based compensation is based on the fair value of the options granted, as measured by the Black-Scholes option pricing model, with expected volatility determined based on the historical volatility of our share price, duration to maturity equal to the expected life of the options, and the risk-free interest rate determined based on the yield to maturity of government bonds (U.S. Treasury securities and bonds for options with U.S. dollar-denominated exercise prices, and Israeli bonds for options with NIS-denominated exercise prices). We anticipate that our general and administrative personnel, insuranceexpenses will increase due to the costs of being a public company in the United States, including increased legal, consulting and tax-related service fees fees for professional services, including investor relations, public relations, legal,associated with maintaining compliance with SEC and Nasdaq requirements, accounting and other consultingaudit fees, investor relation expenses, director fees and other general corporatedirector and officer insurance premiums. Financing expense (income), net Financing expense (income), net consists of interest earned on our cash, cash equivalents and short-term bank deposits, bank fees and costs and interest expenses. Overhead costs consistIn addition, we record expense or income resulting from fluctuations of currencies we hold, primarily U.S. dollars and Euros, against the NIS (our functional currency). A portion of rent, telecommunications, utilitiesour assets are held in foreign currency and depreciation expenses. Share Option-Based Compensation
New employees typically receive share option awards. a portion of our liabilities is denominated in these currencies.We also grant additional share option awards to existing employees and directors. The Company records option-based compensation as an expenseissued derivative financial instruments in the statementsecond quarter of operations. The cost2018, the issuance costs of share option-based compensation awards iswhich were included as a financing expense. As the derivative financial instruments are measured at their fair value at the dateend of every reporting period (fluctuating mainly due to changes in share price and its expected volatility, and assessments of the award. Fairprobabilities of future events), and the differences in fair value are recognized in our statement of operations as financing expense (income), we expect financing expense (income), net to continue to fluctuate.Income taxes The standard corporate tax rate in Israel was 23% for the 2018 tax year and thereafter, and 24% for the 2017 tax year. The annual tax rate for 2017 applicable to our U.S. subsidiary is determinedup to 40%. On December 22, 2017, the U.S. Tax Reform Act was signed into law. The legislation significantly changes U.S. tax law, inter alia, by lowering the U.S. federal corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. Therefore, the aggregate annual federal and state tax rate applicable for our U.S. subsidiary in 2018 is up to 32%. We have not generated taxable income since inception, and have operating tax loss carryforwards resulting from the liquidation of BTI following the Reincorporation. As of December 31, 2018, our operating tax loss carryforwards were approximately $5.4 million and capital loss carryforwards were approximately $12.3 million. Our operating tax loss carryforwards as of December 31, 2017 were approximately $3.7 million and capital loss carryforwards were approximately $13.3 million. Our operating tax loss carry forwards as of December 31, 2016 were approximately $2.6 million and capital loss carryforwards were approximately $12 million. Our wholly-owned Israeli subsidiary, Anchiano Therapeutics Israel Ltd., had operating tax loss carryforwards of approximately $56.0 million as of December 31, 2018 and capital loss carryforwards of approximately $1.4 million. As of December 31, 2017, it had operating tax loss carryforwards of approximately $50.5 million and capital loss carryforwards of approximately $1.4 million, and as of December 31, 2016, it had operating tax loss carryforwards of approximately $39.5 million and capital loss carryforwards of approximately $1.3 million. We anticipate that we will be able to carry forward these tax losses indefinitely. Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carryforward tax losses. We recognize deferred tax assets on losses for tax purposes carried forward to subsequent years if utilization of the related tax benefit against a future taxable income is expected. We have not created deferred taxes on our tax loss carryforward since their utilization is not expected in the foreseeable future. Our wholly-owned U.S. subsidiary, Anchiano Therapeutics, Inc., provides us with general and clinical trial management services. For these services, the subsidiary is compensated on a cost-plus basis, and records income taxes accordingly. Functional and Presentation Currency The NIS is the currency that represents the principal economic environment in which we operate and thus is our functional currency. However, for financial reporting purposes, our financial statements, which are prepared using the Black-Scholes-Merton option pricing model. Wefunctional currency, have accounted for share-based compensationbeen translated into a different presentation currency, the U.S. dollar. As we have recently completed our initial public offering on the Nasdaq, we believe presentation in this way from our inception. Non-operating expenses (income), net
Non-operating expenses (income), net consists primarily of interest income, net which primarily consists of interest income earned on cash, cash equivalent, interest on convertible notes, fair value adjustmentsU.S. dollars will facilitate U.S. investors’ understanding of our warrants and liability for commission to underwriters and foreign currency exchange gains and losses.
Income Tax Expense
We account for income taxes under the asset and liability method. Deferred taxfinancial statements. Our assets and liabilities are recognized fortranslated at the future tax consequences attributable to differences betweenexchange rates at the financial statements carrying amounts of existing assetsbalance sheet date; our income and liabilitiesexpenses are translated at average exchange rates and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax ratesshareholders’ equity is recognized in income in the period that includes the enactment date. A valuation allowance is provided for the amount of deferred tax assets that,translated based on available evidence,historical exchange rates. Translation adjustments are not more likely than notincluded in determining net loss but are included in foreign exchange translation adjustment to be realized. ASC subtopic 740-10 clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Interest and penalties related to unrecognized tax benefits are recognized asother comprehensive loss, a component of income tax expense.
shareholders’ equity.Results of Operation s 5.A. Operating Results
YearsOperationsBelow is a summary of our results of operations for the periods indicated: | | | Fiscal Year Ended December 31, | | | | | 2018 | | | 2017 | | | 2016 | | | | | (USD, in thousands) | | | Operating expenses: | | | | | | | | | | | | | | Research and development expenses | | $ | 7,559 | | | $ | 6,229 | | | | 2,384 | | | General and administrative expenses | | | 5,485 | | | | 3,163 | | | | 2,258 | | | Operating loss | | $ | 13,044 | | | $ | 9,392 | | | | 4,642 | | | Financing income | | | (1,127 | ) | | | (1 | ) | | | (44 | ) | | Financing expense | | | 741 | | | | 92 | | | | 7 | | | Financing expense (income), net | | | (386 | ) | | | 91 | | | | (37 | ) | | Loss before taxes on income | | $ | 12,658 | | | $ | 9,483 | | | | 4,605 | | | Income tax | | | 621 | | | | 323 | | | | 137 | | | Net loss | | $ | 13,279 | | | $ | 9,806 | | | | 4,742 | |
Year Ended December 31, 2012, 2011 and 2010 2018 Compared to Year Ended December 31, 2017Research and Development Expenses | | | December 31, 2012 | | | December 31, 2011 | | | December 31, 2010 | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | | | | | | | | | | | Research and Development Expenses, Gross | | | 15,718 | | | | 14,083 | | | | 8,079 | | Research and Development Expenses, Net | | | 13,782 | | | | 12,585 | | | | 6,581 | |
development expensesResearch and development expenses gross, increased by approximately NIS 1,635,000$1.3 million, or 11.6%21%, to NIS 15,718,000approximately $7.6 million for the year ended December 31, 2012 from NIS 14,083,0002018 compared to approximately $6.2 million for the year ended December 31, 2011. Research2017. This increase was primarily due to an increase in clinical trial initiation expenses, manufacturing and production processes development expenses net,and an increase in clinical manpower.
General and administrative expenses General and administrative expenses increased by approximately NIS1,197,000$2.3 million, or 9.5%73%, to NIS 13,782,000approximately $5.5 million for the year ended December 31, 2012 from NIS 12,585,0002018 compared to approximately $3.2 million for the year ended December 31, 2011. The2017. This increase was mainly due to an increaseoption grant to our Chief Executive Officer and increases in payroll provisions, professional and consulting expenses on account of purchase of material for our Phase IIb pancreatic cancer clinical trial, offset by a decrease in bladder cancer clinical trialand rent expenses. Financing expenses resulting from completion of that trial and a decrease in ovarian cancer clinical trial expenses. Research and development(income), netFinancing expenses gross and net, increaseddecreased by approximately NIS 6,004,000$0.5 million, or 74%524%, to NIS 14,083,000approximately ($0.4) million for the year ended December 31, 2011 from NIS 8,079,0002018 compared to approximately $0.1 million for the year ended December 31, 2010. Research2017. This change was primarily due to issuance costs related to the derivative financial instruments issued in the second quarter of 2018, changes in fair value of derivative financial instruments, interest accrued on bridge loans, and development expenses, net,exchange rate fluctuations. Income tax Income tax increased by approximately NIS 6,004,000 or 91%,$0.3 million, to NIS 12,585,000approximately $0.6 million for the year ended December 31, 2011 from NIS 6,581,0002018 compared to approximately $0.3 million for the year ended December 31, 2010. The following table summarizes information about2017. This increase was primarily due to an increase in activity in our researchU.S. subsidiary and in share-based compensation, which may be deductible for tax purposes in the future.Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 Research and development expenses: | | | Year ended December 31 | | | | | 2012 | | | 2011 | | | 2010 | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | | | | | | | | | | Consultants and subcontractors | | | | | | | | | | | | | Salaries and related expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Salaries and related expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Repayment of grant from BIRD Foundation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total research and development expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | Less: grants from the Chief Scientist, BIRD | | | | | | | | | | | | | Foundation and Jerusalem Development | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
GeneralexpensesResearch and Administrative Expenses | | | December 31,2012 | | | December 31,2011 | | | December 31,2010 | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | | | | | | | | | | | Research and Development Expenses, Gross | | | 5,651 | | | | 7,444 | | | | 7,255 | |
General and administrativedevelopment expenses decreased NIS 1,793,000,increased by approximately $3.8 million, or 24%161%, to NIS 5,651,000approximately $6.2 million for the year ended December 31, 2012 from NIS 7,444,0002017, compared to approximately $2.4 million for the year ended December 31, 2011.2016. The decrease wasincrease resulted primarily due to decreasean increase in restructuringproduction expenses, decrease in professionalexpenses related to the development of our production processes, purchases of additional materials and consulting, feesexpenses related to the preparation for our clinical trials.General and decrease in salaries and relatedadministrative expenses including directors' fees.
General and administrative expenses decreased NIS 189,000increased by approximately $0.9 million, or 2.6%40%, to NIS 7,444,000approximately $3.2 million for the year ended December 31, 2011 from NIS 7,255,0002017, compared to approximately $2.3 million for the year ended December 31, 2010.2016. The increase was primarily due to our engaging our current Chief Executive Officer and establishing an office in the United States during 2016, as well as increased investor relations and business development expenses. Financing expense (income), net Financing expense (income), net decreased by approximately $0.1 million, or 346%, to an expense of approximately $91 thousand for the year ended December 31, 2017, compared to income of approximately ($37) thousand for the year ended December 31, 2016. The decrease resulted primarily from foreign currency fluctuations against our functional currency.
Income tax Income tax increased by approximately $0.2 million, or 136%, to approximately $0.3 million for the year ended December 31, 2017, compared to approximately $0.1 million for the year ended December 31, 2016, due primarily to an increase in activity in our U.S. subsidiary and to share-based compensation, which is deductible for tax purposes at a different point in time. Selected Quarterly Results of Operations The following table summarizessets forth our unaudited consolidated quarterly results of operation for the periods indicated. You should read the following table in conjunction with our audited consolidated financial statements. We have prepared the unaudited consolidated quarterly financial information abouton the same basis as our consolidated financial statements. The unaudited consolidated quarterly financial information includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair representation of our operating results for the quarters presented. | | | Dec 31, 2018 | | | Sep 30,
2018 | | | June 30,
2018 | | | Mar 31, 2018 | | | Dec 31, 2017 | | | Sep 30, 2017 | | | June 30, 2017 | | | Mar 31, 2017 | | | | | (USD, in thousands) | | | Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Research and development expenses | | | 1,837 | | | | 1,372 | | | | 1,875 | | | | 2,475 | | | | 1,007 | | | | 1,125 | | | | 2,873 | | | | 1,224 | | | General and administrative expenses | | | 1,139 | | | | 1,133 | | | | 2,287 | | | | 926 | | | | 875 | | | | 777 | | | | 734 | | | | 777 | | | Operating loss | | | 2,976 | | | | 2,505 | | | | 4,162 | | | | 3,401 | | | | 1,882 | | | | 1,902 | | | | 3,607 | | | | 2,001 | | | Financing expense (income), net | | | (1,327 | ) | | | 60 | | | | 806 | | | | 75 | | | | (47 | ) | | | (34 | ) | | | (22 | ) | | | 194 | | | Loss before taxes on income | | | 1,649 | | | | 2,565 | | | | 4,968 | | | | 3,476 | | | | 1,835 | | | | 1,868 | | | | 3,585 | | | | 2,195 | | | Income tax | | | 160 | | | | 68 | | | | 330 | | | | 63 | | | | 113 | | | | 57 | | | | 96 | | | | 57 | | | Net loss | | | 1,809 | | | | 2,633 | | | | 5,298 | | | | 3,539 | | | | 1,948 | | | | 1,925 | | | | 3,681 | | | | 2,252 | |
Our results of operations have varied in the past and can be expected to vary in the future due to numerous factors. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance. Our quarterly research and development expenses fluctuate in accordance with the scope of preparations in each quarter for our upcoming registrational clinical trials, primarily consisting of inodiftagene manufacturing activity. We expect research and development expenses to continue to increase as we commence our upcoming registrational trials. Changes to our general and administrative expenses: | | | Year ended December 31 | | | | | 2012 | | | 2011 | | | 2010 | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | | | | | | | | | | | Share-based payment in respect of options granted to employees and directors | | | | | | | | | | | | | Salaries and related expenses, including directors’ fees | | | | | | | | | | | | | Professional and consulting fees | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Rental fees and maintenance | | | | | | | | | | | | | Meals, refreshments and gifts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-operating expenses net
Non-operatingare mainly caused by the recognition of share-based compensation expenses, net,notably with regard to an options grant during the second quarter of 2018, of which half of the expense was recognized in that quarter, as well as increased by NIS 7,298,000,leasing expenses. We expect our general and administrative expenses to continue to increase beyond the average over the last eight quarters, primarily due to expenses of NIS 4,750,000 for the period ended December 31, 2012associated with being a Nasdaq-traded company.Changes to our income tax expenses result from income of NIS 2,548,000 for the period ended December 31, 2011. Thean increase in non-operatingactivity in our U.S. subsidiary and from share-based compensation, which is deductible for tax purposes at a future point in time. We expect income tax expenses to continue to increase beyond the average over the last eight quarters, primarily due to continued increase in activity in our U.S. subsidiary. Changes to financing expense (income), net resultedare caused by exchange rate fluctuations within each quarter, bank fees and interest from increasedeposits. In the second quarter of 2018, financing expense (income), net also reflects issuance costs relating to derivative financial instruments issued that quarter. As the derivative financial instruments are measured at fair value at the end of every reporting period and the difference in fair value adjustment of our warrants and convertible notes. The adjustment of our warrants and convertible notes were change in our stock price and the implied volatility of the underlying stock. An increase in the price of our common stock, among other factors, increases the value of the warrants and thus results in a loss in our income statement. Conversely, a decline in the price of our common stock would decrease the value of the warrants and thus result in a gainis recognized in our statement of operations. Non-operating expenses,operations as financing expense (income), net, increased by NIS 6,303,000,we expect financing expense (income), net to expenses of NIS 2,548,000 for the period ended December 31, 2011 from income of NIS 8,851,000 for the period ended December 31, 2010. The increase in non-operating expenses, net, resulted from increase in fair value adjustment of our warrants and convertible notes. The adjustment of our warrants and convertible notes were due mainlycontinue to the change in our share price and the implied volatility of the shares underlying the warrants and convertible notes. An increase in the price of our common shares, among other factors, increases the value of the warrants and thus results in a loss in our income statement. Conversely, a decline in the price of our common stock would decrease the value of the warrants and thus result in a gain in our statement of operations.
The following table summarizes information about our non-operating expenses (income), net:
| | | Year ended December 31 | | | | | 2012 | | | 2011 | | | 2010 | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net change in fair value of financial | | | | | | | | | | | | | instruments designated as fair value | | | | | | | | | | | | | through the Statement of Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | Finance expense (income), net | | | | | | | | | | | | |
The following table shows the changes in the underlying parameters used in the valuation of the Warrants:
| | | As of | | | As of | | | | | | | | | | | | | | | $ | | | Representative exchange rate of shekel/dollar | | | | | | | | | | | | | | | | | | | | | | | | |
The primary drivers of change in the fair value of the warrants have been changes in the Company’s share price and its historical volatility, as well as the diminishing lifespan of the warrants.
Income Tax (Expense) Benefit
| A. | Details on the tax environment in which the Group operates |
(1) | BioCancell Ltd. is taxed under the tax laws in Israel. |
BioCancell US was taxed under the tax laws in U.S. and Israel.
BioCancell Therapeutics Israel Ltd. is taxed under the tax laws in Israel.
(2) Amendments to the Income Tax Ordinance and the Real Estate Betterment Tax
| a. | On July 14, 2009, Israel’s parliament (the Knesset) passed the Economic Efficiency Law (Legislative Amendments for Implementation of Economic Plan for Years 2009 and 2010), 2009, which provided, inter alia, an additional gradual reduction of the corporate tax rate to 18% in the 2016 tax year and thereafter. According to the said amendments, the corporate tax rates in effect in the 2009 tax year and thereafter are as follows: in 2009 tax year – 26%, in 2010 tax year – 25%, in 2011 tax year – 24%, in tax year 2012 – 23%, in 2013 tax year – 22%, in 2014 tax year – 21%, in 2015 tax year – 20% and in 2016 tax year and thereafter – a corporate tax rate of 18% will be in effect.
|
On December 5, 2011, the Knesset passed the Amendment to the Tax Burden Law (Legislative Amendments), 2011. According to the Law, the tax reduction, prescribed in the Economic Efficiency Law, as above, was cancelled, and the corporate tax rate will be 25% commencing the tax year 2012 and thereafter.
| b. | On February 4, 2010, the Amendment to Income Tax Ordinance (No. 174 – Temporary Order regarding Tax Years 2007, 2008 and 2009), 2010 was published in the Gazette (hereafter – "Temporary Order"). According to the Temporary Order, when determining taxable income in the years 2007-2009, Accounting Standard No. 29 – "Adoption of International Financial Reporting Standards (IFRS)" (hereafter – "Standard 29") shall not apply, even if applied for the purposes of financial statement preparation. On January 12, 2012, Amendment 188 to the Ordinance was published, in which the Temporary Order was amended, so that Amendment 29 also will not apply when determining taxable income in 2010 and 2011. The effect of the Amendment to the Ordinance on the financial statements is not material, since the Group has sustained losses. |
fluctuate.B. Tax assessments BioCancell Therapeutics Israel Ltd. has assessments deemed final for the tax years through 2010, inclusive, and final withholding tax assessments for the tax years through 2010, inclusive.
BioCancell US has no tax assessments considered final.
The Company has no tax assessments considered final.
C. Tax loss carryforwards
(1) Company – According to Israeli tax laws, the Company has tax loss carryforwards totaling NIS 0.5 million.
(2) BioCancell US (according to US tax laws) has NOL carryforwards amounting to NIS 5 million, which may be offset until 2025-2031 (the Company has a liquidation certificate). The Company assesses that these NOL carryforwards will not be utilized in the future.
The Tax Reform Act of 1986 imposed substantial restrictions on the utilization of net operating loss (NOL) carryforwards and tax credits in the event of a change in the corporation's ownership. Thus, in the wake of changes in the Company's stockholders over the years, the Company's ability to utilize its NOL carryforwards may be limited.
(3) Likewise, according to Israeli tax laws, BioCancell US has tax loss carryforwards totaling NIS 14 million, with no limit on the time period for utilization. The Company assesses that these loss carryforwards will not be utilized in the future.
(4) BioCancell Therapeutics Israel Ltd. has NOL carryforwards for next year reaching NIS 77 million as of the balance sheet date, and capital loss carryforwards of NIS 5 million (December 31, 2011 – NIS 65 million).
5.B. Liquidity and Capital Resources
We are a development-stageclinical-stage company and have not experienced significant revenue-generating activitiesgenerated revenue since our formation. We have incurred operating losses for each year since our inception in 2004. To achieve operating profits,profit, we alone or together with others, must successfully identify, develop and market product-candidates.products, alone or together with others. Our principal activities from the beginning of our development stage,since inception have been organizational matters, issuance of stock,research and product development and capital-raising in order to support our research and development fundraising and market research.activities. We have financed our operations from inception primarily through various private placement transactions, public offerings of our common stock,securities and option exercises. Wegrants from the IIA.As we are currently operating under a material liquidity deficiency. We believe that we have sufficient cash to meetin the clinical stage and our planned operating needs until May 2013, basedactivities depend on future events, including our current cash levels. We therefore will need to raise substantial additional capital through future equity or debt financing to finance our initiatives and are currently evaluating potential alternatives. Our board of directors has authorized our managementability to raise additional funds through offerings, our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. We expect the net proceeds from our February 2018 initial public offering will provide us with enough capital funds at terms to be approved byfund our activities through the board. The fundraising may be subject to stockholder approval by special majority and Tel Aviv Stock Exchange approval to register the securities to be issued.
second quarter of 2020.In the near term, we expect to continue to incur significant and increasing operating losses as a result of the research and development expenses as we expect to incur in developingfurther the development of inodiftagene. We do not anticipate generating operating income until our product candidates and the general and administrative expensescandidate is successfully commercialized given that we expect to incur. Our research and development activity is subject to extensive governmental regulations relating to development,will incur significant costs associated with clinical trials manufacturing and commercialization, andthere is no assurance that we may be unable towill obtain regulatorymarketing approval for anyour product candidate and that, if such approval is obtained, our product candidate will achieve market acceptance.
Cash flows The table below shows a summary of our prospective therapeutic products. | | | December 31,2012 | | | December 31,2011 | | | December 31,2010 | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | Net cash used in operating activities | | | (19,269 | ) | | | (18,808 | ) | | | (7,110 | ) | Net cash provided by (used in) investing activities | | | (2,241 | ) | | | 7,025 | | | | 28,342 | | Net cash provided by financing activities | | | 26,315 | | | | 333 | | | | 12,374 | |
As ofcash flow activities for the periods indicated:| | | Fiscal Year Ended
December 31, | | | | | 2018 | | | 2017 | | | 2016 | | | Net cash used in operating activities | | $ | (14,744 | ) | | $ | (8,515 | ) | | | (3,732 | ) | | Net cash provided by (used in) investing activities | | | (338 | ) | | | (34 | ) | | | 78 | | | Net cash provided by (used in) financing activities | | | 21,162 | | | | 5,242 | | | | 6,063 | | | Net increase (decrease) in cash and cash equivalents | | $ | 6,080 | | | $ | (3,307 | ) | | | 2,409 | |
Operating activities Net cash used in operating activities increased by approximately $6.2 million, to approximately $14.7 million for the year ended December 31, 2012, we had NIS 5,724,000 in cash and cash equivalents, an increase of NIS 919,000 from2018 compared to approximately $8.5 million for the year ended December 31, 2011. 5.C.2017. This increase is primarily due to payables forproduction process development, purchase of materials, preparation for clinical trials and investor relations expenses.Investing activities Net cash used in investing activities increased by $0.3 million, to approximately $0.3 million for the year ended December 31, 2018 compared to $0.03 million for the year ended December 31, 2017. This increase was primarily due toequipment purchases for our laboratory and investments in a secured deposit in 2018. Financing activities Net cash provided by financing activities increased by $16.0 million, to approximately $21.2 million for the year ended December 31, 2018 compared to $5.2 million for the year ended December 31, 2017.This increase was primarily due to a private offering of our ordinary shares in the second quarter of 2018. C. Research and development, patents and licenses, etc. For a description of the Company'sCompany’s research and development policies for the last three years, see Item 4B: “Item 4.—Information on the Company—Business Overview. 5.D.Overview—Intellectual Property.”D. Trend Information 5.E.E. Off-Balance Sheet Arrangements We have not entered into any transactions with unconsolidated entities inas to which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that would expose us to material continuing risks, contingent liabilities or any other obligationsobligation under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support. 5.F.F. Tabular Disclosure of Contractual Obligations AsThe following table summarizes our significant contractual obligations* at December 31, 2018: | | | Payment due by period | | | | | Total | | | Less than
1 year | | | 1-3 years | | | 3-5 years | | | More than
5 years | | | | | (USD, in thousands) | | | Operating lease obligations* | | | 1,700 | | | | 500 | | | | 900 | | | | 300 | | | | - | | | Other long-term clinical liabilities** | | | 2,700 | | | | 800 | | | | 1,500 | | | | 400 | | | | - | |
* Not including prospective repayments to the IIA of grants, valued at approximately $4.0 million as of December 31, 2012,2018, which we had contractual obligationsdo not record as describedliabilities, due to the uncertainty regarding whether we will be required to repay them. ** An agreement with Syneos Health, or Syneos, to act as our clinical research organization (CRO) and to manage our Codex Clinical Trial. Our minimum future obligation to Syneos is $2.7 million. This agreement is governed by a Master Services Agreement with INC Research, LLC (now Syneos) dated October 25, 2017. Other substantial liabilities are as follows: Manufacturing expenses payable to Boehringer-Ingelheim, or BI, with whom we have contracted to supply us with inodiftagene drug substance for registrational clinical trials. For more information, see “Item 4.—Information on the Company—Business Overview—Manufacturing.” G. Safe Harbor This Annual Report on Form 20-F contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and as defined in the following table: | Payment due by Period | | | Total | Less than 1 year | | 1-3 years | | | 3-5 years | | | More than 5 years | | Operating Lease Obligations | NIS 219,000 | NIS 219,000 | | | - | | | | - | | | | - | | Purchase Obligations | NIS 560,000 | NIS 560,000 | | | - | | | | - | | | | - | | Other Long Term Liabilities* | NIS 2,403,000 | NIS 1,266,000 | | NIS 1,137,000 | | | | - | | | | - | | Total* | NIS 3,182,000 | NIS 2,045,000 | | NIS 1,137,000 | | | | - | | | | - | |
* Including long-term derivatives for which no cash expense is expected.
ItemPrivate Securities Litigation Reform Act of 1995. See “Forward-Looking Statements.”ITEM 6. Directors, Senior Management and Employees 6.A.And EmployeesA. Directors and Senior Management The following istable sets forth the listname, age and position of senior managementeach of our executive officers and directors as of the date of this Annual Report on Form 20-F: 20-F.Name | | Age | | Position | | Dr. Frank G. Haluska | | 60 | | Chief Executive Officer and Director | | Jonathan Burgin | | 5157 | | Chief ExecutiveFinancial Officer and Chief Operating Officer | Abraham HochbergDr. David Kerstein | | 7436 | | Chief ScientificMedical Officer and Director | Monique Ben-AmDr. Ron Knickerbocker | | 6053 | | Senior Vice President of Clinical Development and Data Sciences | | Dr. Michal Gilon Ohev-Zion | | 3541 | | Vice President of Research and Development | Or DolevSean Daly | | 3547 | | ControllerVice President of Clinical Operations | Aharon SchwartzDr. Stephen Hoffman | | 7064 | | Chairman of the Board of Directors | Ofer Goldberg | | 40 | | Director | Gil Milner | | 46 | | Director | Hanoch Rappaport(1) | | 46 | | Director | Orly Yarkoni(1) | | 57 | | External Director | David Schlachet(1)Ruth Alon(1)(2) | | 67 | | External Director | | Robert Connelly | | 59 | | Director | | Reginald Hardy(2) | | 61 | | Director | | Dr. Lawrence Howard | | 65 | | Director | | Isaac Kohlberg | | 67 | | Director | | Efrat Makov(1)(2) | | 50 | | Director | | Dennison Veru(1) | | 58 | | Director |
| (1) | Member of the Audit Committee |
| (2) | Member of the Compensation Committee |
(1) MemberA brief biography of each person who serves as an executive officer and/or director of our Company is set forth below:
Dr. Frank G. Haluskahas served as our Chief Executive Officer since October 2016. He most recently served as Chief Medical Officer and Senior Vice President of Clinical R&D at ARIAD Pharmaceuticals, Inc., where he held overall responsibility for clinical development strategy. At ARIAD he led the clinical development and approval of ponatinib (marketed as Iclusig) in the United States, European Union and other territories, as well as the development of brigatinib (marketed as Alunbrig) approved in the United States by the FDA. Dr. Haluska graduated from Harvard College and the University of Pennsylvania School of Medicine, undertook medical training at Massachusetts General Hospital (MGH) and the Dana-Farber Cancer Institute (DFCI), and a fellowship at the Massachusetts Institute of Technology Center for Cancer Research. He became assistant professor of medicine at Harvard Medical School, and leader of the Auditmelanoma research programs at the MGH Cancer Center and Compensation Committees Mr. Ruben Krupik did not stand for re-election to our board of directors (the "Board") in 2012 and so ceased to serve as athe DFCI through the Dana-Farber Harvard Cancer Center. Subsequently he was deputy director effective December 31, 2012. Mr. Aviv Boim resigned from the Board on August 30, 2012.
The following is a brief account of the education and business experience during the past five years of each member ofTufts New England Medical Center Cancer Center. He currently serves on the board of directors ("Board Member")at Vedantra Pharmaceuticals, Inc.
Jonathan Burginserved as our Chief Financial Officer between June 2011 and executive officer, indicating the principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out. Jonathan Burgin,June 2012, was our Chief Executive Officer
Mr. Burgin from June 2012 through October 2016, and has served as Chief Executive Officer of the Company since June 2012, and was previouslyour Chief Financial Officer of the Company from June 2011.and Chief Operating Officer since October 2016. Mr. Burgin has beenwas Chief Financial Officer of Radcom Ltd. (NASDAQ:(Nasdaq: RDCM), a service assurance provider, sincefrom 2006 to 2011, and was CFOChief Financial Officer of XTL Biopharmaceuticals Ltd. (TASE: XTL, Pink Sheets: XTLBY)Nasdaq: XTLB), a drug development company, from 1999 to 2006, where he took an active part in the process of listing its shares on the NASDAQ, London Stock Exchange, and TASE and in raising $113 million in four financing rounds.2006. Between 1997 and 1999, he was CFOChief Financial Officer of YLR Capital Markets Ltd., a publicly-traded Israeli investment bank, and rose to become a Senior Manager at Kesselman & Kesselman, CPA (Israel), the Israeli member of PricewaterhouseCoopers International, Ltd., between 1984 and 1997. He currently serves on the board of directors of Cellect Biotechnology Ltd. (Nasdaq:APOP). Mr. Burgin earned an M.B.A. and a B.A. in Accountingaccounting and Economicseconomics from Tel-AvivTel Aviv University and is certified in Israel as a CPA.
Prof. Abraham Hochberg, Chief Scientific Officer and Director
Professor Hochberg Certified Public Accountant.
Dr. David Kersteinhas served as the Company'sour Chief ScientificMedical Officer since December, 2005,November 2018. Prior to joining Anchiano Therapeutics, Dr. Kerstein served as Senior Medical Director of Oncology Clinical Research at Takeda Pharmaceuticals International Co. (OTCMKTS:TKPHF), a global research and asdevelopment-driven pharmaceutical company, from February 2017 to November 2018. At Takeda, he was the lung cancer clinical portfolio strategy lead and global clinical lead for the anaplastic lymphoma kinase (ALK) inhibitor, brigatinib. From 2014 to 2017, Dr. Kerstein was Medical Director and then Senior Medical Director of Clinical Research at ARIAD Pharmaceuticals, Inc., where he was the medical lead for the brigatinib clinical development program, and led the initial New Drug Application submission and Marketing Authorization Application submissions and approvals for brigatinib. Prior to that, Dr. Kerstein was Director of Clinical Development and Regulatory Affairs at Boston Biomedical, Inc., a memberwholly-owned subsidiary of Sumitomo Dainippon Pharma Co. Ltd. (OTCMKTS:DNPUF), a Japanese pharmaceutical company, where he led the clinical development of the Company's Board since MarchSTAT3 inhibitor napabucasin. Dr. Kerstein received his M.D. from Tufts University School of 2006. He served as the chairman of the Board between July, 2006,Medicine and October, 2009. Professor Hochberg has been a biochemist and molecular biologist at the Department of Biological Chemistry at the Hebrew University of Jerusalem for the past 48 years. Professor Hochberg is recognized as a world-leading expert on the H19 gene and is considered to have made many seminal contributionshis B.S. in the fields of imprinted genes, the H19 gene, the IGF2 gene and oncology. Professor Hochberg earned a Ph.D. in Molecular Biology,biology, summa cum laude, from Tufts University.
Dr. Ron Knickerbockerhas served as our Senior VP of Clinical Development and Data Sciences since March 2018. Prior to this, Dr. Knickerbocker led the Hebrew University of Jerusalem. He also holdsBiomedical Data Sciences and Information group at ARIAD Pharmaceuticals from 2012 until its acquisition by Takeda Pharmaceutical Company Ltd. in 2017. At ARIAD, he led statistics and data management functions through multiple successful oncology submissions. Prior to this, Dr. Knickerbocker served as a B.A. in Archeology from the Hebrew University of Jerusalem. Our technology is based on more than 15 years of Prof. Hochberg’s research; thus, he is qualified to serve on the Board by virtue of his unparalleled understanding of our business. Monique Ben-Am, Vice President at Genzyme Corporation from 2004 to 2012, where his positions included leading the biostatistics, data management, and medical writing functions for the transplant/oncology business and global head of Clinical Developmentbiostatistics and statistical programming. From 1999 to 2004, Dr. Knickerbocker was the statistical site head for Pfizer Inc. in Ann Arbor, MI. From 1993 to 1999, he held positions at Eli Lilly and Company, leading projects in women’s health and oncology. He has a B.S. degree in applied mathematics and his M.S. and Ph.D. degrees in statistics from Texas A&M University.
Ms. Ben-Am has been our VP Clinical Development since June 2011, after attaining more than 25 years of experience in the pharmaceutical industry. Prior to joining the Company, Monique was Director of Global Operations Management & Resources, Global Clinical Operation, Global Innovative R&D at Teva Pharmaceuticals, Ltd. (NASDAQ: TEVA, TASE: TEVA), where she managed an international group of Global Operations Managers responsible for multiple sclerosis, ALS, Parkinson's Disease, Crohn's Disease and oncology clinical trials. Previously, she was VP Clinical Affairs at TopSpin Medical Ltd., after many years with Novartis Pharma AG in Switzerland and the U.S., having served in a variety of positions. While working at Novartis' Oncology Business Unit, she managed and completed a number of clinical trials leading to the approval of the oncology blockbuster drug Glivec, the Glivec Expanded Access Program including over 7000 patients in 37 countries, and the Glivec International Patient Access Program (GIPAP) providing access to thousands of patients in the developing world. She holds a B.Sc. in Agriculture from the Hebrew University of Jerusalem, Israel, and an M.Sc. in Physiology and Pharmacology from the Tel Aviv University.
Dr. Michal Gilon Ohev-Zion Vice President of Research and Development Dr. Gilon Ohev-Zion has beenserved as our VP Research and Development since February 2013. She was previously an investigator and teaching assistant at the Hebrew University of Jerusalem. She holds a B.Sc., M.Sc. and Ph.D., degrees, all in biology, from the Hebrew University of Jerusalem, as well as having performed post-doctoral research there.
Or Dolev, Controller
Mr. Dolev
Sean Dalyhas served as our Controller since September 2008. He was previously an auditor at BDO. Mr. Dolev holds a B. A. in Business Administration (Accounting) from the Ono Academic College, and is a CPA. Dr. Aharon Schwartz, Chairman of the Board of Directors
Dr. Schwartz has served as a director of the Company since November 2011, and as Chairman of the Board since May 2012. He was employed with Teva Pharmaceutical Industries Ltd from 1975 until his retirement in 2011. His most recent titles included Vice President of Innovative Ventures, Vice PresidentClinical Operations since March 2018 and brings more than a decade of Strategic Business Planningexperience and New Ventures and Vice Presidentan ample network of Teva’s Global Products Division, andsynergetic relationships to his role. Mr. Daly joined Anchiano Therapeutics from ARIAD Pharmaceuticals, where he was the Vice President of Teva’s Copaxone Division from 1995 to 1999. From 1993 to 1995, Dr. Schwartzmost recently served as the Vice President of Business DevelopmentClinical Operations. Mr. Daly led the clinical operations group at ARIAD for five years, building upon various operational roles held at ARIAD since 2004. In addition to his experience at ARIAD, he has held positions with Wyeth Research (formerly Genetics Institute) and Export DivisionAgouron Pharmaceuticals, Inc. Mr. Daly is a graduate of the University of California at San Diego where he received his B.S. in biochemistry and alsocell biology.
Dr. Stephen Hoffmanhas served as the Head of the Pharmaceutical Division from 1989 to 1993. He is thea director and as Chairman of BioLineRX,our board of directors since November 2018. Dr. Hoffman currently serves as Chief Executive Officer of Aerpio Pharmaceuticals, Inc. (Nasdaq: ARPO), a biopharmaceutical company focused on advancing treatments for ocular diseases. Prior to that, from February 2014 to November 2017, he served as Senior Advisor of PDL BioPharma, Inc., where he focused on product acquisition and isstructured debt and royalty monetization opportunities. From 2007 to 2014, Dr. Hoffman served as Managing Director of Skyline Ventures, a venture capital firm, and from 2003 to 2007 as a General Partner at TVM Capital, a venture and growth capital firm focused on biopharmaceuticals. From 1994 to 2002, Dr. Hoffman served as President, Chief Executive Officer and a director of Allos Therapeutics, Inc., a biopharmaceutical company developing and commercializing anti-cancer therapeutics, where he remained as its Chairman until its acquisition by Spectrum Pharmaceuticals, Inc. in 2012. Dr. Hoffman currently serves on the board of directors of Dicerna Pharmaceuticals, Inc. (Nasdaq: DRNA), AcelRx Pharmaceuticals, Inc. (Nasdaq: ACRX), Bicycle Therapeutics Ltd. and Palleon Pharmaceuticals, Inc. Dr. Hoffman completed a fellowship in clinical oncology and a residency and fellowship in dermatology, both at CBI, D-Pharm, MediWound and, CureTech.the University of Colorado. He holds a Ph.D. in Organic Chemistrychemistry from Northwestern University and an M.D. from the Weizmann Institute, an M.Sc. in Chemistry from the Technion, and a B.Sc. in Chemistry and Physics from the Hebrew University of Jerusalem, and is qualified to serve on our Board by virtueColorado School of his vast experience in the field of drug development. Ofer Goldberg, Director
Mr. Goldberg Medicine.
Ruth Alonhas served as a director since September 2017. Ms. Alon is the founder and Chief Executive Officer of Medstrada Israel, a venture capital fund focusing on food and nutrition technologies. Between 1997 and 2016, Ms. Alon served as a general partner of Pitango Venture Capital. Prior to her tenure at Pitango, Ms. Alon held senior positions with Montgomery Securities from 1981 to 1987, Genesis Securities, LLC from 1993 to 1996, and Kidder Peabody & Co. from 1987 to 1993, as well as managing her own medical device independent consulting business in San Francisco from 1995 to 1996. Ms. Alon was the Company since March, 2011. Hefounder and chairperson of Israel Life Science Industry, a not-for-profit organization then representing the mutual goals of approximately 700 Israeli life science companies. She is also the co-founder of IATI, Israel Advanced Technology Industries, an umbrella organization for all high-tech and life sciences companies in Israel. She has a Vice President at CBI and involvedB.A. in the business strategy and development of technology of CBI’s portfolio companies, and was previously an analyst and equity funds manager. He serves on boards of directors of a number of biomed companies, including D-Pharm Ltd. (TASE: DPRM), Biokine Therapeutics Ltd., ProtAb Ltd., Vacciguard Ltd and Iluten Ltd. He holds an M.A. in Economics and Financeeconomics from Tel Aviv University and a B.Sc. in Physics and Mathematics from theThe Hebrew University of Jerusalem. Mr. Goldberg is qualified to serve on our Board by virtue of his experience in the field of biotechnology startup firms. Hanoch Rappaport, Director
Mr. Rappaport Jerusalem, Israel and an M.B.A. from Boston University.
Robert Connellyhas served as a director of the Company since November 2004.2018. From June 2013 to June 2018, Mr. Rappaport serves as theConnelly was Chief FinancialExecutive Officer of Axcella Health, Inc., a clinical-stage therapeutics company developing endogenous modulators of metabolism to treat an array of diseases. Also from June 2013 to October 2018, Mr. Connelly served as Venture Partner of Flagship Pioneering, a private equity and venture capital firm specializing in healthcare including biotherapeutics, biotechnology and life sciences. From 2012 to 2013, Mr. Connelly was the Provident Fundfounding Chief Executive Officer of WikiCell Designs Inc. and chairman of Aero Designs, which merged in 2013 to form Incredible Foods, Inc. From 2007 to 2012, Mr. Connelly was Chief Executive Officer of Pulmatrix, Inc. (Nasdaq: PULM), a pharmaceutical company developing inhaled drugs for respiratory diseases. Prior to Pulmatrix, Inc., from 2001 to 2007, he was the Employeesfounding Chief Executive Officer and first employee of Domantis, a U.K.-based biotechnology company building a novel fully-human antibody fragment platform and pipeline. Mr. Connelly currently serves on the Hebrewboard of directors of Vedantra Pharmaceuticals. He received a B.S. in business administration from the University of Jerusalem Ltd. Mr. Rappaport alsoFlorida.
Reginald Hardyhas served as a director since August 2016. Mr. Hardy is the co-founder and Chief Executive Officer of Brickell Biotech, Inc., a pharmaceutical company focused on developing novel drugs for the treatment of skin diseases. Prior to Brickell, he was the co-founder and President of Concordia Pharmaceuticals, Inc., an oncology drug development company acquired by Kadmon Corporation in 2011. From 1992 to 1998, he was a co-founder and the president of SANO Corporation, a pharmaceutical company focused on the development of novel transdermal drug delivery systems, that was acquired by Elan Corporation in 1998. Prior to SANO, Mr. Hardy held various corporate credit officer at Bank Hapoalim. Mr. Rappaport currently serves as Investment Manager at A. Heifetz & Co. Mr. Rappaport holds a B.A.roles with IVAX Corporation, Key Pharmaceuticals, and Hoechst-Roussel Pharmaceuticals, Inc. He earned his B.S. in Economics and Political Sciencepharmacy from Bar-Ilanthe University of North Carolina, Chapel Hill and an M.B.A. from the Tel Aviv International SchoolUniversity of Management. Mr. Rappaport is qualified to serve on the Board by virtue of his financial knowledge and experience. Gil Milner, Director
Mr. Milner North Carolina, Greensboro.
Dr. Lawrence Howardhas served as a director since September 2016 and served as Chairman of the Company sinceour board of directors from February 2017 to November 2012.2018. He has been the CFO and Comptrollera Senior Managing Director of Clal Biotechnology IndustriesHudson Ventures since 2007 and1996. After practicing medicine from 1981 to 1988, he co-founded Presstek, Inc., a board member of several CBI portfolio companies. Priorgraphic arts technology company whose market value grew from $12 million to that, heover $800 million under his direction. Dr. Howard served as Vice President and Comptroller for Clal Industries & InvestmentsChief Executive Officer of Presstek from 1987 until 1992, and as board member of CII's portfolio companies. Mr. Milner earned a B.A. in Accounting and Economics from Bar Ilan University. Mr. Milner is qualified to serveserved on the Board by virtuePresstek board of his financial knowledge and experience, especiallydirectors for over twenty years. He was a Clinical Professor in the fieldDepartment of biotechnology startup firms. Orly Yarkoni, External Director
Orly Yarkoni Psychiatry at the Morsani College of Medicine at the University of South Florida, and the Entrepreneur-in-Residence and an Adjunct Professor at the University of South Florida Center for Entrepreneurship. In addition, Dr. Howard has worked since 2012 as a consultant to The Villages, the largest retirement community in the United States, assisting them in building a “state of the art” healthcare delivery system. Dr. Howard currently serves as chairman of the board of directors of iCAD, Inc. (Nasdaq:ICAD), a medical device manufacturer, and the University of New Hampshire Foundation Board of Trustees. He holds a B.S. in animal science from the University of New Hampshire and an M.D. from New York Medical College.
Isaac Kohlberghas served as a director ofsince February 2017. He is the Company since January, 2010,Senior Associate Provost and is deemed independent under Israeli law. She has amassed over 20 years in the insurance industry, most recently asChief Technology Development Officer at Harvard University. Previously, he was Chief Executive Officer of Yashir - I.D.I. Insurance Co., Ltd. She the Tel Aviv University Economic Corporation and Chief Executive Officer of RAMOT at Tel Aviv University, a technology transfer company. He served as Vice President at New York University Medical Center and Vice Provost of New York University. He also served as the Managing Director of Yeda R&D Company of the Weizmann Institute of Science. Mr. Kohlberg received a diploma in French cultural and historical studies from the University of Strasbourg, an M.B.A. from INSEAD and an LL.B. from Tel Aviv University.
Efrat Makovhas served as a director since September 2018. Ms. Makov currently serves as a director of BioLight Life Sciences Ltd., which is traded on the TASE. She served as the Chief Finance Officer of Alvarion Ltd., a global provider of autonomous Wi-Fi networks which at the time was listed on the Nasdaq Global Market, from 2007 to 2010. She previously served as Chief Finance Officer of Aladdin Knowledge Systems Ltd., an information security leader specializing in authentication, software DRM and content security, which was listed on Nasdaq, from 2005 to 2007. From 2002 to 2005, Ms. Makov served as Vice President of Finance at Check Point Software Technologies Ltd. (Nasdaq:CHKP), a worldwide leader in IT security. Ms. Makov is an Israel and U.S. Certified Public Accountant.
Dennison (Dan) Veruhas served as a director since August 2016. Mr. Veru is Co-Chairman of Palisade Capital Management, an asset management company, and has been its Chief Investment Officer (Institutional) since 2000, with oversight responsibilities for all of Palisade’s investment strategies that trade publicly-traded securities. Mr. Veru previously held a variety of analytical positions at Drexel Burnham Lambert and later at Smith Barney. From 1992 through 1999, Mr. Veru was the President and Director of Research at Awad Asset Management and helped oversee the firm’s growth from start-up to more than $1 billion of small-cap institutional and high net worth assets. Prior to Awad, Mr. Veru held a variety of analytical roles at Drexel Burnham Lambert and later at Smith Barney Harris Upham. In addition to his professional responsibilities, Mr. Veru is a member of the Board of GovernorsOverseers of the ISA,St. Luke’s and currently serves as a director of Peninsula Finance, Ltd., Menorah Mivtachim Insurance, Ltd., Ma'ayanot Eden, Ltd. Plasto-Sac, Ltd. and Amot Investments, Ltd. Ms. Yarkoni holds a B.Sc. (cum laude) in Mathematics from the Hebrew University of Jerusalem, Israel, and isRoosevelt hospital, a member of the Israeli Association of Actuaries. Ms. Yarkoni is qualified to serve the Board by virtue of her vast business knowledge and experience, especially with publicly-traded companies. David Schlachet, External Director
David Schlachet has served as a directorfinance committee of the Company since January, 2010,Dwight-Englewood School, and is deemed independent under Israeli law. He was previously Chief Executive Officer of Syneron Medical Ltd., Managing Partner of Biocom (a venture capital fund specializing in the life sciences area), senior VP and Chief Financial Officer of Strauss Elite Holdings, VP Finance & Administration of the Weizmann Institute of Science, and Chief Executive Officer of the Weizmann Institute's technology transfer company, Yeda R&D Co. Ltd.
Mr. Schlachet serves as an independent director on the board of the TASE and as a director and audit committee member of the TASE Clearing House.Board of the McCarton School for autistic children. He is a directorfrequent guest on CNBC, Bloomberg News, Fox News and CNN, and also contributes market opinions to various financial publications. Mr. Veru holds a B.A. in government from Franklin & Marshall College.
Family Relationships There are no family relationships among any of NASDAQ-listed, EzChip Semiconductor Ltd.our directors or officers. B. Compensation Aggregate Compensation of Office Holders The aggregate compensation we and Syneron Medical Ltd.our subsidiary paid to our executive officers and directors for the year ended December 31, 2018, was approximately $2.0 million. This amount includes approximately $0.1 million paid, set aside or accrued to provide pension, severance, retirement or similar benefits or expenses, but does not include share-based compensation expenses, or business travel, professional and business association dues and expenses reimbursed to office holders, and other benefits commonly reimbursed or paid by companies in our industry. As of December 31, 2018, options to purchase 2,290,134 ordinary shares granted to our officers and directors were outstanding under our share option plan at a weighted average exercise price of $3.30 per share. Individual Compensation of Office Holders The table and summary below outlines the compensation granted to our five most highly compensated officers with respect to the year ended December 31, 2018. For purposes of the table and the summary below, “compensation” includes base salary, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking to provide such compensation. | Name and Principal Position | | Salary(1)
(USD in
thousands) | | | Bonus(2)
(USD in
thousands) | | | Equity-Based
Compensation(3)
(USD in
thousands) | | | Total
(USD in
thousands) | | Dr. Frank G. Haluska
Chief Executive Officer | | $ | 436 | | | $ | 200 | | | $ | 1,455 | | | $ | 2,091 | | Dr. Yan Moore(4) Chief Medical Officer | | $ | 314 | | | | — | | | $ | 8 | | | $ | 322 | | Mr. Jonathan Burgin
Chief Financial and Operating Officer | | $ | 210 | | | $ | 49 | | | $ | 73 | | | $ | 332 | | Dr. Ron Knickerbocker
Senior Vice President of Clinical Development and Data Sciences | | $ | 296 | | | $ | 91 | | | $ | 106 | | | $ | 493 | | Mr. Sean Daly
Vice President of Clinical Operations | | $ | 255 | | | $ | 65 | | | $ | 56 | | | $ | 376 | |
(1) Salary includes gross salary plus payment by us of social benefits on behalf of the officer. Such benefits may include, to the extent applicable, payments, contributions and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), pension, severance, risk insurance (e.g., life, or work disability insurance), payments for social security and of TASE-listed Taya Investments Ltd., Mazor Surgical Technologies Ltd.tax gross-up payments, vacation, medical insurance and Adgar Investmentsbenefits, convalescence or recreation pay and Developments Ltd., as well as several privately-owned companies. He was previously active chairman of both Harel Capital Markets Ltd.,other benefits and Elite Industries, Ltd. Mr. Schlachet holds an M.B.Aperquisites consistent with our policies. (2) Represents annual bonuses granted with respect to 2018. (3) Represents the equity-based compensation expenses recorded in Finance from Tel-Aviv University, and a B.Sc. in Chemical Engineering fromour consolidated financial statements for the Technion. Mr. Schlachet is qualified to serveyear ended December 31, 2018, based on the Board by virtue of his vast business, scientific and finance knowledge and experience, particularly with biotechnology start-up companies. Summary Compensation
The following table and subsequent narratives sets forthoptions’ fair value on the aggregate cash compensation paid to the five highest paid employees of the Company during the 2012 fiscal year:
Name and Position | Salary Cost (NIS) | | Bonus (NIS) | | | Equity-Based Awards (NIS) | | | All Other Compensation (NIS) | | Total (NIS) | Jonathan Burgin,
CEO (CFO until June 2012)
| 744,911 NIS | | 74,000 NIS | | | 107,178 NIS | | | | - | | 926,090 NIS | Monique Ben-Am,
VP Clinical Development
| 666,838 NIS | | 52,500 NIS | | | 89,915 NIS | | | | - | | 809,253 NIS | Avraham Hochberg,
Chief Scientist
| 620,607 NIS | | 6,335 NIS | | | 118,147 NIS | | | | - | | 745,089 NIS | Uri Danon,
CEO (until June 2012)
| 638,226 NIS | | - | | | - | | | | - | | 638,226 NIS | Patricia Ohana,
VP Research & Development
| 396,411 NIS | | - | | | 19,877 NIS | | | | - | | 416,288 NIS |
Employment Agreements
Professor Abraham Hochberg
Generally. On December 1, 2005, we entered into an employment agreement with Professor Abraham Hochberg pursuant to which he will serve as our Chief Scientist for a term of three years, which has twice been extended, and currently ends on November 30, 2014. Under the terms of this agreement, Professor Hochberg manages our research and development activities and reports these activities to our Board. We may terminate this agreement upon the provision of six months advance written notice. Professor Hochberg may terminate this agreement upon the provision of three months notice. We also may terminate this agreement for cause, meaning any of the following: (a) a material breach of Professor Hochberg’s obligations regarding confidentiality and non-competition, as set out in the agreement; (b) conviction of any felony involving moral turpitude affecting us; (c) any material breach of his employment agreement which has not been cured by him within 15 days after his receipt of notice from us, containing a description of the breach or breaches alleged to have occurred; (d) the habitual neglect or gross failure by Professor Hochberg to adequately perform the duties of his position; (e) any act of moral turpitude or criminal action connected to his employment with us; or (f) Professor Hochberg’s refusal to comply with or his violation of lawful instructions of our CEO or Board. In addition, we may terminate this agreement in the event that Professor Hochberg is prevented from continuing his employment with us due to medical reasons for 90 consecutive days or for an aggregate of 120 days per fiscal year, but in the event of such termination, Professor Hochberg will be entitled to receive three months additional salary from us and also severance paymentsgrant date, calculated in accordance with applicable accounting guidance for equity-based compensation. For a discussion of the Israeli Severance Pay Law. Professor Hochberg must maintainassumptions used in reaching this valuation, see Note 9D to our annual consolidated financial statements included in this Annual Report on Form 20-F.(4) Dr. Yan Moore resigned from the confidentiality of all of our proprietary information that he receives through hisCompany on September 14, 2018. Employment and Consulting Agreements The material employment with us. Salary and Other Social Benefits. Professor Hochberg’s salary is fixed at a monthly rate of NIS 36,000 (approximately $9,800). We also provide Professor Hochberg with social benefits such as a company car. Professor Hochberg is entitled to participate in our advanced studies fund and senior employees' insurance as well as annual leave and convalescence pay and sick leave. We reimburse Professor Hochbergterms for reasonable expenses incurred by him in the course of his employment with us.
Bonuses. Under the terms of his employment agreement, Professor Hochberg is entitled to an annual bonus, determined at the discretion ofDr. Haluska, our Chief Executive Officer, in consultation with our Board, and subject to applicable law. Because Professor Hochberg is one of our significant shareholders, payment of this bonus is subject to the approval of our audit committee, our Board and our shareholders.
In addition, Professor Hochberg receives a bonus of 7.5% of the amount of grants that we receive in which he is listed as the leading researcher in the research to be funded by such grants, and that are approved for our use by our Board, other than grants provided by the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of Israel.
Non-Competition and Non-Solicitation. Under the terms of the employment agreement, Professor Hochberg may not offer or solicit any of our or our subsidiary’s employees, consultants, customers, suppliers, distributors, agents or contractors away from their dealings with us or our subsidiary during his employment and for 12 months after his employment terminates. Professor Hochberg has promised to cede to us all right, title and interest to any and all intellectual property created during his course of employment with us and has undertaken not to make use of it and not to compete with us for a period of twelve months after termination of his employment with us.
Agreement Regarding Allocation of Royalties With Yissum. In accordance with the directives of the management of the Hebrew University of Jerusalem, any royalties that we pay pursuant to our exclusive license agreement with Yissum are allocated as follows: 40% to Professor Hochberg; 20% to Professor Hochberg's research laboratory; and 40% to Yissum and the Hebrew University of Jerusalem. For more information regarding this license agreement, see Item 10.C. Material Contracts.
Stock Option Grant. In 2008, we granted Prof. Hochberg options to purchase 120,000 ordinary shares at(1) an exercise price of $0.597 per share. These options vested in twelve equal quarterly portions. In 2011, we granted Prof. Hochberg options to purchase 60,000 ordinary shares at an exercise price of NIS 2.85 per share. These options are vesting in sixteen equal quarterly portions, with the first portions vesting immediately on account of a delay in obtaining regulatory approval for the grant that was already approved by our Board in 2010. In 2012, we granted Prof. Hochberg options to purchase 300,000 ordinary shares at an exercise price of NIS 1.583 per share. These options have been vesting in 16 equal quarterly portions. Under the terms of the Merger, those options were converted to the same number of options to purchase the same number of ordinary shares under the 2011 BioCancell Compensation Plan.
Jonathan Burgin
Generally. On February 21, 2011, we entered into an employment agreement with Mr. Jonathan Burgin, 49, pursuant to which he serves as our Chief Financial Officer since June, 2011. Either we or Mr. Burgin may terminate this agreement upon the provision of 90 days advance written notice to the other party expressing an intention to terminate the agreement. We also may terminate this agreement for cause, defined in the agreement as including the following on the part of Mr. Burgin: (i) A fundamental breach of Mr. Burgin's employment agreement on his part; (ii) Performance of any act that entitles the Company legally to dismiss him without paying him any severance pay in connection with such dismissal; (iii) A breach of Mr. Burgin's duty of good faith to the Company; or (iv) Intentional gross misconduct in the performance of Mr. Burgin's obligations in a manner that causes (or is likely to cause) material harm to the Company.
Salary and Other Social Benefits. The agreement provides Mr. Burgin with a monthlyannual salary of NIS 37,000 (approximately $10,200), to be increased to NIS 43,000 (approximately $11,850) upon the consummation of a public offering by the Company on a U.S. stock exchange that raises at least $10 million (an "IPO Event"). We will also provide Mr. Burgin with other social benefits such as a company car, a laptop computer, a cellular telephone, and pension and similar payments. We will reimburse Mr. Burgin for reasonable expenses incurred by him in the course of his employment with us. Until an IPO Event, we have committed to pay Mr. Burgin$400,000; (2) an annual bonus, of upsubject to one monthly salary, the exact size of which will be determined by the achievement of pre-determined milestones by Mr. Burgin.
Non-Competition, Non-Solicitation and Confidentiality. Under the terms of his employment agreement, Mr. Burgin must refrain from competing with us during the term of his employment and for one year from the date of termination of his employment with us. Further, during his employment and for one year after his employment terminates, Mr. Burgin may not offer or solicit any of our or our subsidiary’s employees away from their dealings with us or our subsidiary. He also must grant us all rights in any products that he develops during the course of his employment with us. In addition, Mr. Burgin must maintain the confidentiality of all proprietary information of ours that he receives through his employment with us.
Stock Option Grant. Pursuant to the terms of Mr. Burgin's employment agreement, in 2011, we granted Mr. Burgin options to purchase 300,000 shares of our common stock at an exercise price of NIS 2.90 per share, pursuant to our 2007 Stock Option Plan, of which options to purchase 220,000 shares are vesting over the course of four years, and options to purchase 80,000 additional shares were to vest upon the achievement of a pre-determined milestone. As this milestone is not currently within the scope of the Company’s work plan, in March 2013, our Board of Directors resolved to change the vesting conditions, such that all options are vesting over the original course of four years. Under the terms of the Merger, those options were converted to the same number of options to purchase the same number of ordinary shares under the 2011 BioCancell Compensation Plan.
Director Compensation
Members of our Board who are independent directors (as defined in the Companies Law, namely Orly Yarkoni and David Schlachet) receive the fixed compensation established under Israeli regulations, NIS 31,700 per annum, plus NIS 2,120 per meeting (60% of such amount for participation via teleconference, and 50% of such amount for approving a written resolution).
Former director Aviv Boim who resigned from the Board in 2012, was paid a participation fee of NIS 1,800 per meeting, up to an annual limit of $6,000.
The Chairman of the Board, Dr. Aharon Schwartz, receives a monthly fee of NIS 30,000. In 2012, we granted Dr. Schwartz options to purchase 400,000 shares of our common stock at an exercise price of 0.99 NIS per share, pursuant to our 2007 Stock Option Plan, vesting over the course of four years. Under the terms of the Merger, those options were converted to the same number of options to purchase the same number of ordinary shares under the 2011 BioCancell Compensation Plan.
No other compensation was provided to directors for their service on our Board.
6.C. Board Practices
For information regarding Board Members' terms of office and service contracts with the company, see Item 6.B. Compensation.
Committees of the Board; Audit Committee and Compensation Committee
The Board participates in establishing and reviewing corporate objectives and strategies, and evaluates and approves significant policies and proposed major commitments of corporate resources. Management keeps the directors informed of Company activity through regular written reports and presentations at Board and committee meetings.
In addition, our Board may designate committees of the Board, determine the obligations of any such committee and identify such powers as the Board may see fit to delegate to a committee in accordance with the applicable law.
Audit Committee
Under the Companies Law, our Board must appoint an audit committee comprised of at least three directors. The members of our audit committee must include two external directors under the Companies law, and a majority of its members must be independent. Certain individuals may not serve on the audit committee, including the chairman of our Board, any director who we employ or who provides services to us, a controlling shareholder or any other entity controlled by the controlling shareholder, any director who is a controlling shareholder, a relative of a controlling shareholder or any director who derives his main source of income from the controlling shareholder.
Under the Companies Law, the audit committee has defined duties and functions, including: (i) to identify deficiencies in the management of the company in consultation with its internal auditor and external auditors, and to recommend corrective measures if needed; (ii) to determine whether a transaction is an extraordinary transaction; (iii) consider the approval of actions as set forth in Sections 255 and 268 through 275 of the Companies Law, including an interested transaction; (iv) to review the internal auditor plan (if such plan is approved by the board of directors, in the target amount of $200,000; (3) payment of nine months’ of salary upon termination (or resignation for a good reason event), a partial annual bonus (pro rata) and partial vesting acceleration of option warrants (and in the case of termination or voluntary resignation with regard to changes in control of the corporation)company, a full annual bonus and full vesting acceleration of option warrants); (v) to review the scope(4) social benefits and reimbursement of expenses; and (5) an allocation of the internal auditing; (vi) to review the scopenumber of the external auditor engagement and his fees; and (vii) to address the manner in which complaints of employees regarding deficiencies in our management are treated and ensure the protection of the employees who have filed such complaints.
Our audit committee is currently composed of three members: Orly Yarkoni, David Schlachet and Hanoch Rappaport.
Compensation Committee
Amendment No. 20 to the Companies Law, which became effective as of December, 2012, established new regulations relating to the terms of office and employment of directors and officers in public companies and companiesnonqualified options that have publicly issued debentures (“Public Companies”). Following the amendment, Public Companies arewere required to appointbring the Chief Executive Officer’s holdings to 7% of our fully diluted share capital (after the allotment and exercise of options), as calculated after completion of any fundraising until (and not including) a compensation committee, in accordance with the guidelines set forthpublic offering in the amendment.
The compensation committee consists of at least three members. All of the external directors must serve on the committee and constitute a majority of its members. The chairman of the compensation committee must be an external director. The remaining members must be directors who qualify to serve as members of the audit committee (as statedUnited States, but in item above). In accordance with the guidelines set by the amendment, our compensation committee is currently composed of three members, David Schlachet, Hanoch Rappaport and Orly Yarkoni. Mr. Schlachet and Ms. Yarkoni are the external directors serving on the Board. The chairman of the compensation committee is David Schlachet.
As per the Companies Law, the roles of the compensation committee are, among others, as follows:
| (1) | to recommend to the board of directors with regards to the compensation policy for directors and officers, and recommend to the board of directors once every three years regarding extension of the compensation policy that had been approved for a period of more than three years; |
| (2) | to recommend to the board of directors regarding the update of the compensation policy, from time to time, and examine its implementation; |
| (3) | to decide whether to approve the terms of office and employment of directors and officers that require approval of the compensation committee; and |
| (4) | to decide, in certain circumstances, whether to exempt the approval of terms of office of a CEO from the requirements of shareholders approval. |
In addition to the roles mentioned above our compensation committee also makes recommendations to our Board regarding the awarding of employee options.
In accordance with the provisions of the amendment, within 9 months of the effective date of the amendment (i.e.,any case no later than September 12, 2013)July 20, 2019. In total, we allocated Dr. Haluska options to purchase 1,636,926 shares. The options vest in four annual tranches from the date of his employment (May 2016), a compensation policy must be adoptedand the exercise price is the fair value of our shares at the approval date of each allotment by the Company. A compensation policy must be approved by theour board of directors, after receiving and consideringbut no less than $2.60 per share. Following completion of a private placement in June 2018, the recommendations of the compensation committee. In addition, the compensation policy requires the approval of the general meeting of the shareholders. In Public Companies, shareholder approval requires one of the following: (i) the majority of shareholder votes counted at general meeting including the majority of all of the votes of those shareholders who are non controlling shareholders and do not have a personal interest in the approval of the compensation policy, who participate at the meeting (excluding abstentions) or (ii) the total number of votes against the proposal among the shareholders mentioned in paragraph (i) does exceed two percent (2%) of the voting rights in the company. Under special circumstances, the board of directors may approve the compensation policy despite the objection of the shareholders on the condition that the compensation committee and then the board of directors decide, on the basis of detailed arguments and after discussing again the compensation policy, that approval of the compensation policy, despite the objection of the meeting of shareholders, is for the benefit of the company. As of the date of this Annual Report on Form 20-F, we have not adopted yet a compensation policy. For more information regarding Amendment 20, see Item 10.B. Memorandum and Articles of Association.
Nominating Committee
We do not maintain a standing nominating committee of our Board.
The Board,Chief Executive Officer waived his entitlement to future option grants as a whole, and eachterm of the committees of the Board separately, has authority to retain and terminate such independent consultants, counselors or advisors as each shall deem necessary or appropriate.
Internal Auditor
Wehis employment.Our other employees are subject to certain laws regarding our internal auditor. We must have an internal auditor appointed by our Board based upon the proposal of our audit committee. The internal auditor must be a natural person who is not (i) an interested party (as definedemployed under the Companies Law), or a relative of such interested party, (ii) an officer of the company or a relative of any officer of the company, or (iii) the company’s auditing accountant or its designee. terms prescribed in their respective employment contracts. The internal auditor must perform his duties consistent with Sections 3(a), 4(b), 8 through 10, 14(b) and 14(c) of the Israeli Internal Audit Law, 1992, subjectemployees are entitled to the social benefits prescribed by law and as otherwise provided in their agreements. These agreements each contain provisions standard for a company in our industry regarding non-competition, confidentiality of the Companies Law. The Israeli Internal Auditing Law governs internal auditing in public entities such as governmental offices, governmental companiesinformation and statutory institutes. The Companies Law applies seven sectionsassignment of the Israeli Internal Auditing Law which pertain to the internal auditor of a Public Company and relate to the internal auditor’s residence, experience, education and criminal record, professional standards, as well as restrictions over the internal auditor’s additional positions and conflicts of interest, the internal auditor’s authority, the internal auditor’s report as evidence and permission to expand and/or preserve the internal auditor’s authority by the company, subject to Sections 146 through 153 of the Companies Law. The internal auditor must submit periodic or annual audit plans to our audit committee or to our Board, as determined by our Board, for its advance approval. The chairman of the Board or the chair of our audit committee may delegate to the internal auditor additional audit duties for urgent examination in addition to the audit plan, in which case the findings will be reported to the appointing officer. The internal auditor must, among other duties, audit our compliance withinventions. Under currently applicable labor laws, and proper business practices and provide a report on these matters either to the chairman of the Board, the chairman of our audit committee or our general manager.
The internal auditor’s term in officewe may not be terminated without the internal auditor's agreement, and the internal auditor shall not be suspended from office, unless our Board determinesable to terminate that the service agreement of the internal auditor, based upon the recommendation of our audit committee, and after the internal auditor was given a reasonable opportunity to state their case before our Board and before our audit committee. Notwithstanding any other provision set forth in our articles of association, the majority of our Board shall constitute a quorum for the termination of office of the internal auditor by our Board.
The Company's internal auditor is Joseph Ginossar. He was appointed as internal auditor on February 22, 2011.
6.D. Employees and Advisory Board
Set forth below is a chart showing the number of people we employed at the times indicated:
| | | | | | | | 2010 | | | 2011 | | | 2012 | | | Total personnel | | | 19 | | | | 19 | | | | 17 | | | Located in Israel | | | 19 | | | | 19 | | | | 17 | | | Located abroad | | | - | | | | - | | | | - | | | In operations | | | 4 | | | | 4 | | | | 3 | | | In research and development | | | 9 | | | | 9 | | | | 9 | | | In global business | | | - | | | | - | | | | - | | | In general and administration | | | 6 | | | | 6 | | | | 5 | |
As of the date of this Annual Report on Form 20-F, we have 18 employees, of whom eight work for us on a full-time basis and an additional ten work part-time for us and part-time in Prof. Hochberg’s laboratory at the Hebrew University of Jerusalem. 13 of these employees conduct clinical development or research and development for us; the other five are managers or administrators. The majority of our research and development work is performed by Professor Hochberg’s laboratory team at the Hebrew University of Jerusalem. The team members are qualified in the life sciences and in medicine: three of these members have doctorates in the natural sciences and one specializes in pathology.
Our Scientific Advisory Board includes world-renowned experts in the field of cancer therapy including Professor Mark L. Tykocinski, who was President of the American Society for Investigative Pathology and is currently President of the Association of Pathology Chairs, Professor Aaron Ciechanover, who was awarded the Nobel Prize in Chemistry in 2004, Professor Roger D. Kornberg, who was awarded the Nobel Prize in Chemistry in 2006, Professor Hermona Soreq, Dean of the Faculty of Mathematics and Science at the Hebrew University of Jerusalem, Professor Yechezkel Barenholz, a professor of Biochemistry at the Hebrew University-Hadassah Medical School, and Professor Yaakov Naparstek, Chairman of Medicine at Hadassah University Hospital. The members of our Scientific Advisory Board provide us with general and strategic consultation and development services and assistance with respect to our research and development activities. As compensation for their work, the members of our Scientific Advisory Board receive an advisor’s fee of $1,000 for each meeting of the Scientific Advisory Board in which they participate, plus expenses. In addition, our Board has committed to grant to each member of the Scientific Advisory Board options to purchase 30,000 shares of our ordinary shares pursuant to our 2011 BioCancell Ltd. Compensation Plan. No member of our Scientific Advisory Board is an officer, employee or director of the Company.
All of our current employees have signed personal employment agreements for monthly salaries. Under these employment agreements, our employees have promised to cede to us all right, title and interest to any and all intellectual property created during their course of employment to us and they have undertaken not to make use of it, andenforce covenants not to compete with usand therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. See “Item 3.—Key Information—Risk Factors—Risks Related to Our Operations” for a periodfurther description of 12 months after terminationthe enforceability of their employment.
Nonenon-competition clauses. We also provide certain of our employees with a company car, which is leased from a leasing company.Executive officers are represented by a collective bargaining agreement, nor have we experienced any work stoppages. We believe that our relations with our employees are good. We have adopted a Codealso employed on the terms and conditions prescribed in employment agreements. These agreements provide for notice periods of Ethics that applies to all of our employees, officers and membersvarying duration for termination of the Board. The Code of Ethics is available on our website at www.biocancell.com, and in print to any interested party that requests it. For more information,see Item 16.B. Code of Ethics 6.E. Share Ownership
Beneficial ownership of shares is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises soleagreement by us or shared voting or investment power. Ordinary shares that are subject to warrants or options that are presently exercisable or exercisable within 60 days of the date of March 1, 2013 are deemed to be outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage of any other person.
Based on information provided to us, each officer andrelevant executive officer, induring which time the table below has sole votingexecutive officer will continue to receive base salary and investment power for the shares shown as beneficially owned by them. Percentage ownership is based on ordinary shares outstanding as of the date of this Annual Report on Form 20-F.
| | | Total Number of Shares of Ordinary Shares Beneficially Owned (1) | | | Percentage Ownership of Ordinary Shares (1) | | | Directors and executive officers: | | | | | | | | Jonathan Burgin (2) | | | 110,000 | | | | 0.12 | % | | Aharon Schwartz | | | 100,000 | | | | 0.11 | % | | Abraham Hochberg (3) | | | 2,418,754 | | | | 2.61 | % | | Ofer Goldberg | | | - | | | | - | | | Hanoch Rappaport (4) | | | 37,796 | | | | 0.04 | % | | David Schlachet (5) | | | 30,000 | | | | 0.03 | % | | Gil Milner | | | - | | | | - | | | Orly Yarkoni (5) | | | 30,000 | | | | 0.03 | % | | Monique Ben-Am (6) | | | 100,000 | | | | 0.11 | % | All directors and officers as a group (8 persons) (7) | | | 2,826,550 | | | | 3.04 | % |
* Less than 1%.
(1) Assumes the full exercise of all options and warrants held by the holder thatbenefits. See “Item 3.—Key Information—Risk Factors—Risks Related to Our Operations—If we are exercisable within 60 days of the date of Annual Report on Form 20-F. Percent of class based on 92,305,258 ordinary shares outstanding as of the date of this Annual Report on Form 20-F.
(2) Consists of 110,000 ordinary shares underlying options that are exercisable within 60 days of the date of this Annual Report on Form 20-F.
(3) Consists of 2,141,254 ordinary shares and 277,500 ordinary shares underlying options that are exercisable within 60 days of the date of this Annual Report on Form 20-F.
(4) Consists of 17,796 ordinary shares and 20,000 ordinary shares underlying options that are exercisable within 60 days of the date of this Annual Report on Form 20-F.
(5) Consists of 30,000 ordinary shares underlying options that are exercisable within 60 days of the date of this Annual Report on Form 20-F.
(6) Consists of 100,000 ordinary shares underlying options that are exercisable within 60 days of the date of this Annual Report on Form 20-F.
(7) Consists of 2,159,050 ordinary shares and 667,500 ordinary shares underlying convertible warrants and options which are exercisable within 60 days of the date of this Annual Report on Form 20-F.
Employee Compensationunable to retain qualified employees, our ability to implement our business plan may be adversely affected.”Equity Incentive Plans 2011 Share Option Plan On December 19, 2011, the Company's Boardour board of directors adopted a share option plan, (the "Plan")or the 2011 Plan, to allocate options to purchase our ordinary shares of the Company to itsour directors, officers, employees and consultants, and those of itsour affiliated companies (as such term is defined under the 2011 Plan) (the "Grantees")., or the Grantees. The 2011 Plan is administered by the Company's Boardour board of directors or a committee that was designated by the Boardour board of directors for such purpose, (the "Administrator"). or the Administrator.Under the 2011 Plan, the Companywe may grant options to purchase ordinary shares, ("Options")or Options, under four tracks: (i) Approved 102 capital gains Options through a trustee, which was approved by the Israeli Tax Authority in accordance with Section 102(a) of the ITO, and granted under the tax track set forth in Section 102(b)(2) or Section 102(b)(3) of the ITO, asor the case may be ("Approved 102 Capital Gains Options").Options. The holding period under this tax track is 24 months from the date of allocation of Options to the trustee or such period as may be determined in any amendment of Section 102 of the ITO;ITO, or any applicable tax ruling or guidelines; (ii) Approved 102 Earned Income Options through a trustee, granted under the tax track set forth is Section 102(b)(1) of the ITO, ("or the Approved 102 Earned Income Options").Options. The holding period under this tax track is 12 months from the date of allocation of Options to the trustee or such period as may be determined in any amendment of Section 102 of the ITO; (iii) Unapproved 102 Options (the Options will not be allocated through a trustee and will not be subject to a holding period) (", or the Unapproved 102 Options");Options; and (iv) 3(i) Options (the Options will not be subject to a holding period). These Options shall be subject to taxation pursuant to Section 3(i) of the ITO, ("or Section 3(i)"). Options pursuant to the first three tax tracks (under Section 102 of the ITO) can be granted to Companyour employees and directors and the grant of Options under Section 3(i)are can be granted to Companyour consultants and controlling shareholders (a controlling shareholder is defined under the Section 102 of the ITO is a person who holds, directly or indirectly, alone or together with a relative,“relative,” (i) the right to at least 10% of the company'scompany’s issued capital or 10% of the voting power; (ii) the right to hold at least 10% of the company'scompany’s issued capital or 10% of the voting power, or the right to purchase such rights; (iii) the right to receive at least 10% of the company'scompany’s profits; or (iv) the right to appoint a company'scompany’s director). Grantees who are not Israeli residents may be granted Unapproved 102 Options or Section 3(i) Options underoptions that are subject to the Plan. Approved 102 Capital Gains Option and/or Approved 102 Earned Income Options may be granted only following the laps of 30 days from the filings required by the ITO and the Income Tax Rules (Tax Benefitsapplicable tax laws in Share Issuance to Employees), 2003 have been made with the Israeli Tax Authority.
The Company,their respective jurisdictions.We determine, in itsour sole discretion, shall elect under which of the above first three tax tracks above the Options beare granted and shallwe notify the Grantee in a grant letter, as to the elected tax track. As mentioned above, consultants and controlling shareholders can only be granted Section 3(i) Options. The number of ordinary shares authorized to be issued under the 2011 Plan will be proportionately adjusted for any increase or decrease in the number of ordinary shares issued as a result of a distribution of bonus share,shares, change in the Company'sour capitalization (split, combination, reclassification of the shareshares or other capital change), or issuance of rights to purchase ordinary shares or payment of a dividend. The CompanyWe will not allocate fractionfractions of ordinary shares and the number of ordinary shares shall be rounded up to the closest number of ordinary shares. Also, inIn the event of a (i) merger or consolidation in which the Companywe (in this context, specifically BioCancellAnchiano Therapeutics Ltd.) is not the surviving entity or pursuant to which the other company becomes BioCancellAnchiano Therapeutics Ltd.'s’s parent company or that pursuant to which BioCancellAnchiano Therapeutics Ltd. is the surviving company but another entity holds 50% or more of BioCancellAnchiano Therapeutics Ltd. voting rights, (ii) an acquisition of all or substantially all of the Companyour ordinary shares, (iii) the sale of all or substantially all Company assets, or (iv) any other event with a similar impact, the Company may exchange all of its outstanding Options granted under the 2011 Plan that remain unexercised prior to any such transaction for options to purchase shares of the Companysuccessor corporation (or those of an affiliated company) following the consummation of such transaction. Unless otherwise determined by the Administrator, the exercise price of an Option granted under the 2011 Plan will be the average of the market price of the Company'sCompany’s ordinary shares during the 22 business days prior to the date on which the Boardour board of directors authorized the grant of Options; provided, however, that such exercise price cannot be lower than the par value of the share, or the market price at the close of the trading day at which it was granted by the Board.our board of directors. The exercise price will be specified in the grant letter every Grantee received from the Companyus in which the Grantee notifies of the decision to grant him/her Options under the 2011 Plan. Unless otherwise determined by the Administrator, the Options granted under the Plan will become vested and may be exercised in 16 equal portions of 6.25% of the total number of Options, at the end of each quarter following the day the Options were granted. TheUnless otherwise determined by our board of directors, the Options may be exercised untilfor ten years following the enddate of the Option Term (as defined below)grant, unless terminated earlier, and as long as the Grantee is employed by the Company (or by an affiliated company), or provides service forto the Company (or an affiliated company). The Administrator may, in its absolute discretion, accelerate the time at which Options granted under the 2011 Plan or any portion of which will vest. Unless otherwise determined by the Company's Board, all Options granted under the Plan will expire ten years following the date of grant, unless terminated earlier (the "Option Term").
Unless otherwise determined by the Administrator, in the event that the Grantee'sGrantee’s employment was terminated, either for cause of not for cause,Cause (as defined in the 2011 Plan), the Grantee may exercise that portion of the Options that had vested as of the date of such termination until the end of the specified term in the grant letter or the 2011 Plan. The portion of the Options that had not vested at such date, will be forfeited and can be re-granted according to the terms of the 2011 Plan. The 2004 Stock Option2017 Equity-Based Incentive Plan On February 22, 2017, our board of directors adopted our 2017 Equity-Based Incentive Plan, or the 2017 Plan, to allocate a variety of share-based awards to our directors, officers, employees, consultants, advisors and the 2007 Stock Option Plan were the original plans under which we granted securities exercisable for sharesservice providers, and those of our affiliates (companies that control us, are controlled by us or are under common stock to employees, management,control with us), or the Participants. The 2017 Plan is currently administered by our board of directors, and consultantsmay be administered by a committee designated by our board of our company and employees, management, directors and consultants of our present and future subsidiaries. In connection withfor such purpose, or the Merger, each outstanding optionAdministrator.Under the 2017 Plan, we may grant options to purchase BTI Common Stock granted pursuant to the 2004 Stock Option Plan and the 2007 Stock Option Plan was converted into an option to purchase the Company's ordinary shares under the current Plan,or ADSs, restricted shares or ADSs, restricted share units and other awards based on our ordinary shares, all of which are referred to as Awards. We may grant Awards under the same terms. For more information on our outstanding sharefour tracks as described above with respect to the 2011 Plan, subject to the same conditions as apply for the 2011 Plan. In addition, we may grant incentive stock options and nonqualified stock options to Participants who are residents of the United States, and we may grant awards to Participants who are residents of other countries that comply with the laws of those jurisdictions. The number of ordinary shares authorized to be issued under the 2017 Plan see Note 11will be proportionately adjusted for any increase or decrease in the number of ordinary shares issued as a result of a distribution of bonus shares, change in our capitalization (split, combination, reclassification of the shares or other capital change), issuance of rights to purchase ordinary shares or payment of a dividend. We will not allocate fractions of ordinary shares and the number of ordinary shares shall be rounded down to the financial statements included elsewhere in this Annual Report on Form 20-F. Item 7. Major Shareholder and Related Party Transactions7.A. Major Shareholders
The following table sets forth, asclosest number of ordinary shares.In the dateevent of this Annual Report on Form 20-F, information regardinga (i) merger, consolidation, amalgamation or the beneficial ownershiplike with or into another corporation, (ii) an acquisition (including an exchange) of all or substantially all of our ordinary shares, by each person who is known to us to be(iii) the ownersale of more than five percentall or substantially all of our ordinary shares. For purposes of this table, a personassets, or group of persons is deemed(iv) any other event determined by the Administrator to have beneficial ownershipa similar impact, then — unless otherwise determined by our board of directors in its sole and absolute discretion — any shares that such person has the right to acquire within 60 days of the date of this report. Information in this section is based on information provided to usAward then outstanding will be assumed or an equivalent Award shall be substituted by the individuals and entities listed below and on beneficial ownership reports filed withsuccessor corporation, under substantially the SEC. same terms as the Award. | Name and Address of Beneficial Owner | | Total Number of Shares of Ordinary Shares Beneficially Owned | | | Percentage Ownership of Ordinary shares | | | Five percent or more beneficial owners: | | | | | | | Clal Biotechnology Industries, Ltd. 45th Floor, 3 Azrieli Center, Tel Aviv 67023 Israel (1) | | | 65,948,897 | | | | 70.14 | % |
(1) Consisting of: (i) 64,228,134 Shares, and (ii) warrants exercisable into 1,720,763 Shares, which are exercisable within 60 days of the date of this Annual Report on Form 20-F.
7.B. Related Party Transactions
Since April 22, 2011, the Company has proposed and /or engaged in the following transactions or series of similar transactions to which the Company was a party or is a party with a related party:
D&O Liability
In May 2012, we purchased a Directors and Officers insurance policy, limited to a liability of five million dollars ($5,000,000) per claim and in aggregate during the term of the policy ($1,500,000 for US securities claims). The term of the policy is until May 21, 2013. The annual cost of the premium for the insurance policy is $18 thousand. Officers are not required to pay a deductible, while the deductible for the Company is $7.5 thousand throughout the world except for the USA and Canada, where the deductible for the Company is $50 thousand ($150 thousand for SEC-related claims).
Private Offering of Securities
In January 2012, prior to the Merger, we completed a private placement of our ordinary shares, whereby investors (including CBI) purchased an aggregate of 11,144,400 shares of our ordinary shares for a price per share of NIS 1.00 (approximately $0.27) and a total consideration of approximately NIS 11.14 million. Of this sum, CBI purchased 8,199,400 shares of our ordinary shares. For more information, see Item 5. Operating and Financial Review and Prospects- Private Offerings.
Pursuant to our contractual anti-dilution undertakings in the private investment consummated in July 2008, we issued an additional 1,497,929 shares of our common stock (later converted to ordinary shares) to investors (including 1,025,979 to Tikcro and 410,392 to CBI). In addition, pursuant to such undertakings, the conversion price of the convertible promissory notes held by these investors was adjusted to NIS 1.00, and therefore we reserved a total of 8,439,439 additional ordinary shares underlying these convertible notes. Also, pursuant to such undertakings, the exercise price of 6,280,783 warrants held by these investors was likewise adjusted to NIS 1.00.
Partial Payment of Sumsan option granted under the 2017 Plan will, in Dispute to Tikcro
In connection with a private placement transaction that took place on July 30, 2008, we agreed to pay Tikcro a consulting fee (consisting of an annual payment of $30,000 and an annual issuance of 63,939 ordinary shares) for as long as a director designated by Tikcro is a member of our Board, for consulting services togeneral, be provided to us. A dispute developed between us and Tikcro regarding whetherno less than the aforementioned services were provided during the first year following the transaction. Pursuant to approval of our audit committee and the Board, as well as the approval of a general meeting of our shareholders from November 2011, we paid Tikcro half of the annual consulting fee (approximately $31,380) in cash only, in return for Tikcro agreeing to waive its demand for payment for the other half of this fee and any other demands it may have against the Company that pertain to the consulting fee.
Repayment of Convertible Notes
On July 31, 2012, following approval of a general meeting of shareholders of the Company on July 25, 2012, CBI invested approximately NIS 9,337 thousand in the Company in return for approximately 10,732 thousand sharesfair market value of the Company’s ordinary shares on the date of grant, subject to any minimum exercise price prescribed by law. The Administrator determines the vesting provisions for each Award and may, in its sole discretion, accelerate the time at which options granted under the 2017 Plan will vest. Unless otherwise determined by the Administrator, options may be exercised for ten years (five years in the case of an incentive stock option granted to a 10% shareholder), and as long as the Participant is employed by the Company (or by an affiliated company) or provides services to the Company (or an affiliated company). If a Participant’s employment is terminated, other than for cause, the Participant may generally exercise vested options for a limited period following termination.As of March 21, 2019, our board of directors has approved the issuance, under our incentive plans, of options to purchase 2,819,767 ordinary shares currently outstanding at an average exercise price of $3.11 per shareshare. C. Board Practices Board of NIS 0.87.Directors Our board of directors consists of nine directors, of whom eight qualify as independent directors under the corporate governance standards of the Nasdaq rules and the independence requirements of Rule 10A-3 of the Exchange Act. Under our articles of association, our board of directors must consist of not less than three and no more than eleven directors. Pursuant to our articles of association, the vote required to appoint a director is a simple majority vote of holders of our voting shares participating and voting at the relevant meeting. In addition, our articles of association allow our board of directors to appoint new directors to fill vacancies which occurred for any reason or as additional directors, provided that the number of board members shall not exceed the maximum numbers of directors mentioned above. The funds were paidappointment of a director by the board shall be in effect until the following annual general meeting of the shareholders or until the end of his tenure in accordance with our articles of association. Our board of directors may continue to Tikcrooperate for as repaymentlong as the number of directors is not less than the minimum number of directors mentioned above. In addition, under the Companies Law, our board of directors must determine the minimum number of directors who are required to have financial and accounting expertise. Under applicable regulations, a director with financial and accounting expertise is a director who, by reason of his or her education, professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and financial statements. He or she must be able to thoroughly comprehend the financial statements of the company and initiate discussion regarding the manner in which financial information is presented. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we require at least one (1) director with the requisite financial and accounting expertise and that Dr. Lawrence Howard, Ms. Ruth Alon, Mr. Reginald Hardy, Ms. Efrat Makov and Mr. Dennison Veru have such expertise. Alternate Directors Our articles of association provide, as allowed by the Companies Law, that any director may, by written notice to us, appoint another person who is qualified to serve as a director to serve as an alternate director. An alternate director has the same rights and responsibilities as a director, except for the convertible loan that Tikcro providedright to appoint an alternate director. The appointment of an alternate director does not negate the Company in 2008. In addition, CBI and the Provident Fundresponsibilities of the Hebrew University of Jerusalem converted their convertible loans from 2008 into ordinary sharesappointing director, who will continue to bear responsibility for the actions of the Company. For more information, see Item 5. Operating and Financial Review and Prospects- Private Offerings. Withinalternate, giving consideration to the frameworkcircumstances of the offering,appointment. The Companies Law specifies certain qualifications for alternate directors, and provides that one director may not serve as an alternate on the anti-dilutive provisions were invokedboard of directors for certain investors, whereby the investors are entitled to receive approximately 2,103 thousand ordinary shares (ofanother director, nor as an alternate on a committee of which approximately 1,345 thousand shares are for CBI), subject to the TASE's approval.he or she is already a member. As of the date of this Annual Report on Form 20-F, no director has appointed any other person as an alternate director.
External Directors We have elected to opt out of certain provisions of the shares pursuantCompanies Law that relate to these adjustment“external directors.” The Companies Law generally requires an Israeli public company to have at least two external directors, who must meet strict independence criteria to ensure that they are unaffiliated with the company and any controlling shareholder. At least one of the external directors is required to have financial and accounting expertise, and the other external director must have either financial and accounting expertise or professional qualifications, as defined in the regulations promulgated under the Companies Law. There are detailed provisions have not yet been issued. Public Offering of Securities
On November 12, 2012, the Company executed a public offering by tender accordingrelating to the Company's prospectus dated November 1, 2012,election of external directors, which are designed to result in their election by the shareholders other than controlling shareholders. The Companies Law also provides that the external directors must serve on both the audit committee and a supplementary notice to the prospectus dated November 12, 2012. Oncompensation committee, that the subsequent day,audit committee and the Company allotted 37,362 thousand ordinary shares, registered to bearer, NIS 0.01 par value each, tocompensation committee must both be chaired by external directors, and that at least one external director must serve on every board committee. Additional rules govern the tender participants,term and compensation of which 36,905 thousandexternal directors. We complied with these requirements while our ordinary shares were to CBI, at a share price of NIS 0.42, for gross proceeds of NIS 15,692 thousand. Within the framework of the offering, the anti-dilutive provisions were invoked for certain investors, whereby the investors are entitled to receive approximately 26,445 thousand ordinary shares (of which approximately 22,764 thousand shares are for CBI), subject to the TASE's approval. Additionally, the Company received demands from CBI and Tikcro, the significance of which is an additional cumulative allotment of approximately 6,236 thousand shares, pursuant to these adjustment provisions. Of these, pursuant to an arbitration award, the Company intends to grant CBI approximately 3,065 thousand shares, while the dispute with Tikcro is still subject to arbitration. As of the date of this Annual Report on Form 20-F, the shares pursuant to these adjustment provisions have not yet been issued.
Executive Compensation
For more information regarding transactions in which our directors and executive officers had or will have a direct or indirect material interest, see Item 6.B. Compensation.
7.C. Interest of Experts and Counsel
Not applicable.
Item 8. Financial Information8.A. Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements” in this Annual Report on Form 20-F.
Legal Proceedings
Arbitration between the Company and Tikcro
We have engaged in arbitration with Tikcro due to a dispute concerning Tikcro’s request to activate the Adjustment Mechanism (as defined below) which was stipulated to in the investment agreements which we undertook with Tikcro in 2008 (in this section “Investment Agreements”,) For more information regarding the Investment Agreements, see Item 5: Overview - Private Offerings. As part of the Investment Agreements, Tikcro purchased our shares and non-negotiable options as well as extended to us a convertible loan, as detailed below:
| a. | The Investment Agreements determined that until such time in which we have raised an aggregate amount of $1,500 thousand (excluding the Excluded Capital, as defined in the Investment Agreements), in any event that the Company issues any additional securities save for certain excluded issuances, then Tikcro will benefit from a “full ratchet” anti-dilution protection (the “Adjustment Mechanism”).
|
| b. | In November 2012, we published a prospectus and raised capital by issuing ordinary shares to the public at a price per share of NIS 0.42 (the “Public Offering”). As part of the Public Offering Tikcro informed us that it believes it is entitled to the following adjustments as part of the Investment Agreements: (1) issuance of 3,171 shares (without consideration); (2) reduction of the price per share of the non-negotiable options to NIS 0.42; and (3) compensation for Tikcro's inability to convert its convertible loan according to the price of the Public Offering.
|
| c. | We have rejected Tikcro’s claims and the Parties have engaged in arbitration in order to settle their dispute. |
| d. | Should Tikcro prevail in the arbitration, the decision would also likely affect the securities issued in the Investment Agreements to the Provident Fund of the Employees of the Hebrew University of Jerusalem Ltd. as such securities will likely require the same Adjustment Mechanism. |
Dividend Policies
We have never declared or paid cash dividends. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future.
8.B. Significant Changes
Not applicable.
Item 9. The Offer and Listing9.A. Offer and Listing Details
Market for Registrant’s Ordinary Shares, Related Shareholder Matters and Issuer Purchases of Equity Securities
Our ordinary shares and our Series 1 and Series 2 Warrants are not listed for trading on any U.S. market, but are listed for tradingtraded solely on the TASE. Public trading of our shares commenced on August 17, 2006, under the predecessor company, BTI, until it was de-listed on August 14, 2012. SubsequentWe will no longer be subject to the Merger, on August 14, 2012, public trading of our ordinary shares on the TASE, as BioCancell Ltd., under the symbol "BICL", continued at the price of NIS 0.75.
The following tables set forth, for the periods indicated, the range of high and low sale prices for shares of our ordinary shares as reported on the TASE. For the years 2008 through 2011, the price reflected is that of BTI shares of common stock. For the 2012 fiscal year, the price reflected is that of BTI prior to the completion of the Merger and of BioCancell Ltd. for the period starting with the completion of the Merger. For more information, see Item 4.A. History and Development of the Company – Merger.
| TASE | | | | | Year | High | | Low | 2008 (BTI) | NIS 3.917 | | NIS 0.377 | 2009 (BTI) | NIS 3.090 | | NIS 0.403 | 2010 (BTI) | NIS 4.080 | | NIS 2.073 | 2011 (BTI) | NIS 2.449 | | NIS 0.624 | 2012 (BTI January 1-August 13) | NIS 1.170 | | NIS 0.700 | 2012 (BioCancell Ltd. August 14-December 31) | NIS 0.750 | | NIS 0.251 | | | | | 2011 (BTI) | | | | First Quarter | NIS 2.449 | | NIS 0.996 | Second Quarter | NIS 1.501 | | NIS 0.624 | Third Quarter | NIS 1.365 | | NIS 0.651 | Fourth Quarter | NIS 1.641 | | NIS 1.097 | | | | | 2012 | | | | First Quarter (BTI) | NIS 1.152 | | NIS 0.754 | Second Quarter (BTI) | NIS 1.130 | | NIS 0.733 | Third Quarter (BTI & BioCancell Ltd.) | NIS 0.870 | | NIS 0.700 | Fourth Quarter (BioCancell Ltd.) | NIS 0.620 | | NIS 0.240 | | | | | Most Recent Six Months (BioCancell Ltd.) | High | | Low | October 2012 | NIS 0.599 | | NIS 0.440 | November 2012 | NIS 0.527 | | NIS 0.421 | December 2012 | NIS 0.464 | | NIS 0.251 | January 2013 | NIS 0.850 | | NIS 0.473 | February 2013 | NIS 1.580 | | NIS 0.760 | March 2013 | NIS 1.278 | | NIS 0.830 |
Holders of Securities
As of the date of this Annual Report on Form 20-F, we have twenty-nine shareholders of record.
Dividends
Holders ofthese additional requirements when our ordinary shares are entitleddelisted from the TASE, which will occur on June 17, 2019.Pursuant to equal ratable rightsregulations under the Companies Law, a company whose shares are traded on specified stock exchanges (including Nasdaq) and which satisfies certain conditions – principally that it does not have a controlling shareholder as defined for this purpose in the Companies Law – can elect not to dividendscomply with the above external director rules, and distributionsto comply instead with the requirements of the SEC and Nasdaq applicable to U.S. public companies with respect to the ordinary shares,independence of board members and with respect to the composition of the audit committee and the compensation committee. Our board of directors made this election on March 11, 2019, and therefore we will be exempt from the requirement to appoint external directors (and the related requirements described above) so long as maywe do not have a controlling shareholder. In accordance with the relevant regulations, the directors originally elected as external directors under Israeli law will continue to serve as directors of the Company until the second annual shareholders meeting following the board’s decision. The Companies Law requires gender diversity on the board of directors of a public company. Accordingly, if in the future all of our directors will be declared byof the same gender, at least one of the directors to be elected at the next election of directors must be of the other gender. Committees of the Board out of funds legally available. We have never declared or paid any dividends on anyDirectors Our board of our securities. We currently intenddirectors has established the following committees. Each committee operates in accordance with a written charter that sets forth the committee’s structure, operations, membership requirements, responsibilities and authority to retain all available fundsengage advisors. Audit committee Under the Companies Law, the Exchange Act and any future earnings for use in the operationNasdaq rules, we are required to establish an audit committee. The responsibilities of our business and do not anticipate paying any cash dividends in the foreseeable future. 9.B. Plan of Distribution
Not applicable.
9.C. Markets
The Company is registered in Israel and traded on the Tel Aviv Stock Exchange Ltd. (TASE:BICL).
9.D. Selling Shareholders
Not applicable.
9.E. Dilution
Not applicable.
9F. Expenses on the Issue
Not applicable.
Item 10. Additional Information10.A. Share Capital
Not applicable.
10.B. Memorandum and Articles of Association
We are a public company registeredan audit committee under the Companies Law as BioCancell Ltd., registration number 51-359785-6.
Pursuant to our articles of association (the "Articles"), our objectives are to engageinclude identifying and addressing flaws in any lawfulthe business and our purpose is to act pursuant to business considerations to make profits.
Our Articles also state that we may contribute a reasonable amount for an appropriate cause, even if the contribution is not within the framework of our business considerations.
The Powersmanagement of the Directors
The powercompany, reviewing and approving related party transactions, establishing whistleblower procedures, overseeing the company’s internal audit system and the performance of our directors to vote on a proposal, arrangement or contract in whichits internal auditor, and assessing the director is interested is limited by the relevant provisionsscope of the Companies Law.work and recommending the fees of the company’s independent accounting firm. In addition, the poweraudit committee is required to determine whether certain related party actions and transactions are “material” or “extraordinary” for the purpose of the requisite approval procedures under the Companies Law and to establish procedures for considering proposed transactions with a controlling shareholder.In accordance with U.S. law and Nasdaq requirements, our audit committee is also responsible for the appointment, compensation and oversight of the work of our independent auditors and for assisting our board of directors in monitoring our financial statements, the effectiveness of our internal controls and our compliance with legal and regulatory requirements. Under the Companies Law, the audit committee must consist of at least three directors who meet certain independence criteria. Under the Nasdaq rules, we are required to vote on compensation to themselvesmaintain an audit committee consisting of at least three independent directors, all of whom are financially literate and one of whom has accounting or anyrelated financial management expertise. Each of the members of their bodythe audit committee is limitedrequired to be “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act. Our audit committee currently consists of Ms. Ruth Alon, Ms. Efrat Makov and Mr. Dennison Veru. All of the members are independent as defined in the Companies Law, SEC rules and Nasdaq listing requirements. Our board of directors has determined that all members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq rules. Our board of directors has determined that Mr. Veru and Ms. Makov are audit committee financial experts as defined by the SEC rules and have the requisite financial experience as defined by the Nasdaq rules. Compensation committee Under both the Companies Law and Nasdaq rules, we are required to establish a compensation committee. The responsibilities of a compensation committee under the Companies Law include recommending to the board of directors, for ultimate shareholder approval by a special majority, a policy governing the compensation of directors and officers based on specified criteria, reviewing modifications to and implementing such decision requirescompensation policy from time to time, and approving the actual compensation terms of directors and officers prior to approval by the board of directors. The Companies Law and related regulations require the appointment of a compensation committee that complies with the requirements of Nasdaq. Under Nasdaq rules, we are required to maintain a compensation committee consisting of at least two independent directors; each of the members of the compensation committee is required to be independent under Nasdaq rules relating to compensation committee members, which are different from the Boardgeneral test for independence of board and the shareholders at a general meeting, see "Approvalcommittee members. Our compensation committee currently consists of Certain Transaction" below. Under Israeli law each director must act with an independentMs. Ruth Alon, Mr. Reginald Hardy and sole discretion. A director who does not act this way is in breach of his fiduciary duties.
The powers of our directors to borrow are not limited, except in the same manner as any other transaction by the Company.
Rights Attached to Shares
Our registered share capital is NIS 2,500,000 divided into a single class of 250,000,000 ordinary shares, par value NIS 0.01 per share, of which 92,305,258 ordinary shares are outstanding asMs. Efrat Makov. All of the date of this Annual Report on Form 20-K. All outstanding ordinary sharesmembers are validly issued, fully paid and non-assessable. The rights attached to the ordinary shares areindependent as follows:
Dividend Rights
A resolution by the Company to distribute a dividend, bonus shares, or any other distribution, including a distribution that does not meet the profit criterion set bydefined in the Companies Law and the terms thereof,Nasdaq listing requirements.Nominating and Governance Committee We intend to establish a nominating and governance committee, responsible for making recommendations to the board of directors regarding candidates for directorships and the size and composition of the board. In addition, the committee will be approved by the Company's Board. One year after a dividend has been declaredresponsible for overseeing our corporate governance guidelines and is still unclaimed, the Company is entitled to invest or utilize the unclaimed amount of dividend for any purpose whatsoeverreporting and the shareholder who is entitled to such unclaimed dividend will not have any contention and/or claim in this respect.
Voting Rights
Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least twenty-five percent (25%) of our voting rights. In the event that a quorum is not present within half an hour of the scheduled time, the shareholders' meeting shall be rescheduledmaking recommendations to the same dayboard concerning corporate governance matters. Under the Companies Law, nominations for director may also, under certain circumstances, be made by shareholders in accordance with the conditions prescribed by applicable law and our articles of association.Internal Auditor Under the following week, atCompanies Law, the same time and place, or such time and place as the Board may determine by a notice to the shareholders. An ordinary resolution, such as a resolution for the election of directors, or the appointment of auditors, requires the approval by the holders of a majority of the voting rights represented at the meeting, in person, by proxy or through a voting instrument and voting thereon.
The Board Members are elected at any annual general meeting of the shareholders by a majority of the participating votes cast by holders of shares present or represented by proxy. A special general meeting may be called to appoint Board Members to replace those who have ceased to serve, and in any event where the numberboard of directors is less than the minimum number required to appoint an internal auditor recommended by the Articles.
Under the Company's Articles, the Board may appoint additional Board Members for any reason so long as the number of directors does not exceed the maximum number authorized. A Board Member that was appointed as mentioned, shall serve until the next annual meeting, at which they may be reelected by a majorityaudit committee. The role of the votes.
Rights ininternal auditor is to examine, among other things, whether the Company’s Profits
A dividendcompany’s actions comply with applicable law and proper business procedures. The internal auditor may not be an interested party, a director or bonus shares shall be distributed to those who were registered in the Company's shareholder register on the date of the resolution to make the distribution or on another date that shall be specified in such resolution.
Rights in the Event of Liquidation
All of our ordinary shares confer equal rights among them with respect to amounts distributed to shareholders in the event of liquidation.
Changing Rights Attached to Shares
The Board may provide for differences amongst the holders of the securities of the Company in relation to the conditions of allotment of the Company’s securities and the rights attached thereto and vary such conditions, including a waiver of part thereof. The Board may further issue to the securities holders demands for unpaid sums in respect of the securities that they hold. As of the date hereof, we only have one class of shares.
Annual and Extraordinary Meetings
Our Board must convene an annual meeting of shareholders every year by no later than the end of fifteen months from the last annual meeting. Notice of at least twenty-one days prior to the date of the meeting is required. An extraordinary meeting may be convened by the Board, as it decides or upon the request of: (i) two directors, (ii) one-quarter of the directors in office, (iii) shareholder(s) holding at least 5% of the outstanding ordinary shares of the Company and at least 1% of the Company’s voting rights, or (iv) shareholder(s) holding at least 5% of the Company’s voting rights. Under the Articles, the Company is not obligated to notify the shareholders of a general meeting, except if otherwise required under the Companies Law. A notification shall specify the time and place of the meeting as well as the resolutions offered. A random omission of notification of a general meeting to a shareholder shall not cancel the resolution that was agreed upon in that meeting. Notice of a general meeting stating the agenda and proposed resolutions will be published at least 21 days prior to the meeting. Pursuant to the Companies Regulations (Notice of General Meeting and Class Meeting in a Public Company), 2000, in the event that the agenda for the meeting includes certain proposed resolutions (for example, the appointment or dismissal of directors, the approval of a merger or transactions with a controlling shareholder), notice of the meeting will be published at least 35 days prior to the meeting. If the agenda of the meeting does not include such certain resolution and there is no obligationofficer of the company, to deliveror a notice of the shareholders meeting, then the notice can be published up to 14 days prior to the meeting.
Limitations on the Rights to Own Securities in the U.S.
Our Articles do not restrict in any way the ownership of our shares by non-residents of Israel, and neither the Articles nor Israeli law restrict the voting rights of non-residents of Israel, except that under Israeli law, any transfer or issue of shares of a company to a resident of an enemy state of Israel is prohibited and shall have no effect, unless authorized by the Israeli Minister of Finance.
Limitations on Change in Control and Disclosure Duties
Our Articles do not restrict the change of control nor do they impose any disclosure duties beyond the requirements set out in Israeli law. For restriction of change of control provision under Israeli law, see Item 3.D. Risk Factors Related to Our Operations in Israel.
Changes in Our Capital
Changes in our capital are subject to the approval of the shareholders at a general meeting by an ordinary majority of shareholders participating and voting in the general meeting.
Fiduciary Duty and Duty of Care of Directors and Officers under Israeli Law
The Companies Law codifies the duties directors and officers owe to a company. An "Officer" includes a company’s general manager, general business manager, executive vice president, vice president, any other person assuming the responsibilitiesrelative of any of the foregoing, positions without regard to such person’s titlenor may the internal auditor be our independent accountant or a representative thereof. Mr. Joseph Ginossar, CPA, who is the chief executive officer of Fahn Kanne Control Management Ltd. (the Business Risk Services division of Grant Thornton Israel), currently serves as our internal auditor.
Fiduciary Duties and otherApproval of Related Party Transactions Fiduciary duties of directors or managers directly subordinate to the general manager. The directors’ and officers’ principal duties to the company areofficers Israeli law imposes a duty of care and a fiduciary duty of loyalty on all directors and officers of a company. The duty of care requires a director or officer to act with the level of care with which a reasonable director or officer in the same position would have acted under the same circumstances. The duty of care includes, among other things, a duty to use reasonable means, under the circumstances, to obtain information on the advisability of a given action brought for his approval or performed by virtue of his position and other important information pertaining to such action. The duty of loyalty requires the director or officer to act in good faith and for the company’s benefit which include: | · | the avoidance of any conflict of interest between the director’s or officer’s position with the company and any other position he or she fulfills or with his or her personal affairs; |
| · | the avoidance of any act in competition with the company’s business; |
| · | the avoidance of exploiting any of the company’s business opportunities in order to gain a personal advantage for himself or for others; and |
| · | the disclosure to the company of any information and documentation relating to the company’s affairs obtained by the director or officer due to his or her position with the company. |
The Companies Law requires that directors, officers or a controlling shareholder of a public company disclose to the company any personal interest that he or she may have, including all related material facts or documents in connection with any existing or proposed transaction by the company. The disclosure must be made without delay and no later than the first Board meeting at which the transaction is first discussed.
Approval of Certain Transactions Generally, underrelated party transactionsUnder the Companies Law, engagement terms of directors, includinga related party transaction may be approved only if it is for the grant of an exemption from liability, purchase of directors’ and officers’ insurance, or grant of indemnification (whether prospective or retroactive) and engagement terms of such director with a company in other positions require the approval of the compensation committee, the Board and the shareholdersbenefit of the company. In addition, transactions between a Public Company and its director or officer, or aA transaction between such company and other personthat is not an extraordinary transaction in which sucha director or officer has a personal interest requires the approval of the board of directors, unless the articles of association of the company provide otherwise. If the transaction is an extraordinary transaction, it must be approved by such company’sthe audit committee and the board of directors, and, if suchunder certain circumstances, by the shareholders of the company. An “extraordinary transaction” is a transaction other than in the ordinary course of business, other than on market terms or that is considered an extraordinary transaction (as defined below) it must receivelikely to have a material impact on the approval of such company’s audit committee as well. The determination whether such transaction is considered extraordinaryprofitability, assets or not is requiredliabilities. Pursuant to be made by audit committee. Thethe Companies Law, also requires that any extraordinary transaction between a public company and its controlling shareholder or an extraordinary transaction between such company and other persontransactions in which such company’sa controlling shareholder has a personal interest must be approved byrequire the approval of the audit committee, or the compensation committee if the transaction is in connection with employment or service with the company, the board of directors and the shareholders of the companycompany. The shareholder approval must be by an ordinarya simple majority of all votes cast, provided that (i) such majority vote at the shareholders meeting shall includeincludes a simple majority of the total votes ofcast by non-controlling shareholders having no personal interest in the transaction, participating at the voting (excluding abstaining votes);matter or (ii) the total number of votes of shareholders mentioned in clause (i) above who voted against such transaction does not exceed two percent (2%)2% of the total voting rights in the company. An "extraordinary transaction" is defined in the Companies Law as any of the following: (i) a transaction not in the ordinary course of business; (ii) a transaction that is not on market terms; or (iii) a transaction that is likely to have a material impact on the company’s profitability, assets or liability. Such an extraordinary transaction which shall last for a period exceeding three years shall be approved again by such company’s audit committee, board of directors and general meeting of shareholders by the special majority described above once in every three years.
The Companies Law further provides that the engagement terms of a controlling shareholder or its relative (including by an entity controlled by such controlling shareholder or its relative) with the company, either as an officer or an employee, must also be approved by such company’s compensation committee, board of directors and general meeting by the special majority described above. Such an engagement which shall last for a period exceeding three years shall be approved again by such company’s compensation committee, board of directors and general meeting by the special majority described above once in every three years.
The Companies Law prohibits any persondirector who has a personal interest in a matter to participate inan extraordinary transaction from being present for the discussion and voting pertaining to such mattertransaction in the company’s board of directors or audit committee except for in circumstances when the majority of the board of directors’ (or the audit committee – as the case may be) hasor board of directors. Nevertheless, a personal interest in the matter. In case the majority has a personal interest in such matter then such matter must also be approved by the company’s shareholders. An officerdirector who has a personal interest may be present forat the presentationmeeting and vote on the matter if a majority of the transaction if the chairmandirectors or members of the audit committee or the chairman of the board of directors as the case may be, determined that such officer's presence is required for the presentation of the said transaction. Compensation of Officers and Directors.
Amendment No. 20 to the Companies Law ("Amendment No. 20"), which recently came into effect, adopted new procedures relating to the approval of executive compensation and the formulation of compensation policies in Israeli public companies (including companies that issued only debentures to the public). Pursuant to Amendment No. 20, Israeli public companies are required to establish a compensation committee and adopt a policy regarding the compensation and terms of employment of their directors and officers. For information on the composition, roles and objectives of the compensation committee pursuant to the Companies Law and our compensation committee charter, see Item 6C. Board Practices –Board of Directors' Committees – Compensation Committee.
Pursuant to Companies Law following Amendment No. 20, the compensation policy must be approved by company's board of directors following its approval by the compensation committee. The compensation policy also requires the approval of the general meeting of the shareholders, which approval must satisfy one of the following (the "Majority Requirement"): (i) the majority should include at least a majority of the shares of the voting shareholders who are non controlling shareholders or do not have a personal interest in the approval of such transaction; in this case, however, the transaction also requires shareholder approval.Director and officer compensation Under the Companies Law, we are required to approve, at least once every three years, a compensation policy with respect to our directors and officers. Following the recommendation of our compensation committee, the compensation policy (in countingmust be approved by our board of directors and our shareholders. The shareholder approval must be by a simple majority of all votes cast, provided that (i) such majority includes a simple majority of the total votes of suchcast by non-controlling shareholders abstentions shall not be taken into account)having no personal interest in the matter or (ii) the total number of votes against the proposal among theof shareholders mentioned in paragraphclause (i) above who voted against such transaction does not exceed two percent2% of the aggregatetotal voting powerrights in the company. Under certain circumstancesIn general, the terms of compensation of directors, the chief executive officer and subject to certain exceptions,any employee or service provider who is considered a controlling shareholder must be approved separately by the compensation committee, the board of directors may approve the compensation policy despite the objection of the shareholders, provided that the compensation committee and the boardshareholders. The compensation terms of directors determines that it is for the benefit of the company, following an additional discussion and based on detailed arguments. The Companies Law provides that the compensation policy must be re-approved every three years, in the manner described above. Moreover, the board of directors is responsible for reviewing from time to time the compensation policy and deciding whether or not there are any circumstances that require an adjustmentother officers who report directly to the company's compensation policy. When approving the compensation policy, the relevant organs must take into consideration the goals and objectives listed in the Companies Law, and include reference to specific issues listed in the Companies Law. Such issues include, among others (the "Compensation Policy Mandatory Criteria"): (i) the relevant person’s education, qualifications, professional experience and achievements; (ii) such person's position within the company, the scope of his responsibilities and previous compensation arrangements with the company; (iii) the proportionality of such person's compensation in relation to the average and median pay of other employees in the company, including contract workers, and the impact of the differences between such person's compensation and the other employees' compensation on the labor relations in the company; (iv) the authority, at the board of director's sole discretion, to lower any variable compensation components or set a maximum limit (cap) on the actual value of the non-cash variable components, when paid; and (v) in the event that the terms of engagement include any termination payments - the term of employment of the departing person, the company’s performance during that term, and the departing person’s contribution to the performance of the company.
In addition, the Companies Law provides that the following matters shall be included in the compensation policy (the "Compensation Policy Mandatory Provisions"): (i) the award of variable components must be based on long term and measurable performance criteria (other than non-material variable components, which may be based on non measurable criteria taking into account the relevant person's contribution to the performance of the company); (ii) the company must set a ratio between fixed and variable pay, set a cap on the payment of any cash variable compensation components as of the payment of such components, and set a cap on the maximum cash value all non-cash variable components as of their grant date; (iii) the compensation policy must include a provision requiring the relevant person to return to the company any compensation that was awarded on the basis of financial figures that were subsequently restated; (iv) equity based variable compensation components should have an appropriate minimum vesting periods, which should be linked to long term performance objectives; and (v) the company must set a clear limit on termination payments.
Amendment No. 20 also introduced new procedures for the approval of compensation arrangements with officers and directors of Israeli public companies (including companies that issued only debentures to the public). Pursuant to the Companies Law following Amendment No. 20, any transaction with an office holder (except directors and the CEO of the company) with respect to such office holder's compensation arrangements and terms of engagement, requireschief executive officer require the approval of the compensation committee and the board of directors. Such transaction must be consistent withDirectors’ Service Contracts There are no arrangements or understandings between us and any of our subsidiaries, on the provisionsone hand, and any of our directors, on the other hand, providing for benefits upon termination of their employment or service as directors of our company or any of our subsidiaries. D. Employees As of December 31, 2018, we had 19 employees based at our corporate headquarters in Jerusalem, Israel and our U.S. subsidiary in Cambridge, Massachusetts. The following table sets forth the total number of full-time employees as of the company's compensation policy, provided thatperiods indicated by function and geography: | | | As of December 31, | | | Function: | | 2018 | | | 2017 | | | 2016 | | | Administrative | | | 7 | | | | 7 | | | | 6 | | | Research and development | | | 12 | | | | 10 | | | | 12 | | | Total | | | 19 | | | | 17 | | | | 18 | | | | | | | | | | | | | | | | | Geography: | | | | | | | | | | | | | | Israel | | | 14 | | | | 14 | | | | 17 | | | Cambridge, Massachusetts, USA | | | 5 | | | | 3 | | | | 1 | | | Total | | | 19 | | | | 17 | | | | 18 | |
Local labor laws govern the compensation committeelength of the workday and workweek, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days, advance notice of termination, Social Security payments or regional equivalents, and other conditions of employment and include equal opportunity and anti-discrimination laws. None of our employees is party to any collective bargaining agreements. We generally provide our employees with benefits and working conditions beyond the boardrequired minimums. We have a good relationship with our employees, and have never experienced any employment-related work stoppages. E. Beneficial Ownership of directors may, under special circumstances, approve such transaction thatExecutive Officers and Directors The beneficial ownership of our ordinary shares (including ordinary shares represented by ADSs) is notdetermined in accordance with the company's compensation policy, if bothrules of the following conditions are met: (i)SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the compensation committee andpower to vote or to direct the board of directors discussed the transaction in lightvoting of the roles and objectivessecurity, or investment power, which includes the power to dispose of or to direct the disposition of the compensation committee (see "Item 6C. Board Practices –Board of Directors' Committees – Compensation Committee.) and after taking into consideration the Compensation Policy Mandatory Criteria and including in such transaction the Compensation Policy Mandatory Provisions; and (ii) the company's shareholders approved the transaction, provided that in public companies the approval must satisfy the Majority Requirement. Notwithstanding the above, the compensation committee and the board of directors may, under special circumstances, approve such transaction even if the shareholders' meeting objected to its approval, provided that (i) both the compensation committee and the board of directors re-discussed the transactions and decided to approve it despite the shareholder's objection, based on detailed arguments, and (ii) the company is not a 'Public Pyramid Held Company'.security. For the purpose hereof, a "Public Pyramid Held Company" is a public company that is controlled by another public company (including companies that issued only debentures to the public), which is also controlled by another public company (including companies that issued only debentures to the public) that has a controlling shareholder. Transactions between public companies (including companies that have issued only debentures to the public) and their chief executive officer, with respect to his or hers compensation arrangement and terms of engagement, require the approvalpurposes of the compensation committee, the board of directors and the shareholder's meeting, providedtable below, we deem ordinary shares issuable pursuant to options or warrants that the approval of the shareholders' meeting must satisfy the Majority Requirement. Notwithstanding the above, the compensation committee and the board of directors may, under special circumstances, approve such transaction with the CEO even if the shareholders' meeting objected to its approval, provided that (i) both the compensation committee and the board of directors re-discussed the transactions and decided to approve it despite the shareholder's objection, based on detailed arguments, and (ii) the company is not a Public Pyramid Held Company. Such transaction with the CEO must be consistent with the provisions of the company's compensation policy, provided that the compensation committee and the board of directors may, under special circumstances, approve such transaction that is not in accordance with the company's compensation policy, if both of the following conditions are met: (i) the compensation committee and the board of directors discussed the transaction in light of the roles and objectives of the compensation committee (see "Item 6C. Board Practices –Board of Directors' Committees – Compensation Committee" in this annual report on Form 20-F) and after taking into consideration the Compensation Policy Mandatory Criteria and including in such transaction the Compensation Policy Mandatory Provisions; and (ii) the company's shareholders approved the transaction, provided that in public companies the approval must satisfy the Majority Requirement. In addition, the compensation committee may determine that such transaction with the CEO nominee does not have to be approved by the shareholders of the company, provided that: (i) the CEO nominee is independent based on criteria set forth in the Companies Law; (ii) the compensation committee determined, based on detailed arguments, that bringing the transaction to the approval of the shareholders may compromise the chances of entering into the transaction; and (iii) the terms of the transaction is consistent with the provisions of the company's compensation policy. Under the Companies Law, non material amendments of transactions relating to the compensation arrangementcurrently exercisable or terms of engagement of office holders (including the CEO), require only the approval of the compensation committee.
With respect to transactions relating to the compensation arrangement and terms of engagements of directors in public companies (including companies that have issued only debentures to the public), the Companies Law following Amendment No. 20 provides that such transaction shall be subject to the approval of the compensation committee, the board of directors and the shareholders' meeting. Such transaction must be consistent with the provisions of the company's compensation policy, provided that the compensation committee and the board of directors may, under special circumstances, approve such transaction that is not in accordance with the company's compensation policy, if both of the following conditions are met: (i) the compensation committee and the board of directors discussed the transaction in light of the roles and objectives of the compensation committee (see Item 6C. Board Practices –Board of Directors' Committees – Compensation Committee in this annual report on Form 20-F) and after taking into consideration the Compensation Policy Mandatory Criteria and including in such transaction the Compensation Policy Mandatory Provisions; and (ii) the company's shareholders approved the transaction, provided that in public companies the approval must satisfy the Majority Requirement.
Amendment No. 20 became effective on December 12, 2012. Under Amendment No. 20, Israeli public companies must adopt a compensation policyexercisable within nine months from the date on which the amendment became effective, i.e. August 12, 2013. During this period, extensions of existing terms of engagement with directors and officers of Israeli public companies are not subject to the provisions of Amendment No. 20, provided that they are extended as-is without any modification. As60 days of the date of this annual reportAnnual Report on Form 20-F, we haven't yet adopted a compensation policy in accordance withif any, to be outstanding and to be beneficially owned by the provisionsperson holding the options or warrants for the purposes of Amendment No. 20.
Anti-Takeover Provisions; Mergers and Acquisitions
Special Tender Offer
The Companies Law providescomputing the percentage ownership of that an acquisition of shares of an Israeli public company must be made by means of a special tender offer if, as a result of the acquisition, the purchaser would become a holder of at least 25% of the voting rights in the company. This rule does not apply if there is already another holder of at least 25% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a holder of more than 45% of the voting rights in the company and no other shareholder of the company holds more than 45% of the voting rights in the company. These requirementsperson, but we do not apply if the acquisition (i) occurs in the context of a private placement by the company that received shareholder approval, (ii) was from a shareholder holding at least 25% of the voting rights in the company and resulted in the acquirer becoming a holder of at least 25% of the voting rights in the company, or (iii) was from a holder of more than 45% of the voting rights in the company and resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company. The special tender offer may be consummated only if (a) at least 5% of the voting power attached to the company’streat them as outstanding shares will be acquired by the offeror and (b) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.
In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer or shall abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for its abstention. An office holder in a target company who, in his or her capacity as an office holder, performs an action the purpose of whichcomputing the percentage ownership of any other person.Unless otherwise noted below, each shareholder’s address is to cause the failure of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for damages, unless such office holder acted in good faith and had reasonable grounds to believe he or she was acting for the benefitc/o Anchiano Therapeutics Ltd., 1/3 High-Tech Village, Givat Ram, P.O. Box 392649, Jerusalem, 9139102 Israel. | | | Shares Beneficially
Owned | | | Name of Beneficial Owner | | Number | | | Percentage(1) | | | Directors and executive officers | | | | | | | | | | Dr. Frank G. Haluska(2) | | | 1,337,739 | | | | 3.49 | % | | Jonathan Burgin(3) | | | 57,787 | | | | * | | | Dr. David Kerstein | | | — | | | | — | | | Dr. Ron Knickerbocker(4) | | | 26,563 | | | | * | | | Dr. Michal Gilon Ohev-Zion(5) | | | 24,754 | | | | * | | | Sean Daly(6) | | | 14,063 | | | | * | | | Dr. Stephen Hoffman | | | — | | | | — | | | Ruth Alon(7) | | | 155 | | | | * | | | Robert Connelly | | | — | | | | — | | | Reginald Hardy | | | — | | | | — | | | Dr. Lawrence Howard | | | — | | | | — | | | Isaac Kohlberg | | | — | | | | — | | | Efrat Makov | | | — | | | | — | | | Dennison Veru(8) | | | 34,500 | | | | * | | | All directors and executive officers as a group (14 persons) | | | 1,495,561 | | | | 3.88 | % |
| * | Represents beneficial ownership of less than one percent (1%). |
(1) Percentage ownership based on 37,099,352 ordinary shares outstanding as of the company. However, office holdersdate of the target company may negotiate with the potential purchaser in orderthis Annual Report on Form 20-F. (2) Consists of 62,112 ordinary shares, warrants to improve the terms of the special tender offer,purchase 47,931 ordinary shares, and may further negotiate with third parties in orderoptions to obtain a competing offer. A special tender offer may not be consummated unless a majority of the shareholders who announced their stand on such offer have accepted it (in counting the total votes of such shareholders,purchase 422,086, 107,593, 16,113 and 681,903 ordinary shares held by the controlling shareholder, shareholders who have personal interest in the offer, or shareholder who own 25% or more of the voting rights in the company, shall not be taken into account). If a special tender offer was accepted by a majority of the shareholders who announced their stand on such offer, then shareholders who did not announce their stand or who had objected to the offer may accept the offerexercisable within four60 days of the last day set for the acceptancedate of this Annual Report on Form 20-F, with respective exercise prices of $2.60, $2.90, $2.90 and $3.67. These options expire respectively on December 18, 2026, May 10, 2027, July 19, 2027 and June 28, 2028.(3) Consists of options to purchase 3,533, 4,504, 6,000 and 43,750 ordinary shares exercisable within 60 days of the offer.date of this Annual Report on Form 20-F, with respective exercise prices of NIS 246.27, NIS 23.44, NIS 12.10 and NIS 9.10. These options expire on September 26, 2021, May 10, 2024, April 28, 2025 and September 9, 2027. (4) Consists entirely of options to purchase ordinary shares exercisable within 60 days of the date of this Annual Report on Form 20-F, with an exercise price of $4.00. These options expire on March 4, 2028. (5) Consists of options to purchase 236, 1,766, 2,252, 3,000 and 17,500 ordinary shares exercisable within 60 days of the date of this Annual Report on Form 20-F, with respective exercise prices of NIS 242.03, NIS 86.62, NIS 23.44, NIS 12.10 and NIS 9.10. These options expire on March 6, 2021, April 20, 2023, May 10, 2024, April 28, 2025 and September 9, 2027. (6) Consists entirely of options to purchase ordinary shares exercisable within 60 days of the date of this Annual Report on Form 20-F, with an exercise price of $4.00. These options expire on March 4, 2028. (7) Consists entirely of options to purchase ordinary shares exercisable within 60 days of the date of this Annual Report on Form 20-F, with an exercise price of NIS 9.10. These options expire on September 9, 2027. (8) Consists of 6,900 ADSs representing 34,500 ordinary shares. InITEM 7. Major Shareholders And Related Party Transactions A. Major Shareholders The following table sets forth certain information regarding the event that a special tender offer is accepted,beneficial ownership of our outstanding ordinary shares, including ordinary shares represented by ADSs, as of the purchaser or anydate of this Annual Report on Form 20-F, by each person or entity controlling it at the time of the offer or under common control with the purchaser or such controlling person or entity shall refrain from making a subsequent tender offer for the purchase of shares of the target company and cannot execute a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer. Full Tender Offer
A person wishing to acquire shares or a class of shares of an Israeli public company and who would, as a result, hold over 90% of the target company’s issued and outstanding share capital or that certain class of shares is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company or class of shares. If either (i) the shareholders who do not accept the offer hold less thanwe know beneficially owns 5% of the issued and outstanding share capital of the company or of the applicable class, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, or (ii) the shareholder who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class, then all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a shareholder that had its shares so transferred, whether it accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer, petition the court to determine that tender offer was for less than fair value and that the fair value should be paid as determined by the court (unless the offeror provided in the offer to purchase that a shareholder who accepted the offer is not entitled to appraisal rights, in which case such shareholder may not petition the court unless the offeror has breach its disclosure duties with respect to the offer). If the offer was not accepted, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
Merger
The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Companies Law are met, a majority of each party’s shares voted on the proposed merger at a shareholders’ meeting called with at least 35 days’ prior notice.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented at the shareholders meeting that are held by parties other than the other party to the merger, or by any person who holds 25% or more of the outstanding shares or the right to appoint 25% or moreordinary shares. For purposes of the directorstable below, we deem ordinary shares issuable pursuant to options or warrants that are currently exercisable or exercisable within 60 days of the other party, vote againstdate of this Annual Report on Form 20-F, if any, to be outstanding and to be beneficially owned by the merger. Ifperson holding the transaction would have been approved butoptions or warrants for the separate approvalpurposes of each class orcomputing the exclusionpercentage ownership of that person, but we do not treat them as outstanding for the votespurpose of certaincomputing the percentage ownership of any other person.None of our shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of thehave different voting rights of a company if the court holds that the merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration offered to thefrom other shareholders. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations We are not aware of any arrangement that may, at a subsequent date, result in a change of the parties to the merger, and may further give instructions to secure the rightscontrol of creditors.
In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed by each party with the Israeli Registrar of Companies and 30 days have passed from the date the merger was approved by the shareholders of each of the merging companies.
Anti-Takeover Measures Under Israeli Law
The Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain preferred rights, distributions or other matters and shares having preemptive rights. company.As of the date of this Annual Report on Form 20-F, there is one shareholder of record of our ordinary shares. The number of record holders is not representative of the number of beneficial holders of our ordinary shares, as all shares we have issued are currently recorded in the name of our Israeli share registrar, Mizrahi-Tefahot Nominees Co. Ltd. As of the date of this Annual Report on Form 20-F, there were no record holders of our ordinary shares in the United States. Based upon a review of the information provided to us by The Bank of New York Mellon, the depositary of the ADSs, as of March 21, 2019, there were 47 holders of record of the ADSs on record with the Depository Trust Company. These numbers are not representative of the number of beneficial holders of our ADSs nor is it representative of where such beneficial holders reside, since many of these ADSs were held of record by brokers or other nominees. | | | Shares Beneficially Owned | | | Name of Beneficial Owner | | Number | | | Percentage | | | 5% or greater shareholders | | | | | | | | | | Clal Biotechnology Industries Ltd.(1) | | | 9,307,662 | | | | 23.57 | % | | Shavit Capital Funds(2) | | | 8,868,555 | | | | 21.67 | % | | Access Industries Holdings LLC(3) | | | 6,521,735 | | | | 17.58 | % | | Edgewater Partner Holdings Ltd.(4) | | | 1,923,077 | | | | 5.18 | % | | Palisade Medical Equity I, LP(5) | | | 1,882,700 | | | | 5.07 | % |
| (1) | The beneficial ownership is based on the latest available filing made with the SEC on Schedule 13D on February 21, 2019, and consists of 6,585,081 ordinary shares, 326,085 ordinary shares represented by 65,217 ADSs and warrants to purchase 2,396,496 ordinary shares. Clal Industries Ltd. owns 47% of the outstanding shares of, and controls Clal Biotechnology Industries Ltd. (“CBI”) (TASE: CBI). The remaining 53% of CBI’s outstanding shares are publicly-held and listed on the TASE. Clal Industries Ltd. is wholly owned by Access AI Ltd., which is owned by AI Diversified Holdings S.à.r.l., which is owned by AI Diversified Parent S.à.r.l., which is owned by AI Diversified Holdings Limited (“AIDH Limited”). AIDH Limited is controlled by AI SMS L.P. (“AI SMS”). Access Industries Holdings LLC (“AIH”) owns a majority of the equity of AI SMS, and Access Industries, LLC (“LLC”) holds a majority of the outstanding voting interests in AIH. Access Industries Management, LLC (“AIM”) controls LLC and AIH, and Len Blavatnik controls AIM. The address of each of Clal Industries Ltd. and CBI is Triangle Tower, 3 Azrieli Center, Tel Aviv 67023, Israel and the address of each of foregoing other than Clal Industries Ltd. and CBI is 40 West 57th Street, 28th Floor, New York, NY 10019. |
| (2) | Consists of 4,968,944 ordinary shares, 65,215 ordinary shares represented by 13,043 ADSs and warrants to purchase 3,834,396 ordinary shares. The general partner of Shavit Capital Fund III (US), L.P. and Shavit Capital Fund 3 (Israel), L.P. is Shavit Capital Fund 3 GP, L.P., which is managed by Shavit Capital Management 3 (GP) Ltd. in its capacity as the general partner. The general partner of Shavit Capital Fund IV (US), L.P. and Shavit Capital Fund 4 (Israel), L.P. is Shavit Capital Fund 4 GP, L.P., which is managed by Shavit Capital Management 4 (GP) Ltd. in its capacity as the general partner. The controlling shareholder of Shavit Capital Management 3 (GP) Ltd. and Shavit Capital Management 4 (GP) Ltd. is a company, the controlling shareholder of which is Gary Leibler. Therefore, Mr. Leibler may be deemed to control the investment decisions of the Funds. The address of each of the foregoing other than Mr. Leibler is Jerusalem Technology Park, Building 1B, Box 70, Malha, Jerusalem, 96951 Israel. The address of Mr. Leibler is 4a Gidon Street, Jerusalem 9350604 Israel. |
| (3) | The beneficial ownership is based on the latest available filing made with the SEC on Schedule 13D on February 21, 2019, and consists entirely of ordinary shares represented by 1,304,347 ADSs purchased in our February 2019 initial public offering. Prior to our initial public offering, Access Industries Holdings LLC did not beneficially own any of our outstanding securities. For more information on Access Industries Holdings LLC, see footnote (1) above. |
| (4) | Consists entirely of ordinary shares. Edgewater Partner Holdings Ltd. is beneficially owned by Mr. Youqiang Yu, and as such, Mr. Yu may be deemed to beneficially own the ordinary shares beneficially owned by Edgewater Partner Holdings Ltd. The shareholder’s business address is c/o Edgewater Partner Holdings Ltd., Novasage Chambers, Level 2, CCCS Building, Beach Road, Apia, Samoa. |
| (5) | The beneficial ownership is based on the latest available filing made with the SEC on Schedule 13D/A on February 25, 2019, and consists of 1,848,200 ordinary shares held by Palisade Medical Equity I, LP (“Palisade”) and 6,900 ADSs representing 34,500 ordinary shares held by Dennison Veru, the managing member, co-chairman and chief investment officer of Palisade Capital Management, L.L.C. (“PCM”), Palisade’s investment manager, and a member and president of Palisade Medical Equity Holdings I, LL, Palisade’s general partner. In addition, Mr. Veru is a member of our board of directors. Palisade is beneficially owned by Alison Berman, the president and chief executive officer of PCM. As such, Ms. Berman may be deemed to beneficially own the ordinary shares beneficially owned by Palisade. The business address of Ms. Berman and Mr. Veru is c/o Palisade Medical Equity, One Bridge Plaza, Suite 695, Fort Lee, NJ 07024. |
B. Related Party Transactions Agreements with Directors and Officers
Employment Agreements We have entered into employment agreements with each of our executive officers. See “Item 6.—Directors, Senior Management and Employees—Compensation—Employment and Consulting Agreements.”
Indemnification Agreements Our Articles of Association permit us to insure each of our directors and officers to the fullest extent permitted by the Companies Law. We have obtained Directors and Officers insurance for each of our executive officers and directors. Private Financings In February 2018, CBI, which at the time was our controlling shareholder, extended bridge financing to us in the principal amount of $1.0 million, which was pending completion of the private placement of equity securities described below, and subsequently provided an additional $2.0 million principal amount of bridge financing. The unpaid principal amount of the bridge financing bore annual interest at the rate payable on three-month United States Treasury bills. The repayment of the bridge financing was made by deducting the repayment amount from the $5.0 million purchase price of the securities acquired by CBI pursuant to the Securities Purchase Agreement described below. Pursuant to a Securities Purchase Agreement, dated March 29, 2018, between us and the investors identified therein, in June 2018 we issued 5,960,787 ordinary shares, and warrants to purchase an additional 4,768,629 ordinary shares, as well as price protection and certain other rights. The gross proceeds from the sale of the ordinary shares amounted to $22.9 million. As a result of our February 2019 initial public offering, the price protection rights were triggered, resulting in the issuance of 8,262,800 ordinary shares and warrants representing 6,207,329 ordinary shares. The warrants can be exercised for ordinary shares at a price of $1.932 per share. If all of the warrants are exercised, it would result in aggregate gross proceeds to us of approximately $21.2 million. Offering expenses were approximately $1.0 million. For information regarding the current shareholdings of Shavit Capital Funds and CBI, see “Item 7.—Major Shareholders and Related Party Transactions—Major Shareholders.” Information Rights Agreement We have entered into an information rights agreement, effective as of February 14, 2019, with one of our principal shareholders, CBI. The information rights agreement provides CBI with rights to receive our annual and quarterly financial statements, auditor consent letters and valuation reports, and other information reasonably required by CBI to enable it to prepare its financial statements. The information rights agreement also requires that we provide CBI with information material to the Company and mandated to be disclosed by the requirements applicable to CBI, as well as certain other material information of the Company. The information rights agreement contains customary confidentiality provisions and terminates when CBI, and any company that controls CBI, is no longer required to issue public reports relating to us pursuant to the Israeli Securities Law or the Exchange Act. C. Interests of Experts and Counsel Not applicable. | ITEM 8. | Financial Information |
A. Consolidated Statements and other Financial Information See “Item 18.—Financial Statements” in this Annual Report on Form 20-F. Legal Proceedings From time to time, we may be party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in any legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. Dividend Distributions We have never declared or paid cash dividends to our shareholders. Currently we do not intend to pay cash dividends. We currently intend to reinvest any future earnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our Board of Directors may deem relevant. B. Significant Changes Since December 31, 2018, the following significant changes have any authorized oroccurred: Initial Public Offering In February 2019, we sold 2,652,174 ADSs, each representing five ordinary shares, no par value, in our initial public offering at a public offering price of $11.50 per ADS, for aggregate gross proceeds of $30.5 million. The net offering proceeds to us, after deducting underwriting discounts and commissions totaling approximately $2.1 million and offering expenses totaling approximately $1.6 million, was approximately $26.8 million. The offering commenced on February 12, 2019 and the effective date of the registration statement on Form F-1 (File No. 333-229155) for our initial public offering of ADSs was February 11, 2019. Oppenheimer & Co. Inc. acted as the sole book-running manager of the offering and as representative of the underwriters.
Shares Issued Due to Price Protection Rights Pursuant to a Securities Purchase Agreement, dated March 29, 2018, between us and the investors identified therein, in June 2018 we issued 5,960,787 ordinary shares, and warrants to purchase an additional 4,768,629 ordinary shares, as well as price protection and certain other thanrights. These price protection rights were triggered by our initial public offering, giving our investors an additional 8,262,800 ordinary shares and warrants representing 6,207,329 ordinary shares. | ITEM 9. | The Offer And Listing |
A. Offer and Listing Details ADSs The ADSs, representing our ordinary shares, have been trading on the Nasdaq under the symbol “ANCN” since February 12, 2019. Prior to that date, there was no public trading market for the ADSs. Ordinary Shares Our ordinary shares have been trading on the TASE since August 14, 2012. Our ordinary shares traded under the symbol “BICL” until August 2018 when the symbol was changed to “ANCN.” No trading market currently exists for our ordinary shares in the United States. We have requested that the TASE initiate the process to delist our ordinary shares. In accordance with applicable Israeli law and the future, if we do create and issue a class of shares other than ordinary shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization of a new class of shares will require an amendment to our Articles which requires the prior approvalrules of the holders of a majority ofTASE, the last day our ordinary shares at a general meeting. Tax Law
Israeli tax law treats some acquisitions, such as a share-for-share swap between an Israeli companywill trade on the TASE will be June 13, 2019, and a foreign company, less favorably than U.S. tax law. For example, Israeli tax law may subject a shareholder who exchanges hisour ordinary shares forwill be delisted from the TASE on June 17, 2019. Until such delisting takes effect, our ordinary shares will continue to trade on the TASE while the ADSs will trade on the Nasdaq.B. Plan of Distribution Not applicable. C. Markets For a description of our publicly-traded ADSs, see “Item 9.— Offer and Listing Details —ADSs.” For a description of our publicly-traded ordinary shares, see “Item 9.— Offer and Listing Details —Ordinary Shares.” D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the Issue Not applicable. | ITEM 10. | Additional Information |
A. Share Capital Not applicable. B. Articles of Association The information set forth in a foreign corporationour prospectus dated February 12, 2019, filed with the SEC pursuant to immediate taxation. For more information see Item 10E. Taxation. 10.C.Rule 424(b), under the headings “Description of Share Capital” is incorporated herein by reference.C. Material Contracts For agreements with related parties, see Item 7B.“Item 7.—Major Shareholders and Related Party Transaction. Transactions—Related Party Transactions.”Exclusive License Agreement with Yissum See “Item 4.—Information on the Company—Business Overview—Intellectual Property” for more details on our Exclusive License Agreement with Yissum. On November 14, 2005, the CompanySupply Agreement with Boehringer-Ingelheim In April 3, 2013, we entered into a license agreementClinical Supply Agreement (the “BI Agreement”) with Yissum, which was subsequently amended on November 22, 2005, September 11, 2007,Boehringer Ingelheim Biopharmaceuticals GmbH (“BI”) and January 24, 2011,Boehringer Ingelheim RCV GmbH & Co KG (“BI RCV”) pursuant to which Yissum has granted the Company an exclusive, worldwide license for the development, use, manufacturingBI and commercialization of products arising out of patents owned by, and patent applications filed by, Yissum in connection with the H19 and IGF2-P4 genes. Under the terms of the Yissum license, Yissum retains right, title and interest in the products, technologies or other inventions arising out of the Company's research and development of these patents and patent applications, except for intellectual property developed with funding from the OCS, which will be owned by the Company and transferred to Yissum only upon the Company's dissolution or upon decision by the OCS that it no longer requires the Company to own the intellectual property developed with its funding. The Company has the right to grant sub-licenses to third parties in accordance with the terms set forth in the Yissum license.
The Company has agreed toBI RCV provide research and development funding to Yissum in connection with the license, which the Company may terminate upon 90 days prior written notice to Yissum. In such event, the Company would be required to compensate Yissum for all expenses incurred by it prior to the notification date in connection with its research efforts and all additional expenses that Yissum had assumed the obligation to cover prior to the notification date.
In addition, the Company has agreed to prepare, register and maintain any patent application or patent that may arise out of the Company's research and development efforts pursuant to its license with Yissum and to bear all expenses of preparation, registration and maintenance. The Company agreed to keep Yissum informed of filing and prosecutions pursuant to the agreement, including submission of copies of all official actions, relevant correspondence, applications, continuations or like proceedings, and responses thereto. We agreed to consult Yissum regarding any abandonment of the prosecution of patent applications arising out of the license. In the event that the Company decides not to commence or continue the process of patent registration in a certain country, it must notify Yissum of this decision. Yissum may then individually prepare, register and maintain any such patent. The Company must inform Yissum of its desire to assume the expenses incurred by Yissum in connection with its patent registration within 90 days from the date in which Yissum notifies the Company of its decision to prepare, register and maintain such patent. In the event that the Company decides not to assume these expenses, or in the absence of the Company 's reply within the above 90 day period, the exclusive, worldwide license granted to it by Yissum will no longer be applicable in such countries in which it elected not to file or to abandon the filing, prosecution or maintenance of patents pursuant to the license. The Company undertook to use commercially reasonable efforts at its own expense to protect against third party’s infringement of the patents arising out of the license and to advise Yissum upon learning of such infringement. It also undertook to use commercially reasonable efforts at its own expense to defend any action, claim or demand made by any entity in connection with rights in the patents, and to notify Yissum immediately upon learning of any such action or claim.
The Company has agreed to pay Yissum 5% of all “net sales” as royalties and to pay Yissum 10% of the income that it receives from granting sub-licenses to third parties up to revenues of $30 million each year, and 6.5% of all additional income that it receives from granting sub-licenses to third parties.
The Company is required to indemnify Yissum, the Hebrew University of Jerusalem, their employees, their executive officers, delegates and any other persons acting on their behalf under the license against any liability, including product liability, damages, losses, expenses, fees and reasonable legal expenses arising out of the Company's actions or omissions in performing the Yissum license, including the use, development and manufacturing of patents arising out of itservices using their proprietary pDNA technology platform. The biopharmaceuticals developed and the granting of sub-licenses thereunder, provided that any such loss was not causedmanufactured by the intentional misconduct or gross negligence of the indemnitees.
The Company has agreed to maintain,BI and to add Yissum as an additional insured party with respect to, product liability insurance as well as an insurance policy with respect to the foregoing indemnification prior to the time when it commences clinical trials and concludes its first commercial sale. The Company has also agreed to obtain liability insurance with respect to clinical trials prior to the time when it commences clinical trials.
The Company has the right to terminate the Yissum license upon three months prior written notice provided that the Company has paid all amounts owing to Yissum under the license. Yissum has the right to terminate the licenseBI RCV are used in the event that the Company becomes bankrupt or insolvent, or if its business is placed in the hands of a receiver, assignee or trustee. In addition, Yissum has the right to terminate the license for any material breach of it by the Company in the event that the latter fails to remedy such material breach within ninety days of Yissum’s notice of such and its intent to terminate, provided that the material breach is curable within ninety days. In the event that the material breach cannot be remedied within ninety days, Yissum may not terminate the license if the Company takes reasonable commercial action to cure such breach as promptly as practicable. The Israeli Contract Law (Remedies for Breach of Contract) — 1970, defines the term “material breach” as a breach, with regards to which, it may be assumed that a reasonable person would not have entered into the specific agreement had that person foreseen the breach and the outcome thereof, or a breach which is specifically defined as material in the agreement. Acts which may constitute a material breach of the license agreement by the Company may include, for example: the granting of sublicenses not in compliance with the provisions of the license agreement, a breach of the Company's obligations to pay royalties and provide the necessary reports with respect thereto, a breach of its obligation to develop and commercialize the licensed technology, including its obligation to fund certain research and development activities, a breach of its obligations to conduct patent prosecution and maintenance, and a breach of its obligations not to disclose or misuse certain confidential information of Yissum. The termination of the license also entails termination of all licenses granted thereunder. Termination of the license shall not terminate any of the Company's obligations, including the obligation to pay royalties that matured prior to the effective date of termination.
The Company may assign the Yissum license only in connection with the sale of all or substantially all of the former’s assets. Otherwise, the Company must receive the prior written consent of Yissum to assign the license, which consent shall not be unreasonably withheld.
Each license granted to the Company under the Yissum agreement expires upon the expiration of the underlying patent, or, if no patent has been registered, then after nine years from the date of the first commercial sale of the product of such license, provided that the Company may extend the license for an additional one year period in any such circumstance by continuing to pay royalties for such license.
Polyplus-transfection SA. Polyplus-transfection SA is currently the Company's sole supplier of the component polyethylenimine (PEI) which is used to enhance BC-819’s ability to penetrate cancerous cells in the bladder. Polyplus-transfection SA has agreed to comply with the Good Manufacturing Practice requirements set forth in the Quality System Regulation in manufacturing PEI for the Company via subcontractors.
Supply Agreement with Althea Technologies Inc. In January 2007, the Company entered into a continuous production agreement with Althea Technologies Inc., an American manufacturer for the production of its plasmids. To date,our lead product candidate, inodiftagene. We have been granted confidential treatment as to certain portions of this agreement, which portions have been separately filed with the manufacturer has executed three production campaigns of BC-819, oneSEC.Information Rights Agreement See “Item 7.—Major Shareholders and Related Party Transactions—Related Party Transactions—Information Rights Agreement” for the production of non-Good Manufacturing Practices material, the second for Good Manufacturing Practices material that was used for the Phase IIb clinical study for treatment of superficial bladder cancer, and the third for the production of Good Manufacturing Practices material for Phase I/IIa clinical trials of BC-819 in the treatment of ovarian and pancreatic cancer. All campaigns were successful, resulting in sufficient material within required specifications. Supplymore details on our Information Rights Agreement with VGXI USA. In September 2008, the Company entered into a continuous production agreementCBI.Securities Purchase Agreement See “Item 8.—Significant Changes—Shares Issued Due to Price Protection Rights.” for more details on our Securities Purchase Agreement with VGXI USA (“VGXI”), a business entity registered in the state of Texas, a DBA of VGX International Inc. of Korea. Pursuant to the agreement, the Company may purchase from, and have plasmids produced by VGXI under cGMP conditions. The Company has no commitment to purchase any minimum quantity of plasmids nor shall VGXI have any commitment to produce and sell any minimum quantity of plasmids. The Company shall only become obligated to purchase, and VGX shall only be obligated to produce, plasmids upon execution and delivery of a purchase order for such plasmids. 10.D.our investors.D. Exchange Controls Non-residents of Israel who purchase our ordinary shares outside of Israel with U.S. dollars or other foreign currency will be able to convert dividends (if any) thereon, and any amounts payable upon the dissolution, liquidation or winding up of the affairs of the Company, as well as the proceeds of any sale in Israel of the ordinary shares to an Israeli resident, into freely repatriable dollars, at a rate of exchange prevailing at the time of conversion, pursuant to regulations issued under the Currency Control Law, 1978, provided that Israeli income tax has been withheld by the Company with respect to such amounts. The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinary shares or ADSs. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction. Israeli Tax Considerations General
and Government ProgramsThe following is a summary of the materialcurrent tax consequences under Israeli law concerningregime in the purchase, ownershipState of Israel, which applies to us and disposition ofto persons who hold our ordinary shares (the “Shares”). or ADSs.This discussionsummary does not purportdiscuss all the aspects of Israeli tax law that may be relevant to constitute a complete analysis of all potential tax consequences applicable to investors upon purchasing, owning or disposing of our Shares. In particular, this discussion does not take into account the specific circumstances of any particular investor (such as tax-exempt entities, financial institutions, certain financial companies, broker-dealers,in light of his or her personal investment circumstances or to some types of investors that own, directly or indirectly, 10% or more of our outstanding voting rights, or foreign companies, Israeli residents holding 25% or more of their shares or having the right to 25% or more of their income or profit, all of whom are subject to special tax regimestreatment under Israeli law. Examples of this kind of investor include traders in securities or persons who do not covered underhold our ordinary shares or ADSs as a capital asset. Some parts of this discussion). To the extent that issues discussed hereindiscussion are based on a new tax legislation which has yet to benot been subject to judicial or administrative interpretation, there caninterpretation. The discussion should not be no assurance that the views expressed herein will accord with any such interpretation in the future. Potential investors are urged to consult their ownconstrued as legal or professional tax advisors as to the Israeli or otheradvice and does not cover all possible tax consequences of the purchase, ownership and disposition of the Shares, including, in particular, the effect of any foreign, state or local taxes.
considerations.HOLDERS AND POTENTIAL INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE ISRAELI OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES OR ADSs, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES. General Corporate Tax Structure in Israel Israeli resident companies are generally subject to corporate tax on both ordinary income and capital gains, currently at the rate of 23% of a company’s taxable income. The Israeli corporate tax rate applicable tohas been declining in recent years, and it was 24% for the 2017 tax year. Capital gains derived by an Israeli resident companiescompany are subject to tax at the prevailing corporate tax rate. Under the Israeli Encouragement of Capital Investments Law, 1959 (the “Encouragement Law”), income generated by a “Benefited Enterprise” will be exempt from tax for up to 10 years from the year it so elects. Our subsidiary made such an election in 20122009. The exemption is 25%contingent upon compliance with the criteria prescribed in the Encouragement Law, including receipt of real profit. approval of biotechnology company status. We are in the process of obtaining such approval.Taxation of Our Shareholders gainsCapital gains tax is imposed on the disposal of capital assets by an Israeli resident, and on the disposal of suchcapital assets by a non-Israeli residentnon-resident of Israel if those assets (i) are either (i) located in Israel;Israel, (ii) are shares or a right to a shareshares in an Israeli resident corporation, or (iii) represent, directly or indirectly, rights to assets located in Israel. The Israeli Income Tax Ordinance (New Version), 1961 (the “Tax Ordinance”) distinguishes between “Real Gain” and the “Inflationary Surplus.” Real Gain is the excess of the total capital gain over Inflationary Surplus. The Inflationary Surplus computed generally onis a portion of the basistotal capital gain which is equivalent to the increase of the relevant asset’s price that is attributable to the increase in the Israeli Consumer Price Indexconsumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of disposal. As of January 1, 2012, the real capital gainsale. Inflationary Surplus is not subject to tax.Real Gain accrued by individuals on the sale of the Sharesour ordinary shares or ADSs will be taxed at the rate of up to 25%. However, if the individual shareholder is a “Controlling“Substantial Shareholder” (i.e.(i.e., a person who holds, directly or indirectly, alone or together“Together with another,Another Person,” 10% or more of one of the “Means of Control” of the Israeli resident company’s means of control)company) at the time of sale or at any time during the preceding 12 month12-month period, such gain will be taxed at the rate of 30%. For purposes of this paragraph, the term “Together with Another Person” means together with his or her “Relative,” as well as with a person who is not his or her Relative and who has a permanent cooperation with him or her under an agreement in material matters of the Company, directly or indirectly. The term “Relative” means any of the following: (i) a spouse, brother, sister, parent, parent of a parent, descendant and descendant of a spouse, and spouse of any of the aforementioned; and (ii) a descendant of a brother or sister and a brother or sister of a parent. Also, for purposes of this paragraph, the term “Means of Control” generally includes the right to vote in a general meeting of shareholders, the right to receive profits, the right to nominate a director or an officer, the right to receive assets upon liquidation (after payment of debts), or the right to instruct someone who holds any of the aforesaid rights regarding the manner in which he or she is to exercise such right(s), and whether by virtue of shares, rights to shares or other rights, or in any other manner, including by means of voting agreements or trust agreements. In addition, capital gains generated by an individual claiming deduction of financing expenses in respect of such gain will be taxed at the rate of up to 30%. Individual and corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income - 25%— in 2019, a tax rate of 23% for corporations in 2012 and a marginal tax rate of up to 48%47% for individuals. In addition, in 2012 for individuals (an additional 2%2019 a 3% excess tax would beis levied on individuals whose total taxable income from Israeli sourcesin Israel exceeds NIS 811,560 in 2013)649,560 (approximately $175,000). Notwithstanding the foregoing, capital gains generatedgain derived from the sale of our Sharesordinary shares or ADSs by a non-Israeli shareholder who is a non-resident of Israel may be exempt from Israeli tax under the Israeli Income Tax Ordinancetaxation, provided that all of the following cumulative conditions are met: (i) the Sharesordinary shares or ADSs were purchased upon or after the registrationlisting of the Sharessecurities on the stock exchange, (not applicable in respect of Shares purchased on or after January 1, 2009), (ii) the seller does not have a permanent establishment in Israel to which the generatedderived capital gain is attributed, andattributable, (iii) if the seller is a corporation, lessno more than 25% of its meansMeans of control or the rights to its profit or incomeControl, as defined above, are held, directly and indirectly, by shareholders who are Israeli residents, alone or attributed toTogether with Another Person, as defined above, or along with another Israeli resident, shareholders.and (iv) if the seller is a corporation, there are no Israeli residents that are directly or indirectly entitled to 25% or more of the revenues or profits of the corporation. In addition, the sale of the Sharesordinary shares or ADSs may be exempt from Israeli capital gains tax under the provisions of an applicable double tax treaty. For example, the Convention between the Government of theU.S.-Israel Tax Treaty generally exempts U.S. and the Government of the State of Israel with respect to Taxes on Income (the “U.S.- Israel Double Tax Treaty”) exempts a U.S. residentresidents from Israeli capital gaingains tax in connection with thesuch sale, of the Shares, provided that: (i) the U.S. treaty resident owned,did not own, directly or indirectly, less than 10% or more of the Israeli resident company’s voting power of the company at any time within the 12 month12-month period preceding such sale; (ii) the U.S. resident, beingseller, if an individual, is present in Israel for a period or periods of less than 183 days during the taxable year; and (iii) the capital gain from the sale was not derived through a permanent establishment of the U.S. resident in Israel. EitherUpon the sale of securities, the purchaser, the Israeli stockbroker or the Israeli financial institution through which the Sharesshares are held areis obligated, subject to the above mentioned exemptions, to withhold tax uponfrom the sale of SharesReal Gain at a 25% taxthe rate of real capital gains for corporations and individuals. 25% or 23% in respect of an individual or corporation, respectively.Upon the sale of securities traded securities,on a stock exchange, a detailed return, including a computation of the tax due, must be filed and an advancedadvance payment must be paid to the Israeli Tax Authoritymade on January 31 and July 31 of every tax year, in respect of sales of traded securities made within the previous six months.months by Israeli residents for whom tax has not already been deducted. However, if all tax due was withheld at source according to applicable provisions of the Israeli Income Tax Ordinance and the regulations promulgated thereunder, suchthere is no need to file a return need not be filed and no advance payment must be paid. Capital gains are also reportable on the annual income tax returns. As of January 1, 2012, dividends distributed by a company to aWe have never paid cash dividends. A shareholder who is an Israeli resident individual generally will be generally subject to income tax at a rate of 25%. on dividends we pay. However, a 30% tax rate will apply if the dividend recipient is a ControllingSubstantial Shareholder, as defined above, at the time of distribution or at any time during the preceding 12 month12-month period. If the dividend is paid from our income that was entitled to a reduced tax rate applicable to a Benefited or Privileged Enterprise under the Encouragement Law, the tax rate is 20% for dividends distributed from profits derived after January 1, 2014. If the recipient of the dividend is an Israeli resident corporation, such dividend generally will be generally exempt from Israeli income tax, provided that the income from which suchsource of the dividend is distributed,income that was derived or accrued within Israel. As of January 1, 2012, dividendsDividends distributed by an Israeli resident company to a non-Israeli residentnon-resident of Israel (either individual or corporation) are generally subject to tax on the receipt of such dividends at the rate of 25% (30% if the dividend recipient is a ControllingSubstantial Shareholder at the time of distribution or at any time during the preceding 12 month12-month period). These rates may be reduced under the provisions of an applicable double tax treaty. Thus, underUnder the U.S.-Israel Double Tax Treaty, the following tax rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if, the U.S. resident is a corporation which holds during that portion of the taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), the U.S. resident is a corporation that holds at least 10% of the outstanding voting shares of the voting stock of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain types of interest or dividends, the tax rate is 12.5%; (ii) if both the conditions mentioned in section (i) above are met and the dividend is paid from an Israeli resident company’s income whichthat was entitled to a reduced tax rate applicable to an Approved Enterprise/a Benefited Enterprise/Preferredor Privileged Enterprise –under the Encouragement Law, the tax rate is 15%; and (iii) in all other cases, the tax rate is 25%. The aforementionedreduced rates under the U.S.-Israel Double Tax Treaty will not apply if the dividend income is attributedattributable to a permanent establishment of the U.S. treaty resident in Israel. We are obligated to withhold tax upon the distribution of dividends. A non-resident of Israel who receives dividends atfrom which Israeli tax was withheld is generally exempt from the following withholdingobligation to file tax rates: (A) for securities registered and held by a clearing corporation: (i) Israeli resident corporations – 0%, (ii) Israeli resident individuals – 25%, and (iii) non-Israeli residents - 25%, unless reduced under the provisions of an applicable double tax treaty; and (B)returns in all other cases: (i) Israeli resident corporations – 0%, (ii) Israeli resident individuals – 25%/30% (the 30% tax rate shall apply if the dividend recipient is a “Controlling Shareholder” (as defined above) at the time of the distribution or at any time during the preceding 12 months period)), and (iii) non-Israeli residents - 25%/30% as referred to aboveIsrael with respect to Israeli resident individuals, unless reduced undersuch income, provided that (i) such income was not generated from business conducted in Israel by the provisionstaxpayer, and (ii) the taxpayer has no other taxable sources of an applicable doubleincome in Israel with respect to which a tax treaty. return is required to be filed.
Foreign Exchange Regulations exchange regulationsNon-residents of Israel who hold our Sharesordinary shares or ADSs are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, repayable in non-Israeli currency at the prevailing rate of exchange prevailing at the time of conversion.exchange. However, Israeli income tax is generally required to have been paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of currency exchange control has not been eliminated, and these controls may be restored at any time by administrative action.
Estate and gift tax Israeli law presently does not impose estate or gift taxes. U.S. Taxation Federal Income Tax ConsequencesThe following discussion describes certainis a description of the material United States (“U.S.”) federal income tax consequences ofrelating to the purchase,acquisition, ownership and disposition of our ordinary shares. For purposes This description addresses only the U.S. federal income tax consequences to U.S. Holders (as defined below) that are initial purchasers of this discussion, a “U.S. holder” is a beneficial owner of ordinaryour shares who or which is any ofpursuant to the followingoffering and that will hold such shares as capital assets for U.S. federal income tax purposes:
| · | a citizen or resident of the U.S. or someone treated as a U.S. citizen or resident of the U.S.; |
| · | a corporation (or another entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the U.S., any state thereof, or the District of Columbia; |
| · | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| · | a trust, if (a) a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (b) the trust was in existence and treated as a U.S. person on August 20, 1996 and has a valid election in effect under applicable Treasury Regulations (as defined below) to be treated as a U.S. person. |
purposes. This summary is for general information purposes only anddescription does not purportaddress tax considerations applicable to holders that may be a comprehensive description of allsubject to special tax rules, including, without limitation:banks, certain financial institutions or insurance companies; real estate investment trusts, regulated investment companies or grantor trusts; dealers or traders in securities, commodities or currencies; tax-exempt entities or organizations; certain former citizens or residents of the United States; persons that received our shares as compensation for the performance of services; persons that will hold our shares as part of a “hedging,” “integrated” or “conversion” transaction or as a position in a “straddle” for U.S. federal income tax considerations that may be relevant to a decision to purchase, holdpurposes; partnerships (including entities classified as partnerships for U.S. federal income tax purposes) or dispose of the Company’s ordinary shares. This summary generally considers only U.S.other pass-through entities, or holders that will hold our shares through such an entity; S corporations; U.S. Holders (as defined below) whose “functional currency” is not the U.S. dollar; persons that own directly, indirectly or through attribution 10% or more of the ordinaryvoting power or value of our shares; or persons holding our shares as capital assets andin connection with a trade or business conducted outside the United States. Moreover, this description does not consideraddress the U.S. tax consequences to a person that is not a U.S. holder or the tax treatment of persons who hold the ordinary shares through a partnership or other pass-through entity. In addition, the possible application of U.S. federal estate, gift, or gift taxesalternative minimum tax consequences, Medicare contribution tax on net investment income, or any aspect ofU.S. state, local or non-U.S. tax laws isconsequences of the acquisition, ownership and disposition of our shares. Subject to the discussion below under “—Country of Tax Residence,” this description assumes that we are not considered. treated as a U.S. corporation for U.S. federal income tax purposes. This discussiondescription is based on current provisions of the Internal Revenue Code, of 1986, as amended (the “Code”),existing, proposed and temporary U.S. Treasury Regulations promulgated under the Code by the U.S. Treasury Department (including proposedthereunder and temporary regulations) (the “Treasury Regulations”), rulings, current administrative interpretations and official pronouncements by the Internal Revenue Service (the “IRS”), and judicial decisions, allinterpretations thereof, in each case as currently in effect and all of which areavailable on the date hereof. All the foregoing is subject to differing interpretations or to change, with a retroactive effect. Such changeswhich change could materiallyapply retroactively and adverselycould affect the tax consequences described below. No assuranceThere can be givenno assurances that the IRS wouldwill not assert, or thattake a court would not sustain, adifferent position contrary to any ofconcerning the tax consequences described below. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. holder based on the holder’s particular circumstances, such as,
| · | persons who own, directly, indirectly or constructively, 10% or more (by voting power or value) of our outstanding voting shares; |
| · | persons who hold the ordinary shares as part of a hedging, straddle or conversion transaction; |
| · | persons whose functional currency is not the U.S. dollar; |
| · | persons who acquire their ordinary shares in a compensatory transaction; |
| · | regulated investment companies; |
| · | real estate investment companies; |
| · | traders who elect to mark-to-market their securities; |
| · | tax-exempt organizations; |
| · | banks or other financial institutions; |
| · | persons subject to the alternative minimum tax. |
HOLDER RELIANCE ON TAX STATEMENTS
THIS SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO IT OF AN INVESTMENT IN THE ORDINARY SHARES, INCLUDING THE EFFECTS OF APPLICABLE UNITED STATES FEDERAL INCOME TAX LAWS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY FOREIGN, STATE OR LOCAL JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
Availability of Reduced Tax Rates
U.S. legislation reduced to 15% the maximum U.S. Federal income tax rate on certain long-term capital gainsacquisition, ownership and on qualifying dividends. Long-term capital gains from the saledisposition of our ordinary shares mayor that such a position would not be eligible for this reduced rate, although the actual rates may be higher due to the phase out of certain tax deductions, exemptions and credits. After 2012, the maximum rate on long-term capital gains is 20%. Subject to the discussion below, dividends, if any, may also be eligible for this reduced rate, provided that we do not constitute a passive foreign investment company (a “PFIC”). However, tax rates are subject to change, especially given the uncertain economic conditions in the United States and the size of the federal deficit. U.S. holderssustained. Holders should consult their own tax advisors.
Distributions onadvisers concerning the Ordinary Shares
We currently do not intend to pay dividends. However, if we make any distributionsU.S. federal, state, local and foreign tax consequences of cash or other property to a U.S. holderacquiring, owning and disposing of our ordinary shares in their particular circumstances.For purposes of this description, the amountterm “U.S. Holder” means a beneficial owner of the distributionour shares that, for U.S. federal income tax purposes, is (i) a citizen or resident of the United States, (ii) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source or (iv) a trust (1) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (2) that has elected to be treated as a domestic trust for U.S. federal income tax purposes. If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our shares, the U.S. federal income tax consequences relating to an investment in our shares will equaldepend in part upon the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor regarding the U.S. federal income tax consequences of acquiring, owning and disposing of our shares in its particular circumstances. We believe we were a PFIC for U.S. federal income tax purposes in 2017 and 2018 and, based on estimates of our gross income and gross assets, our intended use of the proceeds from our February 2019 initial public offering, and the nature of our business, we believe that we will be a PFIC in 2019. See “— Passive Foreign Investment Company Consequences” below. Persons considering an investment in our shares should consult their own tax advisors as to the particular tax consequences applicable to them relating to the acquisition, ownership and disposition of our shares, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws. Taxation of Dividends and Other Distributions on Our Shares Subject to the discussion below under “Passive foreign investment company consequences,” if you are a U.S. Holder, the gross amount of cash and the fair market value of any property distributed and will also include the amount ofdistribution made to you with respect to our shares before reduction for any Israeli taxes withheld therefrom, other than certain distributions, if any, as described above under “— Dividends”. In general (and subjectof our shares distributed pro rata to the PFIC rules discussed below), any distribution paid by us on the ordinary shares to a U.S. holderall our shareholders, will generally be treatedincludible in your income as dividend income ifto the extent such distribution does not exceedis paid out of our current or accumulated earnings and profits as determined forunder U.S. federal income tax purposes. If holding period and other requirements are met, dividendsprinciples. Dividends paid to non-corporate U.S. holders in taxable years beginning after December 31, 2012, should generallyHolders may qualify for the reduced maximum taxlower rates of taxation applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year), provided that certain conditions are met, including certain holding period requirements and the absence of certain risk reduction transactions. However, such lower rate of 20% as long astaxation shall not apply if our common shares remain “readily tradable on an established securities market in the United States,” provided that we are not consideredcompany is a PFIC (as discussed below) infor the taxable year in which theit pays a dividend, is paid or in anywas a PFIC for the preceding taxable year. TheAdditionally, our dividends will not be eligible for the dividends-received deduction generally allowed to corporate U.S. Holders. To the extent that the amount of any distribution whichby us exceeds theseour current and accumulated earnings and profits as determined under U.S. federal income tax principles, it will be treated first as a non-taxabletax-free return of capital, reducing the U.S. holder’sadjusted tax basis in its ordinaryour shares to the extent thereof, and thenthereafter as either long-term or short-term capital gain and as long-term capital gain ifdepending upon whether the U.S. holder’s holding period exceedsHolder has held our shares for more than one year from the deemed dispositionas of the ordinary shares (subjecttime such distribution is received. We do not expect to the PFIC rules discussed below). Corporate holders generally will not be allowed a deduction for dividends received on the ordinary shares. A dividend paid by us in NIS will be included in the incomemaintain calculations of U.S. holders at the U.S. dollar value of the dividend, based upon the spot rate of exchange in effect on the date of the distribution. U.S. holders will have a tax basis in NIS forour earnings and profits under U.S. federal income tax purposes equal toprinciples and, therefore, U.S. Holders should expect that U.S. dollar value. Any subsequent gain or loss resulting from exchange rate fluctuations between the day the dividend was included in the incomeentire amount of U.S. holders and the day the NIS are converted into U.S. dollars or are otherwise disposed of, will be taxable as ordinary income, gain or loss from U.S. sources.
Dividends paid by usany distribution generally will be reported as dividend income.Dividends paid to a U.S. Holder with respect to our shares will generally be foreign source “passive income”income for U.S. foreign tax credit purposespurposes. Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited against your U.S. federal income tax liability. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends generally constitute “passive category income,” or, in the case of acertain U.S. holder that is a financial services entity, “financial servicesHolders, “general category income.” U.S. holders may elect to claim as aA foreign tax credit against their U.S. federal income tax liability the Israeli income tax withheld from dividends receivedfor foreign taxes imposed on the ordinary shares. The Code provides limitations on the amount of foreign tax credits that a U.S. holderdistributions may claim. U.S. holders thatbe denied if you do not elect to claim a foreign tax credit may instead claim a deduction for Israeli income tax withheld, but only for a year in which these U.S. holders elect to do so for all foreign income taxes.satisfy certain minimum holding period requirements. The rules relating to the determination of the foreign tax creditscredit are complex, (and may also be impacted by the tax treaty between the United States and Israel), and you should consult your tax advisor to determine whether and ifto what extent you wouldwill be entitled to this credit. Sale or ExchangeThe amount of a distribution paid to a U.S. Holder in a foreign currency will be the dollar value of the Ordinary Shares Upon the sale or exchange of the ordinary shares (subjectforeign currency calculated by reference to the PFIC rules discussed below),spot exchange rate on the day the U.S. Holder receives the distribution, regardless of whether the foreign currency is converted into U.S. dollars at that time. Any foreign currency gain or loss a U.S. holderHolder realizes on a subsequent conversion of foreign currency into U.S. dollars should generally willbe income or loss. If dividends received in foreign currency are converted into U.S. dollars on the day they are received, a U.S. Holder generally should not be required to recognize capitalforeign currency gain or loss in an amountrespect of the dividend.Sale, Exchange or Other Disposition of Our Shares Subject to the discussion below under “— Passive Foreign Investment Company Consequences,” if you are a U.S. Holder, you will generally recognize gain or loss on the sale, exchange or other disposition of our shares equal to the difference between the amount realized on thesuch sale, exchange or exchangeother disposition and the U.S. holder’syour adjusted tax basis in the ordinary shares. Theour shares, and such gain or loss recognized on the sale or exchange of the ordinary shares generally will be long-term capital gain or lossloss. The adjusted tax basis in our shares will generally be equal to the cost of such share. If you are a non-corporate U.S. Holder, capital gain from the sale, exchange or other disposition of shares is generally eligible for a preferential rate of taxation applicable to capital gains, if the U.S. holder’syour holding period of the ordinary shares is more than one yeardetermined at the time of the disposition. Gainsuch sale, exchange or other disposition for such shares exceeds one year (i.e., such gain is long-term capital gain). The deductibility of capital losses is subject to limitations. Any such gain or loss recognized by a U.S. holder on a sale or exchange of ordinary shareswill generally will be treated as U.S. source income or loss for U.S. foreign tax credit limitation purposes. Under the tax treaty between the United States and Israel, gain derived from the sale, exchange or other disposition of ordinary shares by a holder who is a resident of the U.S. for purposes of the treaty and who sells the ordinary shares within Israel may be treated as foreign source income for U.S. foreign tax credit purposes.
Passive Foreign Investment Companies In general,Company ConsequencesIf we were to be classified as a foreign (i.e.,PFIC in any taxable year, a U.S. Holder would be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in a non-U.S.) company that does not distribute all of its earnings on a current basis. A non-U.S. corporation will be classified as a PFIC for federal income tax purposes in any taxable year in which, after applying the relevantcertain look-through rules with respect to the income and assets of its subsidiaries, either (1)either: at least 75% or more of its gross income in the taxable year is “passive income,”income”; or (2) at least 50% of the average quarterly value of its total gross assets (which may be determined in part by the market value of our shares, which is subject to change) is attributable to assets that produce “passive income” or are held for the production of or that produce, passive income. Passive income comprise 50% or more of the average of its total asset value in the taxable year. Forfor this purpose of the income test, passive incomegenerally includes dividends, interest, royalties, rents, annuitiesgains from commodities and netsecurities transactions, the excess of gains over losses from the disposition of assets which produce passive income. For purposesincome, and includes amounts derived by reason of the assets test, assets held for the productiontemporary investment of passive income includes assets held for the production of, or that produce dividends, interest, royalties, rents, annuities, and other income includedfunds raised in the income test. In determining whether we meet the assets test, cash is considered a passive asset and the total valueofferings of our assets generally will be treated as equal to the sum of the aggregate fair market value of our outstanding stock plus our liabilities.shares. If we owna non-U.S. corporation owns at least 25% (by value)by value of the stock of another corporation, we will bethe non-U.S. corporation is treated for purposes of the PFIC tests as owning ourits proportionate share of the assets of the other corporation’s assetscorporation and as receiving ourdirectly its proportionate share of the other corporation’s income. The income test is conducted at the taxable year-end. The asset test is conducted on a quarterly basis and the quarterly results are then averaged together. If a corporation is treated as a PFIC for any year during a U.S. holder’s holding period and the U.S. holder does not timely elect to treat the corporation as a “qualified electing fund” under Section 1295 of the Code or elect to mark its ordinary shares to market (both as described below), any gain on the disposition of the shares will be treated as ordinary income, rather than capital gain, and the holder will be required to compute its tax liability on that gain, as well as on dividends and other distributions, as if the income had been earned ratably over each day in the U.S. holder’s holding period for the shares. The portion of the gain and distributions allocated to prior taxable years in which a corporation was a PFIC will be ineligible for any preferential tax rate otherwise applicable to any “qualified dividend income” or capital gains, and will be taxed at the highest ordinary income tax rate in effect for each taxable year to which this portion is allocated. An interest charge will be imposed on the amount of the tax allocated to these taxable years. A U.S. holder may elect to treat a corporation as a qualified electing fund only if the corporation complies with requirements imposed by the IRS to enable the shareholder and the IRS to determine the corporation’s ordinary income and net capital gain. Additionally, if a corporation is a PFIC, a U.S. holder who acquires shares in the corporation from a decedent will be denied the normally available step-up in tax basis to fair market value for the shares at the date of death and instead will have a tax basis equal to the decedent’s tax basis if lower than fair market value. These adverse tax consequences associated with PFIC status could result in a material increase in the amount of tax that a U.S. holder would owe and an imposition of tax earlier than would otherwise be imposed and additional tax form filing requirements. Unless otherwise provided by the IRS, if a corporation is classified as a PFIC, a U.S. holder will generally be required to file an informational return annually to report its ownership interest in such entity.
Available Elections. If we become a PFIC for any taxable year, U.S. holders should consider whether or not to elect to treat us as a “qualified electing fund” or to elect to “mark-to-market” their ordinary shares in order to mitigate the adverse tax consequences of PFIC status.
If a U.S. holder makes a qualified electing fund election (a “QEF election”) for its ordinary shares that is effective from the first taxable year that the U.S. holder holds our ordinary shares and during which we are a PFIC, the electing U.S. holder will avoid the adverse consequences of our being classified as a PFIC but will instead be required to include in income a pro rata share of our net capital gain, if any, and other earnings and profits (“ordinary earnings”) as long-term capital gains and ordinary income, respectively, on a current basis, in each case whether or not distributed, in the taxable year of the U.S. holder in which or with which our taxable year ends. A subsequent distribution of amounts that were previously included in the gross income of U.S. holders should not be taxable as a dividend to those U.S. holders who made a QEF Election. In the event we incur a net loss for a taxable year, such loss will not be available as a deduction to an electing U.S. holder, and may not be carried forward or back in computing our net capital gain or ordinary earnings in other taxable years. The tax basis of the shares of an electing U.S. holder generally will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the QEF rules described above. In order to make (or maintain) a QEF election, the U.S. holder must annually complete and file IRS Form 8621. In addition, we must make certain information regarding our net capital gains and ordinary earnings available to the U.S. holder and permit our books and records to be examined to verify such information. Therefore, we will monitor our PFIC status and make a disclosure to our shareholders if we determine that we have become a PFIC. If we are a PFIC for any year and you make a request to us in writing at the address on the cover of our latest Annual Report on Form 20-F, Attention Chief Financial Officer, for the information required to make a QEF election, we will promptly make the information available to you and comply with any other applicable requirements of the Code.
A QEF election, once made with respect to us, applies to the tax year for which it was made and to all subsequent tax years, unless the election is invalidated or the IRS consents to revocation of the election. If you make a QEF election and we cease to be classified as a PFIC in a subsequent tax year, the QEF election will remain in effect, although it will not be applicable during those tax years in which we are not classified as a PFIC. Therefore, if we – after ceasing to be classified as a PFIC – again are classified as a PFIC in any year with respect to which a subsequent tax year,U.S. Holder owns our shares, we will generally continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the QEF electionU.S. Holder owns our shares, regardless of whether we continue to meet the tests described above.We believe that we were a PFIC in 2017 and 2018 and, based on estimates of our gross income and gross assets, our intended use of the proceeds of from our February 2019 initial public offering, and the nature of our business, we believe that we will be effective and you will again be subject to the rules described above for U.S. holders making QEF elections in such tax year and any subsequent tax years in which we are classified as a PFIC. A QEF election also remainsPFIC for the taxable year ending December 31, 2019. Because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine with certainty whether we will be characterized as a PFIC for the 2019 taxable year until after the close of the year. Moreover, we must determine our PFIC status annually based on tests which are factual in effect even after you dispose of all of your directnature, and indirect interestour status in future years will depend on our income, assets and activities in those years. In addition, our status as a PFIC may depend on how quickly we utilize the cash proceeds from our February 2019 initial public offering in our ordinary shares. As a result, if you subsequently acquire anybusiness. U.S. Holders should be aware of our ordinary sharescertain tax consequences of investing directly or an interestindirectly in us in any of our ordinary shares, you will again be subject to the rules described above for U.S. holders making a QEF election for each tax year in which we are classifieda PFIC. A U.S. Holder is subject to different rules depending on whether the U.S. Holder makes a “mark-to-market” election with respect to our shares (if such election is available). We do not intend to provide information necessary for U.S. holders to make qualified electing fund elections, known as a PFIC. Alternatively,QEF election, which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described below.
Mark-to-market election. If our shares are treated as “marketable stock,” a U.S. holder electsHolder would be allowed to make a “mark-to-market” its ordinaryelection with respect to our shares, provided the U.S. holder willHolder completes the relevant portions of and files IRS Form 8621 in accordance with the instructions thereto. If that election is made, the U.S. Holder generally would include as ordinary income in its incomeeach taxable year the excess, if any, excess of the fair market value of our ordinarythe shares at the closeend of eachthe taxable year over thesuch holder’s adjusted tax basis in suchthe shares. The U.S. Holder would also be permitted an ordinary shares. If a U.S. holder makes a valid mark-to-market election with respect to our ordinary shares for the first taxable year of the U.S. holder in which the U.S. holder holds (or is deemed to hold) our ordinary shares and for which we are determined to be a PFIC, such holder generally will not be subject to the PFIC rules described aboveloss in respect to its common shares. A U.S. holder generally will be allowed an ordinary deduction forof the excess, if any, of the adjusted tax basis of the ordinary shares over the fair market value of the ordinary shares as of the close of the taxable year, or the amount of any net mark-to-market gains recognized for prior taxable years, whichever is less. A U.S. holder’sHolder’s adjusted tax basis in the ordinary shares will generallyover their fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s tax basis in the shares would be adjusted to reflect the amounts includedany such income or deducted under the mark-to-market election. Additionally, any gainloss amount. Gain realized on the actual sale, exchange or other disposition of our shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the ordinary shares generally willwould be treated as ordinary income. Ordinary loss treatment also will apply to any loss recognized on the actual sale or other disposition of ordinary shares to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included in income by the U.S. Holder, and any loss in excess of such amount will be treated as capital loss. Amounts treated as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. Generally, our shares will be considered marketable stock if they are “regularly traded” on a “qualified exchange” within the meaning of applicable Treasury Regulations. Our shares will be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of the shares are traded on a qualified exchange on at least 15 days during each calendar quarter. The Nasdaq Capital Market is a qualified exchange for this purpose. Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the tax and interest charge rules discussed above with respect to such ordinary shares. A mark-to-marketholder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes, including stock in any of our company’s subsidiaries that are treated as PFICs. If a U.S. Holder makes a mark-to market election, applies toit will be effective for the taxtaxable year for which the election is made and to eachall subsequent year,taxable years unless our ordinary shares cease to be marketable, as specifically defined,are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. No view is expressed regarding whether our ordinary shares are marketable for these purposes or whether the election will be available. If
Default PFIC rules. A U.S. Holder who does not make a U.S. holder makes either the QEF election or thetimely mark-to-market election distributions and gain will not be recognized ratably over the U.S. holder’s holding period or be subject(or, if available, a timely qualified electing fund election), referred to an interest charge as described above. Further, the denial of basis step-up at death described above will not apply. If a U.S. holder elects to treat usin this disclosure as a “qualified electing fund,” gain on the sale of the ordinary shares will be characterized as capital gain. However,“Non-Electing U.S. holders making one of these two elections may experience current income recognition, even if we do not distribute any cash. The elections must be made with the U.S. holder’s federal income tax return for the year of election, filed by the due date of the return (as it may be extended) or, under certain circumstances provided in applicable Treasury Regulations, subsequent to that date. A NUMBER OF SPECIFIC RULES AND REQUIREMENTS APPLY TO BOTH THE QEF ELECTION AND THE MARK-TO-MARKET ELECTION, AND YOU ARE URGED TO CONSULT YOUR TAX ADVISOR CONCERNING OUR PFIC STATUS AND THE VARIOUS ELECTIONS YOU CAN MAKE.
New Legislation regarding Medicare Tax
For taxable years beginning after December 31, 2012, a U.S. holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax,Holder,” will be subject to a 3.8% taxspecial rules with respect to (a) any “excess distribution” (generally, the portion of any distributions received by the Non-Electing U.S. Holder on the lesser of (1) the U.S. holder’s “net investment income” for the relevantshares in a taxable year and (2) thein excess of 125% of the average annual distributions received by the Non-Electing U.S. Investor’s modified adjusted gross income for the taxable year over a certain threshold (which,Holder in the case of individuals, will be between $125,000three preceding taxable years, or, if shorter, the Non-Electing U.S. Holder’s holding period for his shares), and $250,000 depending(b) any gain realized on the individual’s circumstances). A U.S. holder’s “net investment income” may generally include its dividend income and its net gains from the disposition of shares, unless such dividends or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a U.S. holder that is an individual, estate or trust, you are urged to consult your tax advisors regarding the applicability of the Medicare tax to your income and gains in respect of your investment in the shares.
Withholdable Payments to Foreign Financial Entities and Other Foreign Entities
A non-U.S. holder may be subject to a U.S. federal withholding tax at a rate of 30% on certain payments made beginning January 1, 2014 to certain non-U.S. entities if certain disclosure requirements related to U.S. accounts maintained by, or the U.S. ownership of, the non-U.S. holder are not satisfied. Such payments would include U.S.-source dividends and the gross proceeds from the sale or other disposition of such shares. Under these rules:the excess distribution or gain would be allocated ratably over the Non-Electing U.S. Holder’s holding period for the Shares; the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. If a Non-Electing U.S. Holder who is an individual dies while owning our ordinary shares, the Non-Electing U.S. Holder’s successor would be ineligible to receive a step-up in tax basis of the shares. Non-Electing U .S. Holders are encouraged to consult their tax advisors regarding the application of the PFIC rules to their specific situation. To the extent a distribution on our shares does not constitute an excess distribution to a Non-Electing U.S. Holder, such Non-Electing U.S. Holder generally will be required to include the amount of such distribution in gross income as a dividend to the extent of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) that can produce U.S.-source dividends. Non-U.S. holders shouldare not allocated to excess distributions. The tax consequences of such distributions are discussed above under “Taxation and Government Programs — U.S. Federal Income Tax Consequences — Taxation of Dividends and Other Distributions on Our Shares.” Each U.S. Holder is encouraged to consult its own tax advisor with respect to the appropriate U.S. federal income tax treatment of any distribution on our shares. In any year in which are a PFIC, the general tax treatment for U.S. Holders described in this section would apply to indirect distributions and gains deemed to be realized by U.S. Holders in respect of any of our subsidiaries that also may be determined to be PFICs. The U.S. federal income tax rules relating to PFICs are complex. U.S. Holders are urged to consult their own tax advisors regardingwith respect to the effect, if any, of such withholding taxes on theirpurchase, ownership and disposition of our ordinaryshares, any elections available with respect to such shares and the IRS information reporting obligations with respect to the purchase, ownership and disposition of our shares. United States InformationCertain Reporting and Backup Withholding In general,RequirementsCertain U.S. holdersHolders may be subjectrequired to certainfile IRS Form 926, Return by U.S. Transferor of Property to a Foreign Corporation, and IRS Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, reporting transfers of cash or other property to us and information reporting requirements under the Code relating to their purchase and/or ownershipthe U.S. Holder and us. Substantial penalties may be imposed upon a U.S. Holder that fails to comply. Each U.S. Holder should consult its own tax advisor regarding these requirements. Furthermore, certain U.S. Holders owning “specified foreign financial assets” with an aggregate value in excess of stock of$50 thousand (and in some circumstances, a foreign corporation such as the Company. Failure to comply with these information reporting requirementshigher threshold) may result in substantial penalties. For example, recently enacted legislation generally requires certain individuals who are U.S. holdersbe required to file IRS Form 8938, Statement of Specified Foreign Financial Assets, with respect to report the ownership of specifiedsuch assets with their tax returns. “Specified foreign financial assets for tax years beginning after March 18, 2010 if the total value of those assets exceeds an applicable threshold amount (subject to certain exceptions). For these purposes, a specifiedassets” generally include any financial accounts maintained by foreign financial asset includesinstitutions, as well as any of the following, but only if they are not onlyheld in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons, which may include our shares, (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties and (iii) interests in foreign entities. The IRS has issued guidance exempting “specified foreign financial assets” held in a financial account (as defined byfrom reporting under this provision (although the Code and applicable Treasury Regulations for these purposes)financial account itself, if maintained by a foreign financial institution, but also any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other thanmay remain subject to this reporting requirement). U.S. Holders are urged to consult their tax advisors regarding the application of these requirements to their ownership of our shares.If a U.S. person andHolder owns shares during any interestyear in which we are a foreign entity, provided that the asset is not held in an account maintained by a financial institution. The minimum applicable threshold amount is generally $50,000 in the aggregate, but this threshold amount varies depending on whether the individual lives inPFIC, the U.S., is married, files a joint income tax return with his or her spouse, etc. Certain domestic entities that are U.S. holders may also Holder will generally be required to file Form 8938 in the near future. U.S. holders are urged to consult with their tax advisors regarding their reporting obligations, including the requirement to filean IRS Form 8938. Dividend8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with respect to our company, generally with the U.S. Holder’s federal income tax return for that year.Backup Withholding Tax and Information Reporting Requirements U.S. backup withholding tax and information reporting requirements may apply to certain payments to certain holders of our shares. Information reporting will generally apply to payments of dividends on, and to proceeds from the sale, exchange or disposalother disposition of, ordinaryour shares made within the United States, or by a U.S. payer or U.S. middleman, to a holder of our shares, other than an exempt recipient (including a payee that is not a U.S. person that provides an appropriate certification and certain other persons). A payer may be subjectrequired to information reporting to the IRS and possible U.S. federalwithhold backup withholding attax from any payments of dividends on, or the rateproceeds from the sale, exchange or other disposition of, 28% (increasingshares within the United States, or by a U.S. payer or U.S. middleman, to 31% for payments made after December 31, 2012). Certain holders (including, among others, corporations) are generally not subject to information reporting and backup withholding. A U.S.a holder, generally will be subject to backup withholdingother than an exempt recipient, if such holder is notfails to furnish its correct taxpayer identification number or otherwise exempt andfails to comply with, or establish an exemption from, such holder: | · | fails to furnish its taxpayer identification number, or TIN, which, for an individual, is ordinarily his or her social security number, |
| · | furnishes an incorrect TIN, |
| · | is notified by the IRS that it is subject to backup withholding because it has previously failed to properly report payments of interest or dividends, or |
| · | fails to certify, under penalties of perjury, that it has furnished a correct TIN and that the IRS has not notified the U.S. holder that it is subject to backup withholding. |
Any U.S. holder who is required to establish exempt status generally must file IRS Form W-9 (“Request for Taxpayer Identification Number and Certification”).
Amounts withheld as backup withholding maytax requirements. Any amounts withheld under the backup withholding rules will be creditedallowed as a credit against athe beneficial owner’s U.S. holder’s federal income tax liability. A U.S. holder may obtain a refund ofliability, if any, and any excess amounts withheld under the backup withholding rules may be refunded, provided that the required information is timely furnished to the IRS.Country of Tax Residence For U.S. federal income tax purposes, a corporation generally is considered tax resident in the place of its incorporation. We are incorporated under the laws of the State of Israel and, therefore, we should be a non-U.S. corporation under this general rule. However, Section 7874 of the Code, contains rules that may result in a foreign corporation being treated as a U.S. corporation for U.S. federal income tax purposes. The application of these rules is complex and there is little guidance regarding certain aspects of their application. Under Section 7874 of the Code, a corporation created or organized outside the United States will be treated as a U.S. corporation for U.S. federal tax purposes when (i) the foreign corporation directly or indirectly acquires substantially all of the properties held directly or indirectly by filinga U.S. corporation, (ii) the appropriate claim for refund withformer shareholders of the acquired U.S. corporation hold at least 80% of the vote or value of the shares of the foreign acquiring corporation by reason of holding stock in the U.S. acquired corporation, and (iii) the foreign corporation’s “expanded affiliated group” does not have “substantial business activities” in the foreign corporation’s country of incorporation relative to its expanded affiliated group’s worldwide activities. For this purpose, “expanded affiliated group” generally means the foreign corporation and all subsidiaries in which the foreign corporation, directly or indirectly, owns more than 50% of the stock by vote and value, and “substantial business activities” generally means at least 25% of employees (by number and compensation), assets and gross income of our expanded affiliated group are based, located and derived, respectively, in the country of incorporation. We do not believe that we should be treated as a U.S. corporation as a result of the Reincorporation under Section 7874 of the Code because we believe that we have substantial business activities in Israel. However, the IRS may disagree with our conclusion on this point. In addition, there could be legislative proposals to expand the scope of U.S. corporate tax residence and furnishing any required information.there could be changes to Section 7874 of the Code or the Treasury Regulations promulgated thereunder that could result in us being treated as a U.S. corporation. If it were determined that we should be treated as a U.S. corporation for U.S. federal income tax purposes, we could be liable for substantial additional U.S. federal income tax on our taxable income since the Reincorporation. THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES. 10.F.F. Dividends and Paying Agents Not applicable G. Statement by Experts Not applicable. 10.G. Statements by Experts
Not applicable.
10.H.H. Documents on Display The documents referred to herein, including the Amended Articles, can be obtained from the Company at its registered office at 8 Hartom St., Jerusalem 9777508, Israel. In addition, the Company isWe are subject to certain informationalthe information reporting requirements of the Securities Exchange Act of 1934applicable to foreign private issuers and the rules and regulations promulgated thereunder. In accordance therewith, the Company filesunder those requirements will file reports with the SEC. ReportsThose reports may be inspected without charge at the locations described below. As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. We maintain a corporate website at www.anchiano.com. We intend to post our Annual Report on Form 20-F on our website promptly following it being filed with the SEC. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report on Form 20-F. We have included our website address in this Annual Report on Form 20-F solely as an inactive textual reference. Our SEC filings are available to you on the SEC’s website at http://www.sec.gov. This site contains reports, proxy and information statements and other information providedregarding issuers that file electronically with the SEC. The information on that website is not part of this Annual Report on Form 20-F. With respect to references made in this Annual Report on Form 20-F to any contract or other document of Anchiano, such references are not necessarily complete and you should refer to the SECexhibits attached or incorporated by reference to this Annual Report on Form 20-F for copies of the actual contract or document. I. Subsidiary Information Not applicable. | ITEM 11. | Quantitative And Qualitative Disclosure On Market Risk |
For quantitative and qualitative information regarding our market risk, see Note 10 to our financial statements. | ITEM 12. | Description Of Securities Other Than Equity Securities |
A. Debt Securities Not applicable. B. Warrants and Rights Pursuant to a Securities Purchase Agreement, we have granted certain of our investors warrants representing our ordinary shares. See “Item 8.—Significant Changes—Shares Issued Due to Price Protection Rights” for more information on these warrants. The warrants have an exercise price of $1.932 per share. The warrants are accounted for as a liability derivative instrument because the warrants can be exercised on a non-cash basis. C. Other Securities Not applicable. D. American Depositary Shares The Bank of New York Mellon is the depositary of the ADSs. Each ADS represents five ordinary shares (or a right to receive five ordinary shares) deposited with Bank Leumi or Bank Hapoalim, as custodian for the depositary in Israel. Each ADS will also represent any other securities, cash or other property which may be held by the Company may be inspecteddepositary. The depositary’s office at which the ADSs are administered and copiedits principal executive office are located at 240 Greenwich Street, New York, New York 10286. A deposit agreement among us, the public reference facilities maintained bydepositary, ADS holders and all other persons indirectly or beneficially holding ADSs sets out ADS holder rights as well as the SEC at Room 1024, 100 Fifth Street, N.E., Washington, D.C. 20549. Information on the operationrights and obligations of the public reference facilities may be obtained by callingdepositary. New York law governs the SEC at 1-800-SEC-0330. In addition, certaindeposit agreement and the ADSs. A copy of the Company’s reportsdeposit agreement has been filed as Exhibit 4.1 to our current report on Form 6-K filed with the SEC are available on-line at www.sec.gov. 10.I. Subsidiary Information
Not applicable.
Market risk is incorporated by reference herein.
Fees and Expenses Pursuant to the risk that changes in market prices,terms of the deposit agreement, the holders of the ADSs will be required to pay the following fees: Persons depositing or withdrawing ordinary
shares or ADS holders must pay | | For: | | $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | | Issuance of ADSs, including issuances resulting from a distribution of ordinary shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | | | | | $.05 (or less) per ADS | | Any cash distribution to ADS holders | | | | | A fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary shares had been deposited for issuance of ADSs | | Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders | | | | | $.05 (or less) per ADS per calendar year | | Depositary services | | | | | Registration or transfer fees | | Transfer and registration of ordinary shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw ordinary shares | | | | | Expenses of the depositary | | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
Converting foreign currency to U.S. dollars | | | | | Taxes and other governmental charges the depositary or the custodian have to pay on any ADSs or ordinary shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes | | As necessary | | | | | Any charges incurred by the depositary or its agents for servicing the deposited securities | | As necessary |
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency or other service providers that are owned by or affiliated with the depositary and that may earn or share fees, spreads or commissions. The depositary may convert foreign currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as an agent, fiduciary or broker on behalf of any other person and earns revenue, including, without limitation, fees and spreads that it will retain for its own account. The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be most favorable to ADS holders, subject to its obligations under the deposit agreement. The methodology used to determine exchange rates consumer price indices, interest rates and prices of equity instruments, will affect the Company's revenues or the value of its holdingsused in financial instruments. The goal of market risk managementcurrency conversions is to manage and monitor exposure to market risks within accepted parameters, while maximizing yields. | i. | Currency risk: The Company is exposed to currency risk mainly from purchases for development expenditures that are denominated in U.S. Dollars. Therefore, the Company is exposed to volatility in the U.S. Dollar/NIS exchange rate and takes action to reduce the currency risk by retaining the liquid resources in its possession according to its future needs. |
| ii. | Interest rate risk: In view of the investment of the Company's cash balances in short-term shekel and dollar deposits, the Company is exposed to the risk of a falling NIS and/or U.S. Dollar interest rate – which would cause the reinvestment of cash balances in deposits yielding lower interest rates. |
Item 12. Description of Secuavailable upon request.rities Other than Equity Securities
Not applicable.
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
| ITEM 13. | Defaults, Dividend Arrearages and Delinquencies |
Not applicable. Item 14. Material Modification | ITEM 14. | Material Modifications To The Rights Of Security Holders And Use Of Proceeds |
Initial Public Offering In February 2019, we sold 2,652,174 ADSs, each representing five ordinary shares, no par value, in our initial public offering at a public offering price of $11.50 per ADS, for aggregate gross proceeds of $30.5 million. The net offering proceeds to us, after deducting underwriting discounts and commissions totaling approximately $2.1 million and offering expenses totaling approximately $1.6 million, was approximately $26.8 million. The effective date of the Rightsregistration statement on Form F-1 (File No. 333-229155) for our initial public offering of Security HoldersADSs was February 11, 2019. The offering priced on February 12, 2019 and Useclosed on February 14, 2019. Oppenheimer & Co. Inc. acted as the sole book-running manager of Proceedsthe offering and as representative of the underwriters. None.
The net proceeds from our initial public offering are held in cash and cash equivalents and we expect it will meet our capital requirements until the second quarter of 2020. Specifically, we intend to use approximately 75% of the net proceeds from our initial public offering to advance our Phase 2 program for our lead product candidate, inodiftagene. None of the net proceeds of our initial public offering were paid directly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities, or to any of our affiliates. Item 15. Controls and Procedures
15(a) Disclosure Controls and Procedures
Based on | ITEM 15. | Controls And Procedures |
We have performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that the material financial and non-financial information required to be disclosed to the SEC is recorded, processed, summarized and reported timely. Based on our evaluation, our management, including our chief executive officer and chief financial officer, has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) orand 15d-15(e) of the Securities Exchange Act of 1934,Act) as amended (the "Exchange Act")) required by paragraph (b) of Rule 13a-15 or Rule 15d-15 of the Exchange Act, asend of December 31, 2012 our Chief Executive Officer and Controller (principal financial officer) have concludedthe period covered by this report are effective. Notwithstanding the foregoing, there can be no assurance that our disclosure controls and procedures were effective in ensuring thatwill detect or uncover all failures of persons within the Company to disclose material information otherwise required to be disclosed by usset forth in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our Chief Executive Officer and Controller also concluded that, as of December 31, 2012 our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Controller, as appropriate, to allow timely decisions regarding required disclosure. 15(b) Management's Annual Report on Internal Control Over Financial Reporting
This annual report does not include a report of management's assessment regarding internal control over financial reporting due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.
15(c) Attestation Report of the Registered Public Accounting Firm
reports.This Annual Report on Form 20-F does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’scompany’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange CommissionSEC for newly public companies. 15(d) ChangesOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Internal Control Over Financial Reporting DuringRule 13a-15(f) promulgated under the year ended December 31, 2012, thereExchange Act. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation and may not prevent or detect misstatements. Also, 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 policies or procedures may deteriorate.There were no changes in our internal control over financial reporting identified in connection withthat occurred during the evaluation requiredperiod covered by paragraph (d) of Rule 13a-15 or Rule 15d-15 of the Exchange Actthis Annual Report on Form 20-F that hashave materially affected, or isthat are reasonably likely to materially affect, our internal control over financial reporting. Item 16.A. Audit Committee Financial Expert | ITEM 16A. | Audit Committee Financial Expert |
Our Boardboard of directors has determined that all members of our audit committee are auditfinancially literate as determined in accordance with Nasdaq rules and that Mr. Dennison Veru and Ms. Efrat Makov are qualified to serve as “audit committee financial experts,experts” as defined by Item 16ASEC rules. We have adopted an Unethical Conduct Reporting Procedure (the “Code of Conduct”) that is applicable to all of the Annual Report on Form 20-F. Item 16.B.directors, executives, employees and independent contractors of the Company. A copy of the Code of Ethics
The Company has adopted a Code of Ethics (as such term is defined in Item 406 of Regulation S-K). The Code of EthicsConduct is available on the Company’sour website at www.biocancell.com, and in print to any shareholder who requests it.www.anchiano.com. The audit committee of our board of directors is responsible for overseeing the Code of Ethics appliesConduct and must approve any waivers of the Code of Conduct for directors, executives, employees and independent contractors. We expect that any amendments to the Company’s employees, officers and members of the Board. The Code of Ethics has been designed to deter wrongdoing and to promote:
Conduct will be disclosed on our website.| 96 | (1) | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| (2)ITEM 16C. | Full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in other public communications made by the Company; Principal Accountant Fees And Services |
| (3) | Compliance with applicable governmental laws, rules and regulations; |
| (4) | The prompt internal reporting or violations of the Code of Ethics to an appropriate person or persons identified in the Code of Ethics; and |
| (5) | Accountability for adherence to the Code of Ethics. |
Item 16.C. Principal Accountant Fees and ServicesFees Paid to Independent Registered Public Accounting Firm Our auditors for the year ended December 31, 20122018 and 20112017 were Somekh Chaikin, Certified Public Accountants (Israel), a member firm of KPMG International. We expect that Somekh Chaikin will serve as our auditors for fiscal year 2013.2019. All of the services described in the following fee table were pre-approved by the audit committee. | | | Year ended December 31, | | | | | 2017 | | | 2018 | | | | | USD, in thousands | | | | | | | | Audit fees(1) | | | 87 | | | | 187 | | | Audit-related fees(2) | | | 0 | | | | 0 | | | Tax fees(3) | | | 3 | | | | 3 | | | Other fees(4) | | | 0 | | | | 0 | | | Total | | | 90 | | | | 190 | |
| | | 2011 NIS ,000 | | | 2012 NIS ,000 | | Audit fees (1) | | | 687 | | | | 522 | | Audit-related fees (2) | | | - | | | | - | | Tax fees (3) | | | 55 | | | | 18 | | | Total | | | 742 | | | | 540 | |
| (1) | Audit fees consist of fees billed or expected to be billed for the annual audit services engagement and other audit services, which are those services that only the external auditor can reasonably provide, and include the Company audit; statutory audits; comfort letters and consents; attest services; and assistance with and review of documents filed with the TASE and SEC. |
| | | (2) | Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the external auditor, and include consultations concerning financial accounting and reporting standards; internal control reviews of new systems, programs and projects; review of security controls and operational effectiveness of systems; review of plans and control for shared service centers, due diligence related to acquisitions; accounting assistance and audits in connection with proposed or completed acquisitions; and employee benefit plan audits. |
| | | (3) | Tax fees include fees billed for tax compliance services that were rendered during the most recent fiscal year, including the preparation of original and amended tax returns and claims for refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from taxing authority; tax planning services; and expatriate tax planning and services. | | | | (4) | No other fees were billed by Somekh Chaikin to the Company during the years ended December 31, 2018 and 2017. |
All Other Fees
No other fees were billed by Somekh Chaikin to the Company during the years ended December 31, 2012, and 2011.
Pre-Approval Policies and Procedures Consistent with SEC policies and guidelines regarding audit independence, the audit committee is responsible for the pre-approval of all audit and permissible non-audit services provided by our principal independent accountants on a case-by-case basis. During fiscal year 2012,2018, all services provided by Somekh Chaikin were pre-approved by our audit committee, which concluded that the provision of such services by Somekh Chaikin was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. On November 30, 2009, our audit committee adopted a pre-approval policy for services provided by the independent registered public accounting firm. Under that adopted pre-approval policy, our audit committee provides general pre-approval for the provision by the independent registered public accounting firm of services that fall within specified categories (such as statutory audits or financial audit work for subsidiaries, services associated with SEC registration statements and consultations by management as to accounting interpretations) but only up to specified dollar amounts. Any services that exceed the pre-approved dollar limits (subject tode minimis exceptions permitted under applicable rules), or any services that fall outside of the general pre-approved categories, require specific pre-approval by the audit committee. If our audit committee delegates pre-approval authority to one or more of its members, the member would be required to report any pre-approval decisions to our audit committee at its next meeting. All of the audit, audit-related and tax fees incurred with respect to the fiscal year ended on December 31, 20122018 were approved pursuant to our pre-approval policy. Item 16.D. Exemptions from theITEM 16D. Exemptions From The Listing Standards forFor Audit Committees
��
Item 16.E.ITEM 16E. Purchases ofOf Equity Securities By The Issuer And Affiliated Purchasers Not applicable. ITEM 16F. Change In Registrant’s Certifying Accountant Not applicable. ITEM 16G. Corporate Governance Nasdaq Listing Rules and Home Country Practices The Sarbanes-Oxley Act, as well as related rules subsequently implemented by the IssuerSEC, requires foreign private issuers, such as us, to comply with various corporate governance practices. As a foreign private issuer, we are permitted to follow certain Israeli corporate governance practices instead of the Nasdaq rules, provided that we disclose which requirements we are not following and Affiliates Purchasers In 2012, neither the Company nor any affiliated purchaser (as definedequivalent Israeli requirements. Pursuant to the “foreign private issuer exemption”:the quorum for a meeting of shareholders is at least two shareholders present in person, by proxy or by a voting instrument, who hold in the aggregate at least 25% of our issued share capital (and in an adjourned meeting, with some exceptions, any number of shareholders) instead of 33 1⁄3% of our issued share capital as required under the Nasdaq corporate governance rules; we may adopt equity incentive plans and approve material changes to such plans without shareholder approval; in addition, we intend to follow Israeli corporate governance practice in lieu of Nasdaq Rule 5635 (c), which requires shareholder approval prior to an issuance of securities in connection with equity-based compensation to officers, directors, employees or consultants; as opposed to making periodic reports to shareholders and proxy solicitation materials available to shareholders in a manner specified by the SEC and Nasdaq rules, the generally accepted practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website. We will mail such reports to shareholders only upon request; and we will follow Israeli corporate governance practice instead of the Nasdaq requirements to obtain shareholder approval for certain dilutive events (such as issuances that will result in a change of control, certain transactions other than a public offering involving issuances of a 20% or greater interest in us and certain acquisitions of the stock or assets of another company). According to the Companies Law, the management of our business is vested in our Board of Directors. Our Board of Directors may exercise all powers and may take all actions that are not specifically granted to our shareholders. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our Board of Directors. Executive officers are appointed by and serve at the discretion of our Board of Directors, subject to any applicable employment agreements we have entered into with the executive officers. In all other respects, we comply with the rules generally applicable to U.S. domestic companies listed on the Nasdaq. We may in the future decide to use the foreign private issuer exemption with respect to some or all of the other Nasdaq rules. If at any time we cease to be a foreign private issuer under the rules of Nasdaq and the Exchange Act) purchasedAct, as applicable, our board of directors will take all action necessary to comply with the corporate governance rules applicable to domestic U.S. issuers, subject to a permitted “phase-in” period. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the Company’s ordinary shares. Item 16.F. Changesfollowing three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents, (ii) more than 50% of our assets are located in the United States or (iii) our business is administered principally in the United States. Registrant’s Certifying Accountant
None.
Item 16.G. Corporate Governance
Item 16.H.ITEM 16H. Mine Safety Disclosures
DisclosureNot applicable. ItemITEM 17. Financial Statements Not applicable.
The Registrant has responded to Item 18. Financial Statements See pages F-1 through F-47.
18 in lieu of responding to this Item.ITEM 18. Financial Statements See the financial statements beginning on page F-1. The following financial statements and financial statement schedules are filed as part of this Annual Report on Form 20-F together with the report of the independent registered public accounting firm. See Exhibit Index.
Exhibit No. | | Description | | 1.1# | | Anchiano Therapeutics Ltd. Amended and Restated Articles of Association (previously filed as Exhibit 3.2 of amendment no. 4 to our registration statement on Form F-1 (File No. 333-229155) as filed with the SEC on February 11, 2019 and incorporated by reference herein) | | | | | 2.1 | | Deposit Agreement between Anchiano Therapeutics Ltd., the Bank of New York Mellon as Depositary, and owners and holders from time to time of ADSs issued thereunder (previously filed as Exhibit 4.1 to the Company’s Current Report on Form 6-K (File No. 001-38807) as filed with the SEC on February 14, 2019 and incorporated by reference herein) | | | | | 4.1 | | Amended and Restated Exclusive License Agreement between Yissum Research Development Company of the Hebrew University of Jerusalem and the Company, dated November 14, 2005, as amended by Amendment No. 1 dated November 22, 2005, Amendment No. 2 dated September 11, 2007, Amendment No. 3 dated January 24, 2011 and Amendment No. 4 dated November 6, 2013 (previously filed as Exhibit 10.2 of our registration statement on Form F-1 (File No. 333-229155) as filed with the SEC on January 7, 2019 and incorporated by reference herein) | | | | | 4.2† | | Clinical Supply Agreement among BioCancell Therapeutics Israel Ltd., Boehringer Ingelheim Biopharmaceuticals GmbH and Boehringer Ingelheim RCV GmbH & Co KG, dated April 3, 2013 (previously filed as Exhibit 10.3 of amendment no. 2 to our registration statement on Form F-1 (File No. 333-229155) as filed with the SEC on February 5, 2019 and incorporated by reference herein) | | | | | 4.3 | | Master Services Agreement between BioCancell Therapeutics Israel Ltd. and INC Research, LLC dated October 25, 2017 (previously filed as Exhibit 10.5 of our registration statement on Form F-1 (File No. 333-229155) as filed with the SEC on January 7, 2019 and incorporated by reference herein) | | | | | 4.4# | | 2011 Incentive Plan for Employees, Officers and Consultants (previously filed as Exhibit 10.6 of our registration statement on Form F-1 (File No. 333-229155) as filed with the SEC on January 7, 2019 and incorporated by reference herein) | | | | | 4.5# | | Compensation Policy for Officers, dated February 2017 (previously filed as Exhibit 10.7 of our registration statement on Form F-1 (File No. 333-229155) as filed with the SEC on January 7, 2019 and incorporated by reference herein) | | | | | 4.6 | | 2017 Equity-Based Incentive Plan (previously filed as Exhibit 10.8 of our registration statement on Form F-1 (File No. 333-229155) as filed with the SEC on January 7, 2019 and incorporated by reference herein) | | | | | 4.7 | | Information Rights Agreement between Anchiano Therapeutics Ltd. and Clal Biotechnology Industries Ltd., dated December 19, 2018 (previously filed as Exhibit 10.10 of our registration statement on Form F-1 (File No. 333-229155) as filed with the SEC on January 7, 2019 and incorporated by reference herein) | | | | | 8.1 | | List of Subsidiaries (incorporated by reference to Item 4.C of this Form 20-F). | | | | | 12.1 | | Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). | | | | | 12.2 | | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). | | | | | 13.1 | | Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | | | | | 13.2 | | Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | | | | | 101.INS* | | XBRL Instance Document | | | | 101.SCH* | | XBRL Taxonomy Extension Schema Document | | | | | 101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | 101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | 101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document | | | | | 101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
| # | English translation of original Hebrew document. |
| † | Confidential treatment requested as to certain portions, which portions have been separately filed with the SEC |
| * | To be filed by amendment. |
ANCHIANO THERAPEUTICS LTD. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS U.S. DOLLARS IN THOUSANDS Report of Independent Registered Public Accounting Firm
TheREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors and Shareholders of BioCancell Ltd.: ANCHIANO THERAPEUTICS LTD.Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial position of BioCancellAnchiano Therapeutics Ltd. and subsidiary (“the Company”)subsidiaries (the Company) as of December 31, 20122018 and 2011 and2017, the related consolidated statements of operations, changesoperations and other comprehensive loss, change in equity (deficiency), and cash flows for each of the years in the three-year period ended December 31, 2012. These2018, and the related notes (collectively, the consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States)statements). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BioCancell Ltd. and subsidiarythe Company as of December 31, 20122018 and 2011,2017, and the results of theirits operations and theirits cash flows for each of the years in the three-year period ended December 31, 2012,2018, in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Board.Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1B to the consolidated financial statements, the Company has sufferedincurred recurring losses from operations that, together with other matters described in the aforesaid note, raise substantial doubt about its ability to continue as a going concern. Management’sManagement's plans in regard toregarding these mattersissues are also described in Note 1B. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As described in Note 1A,Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company was incorporated forin accordance with the purpose of a reorganization and merger of BioCancell Therapeutics Inc. and its subsidiary, as a result of which the Company became a mirror image of BioCancell Therapeutics Inc. with regard to the Company’s activitiesU.S. federal securities laws and the holdingsapplicable rules and regulations of its shareholders. Somekh Chaikin
Certified Public Accountants (Isr.)
A the Securities and Exchange Commission and the PCAOB.We conducted our audits 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. 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. | /s/ Somekh Chaikin | | | Somekh Chaikin | | | Certified Public Accountants (Isr.) | |
Member Firm of KPMG International
April 23, 2013
BioCancell Ltd.
Consolidated Financial StatementsWe have served as of December 31, 2012
Table of Contents
the Company’s auditor since 2004.Tel Aviv, Israel March 11, 2019
| | Page | Consolidated Financial Statements:F-2 | | | | | | | | | | | | | | | | | | | | | |
Consolidated Statements of Financial Position as ofat December 31,
| | | Note | | | 2012 | | | 2011 | | | | | | | | | | | | Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | | | Receivables and other current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term prepaid expenses | | | | | | | | | | | | | Plan assets in respect of employee benefits, net | | | | | | | | | | | | | Property and equipment, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Short-term employee benefits | | | | | | | | | | | | | Liability for commission to underwriters | | | | | | | | | | | | | Liability for repayment of grant | | | | | | | | | | | | | Convertible notes payable | | | | | | | | | | | | | | | | | | | | | | | | | | | Total current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liability for repayment of grant | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total non-current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Contingent liabilities and commitments | | | | | | | | | | | | | | | | | | | | | | | | | | | Stockholders' equity (deficit) | | | | | | | | | | | | | | | | | | | | | | | | | | Additional paid-in capital | | | | | | | | | | | | | Capital reserve for share-based payments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total stockholders' equity (deficit) | | | | | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and stockholders' equity | | | | | | | | | | | | |
| | | Note | | 2018 | | | 2017 | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | 4 | | | 7,517 | | | | 1,454 | | | Receivables | | 5 | | | 3,403 | | | | 400 | | | | | | | | | | | | | | | Total current assets | | | | | 10,920 | | | | 1,854 | | | Non-current assets | | | | | | | | | | | | Long-term prepaid expenses | | | | | 1,115 | | | | 11 | | | Long-term pledged deposits | | | | | 120 | | | | - | | | Asset for employee benefits, net | | | | | 34 | | | | 3 | | | Fixed assets, net | | | | | 385 | | | | 219 | | | | | | | | | | | | | | | Total non-current assets | | | | | 1,654 | | | | 233 | | | | | | | | | | | | | | | Total assets | | | | | 12,574 | | | | 2,087 | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | Trade payables | | | | | 396 | | | | 160 | | | Other payables | | 6 | | | 2,021 | | | | 2,381 | | | Short-term employee benefits | | | | | 644 | | | | 155 | | | Derivative instruments | | 8,10 | | | 6,975 | | | | - | | | | | | | | | | | | | | | Total current liabilities | | | | | 10,036 | | | | 2,696 | | | Non-current liabilities | | | | | | | | | | | | Derivative instruments | | 8,10 | | | 3,628 | | | | - | | | Total non-current liabilities | | | | | 3,628 | | | | - | | | | | | | | | | | | | | | Total liabilities | | | | | 13,664 | | | | 2,696 | | | | | | | | | | | | | | | Contingent liabilities and commitments | | 7 | | | | | | | | | | | | | | | | | | | | | | Equity | | 8 | | | | | | | | | | Share capital | | | | | | | | | | | | Additional paid-in capital | | | | | 70,595 | | | | 60,043 | | | Currency translation differences reserve | | | | | 872 | | | | 457 | | | Capital reserve from share-based payments | | 9 | | | 3,566 | | | | 1,767 | | | Accumulated loss | | | | | (76,123 | ) | | | (62,876 | ) | | | | | | | | | | | | | | Total equity (deficiency) | | | | | (1,090 | ) | | | (609 | ) | | | | | | | | | | | | | | Total liabilities and equity | | | | | 12,574 | | | | 2,087 | |
/s/ Dr. Stephen Hoffman | | /s/ Dr. Frank Haluska | | /s/ Jonathan Burgin | | | Aharon SchwartzDr. Stephen Hoffman | | Dr. Frank Haluska | | Jonathan Burgin | | Or Dolev | | Chairman of the Board | | Chief Executive Officer | | ControllerChief Operating Officer & Chief Financial Officer | | |
Approval dateDate of approval of the financial statements: April 23, 2013 March 11, 2019The accompanying notes formare an integral part of thesethe consolidated financial statements.
Consolidated Statements of Operations for the Year Ended December 31,
NIS$ thousands (unless stated otherwise)
| | | Note | | | 2012 | | | 2011 | | | 2010 | | | | | | | | | | | | | | | | Research and development expenses | | | | | | | | | | | | | | | | Less: Chief Scientist and BIRD Foundation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Research and development expenses, net | | | | | | | | | | | | | | | | | General and administrative expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net change in fair value of financial | | | | | | | | | | | | | | | | | instruments designated as fair value | | | | | | | | | | | | | | | | | through the Statement of Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Finance expense (income), net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stockholders of the Company | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic and fully-diluted loss | | | | | | | | | | | | | | | | |
(other than per share amounts)| | | Note | | 2018 | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | Research and development expenses | | 11 | | | 7,559 | | | | 6,229 | | | | 2,384 | | | General and administrative expenses | | 12 | | | 5,485 | | | | 3,163 | | | | 2,258 | | | | | | | | | | | | | | | | | | | Operating loss | | | | | 13,044 | | | | 9,392 | | | | 4,642 | | | | | | | | | | | | | | | | | | | Financing income | | 13 | | | (1,127 | ) | | | (1 | ) | | | (44 | ) | | Financing expenses | | 13 | | | 741 | | | | 92 | | | | 7 | | | | | | | | | | | | | | | | | | | Financing (income) expenses, net | | | | | (386 | ) | | | 91 | | | | (37 | ) | | | | | | | | | | | | | | | | | | Loss before income tax | | | | | 12,658 | | | | 9,483 | | | | 4,605 | | | | | | | | | | | | | | | | | | | Income tax | | 14 | | | 621 | | | | 323 | | | | 137 | | | | | | | | | | | | | | | | | | | Net loss | | | | | 13,279 | | | | 9,806 | | | | 4,742 | | | | | | | | | | | | | | | | | | | Loss per share (in $): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic and diluted loss | | 15 | | | 1.05 | | | | 1.09 | | | | 0.87 | |
The accompanying notes formare an integral part of thesethe consolidated financial statements.
Anchiano Therapeutics Ltd. Consolidated Statements of Operations and Other Comprehensive Loss for the Year Ended December 31, $ thousands | | | 2018 | | | 2017 | | | 2016 | | | | | | | | | | | | | | Loss for the year | | | 13,279 | | | | 9,806 | | | | 4,742 | | | Other comprehensive income items that will not be transferred to statement of operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | Re-measurement of defined benefit plan | | | (32 | ) | | | - | | | | - | | | | | | | | | | | | | | | | | Currency translation differences | | | (415 | ) | | | (260 | ) | | | (12 | ) | | | | | | | | | | | | | | | | Total comprehensive loss for the year | | | 12,832 | | | | 9,546 | | | | 4,730 | |
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Changes in Equity for the Year Ended December 31,(Deficiency)
| | | Common | | | Additional paid-in | | | Capital reserve for share-based | | | Accumulated | | | Total stock-holders' | | | | | stock | | | capital | | | payments | | | deficit | | | equity | | Balance as of January 1, 2012 | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conversion of convertible notes payable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of January 1, 2011 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2011 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of January 1, 2010 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2010 | | | | | | | | | | | | | | | | | | | | |
| | | Share capital* | | | Additional paid-in
capital | | | Currency
translation
differences
reserve | | | Capital reserve
from share-
based payments | | | Accumulated
loss | | | Total equity
(deficiency) | | | | | | | | | | | | | | | | | | | | | | | Balance as at January 1, 2018 | | | - | | | | 60,043 | | | | 457 | | | | 1,767 | | | | (62,876 | ) | | | (609 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of shares, net | | | - | | | | 10,419 | | | | - | | | | - | | | | - | | | | 10,419 | | | Exercise of share options | | | - | | | | 7 | | | | - | | | | (1 | ) | | | - | | | | 6 | | | Expiration of options | | | - | | | | 126 | | | | - | | | | (126 | ) | | | - | | | | - | | | Share-based payment | | | - | | | | - | | | | - | | | | 1,926 | | | | - | | | | 1,926 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | - | | | | 10,552 | | | | - | | | | 1,799 | | | | - | | | | 12,351 | | | Comprehensive income for the year | | | - | | | | - | | | | 415 | | | | - | | | | 32 | | | | 447 | | | Loss for the year | | | - | | | | - | | | | - | | | | - | | | | (13,279 | ) | | | (13,279 | ) | | Total comprehensive income (loss) for the year | | | - | | | | - | | | | 415 | | | | - | | | | (13,247 | ) | | | (12,832 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as at December 31, 2018 | | | - | | | | 70,595 | | | | 872 | | | | 3,566 | | | | (76,123 | ) | | | (1,090 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as at January 1, 2017 | | | - | | | | 54,983 | | | | 197 | | | | 1,186 | | | | (53,070 | ) | | | 3,296 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of shares, net | | | - | | | | 4,911 | | | | - | | | | - | | | | - | | | | 4,911 | | | Expiration of options | | | - | | | | 149 | | | | - | | | | (149 | ) | | | - | | | | - | | | Share-based payment | | | - | | | | - | | | | - | | | | 730 | | | | - | | | | 730 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | - | | | | 5,060 | | | | - | | | | 581 | | | | - | | | | 5,641 | | | Comprehensive income for the year | | | - | | | | - | | | | 260 | | | | - | | | | - | | | | 260 | | | Loss for the year | | | - | | | | - | | | | - | | | | - | | | | (9,806 | ) | | | (9,806 | ) | | Total comprehensive income (loss) for the year | | | - | | | | - | | | | 260 | | | | - | | | | (9,806 | ) | | | (9,546 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as at December 31, 2017 | | | - | | | | 60,043 | | | | 457 | | | | 1,767 | | | | (62,876 | ) | | | (609 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as at January 1, 2016 | | | - | | | | 49,334 | | | | 185 | | | | 948 | | | | (48,328 | ) | | | 2,139 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of shares, net | | | - | | | | 5,617 | | | | - | | | | - | | | | - | | | | 5,617 | | | Expiration of options | | | - | | | | 32 | | | | - | | | | (32 | ) | | | - | | | | - | | | Share-based payment | | | - | | | | - | | | | - | | | | 270 | | | | - | | | | 270 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | - | | | | 5,649 | | | | - | �� | | | 238 | | | | - | | | | 5,887 | | | Comprehensive income for the year | | | - | | | | - | | | | 12 | | | | - | | | | - | | | | 12 | | | Loss for the year | | | - | | | | - | | | | - | | | | - | | | | (4,742 | ) | | | (4,742 | ) | | Total comprehensive income (loss) for the year | | | - | | | | - | | | | 12 | | | | - | | | | (4,742 | ) | | | (4,730 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as at December 31, 2016 | | | - | | | | 54,983 | | | | 197 | | | | 1,186 | | | | (53,070 | ) | | | 3,296 | |
* See Note 8. The accompanying notes formare an integral part of thesethe consolidated financial statements. Consolidated Statements of Cash Flows for the Year Ended December 31,
| | | 2012 | | | 2011 | | | 2010 | | Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation of property and equipment | | | | | | | | | | | | | Amortization of intangible assets | | | | | | | | | | | | | | | | | | | | | | | | | | Change in receivables and other current assets | | | | | | | | | | | | | Change in trade accounts payable | | | | ) | | | | | | | | | | | | | ) | | | | | | | | | Change in employee provisions and benefits | | | | ) | | | | | | | | | Change in long-term prepaid expenses | | | | | | | | | | | | | Change in liability for repayment of grant | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash used in operating activities | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in short-term deposits | | | | | | | | | | | | | Purchase of property and equipment | | | | | | | | | | | | | Purchase of intangible assets | | | | | | | | | | | | | Proceeds from sale of property and equipment | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash provided by (used in) investing activities | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | | | | | | | | Short-term loans from controlling party | | | | | | | | | | | | | Repayment of short-term loans from controlling party | | | | | | | | | | | | | Withholding tax in respect of Convertible Notes | | | | ) | | | | | | | | | Proceeds from exercise of options | | | | | | | | | | | | | Proceeds from issuance of stock | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | Net cash provided by financing activities | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents balance at beginning of year | | | | | | | | | | | | | | | | | | | | | | | | | | | Effect of currency exchange rate on cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents at end of year | | | | | | | | | | | | |
| | | Note | | 2018 | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loss for the year | | | | | (13,279 | ) | | | (9,806 | ) | | | (4,742 | ) | | Financing costs, net | | | | | (641 | ) | | | 259 | | | | 55 | | | Depreciation | | | | | 66 | | | | 51 | | | | 41 | | | Share-based payments | | 9 | | | 1,926 | | | | 730 | | | | 270 | | | Taxes on income | | 14 | | | 621 | | | | 323 | | | | 137 | | | Change in receivables | | 5 | | | (3,496 | ) | | | 204 | | | | 116 | | | Change in trade payables | | | | | 287 | | | | 44 | | | | (491 | ) | | Change in other payables | | 6 | | | (343 | ) | | | 46 | | | | 940 | | | Change in employee benefits | | | | | 526 | | | | (2 | ) | | | (60 | ) | | Change in long-term prepaid expenses | | | | | (156 | ) | | | (3 | ) | | | 1 | | | Taxes paid | | | | | (244 | ) | | | (362 | ) | | | - | | | Interest paid | | | | | (22 | ) | | | - | | | | - | | | Interest received | | 13 | | | 11 | | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | Net cash used in operating activities | | | | | (14,744 | ) | | | (8,515 | ) | | | (3,732 | ) | | | | | | | | | | | | | | | | | | Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in other investment | | | | | - | | | | - | | | | 153 | | | Change in long pledged deposits | | | | | (125 | ) | | | - | | | | - | | | Purchase of fixed assets | | | | | (213 | ) | | | (34 | ) | | | (75 | ) | | | | | | | | | | | | | | | | | | Net cash (used in) provided by investing activities | | | | | (338 | ) | | | (34 | ) | | | 78 | | | | | | | | | | | | | | | | | | | Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Proceeds from issuance of shares | | 8 | | | 10,911 | | | | 5,665 | | | | 6,503 | | | Receipt of loan | | | | | 4,050 | | | | - | | | | - | | | Repayment of loan | | | | | (4,033 | ) | | | - | | | | - | | | Proceeds from issuance of warrants and derivative instruments | | | | | 11,989 | | | | - | | | | - | | | Issuance costs | | | | | (1,755 | ) | | | (423 | ) | | | (440 | ) | | | | | | | | | | | | | | | | | | Net cash provided by financing activities | | | | | 21,162 | | | | 5,242 | | | | 6,063 | | | | | | | | | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | | | 6,080 | | | | (3,307 | ) | | | 2,409 | | | | | | | | | | | | | | | | | | | Cash and cash equivalents at the beginning of the year | | | | | 1,454 | | | | 4,564 | | | | 2,203 | | | | | | | | | | | | | | | | | | | Effect of exchange rate differences on cash and cash equivalents | | | | | (17 | ) | | | 197 | | | | (48 | ) | | | | | | | | | | | | | | | | | | Cash and cash equivalents at the end of the year | | 4 | | | 7,517 | | | | 1,454 | | | | 4,564 | |
The accompanying notes are an integral part of the consolidated financial statements. Non-cash financing and investment activities (see Note 10D)
| | | | | | | | | | | | | | | | | | | | | Repayment of convertible note payable to controlling party
| | | (9,915 | ) | | | - | | | | - | | Proceeds from stock issuance to controlling party
| | | 9,915 | | | | - | | | | - | | Conversion of convertible notes payable
| | | 4,427 | | | | - | | | | -F-7 | |
The accompanying notes form an integral part of these financial statements.
Notes to the Consolidated Financial Statements in IFRS for the Year Ended December 31, 2012
Note| Notes to the Consolidated Financial Statements as at December 31, 2018 |
NOTE 1 – General GENERAL | A. | The Company wasis incorporated and registered in Israel on September 22, 2011 underIsrael. In August 2018, the Companies Law, 1999 (hereafter – "the Companies Law"Company changed its name to Anchiano Therapeutics Ltd. (the “Company”), as a private company limited in shares named formerly BioCancell Ltd. (hereafter – "the Company"). ItsThe official address of the Company is 8 Hartom Street in1/3 High Tech-Village, Edmond J. Safra Campus, Givat Ram, Jerusalem. The Company is a direct subsidiary of Clal Biotechnology Industries Ltd. ("CBI"began trading American Depositary Shares (“ADSs”), and its ultimate parent company is Clal Industries Ltd. |
The Company was founded for the purposeeach representing five ordinary shares, no par value of the reorganization of BioCancell Therapeutics Inc. (hereafter – "BioCancell U.S.") (a company engaged in the development of drugs to treat cancer), which included a reverse (three-way) merger (hereafter – "the Merger"), as a result of which the stockholders of BioCancell U.S. received shares of the Company (which then held all of the issued capital of BioCancell U.S.) in consideration for their shares of BioCancell U.S.
| | On the Merger date, August 14, 2012 (prior to which the Company had no activity)(the “ordinary shares”), trading commencedon the Nasdaq Capital Market in Febuary 2019, while its ordinary shares have traded on the Tel Aviv Stock Exchange (TASE) in the shares and Series 1 and 2 warrants of the Company, as detailed below.since 2006. |
| | The Merger did not include any change in the operations of BioCancell U.S. (or in its subsidiary) or in the stockholding percentage of the existing stockholders in BioCancell U.S. As of the closing of the Merger, the Company became a mirror image of BioCancell U.S. in all that relates to the Company's operations and the stockholding percentages of its stockholders. |
| | With the execution of the allotment of the Company's shares to the present stockholding public of BioCancell U.S., against the transfer of their holdings in BioCancell U.S. to the Company, the Company became a public company, as defined in the Companies Law, which reports in accordance with the provisions of Chapter VI of the Securities Law. |
| | Under the terms of the Merger, additional securities that BioCancell U.S. allotted were also exchanged, as follows: (a) Series 3 and Series 4 warrants were exchangedThe Company wholly owns a subsidiary, Anchiano Therapeutics Israel Ltd. (formerly BioCanCell Therapeutics Israel Ltd.), which itself wholly owns a Delaware-incorporated subsidiary, Anchiano Therapeutics, Inc. (formerly BioCanCell USA, Inc.) for warrants of the Company (Series 1 and 2); (b) options in the employee options plans from 2004 and 2007 for compensation to employees, directors and consultants, exercisable for shares of BioCancell U.S., were exchanged for option warrants exercisable for shares of the Company; and (c) non-tradable warrants that were allotted to private investors in 2008 and 2010 were exchanged for non-tradable warrants, exercisable for the Company's shares. |
| | Since the Company purchased the shares from BioCancell U.S. and since the Company cannot be deemed a buyer, the purchase was not deemed a business combination under International Financial Reporting Standard No. 3 (IFRS 3R). Accordingly, the Company treated the purchase in a manner similar to a pooling of interests (“as pooling”). The Company prepared consolidated financial statements in which the merger was reflected as though it had always been executed, essentially reflecting post-merger accounting treatment. |
On December 28, 2012, the Secretarypurposes of operating in the United States. This subsidiary is subject to the tax laws of the State of Delaware approved BioCancell U.S.’s certificateDelaware.On February 14, 2019, the Company closed an initial public offering of dissolution. BioCancell Therapeutics Israel Ltd.2,652,174 ADSs, each representing five ordinary shares of the Company (in total, 13,260,870 ordinary shares), BioCancell U.S.’ fully-owned subsidiary, becameat $11.50 per ADS, resulting in gross proceeds of $30.5 million. The ADSs trade on the Nasdaq Capital Market under the symbol “ANCN.” The underwriters in the offering (Oppenheimer & Co. Inc., Ladenburg Thalmann & Co. Inc. and LifeSci Capital LLC) were granted a fully-owned subsidiary of BioCancell Ltd. 30-day option to purchase up to an additional 397,826 ADSs offered by the Company to cover over-allotments, if any. Pursuant to price protection rights granted to private investors in 2018 and activated in the offering, the Company allocated an additional 8,262,800 ordinary shares (equivalent to 1,652,560 ADSs) to rights holders and adjusted their warrants to be exercisable for an additional 6,207,330 ordinary shares (equivalent to 1,241,466 ADSs). | (1) | The consolidated financial statements of the Company as ofat December 31, 20122018 include those of the Company, Anchiano Therapeutics Israel Ltd. and Anchiano Therapeutics, Inc., which are wholly owned by the Company (collectively, the “Group”). |
| (2) | The Group is involved in research and development of BioCancelldrugs for treatment of cancer. The Group’s products are in the research and development stage, and therefore there is no certainty regarding the Group’s ability to complete product development, obtain regulatory approvals and achieve marketing success. The Company has incurred recurring losses from operations. Continuation of the development stages related to the planned activities depend on future events, including raising additional capital and achieving operating profits in the future. The Group is taking steps to raise the capital required for the continuation of its operations (including an initial public offering resulting in gross proceeds of $30.5 million on February 14, 2019, see Note 1A. However, as at the reporting date, there is substantial doubt as to the Group’s ability to continue operating as a going concern. As of the approval date hereof and based on the Group’s assessments, the Group’s financial resources are expected to suffice until the end of the second quarter of 2020. The financial statements do not include any measurement or presentation adjustment for assets and liabilities that would be required if the Group does not continue operating as a going concern. |
In these financial statements - | (1) | The Company - Anchiano Therapeutics Ltd. |
| (2) | The Group - Anchiano Therapeutics Ltd. and its subsidiaries. |
| (3) | Subsidiaries - the Company's wholly-owned subsidiary, Anchiano Therapeutics Israel Ltd., which is aand its wholly-owned subsidiary, ofAnchiano Therapeutics, Inc., the Company (hereafter - the “Group”). |
BioCancell Ltd.
Notes to the Consolidated Financial Statements in IFRS for the Year Ended December 31, 2012
Note 1 – General (cont’d)
The Group is engaged in research and development of drug-candidates for the treatment of various cancer types, such as superficial bladder cancer, pancreatic cancer and ovarian cancer. The leading drug developed by the Group has been successfully tested for a number of cancer types in pre-clinical animal studies, compassionate use human trials and a Phase I/IIa clinical trial. The Group is now performing a Phase IIb clinical trial in pancreatic cancer patients, a Phase IIb clinical trial on bladder cancer patients and a Phase I clinical trial in bladder cancer patients. The Group is also evaluating indications for the possible use of this drug, and others under its development, to treat other types of cancer. These activities are based on an exclusive license that had been transferred to the Group and the use of various technologies protected by patents or by applications for patent registration.
| (2) | The biotechnology industry, in which the Group operates, is characterized by strong competition, resulting from the risk of frequent technological changes. Entry into this market requires the investment of considerable resources and continuous development. The Group's future success is dependent on several factors, including the quality of the product's technology, the product's price, and the creation of an advantage over the competition. |
The Group's product is in the development stage. Therefore, there is no certainty regarding the Group’s ability to complete the product’s development, receipt of regulatory permits, and success of its marketing. The continuation of the stages of development and the realization of assets related to the planned activities depend on future events, including the receipt of additional financing and achieving operational profitability in the future. The Group is working to raise the capital needed for its continuing operations, although, as of the Balance Sheet date, there is significant doubt as to the Company's ability to continue operating as a “going concern”. As of the signing date of the financial statements, and based on the Group's assessments, the Group’s financial resources are expected to suffice until May 2013. These financial statements do not include any measurement or presentation adjustments for assets and liabilities that would be required if the Group does not continue operating as a going concern. The assessment of the final results of this situation cannot be determined at this stage.
BioCancell Ltd.
Notes to the Consolidated Financial Statements in IFRS for the Year Ended December 31, 2012
Note 1 – General (cont’d)
In these financial statements –
| (1) | The Company – BioCancell Ltd.
|
| (2) | The Group – BioCancell Ltd. and its subsidiaries.
|
| (3) | Subsidiaries – BioCancell Therapeutics Israel Ltd and BioCancell U.S., whose financial statements of which are fully consolidated with those of the Company and which are/were fully-ownedare fully owned and controlled by the Company.
|
Note 2 – Basis of presentation
| (4) | Related party - Within its meaning in International Accounting Standard (“IAS”) 24 (2009), Related Party Disclosures. |
| (5) | Dollars or “$” - U.S. dollars. |
| | A.
F-8 | Declaration of Compliance with International Financial Reporting Standards |
Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
NOTE 2 – BASIS OF PREPARATION | A. | Statement of compliance |
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The consolidated financial statements were preparedauthorized for issue by the Group in conformity with International Financial Reporting Standards (hereafter – "IFRS"). The Group initially adopted the IFRS principles in 2008, with the transition date being January 1, 2007 (hereafter – "the transition date").
The consolidated financial statements were approved by theCompany’s Board of Directors on April 21, 2013.
March 11, 2019. | B.
B. | Functional and presentation currenciescurrency |
The consolidated financial statements are presented in NIS, the Group's functional currency, and are rounded to the nearest thousand. The New Israeli Shekel (“NIS”) is the currency that represents the principal economic environment in which the Group operates and is thus its functional currency. However, for financial reporting purposes, these financial statements, which are prepared using the functional currency for all amounts, including historical amounts, reflected in the Company’s financial statements, have been translated into a different presentation currency, the U.S. dollar. In preparation for its Nasdaq IPO, the Company operates. intended ceased using the NIS and began using the U.S. dollar as its presentation currency to facilitate U.S. investors’ understanding of the Company’s financial statements. The assets and liabilities are translated at the exchange rates at the balance sheet date; Income and expenses are translated at average exchange rates and shareholders’ equity is translated based on historical exchange rates. Translation adjustments are not included in determining net loss but are included in foreign exchange translation adjustments to other comprehensive loss, a component of shareholders’ equity (deficiency). | C.
C. | Measurement basisBasis of measurement |
The financial statements werehave been prepared on the basis of historical cost basis except for the following assets and liabilities: derivative financial instruments and financial instruments recorded at fair value in the Statement of Operations,share-based payment and assets in respect ofand liabilities for employee benefits.
The Company's ordinaryregular operating cycle of the Company is one year. Consequently,As a result, current assets and current liabilities also include items that are expectedthe realization of which is intended to be realizedtake place within the period of the Company's ordinaryregular operating cycle. | E.
E. | Format for analysisClassification of expenses recognized in the Statementstatement of Operationsoperations |
The format for analysisclassification of expenses recognized in the Statementstatement of Operationsoperations is a classification method based on the operating characteristicnature of the expense. Additional information onregarding the nature of the expense is included in the notes to the financial statements. BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 2 – Basis of presentation (cont’d)
| F.
F. | Use of estimates and judgmentjudgments |
The preparation of financial statements in conformity with IFRS requires the Group’s management to use judgment in its assessments,make judgments, estimates and assumptions that affect the implementationapplication of accounting policies and the reported amounts of assets, and liabilities, revenuesincome and expenses. The actualActual results may differ from these estimates.
When formulatingThe use of accounting estimates used in the preparation of the Group’s financial statements requires management is requiredof the Company to make assumptions regarding circumstances and events that involve considerable uncertainty. Management's judgment in determiningManagement of the Company prepares the estimates is based on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances appropriate forof each estimate.
The estimatesEstimates and underlying assumptions on which they are based are reviewed regularly. Changes inon an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates were modifiedare revised and in everyany future period impacted.periods affected. Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
NOTE 2 – BASIS OF PREPARATION (CONT.) | G. | Determination of fair value |
Preparation of the financial statements requires the Group to determine the fair value of certain assets and liabilities. Note 9D (Share-Based Payment) and Note 10G (Financial Instruments—Derivatives) include further information about the assumptions that were used to determine fair value. When determining the fair value of an asset or liability, the Group uses observable market data as much as possible. There are three levels of fair value measurements in the fair value hierarchy that are based on the data used in the measurement, as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly Presented below is informationLevel 3: inputs that are not based on critical estimates made while implementingobservable market data (unobservable inputs).
| H. | Changes in accounting policies |
Initial application of new standards IFRS 9 (2014), Financial Instrument As of January 1, 2018, the Group applies IFRS 9, Financial Instruments ( “IFRS 9”), which replaces IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”). Furthermore, as from that date, the Group applies the amendment to IFRS 9. Additionally, following the application of IFRS 9, the Group has adopted consequential amendments to IFRS 7, Financial Instruments: Disclosures, and to IAS 1, Presentation of Financial Statements. The adoption of IFRS 9 did not have a material effect on thethese financial statements:
Estimate | Key assumptions | Possible implications | Reference | Share-based payment | The fair value of the stock options, which is determined at the grant date and is expensed in the Statement of Operations over the vesting period, is measured according to the Black-Scholes option pricing model. This model uses critical estimates, such as volatility and estimated life of the option.
| Use of critical estimates, a change in which could have a material effect on the Company's results.
| For information on estimates, see Note 11. | Long-term derivatives | According to IFRS, convertible notes payable and warrants are stated at fair value. The fair value determined based on estimates could change, such as volatility, share price, dollar interest rate.
| Changes in fair value are recognized in the statement of operations and therefore, could influence the Company's results.
| For information, see Note 19. | Grants receivable from the Chief Scientist | Every period, the Group assesses the possibility of receiving grants. Each project is evaluated on an individual basis. | Use of critical estimates, a change in which could have a material effect on the Company's results.
| For information, see Notes 6 and 9. |
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
NoteNOTE 3–Significant accounting policies
Accounting PoliciesThe accounting policies providedset out below werehave been applied on a consistent basisconsistently by the Group for all the periods presented in these consolidated financial statements by the Group entities:
statements. | A. | Consolidation basisBasis of consolidation |
The SubsidiaryA subsidiary is an entity controlled by the Company. The Subsidiary's financial statements have beenof the subsidiary are included in the consolidated financial statements from the date control was achieved.of obtaining control. The Subsidiary's accounting policies of the subsidiary are identical to thosealigned with the policies adopted by the Company.
Group.Transactions eliminated uponon consolidation
IntercompanyIntra-group balances in the Group and any unrealized income and expenses resultingarising from inter-companyintra-group transactions wereare eliminated in the preparation of the consolidated financial statements.
Transactions denominated in foreign currencycurrencies are translated intoto the Group's functional currency of the Group at the exchange rate prevailing onin effect at the transaction dates.date of each transaction. Monetary assets and liabilities denominated in foreign currency oncurrencies at the reporting date are translated intoto the functional currency at the exchange rate prevailing on suchat that date. ExchangeGains and losses from exchange rate differences are recognized in the Statementstatement of Operations.
operations.Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
Note 3 – Significant Accounting Policies (CONT.) | (1) | Derivative financial instruments |
Derivatives are recognized initially at fair value; issuance costs that can be attributed are recognized in the Statement of Operations when they are incurred. Subsequent to initial recognition, derivatives are measured at fair value, with changes in fair value recognized in the Statement of Operations.
Warrants and convertible notes payable
Generally, the Group has adopted the abovementioned accounting treatment for changes in the fair value of warrants, for which the exercise price is not fixed, and for the conversion feature of the convertible notes, which is dollar-linked.
As the convertible notes are dollar-linked and contain an embedded derivative, the Company elected to designate them, as a whole, as a financial liability to be measured at fair value through the Statement of Operations.
Liability for commission to underwriters
The commitment for a future cash commission payment, which is derived from the stock price, is classified as a derivative in the financial statements and is measured at fair value. Changes in the liability amount are recognized in the Statement of Operations.
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 3 – Significant accounting policies (cont’d)
| C.
| Financial instruments (cont'd) |
| (2) | Non-derivative financial instrumentsassets |
Non-derivative financial instrumentsassets include receivables, cash and cash equivalents, short-term deposits,receivables, and trade and other payables, and grant liabilities.
payables. Non-derivative financial instruments are recognized initially recorded at fair value plus, for instruments not stated at fair value with changes recorded in the Statement of Operations, allthrough profit or loss, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured as provideddescribed below.
A financial instrumentasset is recognized when the Group assumesaccepts the instrument's contractual terms. Financial assets areconditions of the instrument. A financial asset is derecognized when the Group'sGroup’s contractual rights to receive the cash flows deriving from the financial assets lapse,asset expire, or when the Group transfers the financial assetsasset to others without retaining control inof the asset or it essentially transfers all of the risks and benefitsrewards deriving from the asset. PurchasesRegular way purchases and sales of financial assets effected in the regular manner are recognized on the date of the transaction, date – i.e.meaning on the date the Group has undertakenundertook to buypurchase or sell the asset. Financial liabilities are derecognized when the Group's obligation of the Group, as providedspecified in the agreement, lapsesexpires or when it is discharged or cancelled.
Loans and receivables
Loans and other current assetsReceivables Receivables are non-derivative financial assets with fixed or determinatedeterminable payments that are not tradedquoted in an active market. Subsequent to initial recognition, the loans and other current assetsreceivables are measured at net book value, which is amortized cost using the effective interest method, while consideringtaking into account transaction costs, and after deductingless impairment provisions.
losses.Cash and cash equivalents Cash includescomprises cash balances available for immediate use and demandcall deposits. Cash equivalents includecomprise short-term highly liquid investments with an original maturitymaturities of up to 3three months with a high level of liquidity that may be easily converted toor less, which are readily convertible into known amounts of cash and that are exposed to insignificant riskrisks of change in value.
Non-derivative financial liabilities Non-derivative financial liabilities include trade and other payables. | (3) (2) | Common stockShare capital |
Common stock –Ordinary shares are classified as equity. Incremental costs attributed directly attributable to the issuanceissue of common stockordinary shares are presentedrecognized as a deduction from equity. Incremental costs directly attributable to an expected issuance of an instrument that will be classified as an equity instrument are recognized as an asset (deferred issuance expenses) in the statement of financial position under receivables. The costs are deducted from equity upon the initial recognition of the equity instruments. In cases where the issuance is no longer likely to take place, the costs are recorded as general and administrative expenses in the statement of operations. | (3) | Derivative financial instruments |
Measurement of derivative financial instruments Derivatives are recognized initially at fair value; attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below: BioCancellAnchiano Therapeutics Ltd. Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
| Notes to the Consolidated Financial Statements as at December 31, 2018 |
Note 3 – Significant accounting policies (cont’d)Accounting Policies (CONT.) | C. | Financial instruments (cont.) |
| (3) | Derivative financial instruments (cont.) |
Measurement of derivative financial instruments (cont.) The changes in fair value of these derivatives are recognized in profit or loss, as financing income or expense. Issuance of parcel of securities The consideration received from the issuance of a parcel of securities is attributed initially to financial liabilities that are measured each period at fair value through profit or loss. The remaining amount is the value of the equity component. Direct issuance costs are attributed to the specific securities in respect of which they were incurred, whereas joint issuance costs are attributed to the securities on a proportionate basis according to the allocation of the consideration from the issuance of the parcel, as described above. | D. | PropertyFixed assets – Recognition and equipmentMeasurement |
Recognition and measurement
Property and equipmentFixed asset items are measured at cost net ofless accumulated depreciation and accumulated impairment losses.
Costs includes expenditures that are directly attributable to the acquisition of the asset. Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life.Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
Note 3 – Significant Accounting Policies (CONT.) | E. | Research and development |
Research and development
Expenditures related to research activities forinvolve activities undertaken with the purposeprospect of acquiringgaining new scientific or technical know-how,knowledge and understanding. Expenditures from research activities are expensedrecognized in the statement of operations as profit or loss when incurred.
Development activities are related toinvolve a plan to produceor design for the production of new or substantially improved products or processes, or to significantly improve existing products orand processes. Expenditures forfrom development activities are capitalizedrecognized as an intangible asset only if:if the development costs maycan be measured reliably, measured; the product or process is technically and commercially feasible;feasible, future economic benefit is expected from the productbenefits are probable, and the Group intendshas the intention and has adequatesufficient resources to complete theresearch and development and to use or sell the asset. None of the Company's development costsexpenditures meet the above conditions. Therefore, they are expensed when incurred. Also see Note 3(I) below regarding the offset of grantsconditions for participation in researchdevelopment activities, and development expenses.
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 3 – Significant accounting policies (cont’d)
A financial asset is examined for impairment when there is objective evidence that one or more events have had negative impact on the assets’ estimated future cash flows.
Impairment lossestherefore are recognized in the statement of operations.
An impairmentoperations as profit or loss will be reversed when it is objectively attributable to an event that occurred after recognitionas incurred.Non-financial assets The carrying amounts of the impairment loss. Reversal of the impairment loss on financial assets measured at net book value is recognized in the statement of operations.
The carrying value of the Group'sGroup’s non-financial assets is examinedare reviewed at each reporting date in order to determine whether there are signs indicatingis any indication of impairment. If any such signs exist, as noted,indication exists, then the estimated recoverable amount of the asset is calculated.
estimated.The recoverable amount of an asset or of a cash-generating unit is the highergreater of theits value in use and the net sales price (fairits fair value netless costs of selling expenses).disposal. In determiningassessing value in use, the projectedGroup discounts the future cash flows are discounted atusing a pre-tax discount rate that reflects current market assessments of the time value of money and the specific risks relatedspecific to the asset. For the purpose of examining impairment testing, the assets are grouped together atinto the lowest levelsmallest group of assets that generates cash flows from ongoing usage, whichcontinuing use that are essentiallylargely independent of other Group assets ("or groups of assets (the “Cash-Generating Unit”). An impairment loss is recognized if the carrying amount of an asset or cash-generating unit").
unit exceeds its estimated recoverable amount. Impairment losses are recognized when the carrying value of an assetin profit or the cash-generating unit to which the asset belongs exceeds the recoverable amount, and is recognized in the statement of operations.
loss.Impairment losses that were recognized in prior periods are re-examinedassessed at each reporting date in order to determine whether there are signs indicatingfor any indications that the lossesloss has decreased or no longer exist.exists. An impairment loss is reversed if there has been a change has occurred in the estimates used to determine the recoverable amount, butamount. An impairment loss is reversed only to the extent that the asset’s carrying value of the asset, after reversal of the impairment loss,amount does not exceed the carrying valueamount that would have been determined, net of depreciation or amortization, that would have been determined had theif no impairment loss nothad been recognized. BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 3 – Significant accounting policies (cont’d)
Anchiano Therapeutics Ltd. GNotes to the Consolidated Financial Statements as at December 31, 2018. |
Note 3 - Significant Accounting Policies (CONT.) The Group has several severancea number of post-employment benefit plans. The plans are funded generally by depositsas described below: | (1) | Employee benefit plans |
For employee benefits prior to insurance companies and they are classified asApril 1, 2014, the Group’s net obligation in respect of defined benefit plans.
The Group's net obligation, relating to a defined benefit plan for severance benefits, is calculated by estimating the amount of future benefit amount that an employee will receiveemployees have earned in return for his services,their service in the current period and in prior periods. ThisThat benefit is statedpresented at its present value, after deductingand the fair value of theany plan assets. Likewise, the said liabilityassets is adjusted for deferred actuarial gains and losses.deducted. The discount rate is determined based on the yield onat the reporting date of government bonds, for which the currency andon high-quality linked corporate debentures that have maturity date are similar todates approximating the terms of the Group's obligation.
Group’s obligations and that are denominated in dollars. The calculations are performed by an actuary.Re-measurements of the net defined benefit liability (asset) comprise actuarial gains and losses, the return on the plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest). Re-measurements are recognized immediately directly in retained earnings through other comprehensive income. The liability for a benefit accumulated until the date of change of this plan is $175 thousand, and is presented net of the fair value of plan assets in the amount of $209 thousand. On April 1, 2014, the Company entered into an agreement with Israeli employees whereby as from that date they are eligible for severance pay under Section 14 of the Severance Pay Law, 1963, and therefore as from that date, the plan is classified as a defined contribution plan. A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an expense in profit or loss in the periods during which related services are rendered by employees.
TheShort-term employee benefit obligations for short-term employee benefits are measured on a non-discountedan undiscounted basis and the expense is recognized whenare expensed as the related service is rendered,provided or inupon the eventactual absence of a non-accruing absencethe employee when the benefit is not accumulated (such as maternity leave) – at the time of the actual absence. .The classification of employee benefits are classified as short-term benefits or as other long-term benefits depending on when the Group expects the benefits to be wholly settled. A liability is recognized for the purposeamount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of their presentation inpast service provided by the statement of financial position is based onemployee and the date on which the liability is due.
obligation can be estimated reliably. | (3) | Share-based payment transactionsTermination benefits |
The grant date fair value of share-based payments to employees and consultants isTermination benefits are recognized as an expense concurrentwhen the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment. | (4) | Share-based payment transactions |
The fair value at grant date of share-based payment awards granted to employees is recognized as a salary expense, with ana corresponding increase in equity over the employees' vesting period ofthat the grants.employees become eligible for the awards. The amount expensed, whichrecognized as an expense that is contingent on vesting terms that are a condition ofconditional upon meeting service or performance conditions that are not market conditions is adjusted to reflect the number of grants for sharesawards that are expected to vest. For share-based payment awards with non-vesting conditions or with market performance vesting conditions, the fair value at grant date of the share-based payment awards is measured to reflect such conditions, and therefore the Group recognizes an expense in respect of the awards whether or not the conditions have been met.BioCancellAnchiano Therapeutics Ltd. Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
| Notes to the Consolidated Financial Statements as at December 31, 2018 |
Note 3 – Significant accounting policies (cont’d)Accounting Policies (CONT.)
A provision is recognized whenif, as a result of a past event, the Group has a current,present legal or constructive obligation resulting from an event that occurred in the past, which maycan be estimated reliably, estimated, and when it is expectedprobable that an outflow of economic benefits will be necessaryrequired to settle the obligation.
TheA provision for legal claims is recognized whenif, as a result of a past event, the Group has a currentpresent legal obligation or a constructive obligation resulting from an event that occurred in the past, and it is more likely than not that the Groupan outflow of economic benefits will require economic resourcesbe required to dischargesettle the obligation and it maythe amount of obligation can be reliably estimated.estimated reliably. When the effectvalue of the time value is material, the provision is measured based onat its present value.
Liabilities forCommitments to pay royalties The Group does not recognize obligations forcommitments to pay royalties until occurrence of the event in whichunderlying the actual obligation arises. commitment occurs. | I.
I. | Grants for participation in research and development expenses |
Grants are recognized initially recognizedat fair value when there is reasonable assurance of their receiptthat they will be received and of the Group's complianceGroup will comply with the receipt-entitling terms.
conditions associated with the grant. Grants received as reimbursement of expenses borne bythat compensate the Group for expenses incurred are presented as a reduction todeduction from the relatedcorresponding expense.
Grants forfrom the Israel Innovation Authority (“IIA”) in respect of research and development projects are treatedaccounted for as forgivable loans in accordance with the provisions ofaccording to IAS 20. Grants received from the IIA are recognized as a liability based onaccording to their fair value aton the date of their receipt, unless on suchthat date it is reasonably certain that the amount received amount will not be repaid.refunded. The amount of the liability amount is re-examined during everyreexamined each period, and theany changes if any, in the present value of the cash flows discounted at the grant's original interest rate of the grant are recognized in the statement of operations.profit or loss. The Group operates in the biotechnology industry and there is significant uncertainty as(due to the preliminary stage it is in and the substantial financing that is required) regarding the success of the productproducts under development and to repaymentthe return of the grant. In the Company's opinion, as of the Balance Sheet date,Additionally, there is no requirement under the IIA grants to transfer the intellectual property underlying the research and development projects funded by the grants if the Group abandons the research and development or otherwise cannot generate product or licensing revenues from such research and development. The Group believes that as at the reporting date, the conditions for recognition of a less than 50% chance of repayment of the OCS grants. Therefore,liability have not been met. Accordingly, the Group did not record a liability for receiptin respect of thesethe IIA grants. The Group’s leases are classified as operating leases and the leased assets are not recognized in the Group’s statement of financial position. Payments made under operating leases are recognized in the statement of operations on a straight-line basis over the term of the lease (see Note 3N (Significant Accounting Policies—New standards and interpretations not yet adopted)). | K. | Financing income and expenseexpenses |
FinanceThe Group’s financing income includes interest income on amounts invested,comprises changes in the fair value of derivative financial instruments, presented at fair value with changes recognized in the Statement of Operations,interest income on funds invested and gains from exchange rate differences. Interest income is recognized when accrued, using the effective interest method.
Finance expenses include changesChanges in the fair value of derivative financial instruments presented at fair value with changesare recognized through profit or loss. Interest income is recognized as it accrues, using the effective interest method.The Group’s financing expenses include issuance costs of derivative financial instruments, and bank and other commissions. Borrowing costs are recognized in the Statementstatement of Operations, interest expenses on convertible notes, bank commissions and other. Credit costs are expensed byoperations using the effective interest method.
Issuance costs for derivative financial instruments are recognized through profit or loss.In the statementstatements of cash flows, interest received is included inand interest paid are presented as cash flows from operating activities.
GainsForeign currency gains and losses from exchange rate differences are reported on a net basis as financeeither financing income or financefinancing expenses depending on the volatility in the exchange rate. BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 3 – Significant accounting policies (cont’d)
foreign currency fluctuations.
| | K.
F-15 | Income tax expenses |
A deferred tax asset is recognized in the books when it is expected that there will be taxable income in the future, against which it will be possible to utilize the temporary differences. Since the possibility of realizing the tax benefit is in doubt, the Group did not create deferred tax assets.
Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
Note 3 - Significant Accounting Policies (CONT.) The Group presents basic and fully-diluteddiluted loss per share data for its common stock. The basicordinary shares. Basic loss per share which is also the same as the fully-diluteddiluted loss is calculated by dividing the loss attributable to holders of ordinary shares of the Group's common stockholdersGroup by the weighted average number of ordinary shares outstanding during the period.
Current taxes Current tax is the expected tax payable (or receivable) on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date. Deferred taxes Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax asset is recognized for unused tax losses, tax benefits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Offset of current tax assets and liabilities Current tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and there is intent to settle current tax liabilities and assets on a net basis or the tax assets and liabilities will be realized simultaneously. | N. | New standards and interpretations not yet adopted |
IFRS 16, Leases IFRS 16, Leases ( “IFRS 16”) replaces IAS 17, Leases and the interpretations related to that standard. The provisions of IFRS 16 eliminates the current requirement for lessees to classify leases as operational or financial. Instead, the new standard introduces a single model for the accounting of leases by lessees, whereby the lessee recognizes a right-of-use asset and liability for the lease in its financial statements. IFRS 16 includes two exceptions to the general model, whereby a lessee can elect not to implement the recognition requirements of the right-of-use asset and liability with respect to short-term leases of up to one year and/or leases where the underlying asset has a low value. IFRS 16 applies for annual periods commencing January 1, 2019. The standard includes various approaches for implementation: full retrospective application with a restatement of comparative information or modified retrospective application with the cumulative impact of the initial application of IFRS 16 adjusting the opening balance of the retained earnings at that date. Subject | Effective date and transitional provisionsF-16 | Expected effects | IFRS 13 replaces the guidelines on the manner of fair value measurement appearing in various IFRS. To this end, the Standard defines fair value and prescribes measurement and disclosure guidelines. However, the Standard does not require new fair value measurement, but rather, explains how to measure fair value when such measurement is required by other standards. The Standard will apply when fair value measurements or disclosure of fair value are required or allowed according to other IFRS.
| The Standard will be applied for annual periods commencing on or after January 1, 2013 The Standard will be applied prospectively, with disclosure requirements not imposed on comparative figures for the periods preceding initial application of the Standard.
| It is the Group's assessment that application of the Standard is not expected to have a material effect on the financial statements. | IAS 19 includes several changes regarding the accounting treatment of employee benefits, including, that all actuarial gains and losses will be recognized immediately through other comprehensive income, and cancels the corridor method. Likewise, interest that will be recognized in the statement of operations will be calculated on the balance of the net liability (asset) for the defined benefit, at the discount rate used to calculate the liability. Additionally, the classification of employee benefits as short or long-term will depend on the entity's expectations of the dates for full utilization of the benefits.
| The Amendment will be applied for annual periods commencing on or after January 1, 2013, retrospectively (except for certain mitigations listed in the amended standard). | It is the Group's assessment that this amendment is not expected to have a material effect on the financial statements. |
Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
FNote 3 - 18Significant Accounting Policies (CONT.)
BioCancell Ltd.
Notes | N. | New standards and interpretations not yet adopted (cont.) |
The Group intends to apply IFRS 16 starting from January 1, 2019 using the modified retrospective approach, while adjusting the accumulated loss as of January 1, 2019. The Group intends to elect to apply the transitional provisions whereby on the date of initial application it will recognize a lease liability at the present value of the balance of the future lease payments discounted at the incremental interest rate of the lease as at that date and at the same time it will recognize in the same amount as a liability, a right of use asset in the lease, adjusted for lease payments made in advance or that were accrued and that were recognized as an asset or liability prior to the Consolidated Financial Statements forinitial application. As a result, the Year Ended December 31, 2012
Note 4 – Determinationapplication of fair value
As partIFRS 16 is not expected to have an impact on the balance of retained earnings (deficit) as of the accounting policiesinitial application.In respect of leases in which the Group is the lessee and disclosure requirements,that were classified at the time of the initial application as an operating lease, except for cases where the Group elected to apply the expedients of IFRS 16, as stated, the Group is required to determinerecognize on the fair valuedate of financialinitial application a right-of-use asset and non-financiala lease liability in respect of all leases for which it has the right to control the use of the identified assets for a defined time period. These changes, as stated, are expected to lead to an increase of about $1.7 million in the balance of right-of-use assets and liabilities. The fair value is determined for measurement and/or disclosure purposes based on the methods described below. Additional information on the guidelines used in determining fair value is providedan increase of about $1.7 million in the notesbalance of the lease liabilities. Additionally, depreciation and amortization expenses will be recognized for the right-of-use assets, which will be evaluated for impairments in accordance with the provisions of IAS 36. In addition, financing expenses will be recognized for the lease liabilities. Therefore, from the date of initial application of IFRS 16, rent expenses related to that asset or liability.
Share-based payment – The fair value of options,operating leases, which is determined on the grant date and amortized to the Statement of Operations over the vesting period, is measured according to the Black-Scholes-Merton option pricing model (see Note 11). The model's assumptions include the stock price as of the measurement date, the instrument's exercise price, expected volatility (based on the weighted average of the historical volatility of the Company), the weighted average of the expected life of the instruments (based on past experience andwere presented in the general behavior of the option holders), expected dividends and the risk-free interest rate (based on government bonds). When determining fair value, service termsadministrative expenses and performance terms that are not market terms are not taken into account.
Convertible notesresearch and warrants – According to IFRS, convertible notes and warrants are stated at fair value. The fair value determined is based on the binomial model. The model's assumptions include the share price on the measurement date, the conversion price, exchange rate, interest rate and the volatility of the Company’s shares.
Liability for commissions to underwriter – According to IFRS, underwriter commissions were classifieddevelopment expenses in the financial statementsstatement of operations, will be capitalized as a derivativeassets and measured at fair value, based on valuations performed by independent, external valuators with the requisite skills. The fair value is determined based on a binary options model. The model's assumptions include the stock price, risk-free interest and volatilityexpensed as part of the traded warrants of the Company.
depreciation expenses in successive periods.Note 54 – Cash and Cash equivalentsEquivalents | | | December 31, | | | December 31, | | | | | 2012 | | | 2011 | | | | | NIS thousands | | | NIS thousands | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | | December 31, 2017 | | | | | $ thousands | | | | | | | | | | | Cash | | | 1,517 | | | | 1,436 | | | Cash equivalents | | | 6,000 | | | | 18 | | | | | | | | | | | | | | | | 7,517 | | | | 1,454 | |
The Group'sGroup’s exposure to interest rate risk, foreign currency risk and a sensitivity analysis in respect of cash and cash equivalents balances is providedincluded in Note 13 regarding financial instruments.
10 (Financial Instruments).Note 65 – Receivables and other current assets | | | December 31, | | | December 31, | | | | | 2012 | | | 2011 | | | | | NIS thousands | | | NIS thousands | | Grants receivable from OCS (see Note 9) | | | | | | | | | Value Added Tax Authorities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | | December 31, 2017 | | | | | $ thousands | | | | | | | | | | | Government authorities | | | 92 | | | | 73 | | | Deferred issuance expenses | | | 689 | | | | 265 | | | Prepaid expenses - clinical trial | | | 2,491 | | | | - | | | Prepaid expenses - others | | | 110 | | | | 47 | | | Other | | | 21 | | | | 15 | | | | | | | | | | | | | | | | 3,403 | | | | 400 | |
For the Group'sGroup’s exposure to foreign currency and liquidity risks on receivable balances,from receivables, see Note 13 regarding financial instruments. 10 (Financial Instruments).BioCancellAnchiano Therapeutics Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
| Notes to the Consolidated Financial Statements as at December 31, 2018 |
Note 76 – Trade accounts payableOther Payables
| | | December 31, | | | December 31, | | | | | 2012 | | | 2011 | | | | | NIS thousands | | | NIS thousands | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* Includes a balance in respect of a related party of NIS 235 thousand (December 31, 2011 – no such balance)
| | | December 31, 2018 | | | December 31, 2017 | | | | | $ thousands | | | | | | | | | | | Institutions and employees for salary | | | 89 | | | | 96 | | | Accrued expenses | | | 1,932 | | | | 2,285 | | | | | | | | | | | | | | | | 2,021 | | | | 2,381 | |
For the Group'sGroup’s exposure to foreign currency and liquidity risk on trade accounts payable,risks from other payables, see Note 13 regarding financial instruments.
Note 8 – Other payables
| | | December 31, | | | December 31, | | | | | 2012 | | | 2011 | | | | | NIS thousands | | | NIS thousands | | Salary-related payables to institutions and employees | | | | | | | | | | | | | | | | | | Interest payable on convertible notes (see Note 19) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Group's exposure to currency and liquidity risk on some of the payable balances, see Note 13 regarding financial instruments.
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 9NOTE 7 – Contingent liabilities and commitments
CONTINGENT LIABILITIES AND COMMITMENTS | A.
A. | Liability for royalty payments to the Office of the Chief Scientist (OCS)Israel Innovation Authority |
The Group has financed part of its research and development activities with grants from the Office of the Chief Scientist in the Ministry of Trade and Industry (OCS).IIA. In considerationreturn for the OCSIIA grants, the Group is obligatedwill be required to pay royalties at a rateof between 3% and 5% of revenuesfrom the revenue from sales of the product developed withusing the funding of the OCS,IIA grants, up to repayment of the full amount of the grant, linked to the U.S. dollardollar/NIS exchange rate and bearingplus an agreed-upon interest rate.agreed rate of interest. No new grant applications have been submitted to the IIA since 2013. As at December 31, 2018, the Group’s maximum liability for repayment of the royalties is estimated at $4.0 million. The transfer of all production outside of Israel of all or part of the production of the product developed using the IIA grants requires the paymenthigher payments of increased royalties of 300%.
During the year, the Chief Scientist approved two grant applications by the Group for the purpose of research and development activity.
Total OCS grants received by the Group asup to 200% of the Balance Sheet date amount to approximately NIS 11.7 million.total liability. The CompanyGroup has yet to begin to pay royalties in respect of these grants.
start paying royalties. The financial statements do not include a liability for royalties for these grants since the paymentconditions for recognition of royaltiesthe liability have not been fulfilled (see also Note 3I (Significant Accounting Policies—Grants for participation in respect of these grants. See Note 2(f) and 3(i) above.
The Company's research and development expenses) above).The research and development activities of the Group are based on an exclusive license givengranted to the Group to use patent-protected technology protected by patent and/or applications filed for the registration of patents which was developed by one of the Group’s founders.
Group.The rights to these patents originally belonged to Yissum Technology Transfer, the said patents were originallyresearch development company of The Hebrew University of Jerusalem (hereinafter , “Yissum”). Under the property of Yissum. According to the amended licensing2005 license agreement signed between Yissum and the Group, in September 2007, all intellectual property developed through the financing of the OCS which includes but is not limitedas amended (the “License Agreement"), Yissum granted an exclusive license to the intellectual property rights deriving from laboratory trialsGroup for the global development, use, manufacture and commercialization of products that were financed byare based on the OCS, will be owned solely bypatents. In return, the Group ("the License Agreement"). In consideration, the Group has undertakenundertook to pay royalties to Yissum at the following rates:
| (1) | 5%4% of sales net sales.of distribution costs; and |
| (2) | 10% of the total proceeds thatconsideration received by the Group receives from any third party that receivesobtaining a sub-license to use the Group's technology up to royalties of $30 million per year, and 6.5% of total proceeds beyond this amount.Group’s technologies. |
The rate of royalties from sales in countries where a patent has not been registered, in which a third party sells identical products, will be reduced by 50%. The Group does not recognize a liability for royalty paymentsroyalties until the occurrence ofevent underlying the event which triggers the actual obligation,liability actually occurs and therefore the financial statements do not include a liability for these royalties.
The licensing agreement will expire whenRegarding the patent expirespayment period of the royalties, it was determined that for countries in each country, or if nowhich a patent is registered, the payment period of the royalties for sales in such countries will continue until the later of (A) the expiry date of the patent in that country,country; (B) the expiry of the exclusivity period (set by an authorized entity in that country) for a product based on the ninth yearpatent; or (C) nine years from the date of the first commercial sale (as defined in the License Agreement) in that country. It was also agreed, according toFor countries in which no patent has been registered with success, the wordingpayment period of the License Agreement, that uponroyalties for sales in such countries will continue until the expirationlater of (1) the expiry date of the agreement covering each country, as aforesaid,regulatory exclusivity in that country; or (2) nine years from the date of the first commercial sale in that country.
Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
NOTE 7 – CONTINGENT LIABILITIES AND COMMITMENTS (CONT.) | B. | Royalties agreement (cont.) |
The license with Yissum will remain valid after the end of the royalty period for both countries in which a patent was registered and for countries in which a patent was not registered, at which time the Group will have aan irrevocable, unlimited license that is exempt from payment of royalties for thatsales in the country which is not subject to its obligations pursuant towhere the License Agreement, and whichroyalty period has no time limit. BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 9 – Contingent liabilities and commitments (cont'd)
| B.
| Licensing agreement (cont'd) |
ended.The Group has undertaken to indemnify Yissum and theThe Hebrew University of Jerusalem, their employees, officers, representatives and any person acting on their behalf (hereinafter, -the “Indemnitees”) from and againstfor any liability, including product liability, damages, losses, expenses, includingfees and reasonable legal feesexpenses (hereinafter, “Damages") that they may incur due to the acts and litigation costs (hereinafter -“Losses”) incurred by the Indemnitees as a resultomissions of the Group's actsGroup, and/or omissions and/or resultarising from the use, development, manufacture,production, marketing, sale and/or sublicensinggrant of a biotechnology sublicense, unless the technology unless such LossesDamages are determineddue to have resulted fromgross or malicious negligence by the gross negligence or willful misconduct of Indemnitees. Additionally, uponIn addition, before the commencement of any clinical trial,trials started and prior to the first commercial sale, the Group has undertakenundertook to procurepurchase comprehensive liability insurance related tofor product liability and the Company'sGroup's undertaking for their indemnification obligation, and to add Yissum as an additional insuree.insured party. The Group has also undertakenundertook to acquire,purchase, at its expense, withwhen the commencement of clinical trials clinical trialbegin, a liability insurance of a reasonablepolicy for clinical trials in an appropriate amount commensurateand in accordance with acceptedcustomary commercial practice. The Group acquired insurance for the clinical trials it finances.
| | C.F-19 | Liability for payment of grant |
Anchiano Therapeutics Ltd. Notes to the Israel-US Binational Industrial Research and Development Foundation (BIRD)Consolidated Financial Statements as at December 31, 2018 |
In December 2007, the Group and the Virginia Biosciences Commercialization Center (VBCC), received approval for a cooperative grant from the Israel-US Binational Industrial Research and Development Foundation (BIRD). The grant partially funded the Company's Phase I/IIa clinical trial in pancreatic cancer at the University of Maryland (hereinafterNOTE 7 – "the Project"CONTINGENT LIABILITIES AND COMMITMENTS (CONT.), which concluded successfully in October 2010, resulting in the Group undertaking to repay the grant in the amount of $324 thousand.
During December 2012, the parties reached agreement that the Group would return a total of $515 thousand (of which $70 thousand was returned as of the report date), in semi-annual payments until April 2015. The Company has an early-payment option, which, as of the date the terms were modified and as of the report date, is valued at zero. The Company derecognized the original liability balance and recognized the new liability based on fair value. The difference of NIS 150 thousand was recognized as financing income. Accordingly, as of December 31, 2012, the Group has a long-term liability of NIS 561 thousand and a short-term liability of NIS 523 thousand, including interest and linkage, to BIRD. The Group's liability is stated as a financial liability, in accordance with IAS 39, by the amortized cost method based on the effective interest.
| D.C. | Clinical Trial Agreements (hereafter – "research agreements") between the Group and Medical Centers in Israel and abroad (hereafter “Hospitals”)Car rentals |
The Group has signed research agreements with medical centers in Israel and U.S., under which the Hospitals will carry out clinical trials studying the effect of the Group's developing drug therapy in patients with superficial bladder cancer and patients with inoperable pancreatic cancer, characterized by advanced localized tumors. Pursuant to the research agreement, the Group will finance the clinical trials, including the supply of the study drug. The consideration for the Hospitals depends upon the number of patients participating in the trials and the duration of and number of treatments in the Hospitals. The Group has undertaken to indemnify the Hospitals, including the medical teams participating in the trials, against any claim deriving from the trials, as long as the trials were conducted in accordance with the research agreements and the damage was not sustained as a result of the negligence of the Hospitals. The Group has undertaken to insure the Hospitals, including the managers and employees involved in the trials, with liability insurance policies that will not be less than $5 million per case. These commitments will continue to be in effect even after the termination of the research agreements. Premium payments for the insurance policy are recognized as a current expense in clinical trial expenses. BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 9 – Contingent liabilities and commitments (cont'd)
| E.
| Research and development services agreement |
The Group's research and development activities are carried out primarily by a laboratory research team in the Hebrew University of Jerusalem. The laboratory's operation is managed by an interested party of the Group. The Group signed an agreement to receive research and development services with Yissum – the Research Development Company of the Hebrew University of Jerusalem. Pursuant to the agreement, as of December 31, 2012, the Group has transferred a total of NIS 335 thousand + VAT for the first quarter of 2013. In return, Yissum will ensure that performance of the research program is possible.
As of the report date, the Group has a credit of NIS 335 thousand for research and development services to be rendered in the future in the laboratories of the Hebrew University, which are included in receivables and other current assets.
The Group has lease agreements for 8 vehicles for a period of 24-3612-36 months each. In connection withrespect of these agreements, the CompanyGroup has made deposits to secure the future lease payment obligations. Thecommitments. As at the balance sheet date, the balance of these deposits as of the Balance Sheet date is NIS 75approximately $11 thousand. The deposits are linked to the Israeli Consumer Price Index (“CPI”) and do not bear interest.
At the end of the reporting period, the minimum rent to be paid for the lease agreements is as follows: | | | $ thousands | | | | | | | | 2019 | | | 32 | | | 2020 | | | 14 | | | | | | | | | | | | 46 | |
| G.D. | Office leaseand lab rental |
In January 2018, the Company signed an agreement to rent a laboratory and offices in Jerusalem’s Har Hotzvim industrial zone through May 2023. The GroupCompany has entered intoan option to extend the agreement by another five years. The annual rent (including management fees) is approximately $360 thousand and is linked to the CPI. Pursuant to the agreement, bank guarantees were provided to the property owner of $103 thousand. The minimum future rental fee for the rental agreements is $1.6 million. In November 2013, the Company signed a rental agreement for its officeswith the Development & Management of Jerusalem Industrial Zones Administration Ltd. in the Edmund J. Safra High-Tech Village in Givat Ram, Jerusalem, which was extended until September 2013, with an extension option.2021. However, The monthly rental fees (including management and parking fees) are NIS 16total annual rent is approximately $60 thousand. A NIS 58Under the agreement, a bank guarantee of $17 thousand guarantee was furnished through Bank Leumiprovided in favor of the property owner,owner. The minimum future rent is $14 thousand. In May 2018, Anchiano Therapeutics, Inc signed a new agreement to securerent space for offices in Cambridge, Massachusetts, until December 2021. The annual rent is approximately $140 thousand. The minimum future rental fee for the agreement. | E. | In June 2018, the Company signed an agreement with Syneos Health (“Syneos”) to act as the Company’s clinical research organization (CRO) and to manage the Group’s first registrational bladder cancer clinical trial. The minimum future obligation to Syneos is approximately $2.7 million. |
| | H.F-20 | Liability for payment of royalties |
Anchiano Therapeutics Ltd. Notes to the Jerusalem Development Authority (JDA)Consolidated Financial Statements as at December 31, 2018 |
During 2009, the Company received a grant of NIS 135 thousand from the JDA. In consideration for the grants, the Company is obligated to pay royalties at a rate of 4% of revenues from sales up to repayment of the full amount of the grants received, linked to the Consumer Price Index. The financial statements do not include a liability for receipt of this grant, due to the significant uncertainty regarding repayment of the grant.
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 10NOTE 8 – Stockholders' equityEquity
| | | Number of common shares | | | | | 2012 | | | 2011 | | In thousands of shares, NIS 0.01 par value | | | | | | | | | | | | | | | Issued and outstanding common stock as of January 1 | | | | | | | | | | | | | | | | | | Issued in consideration for services during the year | | | | | | | | | Conversion of convertible notes payable | | | | | | | | | | | | | | | | | | | Common stock issued and outstanding as of December 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| B.
(1) | Dividend distribution policy |
A dividend distribution policy has not yet been determined.
| On August 14, 2012, the Group executed the Merger and trading in the stock and Series 1 and 2 options ofIn June 2018, the Company commenced, as detailed below. |
| Undercompleted a 10:1 reverse share split, canceled the terms of the Merger, the stockholders in BioCancell U.S. received, in consideration for their shares (in BioCancell U.S.), shares of the Company (every BioCancell U.S. share entitled its holder to one common share, NIS 0.01 par value of its ordinary shares and increased its authorized capital to 30 million ordinary shares. In December 2018, the Company which was allottedincreased its authorized capital to 100 million ordinary shares. All amounts of shares, underlying shares, share prices and exercise prices in these financial statements reflect these adjustments. |
| (2) | On February 14, 2019, the Company completed its initial public offering of 2,652,174 ADSs, each representing five ordinary shares. The ADSs are listed on the Nasdaq Capital market under the symbol “ANCN” (see Note 1 (General) for no cash consideration)additional information). As |
| | | Number of ordinary shares | | | | | 2018 | | | 2017 | | | In thousands of shares | | | | | | | | | | | | | | | | Issued and paid up share capital as of January 1 | | | 9,613 | | | | 7,400 | | | Issued during the year – fundraising | | | 5,961 | | | | 2,213 | | | Issued during the year – other | | | 2 | | | | - | | | | | | | | | | | | | Issued and paid up share capital as of December 31 | | | 15,576 | | | | 9,613 | | | | | | | | | | | | | Authorized capital | | | 100,000 | | | | 19,000 | |
Summary of fundraising securities issuances in 2018 and 2017: | Date | | Class | | Shares | | | Gross Consideration
(USD thousands) | | | Issuance expenses
(USD thousands) | | | June 2018 | | Private offering of shares(1) | | | 5,960,787 | | | | 22,900 | | | | 1,038 | | | April 2017 | | Public offering of shares(2) | | | 2,213,430 | | | | 5,665 | | | | 754 | |
| (1) | In June 2018, the Company completed a fundraising of $22.9 million from investors in the United States and Israel, as well as existing shareholders, led by Shavit Capital Funds. In consideration for the investment, the Company issued 5,960,787 ordinary shares (constituting approximately 38% of the Merger date, BioCancell Ltd. holds allCompany’s issued and outstanding share capital after completion of the transaction) at a price per share of about $3.842, as well as warrants to acquire additional shares equal to 80% of the shares issued, at an exercise price per share of BioCancell U.S. and constitutes its mirror image in all that relates toNIS 16.20 (about $4.32). The warrants are exercisable for five years from the stockholding percentages of its stockholders. |
| Under the termsclosing date of the Merger, additional securities that BioCancell U.S. allotted were also exchanged,transaction, as follows: (a) Series 3of December 31, 2018, and Series 4 warrants were exchanged for warrants of the Company (Series 1 and 2); (b) options in the employee options plans from 2004 and 2007 for compensation to employees, directors and consultants, exercisable for shares of BioCancell U.S., were exchanged for option warrants exercisable for shares of the Company; and (c) non-tradable warrants that were allotted to private investors in 2008 and 2010 were exchanged for non-marketable warrants, exercisable for the Company's shares.may be exercised on a cashless basis. |
| Immediately following the Merger, the issued and paid-up capital amounted to NIS 549,141, divided into 54,914,092 common shares, NIS 0.01 par value. |
BioCancell Ltd.
Notes toIn addition, the Consolidated Financial Statements forinvestors were granted price protection rights (to shares and warrants) in the Year Ended December 31, 2012
Note 10 – Stockholders' equity (cont’d)
On November 12, 2012,event of a future share issuance by the Company executed a public offeringwherein the price does not increase by at least approximately 42.86% over the price per share in Israel by tender, in accordance with the Company's prospectus from Novemberfundraising (or the adjusted price per share, if the price has already been adjusted). For details of an allocation pursuant to these rights, see Note 1 2012,(General) above.The consideration was allocated to additional paid-in capital and a supplementary notice to two derivative financial instruments: financial instrument – warrants and financial instrument – price protection mechanism (collectively, the prospectus from November 12, 2012. On“shares” (“Derivative Financial Instruments”). The Derivative Financial Instruments were measured at fair value on the subsequent day,date of the transaction, since they constitute Level 3 derivative financial instruments. The Company allotted 37,362,000 common shares, registered to bearer, NIS 0.01 par value each, to every tender participant (of which 36,905,000 common shares to CBI,used the Company's controlling stockholder), atProbability-Weighted Expected Return Method and the main assumptions underlying the calculation were a share price of NIS 0.42, for gross proceeds13.20 (about $3.62 at the time of NIS 15,692 thousand (the Company recorded issuance costsallocation), expected volatility of NIS 145 thousand). Within52%, cost of capital of 14%, a risk-free interest rate range of 0.21% to 1.58% and no dividend payments during the frameworkvaluation period. The fair value as of the offering,transaction date of the anti-dilutive provisions were invoked for certain investors (as described in E(6) below), which were stipulatedDerivative Financial Instruments (warrants and price protection mechanism) is approximately $6.5 million and $5.5 million, respectively. The remaining balance was allocated to equity. Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
NOTE 8 – Equity (CONT.) Instruments are measured at fair value at the end of every reporting period and the difference in the investment agreements from 2008 and 2012 (except for the 2008 agreements with Tikcro Technologies Ltd. ("Tikcro") (which was deemedfair value is recognized in the past a controlling shareholder in the Company by virtuestatement of the voting agreement) and the Provident Fund of Employees of Hebrew University of Jerusalem Ltd. ("the Provident Fund"), whose right to such provisions has expired, in the Company's opinion),operations as provided below. As a result: (1) the parties to these agreements are entitled to receive a cumulative total of 29,510 thousand common shares (of which 25,829 thousand shares to CBI); and (2) the exercise price of the warrants received by CBI in the 2008 investment agreement, as noted, was changed from NIS 0.87 per share to NIS 0.42 per share.
Additionally, the Company received a demand from Tikcro, claiming that it is also entitled to the adjustment mechanismfinancing expenses. The issuance costs related to the sharesfundraising amounted to approximately $1.0 million, of which $492 thousand was deducted from equity and options, as well as compensation for the fact that it$546 thousand was unable to convert the loancharged to the Company's shares at the share pricestatement of the public offeringoperations as financing expenses. As of the Company, which were purchased by Tikcro und under the 2008 agreements. The significance of Tikcro's demand, if found justified, and considering the possible consequences also for the Provident Fund's rights to adjust the terms of the securities allotted to it under the terms of the 2008 investment agreements as a result of the aforementioned public offering are: (1) an additional cumulative allotment of 3,171 thousand shares; and (2) changing the exercise price of the warrants from the 2008 investment agreements, as noted, from NIS 0.87 per share to NIS 0.42 per share (this would increase the valuation of these options by NIS 324 thousand as of the balance sheet date – for additional details, see Note 19). The Company rejects these assertions. The Company and Tikcro approached an arbitrator to decide the matter. Note, that to date, the Company has not allotted the adjustment shares owed to investors under the 2008 and 2012 investment agreements, due to the execution of a private placement offering to CBI in July 2012 (see E(1) below), and the public offering in November 2012. The reason for this is that in accordance with the TASE's new guidelines from April 2012, the allotment of adjustment shares is subject to a minimum payment of NIS 0.1 by the investors, for each adjustment share, and the investors have not yet sent such payment to the Company. The Company is in contact with the investors, in order to make progress in this matter.
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 10 – Stockholders' equity (cont’d)
| (1) | In May 2012, BioCancell U.S. entered into an agreement with CBI, whereby: (a) since Tikcro did not convert the convertible notes payable it provided to BioCancell U.S. in July 2008 into common shares of BioCancell U.S., and they matured on July 31, 2012, CBI invested in BioCancell U.S. an amount equal to the Tikcro loan balance –$2,481 thousand (approximately NIS 9,915 thousand) – in return for an allotment of shares of common stock of BioCancell U.S., at a price of NIS 0.87 per share; (b) CBI converted into shares the convertible notes payable it provided to BioCancell U.S. in 2008 (and together with it, also the Provident Fund of the Employees of the Hebrew University of Jerusalem Ltd.). The transaction was executed after receipt of several appropriate approvals, including approval by a general meeting of the stockholders of BioCancell U.S. as a transaction in which the controlling stockholder has a personal interest. On July 31, 2012, CBI invested the aforementioned $2,481 thousand, in consideration for the allotment of 10,732 thousand common shares of the BioCancell U.S. The proceeds were transferred directly to Tikcro (by CBI) for repayment of the convertible notes payable. Additionally, CBI and the Provident Funds converted into shares the convertible notes payable provided to the Company in 2008, in consideration for 4,791 thousand shares. |
The share price under the terms of the private placement to CBI led to invoking the adjustment formula prescribed in the investment agreements from 2008 and 2012. Consequently: (1) the parties are entitled to a total of 2,103 thousand common shares (of which 1,345 thousand to CBI) (as noted in D above, these shares have not yet been allotted); (2) the exercise price of the warrants received by investments from 2008 was changed, as noted, from NIS 1 per share to NIS 0.87 per share; and (3) the number of common shares resulting from conversion of the notes payable given to the 2008 investors in BioCancell U.S. by 684 thousand shares, which were included in the aforementioned total of 4,791 thousand shares that were allotted in consideration for conversion of the notes payable.
| (2) | On January 24, 2012, BioCancell U.S. executed an exceptional private placement, in accordance with agreements with various investors, of 11,144,400 of its common shares ($0.01 par value each) that were allotted against total consideration of NIS 11,144,400 (approximately $3 million) (the Company recorded issuance costs of NIS 373 thousand), at a price of NIS 1.00 per share. Among the investors was CBI, which was deemed a joint-controlling stockholder in the Company, for the purpose of approving transactions with interested parties under the Israeli Companies Law, and since the execution of the offering, is deemed the Company's controlling stockholder. |
The stock price in the private placement led to invoking the adjustment formulas prescribed in the investment agreements from 2008. Consequently, (1) a total of 1,500 thousand common shares were allotted to 2008 investors; (2) the exercise price of the warrants received by 2008 investors was changed from $0.716 per share to NIS 1 per share; and (3) the number of common shares deriving from the conversion of the convertible notes payable of BioCancell U.S. was increased (by 8,439 thousand shares, of which 5,780 expired upon repayment of the convertible note payable to Tikcro, and the balance was converted by CBI and Provident Fund).
| (3) | On November 18, 2010, BioCancell U.S. filed a shelf offering according to which it issued 5,634,970 shares, 2,817,485 warrants (Series 3), exercisable into 2,817,485 common shares of the Company until November 17, 2012, at an exercise price of NIS 3.69 and 2,817,485 warrants (Series 4), exercisable into 2,817,485 common shares of BioCancell U.S. until November 17, 2014 at an exercise price of NIS 4.43 per share. The gross proceeds of the offering were NIS 18,595 thousand, of which issuance costs of NIS 3,319 were recorded to additional paid-in capital on shares, against the issuance of BioCancell U.S. shares to investors. |
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 10 – Stockholders' equity (cont’d)
| E. | Pre-merger issuances (cont’d) |
| Within the framework of the offering, the underwriters were granted 197,224 Series 4 Warrants, and the underwriters will also be entitled to a future cash payment equal to 3% of the total payment to be received from the exercise of the warrants. |
| BioCancell U.S. recognized issuance costs in the amount of NIS 276 thousand, based on the fair value of the warrants, calculated by the B&S model, and NIS 549 thousand based on the fair value of the liability for the cash commission, which was calculated, as of the offering date, using a probability of future cash payment of 80% (regarding changes in fair value, see Note 16). |
| (4) | During March 2010, BioCancell U.S. issued to several private and classified investors a total of 4,158 thousand common shares of BioCancell U.S., $0.01 par value each, at a price of NIS 2.95 per share, for total gross proceeds of NIS 12,265 thousand, in an exceptional private placement. Under the terms of the offering, 4,158 warrants (from 2010) were allotted to the investors, for no additional consideration, which were exercisable into BioCancell U.S. common stock, at an exercise price of NIS 4.25, unlinked, for 4 years. The allotment proceeds, net of issuance costs of NIS 2,208 thousand, were recorded in additional paid-in capital against the issuance of BioCancell U.S. stock to the investors. |
| On the offering date, BioCancell U.S. signed an underwriting agreement, pursuant to which BioCancell U.S. allotted to the underwriters 415,750 warrants, exercisable into common shares of BioCancell U.S., at an exercise price of NIS 4.25, unlinked. Additionally, the underwriters will be entitled to a future cash payment equal to 3% of the total proceeds to be received from the future exercise of the warrants. |
BioCancell U.S. recognized NIS 842 thousand in issuance costs according to2018, the fair value of the warrants calculated according to B&S,Derivative Financial Instruments (warrants and NIS 435 thousand based on the fair value of the cash payment liability, which was calculated as of the offering date with a probability of 80% for future cash payment (regarding changesprice protection mechanism) is $3.6 million and $7.0 million, respectively. The change in fair value see Note 16).
between June 30, 2018 and December 31, 2018 was a profit of $1.1 million, which was recognized in the statement of operations as financing income. | (5)(2) | On July 30, 2008, BioCancell U.S. executed a private placementIn April 2017, the Company issued shares to the public in which a cumulative total of 1,222,780 common shares (at a price of $0.597 each), unlisted notes convertible into up to 5,058,002 shares of common stock (at a price of $0.716 each) and unlisted warrants for the purchase of upIsrael pursuant to a cumulative total of 6,280,783 shares of common stock (at a price of $0.716 each) were allotted to 3 offerees, in consideration for $3.65 million (approximately NIS 12,662 thousand). See also Note 19. |
| (6) | Note that undershelf offering report. In the terms of the allotment agreements, it was prescribed that until the dateoffering, the Company closes a capital raising of $15 million, it will grant to all offerees full ratchet protection against dilution of their holdings, such that if the Company will allot securitiesissued 2,213,430 ordinary shares at a price below the price at which the offerees acquired the shares, or will allot securities to a third party at better terms than those given to the offerees, then the securities allotted to the offerees will be deemed as allotted at a lower price and/or as also given at the better terms, as applicable.per share of $2.60, for gross proceeds of $5.7 million. |
Note 9–Share-based Payment | (7) | In March 2011, Tikcro approached BioCancell U.S., asserting that under the terms of its investment agreement with it from 2008, BioCancell U.S. had undertaken, inter alia, to list its shares for trading on a US stock exchange, and that despite the time that has passed since the registration agreement was signed, BioCancell U.S. did not do so. In its letter, Tikcro states that such conduct by BioCancell U.S. constitutes a fundamental breach of the provisions of the registration agreement, causing Tikcro to sustain significant damages. The Company is evaluating the implications of the claim. After consulting with its legal counsel, in the Company's opinion, it is not possible at this stage to estimate the implications of the claim. |
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 11 – Share-based payment
| A. | PresentedThe table below is a table that summarizes the terms of the grants and the number of options granted by the Board of Directors butCompany and not yet exercised, forfeited or expired until December 31, 2012: |
| | | Number of instruments | | | Exercise price | | | Actual vesting dates | | | Contractual life of options | | | | | | | | | | | | | | | | | | | | | | | | | two years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4 years, with acceleration, based on milestones | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 220,000 in 4 years and 80,000 based on milestones | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 150,000 in 4 years and 50,000 based on milestones | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* These instruments were given to interested parties and key managerial personnel in the Group (see Note 20).
** Approximately 60,000 of these instruments were given to an interested party.
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 11 – Shares-based payment (cont'd)
| B. | Presented below are the changes in the stock options and the weighted average of the exercise price: |
| | | December 31, 2012 | | December 31, 2011 | | | December 31, 2010 | | | | | Number of Options | | | Weighted average of exercise price | | Number of Options | | | Weighted average of exercise price | | | Number of Options | | | Weighted average of exercise price | | | | | | | | | NIS | | | $ | | | | | NIS | | | $ | | | | | | NIS | | | | $ | | Outstanding at beginning of period | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Granted during year (exercise price in NIS) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total options outstanding at end of period* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Average exercise price in NIS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Average exercise price in $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| * | Weighted average of contractual life of outstanding options as of December 31, 2012 is 5.84 years (as2018: |
| Grant Date | | Number of
options | | | No. of
underlying
shares(1) | | | Exercise price per share(1) | | | Actual
vesting date | | Contractual
life of
options | | | | | | | | | | | | | | | | | 2009 | | | 38,000 | | | | 447 | | | $ | 71.82 | | | 4 years(2) | | 10 years | | | | | | | | | | | | | | | | | | | | 2010 | | | 140,000 | | | | 1,649 | | | $ | 64.57 | | | 3 years(3) | | 10 years | | | | | | | | | | | | | | | | | | | | 2011 | | | 300,000 | * | | | 3,533 | | | $ | 65.72 | | | 4 years(2) | | 10 years | | | | | | | | | | | | | | | | | | | | 2013 | | | 150,000 | | | | 1,766 | | | $ | 23.11 | | | 4 years(2) | | 10 years | | | | | | | | | | | | | | | | | | | | 2014 | | | 130,000 | * | | | 14,639 | | | $ | 6.24 | | | 4 years(2) | | 10 years | | | | | | | | | | | | | | | | | | | | 2015 | | | 201,000 | * | | | 20,100 | | | $ | 3.23 | | | 4 years(2) | | 10 years | | | | | | | | | | | | | | | | | | | | 2016 | | | 5,627,816 | * | | | 562,782 | | | $ | 2.60 | | | 4 years(4) | | 10 years | | | | | | | | | | | | | | | | | | | | 2017 | | | 1,649,416 | * | | | 164,942 | | | $ | 2.90 | | | 4 years(4) | | 10 years | | | | | 10,000 | * | | | 1,000 | | | $ | 2.90 | | | 4 years(5) | | 10 years | | | | | 2,793,533 | * | | | 279,353 | | | $ | 2.43 | | | 4 years(5) | | 10 years | | | | | 40,000 | | | | 4,000 | | | $ | 2.50 | | | 4 years(5) | | 10 years | | | | | 20,000 | | | | 20,000 | | | $ | 3.90 | | | 2 years(6) | | 10 years | | | | | | | | | | | | | | | | | | | | 2018 | | | 909,203 | * | | | 909,203 | | | $ | 3.67 | | | 4 years(4) | | 10 years | | | | | 340,000 | * | | | 340,000 | | | $ | 2.94 | | | 4 years(5) | | 10 years | | | | | 130,000 | * | | | 130,000 | | | $ | 4.00 | | | 4 years(5) | | 10 years | | | | | 353 | * | | | 353 | | | $ | 3.93 | | | 4 years(5) | | 10 years | | Total as of December 31, 2018 | | | 12,479,321 | | | | 2,453,767 | | | | | | | | | |
| * | Some or all of December 31, 2011 is 6.68 years)the options were granted to related parties and/or key managerial personnel in the Group (1,249,556 options in 2018; 2,652,949 options in 2017; 5,627,816 options in 2016; 60,000 options in 2015; 40,000 options in 2014 and 300,000 options in 2011). See also Note 16A (Transactions and Balances with Related Parties—Benefits for key managers (including directors)). |
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 11 – Share-based payment (cont'd)
| | C.F-22 | Presented below are data on the average exercise price for options exercisable as of end of period: |
| | | December 31, 2012 | | | December 31, 2011 | | | December 31, 2010 | | | | | No. of options | | | Exercise price | | | No. of options | | | Exercise price | | | No. of options | | | Exercise price | | Average exercise price in NIS | | | | | | | | | | | | | | | | | | | | | | | | | Average exercise price in $ | | | | | | | | | | | | | | | | | | | | | | | | | Total exercisable options as of end of year | | | | | | | | | | | | | | | | | | | | | | | | |
Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
Note 9–Share-based Payment (CONT.) | D. | The table below presents the fair value of the services received in consideration forof the stock options granted, based on the fair value of the granted options, granted, was measured byusing the Black -and Scholes option pricing model: |
| | | Grants during | | | Grants during | | | | | 2012 | | | 2011 | | | | | | | | | | | | | | | | | Parameters used in application of the model are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Expected life of the option | | | | | | | Risk-free interest rate (2) | | | | | | | | | | | | | | | | | |
| | | Granted in | | Granted in | | | | 2018 | | 2017 | | | | | | | | Fair value at the grant date(1) | | $2.6 million | | $1.1 million | | The following parameters were used in the model: | | | | | | Share price at the grant date | | $2.93 - $4.00 | | $2.54 - $3.92 | | Exercise price | | $2.94 - $4.00 | | $2.62 - $3.92 | | Expected volatility(2) | | 54.0% - 71.8% | | 66.9% - 78.1% | | Expected life of the option(3) | | 5.38 - 7 years | | 5.13 - 7.06 years | | Risk-free interest rate(4) | | 1.41% - 3.10% | | 0.86% - 2.75% | | Rate of expected dividends | | - | | - |
| (1) | NIS-denominated amounts have been presented in dollars using the Bank of Israel exchange rate in effect on December 31 in the year being presented. |
| (2) | The expectedanticipated volatility was determinedis based on the historical volatility of the stock price ofCompany’s share price. |
| (3) | For options granted to the Company’s stock.chief executive officer (“CEO”), the expected life is subject to certain conditions as set out in Note 16B (Transactions and Balances with Related Parties—CEO Compensation), and will be assessed in each period in accordance with the probability of their occurrence. |
| (2)(4) | The risk-free interest rate was determinedis based on the yield to maturity of State of IsraelIsraeli government bonds for options with a NIS-linkedan NIS exercise price, and of U.S. Treasury Securities for options with theira dollar exercise price, having a duration to maturity equal to the expected life of the options. |
| E. | Salary expenses for share-based payment amounted to $1.9 million for the year ended December 31, 2018 and $0.7 million for the year ended December 31, 2017 (see also Notes 11 (Research and Development Expenses) and Note 12 (General and Administrative Expenses)).For information regarding options granted to related parties, see also Note 16 (Transactions and Balances with Related Parties). |
| | E.F-23 | Salary expense for share-based payment |
| | | For the year ended December 31 | | | | | 2012 | | | 2011 | | | 2010 | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | | | | | | | | | | | | | | Options granted in 2008, net | | | | | | | | | | | | | Options granted in 2009, net | | | | ) | | | | | | | | | Options granted in 2010, net | | | | | | | | ) | | | | | Options granted in 2011, net | | | | | | | | | | | | | Options granted in 2012, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
Regarding the options granted to related parties, see also Note 20 regarding related party and interested party transactions and balances.10–Financial Instruments
BioCancell Ltd.
NotesThe Group has exposure to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 12 – Financial risk management
following risks from its use of financial instruments: credit, liquidity and market risks. | A.
A. | The Company is exposed to the following risks, deriving from the use of financial instruments:Framework for risk management |
| B.
| Risk management framework |
The Board of Directors has overall responsibility for providing the basis forestablishment and oversight of the Group’s risk management framework. The Group's risk management framework and its oversight. The Board of Directors appointed the audit committee to be responsible for the oversight and monitoring of the Group's risk management policy. The committee reports its activities to the Board of Directors regularly.
The Group's risks management policy was formulated so as to identify and analyze the risks facingthat the Group faces, to determineset appropriate limits for the reasonable risk limitsrisks and controls, and to monitor the risks and complytheir compliance with limitations.the limits. The risks managementrisk policy and risk management methods are reviewed regularly in order to reflect changes in market conditions and in the Group's activities.operations. The Group takes actionacts to develop an effective control environment in which all the employees understand their functionsroles and obligations.
This committee also oversees the management's monitoring of the Group's risk management and its procedures and evaluates the suitability of the risks management policy to the risks facing the Group. In its oversight, the audit committee is assisted by the internal audit, engages in regular testing and as-needed testing of the risks management controls and procedures, the results of which are reported to the audit committee.
Credit risk is the risk of monetaryfinancial loss thatto the Group will sustain if a debtor or counter-partycounterparty to a financial instrument does notfails to meet its contractual obligations, and derivesarises mainly from the debts of various debtors.
TheCompany’s receivables.The Group currently limits therestricts exposure to credit risk by investing only in deposits, and not in securities.
bank deposits.Exposure to credit risk The carrying amount of financial assets represents the Group’s maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows: | | | December 31 | | | | | 2018 | | | 2017 | | | | | Carrying amount | | | | | $ thousands | | | $ thousands | | | | | | | | | | | Cash and cash equivalents | | | 7,517 | | | | 1,454 | | | Long-term pledged deposits | | | 120 | | | | - | | | | | | | | | | | | | | | | 7,637 | | | | 1,454 | |
Liquidity risk is the risk that the Group will not be unableable to meet its financial obligations whenas they comebecome due. The Group'sGroup’s approach to management of itsmanaging liquidity risk is to ensure, to the extent possible, the adequate degree ofthat it will always have sufficient liquidity to meet its obligations on a timely basis,liabilities as they become due, under ordinaryboth normal and stressed conditions, and in periods of stress, without sustaining unwantedincurring unacceptable losses or damaging its reputation.
The Group verifies the existence of adequate cash levels, accordingrisking damage to the requirements for payment of expected operating expenses, including amounts required to meet its financial obligations.
The aforesaidGroup’s reputation.This does not take into account the potential effect of extreme scenarios,circumstances that cannot reasonably be foreseen. predicted.See also Note 1B1B(2) (General—Reporting Entity) regarding the substantial doubt as to the ability of the company to continue as a "going concern".
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 12 – Financial risk management (cont'd)
going concern.Anchiano Therapeutics Ltd. ENotes to the Consolidated Financial Statements as at December 31, 2018. |
Note 10–Financial Instruments (CONT.) The following are the carrying amounts of contractual maturities of financial liabilities, including estimated interest payments: | | | December 31, | | | | | 2018 | | | 2017 | | | | | Carrying amount | | | | | $ thousands | | | $ thousands | | | Financial liabilities | | | | | | | | | | Trade payables | | | 396 | | | | 160 | | | Other payables | | | 1,545 | | | | 2,285 | | | | | | | | | | | | | Total | | | 1,941 | | | | 2,445 | |
The amounts of contractual cash flows and liabilities maturing in the six months subsequent to the balance sheet date are identical to the carrying amounts. Market risk is the risk that changes in market prices, such as foreign currency exchange rates, consumer price indices,the CPI, interest rates and the prices of equity instruments, will affectinfluence the Group's revenuesGroup’s results or the value of its holdings in financial instruments. The goalobjective of market risk management is to manage and monitor exposure tocontrol market risksrisk exposures within acceptedacceptable parameters, while maximizing yields.
optimizing return.Currency risk
The Group is exposed to currency risk mainly fromfor cash and purchases for research and development expenses that are denominated in U.S. dollars.dollars and euros. Therefore, the CompanyGroup is exposed to volatility in the dollar/shekel exchange rate fluctuations in these currencies against the NIS and takes actionsteps to reduce the currency risk by retaining themaintaining its liquid resources in its possession in currencies compatibleaccordance with its future needs.
| | (2) F-25 | Interest rate risk: |
In view of the investment of the Group's cash balances in short-term shekel and dollar deposits, the Company is exposed to the risk of a falling shekel and/or dollar interest rate, which would cause the reinvestment of cash balances in deposits yielding lower interest rates.
Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
Note 13 10–Financial instrumentsInstruments (CONT.)
Exposure to credit risk
The carrying value of financial assets represents the maximum credit exposure. The maximum exposure to credit risk on the Balance Sheet date is as follows:
| | | December 31 | | | | | 2012 | | | 2011 | | | | | Carrying value | | | | | NIS thousands | | | NIS thousands | | Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 13 – Financial instruments (cont'd)
| Presented below are the contractual maturity dates of financial liabilities, including estimated interest payments. |
| | | December 31, 2012 | | | | | Carrying | | | Contractual | | | Up to 6 | | | | 6-12 | | | | | | | | value | | | cash flows | | | months | | | months | | | 1-3 years | | | | | NIS thousands | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liability for repayment of grant | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2011 | | | | | Carrying | | | Contractual | | | Up to 6 | | | | 6-12 | | | | | | | | value | | | cash flows | | | months | | | months | | | 1-2 years | | | | | NIS thousands | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liability for repayment of grant | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Convertible notes payable (see Note 19) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 13 – Financial instruments (cont'd)
| C.
| IndexCPI and foreign currency risks |
| (1) A. | The Group'stable below presents the Group’s exposure to Consumer Price Index (CPI)CPI and foreign currency risk,risks, based on par values, is as follows:notional amounts: |
| | | December 31, 2012 | | | | | | | | | | | Foreign currency- | | | | | | | | | | | | | | linked (mainly | | | | | | | | Unlinked | | | CPI-linked | | | U.S. dollar) | | | Total | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | | | | | | | | | | | | | Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Receivables and other current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liability for commission to underwriters | | | | | | | | | | | | | | | | | Liability for grant repayment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2011 | | | | | | | | | | | Foreign currency- | | | | | | | | | | | | | | linked (mainly | | | | | | | | Unlinked | | | CPI-linked | | | U.S. dollar) | | | Total | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | | | | | | | | | | | | | Cash and cash equivalents | | | | | | | | | | | | | | | | | Receivables and other current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liability for commission to underwriters | | | | | | | | | | | | | | | | | Liability for grant repayment | | | | | | | | | | | | | | | | | Convertible notes payable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 13 – Financial instruments (cont'd)
| | | December 31, 2018 | | | | | NIS | | | NIS CPI-Linked | | | In other currency | | | Total | | | | | $ thousands | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | 201 | | | | - | | | | 7,316 | | | | 7,517 | | | Long-term pledged deposits | | | 120 | | | | - | | | | - | | | | 120 | | | | | | | | | | | | | | | | | | | | | | | | 321 | | | | - | | | | 7,316 | | | | 7,637 | | | Liabilities | | | | | | | | | | | | | | | | | | Trade payables | | | 132 | | | | - | | | | 264 | | | | 396 | | | Other payables | | | 467 | | | | - | | | | 1,078 | | | | 1,545 | | | Derivative Financial Instruments | | | 10,603 | | | | - | | | | - | | | | 10,603 | | | | | | | | | | | | | | | | | | | | | | | | 11,202 | | | | - | | | | 1,342 | | | | 12,544 | |
| | | December 31, 2017 | | | | | NIS | | | NIS CPI-Linked | | | In other currency | | | Total | | | | | $ thousands | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | 322 | | | | - | | | | 1,132 | | | | 1,454 | | | | | | | | | | | | | | | | | | | | | | | | 322 | | | | - | | | | 1,132 | | | | 1,454 | | | Liabilities | | | | | | | | | | | | | | | | | | Trade payables | | | 100 | | | | - | | | | 60 | | | | 160 | | | Other payables | | | 501 | | | | - | | | | 1,784 | | | | 2,285 | | | | | | | | | | | | | | | | | | | | | | | | 601 | | | | - | | | | 1,844 | | | | 2,445 | |
| C.
| Index and foreign currency risks (cont'd) |
| (2) | Presented below is data on dollar exchange rates and the CPI: |
| | | Year ended December 31 | | | Year ended December 31 | | | | | 2012 | | | 2011 | | | 2012 | | | 2011 | | | | | Exchange rate on reporting date | | | % change | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | |
| (3)B. | Sensitivity analysis |
A change in the dollar/shekel exchange rates, as noted below, as of December 31 in the exchange rates of the dollar and of the euro against the NIS, as indicated below, or a change in the CPI would increase (decrease) earningshave increased (reduced) profit or loss and equity by the amounts presented below. The analysis below is based on changes inforeign currency exchange ratesrate and inCPI variances that the CPI which, in the Group's opinion, areGroup considered to be reasonably possible as ofat the end of the reporting period. ThisThe analysis assumedassumes that all the other variables, specificallyin particular interest rates, remained fixed. | | | December 31, 2012 | | | December 31, 2011 | | | | | Increase | | | Decrease | | | Increase | | | Decrease | | | | | Equity and income and loss | | | Equity and income and loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | | December 31, 2017 | | | | | Increase | | | Decrease | | | Increase | | | Decrease | | | | | | Equity and profit or
loss | | | | Equity and profit or
loss | | | | Equity and profit or
loss | | | | Equity and profit or
loss | | | | | | | | | | | | | | | | | | | | | Change of 5% in the $/NIS exchange rate | | | 308 | | | | (308 | ) | | | (47 | ) | | | 47 | | | Change of 5% in the euro/NIS exchange rate | | | (9 | ) | | | 9 | | | | 11 | | | | (11 | ) |
Anchiano Therapeutics Ltd. DNotes to the Consolidated Financial Statements as at December 31, 2018. |
Note 10–Financial Instruments (CONT.)
Presented below are details on the type ofThe Group is subject to risks relating to changes in interest borne by the Group'srates. The Group’s interest-bearing financial instruments: | | | December 31, 2012 | | | December 31, 2011 | | | | | NIS thousands | | | NIS thousands | | Fixed-interest instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
instruments are presented below:| | | December 31, | | | | | 2018 | | | 2017 | | | | | $ thousands | | | $ thousands | | | | | | | | | | | Fixed-interest instruments | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | 6,000 | | | | 18 | | | Long-term pledged deposits | | | 120 | | | | - | | | | | | 6,120 | | | | 18 | |
| (2) G. | Sensitivity analysis of the fairFair value of fixed-interest instruments |
Fair value hierarchy of financial instruments measured at fair value The Group's fixed-interest assets and liabilities are nottable below presents an analysis of financial instruments measured at fair value through income/loss. Therefore,on the temporal basis using valuation methodology in accordance with the fair value hierarchy levels (for a change indefinition of various hierarchy levels, see Note 2 regarding the interest rates asbasis of prepration of the balance sheet date is not expected to have any effect on the income or loss in respect of changes in the value of fixed-interest assets and liabilities. BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 13 – Financial instruments (cont'd)
financial statements).| | | December 31, 2018 | | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | | | $ thousands | | | $ thousands | | | $ thousands | | | $ thousands | | | | | | | | | | | | | | | | | Financial assets measured at fair value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative Financial Instrument | | | - | | | | - | | | | 10,603 | | | | 10,603 | | | | | | | | | | | | | | | | | | | | | | | | - | | | | - | | | | 10,603 | | | | 10,603 | |
Anchiano Therapeutics Ltd. ENotes to the Consolidated Financial Statements as at December 31, 2018. |
Note 10-Financial Instruments (CONT.) The carrying value of financial assets and liabilities equals or approximates their fair value.
Fair value hierarchy
following table presents the changes in Level 3 instruments for the year ended December 31, 2018:| | | Derivative
Financial
Instrument-
warrants | | | Derivative
Financial
Instrument -
price
protection
mechanism | | | Total | | | | | $ thousands | | | | | | | | | | | | | | Closing balance as of June 29, 2018* | | | 6,531 | | | | 5,458 | | | | 11,989 | | | Loss (Gain) recognized in profit or loss during 2018 | | | (2,791 | ) | | | 1,706 | | | | (1,085 | ) | | Currency translation difference | | | (112 | ) | | | (189 | ) | | | (301 | ) | | Closing balance as of December 31, 2018 | | | 3,628 | | | | 6,975 | | | | 10,603 | |
* The date the Derivative Financial Instruments were issued. | | (1)F-28 | The table below presents an analysis of the financial instruments measured at fair value, using a valuation method: |
Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
Note 10–Financial Instruments (CONT.) The different levels were defined as follows: · Level 1: Quoted prices (unadjusted) in an active market for identical instruments.
· Level 2: Data observed directly or indirectly thatDerivative Financial Instruments are not included in Level 1 above.
· Level 3: Data not based on observable market data.
| | | December 31, 2012 | | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | NIS thousands | | Liability for cash payment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2011 | | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | NIS thousands | | Liability for cash payment | | | | | | | | | | | | | | | | | Convertible notes payable* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes inmeasured at fair value during 2012, totaling NIS 4,002 thousand, are recognized in finance expenses inusing standard valuation techniques for these types of instruments (Probability-Weighted Expected Return Method) on the Statement of Operations.
* During the year, the Group repaid somebasis of the convertible notes payable and part were converted into shares. See Note 19.
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
following inputs: | | December 31, 2018 | | | June 29, 2018 | | | Observable inputs: | | | | | | | | Share price (NIS) | | | 9.36 | | | | 13.2 | | | Exercise price (NIS) | | | 16.2 | | | | 16.2 | | | Volatility | | | 48 | % | | | 52 | % | | Risk-free rate | | | 0.54-1.83 | % | | | 0.21-1.58 | % | | Cost of capital | | | 15 | % | | | 14 | % |
Note 1411 – Research and development expenses, netDevelopment Expenses | | | Year ended December 31, | | | | | 2018 | | | 2017 | | | 2016 | | | | | $ thousands | | | $ thousands | | | $ thousands | | | | | | | | | | | | | | Clinical trial materials | | | 2,672 | | | | 1,982 | | | | 16 | | | Development of production processes | | | 545 | | | | 1,810 | | | | 1,013 | | | Salaries, wages and incidentals | | | 2,031 | | | | 1,137 | | | | 706 | | | Clinical trial management | | | 1,610 | | | | 766 | | | | 195 | | | Labratory rent and maintenance | | | 376 | | | | 232 | | | | 236 | | | Other | | | 325 | | | | 302 | | | | 218 | | | | | | | | | | | | | | | | | | | | 7,559 | | | | 6,229 | | | | 2,384 | |
| | | Year ended December 31 | | | | | 2012 | | | 2011 | | | 2010 | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | | | | | | | | | | Consultants and subcontractors | | | | | | | | | | | | | Salaries and related expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Salaries and related expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Repayment of grant from BIRD Foundation | | | | | | | | | | | | | and other expenses(see Note 9C) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total research and development expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | Less: grants from the Chief Scientist, BIRD | | | | | | | | | | | | | Foundation and Jerusalem Development | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BioCancellAnchiano Therapeutics Ltd. Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
| Notes to the Consolidated Financial Statements as at December 31, 2018 |
Note 1512 – General and administrative expensesAdmiNIStrative Expenses
| | | Year ended December 31 | | | | | 2012 | | | 2011 | | | 2010 | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | | | | | | | | | | | | Share-based payment in respect of options granted to employees and directors | | | | | | | | | | | | | Salaries and related expenses, including directors’ fees | | | | | | | | | | | | | Professional and consulting fees | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Rental fees and maintenance | | | | | | | | | | | | | Meals, refreshments and gifts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
| | | Year ended December 31 | | | | | 2018 | | | 2017 | | | 2016 | | | | | $ thousands | | | $ thousands | | | $ thousands | | | | | | | | | | | | | | Salaries, wages and incidentals | | | 1,383 | | | | 1,080 | | | | 794 | | | Share-based payment | | | 1,651 | | | | 550 | | | | 260 | | | Professionals and consultants | | | 1,197 | | | | 571 | | | | 618 | | Rent, maintenance and insurance | | | 504 | | | | 249 | | | | 131 | | | Investor relations and business development | | | 436 | | | | 367 | | | | 78 | | | Other | | | 314 | | | | 346 | | | | 377 | | | | | | | | | | | | | | | | | | | | 5,485 | | | | 3,163 | | | | 2,258 | |
Note 16 13– Finance expense, netFinancing (INCOME) Expenses, Net
| | | Year ended December 31, | | | | | 2018 | | | 2017 | | | 2016 | | | | | $ thousands | | | $ thousands | | | $ thousands | | | Financing income | | | | | | | | | | | | | | Interest income from deposits | | | 42 | | | | 1 | | | | 1 | | | Net gain from change in exchange rates | | | - | | | | - | | | | 43 | | | Net change in fair value of financial instruments designated at fair value through profit or loss | | | 1,085 | | | | - | | | | - | | | | | | | | | | | | | | | | | Financing income recognized in statement of operations | | | 1,127 | | | | 1 | | | | 44 | | | | | | | | | | | | | | | | | Financing expenses | | | | | | | | | | | | | | Net loss from change in exchange rates | | | 170 | | | | 87 | | | | - | | | Issuance costs | | | 546 | | | | - | | | | - | | | Interest expenses, bank fees and other | | | 25 | | | | 5 | | | | 7 | | | | | | | | | | | | | | | | | Financing expenses recognized in statement of operations | | | 741 | | | | 92 | | | | 7 | |
| | A.
F-30 | Composition (also see Par. B below) |
| | | Year ended December 31 | | | | | 2012 | | | 2011 | | | 2010 | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | Interest income on deposits | | | | | | | | | | | | | Finance income due to change in liability terms | | | | | | | | | | | | | Net gain from change in exchange rates | | | | | | | | | | | | | | | | | | | | | | | | | | | Finance income recognized in earnings | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss from change in exchange rates | | | | | | | | | | | | | Interest expenses, bank commissions and other | | | | | | | | | | | | | | | | | | | | | | | | | | | Finance expenses recognized in earnings | | | | | | | | | | | | |
Anchiano Therapeutics Ltd. | B. | Net change in fair value of financial assets designatedNotes to the Consolidated Financial Statements as at fair value through Statement of OperationsDecember 31, 2018 |
In 2008, the Company executed a private placement in which shares, convertible notes and warrants were allotted to 3 offerees. The notes and warrants are stated at fair value. Changes in fair value are recognized in the statement of operations. See also Note 19 below.
During July 2012, the maturity date of the convertible notes payable, the Group repaid $2,480,500 (approximately NIS 9,915 thousand). Additionally, CBI and the Provident Fund converted the notes payable from 2008 into shares.
Presented below is the composition of finance (income) expense for these assets:
| | | Year ended December 31 | | | | | 2012 | | | 2011 | | | 2010 | | | | | NIS thousands | | | NIS thousands | | | NIS thousands | | Convertible notes (see Note 19 below) | | | 5,242 | | | | (1,096 | ) | | | (1,504 | ) | Warrants (see Note 19 below) | | | (1,218 | ) | | | (2,141 | ) | | | (6,155 | ) | Warrants with CPI-linked exercise price (Series 2) | | | - | | | | - | | | | (822 | ) | Liability for commission to underwriters | | | (22 | ) | | | (583 | ) | | | (370 | ) | | | | | | | | | | | | | | | | | | | 4,002 | | | | (3,820 | ) | | | (8,851 | ) |
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 17NOTE 14 – Taxes on income
INCOME TAX | A. | Details onInformation about the tax environment in whichof the Group operatesGroup: |
| (1) | BioCancellAnchiano Therapeutics Ltd. is taxed under theaccording to Israeli tax laws in Israel.laws. |
BioCancell U.S. is taxed under the tax laws in the U.S. and Israel (the Company is undergoing liquidation).
BioCancellAnchiano Therapeutics Israel Ltd. is taxed underaccording to Israeli tax laws. Anchiano Therapeutics, Inc. is taxed according to U.S. tax laws. Presented hereunder are the tax lawsrates relevant to the Company in Israel. the years 2016 through 2018:2016 – 25% 2017 – 24% 2018 – 23% | (2) (A) | Amendments toOn January 4, 2016 ,the Knesset plenum passed the Law for the Amendment of the Income Tax Ordinance and the Real Estate Betterment Tax |
| a. | On July 14, 2009, the Knesset passed the Economic Efficiency Law (Legislative Amendments for Implementation of Economic Plan for Years 2009 and 2010), 2009,(Amendment 216) - 2016, by which, provided, inter alia,a gradual reduction of the corporate tax rate would be reduced by 1.5% to 18% in the 2016 tax year and thereafter. According to the said amendments, the corporate tax rates in effect in the 2010 and 2011 tax years area rate of 25% and 24%, respectively.
as of January 1, 2016. |
OnFurthermore, on December 5, 2011,22, 2016, the Knesset plenum passed the AmendmentEconomic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the Years 2017 and 2018) – 2016, by which, inter alia, the corporate tax rate was reduced from 25% to 24% as from January 2017 and to 23% as from January 2018 and thereafter. As a result of the reduction in the tax rate to 23% in two steps, the deferred tax balances as at December 31, 2018 were calculated according to the Tax Burden Law (Legislative Amendments), 2011. According to the Law, thenew tax reduction, prescribedrate specified in the Economic Efficiency Law as above, was cancelled,(Legislative Amendments for Achieving Budget Objectives in the Years 2017 and 2018), at the corporate tax rate will be 25% commencingexpected to apply on the date of reversal. Current taxes for the reported periods are calculated according to the tax year 2012 and thereafter.
rates presented above. | b.(B) | On February 4, 2010,December 22, 2017, the AmendmentU.S. Tax Reform Act was signed into law. The legislation significantly changes U.S. tax law, inter alia, by lowering the U.S. federal corporate income tax rate from a maximum of 35% to Income Tax Ordinance (No. 174 – Temporary Order regarding Tax Years 2007, 2008a flat 21% rate, effective January 1, 2018. Therefore, the aggregate annual federal and 2009), 2010 was published in the Gazette (hereafter – "Temporary Order"). According to the Temporary Order, when determining taxable income in the years 2007-2009, Accounting Standard No. 29 – "Adoption of International Financial Reporting Standards (IFRS)" (hereafter – "Standard 29") shall not apply, even if appliedstate tax rate applicable for the purposes of financial statement preparation. On January 12, 2012, Amendment 188Company’s U.S. subsidiary, Anchiano Therapeutics, Inc., in 2018 is up to the Ordinance was published, in which the Temporary Order was amended, so that Amendment 29 also will not apply when determining taxable income in 2010 and 2011. The effect of the Amendment to the Ordinance on the financial statements is not material, since the Group has sustained losses.32%. |
BioCancell Ltd.
Notes toThe U.S. subsidiary provides the Consolidated Financial Statements forGroup with general and clinical trial management services. For these services, the Year Ended December 31, 2012
Note 17 – Taxessubsidiary is compensated on a cost-plus basis, and records income (cont'd)
taxes accordingly. | A.
| Details on the tax environment in which the Group operates (cont'd) |
| (3) | Benefits under the Law for the Encouragement of Capital Investments – Beneficiary Enterprisebeneficiary enterprise |
The Group selectedAnchiano Therapeutics Israel Ltd. has elected 2009 as the year of election, year under the Law for the Encouragement of Capital Investments, 5719-1959. Income1959 (the “Encouragement Law”). The income generated by a "beneficiary enterprise" will bethe “Beneficiary Enterprise” is exempt from tax for 10over a period of ten years. The benefits are contingent upon compliance with the criteria prescribed interms of the Encouragement Law, including the receipt of approval to be considered a biotechnology company. The Company is in the process of obtaining such approval.
Anchiano Therapeutics Ltd. BNotes to the Consolidated Financial Statements as at December 31, 2018. |
NOTE 14 – INCOME TAX (CONT.) | B. | Tax assessments in Israel and the United States |
BioCancellThe Company and Anchiano Therapeutics Israel Ltd. has assessments deemedhave final for the tax years through 2010, inclusive, and final withholding tax assessments forup to and including the 2013 tax years through 2010, inclusive.
BioCancell U.S. has no taxyear, as well as deduction assessments that are considered final.
The Company has no tax assessments considered final.
(1) Company – Accordingfinal up to Israeli tax laws,and including 2013.Anchiano Therapeutics, Inc. commenced operations in 2016 and the Company has filed its tax loss carryforwards totaling NIS 0.5 million.
(2) BioCancell U.S. (according to US tax laws) has NOL carryforwards amounting to $5 million, which may be offset until 2025-2031 (the Companyreturns for 2016 and 2017 and has a liquidation certificate). The Company assesses that these NOL carryforwardsfinal tax assessment for 2016. | C. | Carryforward tax losses |
| (1) | As of December 31, 2018, The Company has carryforward losses for tax purposes of approximately $5.4 million and carryforward capital losses of approximately $12.3 million from the liquidation of BioCanCell Therapeutics, Inc. following at the Company’s reorganization as an Israeli corporation (see (3) below). As of December 31, 2017, the Company had carryforward tax losses of approximately $3.7 million and carryforward capital losses of $13.3 million. |
| (2) | As of December 31, 2018, Anchiano Therapeutics Israel Ltd. has carryforward losses for tax purposes of approximately $56 million and carryforward capital losses of approximately $1.4 million. As of December 31, 2017, Anchiano Therapeutics Israel Ltd. had carryforward tax losses of approximately $50.5 million and carryforward capital losses of approximately $1.4 million. |
| (3) | BioCanCell Therapeutics, Inc. was dissolved at the end of 2012 and therefore the Company estimates that its accumulated losses will not be utilized in the future. |
| D. | Unrecognized deferred tax assets |
The Group does not create deferred taxes for temporary differences and carryforward losses that require recognition of deferred tax assets, as it does not expect to utilize them in the foreseeable future. The Tax Reform Act of 1986 imposed substantial restrictions on the utilization of net operating loss (NOL) carryforwards and tax credits in the event of a change in the corporation's ownership. Thus, in the wake of changes in the Company's stockholders over the years, the Company's ability to utilize its NOL carryforwards may be limited.
(3) Likewise, according to Israeli tax laws, BioCancell U.S. has tax loss carryforwards totaling NIS 14 million, with no limit on the time period for utilization. The Company assesses that these loss carryforwards will not be utilized in the future.
(4) BioCancell Therapeutics Israel Ltd. has NOL carryforwards for next year reaching NIS 77 million as of the balance sheet date, and capital loss carryforwards of NIS 5 million (December 31, 2011 – NIS 65 million).
| D. | Deferred tax assets not recognized |
| (1) | The Company does not create deferred taxes on temporary differences for which recognition of deferred tax assets is required, since it does not expect to utilize them in the foreseeable future. |
| (2) | The Subsidiary did not recognize deferred taxes for loss carryforwards. |
According to the existing Israeli tax laws, there is no time limitlimitation on the utilization of losses for tax loss carryforwards.purposes. | E. | Unrecognized deferred tax assets |
| | | December 31, | | | | | 2018 | | | 2017 | | | | | $ thousands | | | | | | | | Losses for tax purposes | | | 61,630 | | | | 54,290 | | | Deductible temporary differences | | | 8,649 | | | | 7,038 | | | Capital loss for tax purposes | | | 13,716 | | | | 14,828 | | | | | | | | | | | | | | | | 83,995 | | | | 76,156 | |
BioCancellAnchiano Therapeutics Ltd. Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
| Notes to the Consolidated Financial Statements as at December 31, 2018 |
NOTE 14 – INCOME TAX (CONT.) | F. | Reconciliation between the theoretical tax on pre-tax loss and the tax expenses |
| | | Year ended December 31 | | | | | 2018 | | | 2017 | | | 2016 | | | | | $ thousands | | | | | | | | | | | | | | Loss before income tax | | | (12,658 | ) | | | (9,483 | ) | | | (4,605 | ) | | | | | | | | | | | | | | | | Principal statutory tax rate of the Company | | | 23 | % | | | 24 | % | | | 25 | % | | | | | | | | | | | | | | | | Tax calculated at the Company's principal tax rate | | | (2,911 | ) | | | (2,276 | ) | | | (1,151 | ) | | | | | | | | | | | | | | | | Addition (saving) in tax liability for: | | | | | | | | | | | | | | Unrecognized expenses | | | 165 | | | | 62 | | | | 69 | | | Different tax rate in subsidiaries operating outside of Israel | | | 132 | | | | 129 | | | | 52 | | | Change in temporary differences for which deferred taxes were not recognized | | | 474 | | | | 558 | | | | (506 | ) | | Taxes in respect of previous years | | | (11 | ) | | | - | | | | - | | | Losses and benefits for tax purposes for the year, for which deferred taxes were not recorded | | | 2,772 | | | | 1,850 | | | | 1,673 | | | | | | | | | | | | | | | | | Taxes on income from continuing operations | | | 621 | | | | 323 | | | | 137 | |
Note 1815 – Loss per shareShare
The calculation of the basic loss per share as of December 31, 2012 is2018, 2017 and 2016 was based on the loss attributable to common stockholders amounting to NIS 24,183 thousand (in 2011holders of ordinary shares in the amount of $13.3 million, $9.8 million and 2010 - NIS 17,481 thousand and NIS 5,330 thousand, respectively),$4.7 million, respectively, divided by the weighted average number of commonordinary shares outstanding of 50,114 thousand$12.6 million, 9 million and 5.4 million shares, (in 2011 and 2010: 26,685 thousand shares and 26,685 thousand shares, respectively),respectively, calculated as follows:
Weighted average number of commonordinary shares:
| | | Year ended December 31 | | | | | 2012 | | | 2011 | | | 2010 | | | | | Thousands of shares | | | Thousands of shares | | | Thousands of shares | | In thousands of shares, NIS 0.01 par value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Effect of shares issued during year | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average of number of common shares | | | | | | | | | | | | | used to calculate basic loss per share | | | | | | | | | | | | |
| | | Year ended December 31, | | | | | 2018 | | | 2017 | | | 2016 | | | | | | | | | | | | | | In thousands of shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as at January 1 | | | 9,613 | | | | 7,400 | | | | 4,889 | | | | | | | | | | | | | | | | | Effect of shares issued during the year | | | 3,021 | | | | 1,625 | | | | 544 | | | | | | | | | | | | | | | | Weighted average number of ordinary shares used to calculate basic loss per share | | | 12,634 | | | | 9,025 | | | | 5,433 | |
Anchiano Therapeutics Ltd. | Notes to the Consolidated Financial Statements as at December 31, 2018 |
Note 15 – Loss per Share (CONT.) The Company did not present data onfor the fully-diluteddiluted loss per share because ofdue to the anti-dilutive effect of convertible securities.options (exercisable into 2.5 million shares on December 31, 2018 and 1.2 million shares on December 31, 2017), investor warrants (exercisable into 4.8 million shares on December 31, 2018 and 0 shares on December 31, 2017) and the price protection mechanism. See Notes 10Note 8 (Equity) and 11 regarding details onNote 9 (Share Based Payment) for information about options and warrants for the Company's stock options that couldpurchase of the Company’s ordinary shares and the price protection mechanism, which may have a dilutive effect in the future. BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 19NOTE 16 – Convertible notes payableTransactions and derivativesBalances with Related Parties
| | | December 31, | | | December 31, | | | | | 2012 | | | 2011 | | | | | NIS thousands | | | NIS thousands | | Fair value of convertible notes payable | | | | | | | | | Deferred loss allocated to notes | | | | | | | | | Fair value of warrants convertible to shares | | | | | | | | | Deferred loss allocated to warrants | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| B. | As detailed in Note 10, on July 31, 2012, the maturity date of the convertible notes payable, Tikcro was repaid $2,480,500 with the consideration from CBI's investment. Additionally, CBI and the Provident Fund converted the convertible notes payable from 2008 for 4,147,171 and 643,904 shares, respectively, at an exercise price of NIS 0.87. |
| C. | The warrants, having an exercise price denominated in dollars, were classified as a financial liability measured at fair value, due to the fact that it is not possible today to estimate the number of shares that will be issued in the future, the shekel amount of the exercise price and the anti-dilution formula, as described in Note 10. |
| D. | During the period, the fair value measurement of the convertible notes payable increased by NIS 5,242 thousand and the corrected fair value of the warrants decreased by NIS 1,218 thousand. The change was included in financing costs in the statement of operations. |
| E. | The value was derived in part by use of valuation techniques. The parameters used in the fair value calculation: |
| | | December 31, 2012** | | | December 31, 2011 | | | | | NIS thousands | | | NIS thousands | | | | | | | | | Conversion price / exercise price* | | | | | | $ | | | Representative exchange rate of shekel/dollar | | | | | | | | | | | | | | | | | | | | | | | | |
* Change in conversion price – see Note 10.
** The data as of December 31, 2012 include valuations only for the warrants.
| The volatility was calculated based on the historical volatility (daily, calculated on an annual basis) of the Company's shares. |
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 20 – Interested and related party transactions and balances
Since the Merger and until the dissolution of BioCancell U.S., the Company held 100% of the share capital of BioCancell U.S., which held 100% of the share capital of the subsidiary, BioCancell Therapeutics Israel Ltd. Since the dissolution of BioCancell U.S., the Company holds 100% of the share capital of BioCancell Therapeutics Israel Ltd.
| B. | Related party transactions |
| (1) | During July 2008, the Group entered into an agreement with Tikcro Technologies Ltd. to receive consulting services, in considerationBenefits for the annual sum of $30 thousand, the issuance of 63,939 shares (valued at NIS 55 thousand as per IFRS 2) and expense reimbursement. In July 2012, the Group terminated the agreement. |
| (2) | On August 6, 2012 and on September 27, 2012, the audit committee and board of directors of the Company approved the commitment to receive a NIS 2 million loan from CBI at an annual interest rate of 1.8% and a NIS 3 million loan at an annual interest rate of 2.18%, respectively. The principal and interest will be repaid in a single payment on the earlier of six months after the date on which the Group received the loan or 2 business days from the date on which the proceeds from a private placement or public offering of the Company's securities will be transferred to the Group, if and to the extent such an offering occurs. The parties may agree to extend the loan term until July 30, 2013, at the same terms. As of the report date, the Group has fully repaid the loans. |
| C. | Benefits to key managerial personnelmanagers (including directors) |
The Group's directors and seniorSenior managers in the Group are entitled,eligible, in addition to their salary, to non-cash benefits (such as vehicle, etc.)the use of a company car). The Group deposits monies for them in aalso contributes to their post-employment defined benefits plan. Seniorbenefit plans.The senior managers also participate in a stock option plan of the Company regarding share-based payments.Company’s share options plan. See Note 11.
The benefits9 (Share-Based Payment).Benefits for employment of key managerial personnelmanagers (including directors) include (see details in Par. D below): | | | Year ended December 31 | | | | | 2012 | | | 2011 | | | | | | | | | | | No. of persons | | | | | | | | No. of persons | | | Expense amount | | | during the | | | Expense amount | | | | | during the year | | | NIS thousands | | | year | | | NIS thousands | | Short-term employee benefits (includes salaries) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fees and insurance to non-employee directors | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BioCancell Ltd.
Notes| | | Year ended December 31, | | | | 2018 | | 2017 | | | | Number of
people in the
year | | Expenditure in
$ thousands | | | Number of
people in the
year | | Expenditure in
$ thousands | | | | | | | | | | | | | | | Short-term employee benefits (including salaries) | | 4 | | | 1,232 | | | 3 | | | 970 | | | Post-employment benefits | | 1 | | | 13 | | | 1 | | | 13 | | | Share-based payments | | 6 | | | 1,556 | | | 5 | | | 628 | | | Salary and insurance fordirectors | | 10 | | | 154 | | | 9 | | | 146 | | | | | | | | 2,955 | | | | | | 1,757 | |
In June 2018, options to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 20 – Interested and related party transactions and balances (cont'd)
| D. | Agreements with key managerial personnel (including directors) |
| (1) | On December 1, 2005, the Company signed a three-year employment contract with Prof. Abraham Hochberg, Company founder and Chief Scientist, which has been periodically renewed. In January 2012, a general meeting of the Company's stockholders extended the agreement for three additional years, ending on November 30, 2014. |
Pursuant to the agreement, Prof. Hochberg's salary is NIS 36,000 per month. In addition, Prof. Hochberg is entitled to:
| (a) | An annual bonus, as will be determined according to management's judgment (and in accordance with any regulatory approval required by law); |
| (b) | A bonus of 7.5% of grants received by the Company from Prof. Hochberg’s work, where he was actively involved in the application process for their receipt, e.g.: he is cited as head researcher in connection with the research financed by these grants (except for the grants given by the OCS), and which were approved by the Board of Directors; |
| (c) | Expense reimbursement; |
| (d) | Leased company vehicle and cellular telephone; |
| (e) | Additional social benefits, such as annual vacation and recreation pay, sick pay, and managers' insurance. |
In September 2011, 60,000 optionspurchase 909,203 shares were allotted to Prof. Hochberg, exercisable for 60,000 common sharesthe CEO in accordance with his employment agreement, which includes rights to the grant of BioCancell U.S.,options at the time of fundraising at an exercise price of NIS 2.85 each. The$3.67 per share (the fair value of the optionsCompany's ordinary shares on the grantapproval date totaled NIS 65 thousand. Accordingly,by the Group recognized salary expenses for these optionsCompany’s Board of NIS 9 thousandDirectors on this matter), vesting in 2012.
In January 2012, BioCancell U.S. allotted to its chief scientist options exercisable for 300,000 ordinary shares, which will be listed for trading on the stock exchange after their exercise. The exercise price of the options is NIS 1.583 per share, which is the higher of the average share pricefour tranches at the end of each year from the 22 trading days preceding the datebeginning of his employment in May 2016, at a total cost of $1.7 million. As part of the board of directors' resolution onfundraising in June 2018 described in Note 8C (Equity—Issuances) above, the matter and the share price at the end of the date the board of directors' resolution was adopted. The options will be taxed on the capital track under Section 102 of the Income Tax Ordinance.
The fair value of the options under the provisions of IFRS 2 totaled NIS 177 thousand. Accordingly, during the year, the Company recognized salary expenses in respect of these options totaling NIS 108 thousand.
BioCancell Ltd.
NotesCEO waived his entitlement to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 20 – Interested and related party transactions and balances (cont'd)
additional future grants.| | D.F-34 | Agreements with key managerial personnel (cont'd) |
| (2) | On June 1, 2012, Mr. Uri Danon ended his tenure as Company CEO. On July 16, 2012, the Company's board of directors approved his severance terms as follows: (1) extension of the prior notice period to 180 days (instead of 90 days). In the extension period, Mr. Danon will be entitled solely to his base salary; (2) extension of the exercise period of the options granted to Mr. Danon that had vested on his termination date, totaling 450,000 options, so that these options may be exercised during the 24 months subsequent to the termination date, i.e. until August 4, 2014 (instead of 12 months). Mr. Danon had been employed in a full-time position, in consideration for gross monthly salary of NIS 42 thousand and the acceptable social benefits.
|
| (3) | During June 2011, after his appointment by the board of directors, Mr. Jonathan Burgin began his tenure as the Company's CFO, at a gross monthly salary of NIS 37 thousand and accepted social benefits, which will be raised to NIS 43,000 if the Company will hold a public offering on a US stock exchange, while raising at least $10 million. Any party interested in terminating the agreement, is required to provide prior notice of 90 days. Commencing June 1, 2012, after his appointment by the Company's board of directors, Mr. Burgin serves as the Company’s CEO, with no change in his other employment terms. |
| Under the terms of the agreement, the Company allotted him options exercisable for a total of 300,000 common shares of the Company. The fair value of the options on the grant date totaled NIS 325 thousand, and therefore in 2012, the Company recognized salary expenses for these options totaling NIS 107 thousand. |
| In December 2012, the Group's board of directors approved the granting of a bonus, after receiving approval from the compensation committee and audit committee of the Group, amounting to NIS 74 thousand, for the years 2011-2012, in accordance with the provisions of his employment agreement. |
| (4) | On May 6, 2012, the board of directors of the Company appointed Dr. Aharon Schwartz as Chairman of the board of directors for a 40% position, and approved monthly compensation of NIS 30,000 and the allotment of options to purchase 400,000 shares of common stock of BioCancell U.S. The options will be taxed on the capital track under Section 102 of the Income Tax Ordinance. These terms were approved by the compensation committee and audit committee, the board of directors and a general meeting of the shareholders of BioCancell U.S. |
SIGNATURES The estimated fair value of the options in accordance with the provisions of IFRS 2 totaled NIS 184 thousand. Accordingly, the Company recognized salary expenses for these options totaling NIS 86 thousand. | E. | Directors and officers insurance policy |
In May 2012, the Company purchased a directors and officers insurance policy for itself and for the Subsidiary, with a liability limit of $5 million for a single claim, or cumulatively, for every insurance period (with the ceiling of securities claims in the U.S. of $1.5 million). The policy will expire on May 21, 2013. The annual premium for the policy is $18 thousand. Officers will not bear any co-payment participation, whereas the Company will bear co-payment participation of $7.5 thousand worldwide, except for the U.S. and Canada, where co-payment participation is $50 thousand ($150 thousand in claims related to the Securities and Exchange Commission).
BioCancell Ltd.
Notes to the Consolidated Financial Statements for the Year Ended December 31, 2012
Note 21 – Subsequent events
| (1) | In December 2012, the Company received an offer from its controlling shareholder, CBI, to negotiate in connection with a merger of the Company with CBI ("the Offer"). In January 2013, the Company's board of directors resolved to accept CBI's offer, to negotiate in connection with a merger of the Company with CBI and appointed an independent board of directors committee, in which the Company's two outside directors serve, to negotiate with CBI on behalf of the Company. |
In February 2013, the Company announced that, as a result of developments in the contacts with two international pharmaceutical companies, in connection with the continued development and commercialization of the drug, the Company's board of directors, in coordination with CBI, resolved to suspend the negotiations on the merger, until the nature of these developments become clear. As of the date hereof, the Company continues to negotiate with the two international pharmaceutical companies. However, these negotiations are only in the preliminary stages and there is no certainty as to these negotiations progressing toward a binding agreement, if at all.
| (2) | On March 7, 2013, the Company submitted to the ISA a first draft of a prospectus to raise funds through a rights offering to shareholders of the Company. |
| (3) | On March 7, 2013, the Company’s Board of Directors approved the allocation of options to purchase 150,000 common shares to an officer, subject to the approval of the TASE, and approved a change of vesting conditions for the options of the Company’s CEO and VP Clinical Development, such that their existing options will vest in equal quarterly portions, as per the Company’s standard vesting conditions, rather than vesting based on milestones. The change with regard to the CEO will be submitted for the approval of a general meeting of the Company’s shareholders. |
| (4) | On March 7, 2013, the Company’s Board of Directors approved a reverse stock split, at a share ratio of 10:1. The reverse stock split will be submitted for the approval of a general meeting of the Company’s shareholders. |
The registrantRegistrant hereby certifies that it meets all of the requirements for this filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on Form 20-F on its behalf.
| | BIOCANCELLANCHIANO THERAPEUTICS LTD.
| | | | | | | | By: | /s/ Jonathan Burgin | Dr. Frank G. Haluska | | | | Name Jonathan Burgin | Dr. Frank G. Haluska | | | | Title: Chief Executive Officer | |
Date: March 25, 2019 Date: April 23, 2013
EXHIBIT INDEX
Number | Description | | | 1.1 | BioCancell Ltd. Articles of Association (incorporated by reference to Exhibit 3.3 to registration statement on Form F-4 filed by BioCancell Ltd. on filed January 24, 2012 (File No. 333-179140)). | 4.1 | Agreement and Plan of Merger (incorporated by reference to Exhibit 2.1 to registration statement on Form F-4 filed by BioCancell Ltd. on filed January 24, 2012 (File No. 333-179140)). | 4.2 | Form of Warrants issued July 30, 2008 (incorporated by reference to Exhibit 4.3 to the Form 10-K, filed by BTI on December 31, 2011 (File No.- 333-156252)). | 4.3 | Form of Series 1 and Series 2 Warrant (incorporated by reference to Exhibit 4.4 to the Form 10-K, filed by BTI on December 31, 2011 (File No.- 333-156252)). | 4.4 | Form of Warrants issued March 2010 (incorporated by reference to Exhibit 4.5 to the Form 10-K, filed by BTI on December 31, 2011 (File No.- 333-156252)). | 4.5 | Subscription and Registration Rights Agreement with Clal Biotechnology Industries Ltd. dated March 12, 2008 (incorporated by reference to Exhibit 10.9 to the Form 10-K, filed by BTI on December 31, 2011 (File No.- 333-156252)). | 4.6 | Subscription and Registration Rights Agreement with Clal Biotechnology Industries Ltd. dated June 22, 2008 (incorporated by reference to Exhibit 10.10 to the Form 10-K, filed by BTI on December 31, 2011 (File No.- 333-156252)). | 4.7 | Subscription and Registration Rights Agreement with Tikcro Technologies Ltd. dated June 22, 2008 (incorporated by reference to Exhibit 10.11 to the Form 10-K, filed by BTI on December 31, 2011) (File No.- 333-156252)). | 4.8 | Subscription and Registration Rights Agreement with Provident Fund of the Hebrew University Ltd. dated June 22, 2008 (incorporated by reference to Exhibit 10.12 to the Form 10-K, filed by BTI on December 31, 2011)). | 4.9 | Summary Translation of 2011 BioCancell Ltd. Employee Compensation Plan (incorporated by reference to Exhibit 99.1 to registration statement on Form S-8 filed by BioCancell Ltd. on August 15, 2012 (File No. 333-183319)). | 4.10 | Employment Agreement with Professor Abraham Hochberg (incorporated by reference to Exhibit 10.3 to the Form 10-K, filed by BTI on December 31, 2011). | 4.11 | Employment Agreement with Jonathan Burgin (incorporated by reference to Exhibit 10.5 to the Form 10-K, filed by BTI on December 31, 2011). | 4.12 | Yissum License (incorporated by reference to Exhibit 10.1(i) to the Form 10-K, filed by BTI on December 31, 2011). | 4.13 | Amendment 1 to Yissum License (incorporated by reference to Exhibit 10.1(ii) to the Form 10-K, filed by BTI on December 31, 2011). | 4.14 | Amendment 2 to Yissum License (incorporated by reference to Exhibit 10.1(iii) to the Form 10-K, filed by BTI on December 31, 2011). | 4.15 | Translation of Lease Agreement with Beck Tech (Jerusalem) Ltd. and Appendices (filed herewith). | 8.1 | List of Subsidiaries (filed herewith). | 12.1 | Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). | 12.2 | Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). | 13.1 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | 13.2 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
74
|