As filed with the U.S. Securities and Exchange Commission on March 10, 201623, 2017
 
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
 
FORM 20-F
(Mark One)
 
o☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
x☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 20152016
 
OR
 
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
o☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report
 
For the transition period from __________ to __________
 
Commission file number _______________
 
BioLineRx Ltd.
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
 
Israel
(Jurisdiction of incorporation or organization)
 
2 HaMa’ayan Street
Modi’in 7177871, Israel
(Address of principal executive offices)
 
Philip Serlin

+972 (8) 642-9100

+972 (8) 642-9101 (facsimile)

phils@biolinerx.com

2 HaMa’ayan Street
Modi’in 7177871, Israel
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class Name of each exchange on which registered
American Depositary Shares, each representing 1
ordinary share, par value NIS 0.10 per share
 Nasdaq Capital Market
   
Ordinary shares, par value NIS 0.10 per share Nasdaq Capital Market*

*Not for trading; only in connection with the registration of American Depositary Shares.
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.
 
None
(Title of Class)
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
 
None
(Title of Class)
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 54,818,05757,033,355
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
Yes o☐ No x☒
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 
 
Yes o☐ No x☒
 
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x☒ No o☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). N/A
 
Yes o☐ No o☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
Large accelerated filer o☐
 
Accelerated filer x☐
 
Non-accelerated filer o☒
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
 
U.S. GAAP o☐
 
International Financial Reporting Standards as issued by the
International Accounting Standards Board x☒
 
Other o☐
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. N/A
 
o☐ Item 17 o☐ Item 18
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes o☐ No x☒
 
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. N/A
 
Yes o☐ No o☐


TABLE OF CONTENTS
 
  Page
   
INTRODUCTION
 ii
 PART I 
ITEM 1.
Identity of Directors, Senior Management and Advisers
 1
ITEM 2.
Offer Statistics Andand Expected Timetable
 1
ITEM 3.
Key Information
 1
ITEM 4.
Information on the Company
 23
ITEM 4A
Unresolved Staff Comments
 6463
ITEM 5.
Operating and Financial Review and Prospects
  6463
ITEM 6.
Directors, Senior Management and Employees
  7974
ITEM 7.
Major Shareholders and Related Party Transactions
  10187
ITEM 8.
Financial Information
  10398
ITEM 9.
The Offer and Listing
  10499
ITEM 10.
Additional Information
  106100
ITEM 11.
Quantitative Andand Qualitative Disclosure on Market Risk
 120115
ITEM 12.
Description of Securities Other Than Equity Securities
 121115
 PART II 
ITEM 13.
Defaults, Dividends, Arrearages and Delinquencies
 124118
ITEM 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
 124119
ITEM 15.
Controls and Procedures
 124119
ITEM 16.
[Reserved]
 125119
ITEM 16A.
Audit Committee Financial Experts
 125119
ITEM 16B.
Code of Ethics
 125119
ITEM 16C.
Principal Accountant Fees Andand Services
 125120
ITEM 16D.
Exemptions Fromfrom The Listing Standards Forfor Audit Committees
 126120
ITEM 16E.
Purchases Ofof Equity Securities Byby The Issuer Andand Affiliated Purchasers
 126120
ITEM 16F.
Change in Registrations Certifying Accountant
 126120
ITEM 16G.
Corporate Governance
 126120
ITEM 16H.
Mine Safety Disclosure
 128123
 PART III 
ITEM 17.
Financial Statements
 123
ITEM 17.18.
Financial Statements
 128123
ITEM 18.19.
Financial StatementsExhibits
  128124
ITEM 19.SIGNATURES
Exhibits
  129
SIGNATURES
131126
i
INTRODUCTION
 
Certain Definitions
 
In this annual report,Annual Report on Form 20-F, unless the context otherwise requires:
 
references to “BioLineRx,”"BioLineRx," the “Company,” “us,” “we”"Company," "us," "we" and “our”"our" refer to BioLineRx Ltd. (the “Registrant”), an Israeli company, and its consolidated subsidiaries;
references to “ordinary"ordinary shares,” “our shares”" "our shares" and similar expressions refer to the Registrant’sCompany's ordinary shares, NIS 0.10 nominal (par) value per share;
 
references to “ADS”"ADS" refer to the Registrant’sCompany's American Depositary Shares;
 
references to “dollars,” “U.S. dollars”"dollars," "U.S. dollars" and “$”"$" are to United States Dollars;
 
references to “shekels”"shekels" and “NIS”"NIS" are to New Israeli Shekels, the Israeli currency;
 
references to the “Companies Law”"Companies Law" are to Israel’sIsrael's Companies Law, 5759-1999, as amended; and
 
references to the “SEC”"SEC" are to the United States Securities and Exchange Commission.
 
Forward-Looking Statements
 
Some of the statements under the sections entitled “Item 3. Key Information – Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects” and elsewhere in this Annual Report on Form 20-F constitute forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms including “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, but these are not the only ways these statements are identified. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. In addition, the section of this Annual Report on Form 20-F entitled “Item 4. Information on the Company” contains information obtained from independent industry and other sources that we have not independently verified. You should not put undue reliance on any forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements. Readers are encouraged to consult the Company’s filings made on Form 6-K, which are periodically filed with or furnished to the SEC.
 
Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:
 
the initiation, timing, progress and results of our preclinical studies, clinical trials and other therapeutic candidate development efforts;
 
our ability to advance our therapeutic candidates into clinical trials or to successfully complete our preclinical studies or clinical trials;
 
our receipt of regulatory approvals for our therapeutic candidates, and the timing of other regulatory filings and approvals;
 
the clinical development, commercialization and market acceptance of our therapeutic candidates;
 
our ability to establish and maintain corporate collaborations;collaborations and integrate new therapeutic candidates and new personnel;
 
the interpretation of the properties and characteristics of our therapeutic candidates and of the results obtained with our therapeutic candidates in preclinical studies or clinical trials;
 
the implementation of our business model and strategic plans for our business and therapeutic candidates;
 
ii
the scope of protection we are able to establish and maintain for intellectual property rights covering our therapeutic candidates and our ability to operate our business without infringing the intellectual property rights of others;
 
estimates of our expenses, future revenues, capital requirements and our needs for additional financing;
 
competitive companies, technologies and our industry; and
 
statements as to the impact of the political and security situation in Israel on our business.
 
ii

PART I
 
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.
 
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3. KEY INFORMATION
 
A. Selected Financial Data
 
The following table sets forth our selected consolidated financial data for the periods ended and as of the dates indicated. The following selected historical consolidated financial data for our company should be read in conjunction with “Item 5. Operational and Financial Review and Prospects” and other information provided elsewhere in this Annual Report on Form 20-F and our consolidated financial statements and related notes. The selected consolidated financial data in this section is not intended to replace the consolidated financial statements and is qualified in its entirety thereby.
 
In June 2015, we effected a 1:10 reverse split of our ordinary shares. All share and per share amounts in this report have been retroactively adjusted to reflect the reverse split as if it had been effected prior to the earliest financial statement period referred to herein. Following the reverse split, one ordinary share traded on the TASETel-Aviv Stock Exchange (the "TASE") is equivalent to one ADS traded on the Nasdaq Capital Market (the "Nasdaq") (prior to the split, the ratio of ordinary shares to ADSs was 10:1).



The selected consolidated statements of operations data for the years ended December 31, 2014, 2015, 2014, and 2013,2016, and the selected consolidated balance sheet data as of December 31, 2015 and 2014,2016, have been derived from our audited consolidated financial statements set forth elsewhere in this Annual Report on Form 20-F. The selected consolidated statements of operations data for the years ended December 31, 2012 and 2011,2013, and the selected consolidated balance sheet data as of December 31, 2012, 2013 2012 and 2011,2014, have been derived from our audited consolidated financial statements not included in this Annual Report on Form 20-F.
 
Our consolidated financial statements included in this annual reportAnnual Report on Form 20-F were prepared in accordance with International Financial Reporting Standards (“IFRS”("IFRS") as issued by the International Accounting Standards Board, and reported in dollars. The amounts in the tables below for the years 20112012 through 2014 were previously reported in NIS. Due to the change in our functional and reporting currency from the NIS to the dollar, effective January 1, 2015, the amounts for 20112012 through 2014 have been restated in dollars using the methodology set forth in Note 2c to our consolidated financial statements for the year ended December 31, 2015.2016.
 
 Year Ended December 31,  Year Ended December 31, 
Consolidated Statements of Operations Data:(1) (2)
 2011  2012  2013  2014  2015  2012  2013  2014  2015  2016 
 (in thousands of U.S. dollars, except share and per share data)  (in thousands of U.S. dollars, except share and per share data) 
                              
Research and development expenses, net  (11,912)  (16,677)  (12,208)  (11,866)  (11,489)  (16,677)  (12,208)  (11,866)  (11,489)  (11,177)
Sales and marketing expenses  (925)  (837)  (1,136)  (1,589)  (1,003)  (837)  (1,136)  (1,589)  (1,003)  (1,352)
General and administrative expenses  (3,556)  (3,638)  (3,664)  (3,800)  (3,704)  (3,638)  (3,664)  (3,800)  (3,704)  (3,984)
Operating loss  (16,393)  (21,152)  (17,008)  (17,255)  (16,196)  (21,152)  (17,008)  (17,255)  (16,196)  (16,513)
Non-operating income, net  –   1,026   1,161   3,061   1,445   1,026   1,161   3,061   1,445   214 
Financial income  3,558   2,287   720   3,566   457   2,287   720   3,566   457   480 
Financial expenses  (1,191)  (1,942)  (1,897)  (448)  (106)  (1,942)  (1,897)  (448)  (106)  (22)
Net loss  (14,026)  (19,781)  (17,024)  (11,076)  (14,400)  (19,781)  (17,024)  (11,076)  (14,400)  (15,841)
Other comprehensive income (loss):                                        
Currency translation differences
  (1,830)   (7)  1,097   (2,834)  –   (7)  1,097   (2,834)  –   – 
Comprehensive loss  (15,856)  (19,788)  (15,927)  (13,910)  (14,400)  (19,788)  (15,927)  (13,910)  (14,400)  (15,841)
Net loss per ordinary share  (1.13)  (1.17)  (0.76)  (0.34)  (0.28)  (1.17)  (0.76)  (0.34)  (0.28)  (0.28)
Number of ordinary shares used in computing loss per ordinary share  12,358,703   16,940,473   22,488,516   32,433,883   51,406,434   16,940,473   22,488,516   32,433,883   51,406,434   56,144,727 
 
 As of December 31,  As of December 31, 
Consolidated Balance Sheet Data:
 
2011
  
2012
  
2013
  
2014
  
2015
  2012  2013  2014  2015  2016 
 (in thousands of U.S. dollars)  (in thousands of U.S. dollars) 
Cash and cash equivalents
  8,652   18,307   8,899   5,790   5, 544   18,307   8,899   5,790   5,544   2,469 
Short-term bank deposits
  17,216   3,070   9,319   28,890   42,119   3,070   9,319   28,890   42,119   33,154 
Property, plant and equipment, net  1,102   850   712   721   2,909   850   712   721   2,909   2,605 
Total assets
  29,223   24,325   20,014   36,211   51,302   24,325   20,014   36,211   51,302   38,939 
Total liabilities
  6,779   9,343   8,292   4,406   3,692   9,343   8,292   4,406   3,692   3,912 
Total shareholders’ equity
  22,444   14,982   11,722   31,805   47,610   14,982   11,722   31,805   47,610   35,027 
 
(1)Data on diluted loss per share was not presented in the financial statements because the effect of the exercise of the options is either immaterial or is anti-dilutive.
 
(2)
In June 2015, we effected a 1:10 reverse split of our ordinary shares. All share and per share amounts above have been retroactively adjusted to reflect the reverse split as if it had been effected prior to the earliest financial statement period included herein.

2

B. Capitalization and Indebtedness
 
Not applicable.
 
C. Reasons for the Offer and Use of Proceeds
 
Not applicable.
 
D. Risk Factors

You should carefully consider the risks we describe below, in addition to the other information set forth elsewhere in this Annual Report on Form 20-F, including our consolidated financial statements and the related notes beginning on page F-1, before deciding to invest in our ordinary shares and ADSs.  These material risks could adversely impact our results of operations, possibly causing the trading price of our ordinary shares and ADSs to decline, and you could lose all or part of your investment.
 
Risks Related to Our Financial Condition and Capital Requirements
 
We are a clinical stage biopharmaceutical development company with a history of operating losses, expect to incur additional losses in the future and may never be profitable.
 
We are a clinical stage biopharmaceutical development company that was incorporated in 2003. Since our incorporation, we have been focused on research and development. Our most advanced therapeutic candidates are in clinical development. We, or our licensees, as applicable, will be required to conduct significant additional clinical trials before we or they can seek the regulatory approvals necessary to begin commercial sales of our therapeutic candidates. We have incurred losses since inception, principally as a result of research and development and general administrative expenses in support of our operations. We recorded net losses of approximately $11.1 million in 2014, $14.4 million in 2015 $11.1and $15.8 million in 2014 and $17.0 million in 2013.2016. As of December 31, 2015,2016, we had an accumulated deficit of approximately $159.4$175.0 million. We anticipate that we will incur significant additional losses as we continue to focus our resources on prioritizing, selecting and advancing our most promising therapeutic candidates. We may never be profitable and we may never achieve significant sustained revenues.
 
We cannot ensure investors that our existing cash and investment balances will be sufficient to meet our future capital requirements.
 
As of December 31, 2015,2016, we held cash and short-term investments of approximately $47.7$35.6 million. We believe that our existing cash and investment balances and other sources of liquidity, not including potential milestone and royalty payments under our existing and future out-licensing and other collaboration agreements, will be sufficient to meet our requirements into 2018.2019. We have funded our operations primarily through public and private offerings of our securities, payments received under our strategic licensing and collaboration arrangements and interest earned on investments. In addition, until 2013, we also received grants from a government body that at the time was called the Office of the Chief Scientist of Israel’s Ministry of Economy and Industry, or the OCS. In addition, we have funded our operations through out-licensing arrangements with respect to our therapeutic candidates.OCS (which in 2016 was replaced by the newly established Israel Innovation Authority, or the IIA). The adequacy of our available funds to meet our operating and capital requirements will depend on many factors including: the number, breadth, progress and results of our research, product development and clinical programs; the costs and timing of obtaining regulatory approvals for any of our therapeutic candidates; the terms and conditions of in-licensing and out-licensing therapeutic candidates; and costs incurred in enforcing and defending our patent claims and other intellectual property rights.
 
While we will continue to explore alternative financing sources, including the possibility of future securities offerings and continued government funding, we cannot be certain that in the future these liquidity sources will be available when needed on commercially reasonable terms or at all, or that our actual cash requirements will not be greater than anticipated. We will also continue to seek to finance our operations through other sources, including out-licensing arrangements for the development and commercialization of our therapeutic candidates or other partnerships or joint ventures, as well as grants from government agencies and foundations. If we are unable to obtain future financing through the methods we describe above or through other means, we may be unable to complete our business objectives and may be unable to continue operations, which would have a material adverse effect on our business and financial condition.

3
 
Risks Related to Our Business and Regulatory Matters
 
If we or our licensees are unable to obtain U.S. and/or foreign regulatory approval for our therapeutic candidates, we will be unable to commercialize our therapeutic candidates.
 
To date, we have not marketed, distributed or sold anonly one of our products, BL-5010, for the treatment of benign skin lesions, has been approved product.for marketing and sale. Currently, we have three mainone clinical-stage therapeutic candidatescandidate in development: BL-8040 for the treatment of multiple cancer and hematological indications; BL-7010indications. We also have one therapeutic candidate, AGI-134, in development for solid tumors, that we expect will begin clinical stage development in the treatmentfirst half of celiac disease and gluten sensitivity; and BL-5010 for the treatment of benign skin lesions.2018. Our therapeutic candidates are subject to extensive governmental regulations relating to development, clinical trials, manufacturing and commercialization of drugs and devices. We may not obtain marketing approval for any other of our therapeutic candidates in a timely manner or at all. In connection with the clinical trials for BL-8040 and BL-7010, and other therapeutic candidates that we are currently developing or may seek to develop in the future, either on our own or through out-licensing or co-development arrangements, we face the risk that:
 
·a therapeutic candidate or medical device may not prove safe or efficacious;
 
·the results with respect to any therapeutic candidate may not confirm the positive results from earlier preclinical studies or clinical trials;
 
·the results may not meet the level of statistical significance required by the U.S. Food and Drug Administration, or FDA, or other regulatory authorities; and
 
·the results will justify only limited and/or restrictive uses, including the inclusion of warnings and contraindications, which could significantly limit the marketability and profitability of the therapeutic candidate.
 
Any delay in obtaining, or the failure to obtain, required regulatory approvals will materially and adversely affect our ability to generate future revenues from a particular therapeutic candidate. Any regulatory approval to market a product may be subject to limitations on the indicated uses for which we may market the product or may impose restrictive conditions of use, including cautionary information, thereby limiting the size of the market for the product. We and our licensees, as applicable, also are, and will be, subject to numerous foreign regulatory requirements that govern the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process includes all of the risks associated with the FDA approval process that we describe above, as well as risks attributable to the satisfaction of foreign requirements. Approval by the FDA does not ensure approval by regulatory authorities outside the United States. Foreign jurisdictions may have different approval processes than those required by the FDA and may impose additional testing requirements for our therapeutic candidates.
 
Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
 
We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including FDA approval. Clinical trials are expensive and complex, can take many years and have uncertain outcomes. We cannot necessarily predict whether we or our licensees will encounter problems with any of the completed, ongoing or planned clinical trials that will cause us, our licensees or regulatory authorities to delay or suspend clinical trials, or delay the analysis of data from completed or ongoing clinical trials. In addition, due to the fact thatbecause some of our clinical trials are investigator-initiated studies (i.e., we are not the study sponsor), we may have less control over these studies. We estimate that clinical trials of our most advanced therapeutic candidates will continue for several years, but they may take significantly longer to complete. Failure can occur at any stage of the testing and we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent commercialization of our current or future therapeutic candidates, including but not limited to:
 
·delays in securing clinical investigators or trial sites for the clinical trials;
 
·delays in obtaining institutional review board and other regulatory approvals to commence a clinical trial;
 
4
·slower than anticipated patient recruitment and enrollment;
 
·negative or inconclusive results from clinical trials;
 
·unforeseen safety issues;
 
·uncertain dosing issues;
 
·an inability to monitor patients adequately during or after treatment; and
 
·problems with investigator or patient compliance with the trial protocols.
 
A number of companies in the pharmaceutical, medical device and biotechnology industries, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after seeing promising results in earlier clinical trials. Despite the results reported in earlier clinical trials for our therapeutic candidates, we do not know whether any Phase 3 or other clinical trials we or our licensees may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market our therapeutic candidates. If later-stage clinical trials of any therapeutic candidate do not produce favorable results, our ability to obtain regulatory approval for the therapeutic candidate may be adversely impacted, which will have a material adverse effect on our business, financial condition and results of operations.
 
Even if we obtain regulatory approvals, our therapeutic candidates will be subject to ongoing regulatory review and if we fail to comply with continuing U.S. and applicable foreign regulations, we could lose those approvals and our business would be seriously harmed.
 
Even if products we or our licensees develop receive regulatory approval or clearance, we or our licensees, as applicable, will be subject to ongoing reporting obligations and the products and the manufacturing operations will be subject to continuing regulatory review, including FDA inspections. The outcome of this ongoing review may result in the withdrawal of a product from the market, the interruption of the manufacturing operations and/or the imposition of labeling and/or marketing limitations. Since many more patients are exposed to drugs and medical devices following their marketing approval, serious but infrequent adverse reactions that were not observed in clinical trials may be observed during the commercial marketing of the product. In addition, the manufacturer and the manufacturing facilities we or our licensees, as applicable, will use to produce any therapeutic candidate will be subject to periodic review and inspection by the FDA and other, similar foreign regulators. Later discovery of previously unknown problems with any product, manufacturer or manufacturing process, or failure to comply with regulatory requirements, may result in actions such as:
 
·restrictions on such product, manufacturer or manufacturing process;
 
·warning letters from the FDA or other regulatory authorities;
 
·withdrawal of the product from the market;
 
·suspension or withdrawal of regulatory approvals;
 
·refusal to approve pending applications or supplements to approved applications that we or our licensees submit;
 
·voluntary or mandatory recall;
 
·fines;
 
·refusal to permit the import or export of our products;
 
·product seizure or detentions;
 
·injunctions or the imposition of civil or criminal penalties; or
 
·adverse publicity.
 
5
If we, or our licensees, suppliers, third party contractors, partners or clinical investigators are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or the adoption of new regulatory requirements or policies, we or our licensees may lose marketing approval for any of our products, if any of our therapeutic products are approved, resulting in decreased or lost revenue from milestones, product sales or royalties.
 
We generally rely on third parties to conduct our pre-clinical clinical trials and provide other services, and those third parties may not perform satisfactorily, including by failing to meet established deadlines for the completion of such services.
 
We do not have the ability to conduct certain preclinical studies and clinical trials independently for our therapeutic candidates, and we rely on third parties, such as contract laboratories, contract research organizations, medical institutions and clinical investigators to conduct these studies and our clinical trials. Our reliance on these third parties limits our control over these activities. The third-party contractors may not assign as great a priority to our clinical development programs or pursue them as diligently as we would if we were undertaking such programs directly. Accordingly, these third-party contractors may not complete activities on schedule, or may not conduct the studies or our clinical trials in accordance with regulatory requirements or with our trial design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, or if their performance is substandard, we may be required to replace them or add more sites to the studies. Although we believe that there are a number of other third-party contractors that we could engage to continue these activities, replacement of these third parties will result in delays and/or additional costs. As a result, our efforts to obtain regulatory approvals for, and to commercialize, our therapeutic candidates may be delayed. The third-party contractors may also have relationships with other commercial entities, some of whom may compete with us. If the third-party contractors assist our competitors, our competitive position may be harmed.
 
In addition, our ability to bring future products to market depends on the quality and integrity of data that we present to regulatory authorities in order to obtain marketing authorizations. Although we attempt to audit and control the quality of third-party data, we cannot guarantee the authenticity or accuracy of such data, nor can we be certain that such data has not been fraudulently generated. The failure of these third parties to carry out their obligations would materially adversely affect our ability to develop and market new products and implement our strategies.
 
We depend on out-licensing arrangements for late-stage development, marketing and commercialization of our therapeutic candidates.
 
We depend on out-licensing arrangements for late-stage development, marketing and commercialization of our therapeutic candidates. We have limited experience in late-stage development, marketing and commercializing therapeutic candidates. Dependence on out-licensing arrangements subjects us to a number of risks, including the risk that:
 
·we have limited control over the amount and timing of resources that our licensees devote to our therapeutic candidates;
 
·our licensees may experience financial difficulties;
 
·our licensees may fail to secure adequate commercial supplies of our therapeutic candidates upon marketing approval, if at all;
 
·our future revenues depend heavily on the efforts of our licensees;
 
·business combinations or significant changes in a licensee’s business strategy may adversely affect the licensee’s willingness or ability to complete its obligations under any arrangement with us;
 
·a licensee could move forward with a competing therapeutic candidate developed either independently or in collaboration with others, including our competitors; and
 
·out-licensing arrangements are often terminated or allowed to expire, which would delay the development and may increase the development costs of our therapeutic candidates.
 
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If we or any of our licensees breach or terminate their agreements with us, or if any of our licensees otherwise fail to conduct their development and commercialization activities in a timely manner or there is a dispute about their obligations, we may need to seek other licensees, or we may have to develop our own internal sales and marketing capability for our therapeutic candidates. Our dependence on our licensees’ experience and the rights of our licensees will limit our flexibility in considering alternative out-licensing arrangements for our therapeutic candidates. Any failure to successfully develop these arrangements or failure by our licensees to successfully develop or commercialize any of our therapeutic candidates in a competitive and timely manner, will have a material adverse effect on the commercialization of our therapeutic candidates.
 
We depend on our ability to identify and in-license technologies and therapeutic candidates.
 
We employ a number of methods to identify therapeutic candidates that we believe are likely to achieve commercial success. In addition to our internal research and business developments efforts, we employ a rigorous screening system we developed. In certain instances, our Scientific Advisory Board and disease-specific third-party advisors evaluate therapeutic candidates, as we deem necessary. In addition, therapeutic candidates expected to be developed under our collaboration with Novartis Pharma AG, or Novartis, are also evaluated within the framework of the Joint Steering Committee established with Novartis for this purpose. However, there can be no assurance that our internal research efforts or our screening system will accurately or consistently select among various therapeutic candidates those that have the highest likelihood to achieve, and which ultimately achieve, commercial success. As a result, we may spend substantial resources developing therapeutic candidates that will not achieve commercial success and we may not advance those therapeutic candidates with the greatest potential for commercial success.
 
An important element of our strategy is maintaining relationships with universities, medical institutions and biotechnology companies in order to in-license potential therapeutic candidates. We may not be able to maintain relationships with these entities and they may elect not to enter into in-licensing agreements with us or to terminate existing agreements. Recently, a number of global pharmaceutical companies and life-sciences-focused investment funds have set up operations in Israel, both with and without Israeli government funding, in order to identify and in-license new technologies. The presence of these global companies with significantly greater resources than we have may increase the competition with respect to the in-licensing of promising therapeutic candidates. We may not be able to acquire licenses on commercially reasonable terms, or at all. Failure to license or otherwise acquire necessary technologies could materially and adversely affect our business, financial condition and results of operations.
 
If we cannot meet requirements under our in-license agreements, we could lose the rights to our therapeutic candidates, which could have a material adverse effect on our business.
 
We depend on in-licensing agreements with third parties to maintain the intellectual property rights to our therapeutic candidates. Regarding the main therapeutic candidates in clinical trials, we have in-licensed rights from Biokine Therapeutics Ltd., or Biokine, with respect to our BL-8040 therapeutic candidate; from Gestion Univalor,the University of Massachusetts, or the University, and from Kode Biotech Limited, Partnership, or Univalor, forKode Biotech, with respect to our BL-7010AGI-134 therapeutic candidate; and from Innovative Pharmaceutical Concepts, Inc., or IPC, with respect to our BL-5010 therapeutic candidate. See “Item"Item 4. Information on the Company — Business Overview — In-Licensing Agreements.”" Our in-license agreements require us to make payments and satisfy performance obligations in order to maintain our rights under these agreements. The royalty rates and revenue sharing payments vary from case to case but generally range from 20% to 29.5% of the consideration we receive from sublicensing the applicable therapeutic candidate. In some instances, we are required to pay a substantially lower percentage (generally less than 5%) if we elect to commercialize the subject therapeutic candidate independently. Due to the relatively advanced stage of development of the compound licensed from Biokine, our license agreement with Biokine provides for royalty payments of 40% of the consideration we receive from sublicensing and 10% of net sales, subject to certain limitations, should we independently sell products. These in-license agreements last either throughout the life of the patents that are the subject of the agreements, or with respect to other licensed technology, for a number of years after the first commercial sale of the relevant product.
 
In addition, we are responsible for the cost of filing and prosecuting certain patent applications and maintaining certain issued patents licensed to us. If we do not meet our obligations under our in-license agreements in a timely manner, we could lose the rights to our proprietary technology which could have a material adverse effect on our business, financial condition and results of operations.
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If we do not meet the requirements under our agreement with the Agalimmune selling shareholders, we could lose the rights to the therapeutic candidates in Agalimmune's pipeline, including but not limited to AGI-134.
 
In March 2017, we acquired substantially all the outstanding shares of Agalimmune Ltd., or Agalimmune, a privately-held company incorporated in the United Kingdom. In conjunction with the acquisition, we entered into a development agreement with Agalimmune and its selling shareholders, or the Agalimmune Development Agreement, which, among other things, grants us an option to purchase any remaining Agalimmune shares. If we do not exercise this option within a certain period of time after achieving certain milestones or we commit a material breach of the Agalimmune Development Agreement, the selling shareholders have a reversionary option to acquire all the Agalimmune shares we hold for nominal consideration. If the exercise of this option is completed and our development work subsequently generates revenues for Agalimmune, we will only be entitled to a percentage of Agalimmune's net proceeds, until such time as we have recouped the expenses we incurred in connection with the Agalimmune Development Agreement. Completion of the exercise of the reversionary option would result in the loss of our rights in the proprietary technology held by Agalimmune, which could have a material adverse effect on our business, financial condition and results of operations.
 
Modifications to our therapeutic candidates, or to any other therapeutic candidates that we may develop in the future, may require new regulatory clearances or approvals or may require us or our licensees, as applicable, to recall or cease marketing these therapeutic candidates until clearances are obtained.
 
Modifications to our therapeutic candidates, after they have been approved for marketing, if at all, or to any other pharmaceutical product or medical device that we may develop in the future, may require new regulatory clearance, or approvals, and, if necessitated by a problem with a marketed product, may result in the recall or suspension of marketing of the previously approved and marketed product until clearances or approvals of the modified product are obtained. The FDA requires pharmaceutical products and device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer may determine in conformity with applicable regulations and guidelines that a modification may be implemented without pre-clearance by the FDA; however, the FDA can review a manufacturer’s decision and may disagree. The FDA may also on its own initiative determine that a new clearance or approval is required. If the FDA requires new clearances or approvals of any pharmaceutical product or medical device for which we or our licensees receive marketing approval, if any, we or our licensees may be required to recall such product and to stop marketing the product as modified, which could require us or our licensees to redesign the product and will have a material adverse effect on our business, financial condition and results of operations. In these circumstances, we may be subject to significant enforcement actions.
 
If a manufacturer determines that a modification to an FDA-cleared device could significantly affect the safety or efficacy of the device, would constitute a major change in its intended use, or otherwise requires pre-clearance, the modification may not be implemented without the requisite clearance. We or our licensees may not be able to obtain those additional clearances or approvals for the modifications or additional indications in a timely manner, or at all. For those products sold in the European Union, or EU, we, or our licensees, as applicable, must notify the applicable EU Notified Body, an organization appointed by a member State of the EU either for the approval and monitoring of a manufacturer’s quality assurance system or for direct product inspection, if significant changes are made to the product or if there are substantial changes to the quality assurance systems affecting the product. Delays in obtaining required future clearances or approvals would materially and adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would have a material adverse effect on our business, financial condition and results of operations.
 
If our competitors develop and market products that are more effective, safer or less expensive than our current or future therapeutic candidates, our future prospects will be negatively impacted.
 
The life sciences industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching and marketing products designed to address the indications for which we are currently developing therapeutic candidates or for which we may develop therapeutic candidates in the future. Specifically, we are aware of many other companies which currently market and/or are in the process of developing products that address acute myeloid leukemia, or AML, celiac disease and gluten sensitivity, and skin lesions.
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An important element of our strategy for identifying future products is maintaining relationships with universities, medical institutions and biotechnology companies in order to in-license potential therapeutic candidates, and we compete with respect to this in-licensing with a number of global pharmaceutical companies, both with and without Israeli government funding. The presence of these global companies with significantly greater resources than we have may increase the competition with respect to the in-licensing of promising therapeutic candidates.  Our failure to license or otherwise acquire necessary technologies could materially and adversely affect our business, financial condition and results of operations.
 
We and ourOur contract manufacturers are, and will be, subject to FDA and other comparable agency regulations.
 
We and ourOur contract manufacturers are, and will be, required to adhere to FDA regulations setting forth current good manufacturing practices, or cGMP, for drugs and Quality System Regulations, or QSR, for devices. These regulations cover all aspects of the manufacturing, testing, quality control and recordkeeping relating to our therapeutic candidates. We and ourOur manufacturers may not be able to comply with applicable regulations. We and ourOur manufacturers are and will be subject to unannounced inspections by the FDA, state regulators and similar regulators outside the United States. Our failure, or theThe failure of our third party manufacturers to comply with applicable regulations could result in the imposition of sanctions on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our therapeutic candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of our candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect regulatory approval and supplies of our therapeutic candidates, and materially and adversely affect our business, financial condition and results of operations.
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We have no experience selling, marketing or distributing products and no internal capability to do so.
 
We currently have no sales, marketing or distribution capabilities and no experience in building a sales force or distribution capabilities. To be able to commercialize any of our therapeutic candidates upon approval, if at all, we must either develop internal sales, marketing and distribution capabilities, which will be expensive and time consuming, or enter into out-licensing arrangements with third parties to perform these services.
 
If we decide to market any of our other therapeutic candidates on our own, we must commit significant financial and managerial resources to develop a marketing and sales force with technical expertise and with supporting distribution capabilities. Factors that may inhibit our efforts to commercialize our products directly and without strategic partners include:
 
·our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
 
·the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our therapeutic candidates;
 
·the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
 
·unforeseen costs and expenses associated with creating and sustaining an independent sales and marketing organization.
 
We may not be successful in recruiting the sales and marketing personnel necessary to sell any of our therapeutic candidates upon approval, if at all, and even if we do build a sales force, it may not be successful in marketing our therapeutic candidates, which would have a material adverse effect on our business, financial condition and results of operations.
 
Our business could suffer if we are unable to attract and retain key employees.
 
Our success depends upon the continued service and performance of our senior management and other key personnel. The loss of the services of these personnel could delay or prevent the successful completion of our planned clinical trials or the commercialization of our therapeutic candidates or otherwise affect our ability to manage our company effectively and to carry out our business plan. We do not maintain key-man life insurance. Although we have entered into employment agreements with all of the members of our senior management team, members of our senior management team may resign at any time. High demand exists for senior management and other key personnel in the pharmaceutical industry. There can be no assurance that we will be able to continue to retain and attract such personnel.
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Our growth and success also depend on our ability to attract and retain additional highly qualified scientific, technical, sales, managerial and finance personnel. We experience intense competition for qualified personnel, and the existence of non-competition agreements between prospective employees and their former employers may prevent us from hiring those individuals or subject us to suit from their former employers. In addition, if we elect to independently commercialize any therapeutic candidate, we will need to expand our marketing and sales capabilities. While we attempt to provide competitive compensation packages to attract and retain key personnel, many of our competitors are likely to have greater resources and more experience than we have, making it difficult for us to compete successfully for key personnel. If we cannot attract and retain sufficiently qualified technical employees on acceptable terms, we may not be able to develop and commercialize competitive products. Further, any failure to effectively integrate new personnel could prevent us from successfully growing our company.
 
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We expect to rely upon third-party manufacturers to produce therapeutic supplies for Phase 3the clinical trials, and commercialization, of our therapeutic candidates. If we manufacture any of our therapeutic candidates in the future, we will be required to incur significant costs and devote significant efforts to establish and maintain manufacturing capabilities.
 
We do not currently have laboratories that are compliant with both current good manufacturing practices, or cGMP and certified Good Laboratory Practices, or GLP, and allow us totherefore cannot independently manufacture drug products for our current clinical trials. If we decide to perform any Phase 3 clinical trial, or commercialize, any therapeutic candidate on our own, we anticipate that we willWe rely on third partiesthird-party manufacturers to produce the therapeutic supplies.supplies that will enable us to perform clinical trials and, if we choose to do so, commercialize therapeutic candidates ourselves. We have limited personnel with experience in drug or medical device manufacturing and we lack the resources and capabilities to manufacture any of our therapeutic candidates on a commercial scale. The manufacture of pharmaceutical products and medical devices requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products and medical devices often encounter difficulties in production, particularly in scaling up initial production. These problems include difficulties with production costs and yields and quality control, including stability of the therapeutic candidate.
 
We do not currently have any long-term agreements with third party manufacturers forthat guarantee the supply of any of our therapeutic candidates. We believe that our current supply of therapeutic candidates is sufficient to complete our current clinical trials. However, ifWhen we require additional supplies of our therapeutic candidates to complete our clinical trials or if we elect to commercialize our products independently, we may be unable to enter into agreements for clinical or commercial supply, as applicable, with third party manufacturers, or may be unable to do so on acceptable terms. Even if we enter into these agreements, it is likely that the manufacturers of each therapeutic candidate will be single source suppliers to us for a significant period of time.
 
Reliance on third party manufacturers entails risks to which we would not be subject if we manufactured therapeutic candidates ourselves, including:
 
·reliance on the third party for regulatory compliance and quality assurance;
 
·limitations on supply availability resulting from capacity and scheduling constraints of the third parties;
 
·impact on our reputation in the marketplace if manufacturers of our products, once commercialized, fail to meet customer demands;
 
·the possible breach of the manufacturing agreement by the third party because of factors beyond our control; and
 
·the possible termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.
 
The failure of any of our contract manufacturers to maintain high manufacturing standards could result in injury or death of clinical trial participants or patients being treated with our products. Such failure could also result in product liability claims, product recalls, product seizures or withdrawals, delays or failures in testing or delivery, cost overruns or other problems, which would have a material adverse effect on our business, financial condition and results of operations.
 
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Risks Related to Our Industry
 
Even if our therapeutic candidates receive regulatory approval or do not require regulatory approval, they may not become commercially viable products.
 
Even if our therapeutic candidates are approved for commercialization, they may not become commercially viable products.  For example, if we or our licensees receive regulatory approval to market a product, approval may be subject to limitations on the indicated uses or subject to labeling or marketing restrictions which could materially and adversely affect the marketability and profitability of the product.  In addition, a new product may appear promising at an early stage of development or after clinical trials but never reach the market, or it may reach the market but not result in sufficient product sales, if any.  A therapeutic candidate may not result in commercial success for various reasons, including:
 
·difficulty in large-scale manufacturing;
 
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·low market acceptance by physicians, healthcare payors, patients and the medical community as a result of lower demonstrated clinical safety or efficacy compared to other products, prevalence and severity of adverse side effects, or other potential disadvantages relative to alternative treatment methods;
 
·insufficient or unfavorable levels of reimbursement from government or third-party payors;
 
·infringement on proprietary rights of others for which we or our licensees have not received licenses;
 
·incompatibility with other therapeutic products;
 
·other potential advantages of alternative treatment methods;
 
·ineffective marketing and distribution support;
 
·significant changes in pricing due to pressure from public opinion, NGOsnon-governmental organizations or governmental authorities
 
·lack of cost-effectiveness; or
 
·timing of market introduction of competitive products.
 
If we are unable to develop commercially viable products, either on our own or through licensees, our business, results of operations and financial condition will be materially and adversely affected.
 
Healthcare reforms and related reductions in pharmaceutical pricing, reimbursement and coverage by governmental authorities and third-party payors may adversely affect our business.
 
The continuing increase in expenditures for healthcare has been the subject of considerable government attention, particularly as public resources have been stretched by financial and economic crises in the United States, Western Europe and elsewhere. Both private health insurance funds and government health authorities continue to seek ways to reduce or contain healthcare costs, including by reducing or eliminating coverage for certain products and lowering reimbursement levels. In many countries and regions, including the United States, Western Europe, Israel, Russia, certain countries in Central and Eastern Europe and several countries in Latin America, pharmaceutical prices are subject to new government policies designed to reduce healthcare costs. These changes frequently adversely affect pricing and profitability and may cause delays in market entry. We cannot predict which additional measures may be adopted or the impact of current and additional measures on the marketing, pricing and demand for our approved products, if any of our therapeutic products are approved.
 
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Significant developments that may adversely affect pricing in the United States include (i) the enactment of federal healthcare reform laws and regulations, including the Medicare Prescription Drug Improvement and Modernization Act of 2003 and the Patient Protection and Affordable Care Act of 2010, or PPACA, and (ii) trends in the practices of managed care groups and institutional and governmental purchasers, including the impact of consolidation of our customers. Changes to the healthcare system enacted as part of healthcare reform in the United States, as well as the increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, may result in increased pricing pressure by influencing, for instance, the reimbursement policies of third-party payors. Healthcare reform legislation has increased the number of patients who would have insurance coverage for our approved products, if any of our therapeutic products are approved, but provisions such as the assessment of a branded pharmaceutical manufacturer fee and an increase in the amount of the rebates that manufacturers pay for coverage of their drugs by Medicaid programs may have an adverse effect on us. It is uncertain how current and future reforms in these areas will influence the future of our business operations and financial condition.
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If third-party payors do not adequately reimburse customers for any of our therapeutic candidates that are approved for marketing, they might not be purchased or used, and our revenues and profits will not develop or increase.
 
Our revenues and profits will depend heavily upon the availability of adequate reimbursement for the use of our approved candidates, if any, from governmental or other third-party payors, both in the United States and in foreign markets.  Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that the use of an approved product is:
 
·a covered benefit under its health plan;
 
·safe, effective and medically necessary;
 
·appropriate for the specific patient;
 
·cost-effective; and
 
·neither experimental nor investigational.
 
Obtaining reimbursement approval for a product from each government or other third-party payor is a time-consuming and costly process that could require us or our licensees to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to each payor.  Even when a payor determines that a product is eligible for reimbursement, the payor may impose coverage limitations that preclude payment for some uses that are approved by the FDA or comparable foreign regulatory authorities.  Reimbursement rates may vary according to the use of the product and the clinical setting in which it used, may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for other products or services, and may reflect budgetary constraints and/or imperfections in Medicare, Medicaid or other data used to calculate these rates.
 
Regardless of the impact of the PPACA on us, the U.S. government, other governments and commercial payors have shown significant interest in pursuing healthcare reform and reducing healthcare costs.  Any government-adopted reform measures could cause significant pressure on the pricing of healthcare products and services, including those biopharmaceuticals currently being developed by us or our licensees, in the United States and internationally, as well as the amount of reimbursement available from governmental agencies or other third party payors.  The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payors to contain or reduce healthcare costs may compromise our ability to set prices at commercially attractive levels for our products that we may develop, which in turn could adversely impact how much or under what circumstances healthcare providers will prescribe or administer our products, if approved.  Changes in healthcare policy, such as the creation of broad limits for diagnostic products, could substantially diminish the sale of or inhibit the utilization of diagnostic tests, increase costs, divert management’s attention and adversely affect our ability to generate revenues and achieve consistent profitability.  This could materially and adversely impact our business by reducing our ability to generate revenue, raise capital, obtain additional collaborators and market our products, if approved.
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Further, the Centers for Medicare and Medicaid Services, or CMS, frequently change product descriptors, coverage policies, product and service codes, payment methodologies and reimbursement values.  Third-party payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and both CMS and other third-party payors may have sufficient market power to demand significant price reductions.
 
Our business has a substantial risk of clinical trial and product liability claims.  If we are unable to obtain and maintain appropriate levels of insurance, a claim could adversely affect our business.business.
 
Our business exposes us to significant potential clinical trial and product liability risks that are inherent in the development, manufacturing and sales and marketing of human therapeutic products. Although we do not currently commercialize any products, claims could be made against us based on the use of our therapeutic candidates in clinical trials. We currently carry life science liability insurance covering general liability with an annual coverage amount of $20.0$30.0 million per occurrence and product liability and clinical trials coverage with an annual coverage amount of $20.0$30.0 million each claim and in the aggregate. The maximum indemnity for a single occurrence, claim or circumstances under this insurance is $20.0$30.0 million. However, our insurance may not provide adequate coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to maintain current amounts of insurance coverage or obtain additional or sufficient insurance at a reasonable cost to protect against losses that could have a material adverse effect on us. If a claim is brought against us, we might be required to pay legal and other expenses to defend the claim, as well as damages awards beyond the coverage of our insurance policies resulting from a claim brought successfully against us. Furthermore, whether or not we are ultimately successful in defending any claims, we might be required to direct significant financial and managerial resources to such defense, and adverse publicity is likely to result.
 
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Significant disruptions of our information technology systems or breaches of our data security could adversely affect our business.

A significant invasion, interruption, destruction or breakdown of our information technology systems and/or infrastructure by persons with authorized or unauthorized access could negatively impact our business and operations. We could also experience business interruption, information theft and/or reputational damage from cyber attacks, which may compromise our systems and lead to data leakage either internally or at our third partythird-party providers. Our systems have been, and are expected to continue to be, the target of malware and other cyber attacks. Although we have invested in measures to reduce these risks, we cannot assure you that these measures will be successful in preventing compromise and/or disruption of our information technology systems and related data.
 
We deal with hazardous materials and must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do business.
 
Our activities and those of our third-party manufacturers on our behalf involve the controlled storage, use and disposal of hazardous materials, including microbial agents, corrosive, explosive and flammable chemicals, as well as cytotoxic, biologic, radio-labeled and other hazardous compounds.  We and our manufacturers are subject to U.S. federal, state, local, Israeli and other foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials.  Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials.  In addition, if we develop a manufacturing capacity, we may incur substantial costs to comply with environmental regulations and would be subject to the risk of accidental contamination or injury from the use of hazardous materials in our manufacturing process.
 
In the event of an accident, government authorities may curtail our use of these materials and interrupt our business operations. In addition, we could be liable for any civil damages that result, which may exceed our financial resources and may seriously harm our business. Although our Israeli insurance program covers certain unforeseen sudden pollutions, we do not maintain a separate insurance policy for any of the foregoing types of risks. In addition, although the general liability section of our life sciences policy covers certain unforeseen, sudden environmental issues, pollution in the United States and Canada is excluded from the policy. In the event of environmental discharge or contamination or an accident, we may be held liable for any resulting damages, and any liability could exceed our resources. In addition, we may be subject to liability and may be required to comply with new or existing environmental laws regulating pharmaceuticals or other medical products in the environment.
 
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Risks Related to Intellectual Property
 
Our access to most of the intellectual property associated with our therapeutic candidates results from in-license agreements with universities, research institutions and biotechnology companies, the termination of which would prevent us from commercializing the associated therapeutic candidates.
 
We do not conduct our own initial research with respect to the identification of our therapeutic candidates.  Instead, we rely upon research and development work conducted by third parties as the primary source of our therapeutic candidates.  As such, we have obtained our rights to our therapeutic candidates through in-license agreements entered into with universities, research institutions and biotechnology companies that invent and own the intellectual property underlying our candidates.  There is no assurance that such in-licenses or rights will not be terminated or expire due to a material breach of the agreements, such as a failure on our part to achieve certain progress milestones set forth in the terms of the in-licenses or due to the loss of the rights to the underlying intellectual property by any of our licensors.  There is no assurance that we will be able to renew or renegotiate an in-licensing agreement on acceptable terms if and when the agreement terminates.  We cannot guarantee that any in-license is enforceable or will not be terminated or converted into a non-exclusive license in the future.  The termination of any in-license or our inability to enforce our rights under any in-license would materially and adversely affect our ability to commercialize certain of our therapeutic candidates.
 
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We currently have in-licensing agreements relating to our lead therapeutic candidates under clinical development.that are in development or being commercialized. In September 2012, we in-licensed the rights to BL-8040 under a license agreement from Biokine. Under the BL-8040 license agreement, we are obligated to make commercially reasonable, good faith efforts to sublicense or commercialize BL-8040 for fair consideration. In February 2011, weAgalimmune in-licensed the rights to BL-7010AGI-134 under a license from Univalor.the University of Massachusetts in 2013 and under a license from Kode Biotech in 2015. Under the BL-7010each of those license agreement, we areagreements, Agalimmune is obligated to use commercially reasonablediligent efforts or cause its affiliates and sublicensees to use diligent efforts to develop the respective licensed technology in accordance with a specified development plan, including meeting certain specified diligence goals.and introduce licensed products into the commercial market. In November 2007, we in-licensed the rights to BL-5010 under a license agreement with IPC. Under the BL-5010 license agreement, we are obligated to use commercially reasonable efforts to develop the licensed technology in accordance with a specified development plan, including meeting certain specified diligence goals.
 
Each of the foregoing in-licensing agreements, or the obligation to pay royalties thereunder, will generally remain in effect until the expiration, under the applicable agreement, of all of the licensing, royalty and sublicense revenue obligations to the applicable licensors, determined on a product-by-product and country-by-country basis. We may terminate the BL-8040 in-licensing agreement upon 90 days’days prior written notice to Biokine. WeAgalimmune may terminate the BL-7010 in-licensinglicense from University of Massachusetts relating to AGI-134 and the evaluation license and option agreement or(the "Evaluation License") from Kode Biotech relating to AGI-134, each on 90 days notice. We may terminate the BL-5010 in-licensing agreement upon 30 days’days' prior written notice to the respective licensor.
 
Any party to any of the foregoing in-licensing agreements may terminate the respective agreement for material breach by the other party if the breaching party is unable to cure the breach within an agreed upon period, generally 30 days to 90 days, after receiving written notice of the breach from the non-breaching party. Each of the foregoing in-licensing agreements provide that with respect to any termination for material breach, if the breach is not susceptible to cure within the stated period and the breaching party uses diligent, good faith efforts to cure such breach, the stated period will be extended by an additional 30 days. In addition, either party to one of the foregoing in-licensing agreements may terminate the agreement upon notice to the other upon the occurrence of certain bankruptcy events.
 
Patent protection for our products is important and uncertain.
 
Our success depends, in part, on our ability, and the ability of our licensees and licensors to obtain patent protection for our therapeutic candidates, maintain the confidentiality of our trade secrets and know how, operate without infringing on the proprietary rights of others and prevent others from infringing our proprietary rights.
 
We try to protect our proprietary position by, among other things, filing U.S., European, Israeli and other patent applications related to our proprietary products, technologies, inventions and improvements that may be important to the continuing development of our therapeutic candidates. As of December 31, 2015March 20, 2017, we owned or exclusively licensed for uses within our field of business 1926 patent families that collectively contain 34over 54 issued patents, threeone allowed patent applicationsapplication and over 5761 pending patent applications relating to our main clinicaltherapeutic candidates. We are also pursuing patent protection for other drug candidates in our pipeline.
 
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Because the patent position of biopharmaceutical companies involves complex legal and factual questions, we cannot predict the validity and enforceability of patents with certainty.  Our issued patents and the issued patents of our licensees or licensors may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges by third parties.  Thus, any patents that we own or license from others may not provide any protection against competitors.  Our pending patent applications, those we may file in the future or those we may license from third parties may not result in patents being issued.  If these patents are issued, they may not provide us with proprietary protection or competitive advantages against competitors with similar technology.  The degree of future protection to be afforded by our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage.
 
Patent rights are territorial; thus, the patent protection we do have will only extend to those countries in which we have issued patents.  Even so, the laws of certain countries do not protect our intellectual property rights to the same extent as do the laws of the United States and Israel.  For example, the patent laws of China and India are relatively new and are not as developed as are older, more established patent laws of other countries.  Competitors may successfully challenge our patents, produce similar drugs or products that do not infringe our patents, or produce drugs in countries where we have not applied for patent protection or that do not respect our patents.  Furthermore, it is not possible to know the scope of claims that will be allowed in published applications and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a court of law.
 
Our technology may infringe the rights of third parties.  The nature of claims contained in unpublished patent filings around the world is unknown to us and it is not possible to know which countries patent holders may choose for the extension of their filings under the Patent Cooperation Treaty, or other mechanisms.  Any infringement by us of the proprietary rights of third parties may have a material adverse effect on our business, financial condition and results of operations.
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If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us.
 
We rely on a combination of patents, trade secrets, know-how, technology, trademarks and regulatory exclusivity to maintain our competitive position.  We generally try to protect trade secrets, know-how and technology by entering into confidentiality or non-disclosure agreements with parties that have access to it, such as our licensees, employees, contractors and consultants.  We also enter into agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees, advisors, research collaborators, contractors and consultants while we employ or engage them.  However, these agreements can be difficult and costly to enforce or may not provide adequate remedies.  Any of these parties may breach the confidentiality agreements and willfully or unintentionally disclose our confidential information, or our competitors might learn of the information in some other way. The disclosure to, or independent development by, a competitor of any trade secret, know-how or other technology not protected by a patent could materially adversely affect any competitive advantage we may have over any such competitor.
 
To the extent that any of our employees, advisors, research collaborators, contractors or consultants independently develop, or use independently developed, intellectual property in connection with any of our projects, disputes may arise as to the proprietary rights to this type of information. If a dispute arises with respect to any proprietary right, enforcement of our rights can be costly and unpredictable and a court may determine that the right belongs to a third party.
 
Legal proceedings or third-party claims of intellectual property infringement may require us to spend substantial time and money and could prevent us from developing or commercializing products.
 
The development, manufacture, use, offer for sale, sale or importation of our therapeutic candidates may infringe on the claims of third-party patents.  A party might file an infringement action against us.  The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial.  Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively because of their substantially greater financial resources.  Uncertainties resulting from the initiation and continuation or defense of a patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.  Patent litigation and other proceedings may also absorb significant management time.  Consequently, we are unable to guarantee that we will be able to manufacture, use, offer for sale, sell or import our therapeutic candidates in the event of an infringement action.  At present, we are not aware of pending or threatened patent infringement actions against us.
 
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In the event of patent infringement claims, or to avoid potential claims, we may choose or be required to seek a license from a third party and would most likely be required to pay license fees or royalties or both.  These licenses may not be available on acceptable terms, or at all.  Even if we were able to obtain a license, the rights may be non-exclusive, which could potentially limit our competitive advantage.  Ultimately, we could be prevented from commercializing a therapeutic candidate or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.  This inability to enter into licenses could harm our business significantly.  At present, we have not received any written demands from third parties that we take a license under their patents nor have we received any notice form a third party accusing us of patent infringement.
 
Our license agreements with our licensees contain, and any contract that we enter into with licensees in the future will likely contain, indemnity provisions that obligate us to indemnify the licensee against any losses arising from infringement of third party intellectual property rights. In addition, our in-license agreements contain provisions that obligate us to indemnify the licensors against any damages arising from the development, manufacture and use of products developed on the basis of the in-licensed intellectual property.
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We may be subject to other patent-related litigation or proceedings that could be costly to defend and uncertain in their outcome.
 
In addition to infringement claims against us, we may in the future become a party to other patent litigation or proceedings, including interference or re- examination proceedings filed with the U.S. Patent and Trademark Office or opposition proceedings in other foreign patent offices regarding intellectual property rights with respect to our products and technology, as well as other disputes regarding intellectual property rights with licensees, licensors or others with whom we have contractual or other business relationships. Post-issuance oppositions are not uncommon and we, our licensee or our licensor will be required to defend these opposition procedures as a matter of course. Opposition procedures may be costly, and there is a risk that we may not prevail.
 
We may be subject to damages resulting from claims that we or our employees or contractors have wrongfully used or disclosed alleged trade secrets of their former employers.
 
Many of our employees and contractors were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors.  Although no claims against us are currently pending, we may be subject to claims that we or any employee or contractor has inadvertently or otherwise used or disclosed trade secrets or other proprietary information of his or her former employers.  Litigation may be necessary to defend against these claims.  If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.  A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain therapeutic candidates, which could severely harm our business, financial condition and results of operations.  Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
 
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Risks Related to our Ordinary Shares and ADSs
 
We may be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes in 2016for our taxable year ending December 31, 2017 or in any subsequent year. There may be negative tax consequences for U.S. taxpayers that are holders of our ordinary shares or our ADSs.ADSs if we are a PFIC.
 
We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of our gross income is “passive income”"passive income" or (ii) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. We believe that we were a PFIC during certain prior taxable years and, although we have not determined whether we will be a PFIC in 2016,for our taxable year ending December 31, 2017, or in any subsequent year, our operating results for any such years may cause us to be a PFIC. If we are a PFIC in 2016,for our taxable year ending December 31, 2017, or any subsequent year, and a U.S. shareholderInvestor (as defined below) does not make an election to treat us as a “qualified"qualified electing fund,”" or QEF, or make a “mark-to-market”"mark-to-market" election, then “excess distributions”"excess distributions" to a U.S. shareholder,Investor, and any gain realized on the sale or other disposition of our ordinary shares or ADSs will be subject to special rules. Under these rules: (i) the excess distribution or gain would be allocated ratably over the U.S. shareholder’sInvestor's holding period for the ordinary shares (or ADSs, as the case may be); (ii) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (iii) 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. In addition, if the U.S. Internal Revenue Service, or the IRS, determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. shareholderInvestor to make a timely QEF or mark-to-market election. U.S. shareholdersInvestors who hold our ordinary shares or ADSs during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. shareholdersInvestors who made a timely QEF or mark-to-market election. A U.S. shareholderInvestor can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto. A QEF election generally may not be revoked without the consent of the IRS. Upon request, we will annually furnish U.S. shareholdersInvestors with information needed in order to complete IRS Form 8621 (which form would be required to be filed with the IRS on an annual basis by the U.S. shareholder)Investor) and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC.
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The market prices of our ordinary shares and ADSs are subject to fluctuation, which could result in substantial losses by our investors.
 
The stock market in general and the market prices of our ordinary shares on the TASE and ADSs on the Nasdaq, in particular, are subject to fluctuation, and changes in these prices may be unrelated to our operating performance.  We expect that the market prices of our ordinary shares and ADSs will continue to be subject to wide fluctuations.  The market price of our ordinary shares and ADSs are and will be subject to a number of factors, including:
 
·announcements of technological innovations or new products by us or others;
 
·announcements by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing, joint ventures or capital commitments;
 
·expiration or terminations of licenses, research contracts or other collaboration agreements;
 
·public concern as to the safety of drugs we, our licensees or others develop;
 
·general market conditions;
 
·the volatility of market prices for shares of biotechnology companies generally;
 
·success of research and development projects;
 
·departure of key personnel;
 
·developments concerning intellectual property rights or regulatory approvals;
 
·variations in our and our competitors’ results of operations;
 
·changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or ADSs are covered by analysts;
 
·statements about the Company made in the financial media or by bloggers on the Internet;
 
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·changes in government regulations or patent decisions;
 
·developments by our licensees; and
 
·general market conditions and other factors, including factors unrelated to our operating performance.
 
These factors and any corresponding price fluctuations may materially and adversely affect the market price of our ordinary shares and result in substantial losses by our investors.
 
Additionally, market prices for securities of biotechnology and pharmaceutical companies historically have been very volatile.  The market for these securities has from time to time experienced significant price and volume fluctuations for reasons unrelated to the operating performance of any one company.  In the past, following periods of market volatility, shareholders have often instituted securities class action litigation.  If we were involved in securities litigation, it could have a substantial cost and divert resources and attention of management from our business, even if we are successful.
 
Our ordinary shares are traded on the TASE and our ADSs are listed on the Nasdaq Capital Market.Nasdaq.  Trading in our securities on these markets takes place in different currencies (dollars on the Nasdaq Capital Market and NIS on the TASE), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Israel).  The trading prices of our securities on these two markets may differ due to these factors, the factors listed above, or other factors.  Any decrease in the price of our securities on one of these markets could cause a decrease in the trading price of our securities on the other market.
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Future sales of our ordinary shares or ADSs could reduce the market price of our ordinary shares and ADSs.
 
Substantial sales of our ordinary shares or ADSs, either on the TASE or on the Nasdaq, may cause the market price of our ordinary shares or ADSs to decline.  Sales by us or our securityholders of substantial amounts of our ordinary shares or ADSs, or the perception that these sales may occur in the future, could cause a reduction in the market price of our ordinary shares or ADSs.
 
As a result of previous financings, we have warrants outstanding for the purchase of 4.21.6 million ADSs at a weighted averagean exercise price of $3.71$3.94 per ADS. In addition, as of March 1, 201620, 2017 we have stock options granted to directors, employees and consultants for the purchase of 4.86.9 million ordinary shares with a weighted average exercise price of $2.00$1.60 per ordinary share.
 
In May 2014, we entered into a purchase agreement with Lincoln Park Capital Fund, LLC, or LPC, for the sale, from time to time, of up to $20 million of our ADSs to LPC. During the 36-month term of this purchase agreement, we control the timing and amount of any sales to LPC, if and when we decide, in accordance with the agreement. LPC has no right to require us to sell any ADSs to LPC, but LPC is obligated to make purchases as we direct, subject to certain conditions. The purchase price related to any sales to LPC is based on the prevailing market prices of our ADSs immediately preceding the notice of sale to LPC, without any fixed discount. The agreement may be terminated by us at any time, at our sole discretion, without any cost or penalty. As of the date of this annual report,March 20, 2017, we have sold 1,292,601approximately 5.6 million ADSs to LPC under the purchase agreement.
 
The issuance of any additional ordinary shares, any additional ADSs, or any securities that are exercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ordinary shares and ADSs and will have a dilutive effect on our shareholders.
 
Raising additional capital by issuing securities may cause dilution to existing shareholders.
 
We may need to raise substantial future capital to continue to complete clinical development and commercialize our products and therapeutic candidates and to conduct the research and development and clinical and regulatory activities necessary to bring our therapeutic candidates to market.  Our future capital requirements will depend on many factors, including:
 
·
the failure to obtain regulatory approval or achieve commercial success of our therapeutic candidates;
 
·our success in effecting out-licensing arrangements with third-parties;
 
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·our collaboration with Novartis and the extent that upfront licensing fees and program development costs would be covered by the option fees and equity investments paid by Novartis under this collaboration;
 
·our success in establishing other out-licensing or co-development arrangements;
 
·the success of our licensees in selling products that utilize our technologies;
 
·the results of our preclinical studies and clinical trials for our earlier stage therapeutic candidates, and any decisions to initiate clinical trials if supported by the preclinical results;
 
·the costs, timing and outcome of regulatory review of our therapeutic candidates that progress to clinical trials;
 
·the costs of establishing or acquiring specialty sales, marketing and distribution capabilities, if any of our therapeutic candidates are approved, and we decide to commercialize them ourselves;
 
·the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our issued patents and defending intellectual property-related claims;
 
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·the extent to which we acquire or invest in businesses, products or technologies and other strategic relationships; and
 
·the costs of financing unanticipated working capital requirements and responding to competitive pressures.
 
If we raise additional funds through licensing arrangements with third parties, we may have to relinquish valuable rights to our therapeutic candidates, or grant licenses on terms that are not favorable to us.  If we raise additional funds by issuing equity or convertible debt securities, we will reduce the percentage ownership of our then-existing shareholders, and these securities may have rights, preferences or privileges senior to those of our existing shareholders. See also “— Future sales of our ordinary shares or ADSs could reduce the market price of our ordinary shares and ADSs.”
 
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and Nasdaq requirements, which may result in less protection than is accorded to investors under rules applicable to domestic issuers.
 
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the Marketplace Rules of the Nasdaq for domestic issuers. For instance, we may follow home country practice in Israel with regard to, among other things, composition of the Board of Directors, director nomination procedure, composition of the compensation committee, approval of compensation of officers, and quorum at shareholders’ meetings. In addition, we will follow our home country law, instead of the Marketplace Rules of the Nasdaq, which require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company.  Following our home country governance practices as opposed to the requirements that would otherwise apply to a United States company listed on the Nasdaq may provide less protection than is accorded to investors under the Marketplace Rules of the Nasdaq applicable to domestic issuers. See “Item 16G — Corporate Governance — Nasdaq Listing Rules and Home Country Practices.”
 
In addition, as a foreign private issuer, we are exempt from the rules and regulations under the U.S. Securities Exchange Act of 1934, as amended (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 annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.
 
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If we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act as they apply to a foreign private issuer that is listed on a U.S. exchange, or our internal controls over financial reporting are not effective, the reliability of our financial statements may be questioned and our stock price and ADS price may suffer.
 
Section 404 of the Sarbanes-Oxley Act requires companies subject to the reporting requirements of the U.S. securities laws to do a comprehensive evaluation of its and its subsidiaries’ internal controls over financial reporting.  To comply with this statute, we are required to document and test our internal control procedures, and our management is required to assess and issue a report concerning our internal controls over financial reporting.  In addition, our independent registered public accounting firm may be required to issue an opinion on management’s assessment of those matters.
 
The continuous process of strengthening our internal controls and complying with Section 404 is complicated and time-consuming.  Furthermore, as our business continues to grow both domestically and internationally, our internal controls will become more complex and will require significantly more resources and attention to ensure our internal controls remain effective overall.  During the course of its testing, our management may identify material weaknesses or significant deficiencies, which may not be remedied in a timely manner to meet the deadline imposed by the Sarbanes-Oxley Act.  If our management cannot favorably assess the effectiveness of our internal controls over financial reporting, or our independent registered public accounting firm identifies material weaknesses in our internal controls, investor confidence in our financial results may weaken, and the market price of our securities may suffer.
 
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Risks Related to our Operations in Israel
 
We conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and its region.
 
Our headquarters, all of our operations and some of our suppliers and third party contractors are located in central Israel and our key employees, officers and most of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and results of operations and could make it more difficult for us to raise capital. During the autumn of 2012, Israel was engaged in armed conflicts with Hamas, a militia group and political party operating in the Gaza Strip; during the summer of 2014, another escalation in violence among Israel, Hamas and other groups took place;place; and since October 2015, and to a lesser extent since August 2016, Israel has been facing another escalation in violence with the Palestinian population. These conflicts involved missile strikes against civilian targets in various parts of Israel, as well as civil insurrection of Palestinians in the West Bank, on the border with the Gaza Strip and in Israeli cities, and negatively affected business conditions in Israel. In addition, Israel faces threats from more distant neighbors, in particular Iran. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah (a Lebanese Islamist Shiite militia group and political party), and various rebel militia groups in Syria. Recent political uprisings and social unrest in various countries in the Middle East and North Africa are affecting the political stability of those countries. The year 2014 saw the rise of an Islamic fundamentalist group known as ISIS. Following swift operations, ISIS gained control of large areas in the Middle East, including in Iraq and Syria, which have contributed to the turmoil experienced in these areas. As a result, the United States armed forces have engaged in limited operations against ISIS and recently,since 2015, Russia’s armed forces have also been engaged in limited yet substantive operations to defeat ISIS and other rebel groups operating in Syria. This instability may lead to deterioration of the political relationships that exist between Israel and these countries, and has raised concerns regarding security in the region and the potential for armed conflict. These situations may escalate in the future to more violent events which may affect Israel and us. Among other things, this instability may affect the global economy and marketplace through changes in oil and gas prices. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations. For example, any major escalation in hostilities in the region could result in a portion of our employees being called up to perform military duty for an extended period of time. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in the agreements.
 
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Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently covers 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. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.
 
Further, in the past, the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business. If the BDS Movement, the movement for boycotting, divesting and sanctioning Israel and Israeli institutions (including universities) and products become increasingly influential in the United States and Europe, this may also adversely affect our financial condition.
 
Our operations may be disrupted as a result of the obligation of management or key personnel to perform military service.
 
Many of our male employees in Israel, including membersa member of our senior management, are obligated to perform one month, and in some cases more, of annual military reserve duty until they reach the age of 40 (or older, for officers or reservists with certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists, and some of our employees have been called up from time to time in connection with armed conflicts. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by the absence of a significant number of our employees or of one or more of our key employees. Such disruption could materially adversely affect our business, financial condition and results of operations.
 
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Due to a significant portion of our expenses and revenues being denominated in non-dollar currencies, our results of operations may be harmed by currency fluctuations.
 
Effective January 1, 2015, ourOur reporting and functional currency is the dollar. However, we pay a significant portion of our expenses in NIS, and we expect this to continue. If the dollar weakens against the NIS in the future, there may be a negative impact on our results of operations. The revenues from our current out-licensing and co-development arrangements are payable in dollars and euros. Although we expect our revenues from future licensing arrangements to be denominated primarily in dollars, we are exposed to the currency fluctuation risks relating to the recording of our revenues in currencies other than dollars. For example, if the euro strengthens against the dollar, our reported revenues in dollars may be lower than anticipated. From time to time, we engage in currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of the currencies mentioned above in relation to the dollar. These measures, however, may not adequately protect us from material adverse effects.
 
We have received Israeli government grants and loans for the operation of a biotechnology incubator and for certain research and development expenditures.  The terms of these grants and loans may require us to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel.  We may be required to pay penalties in addition to repayment of the grants and loans.
 
Our research and development efforts including the operation of a biotechnology incubator which we terminated at the end of 2013, have been financed, in part, through grants and loans that we have received from the OCS. In addition, before we in-licensed BL-8040, Biokine had received funding for the project from the OCS, and as a condition to OCS consent to our in-licensing of BL-8040, we were required to agree to abide by any obligations resulting from such funding. We therefore must comply with the requirements of the Israeli Law for the Encouragement of Industrial Research, Development and Development,Technological Innovation, 1984, and related regulations, as amended, or the Research Law, with respect to these projects. Through December 31, 2015,2016, we have received approximately $19.5$19.8 million in funding from the OCS.OCS and have paid the OCS approximately $6.3 million in royalties under our approved programs. As of December 31, 2015,2016, we have ano contingent obligation to the OCS (otherIIA other than for BL-8040 – see below) in the total amount of $0.2 million under all of our approved programs.BL-8040.  In connection with the in-licensing of BL-8040 from Biokine, and as a condition to OCS consent to the transaction, we agreed to abide by any obligations resulting from funds previously received by Biokine from the OCS. The contingent liability to the OCSIIA assumed by us relating to this transaction (which liability has no relation to the funding actually received by us) amounts to $2.7 million as of December 31, 2015.2016. We have a full right of offset for amounts payable to the OCSIIA from payments that we may owe to Biokine in the future. Therefore, the likelihood of any payment obligation to the OCSIIA with regard to the Biokine transaction is remote.
 
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The transfer to third parties of know-how or technologies developed under the programs submitted to the OCS or IIA and as to which we or our licensors received grants, or manufacturing or rights to manufacture based on and/or incorporating such know-how to third parties, might require the consent of the OCS,IIA, and may require certain payments to the OCS.IIA. There is no assurance that we will be able to obtain such consent on terms that acceptable to us, or at all. Although such restrictions do not apply to the export from Israel of our products developed with such know-how, they may prevent us from engaging in transactions with our affiliates, customers or other third parties outside Israel, involving product or other asset transfers, which might otherwise be beneficial to us.
 
In July 2015, the Knesset (the Israeli Parliament) enacted Amendment Number 7 to the Research Law, or the R&D Amendment. The R&D Amendment, effective as of January 1, 2016, amends material provisions of the Research Law (including but not limited to royalty rates and changes to royalty rates upon transfer of manufacturing rights abroad)abroad, as well as payments required for transfer of know-how out of Israel), leaves substantial discretion with the newly established National Authority for Technological Innovation, or the Authority (established to replace the OCS),IIA and includes only guidelines to some of the core issues of the Research Law. Thus, the R&D Amendment is currently causing much ambiguity as to its implementation and its effect on companies which developed know-how using funds received from the OCS. While it is possible that some of the core issues regulated by the Research Law following the R&D Amendment, including required approvals prior to the transfer abroad of the rights to or the manufacturing of any OCS or Authority-supportedIIA-supported product or technology, will be similar to the regime prior to the R&D Amendment, there is currently no certainty that procedures and requirements will remain similar to the ones in effect prior to the R&D Amendment. See “Item 4. Information on the Company — Business Overview — Government Regulation and Funding — Israeli Government Programs.”
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Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
 
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions.  For example, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the merger.  In addition, a majority of each class of securities of the target company must approve a merger.  Moreover, a full tender offer can only be completed if the acquirer receives the approval of at least 95% of the issued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, except that if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, claim that the consideration for the acquisition of the shares did not reflect their fair market value  and petition the court to alter the consideration for the acquisition accordingly (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights, and the acquirer or the company published all required information with respect to the tender offer prior to the date indicated for response to the tender offer).
 
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax.  For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law.  With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including 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.
 
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.
 
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We have received Israeli government grants and loans for certain research and development expenditures.  The terms of these grants and loans, as may be in effect following the R&D Amendment, may require us to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel.  We may be required to pay penalties in addition to repayment of the grants and loans.  Such grants and loans may be terminated or reduced in the future, which would increase our costs. See “Business — Government Regulation and Funding — Israeli Government Programs.”
 
It may be difficult to enforce a U.S. judgment against us and our officers and directors named in this annual report in Israel or the United States, or to serve process on our officers and directors.
 
We are incorporated in Israel. All of our executive officers and the majority of our directors reside outside of the United States, and all of our assets and most of the assets of our executive officers and directors are located outside of the United States. Therefore, a judgment obtained against us or any of our executive officers and directors 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 also may be difficult for you to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel.
 
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Your rights and responsibilities as a shareholder will be governed by Israeli law which may differ in some respects from the rights and responsibilities of shareholders of U.S. companies.
 
We are incorporated under Israeli law. The rights and responsibilities of the holders of our ordinary shares 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 in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company.  There is limited case law available to assist us in understanding the implications of these provisions that govern shareholders’ actions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.
 
ITEM 4. INFORMATION ON THE COMPANY
 
A. History and Development of the Company
 
Our legal and commercial name is BioLineRx Ltd. We are a company limited by shares organized under the laws of the State of Israel. Our principal executive offices are located at 2 HaMa’ayan Street, Modi’in 7177871, Israel, and our telephone number is +972 (8) 642-9100.
 
We were founded in 2003 by leading institutions in the Israeli life sciences industry, including Teva Pharmaceutical Industries Ltd., or Teva. We completed our initial public offering in Israel in February 2007 and our ordinary shares are traded on the TASE under the symbol “BLRX.” In July 2011, we listed our ADSs on Nasdaq and they are traded under the symbol “BLRX.”
 
Our capital expenditures for the years ended December 31, 2013, 2014 and 2015 were $0.1 million, $0.2 million and $2.7 million, respectively. The amount for 2015 includes the leasehold improvements on our new facility in Modi’in, as well as the purchase of laboratory equipment. For the year ended December 31, 2016, our capital expenditures were immaterial. Our current capital expenditures involve acquisitions of laboratory equipment, computers and communications equipment.
 
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B. Business Overview
 
We are a clinical stage biopharmaceutical development company dedicated to identifying, in-licensing and developing therapeutic candidates that have advantages over currently available therapies or that address unmet medical needs. Our current development and commercialization pipeline consists of three maina clinical-stage therapeutic candidates:candidate − BL-8040, a novel peptide for the treatment of multiple cancer and hematological indications; BL-7010, a novel co-polymernear-clinical candidate – AGI-134, an immuno-oncology agent in development for the treatment of celiac diseasesolid tumors; and gluten sensitivity; anda product that is being commercialized − BL-5010, a customized, proprietary, pen-like applicator containing a novel, acidic, aqueous solution, which is being developedhas been launched for sale in Europe as a medical device for the non-surgical removal of benign skin lesions.lesions. In addition, we have threefive other therapeutic candidates in various stages of clinical and preclinical development. We generate our pipeline by systematically identifying, rigorously validating and in-licensing therapeutic candidates that we believe exhibit a relatively high probability of therapeutic and commercial success. NoneTo date, except for BL-5010, none of our therapeutic candidates have been approved for marketing and, to date, there have been no commercial sales of any of our therapeutic candidates.or sold commercially. Our strategy includes commercializing our therapeutic candidates through out-licensing arrangements with biotechnology and pharmaceutical companies. We also evaluate, on a case-by-case basis, co-development and similar arrangements and the commercialization of our therapeutic candidates independently.
 
In December 2014, we entered into a strategic collaboration with Novartis Pharma AG, or Novartis, for the co-development of selected Israeli-sourced novel drug candidates. Under the agreement, we intend, in collaboration with Novartis, to co-develop a number of pre-clinical and early clinical therapeutic projects through clinical proof-of-concept for potential future licensing by Novartis. Additionally, in January 2016, we entered into a collaboration with MSD, known as Merck in the U.S. and Canada, in the field of cancer immunotherapy and, in September 2016, we entered into a collaboration with Genentech, Inc., or Genentech, a member of the Roche Group, to support several Phase 1b studies investigating BL-8040 in combination with Atezolizumab, Genentech's anti-PDL1 cancer immunotherapy, in multiple cancer indications.
 
Our focus is principally on the therapeutic areas of oncology and immunology. However, we may also in-license therapeutic compounds outside of these areas in connection with our strategic collaboration with Novartis, as well as to a limited extent for our independent pipeline as the opportunities arise.
 
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BL-8040
 
Our first clinical-stage therapeutic candidate, BL-8040, is a novel, short peptide that functions as a high-affinity antagonist for CXCR4, which we intend to developare developing for multiple cancerthe treatment of solid tumors, AML, and certain hematological indications. CXCR4 is a chemokine receptor that is directly involved in tumor progression, angiogenesis (growth of new blood vessels in the tumor), metastasis (spread of tumor to other organs) and cell survival. CXCR4 is over-expressed in more than 70% of human cancers and its expression often correlates with disease severity.
BL-8040 mobilizes cancer cells from the bone marrow, and may therefore sensitizethereby sensitizing these cells to chemo- and bio-based anti-cancer therapy. In addition, BL-8040 has demonstrated a direct anti-cancer effect by inducing apoptosis (cell death) and terminal differentiation. Multiple clinical and pre-clinical studies have shown the safety and efficacy of BL-8040. These studies have shown that BL-8040 inhibits the growth of various tumor types including multiple myeloma, non-Hodgkin’snon-Hodgkin's lymphoma, leukemia, non-small cell lung carcinoma, neuroblastoma and melanoma. BL-8040 significantly and preferentially stimulates apoptotic cell death of malignant cells (multiple myeloma, non-Hodgkin’snon-Hodgkin's lymphoma and leukemia).
BL-8040 also mobilizes stem cells from the bone marrow to the peripheral blood, enabling their collection for subsequent autologous or allogeneic transplantation in cancer patients. In September 2013, the FDA granted an Orphan Drug Designation to BL-8040 as a therapeutic for the treatment of acute myeloid leukemia, or AML; AML; and in January 2014, the FDA granted an Orphan Drug Designation to BL-8040 as a treatment for stem cell mobilization. In January 2015, the FDA modified this Orphan Drug Designation for BL-8040 for use either as a single agent or in combination with G-CSF.
In addition, findings in the field of immuno-oncology suggest that CXCR4 antagonists may be effective in inducing the migration of anti-tumor T cellsT-cells into the tumor micro-environment. As such, the combination of BL-8040 with immune checkpoints inhibitors (PD1/PD-L1 monoclonal antibodies) has the potential to expand the benefit of immunotherapy to cancer types currently resistant to immuno-oncology treatments.
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In June 2013,
During 2016, we commencedcompleted and reported on the results of a Phase 22a clinical trial forstudying the use of BL-8040 for the treatment of relapsed/refractory AML, or r/r AML. The study is currently being conducted at five sites in the United States, including MD Anderson Cancer Center in Houston, Memorial Sloan-Kettering Cancer Center in New York, Mayo Clinic in Jacksonville, Johns Hopkins University in Baltimore and Washington University in St. Louis, as well as at five well-known sites in Israel. The study isPhase 2a trial was a multicenter, open-label study under an Investigational New Drug,investigational new drug, or IND, approval fromconducted at six world-leading cancer research centers in the FDA,U.S. and at five premier sites in Israel, and was designed to evaluateassess the safety, efficacy, pharmacodynamics and efficacy profilepharmacokinetic parameters of repeated escalating doses of BL-8040 in adult subjects with relapsed/refractory AML. At the annual ASH conference in December 2015, we presented data from the dose escalation part of the trial. These data showed that BL-8040 as a stand-alone therapysingle agent and in combination with high-dose Cytarabine (Ara-C) for the treatment of adult patients with r/r AML. The reported data set includes 45 patients, including three compassionate-use patients treated at the study sites under the identical treatment protocol. The majority of patients in the study were heavily pretreated, with 45% of patients being refractory to one or two remission induction treatments, 19% of patients having relapsed after a short first remission of less than 12 months, and 17% of patients having undergone two or more relapses. In addition, the treated patient population included patients that had relapsed post allogeneic stem-cell transplantation (17%), isas well as secondary AML patients (24%), both conditions which represent difficult-to-treat populations with poor prognoses. Results show that treatment with BL-8040 in combination with Ara-C was safe and well-toleratedwell tolerated at all doses tested up to and including the highest dose level of 1.52.0 mg/kg,kg. Response to treatment was associated with no major adverse events.efficient CXCR4 inhibition, resulting in high mobilization of blasts and induction of their differentiation. The composite complete remission rate, including both complete remission (CR) and complete remission with incomplete blood count recovery (CRi), was 38% in subjects receiving only one cycleup to two cycles of BL-8040 treatment at doses of 1 mg/kg and higher (n=16)39). Patients included in this partIn the 1.5 mg/kg dose selected for the expansion Phase of the study were patients that had undergone a significant number of prior treatment cycles or that were refractory to induction treatment. The data also showed that BL-8040 triggers substantial mobilization of cancer cells from(n=22), the bone marrowcomposite complete remission rate was 41%. These response rates are superior to the peripheral blood, thereby increasinghistorical response rate of approximately 20% reported for high-risk AML patients treated with Ara-C alone. The ongoing follow-up of patients participating in the vulnerabilitystudy's expansion Phase and responding to the combination treatment suggests long durability of the cellsremissions achieved, with two-thirds of these patients still alive, based on a follow-up period to chemotherapy treatment. In addition, BL-8040 showed a direct and significant apoptotic effect on the immature leukemia progenitor cells in the bone marrow following two daysdate of monotherapy and induced leukemia progenitor cells towards differentiation. Topline results of the entire study are expected in the first quarter of 2016.
up to 12 months.
 
Targeting a second AML treatment line, in August 2015 we announced the commencement of a Phase 2b trialBL-8040 is also being investigated as a consolidation treatment together with cytarabine (the current standard of care) for AML patients who have responded to standard induction treatment. Thetreatment and are in complete remission. In this regard, we are conducting a significant Phase 2b trial is being conductedin Germany, in collaboration with the German Study Alliance Leukemia Group. ItThe Phase 2b trial is examininga double-blind, placebo-controlled, randomized, multi-center study aimed at assessing the efficacy of BL-8040 as part of a second stage treatment, termedin addition to standard consolidation therapy to improve outcomes forin AML patients who have achieved remission after the standard initial treatment regimen, known as induction therapy. The consolidation therapy is aimed at eliminating the minimal residual disease left in the bone marrow after induction therapy that can lead to relapse. The study is planned to enroll uppatients. Up to 194 patients at upwill be enrolled in the trial. The primary endpoint of the study is to 25 sitescompare the relapse-free survival (RFS) time in Germany. Top-line resultsAML subjects in their first remission during a minimum follow-up time of 18 months after randomization. We are considering performing an interim analysis on this study arein 2018, with top-line results expected in 2018.2019.
 
In addition, we plan to commence a Phase 2a trial for BL-8040 in the second half of 2016 for the treatment of a third population of AML patients, those with the FLT3-ITD mutation. The trial, which will be conducted in collaboration with the MD Anderson Cancer Center, is aimed at improving the response of FLT3-ITD mutated AML patients to treatment with a FLT3 inhibitor. This trial follows the presentation at several conferences during 2014 of positive preclinical results of BL-8040 as a treatment for AML patients with FLT3 mutations.
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In March 2015, we announced successful top-line results from a Phase 1 trial for another indication of BL-8040 ‒BL-8040 as a novel treatment for the mobilization of stem cells from the bone marrow to the peripheral blood circulation, where they can be harvested for transplant supporting the treatment of hematological indications. The study was conducted at the Hadassah Medical Center in Jerusalem. All safety and efficacy endpoints were met, showing that treatment with BL-8040 as a single agent was safe and well tolerated at all doses and resulted in efficient stem cell mobilization and collection in all study participants. Furthermore, the results support BL-8040 as one-day, single-dose collection regimen, which is a significant improvement in comparison with the current standard of care. In December 2015, we announced the filing of regulatory submissions required to commence a Phase 2 trial at Washington University School of Medicine in St. Louis for use of BL-8040 in stem cell mobilization. The trial is expected to commence shortly after receipt of regulatory approval, anticipated in the first quarter of 2016. We expect to announce partial results of the trial in the fourth quarter of 2016.
 
In November 2015, we announced the commencement of a Phase 1/2 trial, again in collaboration with the MD Anderson Cancer Center, for a fifth indication of BL-8040 - as a novel treatment for hypoplastic myelodysplastic syndrome, or hMDS, and aplastic anemia, or AA. The study will be open label and designed to evaluate the safety, tolerability and efficacy of the combination of BL-8040 with immunosuppressive therapies (hATG, cyclosporine and methylprednisone).  Secondary endpoints include assessment of the clinical efficacy (response rate), time and duration of response to the treatment, and overall survival following treatment.
In January 2016, we announcedentered into a collaboration with MSD known as Merck in the U.S. and Canada, in the field of cancer immunotherapy. We plan to sponsor and conductBased on this collaboration, in September 2016 we initiated a Phase 22a study, investigatingknown as the COMBAT study, focusing on evaluating the safety and efficacy of BL-8040 in combination with KEYTRUDA® (pembrolizumab), MSD’sMSD's anti-PD-1 therapy, in up to 30 patients with metastatic pancreatic adenocarcinoma. The study is an open-label, multicenter, single-arm trial designed to evaluate the clinical response, safety and tolerability of the combination of these therapies as well as multiple pharmacodynamic parameters, including the ability to improve infiltration of T cellsT-cells into the tumor and their reactivity. The study is planned to commence by mid-2016. Upon completion of the study, or at any earlier point, both parties will have the option to expand the collaboration to include a pivotal registration study. Partial results are expected in the second half of 2017 and top-line results in the second half of 2018.
In March 2016, we announced the initiation of a Phase 2 trial for BL-8040 for allogeneic stem-cell transplantation, conducted in collaboration with the Washington University School of Medicine, Division of Oncology and Hematology. Positive partial results from this study were reported in the first quarter of 2017, and topline results are expected by the end of 2017.  In addition, based on developments in the field of mobilization and on market research, we are preparing to conduct a Phase 3 registration study in autologous stem cell mobilization. Our plans include meeting with the FDA to confirm the parameters of such a study and then commencing the study in the second half of 2017.
In August 2016, by way of an agreement with MD Anderson Cancer Center, we entered into an additional collaboration for the investigation of BL-8040 in combination with KEYTRUDA in pancreatic cancer. The study will be conducted as an investigator-sponsored study, as part of a strategic clinical research collaboration between Merck and MD Anderson Cancer Center aimed at evaluating KEYTRUDA in combination with various treatments and novel drugs, including BL-8040. The open-label, single center, single-arm Phase 2b study will focus on the mechanism of action by which both drugs might synergize. In addition to assessing clinical response, the study will include multiple assessments to evaluate the biological anti-tumor effects induced by the combination. We are supplying BL-8040 for the study, which commenced in January 2017.
In September 2016, we entered into a collaboration with Genentech to support several Phase 1b studies investigating BL-8040 in combination with Atezolizumab, Genentech's anti-PDL1 cancer immunotherapy, in multiple cancer indications. The Phase 1b studies, which are all expected to commence in 2017, will evaluate the clinical response, safety and tolerability of the combination of these therapies, as well as multiple pharmacodynamic parameters, in hematologic malignancies and solid tumors. Upon completion of the studies, both parties will have the option to expand the collaboration to include a pivotal registration study.
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In addition to the above, we are currently conducting, or planning to conduct, a number of investigator-initiated, open-label studies in a variety of indications, to support the interest of the scientific and medical communities in exploring additional uses for BL-8040. These studies serve to further elucidate the mechanism of action for BL-8040.
AGI-134
In March 2017, we acquired substantially all the outstanding shares of Agalimmune. The acquisition expands our pipeline to include Agalimmune's primary asset, AGI-134, an immuno-oncology agent for various cancer indications at the near-clinical stage of development.
AGI-134, a near-clinical therapeutic candidate, is a synthetic alpha-Gal glycolipid immunotherapy in development for solid tumors. The goal of therapy using the compound is to harness the body's pre-existing, highly abundant, anti-alpha-Gal antibodies to induce a systemic, specific anti-tumor response to the patient's own tumor neo-antigens. This response not only kills the tumor cells at the site of injection, but also brings a durable, follow-on, anti-metastatic immune response. AGI-134 has completed numerous proof-of-concept studies, demonstrating robust protection against the development of secondary tumors in a model of melanoma with a single dose only. Synergy has also been demonstrated in the same model when combined with a PD-1 inhibitor immune checkpoint inhibitor, offering the potential to broaden the utility of such immunotherapies and improve the rate and duration of responses in multiple cancer types. AGI-134 is expected to commence a first-in-man study in patients with solid tumors in the first half of 2018.
BL-5010
 
Our second clinical-stagecommercialized therapeutic candidate, BL-7010, is a novel, non-absorbable, orally available, high-molecular-weight co-polymer intended for the treatment of celiac disease and gluten sensitivity. It has a high affinity for gliadins, the immunogenic proteins present in gluten that cause an immune response in patients with celiac disease. BL-7010 effectively masks gliadins from enzymatic degradation and prevents the formation and absorption of immunogenic peptides that trigger the immune system. BL-7010 is excreted with gliadin from the digestive tract, preventing the absorption of gliadin peptides. This significantly reduces the immune response triggered by gluten. The safety and efficacy of BL-7010 were demonstrated in pre-clinical and clinical studies.
In December 2013, we commenced a Phase 1/2 trial for BL-7010 at Tampere Hospital in Finland, a leading site for celiac research. The trial was a two-part (single and repeated administration), double-blind, placebo-controlled, dose escalation study of BL-7010 in up to 40 well-controlled celiac patients. The primary objective of the study was to assess the safety of single and repeated ascending doses of BL-7010. Secondary objectives included an assessment of the systemic exposure, if any, of BL-7010 in the study patients. In November 2014, we reported the final results of the study. Those results confirmed that BL-7010 is safe and well tolerated in both single and repeated-dose administrations. Based on these results, we selected the dosing regimen of one gram, three times per day, of BL-7010 as the optimal repeated dose in the next efficacy study for celiac patients. In addition, pharmacokinetic analyses revealed no systemic exposure of BL-7010 in plasma and urine samples from all patients at all doses and time points tested, both in the single- and repeated-dose regimens. In January 2016, we received confirmation regarding the classification of BL-7010 as a Class IIb medical device in the European Union. We believe this classification could significantly accelerate the development of BL-7010 in Europe.
Over the last year, we have invested considerable efforts in examining alternative development and commercialization pathways for BL-7010, in addition to the celiac disease pathway, including as a food supplement, in order to potentially address the multi-billion dollar market for gluten sensitivity. We believe the gluten sensitivity market has a significantly shorter time to market than drug or device pathways, especially in the U.S. market, where the device pathway is not available for BL-7010. We are currently conducting a number of activities towards the development of BL-7010 as a food supplement, including the development of a suitable product, formulation, preparation of the documents necessary for a “generally recognized as safe,” or GRAS, designation submission, and preparations for a relatively small clinical trial to support the marketing efforts we may conduct regarding gluten and/or gluten sensitivity. We expect to complete these activities by mid-2017, in order to support partnering discussions for the food supplement market in the U.S. and other relevant territories at that time. We will also continue to evaluate the pathway for celiac disease in Europe and will make a decision about the timing and scope of the next efficacy study for European registration over the next few months.
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Our third clinical-stage therapeutic candidate, BL-5010, is a novel medical device containing a novel, acidic, aqueous solution and applicator for the non-surgical removal of benign skin lesions. It offers an alternative to painful, invasive and expensive removal treatments including cryotherapy, laser treatment and surgery. Since the treatment is non-invasive, it poses minimal infection risk and eliminates the need for anesthesia, antiseptic precautions and bandaging. The pre-filled device controls and standardizes the volume of solution applied to a lesion, ensuring accurate administration directly on the lesion and preventing both accidental exposure of the healthy surrounding tissue and unintentional dripping. ItThe device has an ergonomic design, making it easy to handle, and it will be childproofed. The product has completed a Phase 1/2 pilot clinical study for the removal of a skin lesion known as seborrheic keratosis, or SK, which showed excellent efficacy and cosmetic results, and has received confirmation in Europe for the regulatory pathway classification as a Class IIa medical device.
 
Our original development plan for BL-5010 consisted of clinical testing for the treatment of SK. However, during discussions in recent years with potential partners for the development and commercialization of BL-5010, we learned that they had more interest in the possibilities of BL-5010 for over-the-counter, or OTC, indications. In December 2014, we entered into an exclusive out-licensing arrangement with Omega Pharma, now part of Perrigo Company plc, for the rights to BL-5010 for over-the-counter, or OTC, indications in the territories of Europe, Australia and additional selected countries. We will retain all OTC rights to BL-5010 in the United States and the rest of the world, as well as all non-OTC rights on a global basis. Under our out-licensing arrangement with Omega Pharma, Omega Pharma is obligated to use commercially reasonable best efforts to obtain regulatory approval in the licensed territory for at least two OTC indications and to commercialize BL-5010 for those two OTC indications. In addition, Omega Pharma will sponsor and manufacture BL-5010 in the relevant regions. Omega Pharma will pay us an agreed amount for each unit sold, and we will be entitled to certain commercial milestone payments. In addition, we will have full access to all clinical and research and development data generated during the performance of the development plan and may use these data in order to develop or license the product in other territories and fields of use where we retain the rights. During 2015,In March 2016, Omega Pharma conducted a 30-patient, open-label clinical study in Turkey to evaluate the advantages of BL-5010 in one of the intended OTC indications. Study results indicate that BL-5010 is safe and efficacious. Omega Pharma submitted an application forreceived CE Mark designationapproval for BL-5010 duringas a novel OTC treatment for the third quarternon-surgical removal of 2015, and has completed the initial manufacturing process automation to support the product launch.warts. The commercial product launch of thethis first OTC indication for this product is expected during(warts/verrucas) commenced in Europe in the second quarter of 2016. As a result of thisour out-licensing arrangement with Omega Pharma, as well as the previous discussions with other potential partners for this product, the development activities for BL-5010 are currently focused on OTC indications. However, we may decide to continue development of BL-5010 for non-OTC indications, including, but not limited to, SK, or for OTC indications in territories not out-licensed to Omega Pharma, primarily the U.S.
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We are required to pay a portion, within the standard range of sublicense receipt consideration paid to our licensors, of the revenues we receive from our arrangement with Omega Pharma, to Innovative Pharmaceutical Concepts, Inc. or IPC, the party from which we in-licensed BL-5010 in 2007.
 
As part of our business strategy, we continue to actively source, rigorously evaluate and in-license selected therapeutic candidates. We establish and maintain close relationships with research institutes, academic institutions and biotechnology companies in Israel, including, in some instances, a formal right of first offer for therapeutic compounds in their portfolios.Israel. More recently, we have extended our sourcing activities to other countries. Before in-licensing, each therapeutic candidate must pass through our thorough screening process. In certain circumstances, our Scientific Advisory Board and disease-specific third-party advisors are active in evaluating certain therapeutic candidates, as deemed necessary. Our approach is consistent with our objective of proceeding only with therapeutic candidates that we believe exhibit a relatively high probability of therapeutic and commercial success. To date, we have screened over 2,300 compounds, presented more than 70 candidates for final internal evaluation, initiated development of 45 therapeutic candidates and terminated 39 development programs.
 
Our Strategy
 
Our objective is to be a leader in developing innovative pharmaceutical and biopharmaceutical products. We continuously identify and in-license therapeutic candidates in order to maximize our potential for commercial success. We repeatedly assess compounds by evaluating their efficacy, safety, total estimated development costs, technological novelty, patent status, market potential and approvability. Our approach to evaluating, in-licensing and developing therapeutic candidates allows us to:
 
continually build our pipeline of therapeutic candidates;
 
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advance those therapeutic candidates with the greatest potential;
 
quickly identify, and terminate the development of, unattractive therapeutic candidates; and
 
avoid dependency on a small number of therapeutic candidates.
 
Using this approach, we have successfully advanced a number of therapeutic candidates into clinical development. Specific elements of our current strategy include the following:
 
Support the successful development and commercialization of therapeutic candidates that have already been partnered. We currently have fourseven programs at various stages of development in our pipeline that have already been partnered or under collaboration.
 
Commercialize additional therapeutic candidates through out-licensing or co-development arrangements or, where appropriate, by ourselves. We intend to commercialize many of our other products through out-licensing or co-development arrangements with third parties who may perform any or all of the following tasks: completing development, securing regulatory approvals, securing reimbursement codes from insurance companies and HMOs,Health Maintenance Organizations, manufacturing and/or marketing. If appropriate, we may also enter into co-development and similar arrangements with respect to any therapeutic candidate with third parties or commercialize a therapeutic candidate ourselves.
 
Design development programs that reach critical decisions quickly. At each step of our screening process for therapeutic candidates, a candidate is subjected to rigorous feasibility testing and potential advancement or termination. We believe our feasibility approach reduces costs and increases the probability of commercial success by eliminating less promising candidates quickly before advancing them into more costly preclinical and clinical programs.
 
Use our expertise and proven screening methodology to evaluate in-licensing opportunities. In order to review and select among various candidates efficiently and effectively, we employ a rigorous screening system we developed. In certain instances, our Scientific Advisory Board and disease-specific third-party advisors evaluate therapeutic candidates, as deemed necessary. In addition, projects under the Novartis collaboration benefit from additional review and assessment by Novartis.
 
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Leverage and expand our relationships with research institutes, academic institutions and biotechnology companies, including the specific strategic relationships that we have developed with Israeli research and academic institutions, to identify and in-license promising therapeutic candidates. To date, we have successfully in-licensed compounds from many major Israeli universities, as well as from many Israeli hospitals, technology incubators and biotechnology companies. We continue to maintain close contacts with university technology transfer offices, research and development authorities, university faculty, and many biotechnology companies to actively seek out early stage compounds. In addition, we actively source and evaluate non-Israeli compounds. In line with this strategy, in March 2017 we announced our acquisition of Agalimmune. Agalimmune’s primary asset, AGI-134, is a near-clinical immuno-oncology agent for various cancer indications.
 
Seek to co-develop certain pre-clinical and early clinical therapeutic projects through clinical proof-of-concept by means of our multi-year strategic collaboration agreement with Novartis. Pursuant to an agreement entered into in December 2014, Novartis will evaluate jointly with us both clinical and pre-clinical stage projects presented by us via a Joint Steering Committee, which will determine which projects to advance further in development and on what terms. Projects at or reaching the clinical stage will be eligible for selection by Novartis. Upon selection of a project, Novartis will pay us an option fee of $5 million, as well as fund 50% of the anticipated remaining development costs associated with establishing clinical proof-of-concept, in the form of an additional equity investment in BioLineRx. A limited number of projects in pre-clinical stages are also eligible for flagging by Novartis, for initial development by BioLineRx. Such projects, once reaching the clinical stage, will be eligible for selection by Novartis under the terms set forth above. The companies intend to develop up to three clinical-stage programs pursuant to this collaboration. Under the terms of the agreement, Novartis acquired 5,000,000 of our ADSs in a private transaction at a price of $2.00 per ADS, for a total equity investment of $10 million, and agreed to certain standstill provisions.
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.
 
Our Product Pipeline
 
The table below summarizes our current pipeline of therapeutic candidates, including the target indications and status of each candidate and our development partners:
 

 
Main Therapeutic Candidates
 
BL-8040
 
BL-8040 is a novel, short peptide that functions as a high-affinity antagonist for CXCR4, which we are developing for multiple cancerthe treatment of AML, solid tumors and certain hematological indications. CXCR4 is a chemokine receptor that is directly involved in tumor progression, angiogenesis, metastasis and cell survival. CXCR4 is over-expressed in more than 70% of human cancers and its over-expression often correlates with disease severity. We in-licensed BL-8040 from Biokine in September 2012.
 
The following paragraphs are a high-level summary of the therapeutic areas we are currently investigating for BL-8040:
 
Acute Myeloid Leukemia (AML). AML is a cancer of the blood and bone marrow and is the most common type of acute leukemia in adults. According toThe Surveillance, Epidemiology and End Results program, or SEER, of the AmericanNational Cancer Society,Institute estimates that approximately 19,00020,000 new cases of AML were diagnosed in the United States in 2014, and the median age of AML patients was 67 years old.2016. The first treatment line for patients with AML includes a combination of chemotherapy drugs and is called induction treatment. The median survival for AML patients receiving induction chemotherapy is less than two years, with shorter survival for patients over the age of 60 or for those with certain gene or chromosome aberrations. Due to relapsed or refractory disease (where the disease is not responsive to standard treatments), the overall five-year survival rate for AML is between 10 and 40 percent.
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Stem Cell Mobilizationcell mobilization. High-dose chemotherapy followed by stem cell transplantation has become an established treatment modality for a variety of hematologic malignancies, including multiple myeloma, as well as various forms of lymphoma and leukemia. Stem cells are mobilized from the bone marrow of the patient (i.e., autologous transplant) or donor (i.e., allogeneic transplant) using granulocyte colony-stimulating factor, or G-CSF, harvested from the peripheral blood by apheresis, and infused to the patient after chemotherapy. G-CSF is approved only for autologous use, although it is also used to mobilize and collect stem cells in the allogeneic setting on an off-label basis. This type of treatment often replaces the use of traditional surgical bone marrow harvesting, because the stem cells are easier to collect and the treatment allows for a quicker recovery time and fewer complications.complications.
 
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Hypoplastic myelodysplastic syndrome (hMDS) and aplastic anemia (AA). hMDS and AA are hematological conditions caused by progressive bone marrow failure, and characterized by ineffective production of all blood cells, leading to severe anemia and cytopenias (low blood counts). These conditions result from disorders of the hematopoietic stem cells in the bone marrow, where hematopoiesis is disrupted and the number and quality of blood-forming cells decline irreversibly, further impairing blood production. hMDS is a subtype of myelodysplastic syndrome, a collection of myeloid malignancies characterized by one or more peripheral blood cytopenias (deficiency in the number of blood cells). AA is a disease in which the bone marrow and the blood stem cells that reside in the marrow are depleted, resulting in a deficiency of all three blood cell types: red blood cells, white blood cells, and platelets. Treatment may include immunosuppressive therapy, chemotherapy or hematopoietic stem cell transplant.
Pancreatic cancer.Solid malignancies (e.g., pancreatic, gastric and non-small cell lung cancer). There areAccording to the Journal of Oncology Practice, in 2020 roughly 1 in every 19 people worldwide will either be diagnosed with a number of types of pancreatic cancer. Based on available worldwide numbers, in 2014, pancreatic cancers of all types were the seventh most common cause of cancer-related deaths.solid tumor or be a cancer survivor. According to the American Cancer Society, in 2015, nearly 50,000 were diagnosed with pancreatic cancer and an estimated 40,000 will die fromlung cancers are the disease. The most common type of cancer worldwide, while pancreatic cancer is pancreatic adenocarcinoma, which accounts for about 85 percentcancers of cases. These adenocarcinomas start withinall types are the partthird most common cause of the pancreas that makes digestive enzymes. There are usually no symptomscancer-related deaths in the early stagesUnited States. Pancreatic, gastric and non-small cell lung malignancies have high mortality rates and poor five-years survival prognosis. Novel, emerging therapeutic approaches for targeting solid tumors are being developed and tested. Combinational therapies of immune checkpoint inhibitors with immuno-oncology supporting agents are among the disease and symptoms that are specific enough to suggest the onset of pancreatic cancer typically do not develop until the disease has reached an advanced stage. The five-year survival rate of pancreatic adenocarcinoma is around 7 percent.
most promising experimental treatments for solid malignancies.
 
Regulatory Approvals. In September 2013, the FDA granted an Orphan Drug Designation to BL-8040 as a therapeutic for the treatment of AML. In January 2014, the FDA granted an Orphan Drug Designation to BL-8040 for use, in combination with G-CSF, in mobilizing human stem cells from the bone marrow to the peripheral blood for collection for autologous or allogeneic (donor-based) transplantation. In January 2015, the FDA modified this Orphan Drug Designation for BL-8040 for use either as a single agent or in combination with G-CSF. Orphan Drug Designation is granted to therapeutics intended to treat rare diseases that affect not more than 200,000 people in the United States. Orphan Drug Designation entitles the sponsor to a seven-year marketing exclusivity period and clinical protocol assistance with the FDA, as well as federal grants and tax credits.
 
Preclinical Results.
 
In vitro and in vivo data show that BL-8040 binds CXCR4 at the low nanomolar range (1-2.5nM)(1-10nM) and occupies it for prolonged periods of time (>24h). These studies have shown that BL-8040 mobilizes cancer cells from the bone marrow and may therefore sensitize these cells to chemo- and bio-based anti-cancer therapies. In addition, BL-8040 directly induces apoptosis of cancer cells. BL-8040 was efficient, both alone and in combination with chemotherapy, in reducing malignant bone marrow cells and stimulating their cell death.
 
In August 2013, we announced that BL-8040 has been shown in pre-clinical trials to be effective for the treatment of thrombocytopenia, or reduced platelet production.
 
In December 2013, we presented pre-clinical data at the annual meeting of the American Society of Hematology or ASH Conference,(ASH), showing that BL-8040 directly inhibits AML cell growth and induces cell death, both in cell cultures and in mice engrafted with human AML cells. In addition, BL-8040 showed the ability to induce mobilization of AML cells from the bone marrow into the blood circulation, thereby enhancing the chemotherapeutic effect of ARA-C (one of the standard-of-care chemotherapies for AML). The data also showed that BL-8040’sBL-8040's effects were even more robust in cells harboring the FLT3 mutation, and a synergistic effect was observed when BL-8040 was combined with the FLT3 inhibitor AC220 (Quizartinib). This
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At the annual meeting of ASH in December 2016, detailed pre-clinical data on the mechanism-of-action by which BL-8040 directly induces apoptosis of AML cells was alsopresented by Prof. Amnon Peled of the Hadassah Medical Center and Biokine. The results of the pre-clinical studies show that BL-8040 treatment in vivo triggered mobilization of AML blasts from their protective bone marrow microenvironment and induced their terminal differentiation, further supporting the data we presented at the 2014 Annual MeetingAmerican Association for Cancer Research annual conference earlier in 2016. In addition, the studies illustrate how BL-8040 increases the expression and activity of a special class of microRNA precursors termed miR-15a/16-1. These microRNA molecules have been previously linked to cancer, and shown to suppress the Societyactivity of Hematologic Oncology, or SOHO Conference.several tumor-related pro-survival proteins. Therefore, by increasing the expression of miR-15a/16-1 microRNA molecules, BL-8040 decreases the expression of tumor-survival proteins and promotes tumor cell death. Importantly, in both in vitro and in vivo experiments, BL-8040 was found to synergize with a selective Bcl-2 inhibitor (Venetoclax) and an FLT3 inhibitor (Quizartinib, also known as AC220) in inducing AML cell death, pointing at potential drug combination treatments.
 
Clinical Trials.
 
In a Phase 1/2, open-label, dose escalation, safety and efficacy clinical trial in 18 multiple myeloma patients, BL-8040 demonstrated an excellent safety profile at all doses tested and was highly effective in combination with G-CSF, in the mobilization of hematopoietic stem cells and white blood cells from the bone marrow to the peripheral blood. All patients receiving transplants (n=17) exhibited rapid engraftment, with median time to neutrophil and platelet recovery of 12 and 14 days, respectively, at the highest dose given (0.9 mg/kg).
 
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In June 2013,During 2016, we commencedcompleted and reported on the results of a Phase 22a clinical trial forstudying the use of BL-8040 for the treatment of patients with relapsed or relapsed/refractory AML, or r/r AML. The study is beingwas conducted at fivesix sites in the United States, including MD Anderson Cancer Center in Houston, Memorial Sloan-Kettering Cancer Center in New York, Mayo Clinic in Jacksonville, Johns Hopkins University in Baltimore, Northwestern Memorial Hospital in Chicago and Washington University in St. Louis, as well as at five well-known sites in Israel. The study is a multicenter,was an open-label study under an IND, designed to evaluate the safety and efficacy profile of repeated escalating doses of BL-8040 as a single agent and in combination with Ara-C in adult subjects with r/r AML. The study was comprised of two parts – a dose escalation Phase and an expansion Phase at the highest tolerated dose found during the escalation Phase. The primary endpoints of the study arewere the safety and tolerability of the drug. Secondary endpoints includeincluded the pharmacokinetic profile of the drug and an efficacy evaluation, indicated by the extent of mobilization of cancer cells from the bone marrow to the peripheral blood, the level of cancer cell death (apoptosis) and clinical responses.
Final results for the Phase 2a trial were presented at the annual meetings of the Society of Hematologic Oncology and ASH in September and December 2016, respectively. The reported data set includes 45 patients, including three compassionate-use patients treated at the study sites under the identical treatment protocol. The majority of patients in the study were heavily pretreated, with 45% of patients being refractory to one or two remission induction treatments, 19% of patients having relapsed after a short first remission of less than 12 months, and 17% of patients having undergone two or more relapses. In addition, the treated patient population included patients that had relapsed post allogeneic stem-cell transplantation (17%), as well as secondary AML patients (24%), both conditions which represent difficult-to-treat populations with poor prognoses.
 
The study is comprised of two parts – the dose escalation phase and the current expansion phase at the highest tolerated dose found during the escalation phase. During the dose escalation phase, trial participants were recruited in cohorts of three patients at a time, and the dose was increased for each subsequent cohort depending on the safety and tolerability results of the previous cohort, which was determined by an independent data monitoring committee, or DMC.  Twenty-two patientsResults show that treatment with r/r AML were enrolled in the dose escalation stage of the study (16 of whom received a dose of 1 mg/kg and higher). Each patient received a once daily dose of BL-8040 monotherapy (from 0.5 to 2.0 mg/kg) on days 1-2 followed by the same dose of BL-8040 plus Ara-C on days 3-7. Extensive pharmacodynamic parameters, such as mobilization of leukemic cells and induction of apoptosis, were assessed after monotherapy with BL-8040 using peripheral blood sampling and bone marrow aspirates at baseline and on day 3 prior to Ara-C administration. Clinical response to treatment was evaluated by bone marrow biopsy on day 30.
At the annual ASH conference in December 2015, we presented data from the dose escalation part of the trial. Results showed that BL-8040, as a single agent and in combination with Cytarabine (Ara-C),Ara-C was safe and well tolerated at all doses tested up to and including the highest dose level of 1.52.0 mg/kg,kg. Response to treatment was associated with no major adverse events.efficient CXCR4 inhibition, resulting in high mobilization of blasts and induction of their differentiation. The composite complete remission rate, including both complete remission (CR)CR and complete remission with incomplete blood count recovery (CRi),CRi, was 38% in subjects receiving only one cycleup to two cycles of BL-8040 treatment at doses of 1 mg/kg and higher (n=16)39). Patients included in this partIn the 1.5 mg/kg dose selected for the expansion Phase of the study were(n=22), the composite complete remission rate was 41%. These response rates are superior to the historical response rate of approximately 20% reported for high-risk AML patients treated with Ara-C alone. The ongoing follow-up of patients participating in the study's expansion Phase and responding to the combination treatment suggests long durability of the remissions achieved, with two-thirds of these patients still alive, based on a follow-up period to date of up to 12 months. Results further show that BL-8040 monotherapy had undergone a significant number of prior treatment cycles or that were refractory to induction treatment.substantial therapeutic effect. Treatment with BL-8040 hadas a triple effect on the leukemic cells. First, following only two days of monotherapy, BL-8040single agent triggered an average 40-foldrobust mobilization of immature AML progenitor cellsblasts from the bone marrow to the peripheral blood thereby sensitizing these cells tostream, and the Ara-C chemotherapy and improving its efficacy. Second, BL-8040 showed a direct and significant apoptotic effect on the immature leukemia progenitor cells in the bone marrow following the two daysextent of monotherapy. Last, BL-8040 induced leukemia progenitor cells towards differentiation, as evidenced by a 58% median decrease in the number of bone marrow leukemia progenitor cells, alongmobilization was correlated with a three-foldpositive response to treatment. The preferential mobilization of AML blasts over normal cells (4.7-fold vs. 1.4-fold, respectively) was further confirmed by analysis using the fluorescence in situ hybridization, or FISH, technique in a subset of patients. In addition, BL-8040 monotherapy resulted in a 40% increase in differentiated granulocytes, in the bone marrow biopsy conducted on day 3 of the treatment cycle prior to the Ara-C treatment, as compared to the biopsy performed at baseline.AML blast apoptosis.
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Topline results of the full study are expected in the first quarter of 2016.
In order to test a second AML treatment line, we commenced a Phase 2b trial in Germany as a consolidation treatment for AML patients who have responded to standard induction treatment. It will examine BL-8040 as part of a second stage treatment, termed consolidation therapy, to improve outcomes for the approximately 70% of AML patients who have achieved remission after the standard initial treatment regimen, known as induction therapy. The consolidation therapy is aimed at eliminating the minimal residual disease left in the bone marrow after induction therapy that can lead to relapse in 40-60% of the patients within 12-18 months after entering remission.
 
The Phase 2b trial, which is being conducted in collaboration with the University of Halle as sponsor and with the participation of two large leukemia study groups in Germany, is a double-blind, placebo-controlled, randomized, multi-center study aimed at assessing the efficacy of BL-8040 in addition to standard consolidation therapy in AML patients. The primary endpoint of the study is to compare the relapse free survival (RFS)RFS time in AML subjects in their first remission during a minimum follow-up time of 18 months after randomization. In addition, pharmacodynamic measurements will be conducted in order to assess the minimal residual disease, and biomarker analyses will be performed to identify predictors of BL-8040 response. The study will enroll up to 194 patients at up to 25 sites in Germany. AML patients between 18 and 75 years of age with documented first remission will be randomized in a 1:1 ratio to receive high dose Cytarabine, either with BL-8040 or with a matching placebo, as consolidation therapy.  Top-line results ofWe are considering performing an interim analysis on this study arein 2018, with top-line results expected in 2018.
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We plan to commence a Phase 2a trial for BL-8040 for the treatment of a third population of AML patients, those with the FLT3-ITD mutation, in the second half of 2016. AML patients with the FLT3-ITD mutation exhibit poor response and high relapse rates when treated with chemotherapy, and exhibit only transient response rates to FLT3 inhibitors. Preclinical data (presented at several conferences during 2014) show that by inhibiting the CXCR4 receptor, BL-8040 enhances the effect of FLT3 inhibition in killing FLT3-mutated leukemic cells. The Phase 1/2 trial, which will be conducted in collaboration with the MD Anderson Cancer Center, is aimed at improving the response of FLT3-ITD mutated AML patients to treatment with a FLT3 inhibitor. We plan to enroll approximately 30-40 patients at two or three sites. Patients testing positive for the FLT3-ITD mutation will receive several treatment cycles of BL-8040 in combination with a FLT3 inhibitor. The safety of the combination treatment, as well as the response rates to the treatment and the duration of the responses will be evaluated.2019.
 
In March 2015, we announced successful top-line results from a Phase 1 trial for a fourththird indication of BL-8040 as a novel treatment for the mobilization of stem cells from the bone marrow to the peripheral blood circulation, where they can be harvested for transplant supporting the treatment of hematological indications. The study was conducted at the Hadassah Medical Center in Jerusalem.  It was performed on healthy volunteers and consisted of two parts. The first part of the study was a randomized, double-blind, placebo-controlled, dose-escalation study in three cohorts of eight participants each, with each participant receiving two consecutive injections of BL-8040. Results show that BL-8040 is safe and well tolerated up to a dose of 1 mg/kg, and that dramatic mobilization of hematopoietic stem and progenitor cells, or HSPCs, was observed across all doses tested. The robust mobilization supports the further use of a single injection of BL-8040 for HSPC collection.
 
In the second part of the Phase 1 study, eight healthy participants received a single injection of BL-8040 at the highest dose of 1 mg/kg, and four hours later underwent a single, standard leukapheresis procedure. Robust and rapid stem-cell mobilization was evident in all treated participants, supporting a novel approach to stem-cell collection. The median level of collected stem cells was higher than 11 x 106 cells per kg, which is more than two-fold higher than the target concentration, and five-fold higher than the minimum concentration, necessary for transplantation. In addition, the level of HPSCs in the peripheral blood circulation 24 hours after injection of BL-8040 enabled an additional apheresis on day 2, if needed. These data support the use of BL-8040 as a single-agent, single-injection, one-day regimen for the collection of stem cells.
 
In December 2015,March 2016, we announced the filinginitiation of regulatory submissions required to commence a Phase 2 trial for useBL-8040 as a novel approach for the mobilization and collection of BL-8040 inbone marrow stem cell mobilization. The submission was made following a meeting withcells from the FDA in October 2015 to discuss the BL-8040 stem cell mobilization development program.peripheral blood circulation. The open-label trial will bestudy is being conducted as an investigator-initiated study in collaboration with the Washington University School of Medicine, Division of Oncology and Hematology, of Washington University School of Medicine, and will enroll up to 24 donor/recipient pairs.pairs, aged 18-70. The trial is designed to evaluate the ability of BL-8040, as a single agent, to promote stem cell mobilization for allogeneic transplantation. On the donor side, the primary endpoint of the study is the ability of a single injection of BL-8040 to mobilize sufficient amounts of cells for transplantation following up to two leukapheresisapheresis collections. On the recipient side, the study aims to evaluate the functionality and engraftment following transplantation of the BL-8040 collected graft. The trial is expected to commence shortly after receipt of regulatory approval, anticipated in the first quarter of 2016.
A fifth clinical development program for BL-8040 is the assessment of the drug for the treatment of hypoplastic myelodysplastic syndrome, or hMDS, and aplastic anemia, or AA. One type of treatment for these bone-marrow failure conditions consists of immunosuppressive therapy with hATG and cyclosporine; however, a sizable fraction of patients do not respond to this therapy. Preclinical data suggest that BL-8040 promotes stem cell proliferation and differentiation thereby allowing recovery of hematopoiesis (formation and development of blood cells). The data show that treatment of mice with BL-8040 contributes to bone marrow regeneration, and increases the number of progenitor cells and the mature components of the blood and immune systems.
In November 2015, we announced the commencement of a Phase 1/2 trial, in collaboration with the MD Anderson Cancer Center, for BL-8040, in combination with standard of care immunosuppressive therapy, as a treatment for hMDS and AA. The open-label trialstudy will examine BL-8040’s ability to improve bone marrow cellularity and peripheral blood counts in up to 25 patients suffering from these bone marrow failure conditions. The study’s primary endpoint is toalso evaluate the safety and tolerability of treatmentBL-8040 in healthy donors, as well as graft durability, the incidence of grade 2-4 acute graft versus host disease (GVHD), and other recipient-related parameters in patients who have undergone transplantation of hematopoietic cells mobilized with BL-8040 on top ofBL-8040.
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In March 2017, we announced positive interim results from the standard immunosuppressive regimen of Anti-Thymocyte Globulin (hATG), Cyclosporine and Methylprednisolone (steroids) in hMDS and AA patients. Secondary endpoints include assessment of the clinical efficacy (response rate), time and duration of response to the treatment, and overall survival following treatment. Safety and efficacy will be assessed at defined time points throughout the study. Duration of response and overall survival will also be assessed asfirst part of the study’s long term follow up protocol.study which is nearing completion. This part initially enrolled 10 donor and recipient pairs, consisting of patients with advanced hematological malignancies and their sibling donors matched for human leukocyte antigen. Interim results show that a single injection of BL-8040 mobilized sufficient amounts of cells required for transplantation at a level of efficacy similar to that achieved by using 4-6 injections of G-CSF, the current standard of care. Furthermore, all recipients transplanted so far have experienced a successful neutrophil engraftment. The recipients will be followed for one year to assess acute and chronic GVHD events. As for the donors, BL-8040 treatment was safe and well tolerated. Topline results for this study are expected by the end of 2017.
 
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In addition, based on developments in the field of mobilization and on market research, we are preparing to conduct a Phase 3 registration study in autologous stem cell mobilization. Our plans include meeting with the FDA to confirm the parameters of such a study and then commencing the study toward the end of 2017.
 
In January 2016, we announcedentered into a collaboration with MSD known as Merck in the U.S. and Canada, in the field of cancer immunotherapy. We plan to sponsor and conductIn this regard, in September 2016 we initiated a Phase 22a study, investigatingknown as the COMBAT study, focusing on evaluating the safety and efficacy of BL-8040 in combination with KEYTRUDA® (pembrolizumab), MSD’sMSD's anti-PD-1 therapy, in patients with metastatic pancreatic adenocarcinoma. Findings in the field of immuno-oncology suggest that CXCR4 antagonists such as BL-8040 may be effective in inducing the migration of anti-tumor T cellsT-cells into the tumor micro-environment. KEYTRUDA® is a humanized monoclonal antibody that works by increasing the ability of the body’sbody's immune system to help detect and fight tumor cells. KEYTRUDA® blocks the interaction between PD-1 and its ligands, PD-L1 and PD-L2, thereby activating T- lymphocytes, which may affect both tumor cells and healthy cells. The study is an open-label, multicenter, single-arm trial designed to evaluate the clinical response, safety and tolerability of the combination of BL-8040 and KEYTRUDA® as well as multiple pharmacodynamic parameters, including the ability to improve infiltration of T cellsT-cells into the tumor and their reactivity. The study is planned to commence by mid-2016. Upon completion of the study, or at any earlier point, both parties will have the option to expand the collaboration to include a pivotal registration study.
BL-7010
BL-7010 is a novel, non-absorbable, orally available, high-molecular-weight co-polymer intended for the treatment of celiac disease and gluten sensitivity. It has a high affinity for gliadins, the immunogenic proteins present in gluten that cause an immune response in patients with celiac disease. BL-7010 effectively masks gliadins from enzymatic degradation and prevents the formation of immunogenic peptides that trigger the immune system. BL-7010 is excreted with gliadin from the digestive tract, preventing the formation and absorption of gliadin peptides. This significantly reduces the immune response triggered by gluten. We in-licensed the exclusive, worldwide rights to develop, market and sell BL-7010 from Valorisation-Recherche, Limited Partnership, or Univalor in February 2011.
Celiac Disease. Celiac disease is a chronic, autoimmune, inflammatory disease of the small intestine characterized by damage to the lining of the small intestine and typically leads to dyspepsia, malabsorption and a variety of other symptoms. It occurs in genetically predisposed individuals and is caused by an immunological reaction to gluten, found in wheat, barley and rye. Estimates suggest that 1% of the world’s population is affected by celiac disease, and prevalence is Partial results are expected to increase dramatically with improved diagnosis and awareness of the disease. There are currently no treatments approved for celiac disease and the only treatment option is a life-long, strict, gluten-free diet, which is difficult to maintain both due to food contamination with gluten, as well as eating habits in a social setting. Estimates suggest that approximately 30% of patients on a gluten-free diet are still symptomatic to some extent.
        Non-Celiac Gluten Sensitivity (NCGS). NCGS is defined as a clinical condition induced by ingestion of gluten and leading to intestinal and/or extra-intestinal symptoms in subjects in which celiac disease and wheat allergy have been ruled out. The overall prevalence of NCGS in the general population is considered to be higher than celiac disease. However the exact number is still unknown and the estimates vary widely, mainly due to the absencesecond half of biomarkers and the fact that many patients are self-diagnosed. As is the case with celiac disease, a gluten-free diet is currently the only therapy available for persons with NCGS. The total market for gluten-free products has grown to about 40 million consumers, of whom only up to four million suffer from celiac disease. This reinforces the large potentially available market size for products addressing NCGS.
Preclinical Results. BL-7010 was evaluated in preclinical safety and efficacy studies.  As we received conditional approval for device designation in Europe, the safety data available included a 6-week rat toxicity study and a biocompatibility package of studies. BL-7010 was found to be well tolerated2017, top-line results in the rat toxicity study conducted at a dose rangesecond half of 500 mg/kg to 3,000 mg/kg body weight/day by oral gavage. In addition, BL-7010 was found to have no mutagenic activity, to have no local irritation effect in the gastrointestinal tract and is not considered to be a sensitizer.
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BL-7010 was evaluated in well-validated murine models of celiac disease (transgenic mice carrying the human DQ8 gene, sensitized to gluten). It was found that BL-7010 significantly reduced the damage to the small intestine and the immune response triggered by gluten or gliadin.
In preclinical pharmacokinetics studies, it was found that BL-7010 is not absorbed systemically and is excreted in the feces, hence presenting a very good safety profile. It was also found that BL-7010 interacts specifically with gliadin, and does not interact with tested vitamins, selected drugs or additional selected proteins.
Clinical Trial.2018.
 
In December 2013,August 2016, we commenced a Phase 1/2 trialentered into an agreement with MD Anderson Cancer Center in regard to an additional collaboration for BL-7010 at Tampere Hospitalthe investigation of BL-8040 in Finland, a leading site for celiac research.combination with KEYTRUDA in pancreatic cancer. The study waswill be conducted as an investigator-sponsored study, as part of a two-part (singlestrategic clinical research collaboration between Merck and repeated), double-blind, placebo-controlled, dose escalationMD Anderson Cancer Center aimed at evaluating KEYTRUDA in combination with various treatments and novel drugs, including BL-8040. The open-label, single center, single-arm Phase 2b study will focus on the mechanism of BL-7010action by which both drugs might synergize. In addition to assessing clinical response, the study will include multiple assessments to evaluate the biological anti-tumor effects induced by the combination. We are supplying BL-8040 for the study, which commenced in upJanuary 2017.
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In September 2016, we entered into a collaboration with Genentech to 40support several Phase 1b studies investigating BL-8040 in combination with Atezolizumab, Genentech's anti-PDL1 cancer immunotherapy, in multiple cancer indications. Research findings in the field of immuno-oncology suggest that CXCR4 antagonists such as BL-8040 may be effective in inducing the migration of anti-tumor T-cells into the tumor micro-environment. Atezolizumab is a humanized monoclonal antibody designed to bind with a protein called PD-L1. Atezolizumab is designed to bind to PD-L1 expressed on tumor cells and tumor-infiltrating immune cells, blocking its interactions with both PD-1 and B7-1 (CD80) receptors. By inhibiting PD-L1, Atezolizumab may enable the activation of T-cells, whose migration into the tumor may be enhanced by BL-8040.
The Phase 1b studies, which are all expected to commence in the second half of 2017, will evaluate the clinical response, safety and tolerability of the combination of these therapies, as well as multiple pharmacodynamic parameters, in hematologic malignancies and solid tumors. Under the collaboration agreement, Genentech will sponsor and conduct several trials in multiple solid cancer indications. In addition, we will sponsor and conduct a study in AML patients. The primary objectivestudies are planned as open-label, multicenter, single-arm trials designed to evaluate the safety and efficacy of the study was to assess the safetycombination of singleBL-8040 and repeated ascending doses of BL-7010 in well-controlled celiac patients. Secondary objectives included an assessmentAtezolizumab. Upon completion of the systemic exposure, if any, of BL-7010 instudies, both parties will have the study patients. The study was conducted based onoption to expand the collaboration to include a device pre-clinical submission package under an approval from the Finnish National Supervisory Authority for Welfare and Health (Valvira).
During the single-administration part of the study, six dose levels of BL-7010 were evaluated compared to placebo in a 6+2 standard design, with six patients on BL-7010 and two patients on placebo. This escalation stage reached the highest planned dose with no serious or dose-limiting adverse events. All planned doses were safe and well-tolerated with all patients completing this part of the study. During the second, repeated-administration part of the study, each patient received either 3 grams of BL-7010 or placebo for 14 days, three times per day, in the same 6+2 standard design. BL-7010 was well-tolerated over 14 days of treatment, with only one patient not completing the 14-day treatment period. Gastrointestinal-related adverse events (primarily diarrhea) were reported in six out of eight patients, though none were considered serious or dose-limiting and were also observed in one of the two patients on placebo. In light of these findings, and based on pre-clinical studies where the efficacious dose is predicted to be lower than the dose tested in the repeated administration stage of the study, we filed an amendment to further investigate lower repeated doses of BL-7010 in this study in order to select the optimal dose for the upcoming efficacypivotal registration study.
 
In November 2014, we reportedAGI-134
AGI-134 entered our pipeline following our acquisition of Agalimmune in March 2017. The compound is a synthetic alpha-gal immunotherapy in development for solid tumors. AGI-134 harnesses the final resultsbody's pre-existing, highly abundant, anti-alpha-gal antibodies to induce a systemic, specific anti-tumor response to the patient's own tumor neo-antigens. This response not only kills the tumor cells at the site of the study, including the resultsinjection, but also brings about a durable, follow-on, anti-metastatic immune response. Alpha-gal is a cell-surface carbohydrate antigen that is not expressed by humans, unlike virtually all other mammals and bacteria. Therefore, humans universally produce and maintain high levels of the additional cohort tested. The final results of the study fully confirmed the positive unblinded results previously reported in July, and showed a substantially reduced level of gastrointestinal-related adverse events. Basedanti-alpha-gal antibodies, due to exposure to alpha-gal on these results, we selected the dosing regimen of one gram, three times per day, of BL-7010 as the as the optimal repeated dosebacteria in the next efficacy study for celiac patients.digestive system.
 
In addition, pharmacokinetic analyses revealed noAGI-134 is injected into the tumor, where it coats the tumor cell membranes, resulting in alpha-gal being exposed on the tumor cell surface. Anti-alpha-gal antibodies bind to the alpha-gal part of AGI-134 to produce an initial immune response that activates complement-dependent and antibody-dependent cellular cytotoxicity (cell death). This cytotoxicity generates immune-tagged cells and cellular debris that trigger an uptake of tumor-associated antigens by antigen-presenting cells (APCs). These APCs induce a follow-on systemic exposureimmune response by the activation and clonal expansion of BL-7010 in plasma and urine samples from all patients at all doses and time points tested, both inT-cells to the single- and repeated-dose regimens. In January 2016, we received confirmation regardingpatient's own neo-antigens. This approach not only targets the classificationprimary injectable tumor, but has also demonstrated efficacy against existing distant secondary tumors. Furthermore, the mechanism of BL-7010 as a Class IIb medical device inaction suggests the European Union. We believe this classification could significantly acceleratepotential of long-term protection against future metastases.
AGI-134 has completed numerous pre-clinical studies, demonstrating robust protection against the development of BL-7010secondary tumors in Europe.a model of melanoma with a single dose only. Synergy has also been demonstrated in additional pre-clinical studies when combined with a PD-1 immune checkpoint inhibitor, offering the potential to broaden the utility of such immunotherapies and improve the rate and duration of responses in multiple cancer types.
 
Over the last year, we have invested considerable efforts AGI-134 is now in examining alternativenear-clinical development and commercialization pathways for BL-7010,is expected to commence a first-in-man study in addition to the celiac disease pathway, including as a food supplement, in order to potentially address the multi-billion dollar market for gluten sensitivity. We believe the gluten sensitivity market has a significantly shorter time to market than drug or device pathways, especiallypatients with solid tumors in the U.S. market, wherefirst half of 2018. Discussions on this have already been held with both the device pathway is not available for BL-7010. We are currently conducting a number of activities towardsFDA and the development of BL-7010 as a food supplement, including the development of a suitable product formulation, preparation of the documents necessary for a GRAS designation submission,UK Medicines and preparations for a relatively small clinical trial to support the marketing efforts we may conduct regarding gluten and/or gluten sensitivity. We expect to complete these activities by mid-2017 in order to support partnering discussions for the food supplement market in the U.S. and other relevant territories at that time. We will also continue to evaluate the pathway for celiac disease in Europe and will make a decision about the timing and scope of the next efficacy study for European registration over the next few months.
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Healthcare Products Regulatory Agency.
 
BL-5010
 
BL-5010 is a novel medical device containing a novel, acidic, aqueous solution and applicator for the non-surgical removal of benign skin lesions. It offers an alternative to painful, invasive and expensive removal treatments including cryotherapy, laser treatment and surgery. Since the treatment is non-invasive, it poses minimal infection risk and eliminates the need for anesthesia, antiseptic precautions and bandaging. The pre-filled device controls and standardizes the volume of solution applied to a lesion, ensuring accurate administration directly on the lesion and preventing both accidental exposure of the healthy surrounding tissue and unintentional dripping. It has an ergonomic design, making it easy to handle, and has been designed with a childproof cap. BL-5010 is applied topically on a skin lesion in a treatment lasting a few minutes with the pen-like applicator and causes the lesion to gradually dry out and fall off within one to four weeks. We have received European confirmation from BSIBritish Standards Institute of the regulatory pathway classification of BL-5010 as a Class IIa medical device. We in-licensed the exclusive, worldwide rights to develop, market and sell BL-5010 from IPC in November 2007.
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Development and Clinical History. We originally developed BL-5010 for the treatment of skin lesions such as seborrheic keratosis, or SK, and actinic keratosis. Clinically diagnosed skin lesions, or a growth or patch of skin that does not resemble the area surrounding it, are very common and often constitute a cosmetic and functional annoyance. Moles and warts are other examples of skin lesions. In 2009 and 2010 we conducted a successful Phase 1/2 clinical trial in 60 patients with SK in Germany and the Netherlands to assess the safety and efficacy of BL-5010 in completely removing the lesion and to assess the cosmetic outcome of the novel treatment. A pivotal, CE Mark registration trial for BL-5010 had been planned for 2014. However, during discussions in recent years with potential partners for the development and commercialization of BL-5010, we learned that they had more interest in the possibilities of BL-5010 for OTC indications than in its use by physicians for SK and other lesions. In December 2014, we entered into the out-licensing arrangement with Omega Pharma described below and the development activities for BL-5010 will be restricted for the time being to OTC indications.
 
Development and Commercialization Arrangement. In December 2014, we entered into an exclusive out-licensing arrangement with Omega Pharma for the rights to BL-5010 for over-the-counter, or OTC, indications in the territory of Europe, Australia and additional selected countries. We will retain the OTC rights to BL-5010 in the United States and the rest of the world, as well as the non-OTC rights on a global basis. Under our out-licensing arrangement with Omega Pharma, Omega Pharma is obligated to use commercially reasonable best efforts to obtain regulatory approval in the licensed territory for at least two OTC indications and to commercialize BL-5010 for those two OTC indications. In addition, Omega Pharma will sponsor and manufacture BL-5010 in the relevant regions. Omega Pharma will pay us an agreed amount for each unit sold, and we will be entitled to certain commercial milestone payments. In addition, we will have full access to all clinical and research and development data generated during the performance of the development plan and may use these data in order to develop or license the product in other territories and fields of use where we retain the rights. During 2015,In March 2016, Omega Pharma conducted a 30-patient, open-label clinical study in Turkey to evaluate the advantages of BL-5010 in one of the intended OTC indications. Study results indicate that BL-5010 is safe and efficacious. Omega Pharma submitted an application forreceived CE Mark designationapproval for BL-5010 duringas a novel OTC treatment for the third quarternon-surgical removal of 2015, and has completed the initial manufacturing process automation to support the product launch.warts. The commercial product launch of thethis first OTC indication for this product is expected during(warts/verrucas) commenced in Europe in the second quarter of 2016.
As a result of thisour out-licensing arrangement, as well as the previous discussions with other potential partners for this product, the development activities for BL-5010 are currently focused on OTC indications. However, we may decide to continue development of BL-5010 for non-OTC indications, including, but not limited to, SK, or for OTC indications in territories not out-licensed to Omega Pharma, primarily the U.S.
 
Other Therapeutic Candidates
BL-8020
BL-8020 is an orally available treatment for the hepatitis C virus, or HCV, and other viral indications, with a unique mechanism of action involving the inhibition of virus-induced autophagy in host cells. In April 2013, we commenced a Phase 1/2 clinical trial to evaluate the safety, tolerability and effectiveness of BL-8020 at two sites in France. In January 2014, we entered into a collaboration agreement with the licensors of the compound whereby, in consideration for the payment of future royalties to us, we terminated the license agreement, the licensors agreed to take over development of the compound and we agreed to supply, at the licensors’ request and for full payment, the drug product needed for a clinical trial to be administered by the licensors. In August 2014, the licensors decided to terminate the ongoing Phase 1/2 trial in HCV due to a very slow recruitment rate, and are now determining the next steps in the clinical development plan of the compound, including an assessment regarding potential additional viral indications for development.
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BL-1040
 
BL-1040 (now called “Bioabsorbable"Bioabsorbable Cardiac Matrix,”" or BCM), is a novel, resorbable polymer solution for use in the prevention of ventricular remodeling that may occur in patients who have suffered an acute myocardial infarction, or AMI. BL-1040 iswas being developed as a medical device.
In 2009, we We entered into an out-licensing arrangement for BL-1040 with the predecessor of Bellerophon with regard to BL-1040, which we amendedTherapeutics, Inc., or Bellerophon, in January 2015.2009. Under this arrangement, Bellerophon is obligated to use commercially reasonable efforts to complete clinical development of, and to commercialize, BL-1040 or a product related thereto. To date, we have received $17.0 million from Bellerophon, and we are entitled to receive up to an additional $265.5 million from Bellerophon upon achievement of certain development, regulatory, and commercial milestones. In addition, we are entitled to receive from Bellerophon royalties at the rate of 11-15% from net sales of any product developed under the arrangement. Pursuant to the January 2015 amendment, a certain milestone and related payments have been adjusted, but the total potential milestone payments to be paid to us under the license agreement remain the same.
In December 2011, Bellerophon commenced PRESERVATION I, a CE mark registration clinical trial of BL-1040. Enrollment for this trial was completed in December 2014, with 303 AMI patients having been recruited and treated. In July 2015, Bellerophon reported top-line results from PRESERVATION I, a CE mark registration clinical trial for BCM, showing no statistically significant difference between patients treated with BCM versus placebo for both the primary and the secondary endpoints of the study. We have not yet received any notification from Bellerophon about their plans regardingis considering further exploratory work for the future of this program.compound.
 
We are obligated to pay 28% of all net consideration received under this arrangement to B.G. Negev Technologies, the party from which we in-licensed BL-1040 in 2005. We have agreed to pay Ramot at Tel Aviv University Ltd., or Ramot, a portion of the payments we make to B.G. Negev Technologies in connection with the in-license arrangement to satisfy contractual obligations between B.G. Negev Technologies and Ramot with respect to certain intellectual property rights to the licensed technology. We have also agreed to indemnify Ramot and certain of its related parties in connection with our use of the technology we in-licensed from B.G. Negev Technologies.BL-9020
 
Therapeutic Candidates in Preclinical Development
As of the date of this annual report, we have one preclinical stage therapeutic candidate. BL-9020 is a novel monoclonal antibody treatment designed to prevent immune-mediated destruction of insulin-producing beta cells in the pancreas. ItThe treatment was developed to treat Type 1 diabetes in early stage patients, during what is known as the “honeymoon"honeymoon period,”" where the pancreatic beta cells have not been completely destroyed and continue to secrete insulin. BL-9020 targets NKp46, a unique target that is involved in the innate response against the pancreas. Pre-clinical studies in mouse models of Type 1 diabetes suggest that BL-9020 can inhibit beta cell death, thus preventing full maturation of the disease. This effect could significantly delay, and potentially prevent, the need for chronic insulin use by Type 1 diabetes patients, as well as provide a potential benefit in minimizing diabetes-related complications. Based on its mechanism of action, additional therapeutic indications may be relevant to BL-9020 as well, and we are currently evaluating these additional indications. We in-licensed BL-9020 from the Yissum Research Development Company of the Hebrew University of Jerusalem Ltd., or Yissum; B.G. Negev TechnologiesNegev; and Hadasit Medical Research Services and Development Ltd., or Hadasit (the technology transfer company of Hadassah Medical Organization).
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BL-1210
BL-1210 is a drug candidate intended for the treatment of liver fibrosis, and in particular, non- alcoholic steatohepatitis (NASH). This project offers a novel mechanism for controlling liver fibrosis through modulation of the immune system. BioLineRx will address the novel drug target that will modulate the immune system to ultimately reduce the liver fibrogenesis and therefore reduce liver scarring. Limiting the fibrosis process this way will potentially control the disease progression. We in-licensed BL-1210 in 2016 from Hadasit.
BL-1220
BL-1220 is an orally administered, novel composition of sodium alginate intended as a novel treatment for various liver failure conditions such as end-stage liver disease (ESLD) and for conditions potentially leading to liver failure such as NASH. Pre-clinical results obtained in animal models of liver impairment suggest that BL-1220 has strong hepato-protective effects. Collectively, the data demonstrate that BL-1220 is able to restore liver function. This technology could be directed toward rapid regeneration of normal liver in both acute and chronic conditions of liver injury. We in-licensed BL-1220 in 2016 from B.G. Negev and Hadasit.
BL-1230
BL-1230 is a cannabinoid receptor type 2 (CB2R) intended as a novel anti-inflammatory treatment for Dry Eye Syndrome (DES). DES is one of the most prevalent ophthalmic medical conditions, but currently, treatment options are very limited, and include constant rehydration with artificial tears and local immunosuppressants. The involvement of CB2R in immune modulation is well established, and pre-clinical studies in three ocular inflammatory models have demonstrated that BL-1230 eye drops have significant anti-inflammatory activity, which attenuates the pathology and improves histological outcomes. In addition to DES, we intend to explore the potential use of this compound in systemic inflammatory conditions. We in-licensed BL-1230 in 2016 from Yissum.
BL-1210, BL-1220 and BL-1230 were all in-licensed under the framework of our strategic collaboration with Novartis for the screening and development of novel drug candidates.
 
Termination of Therapeutic Candidates
 
As part of our business strategy, we continue to actively source, rigorously evaluate and in-license selected therapeutic candidates. In line with this strategy, during 20152016 and the period subsequent thereto through the date of this report, we terminated onetwo clinical and threetwo pre-clinical stage therapeutic candidates.
 
BL-7040 was an orally available synthetic oligonucleotide which was in clinical development for the treatment of inflammatory bowel disease, or IBD.  Over the last two years, we invested significant efforts in attempting to locate a potential co-development, collaboration or licensing partner for this asset, and conducted numerous discussions with both mid-sized and large pharma companies in this direction. Ultimately, due to a combination of factors, we were unsuccessful in our efforts and terminated the project in March 2016.
BL-7010 was a novel, non-absorbable, orally available, high-molecular-weight co-polymer intended for the treatment of celiac disease and gluten sensitivity. Over the last two years, we invested significant efforts in examining alternative development and commercialization pathways for BL-7010 in addition to the celiac disease pathway, including as a food supplement, in order to potentially address the multi-billion-dollar market for gluten sensitivity. At the same time, we continued to evaluate the pathway for celiac disease in Europe. However, it became apparent that in light of the scientific and regulatory challenges attending the development of a drug for gluten sensitivity in general and celiac disease in particular, the probability of success for BL-7010 in any pathway was low. In view of our decision to focus on immuno-oncology, we concluded that it would be preferable not continue to invest in research and development efforts related to BL-7010 and to allocate resources and management attention to projects that have a higher probability of succeeding. Therefore, we have notified the licensorslicensor of our decision to terminate the project.
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BL-8030 was a small molecule which we were developing for the treatment of hepatitis C. The compound was in pre-clinical development in collaboration with Jiangsu Chia-tai Tianqing Pharmaceutical Co., Ltd., or CTTQ, for China and Hong Kong. For addition details regarding CTTQ, see “—"— Other Out-licensing/Collaboration Agreements.”" BL-1110 was a small molecule in pre-clinical development which we were developing for the treatment of neuropathic pain. BL-9010 was a bi-specific antibody intended to treat severe allergies and asthma. These threetwo pre-clinical projects were terminated due to lack of efficacy and other scientific considerations as well as market considerations.
 
Product Development Approach
 
We seek to develop a pipeline of promising therapeutic candidates that exhibit distinct advantages over currently available therapies or address unmet medical needs. Our resources are focused on advancing our therapeutic candidates through development and toward commercialization. Our current drug development pipeline consists of six therapeutic candidates.
 
Our focus is principally on the therapeutic areas of oncology and immunology. However, we may also in-license therapeutic compounds outside of these areas in connection with our strategic collaboration with Novartis, as well as to a limited extent for our independent pipeline as the opportunities arise.
 
We have established relationships with various universities, academic and research institutions and biotechnology companies that permit us to identify and select compounds at various stages of clinical and pre-clinical development. Initially, we focused on Israeli institutions as the primary source of our therapeutic candidates. In Israel, we established close relationships with the Technion – Israel Institute of Technology, or Technion, Ben GurionBen-Gurion University of the Negev, Hebrew University of Jerusalem, Tel Aviv University, Bar Ilan University and the Weizmann Institute. More recently, we have begun to source therapeutic candidate opportunities worldwide. Although our focus since inception has been on identifying early development stage therapeutic candidates, over the last few years we have begun evaluating clinical and later-stage pre-clinical candidates in order to introduce therapeutic candidates with a greater potential for clinical success to our pipeline.
 
Once we identify a candidate, it enters our internal evaluation system and undergoes our rigorous selection process. We employ internal research efforts to evaluate candidates. We evaluate each compound’scompound's potential for success by looking at the candidate’scandidate's efficacy, safety, total estimated development costs, technological novelty, patent status, market potential and approvability. Following evaluation and diligence, as necessary, a therapeutic candidate may also be evaluated by our Scientific Advisory Board and by disease-specific advisors for external scientific review. At each step of the process, a therapeutic candidate is subjected to critical evaluation and potential termination. Our approach is consistent with our objective of proceeding only with therapeutic candidates that we believe exhibit a relatively high probability of therapeutic and commercial success.  To date, we have screened over 2,300 compounds, presented more than 70 candidates for final internal evaluation, initiated development of 45 therapeutic candidates and terminated 39 feasibility programs.
 
Once we approve a compound, we in-license the candidate and any related technology and our drug development team and project managers identify, define and oversee the necessary steps to development and commercialization. The design of an appropriate development plan is critical to our approach. We design experiments and studies that challenge the identified weaknesses of a compound, and often verify initial data by testing the compound in additional animal models, as well as in early-stage clinical studies.
 
Our development approach focuses on identifying and following what we believe will be successful pathways to commercialization. Our team has the expertise to move our candidates through all phasesPhases of preclinical and clinical development. Our staff includes professionals with extensive experience in drug development, chemistry, manufacturing and controls, or CMC, preclinical experimentation, clinical development, regulatory affairs, intellectual property protection and business development. We perform all of our development activities in our certified good laboratory practices, or GLP, grade chemistry laboratory or outsource these activities to contract research organizations, or CROs, that meet applicable regulatory standards. Following the generation of sufficient preclinical data, applications to regulatory authorities for the initiation of clinical trials are submitted. Phase 1 and 2 clinical trials are then conducted to demonstrate clinical proof of safety and efficacy. Following this stage of development we seek either to sublicense the therapeutic candidate to a pharmaceutical partner or, in certain circumstances, we may elect to complete development by ourselves. To the extent we in-license later stage compounds, we may eliminate certain of these development efforts.

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Collaboration and Out-Licensing Agreements
 
Investment and Collaboration Agreement with Novartis
 
In December 2014, we entered into a multi-year strategic collaboration agreement with Novartis designed to facilitate development and commercialization of Israeli-sourced drug candidates. Novartis will evaluate projects identified and presented by us for co-development and potential future licensing under the collaboration. The companiesWe intend to co-develop a number of pre-clinical and early clinical therapeutic projects through clinical proof-of-concept. During 2016, we in-licensed three pre-clinical projects – BL-1210, BL-1220 and BL-1230 – in the framework of this collaboration. As part of the collaboration agreement, Novartis made an initial equity investment in BioLineRx of $10 million, representing 12.8%and currently holds 8.1% of our then current shares outstanding. See “Item 10. Additional Information — Material Contracts — Investment and Collaboration Agreement with Novartis.”outstanding share capital.
 
Collaboration Agreement with MSD (Merck)
 
In January 2016, we announced a collaboration with MSD known as Merck in the U.S. and Canada, to support a Phase 2 study investigating BL-8040 in combination with KEYTRUDA® (pembrolizumab), MSD’sMSD's anti-PD-1 therapy, in patients with metastatic pancreatic cancer. The Phase 2 study will evaluate the clinical response, safety and tolerability of the combination of these therapies as well as multiple pharmacodynamic parameters, including the ability to improve infiltration of T cellsT-cells into the tumor and their reactivity. PerAccording to the terms of the agreement, we will sponsorare sponsoring and performperforming the study, which was initiated in September 2016, and Merck is planned to commence by mid-2016, and a portionsupplying its compound for purposes of the study costs will be funded by Merck.study. Upon completion of the study, or at any earlier point, both parties will have the option to expand the collaboration to include a pivotal registration study.
Collaboration with Genentech
In September 2016, we entered into a collaboration with Genentech to support several Phase 1b studies investigating BL-8040 in combination with Atezolizumab, Genentech's anti-PDL1 cancer immunotherapy, in multiple cancer indications. The Phase 1b studies, which are all expected to commence in 2017, will evaluate the clinical response, safety and tolerability of the combination of these therapies, as well as multiple pharmacodynamic parameters, in hematologic malignancies and solid tumors. Upon completion of the studies, both parties will have the option to expand the collaboration to include a pivotal registration study.
 
Out-Licensing Agreement with Omega Pharma
 
In December 2014, we entered into an exclusive out-licensing arrangement with Omega Pharma for the rights to BL-5010 for over-the-counter, or OTC indications in the territory of Europe, Australia and additional selected countries (collectively, the “Territory”"Territory"). We will retain all OTC rights to BL-5010 in the United States and the rest of the world, as well as all non-OTC rights on a global basis. Omega Pharma is obligated to make all necessary efforts to launch a licensed product commercially in the Territory in 2016, including having secured sufficient licensed product supply to support such commercial launch. In addition, Omega Pharma is obligated to use commercially reasonable best efforts to obtain regulatory approval in the Territory for at least two OTC indications and to commercialize BL-5010 for those two OTC indications.
 
Omega has the right to sublicense BL-5010 in arm’s-lengtharm's-length transactions consistent with the terms and conditions of its license agreement with us. In certain agreed-on countries in the Territory, Omega Pharma is obligated to commercialize licensed products itself, through its affiliates or through sublicensees approved by us; in other countries in the Territory, Omega Pharma does not need our prior written approval for sublicensing but must provide us with a copy of the executed sublicense agreement.
 
Omega Pharma is obligated to pay us an agreed amount for each unit sold, and we will be entitled to certain commercial milestone payments. We must pay a portion of all net consideration we receive from Omega Pharma, within our standard range of sublicense receipt consideration, to IPC, the company from which we initially in-licensed the development rights to BL-5010. See “—"— In-Licensing Agreements — BL-5010.”"
 
We have the right to prosecute and maintain the patents for BL-5010 in the Territory, and Omega Pharma will bear the cost of all renewal fees fee for patents and the other costs of prosecution and maintenance up to an agreed limit.
 
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We will have full access to all clinical and research and development data generated during the performance of the development plan and may use these data in order to develop or license the product in other territories and fields of use where we retain the rights.
 
Our agreement with Omega Pharma will continue in effect until the cessation of all commercialization in the Territory. After the fifth anniversary of the first commercial sale of a licensed product, either party may terminate the agreement by giving at least 18 months’months' prior written notice to the other party. Either party may terminate the agreement (a) by providing 60 days’days' written notice of a material breach of the agreement by the other party if the breaching party does not cure the breach during that time or (b) with immediate effect on written notice to the other party if there is a change of control of the other party. The parties have agreed that the announced acquisition of Omega Pharma by Perrigo Company Plc is a change of control event that will not give rise to a right on our part to terminate the license agreement. In addition, we have the right to terminate the agreement if Omega Pharma does not fulfill any of its obligations of diligence with respect to launching a licensed product or obtaining regulatory approval for, and commercializing, licensed products as described above.
 
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Other Out-licensing/Collaboration Agreements
 
Bellerophon
MaRS Innovation
 
In 2009,May 2016, we entered into a licensing arrangementcollaboration with Bellerophon, pursuant to which we granted Bellerophon an exclusive, worldwide license to develop, manufacture and commercialize BL-1040MaRS Innovation, the commercialization agent for use in15 of Toronto's top academic institutions. Under the prevention, mitigation and treatment of injury to the myocardial tissue of the heart. Bellerophon is obligated to use commercially reasonable efforts to complete clinical development of, and to commercialize, BL-1040 or a product related thereto. We were responsible for the costs of the completed Phase 1/2 studies. Bellerophon is responsible for the costs associated with conducting all other development and regulatory activities of BL-1040, including those costs relating to the completion of its clinical development, the conduct and funding of its commercialization and the prosecution and maintenance of patents.
Pursuant to the agreement, Bellerophon paid us an initial up-front payment equal to $7.0 million on the effective dateterms of the agreement, we intend to review innovative projects and in April 2010 paid us a milestone paymentassets of $10.0 million. We are entitledstartup companies originating from MaRS Innovation's members, to receive up to an additional $265.5 million from Bellerophon upon achievement of certain development, regulatory, and commercial milestones. In addition, we are entitled to receive from Bellerophon royalties from net sales of any product developed under the agreement ranging from 11% to 15%, depending on net sales levels achieved by Bellerophonidentify in-licensing, co-development or its sublicensees, as applicable.other partnering opportunities.
 
Bellerophon hasiPharma
In August 2016, we announced the rightestablishment of a joint venture with I-Bridge Capital, a Chinese venture capital fund focused on developing innovative therapies in China. The joint venture, named iPharma, will develop innovative clinical and pre-clinical therapeutic candidates originating primarily in Israel to sublicense BL-1040 in arm’s-length transactions consistent withserve the termsChinese and conditions of the license and commercialization agreement. If Bellerophon receives an upfront payment under a sublicense, Bellerophon is required to pay us 10% of such payment. We have the option to manufacture at least 20% of BL-1040 products pursuant toglobal healthcare markets. Under the terms of a supplythe joint venture agreement, to be negotiated in good faith, provided this option is exercised six months prioreach partner will provide seed capital of one million dollars to the date Bellerophon intends to fileventure. We will screen and identify promising early-stage drug candidates originating primarily in Israel with emphasis on therapeutic indications that are of special interest for regulatory approvalthe Chinese population. These therapeutic candidates will then be in-licensed by iPharma for BL-1040 in the United States.
Bellerophon bears the costs of the worldwide prosecution and maintenance of the patents for BL-1040. We have the right to intervene and maintain our patents in any country where Bellerophon declines to file or prosecute those patents, or if it does not take actions necessary to avoid abandonment of those patents.
Our agreement with Bellerophon expires on a product-by-product basis and a country-by-country basis on the date royalties are no longer payable in connection with the product in a given country. Either party may terminate the agreement by providing 90 days’ written notice of a material breach of the agreement by the other party if the breaching party does not cure the breach during that time. In addition, Bellerophon may terminate the agreement upon 60 days’ prior written notice if Bellerophon determines, in its sole judgment, that the results of the development program under the agreement do not warrant further development of products under the agreement.
In January 2015, we reached an agreement with Bellerophon to amend the BL-1040 license agreement. The amendment changed a certain milestone and related payments, but the total potential milestone payments to be paid to us under the license agreement remain the same.
We must pay 28% of all net consideration we receive from Bellerophon to B.G. Negev Technologies, the institution from which we initially in-licensed the development rights to BL-1040. See “— In-Licensing Agreements — BL-1040.” We have agreed to pay Ramot a portion of the payments we make to B.G. Negev Technologies in connection with the in-license arrangement to satisfy contractual obligations between B.G. Negev Technologies and Ramot with respect to certain intellectual property rights to the licensed technology.
CTTQ
        In June 2013, we signed an out-licensing agreement with CTTQ the leading Chinese pharmaceutical company in the liver disease therapeutic area, granting CTTQ exclusive rights to develop, manufacture and commercialize BL-8030, an orally available treatment for HCV,commercialization in China and Hong Kong.
In January 2016, we received notice from CTTQ that it was exercising its right to terminate the agreement with us, effectivepossibly in April 2016. Weother countries as well. The project screening process has begun and several candidates have also provided notice to the licensors of BL-8030 of the termination of our in-licensing agreement with them, which took effect in early March 2016.
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already been identified.
 
JHL
 
In January 2014, we signed a collaboration agreement with JHL Biotech, or JHL, a biopharmaceutical company that develops, manufactures, and commercializes biologic medicines, pursuant to which we will collaborate with JHL in the development and commercialization of BL-9020, a novel monoclonal antibody for the treatment of Type 1 diabetes. JHL will be responsible for all process development and manufacturing of BL-9020 during its pre-clinical and clinical development stages, and we will be responsible for all pre-clinical development of BL-9020. Responsibility for clinical development of BL-9020 will be shared by the parties on a regional basis. Under the terms of the agreement, JHL will have global manufacturing rights to BL-9020, along with development and commercialization rights in China and Southeast Asia, or the JHL Territory, and we will have development and commercialization rights in the rest of the world. In all development and manufacturing of BL-9020, JHL will adhere to FDA guidelines and regulations. Each party will have rights to all development and regulatory data generated under the agreement in order to commercialize BL-9020 in its respective territory.
 
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Each party will be entitled to single-digit royalties on the sale of BL-9020 in the other party’sparty's respective territory. We must pay 16% of all net consideration we receive from JHL to Yissum, B.G. Negev Technologies and Hadasit, Medical Research Services and Development Ltd., the companies from which we initially in-licensed the development rights to BL-9020. In addition, we are required to pay 12% of all net consideration we receive as a result of the out-licensing of BL-9020, including without limitation the net consideration we receive from JHL, to a party that is assisting us in the initial development of BL-9020.
 
JHL has the right to sublicense BL-9020 in the JHL Territory in arm’s-lengtharm's-length transactions consistent with the terms and conditions of the license agreement.
 
Our agreement with JHL expires upon the later of the date on which JHL reasonably expects no additional sales of product in the JHL Territory or the date on which on which we reasonably expect that we will no longer receive additional sublicensing consideration or net sales. Either party may terminate the agreement by providing either 30 or 60 days’days' written notice (depending on which provision of the agreement has been breached) of a material breach of the agreement by the other party if the breaching party does not cure the breach during that time.
 
In-Licensing Agreements
 
We have in-licensed and intend to continue to in-license development, production and marketing rights from selected research and academic institutions in order to capitalize on the capabilities and technology developed by these entities. We also seek to obtain technologies that complement and expand our existing technology base by entering into license agreements with pharmaceutical and biotechnology companies. When entering into in-license agreements, we generally seek to obtain unrestricted sublicense rights consistent with our primarily partner-driven strategy. We are generally obligated under these agreements to diligently pursue product development, make development milestone payments, pay royalties on any product sales and make payments upon the grant of sublicense rights. We generally insist on the right to terminate any in-license for convenience upon prior written notice to the licensor.
 
The scope of payments we are required to make under our in-licensing agreements is comprised of various components that are paid commensurate with the progressive development and commercialization of our drug products.
 
Our in-licensing agreements generally provide for the following types of payments:
 
Revenue sharing payments. These are payments to be made to licensors with respect to revenue we receive from sub-licensing to third parties for further development and commercialization of our drug products. These payments are generally fixed at a percentage of the total revenues we earn from these sublicenses.
 
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Milestone payments. These payments are generally linked to the successful achievement of milestones in the development and approval of drugs, such Phases 1, 2 and 3 of clinical trials and approvals of new drug applications, or NDAs.
 
Royalty payments. To the extent we elect to complete the development, licensing and marketing of a therapeutic candidate, we are generally required to pay our licensors royalties on the sales of the end drug product. These royalty payments are generally based on the net revenue from these sales. In certain instances, the rate of the royalty payments decrease upon the expiration of the drug’sdrug's underlying patent and its transition into a generic drug. Certain of our agreements provide that if a licensed drug product is developed and sold through a different corporate entity, the licensors may elect to receive shares in such company instead of a portion of the royalties.
 
Additional payments. In addition to the above payments, certain of our in-license agreements provide for a one-time or periodic payment that is not linked to milestones. Periodic payments may be paid until the commercialization of the product, either by direct sales or sublicenses to third parties. Other agreements provide for the continuation of these payments even following the commercialization of the licensed drug product.
 
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The royalty and revenue sharing rates we agree to pay in our in-licensing agreements vary from case to case but in most cases range from 20% to 29.5% of the consideration we receive from sublicensing the applicable therapeutic candidate. We are required to pay a substantially lower percentage, generally less than 5%, if we elect to commercialize the subject therapeutic candidate independently. Due to the relatively advanced stage of development of the compound licensed from Biokine, our license agreement with Biokine provides for royalty payments of 40% of the consideration we receive from sublicensing and 10% of net sales, subject to certain limitations, should we independently sell products. In addition, milestone payments are not generally payable if revenue-sharing from an out-licensing transaction is greater than any relevant payments due under our in-licensing agreements.
 
The following are descriptions of our in-licensing agreements associated with our main therapeutic candidates under clinical development.candidates. In addition to the in-licensing agreements discussed herein, we have entered into other in-licensing arrangements in connection with our therapeutic candidates in theclinical, advanced preclinical and feasibility stages.
 
BL-8040
 
In September 2012, we in-licensed the rights to BL-8040 under a license agreement with Biokine. Pursuant to the agreement, Biokine granted us an exclusive, worldwide, sublicensable license to develop, manufacture, market and sell certain technology relating to a short peptide that functions as a high affinity antagonist for CXCR4 and the uses thereof.
 
There were no upfront payments due under the agreement. We are obligated to pay a monthly development fee of $27,500 for certain development services that Biokine has committed to provide to us under the agreement, as follows:
• during the initial 12-month period following execution of the agreement; $100,000 per month;
after the initial 12-month period and continuingagreement. The payment of this monthly fee will continue until the earlier of (i) completion of the clinical trials contemplated under the agreement or (ii) grant of a sublicense, as follows: $65,000 per month for the following 12 months, $60,000 per month for the next six months and $50,000 per month thereafter until the earlier of the completion of the twolast clinical trials contemplated by the partiestrial in which BL-8040 is planned to be tested, or the grant of a sublicense pursuant to the agreement. We are currently paying a development fee of $50,000 per month, which is expected to end following completion of the r/r AML study in the first quarter of 2016.
being tested with, at least 20 subjects.
 
We are responsible for paying all development costs incurred by the parties in carrying out the development plan.
The agreement contemplates two non-comparative clinical trials studying the effects of BL-8040 in two indications.  If both clinical trials contemplated under the agreement are completed within a given period, we are obligated to pay Biokine a bonus of $250,000. This is the sole milestone payment due under the agreement.
 
Should we independently develop manufacture and sell products (excluding sublicensing) containing the licensed technology, we are obligated to make royalty payments of 10% of net sales, subject to certain limitations.
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The agreement also grants us the right to grant sublicenses for the licensed technology. In such event, we are required to pay Biokine a royalty payment of 40% of the amounts we receive as consideration in connection with any sublicensing, development, manufacture, marketing, distribution or sale of the licensed technology.
 
Before we in-licensed BL-8040, Biokine had received funding for the project from the OCS, and as a condition to OCS giving its consent to our in-licensing of BL-8040, we were required to agree to abide by any obligations resulting from such funding. However, if we become legally required to make payments to the OCS in respect of grants made to Biokine, we have the right to offset the full amount of such grants from any payments otherwise due to Biokine as sublicensing royalties as described above.
 
We are obligated under the agreement with Biokine to make commercially reasonable good faith efforts to sublicense or commercialize BL-8040 for fair consideration. If we do not fulfill this obligation within 24 months after completion of the development plan, all of the rights and responsibilities with respect to commercialization of the licensed technology will revert to Biokine, and our obligation to pay royalties for sales of any licensed products or sublicensing as described above will revert to Biokine.
 
We have the first right to prepare, file, prosecute and maintain any patent applications and patents, in respect of the licensed technology and any part thereof, at our expense, provided that we are required to consult with Biokine regarding patent prosecution and patent maintenance. In addition, we have the right to take action in the prosecution, prevention, or termination of any patent infringement of the Licensed Technology.licensed technology. We are responsible for all the expenses of any patent infringement suit that we bring, including any expenses incurred by Biokine in connection with such suits, with such expenses reimbursable from any sums recovered in such suit or in the settlement thereof for. After such reimbursement, if any funds remain, both we and Biokine are each entitled to a certain percentage of any remaining sums.
 
The agreement will remain in full effect until the expiration of all of our royalty and sublicense revenue obligations to Biokine, determined on a product-by-product and country-by-country basis. We may terminate the agreement for any reason on 90 days’days prior written notice to Biokine. Either party may terminate the agreement for a material breach by the other party if the breaching party is unable to cure the breach within 30 days after receiving written notice of the breach from the non-breaching party. With respect to any termination for a material breach, if the breach is not susceptible to cure within the stated period and the breaching party uses diligent, good faith efforts to cure such breach, the stated period will be extended by an additional 30 days. In addition, either party may terminate the agreement upon the occurrence of certain bankruptcy events.
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Termination of the agreement will result in a loss of all of our rights to the drug and the licensed technology, which will revert to Biokine. In addition, any sublicense of ours will terminate provided that, upon such termination and at the request of the sublicensee, Biokine will be required to enter into a separate license agreement with the sublicensee on substantially the same terms as those contained in the applicable sublicense agreement.
 
BL-7010AGI-134
Acquisition Agreements with Agalimmune
In March 2017, we acquired substantially all of the outstanding shares of Agalimmune and entered into the Agalimmune Development Agreement with the selling shareholders. We control the Agalimmune board of directors, and subject to the protections in favor of the selling shareholders, we will direct and be responsible for the planning, execution and day-to-day management of Agalimmune and its pipeline, including AGI-134.
The Agalimmune Development Agreement provides the selling shareholders with a reversionary option, in the event of a breach of the Agreement and certain other limited triggering events, that permit the selling shareholders to re-acquire our equity interests in Agalimmune for nominal consideration. See "Risk Factors — Risks Related to Our Business Regulatory Matters —  If we do not meet the requirements under our agreement with the Agalimmune selling shareholders, we could lose the rights to the therapeutic candidates in Agalimmune's pipeline, including but not limited to AGI-134."
License from the University of Massachusetts
 
In February 2011, we in-licensed the rights to BL-7010 under a2013, Agalimmune entered into an exclusive license agreement with Univalor, the technology transfer office for the University of Montreal. UnderMassachusetts, or the University, which was amended and restated in February 2017, for rights to intellectual property related to AGI-134. Pursuant to the agreement, Univalor granted usAgalimmune has an exclusive, worldwide, royalty-bearing, sublicensable license to research, have researched, develop, have developed, manufacture, have manufactured, use, market, distribute, offer for sale,import and sell have sold, export and import products that comprise, contain or incorporate a certain invention relating to polymeric binders for celiac disease and/or provide services relating thereto. Notwithstanding the exclusive license, the University of Montreal retained the rightlicensed products. Agalimmune is obligated to use diligent efforts to develop the licensed inventionproducts and patents for academic (i.e., non-commercial) research and teaching purposes. Underto introduce them into the commercial market. The agreement we aresets forth specific development milestones that Agalimmune is required to use commercially reasonable efforts to carry out the development work necessary to develop products under the agreement in accordance with a specified development plan.
According to the termsfulfill. In consideration of the agreement, we reimbursed Univalor for a portion of all past documented patents costs relating to the registration and maintenancegrant of the licensed patents. On execution of the agreement, we paid Univalor a non-refundable license, issue fee. On each anniversary of the execution of the agreement, we have paid an annual, non-refundable license maintenance fee and will continue to pay such annual maintenance fee until such time as we becomeAgalimmune is obligated to pay minimumupfront license fees, annual royalties after the first commercial sale made by us, our affiliates or our sublicensees. If we manufacture and/or sell in any way products under the license, we are obligated to pay Univalormaintenance fees, milestone payments, and low, single-digit royalties which vary in amount depending on whether sales are made in a country where there is a licensed patent. The minimum annual royalties are fully creditable against actual royalties due. The agreement obligates us to pay milestonesingle digit royalty payments on the occurrencenet sales of eachlicensed products. In addition, the agreement provides that following a change of control event, Agalimmune shall allot to the following: enrollmentUniversity 6% of its shares on a fully diluted basis. The agreement will remain in full effect until the first patientlater of expiration or abandonment of all valid claims in the first Phase I clinical trial relating tolicensed patents or 10 years from the licensed products; enrollmentdate of the first patient in the first Phase II clinical trial relating to the products; enrollment of the first patient in the first Phase III clinical trial relating to the products; the first filing of a new drug application (NDA) or equivalent for the products; and receipt of a first regulatory approval from any relevant registration authority (e.g. FDA, TPD or EMEA) for the products. If we grant sublicenses of our rights under the license, we are required to pay Univalor a portion of the consideration we receive in connection with the grant of a sublicense or option to obtain a sublicense, subject to certain criteria. Royalties are payable under the agreement beginning with the first commercial sale of a product under the agreement and expiring on the expiration of the last valid patent claim in or covered by any patent application related to any of the licensed invention, the licensed patents, the improvements made therein, or any other patent pertaining to such invention or improvements, whichever expires last.
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Either we or Univalorproduct. Agalimmune may terminate the agreement immediately uponfor any reason on 90 days prior written notice to the other relatingUniversity.
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Evaluation License and Option from Kode Biotech
In March 2015, Agalimmune entered into the Evaluation License with Kode Biotech for the rights to bankruptcyintellectual property related to certain water dispersible glycan-lipid conjugates (the "KODETM Constructs"), including AGI-134. Pursuant to the agreement, Agalimmune has an exclusive license to pursue preclinical assessment of the use of the KODETM Constructs in Agalimmune's method of promoting tumor anticancer therapy, and insolvency matters,the exclusive right to require Kode Biotech to grant Agalimmune an exploitation license to pursue clinical development and upon 60 days’ written noticecommercialization of the use of the KODETM Constructs in its method. If Agalimmune exercises the option, the terms of an agreed license agreement between the parties will automatically come into effect. If the option lapses, and Kode Biotech wishes to enter into a material breach iflicense agreement within one year after the end of the term of the Evaluation License and on terms that are the same or better than those agreed with Agalimmune, it must offer those terms to Agalimmune, which then has a defined period of time to notify Kode Biotech of its decision whether to accept such breachterms. Under the Evaluation License, Kode Biotech is not cured. Notwithstanding the foregoing,obligated to license a third party isto manufacture and supply KODETM Constructs to Agalimmune, in consideration of which Kode Biotech will be entitled to a defined percentage of the third party's cost of goods supplied to Agalimmune. Agalimmune may terminate the Evaluation License at any time on 90 days notice to Kode Biotech, or on 14 days notice if (a) there is a change of control of Kode Biotech, or (b) Kode Biotech sells all or substantially all of its technology assets related to the KODETM Constructs to an extra 30 daysentity that is a competitor of Agalimmune.
If Agalimmune exercises the option to curereceive an exploitation license, it will be granted a breach if the breach is not capable of cure during the stated period if the breaching party usesworldwide, exclusive, royalty-bearing transferable license to develop, manufacture, use, import and sell licensed products, including AGI-134. Agalimmune will be obligated to use reasonable diligent good faith efforts to curedevelop licensed products and to introduce licensed products into the breach. Terminationcommercial market. In consideration of the agreement will result in the terminationgrant of the exploitation license, and, accordingly,Agalimmune will be obligated to pay a license issue fee, annual maintenance fees, milestone payments, low, single digit royalty payments on the net sales of the licensed invention and all rights included thereinproducts. Agalimmune will revert to Univalor. All sublicenses under the agreement are required to provide that, upon termination of the license the sublicense shall terminate; provided that as long as the sublicensee is not in breach of the sublicense agreement at such time to the extent that we wouldalso have the right to terminate the sublicense, Univalor will be required to act in one of the two following ways: either (a) take over the sublicense; or (b) enter into a new agreement with the sublicensee on substantially the same terms as those contained in the existing sublicense agreement.
We have the first right to prepare, file, prosecute and maintain any patent applications and patents in respect of the licensed invention and any part thereof, at our expense, subject to certain conditions. We are required to make all the reasonable efforts necessary to obtain and maintain patent protection ofgrant sublicenses for the licensed technology and is required to pay Kode Biotech a payment based on the revenues from sublicense net sales. The agreement will remain in at leasteffect, unless terminated earlier in accordance with the following countries: Canada,agreement, until the United States, France, Italy and Belgium. We havelater of expiration or abandonment of all enforceable patent claims within the right, but not the obligation, to take action in the prosecution, prevention or termination of any infringement of patents licensed under the agreement. We are responsible for the expenses of any patent infringement suit that we bring, including the expenses incurred by Univalor in connection with such suits. We are entitled to reimbursement from any awards or settlements recovered in such suit or in the settlement thereof for all costs and expenses involved in the prosecution of any such suit. If we elect not to pursue any action in connection with infringement, Univalor may elect to do so. In such event, Univalor will be responsible for the expenses of any patent infringement suit that it brings, including the expenses incurred by Univalor in connection with such suits and be entitled to reimbursement from any awards or settlements recovered in such suit or in the settlement thereof for all costs and expenses involved in the prosecution of any such suit.patents.
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BL-5010
 
In November 2007, we in-licensed the rights to develop and commercialize BL-5010 under a license agreement with IPC. Under the agreement, IPC granted us an exclusive, worldwide, sublicensable license to develop, manufacture, market and sell certain technology relating to an acid-based formulation for the non-surgical removal of skin lesions and the uses thereof. We are obligated to use commercially reasonable efforts to develop the licensed technology in accordance with a specified development plan, including meeting certain specified diligence goals. We were required to pay to IPC a license fee amounting to $400,000, which we have paid in full. We are also required to make low, single digit royalty payments on the net sales of the licensed technology if we manufacture and sell it on our own, subject to certain limitations. Our royalty payment obligations are payable on a product-by-product and country-by-country basis, until the last to expire of any patent included within the licensed technology in such country. We also have the right to grant sublicenses for the licensed technology and are required to pay IPC a payment, within our standard range of sublicense receipt consideration, based on the revenues we receive as consideration in connection with any sublicensing, development, manufacture, marketing, distribution or sale of the licensed technology.
 
The license agreement remains in effect until the expiration of all of our license, royalty and sublicense revenue obligations to IPC, determined on a product-by-product and country-by-country basis, unless we terminate the license agreement earlier. We may terminate the license agreement for any reason on 30 days’days' prior written notice. We may also terminate the license agreement upon 60 days’days' prior written notice to IPC for scientific, regulatory or medical reasons that would prevent us from continuing the development of the licensed technology pursuant to the development plan. Either party may terminate the agreement for material breach if the breach is not cured within 30 days after written notice from the non-breaching party. If the breach is not susceptible to cure within the stated period and the breaching party uses diligent, good faith efforts to cure such breach, the stated period will be extended by an additional 30 days. In addition, either party may terminate the agreement upon the occurrence of certain bankruptcy events.
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Termination of the agreement will result in a loss of all of our rights to the licensed technology, which will revert to IPC. In addition, any sublicense of the licensed technology will terminate provided that, upon termination, at the request of the sublicensee, IPC is required to enter into a license agreement with the sublicensee on substantially the same terms as those contained in the sublicense agreement.
 
We have the first right to prepare, file, prosecute and maintain any patent applications and patents, in respect of the licensed technology and any part thereof, at our expense, provided that such patent applications and patents are registered in the name of IPC. We are required to make all future payments necessary to prosecute and maintain all patent applications and/or patents in respect of the licensed technology. We are required to consult with IPC regarding the preparation, filing and prosecution of all patent applications, and the maintenance of all patents included within the licensed patents. In addition, we have the right to take action in the prosecution, prevention, or termination of any patent infringement of the licensed patents. We are responsible for the expenses of any patent infringement suit that we bring, including the expenses incurred by IPC in connection with such suits. We are entitled to reimbursement from any sums recovered in such suit for all costs and expenses involved in the prosecution of any such suit. After such reimbursement, we and IPC are each entitled to a certain percentage of any remaining sums.
 
BL-1040
 
In January 2005, we in-licensed the rights to BL-1040 under a license agreement with B.G. Negev Technologies. Under the agreement, B.G. Negev Technologies granted us an exclusive, worldwide, sublicensable license to develop, manufacture, market and sell certain technology relating to injectable alginate biomaterials and the uses thereof. Upon execution of the agreement, we were obligated to make an initial payment and to make annual payments equal to $30,000, subject to certain conditions. We are obligated to make a low, single digit royalty payment on net sales, subject to certain limitations if we manufacture and sell products developed under the agreement on our own. We also have the right to grant sublicenses for the licensed technology and are required to pay B.G. Negev Technologies a payment of 28% of the net revenues (after giving effect to withholding taxes and other deductions) we receive as consideration in connection with any sublicensing, co-marketing or co-promotion, or a permitted assignment, of BL-1040, which includes those under our licensing agreement with Bellerophon. We have agreed to pay Ramot a portion of the payments we make to B.G. Negev Technologies in connection with the in-license arrangement to satisfy contractual obligations between B.G. Negev Technologies and Ramot with respect to certain intellectual property rights to the licensed technology. We have also agreed to indemnify Ramot and certain of its related parties in connection with our use of the technology we in-licensed from B.G. Negev Technologies.
 
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Under the license agreement, we are obligated to use commercially reasonable efforts to develop the licensed technology in accordance with a specified development plan. We have paid to B.G. Negev Technologies initial payments and are required to pay an annual license fee, subject to certain exceptions. In addition, we are required to make a one-time milestone payment upon the achievement of specified milestones. We are required to make certain royalty payments on the net sales of the licensed technology, subject to certain limitations. Our royalty payment obligations are payable on a product-by-product and country-by-country basis, for the period that a valid patent on the licensed technology remains in force in such country, subject to certain exceptions for abandonment.
The license agreement remains in effect until the expiration of all of our royalty and sublicense revenue obligations to B.G. Negev Technologies, determined on a product-by-product and country-by-country basis. We may terminate the license agreement for any reason on 60 days’ prior written notice to B.G. Negev Technologies. Either party may terminate the agreement for material breach by the other party if the breaching party is unable to cure the breach within 60 days after receiving written notice of the breach from the non-breaching party. With respect to any termination for material breach, if the breach is not susceptible to cure within the stated period and the breaching party uses diligent, good faith efforts to cure such breach, the stated period will be extended by an additional 30 days. In addition, either party may terminate the agreement upon the occurrence of certain bankruptcy events.
 
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We have the first right to prepare, file, prosecute and maintain any patent applications and patents, in respect of the licensed technology and any part thereof, at our expense. We are required to consult with B.G. Negev Technologies regarding patent prosecution and patent maintenance. In addition, we have the right to take action in the prosecution, prevention, or termination of any patent infringement of the licensed technology. We are responsible for the expenses of any patent infringement suit that we bring, including the expenses incurred by B.G. Negev Technologies in connection with such suits. We are entitled to reimbursement from any sums recovered in such suit or in the settlement thereof for all costs and expenses involved in the prosecution of any such suit. After such reimbursement, if any funds remain, we and B.G. Negev Technologies are each entitled to a certain percentage of any remaining sums.
Intellectual Property
 
Our success depends in part on our ability to obtain and maintain proprietary protection for our therapeutic candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. We also rely on trade secrets, know-how and continuing technological innovation, as well as on regulatory exclusivity, such as orphan drugOrphan Drug designation or new chemical entity (NCE) protection, to develop and maintain our proprietary position.
 
Patents
 
As of March 1, 2016,20, 2017, we owned or exclusively licensed for uses within our field of business 1826 patent families that collectively contain over 3554 issued patents, threeone allowed patent applicationsapplication and over 5661 pending patent applications relating to the three clinical candidates listed below. We are also pursuing patent protection for other drug candidates in our pipeline. Patents related to our therapeutic candidates may provide future competitive advantages by providing exclusivity related to the composition of matter, formulation, and method of administration of the applicable compounds and could materially improve the value of our therapeutic candidates. The patent positions for our threetwo main therapeutic candidates are described below and include both issued patents and pending patent applications we exclusively license. We vigorously defend our intellectual property to preserve our rights and gain the benefit of our investment.
 
With respect to BL-8040, we have an exclusive license to two patent families that cover the molecule that is the active ingredient of our proprietary drug.  Patents and patent applications of these families have been granted or are pending in the United States, Europe, Japan and Canada. The patents and any patents to issue in the future based on pending patent applications in these families will expire in 2023 (in the United States) and 2021 (in other countries), plus any applicable patent term extension, which may add an additional term of up to 5 years on the patent.  In addition, we have an exclusive license to seven other patent families pending worldwide directed to the use of BL-8040 for the treatment of certain types of cancer and other indications. Furthermore, we have Orphan Drug status for both AML and stem cell mobilization, as well as data exclusivity protection afforded to BL-8040 as a new chemical entity, or NCE.
 
With respect to BL-7010, we haveAGI-134, Agalimmune owns or has an exclusive license to three patent families that cover a patent family directed to the BL-7010genus of compounds including AGI-134, methods of using compounds, including AGI-134, and for a pharmaceutical composition and its use for the treatment of celiac disease, as well as its use as a food.that contains AGI-134.  Patents and patent applications of this family have been granted orin the families that cover a genus of compounds including AGI-134 and methods of using compounds including AGI-134, in the United States and Japan and will expire in 2025 and 2026.  Applications in these families are pending in China, Europe, and other countries that would have the same expiration, if granted.  Patent applications are pending in the United States, Israel,third family in the US, China, Europe, Japan, Canada, Brazil, China, India, Mexico, Russia and Australia. The issued patentsother countries that, if granted, would cover a pharmaceutical composition that contains AGI-134 and any patents to issueexpire in 2035.  In addition, the future drug product could be eligible for obtaining regulatory NCE exclusivity (five years data exclusivity in the future based on pending patent applicationsUSA, 10-11 years marketing exclusivity in this family will expireEurope, eight years marketing exclusivity in October 2026, with a possibility of up to five years of patent-term extension.Japan).
 
With respect to BL-5010, we have an exclusive license to a patent family directed to a novel applicator uniquely configured for applying the BL-5010 composition to targeted skin tissue safely and effectively. Patents applications of this family are pending in the United States, Israel, Europe, Japan, Canada, China, Russia and Australia. Patents to issue will expire in 2034.
 
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The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of our patent applications or those patent applications that we license will result in the issuance of any patents. Our issued patents and those that may issue in the future, or those licensed to us, may be challenged, narrowed, circumvented or found to be invalid or unenforceable, which could limit our ability to stop competitors from marketing related products or the length of term of patent protection that we may have for our products. Neither we nor our licensors can be certain that we were the first to invent the inventions claimed in our owned or licensed patents or patent applications. In addition, our competitors may independently develop similar technologies or duplicate any technology developed by us, and the rights granted under any issued patents may not provide us with any meaningful competitive advantages against these competitors. Furthermore, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.
 
Trade Secrets
 
We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements and assignment of invention agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. 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.
 
Scientific Advisory BoardBoards
 
Until 2015, our Scientific Advisory Board consisted of a number of leading scientists and physicians who played an active role in the evaluation of many of our in-licensing opportunities and the development of our pipeline. In addition, we sought advice from our Scientific Advisory Board on scientific and medical matters generally. As a result of our strategic decision over the last few years to focus on the therapeutic fields of oncology and immunology, in 2015 we decided to disband the previous Scientific Advisory Board and establish two separate new Boards to focus on providing insight and guidance for our activities in the fields of oncology and immunology. In December 2015, we announced the establishment of our oncology Scientific Advisory Board. We are currently in the process of setting up our immunology Scientific Advisory Board and hope to finalize this process by mid-2016.
Board.
 
With respect to each of the two therapeutic fields, the new Scientific Advisory Boards will, as deemed necessary:
 
screen certain potential relevant in-licensing and current therapeutic candidates;
 
oversee our research and development programs;
 
address specific scientific and technical issues relevant to the field; and
 
review certain strategic decisions we may consider related to the field.

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The following table sets forth information for our oncology Scientific Advisory Board members.
 
Name Position/Institutional Affiliation
   
J. Aaron Ciechanover, M.D., Ph.D. Professor Ciechanover is a Distinguished University Professor at the Rappaport Faculty of Medicine of the Technion and the co-director of the Technion Integrated Cancer Center. He shared the 2004 Nobel Prize in Chemistry with Professors Avram Hershko and Irwin Rose for the discovery of ubiquitin-mediated protein degradation. Among his many other prizes are the Israel Prize in Biological Research (2003) and the Albert Lasker Award for Basic Medical research (2000).  He is a member of numerous learned societies, among them the Israeli Academy of Sciences and Humanities and the National Academies of Sciences and of Medicine of the USA (Foreign Associate). Professor Ciechanover was also a member of our original Scientific Advisory Board.
   
Jorge Eduardo Cortes, M.D. 
Dr. Cortes is Professor of Medicine, Deputy Chair, and Chief of the CML and AML Sections of the Department of Leukemia at The University of Texas, MD Anderson Cancer Center (MDACC). Dr. Cortes has authored hundreds of peer-reviewed manuscripts, abstracts, book chapters, and other medical publications. He is an associate editor for the medical journal, Blood and serves on the editorial board of other journals such as the Journal of Clinical Oncology, the American Journal of Hematology andand Clinical Cancer Research. In addition, Dr. Cortes serves on the Board of the International CML Foundation. Dr. Cortes has received numerous awards including The Service to Mankind Award from the Leukemia and Lymphoma Society and the Faculty Scholar Award from the MDACC for clinical research and for education.
   
Debasish Roychowdhury, M.D. Dr. Roychowdhury is a leader in the pharmaceutical industry with a strong background in oncology research and development, and regulatory and commercial operations, having previously served in key senior leadership roles at Sanofi, GlaxoSmithKline and Eli Lilly. Dr. Roychowdhury has a distinguished track record in the field of oncology having been involved in the approval of nine oncology drugs, including Almita, Tykerb and Jevtana. Currently, he is President of Nirvan Consultants, LLC and in this capacity he serves in senior advisory roles for biotechnology companies to help advance their pipeline of therapeutic medicines. Dr. Roychowdhury also serves as a member of the Board of Directors for Lytix Biopharma AS, Celyad SA, Fund+ and Radius Health, Inc. In his academic career, Dr. Roychowdhury served as a faculty member at the University of Cincinnati.
   
Yosef Yarden, Ph.D. Professor Yarden is The Harold and ZedaZelda Goldenberg Chair of Molecular Cell Biology of the Weizmann Institute of Science. He is a member of the Israel Academy of Sciences and Humanities and Past President of the Federation of the Israel Societies of Experimental Biology. Among his many awards, he has received the Susan G. Komen for the Cure® Brinker Award for Scientific Distinction in Basic Research, the Leopold Griffuel Award of Fondation ARC pour la Recherche sur le Cancer, and the Ernst W. Bertner Memorial Award of the MD Anderson Cancer Center. Professor Yarden is expected to be awarded the Israel Prize in Life Science Research in May 2017. Professor Yarden is also a member of the European Molecular Biology Organization, the European Cancer Academy and the Asia-Pacific International Molecular Biology Network. Professor Yarden was also a member of our original Scientific Advisory Board.
 
Manufacturing
 
Our laboratories, which are located in our headquarters in Modi’in,Modi'in, Israel are in part compliant with bothFDA regulations setting forth current good manufacturinglaboratory practices, or GLP. However, they are not compliant with cGMP and certified Good Laboratory Practices, or GLP, and allow us totherefore we cannot independently manufacture drug products for our current clinical trials.trials or, if we choose to do so, commercialize therapeutic candidates ourselves. The suppliers of the drug substances used for our current clinical trials do have thethese necessary approvals as well. See “— Property, Plant and Equipment.” If we decide to perform any Phase 3 clinical trial with respect to, or commercialize, any therapeutic candidate on our own, we anticipate that we will rely on third parties to produce the therapeutic supplies.approvals. We have limited personnel with experience in drug or medical device manufacturing and we lack the resources and capabilities to manufacture any of our therapeutic candidates on a commercial scale.
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Under our out-licensing agreement with Bellerophon with regard to BL-1040, we have the option to manufacture at least 20% of BL-1040 products pursuant to the terms of a supply agreement to be negotiated in good faith with Bellerophon. See “— Other Out-Licensing Agreements — Bellerophon.” Under our collaboration agreement with Panmed and Genoscience with regard to BL-8020, we have agreed to supply, at the licensors’ request, the drug needed for a clinical trial to be administered by the licensors, subject to the parties agreeing to commercially reasonable supply terms. There can be no assurance that our therapeutic candidates, if approved, can be manufactured in sufficient commercial quantities, in compliance with regulatory requirements and at an acceptable cost. We and ourOur contract manufacturers are, and will be, subject to extensive governmental regulation in connection with the manufacture of any pharmaceutical products or medical devices. We and ourOur contract manufacturers must ensure that all of the processes, methods and equipment are compliant with cGMP, for drugs or QSR for devices on an ongoing basis, mandated by the FDA and other regulatory authorities, and conduct extensive audits of vendors, contract laboratories and suppliers.
 
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Contract Research Organizations
 
We outsource certain preclinical and clinical development activities to contract research organizations, or CROs, which meet FDA or European Medicines Agency regulatory standards. We create and implement the drug development plans and, during the preclinical and clinical phasesPhases of development, manage the CROs according to the specific requirements of the therapeutic candidate under development.
 
Competition
 
The pharmaceutical, medical device and biotechnology industries are intensely competitive. Several of our therapeutic candidates, if commercialized, would compete with existing drugs and therapies. In addition, there are many pharmaceutical companies, biotechnology companies, medical device companies public and private universities, government agencies and research organizations actively engaged in research and development of products targeting the same markets as our therapeutic candidates. Many of these organizations have substantially greater financial, technical, manufacturing and marketing resources than we have. Our competitors may also be able to use alternative technologies that do not infringe upon our patents to formulate the active materials in our therapeutic candidates. They may, therefore, bring to market products that are able to compete with our candidates, or other products that we may develop in the future.
 
BL-8040
 
If approved, BL-8040 will compete with currently approved treatments for AML that include chemotherapy (Doxorubicin, Cytarabine, Vincristine), radiation therapy, stem cell transplantation and the hypomethylating agents Dacogen (decitabine), which has been developed by Eisai and Johnson & Johnson, and Vidaza (azacitidine), which has been developed by Celgene.
 
There are a number of potentially competitive compounds under development that act as CXCR4 inhibitors, including, among others, Mozobil (plerixafor), which is being marketed by Genzyme and Sanofi as a stem cell mobilizer for autologous stem cell transplantation; LY-2510924, which is being developed by Eli Lilly & Co; BMS-936564 (MDX-1338; ulocuplumab) developed by Bristol-Myers Squibb; F-50067 developed by Pierre Fabre; TG-0054 (burixafor) developed by TaiGen Biotechnology Co; POL-6326 developed by Polyphor Ltd; PTX-9908 developed by MicroConstants China and Pertinax Therapeutics Inc.;Ltd and X4P-001 developed by X4 Pharmaceuticals Inc.
 
Immuno-oncology is an area of great interest in the pharmaceutical market, specifically, immuno-oncology combination therapies. Currently there are hundreds of immuno-oncology combinations being tested in clinical trials. Recently, there has been growing attention to the combination of immuno-oncology agents with chemokines such as CXCR4 antagonist. One such combination therapy that is currently under development is BMS-936564 andan Opdivo (ulocuplumab and nivolumab respectively, both of which are being developed by Bristol-Myers Squibb).These. These combination therapies, among others, could potentially compete with the combinationcombinations of BL-8040 and Keytruda® (pembrolizumab, developed by Merck & Co.) and Tecentriq® (atezolizumab, developed by Genentech Inc.).
 
In addition there are a number of potentially competitive compounds under development to treat AML including, among others, Qinprezo (vosaroxin), which is being developed by Sunesis Pharmaceuticals (pre-registration in Europe); BI-6727 (volasertib)Vyxeos (liposomal Cytarabine + Daunorubicin, pre-registration),  BIBF-1120 (nintedanib) and BI-836858, which are under development by Boehringer Ingelheim; Sprycel (dasatinib) developed under BMS; RG-6016 under development by Roche; OCV-501, under development by Otsuka Pharmaceutical; ibrutinib developed by Pharmacyclics, under license from Celera, and in collaboration with Janssen Biotech; CPI-613Celator Pharmaceuticals Inc; AG-221 (enasidenib, pre-registration) developed by Cornerstone Pharmaceuticals;Agios Pharmaceuticals Inc. and Celgene Corp; midostaurin developed by Novartis (pre-registration); GMI-1271 developed by GlycoMimetics; F-14512 developed by Pierre Fabre; SL-401 developed by Stemline Therapeutics; pacritinib developed by CTI BioPharma Corp; Odomzo (sonidegib), Mekinist (trametinib) and uprosertib developed by Novartis; venetoclax developed by AbbVie Inc.; lirilumab developed by Innate Pharma in collaboration with BMS; selinexor developed by Karyopharm Therapeutics;  ganetespib developed by Synta Pharmaceuticals; crenolanib, which is being developed by Arog Pharmaceuticals, under license from Pfizer; BVD-ERK developed by BioMed Valley Discoveries; tosedostat developed by CTI BioPharma; pidilizumab developed by Medivation, under license from CureTech; Velcade (bortezomib) developed by Janssen and Takeda; uprosertib developed by Novartis; Revlimid (lenalidomide) developed by Celgene; Tarceva (erlotinib) developed by Roche Astellas and Chugai; Mekinist (trametinib) developed by Novartis; Zolinza (vorinostat) developed by Merck and Co.; SGI-110 developed by Astex Pharmaceuticals; alvocidib developed by Tolero Pharmaceuticals Inc.;and pracinostat developed by MEI Pharma; Estybon (rigosertib) developed by Onconova Therapeutics, Baxter International and Symbio; Sapacitabine developed by Cyclacel Pharmaceuticals; RP-323 under development by Rich Pharmaceuticals; AG-221 (enasidenib) developed by Agios Pharmaceuticals Inc. and Celgene Corp; guadecitabine, developed by Astex Pharmaceuticals Inc.; CPX-351 (liposomal Cytarabine + Daunorubicin), developed by Celator Pharmaceuticals Inc.; Some of these treatments are being developed for specific AML patient populations and lines of treatment (e.g., quizartinib developed by Ambit Biosciences as treatment for FLT3-ITD mutated AML patients; Nexavar (sorafenib), developed by Bayer; midostaurin, developed by Novartis; and ASP-2215 (gilteritinib), developed by Astellas Pharma Inc.) and not for the entire AML population. Some of these treatments can be developed for administration to AML patients in combination with BL-8040.
 
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AGI-134
 
BL-7010The field of cancer immunotherapy is still in the early stages of development, and only a few checkpoint inhibitors have been approved since 2011, targeting either CTLA-4, PD1 or PDL1 via antibody blockade. Most of these agents have been approved for melanoma and non-small cell lung cancer. However, in recent years approval has been granted for use of these agents in renal cell carcinoma and head and neck and bladder cancer. As noted above, there are currently hundreds of immuno-oncology combinations being tested in clinical trials. Many of these combinations could be competitive with AGI-134.
 
In general, the competitive landscape is comprised of compounds that target tumor specific neoantigens and create adaptive, anti-tumor immune response. Examples of such therapeutic approaches include oncolytic viruses, dendritic cell vaccines, personalized neoantigen-based cancer vaccines and Pathogen-Associated Molecular Patterns (PAMPs) as cancer vaccines.
If approved, BL-7010AGI-134 will compete with other products for treatment of celiac disease and gluten sensitivity that are currently undergoing development. There are several potentially competitive compounds under development for celiac diseaseapproved treatments such as larazotide acetate (AT-1001, Innovate Biopharmaceuticals Inc.)the oncolytic viruses (Imlygic®, which inhibits the activity of zonulin; latiglutenase (ALV-003, AbbVie Inc.T-VEC; Amgen) and Alvine Pharmaceuticals Inc.)dendritic cell cancer vaccine (Provenge®, which is a combination of gluten targeting proteases; nexvax2 (BTG plc and ImmusanT Inc.), which is a gluten epitope-based injectable vaccine, for the potential treatment of HLA DQ2-associated celiac disease. Currently, celiac patients are prescribed a gluten-free diet to relieve their disease symptoms. Nevertheless the symptoms persist in most cases despite the patient’s following a gluten-free diet. BL-7010, as well as the treatments specified above (except nexvax2), is envisioned to be prescribed to patients who are on a gluten-free diet but still suffer from disease symptoms.sipuleucel-T; Valeant). In addition, there are a few marketed OTC products, based on various mixtures of enzymes,several potentially-competitive compounds that are taken in addition to a gluten-free dietcurrently under development, including, among others, IVAC mutanome (BioNTech AG), NeoVax (Neon Therapeutics), the TLR9 agonists, lefitolimod (MGN-1703, Mologen Ag), IMO-2125 (Idera Pharmaceuticals Inc), SD-101(Dynavax Technologies Corp), CMP-001 (Checkmate Pharmaceuticals), the stimulator of interferon genes (STING) agonist, ADU-S100 (Novartis), imprime PGG (Biothera Pharmaceuticals Inc), dorgenmeltucel-L (NewLink Genetics Corp), inCVAX (Immunophotonics Inc) and aim to enhance digestionLTX-315 (Lytix Biopharma AS). Most of residual gluten, e.g., Tolerase®, G GlutenEase™, Enzymedica; Gluten Defense™, Enzymatic Therapy; BioCore DPP-IV® and NEC.
these competitors have ongoing combination trials with the approved checkpoint inhibitors.
 
BL-5010
 
If approved, BL-5010 will compete with a variety of approved destructive and non-destructive treatments for skin lesions. Surgery is currently the most common approved non-destructive treatment for skin lesions but is invasive and painful, and generally results in cosmetically undesirable outcomes. Destructive treatments are associated with pain. Destructive treatments include cryotherapy, laser therapy, electrodessication, curettage and several cream-based treatments. Picato (Leo Pharma) and Metvixia® (Galderma Pharma) are cream-based treatments for skin lesions which have been approved in many countries.
 
Insurance
 
We maintain insurance for our offices and laboratory in Israel. This insurance covers approximately $5.3 million of equipment, consumables and lease improvements against risk of fire, lightning, natural perils and burglary (the latter coverage limited to $250,000), and $1.5 million of consequential damages (covering fixed damages and extra expenses). For our clinical activities, we carry life science liability insurance covering general liability with an annual coverage amount of $20.0$30.0 million per occurrence and product liability and clinical trials coverage with an annual coverage amount of $20.0$30.0 million each claim and in the aggregate. The maximum indemnity for a single occurrence, claim or circumstances under this insurance is $20.0$30.0 million. In addition, we maintain the following insurance: employer’semployer's liability with coverage of approximately $10.0 million for each occurrence and in the aggregate; third party liability with coverage of approximately $5.0 million for each occurrence and in the aggregate; all risk coverage of approximately $2.0 million for electronic and mechanical equipment; directors' and directors’ and officers’officers' liability with coverage of $20.0 million for each occurrence and in the aggregate.aggregate; and a global travel insurance policy.
 
We procure cargo marinestock throughput insurance (cargo marine) coverage when we ship substances for our clinical studies. Such insurance is customized to the special requirements of the applicable shipment, such as temperature and/or climate sensitivity. If required, we insure the substances to the extent they are stored in central depots and at clinical sites.
 
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We believe that the amounts of our insurance policies are adequate and customary for a business of our kind. However, because of the nature of our business, we cannot assure you that we will be able to maintain insurance on a commercially reasonable basis or at all, or that any future claims will not exceed our insurance coverage.
 
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Environmental Matters
 
We are 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 are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. The operation of our facilities, however, entails risks in these areas. Significant expenditures could be required in the future if we are required to comply with new or more stringent environmental or health and safety laws, regulations or requirements. See “Business"Business — Government Regulation and Funding — Israel Ministry of Environment — Toxin Permit.”"

Government Regulation and Funding
 
We operate in a highly controlled regulatory environment. Stringent regulations establish requirements relating to analytical, toxicological and clinical standards and protocols in respect of the testing of pharmaceuticals and medical devices. Regulations also cover research, development, manufacturing and reporting procedures, both pre- and post-approval. In many markets, especially in Europe, marketing and pricing strategies are subject to national legislation or administrative practices that include requirements to demonstrate not only the quality, safety and efficacy of a new product, but also its cost-effectiveness relating to other treatment options. Failure to comply with regulations can result in stringent sanctions, including product recalls, withdrawal of approvals, seizure of products and criminal prosecution.
 
Before obtaining regulatory approvals for the commercial sale of our therapeutic candidates, we or our licensees must demonstrate through preclinical studies and clinical trials that our therapeutic candidates are safe and effective. Historically, the results from preclinical studies and early clinical trials often have not accurately predicted results of later clinical trials. In addition, a number of pharmaceutical products have shown promising results in early clinical trials but subsequently failed to establish sufficient safety and efficacy results to obtain necessary regulatory approvals. We have incurred and will continue to incur substantial expense for, and devote a significant amount of time to, preclinical studies and clinical trials. Many factors can delay the commencement and rate of completion of clinical trials, including the inability to recruit patients at the expected rate, the inability to follow patients adequately after treatment, the failure to manufacture sufficient quantities of materials used for clinical trials, and the emergence of unforeseen safety issues and governmental and regulatory delays. If a therapeutic candidate fails to demonstrate safety and efficacy in clinical trials, this failure may delay development of other therapeutic candidates and hinder our ability to conduct related preclinical studies and clinical trials. Additionally, as a result of these failures, we may also be unable to find additional licensees or obtain additional financing.
 
Governmental authorities in all major markets require that a new pharmaceutical product or medical device be approved or exempted from approval before it is marketed, and have established high standards for technical appraisal, which can result in an expensive and lengthy approval process. The time to obtain approval varies by country. In the past, it generally took from six months to four years from the application date, depending upon the quality of the results produced, the degree of control exercised by the regulatory authority, the efficiency of the review procedure and the nature of the product. Some products are never approved. In recent years, there has been a trend towards shorter regulatory review times in the United States as well as certain European countries, despite increased regulation and higher quality, safety and efficacy standards.
 
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Historically, different requirements by different countries’countries' regulatory authorities have influenced the submission of applications. However, a trend toward harmonization of drug and medical device approval standards, starting in individual territories in Europe and then in the EU as a whole, in Japan, and in the United States under the aegis of what is now known as the International Council on Harmonisation, or ICH (created as the International Conference on Harmonisation in 1990), is gradually narrowing these differences. In many cases, compliance with ICH standards can help avoid duplication of non-clinical and clinical trials and enable companies to use the same basis for submissions to each of the respective regulatory authorities. The adoption of the Common Technical Document format by the ICH has greatly facilitated use of a single regulatory submission for seeking approval in the ICH regions and certain other countries such asincluding Canada, Hong Kong, Japan, Saudi Arabia, Singapore, South Africa, South Korea, Switzerland, Taiwan, Turkey and Australia.
 
Summaries of the United States, EU and Israeli regulatory processes follow below.
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United States
 
In the United States, drugs are subject to rigorous regulation by the FDA. The U.S. Federal Food, Drug and Cosmetic Act, or FDCA, and other federal and state statutes and regulations govern, among other things, the research, development, testing, manufacture, storage, record-keeping, packaging, labeling, adverse event reporting, advertising, promotion, marketing, distribution and import and export of pharmaceutical products. Failure to comply with applicable regulatory requirements may subject us to a variety of administrative or judicially imposed sanctions and/or prevent us from obtaining or maintaining required approvals or to market drugs. Failure to comply with the applicable U.S. requirements may subject us to stringent administrative or judicial sanctions, such as agency refusal to approve pending applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions or criminal prosecution.
 
Unless a drug is exempt from the NDA process, the steps required before a drug may be marketed in the United States include:
 
preclinical laboratory tests, animal studies and formulation development;
 
submission to the FDA of a request for an investigational new drug, or IND to conduct human clinical testing;
 
adequate and well controlled clinical trials to determine the safety and efficacy of the drug for each indication as well as to establish the exposure levels;
 
submission to the FDA of an NDA;
 
a potential public hearing of an outside advisory committee to discuss the application;
 
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is manufactured; and
 
FDA review and approval of the NDA.
 
Preclinical studies include laboratory evaluation of product chemistry, toxicity, formulation and stability, as well as animal studies. For studies conducted in the United States, and certain studies carried out outside the United States, we submit the results of the preclinical studies, together with manufacturing information and analytical results, to the FDA as part of an IND, which must become effective before we may commence human clinical trials. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. Submission of an IND does not always result in the FDA allowing clinical trials to commence and the FDA may halt a clinical trial if unexpected safety issues surface or the study is not being conducted in compliance with applicable requirements.
 
The FDA may refuse to accept an IND for review if applicable regulatory requirements are not met. Moreover, the FDA may delay or prevent the start of clinical trials if the manufacturing of the test drugsstudy drug fails to meet cGMP requirements or the clinical trials are not adequately designed. Such government regulation may delay or prevent the study and marketing of potential products for a considerable time period and may impose costly procedures upon a manufacturer’smanufacturer's activities. In addition, the FDA may, at any time, impose a clinical hold on ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials cannot continue without FDA authorization and then only under terms authorized by the FDA.
 
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Success in early-stage clinical trials does not assure success in later-stage clinical trials. Results obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Even if a therapeutic candidate receives regulatory approval, later discovery of previously unknown problems with a product may result in restrictions on the product or even withdrawal of marketing approval for the product.
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Clinical Trials
 
Clinical trials involve the administration of the investigational drug to people under the supervision of qualified investigators in accordance with the principles of good clinical practice, or GCP. We conduct clinical trials under protocols detailing the trial objectives, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. We must submit each U.S. study protocol to the FDA as part of the IND. Foreign clinical trials may or may not be conducted under an IND. However, their safety assessments are included in the IND annual reports.
 
We conduct clinical trials typically in three sequential phases,Phases, but the phasesPhases may overlap or be combined. An institutional review board, or IRB, must review and approve each trial before it can begin. Phase 1 includes the initial administration of a tested drug to a small number of humans. These trials are closely monitored and may be conducted in patients, but are usually conducted in healthy volunteer subjects. These trials are designed to determine the metabolic and pharmacologic actions of the drug in humans and the side effects associated with increasing doses as well as, if possible, to gain early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to evaluate dosage tolerance and appropriate dosage, identify possible adverse effects and safety risks and preliminarily evaluate the efficacy of the drug for specific indications. Phase 3 trials are large trials used to further evaluate clinical efficacy and test further for safety by using the drug in its final form in an expanded patient population. There can be no assurance that we or our licensees will successfully complete Phase 1, Phase 2 or Phase 3 testing with respect to any therapeutic candidate within any specified period of time, if at all. Furthermore, clinical trials may be suspended at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. We and our licensees perform preclinical and clinical testing outside of the United States. The acceptability of the results of our preclinical and clinical testing by the FDA will be dependent upon adherence to applicable U.S. and foreign standards and requirements, including good laboratory practices, or GLP, GCP and the Declaration of Helsinki for protection of human subjects. Additionally, the FDA may require at least one pivotal clinical study to be conducted in the United States, in order to take into account medical practice and ethnic diversity in the United States.
 
NDAs and BLAs
 
After successful completion of the required clinical testing, an NDA, or in the case of certain biological products a Biological Product Application, or BLA, is prepared and submitted to the FDA. FDA approval of the NDA or BLA is required before product marketing may begin in the United States. The NDA/BLA must include the preclinical and clinical testing results and a compilation of detailed information relating to the product’sproduct's pharmacology, toxicology, chemistry, manufacture and manufacturing controls. In certain cases, an application for marketing approval may include information regarding the safety and efficacy of a proposed drug that comes from trials not conducted by, or for, the applicant and for which trials the applicant has not obtained a specific right toof reference. Such an application, known as a 505(b)(2) NDA, is permitted for new drug products that incorporate previously approved active ingredients, even if the proposed new drug incorporates an approved active ingredient in a novel formulation or for a new indication.  Although 505(b)(2) is a type of NDA, it has been used in the USU.S. to obtain approval of follow-on biologics (also termed biosimilars) where limited clinical data is necessary to show that the follow-on is the same as the reference product. However, 505(b)(2) can be used to seek approval for a biologic only until March 23, 2020, and only for follow-on biologics of a class for which a product has already been approved under 505(b)(2). In this way, several natural source products and recombinant proteins have been approved as generic drugs under Section 505(b)(2) of the FDCA.  An additional pathway for approval of follow-on biologics is discussed in the section “Generic Competition”"Generic Competition" below. As interpreted by the FDA, Section 505(b)(2) also permits the FDA to rely for such approvals on literature or on a finding by the FDA of safety and/or efficacy for a previously approved drug product. Under this interpretation, a 505(b)(2) NDA for changes to a previously approved drug product may rely on the FDA’sFDA's finding of safety and efficacy of the previously approved product coupled with new clinical data and information needed by the FDA to support the change. NDAs submitted under 505(b)(2) are potentially subject to patent and non-patent exclusivity provisions which can block effective approval of the 505(b)(2) application until the applicable exclusivities have expired, which in the case of patents may be several years. The cost of preparing and submitting an NDA may be substantial. Under U.S. federal law, the submission of NDAs, including 505(b)(2) NDAs, is generally subject to substantial application user fees, and the manufacturer and/or sponsor under an NDA approved by the FDA is also subject to annual product and establishment user fees. These fees are typically increased annually. Separate fees are payable for an Abbreviated New Drug Application, or ANDA, and for Biosimilar Biological Product Development, or BPD.
 
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The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the FDA threshold determination that the NDA is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under U.S. federal law, the FDA has agreed to certain performance goals in the review of NDAs. Most such applications for non-priority drug products are to be reviewed within 10 months. The review process may be significantly extended by FDA requests for additional information or clarification. The FDA may also refer applications to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. This often, but not exclusively, occurs for novel drug products or drug products that present difficult questions of safety or efficacy. The FDA is not bound by the recommendation of an advisory committee.
 
Before approving an application, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve the application unless the FDA determines that the product is manufactured in substantial compliance with GMPs.GMP. If the FDA determines that the NDA or BLA is supported by adequate data and information, the FDA may issue an approval letter. During review, the FDA may request additional information via an information request, or IR letter, or in some cases, when the FDA desires some additional datastate deficiencies via a deficiency letter, or information an approvableDR letter. An approvable letter generally contains a statement of specific conditions that must be met to secure final approval of the application. Upon compliance with the conditions stated, in the approvable letter, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of approval, the FDA may require additional trials or post-approval testing and surveillance to monitor the drug’sdrug's safety or efficacy, the adoption of risk evaluation and mitigation strategies, and may impose other conditions, including labeling and marketing restrictions on the use of the drug, which can materially affect its potential market and profitability. Once granted, product approvals may be withdrawn if compliance with regulatory standards for manufacturing and quality control are not maintained or if additional safety problems are identified following initial marketing.
 
If the FDA’sFDA's evaluation of the NDA or BLA submission or manufacturing processes and facilities is not favorable, the FDA may refuse to approve the NDA or BLA and may issue a complete response letter. The complete response letter indicates that the review cycle for an application is complete and that the application is not ready for approval. The complete response letter will describe specific deficiencies and, when possible, will outline recommended actions the applicant might take in order to place the application in condition for approval. Following receipt of a complete response letter, the company may submit additional information and start a new review cycle, withdraw the application or request a hearing. Failure to take any of the above actions may result in the FDA considering the application withdrawn following 1 year from issuance of the complete response letter. In such cases, the FDA will notify the company and the company will have 30 days to respond and request an extension of time in which to resubmit the application. The FDA may grant reasonable requests for extension. If the company does not respond within 30 days of the FDA’sFDA's notification, the application will be considered withdrawn. Even with submission of additional information for a new review cycle, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
 
The Pediatric Research Equity Act, or PREA, requires NDAs (or NDA supplements) for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration to contain results assessing the safety and efficacy for the claimed indication in all relevant pediatric subpopulations. Data to support dosing and administration also must be provided for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant deferrals for the submission of results or full or partial waivers from the PREA requirements (for example, if the product is ready for approval in adults before pediatric studies are complete, if additional safety data is needed, among others). In addition, under the Best Pharmaceuticals for Children Act, or BPCA, the FDA may issue a written request to the company to conduct clinical trials in the pediatric population that are related to the moiety and expand on the claimed indication. The studies are voluntary, but may award the company with 6 months of marketing exclusivity if conducted according to good scientific principles and address the written request. Finally, a sponsor can request that a product that must be studied under PREA to be studied also under the BPCA to allow the sponsor to be eligible for six-months of pediatric exclusivity.
The pediatric studies requested under BPCA are usually more extensive and would generally also fulfill the PREA requirement; however, even if the sponsor does not complete the studies outlined in the BPCA written request, it is still required to complete any studies required under PREA.
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Post-Marketing Requirements
 
Once an NDA or BLA is approved, the drug sponsor will be subject to certain post-approval requirements, including requirements for adverse event reporting, submission of periodic reports, manufacturing, labeling, packaging, advertising, promotion, distribution, record-keeping and other requirements. For example, the approval may be subject to limitations on the uses for which the product may be marketed or conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product or require the adoption of risk evaluation and mitigation strategies. In addition, the FDA requires the reporting of any adverse effects observed after the approval or marketing of a therapeutic candidate and such events could result in limitations on the use of such approved product or its withdrawal from the marketplace. Also, some types of changes to the approved product, such as manufacturing changes and labeling claims, are subject to further FDA review and approval. Additionally, the FDA strictly regulates the promotional claims that may be made about prescription drug products. In particular, the FDA requires substantiation of any claims of superiority of one product over another including, in many cases, requirements that such claims be proven by adequate and well controlled head-to-head clinical trials. To the extent that market acceptance of our therapeutic candidates may depend on their superiority over existing products, any restriction on our ability to advertise or otherwise promote claims of superiority, or any requirements to conduct additional expensive clinical trials to provide proof of such claims, could negatively affect the sales of our therapeutic candidates and our costs.
 
Generic Competition
 
Once an NDA, including a 505(b)(2) NDA, is approved, the product covered thereby becomes a “listed drug”"listed drug" which can, in turn, be cited by potential competitors in support of approvalfiling of an ANDA, under section 505(j), of the Federal Food, Drug and Cosmetic Act which relies on bioequivalence studies that compare the generic drug to a reference listed drug to support approval. Specifically, a generic drug that is the subject of an ANDA must be bioequivalent and have the same active ingredient(s), route of administration, dosage form, and strength, as well as the same labeling, with certain exceptions, as the listed drug. If the FDA deems that any of these requirements are not met, additional results may be necessary to seek approval.
 
Section 7002 of the Patient Protection and Affordable Care Act, which is referred to as the Biologics Price Competition and Innovation Act of 2009, or BPCIA, amends Section 351 of the Public Health Service Act to create an abbreviated Biologic License Application (BLA) for ‘highly similar’ biological products; the abbreviated BLA permits a follow-on biological product to be evaluated against only a single reference biological product. To be considered for an abbreviated BLA, the biosimilar must have the same presumed mechanism of action, route of administration, dosage form and potency as the innovator product. It may only be reviewed and approved for indications for which the FDA already has approved the innovator product.
The BPCIA provides the manufacturer of the innovator product with economic protection by granting a period of “exclusivity” during which follow-on products may not be approved. A BLA for approval of a follow-on biological product may not be submitted for 4 years after the reference product was initially approved. The FDA may not approve a BLA for a follow-on biological product until 12 years after the reference product was first licensed. No additional period of exclusivity will be granted to a previously licensed biologic product when subsequent applications are made for a new indication, route of administration, dosage form, or dosing strength. However, each of the periods of exclusivity may be extended by 6 months if studies of the innovator biological product in the pediatric population are requested by the U.S. Secretary of Health and Human Services and carried out.
To encourage the development of biosimilars, the BPCIA grants 1 year of exclusive marketing rights to the first follow-on biological that is approved as being “interchangeable” with a reference product. If patent litigation between the manufacturers of the follow-on and innovator products is ongoing, this period of exclusivity may be extended for up to 42 months.
ANDA applicants do not have to conduct extensive clinical trials to prove the safety or efficacy of the drug product. Rather, they are required to show that their drug is pharmaceutically equivalent to the innovator’sinnovator's drug and also conduct “bioequivalence”"bioequivalence" testing to show that the rate and extent by which the ANDA applicant’sapplicant's drug is absorbed does not differ significantly from the innovator product. Bioequivalence tests are typically in vivo studies in humans but they are smaller and less costly than the types of Phase 3 trials required to obtain initial approval of a new drug. Drugs approved in this way are commonly referred to as “generic equivalents”"generic equivalents" to the listed drug, are listed as such by the FDA, and can often be substituted by pharmacists under prescriptions written for the original listed drug.
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With respect to NDAs, U.S. federal law provides for a period of three years of non-patent market exclusivity following the approval of a listed drug that contains previously approved active ingredients but is approved in a new dosage, dosage form, route of administration or combination, or for a new use, the approval of which was required to be supported by new clinical trials, other than bioavailability studies, conducted by or for the sponsor. During this three-year period the FDA cannot grant effective approval of an ANDA or a 505(b)(2) NDA for the same conditions of approval under which the NDA was approved.
 
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U.S. federal law also provides a period of five years following approval of a new chemical entity that is a drug containing no previously approved active ingredients, during which ANDAs for generic versions of such drugs, as well as 505(b)(2) NDAs, cannot be submitted unless the submission contains a certification that the listed patent is invalid or will not be infringed, in which case the submission may be made four years following the original product approval. If an ANDA or 505(b)(2) NDA applicant certifies that it believes one or more listed patents is invalid or not infringed, it is required to provide notice of its filing to the NDA sponsor and the patent holder. If the patent holder or exclusive patent licensee then initiates a suit for patent infringement against the ANDA or 505(b)(2) NDA sponsor within 45 days of receipt of the notice, the FDA cannot grant effective approval of the ANDA or 505(b)(2) NDA until either 30 months have passed or there has been a court decision holding that the patents in question are invalid or not infringed. If an infringement action is not brought within 45 days, the ANDA or 505(b)(2) NDA applicant may bring a declaratory judgment action to determine patent issues prior to marketing. If the ANDA or 505(b)(2) NDA applicant certifies as to the date on which the listed patents will expire, then the FDA cannot grant effective approval of the ANDA or 505(b)(2) NDA until those patents expire. The first ANDA(s) submitting substantially complete application(s) certifying that listed patents for a particular product are invalid or not infringed may qualify for a period of 180 days of marketing exclusivity, starting from the date of the first commercial marketing of the drug by the applicant, during which subsequently submitted ANDAs cannot be granted effective approval. The first ANDA applicant can forfeit its exclusivity under certain circumstances; for example, if it fails to market its product or meet other regulatory requirements within specified time periods.
 
Section 7002 of the Patient Protection and Affordable Care Act, which is referred to as the Biologics Price Competition and Innovation Act of 2009, or BPCIA, amends Section 351 of the Public Health Service Act to create an abbreviated BLA for 'highly similar' biological products; the abbreviated BLA permits a follow-on biological product to be evaluated against only a single reference biological product. To be considered for an abbreviated BLA, the biosimilar must have the same presumed mechanism of action, route of administration, dosage form and potency as the innovator product. It may only be reviewed and approved for indications for which the FDA already has approved the innovator product.
The BPCIA provides the manufacturer of the innovator product with economic protection by granting a period of "exclusivity" during which follow-on products may not be approved. A BLA for approval of a follow-on biological product may not be submitted for 4 years after the reference product was initially approved. The FDA may not approve a BLA for a follow-on biological product until 12 years after the reference product was first licensed. No additional period of exclusivity will be granted to a previously licensed biologic product when subsequent applications are made for a new indication, route of administration, dosage form, or dosing strength. However, each of the periods of exclusivity may be extended by 6 months if studies of the innovator biological product in the pediatric population are requested by the U.S. Secretary of Health and Human Services and carried out.
To encourage the development of biosimilars, the BPCIA grants 1 year of exclusive marketing rights to the first follow-on biological that is approved as being "interchangeable" with a reference product. If patent litigation between the manufacturers of the follow-on and innovator products is ongoing, this period of exclusivity may be extended for up to 42 months.
From time to time, including presently, legislation is drafted and introduced in the U.S. Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of drug products. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our therapeutic candidates. It is impossible to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed, or what the impact of such changes, if any, may be.
 
FDA Approval or Clearance of Medical Devices
 
In the United States, medical devices are subject to varying degrees of regulatory control and are classified in one of three classes depending on the controls the FDA determines necessary to reasonably ensure their safety and efficacy:
 
Class I: general controls, such as labeling and adherence to Quality System Regulations, or QSRs. Some Class I medical devices require 510(k) pre-market notification although most are exempt;
 
Class II: general controls, 510(k) pre-market notification, and specific controls such as performance standards, patient registries, and postmarket surveillance; and
 
Class III: general controls and approval of a pre-market approval, or PMA.
 
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All new devices are class III by operation of law unless the FDA (1) determines the new device to be substantially equivalent (SE) to a device previously classified in class I or class II, (2) grants a risk-based (“("de novo”novo") classification request, or (3) reclassifies the device into class I or II.
 
A PMA application must provide a demonstration of safety and effectiveness, which generally requires extensive preclinical and clinical trial data. Information about the device and its components, device design, manufacturing and labeling, among other information, must also be included in the PMA. As part of the PMA review, the FDA will typically inspect the manufacturer’smanufacturer's facilities for compliance with QSR requirements, which govern testing, control, documentation and other aspects of quality assurance with respect to manufacturing. During the review period, an FDA advisory committee, typically a panel of clinicians, is likely to be convened to review the application and recommend to the FDA whether, or upon what conditions, the device should be approved. The FDA is not bound by the advisory panel decision, but the FDA often follows the panel’spanel's recommendation. If the FDA finds the information satisfactory, it will approve the PMA. The PMA can include post-approval conditions including, among other things, restrictions on labeling, promotion, sale and distribution, or requirements to do additional clinical studies post-approval. Even after approval of a PMA, a new PMA or PMA supplement is required to authorize certain modifications to the device, its labeling or its manufacturing process. Supplements to a PMA often require the submission of the same type of information required for an original PMA, except that the supplement is generally limited to that information needed to support the proposed change from the product covered by the original PMA. During the review of a PMA, the FDA may request more information or additional studies and may decide that the indications for which we seek approval or clearance should be limited.
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If human clinical trials of a medical device are required and the device presents a significant risk, the sponsor of the trial must file an investigational device exemption, or IDE, application prior to commencing human clinical trials. The IDE application must be supported by data, typically including the results of animal and/or laboratory testing. If the IDE application is approved by the FDA, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA upon receipt of the respective IRB approvals. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more institutional review boards without separate approval from the FDA. Submission of an IDE does not give assurance that the FDA will approve the IDE and, if it is approved, the FDA may determine that the data derived from the trials do not support the safety and effectiveness of the device or warrant the continuation of clinical trials. An IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness, study indication or the rights, safety or welfare of human subjects. The trial also must comply with the FDA’sFDA's IDE regulations and informed consent must be obtained from each subject.
 
FDA Nutritional Segment
In the United States, two regulatory pathways exist for dietary ingredients, one for ingredients marketed in food and the other for dietary ingredients marketed in nutritional supplements. Dietary ingredients that were marketed in nutritional supplements prior to October 1994 are not subject to premarket authorization requirements. All other dietary ingredients must undergo a “premarket notification” process. This process requires the manufacturer to detail the quality and safety of the ingredient and file such information with the FDA at least 85 days prior to placing the ingredient on the market as a dietary supplement.
           Food ingredients must be determined to be safe prior to being added to foods. The following categories of food ingredients are considered to be safe by the FDA:
a food additive that has received pre-market approval from the FDA;
an ingredient that is generally recognized, among qualified experts, as having been adequately shown to be safe under the conditions of its intended use (referred to as generally recognized as safe, or “GRAS”); or
an ingredient that was determined to be safe for use in food prior to September 6, 1958 (a list of these substances that are GRAS are published by the FDA in the Federal Register).
For an ingredient to be considered GRAS, the manufacturer of the ingredient must provide information on the quality and safety of the ingredient for its intended use as well as the results of relevant clinical studies. Such information is reviewed by qualified experts who determine whether the ingredient has been adequately shown to be GRAS. Additionally, such information may be voluntarily submitted to the FDA for review. If the FDA is satisfied with the determination of the new ingredient as GRAS, it will issue an Agency Response Letter advising that the agency has no questions regarding the safety conclusions of the ingredient.
Manufacturers and distributors of dietary supplements and dietary ingredients are prohibited from marketing products that are adulterated or misbranded. That means that these firms are responsible for evaluating the safety and labeling of their products before marketing to ensure that they meet all the requirements of DSHEA and FDA regulations. The FDA is responsible for taking action against any adulterated or misbranded dietary supplement product after it reaches the market.
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European Economic Area
 
Clinical Trials
 
The European Medicines Agency relies on the results of clinical trials carried out by pharmaceutical companies to reach its opinions on the authorization of medicines. Although the authorization of clinical trials occurs at Member Statemember state level, the Agency plays a key role in ensuring that the standards of good clinical practice (GCP) are applied across the European Economic Area (EEA) in cooperation with the Member States.member states. It also manages a database of clinical trials carried out in the European Union.EU. Clinical trials are currently regulated under Directive 2001/20/EC. However, in April 2014 a new Regulationregulation on clinical trials on medicinal products for human use was adopted. TheRegulation 536/2014, or Regulation, entered into force on in June 2014 but will apply no earlier than May 28, 2016. The Regulation will apply to interventional clinical trials on medicines once the Regulation is in operation, expected in 2018, and to all trials authorized under the previous legislation (Directive (EC) No. 2001/20/EC) and still ongoing three years(theyears (the transition period) after the Regulation has come into operation. The regulationRegulation ensures that:
 
·the rules for conducting clinical trials are consistent throughout the EU;
 
·transparent information is made publicly available on the authorization, conduct, and results of each clinical trial carried out in the EU.
 
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Marketing Authorization Procedures
 
A medicinal product may only be placed on the market in the European Economic Area, or EEA composed of the 28 EU member states, plus Norway, Iceland and Lichtenstein, when a marketing authorization has been issued by the competent authority of a member state pursuant to Directive 2001/83/EC, as amended, or an authorization has been granted under the centralized procedure in accordance with Regulation (EC) No. 726/2004, as amended, or its predecessor, Regulation 2309/93. There are essentially three EU procedures created under prevailing European pharmaceutical legislation that, if successfully completed, allow an applicant to place a medicinal product on the market in the EEA.
 
Centralized Procedure
 
Regulation 726/2004/EC now governs the centralized procedure when a marketing authorization is granted by the European Commission, acting in its capacity as the European Licensing Authority on the advice of the European Medicines Agency, or EMA. That authorization is valid throughout the entire EEA and directly or (as to Norway, Iceland and Liechtenstein) indirectly allows the applicant to place the product on the market in all member states of the EEA. The EMA is the administrative body responsible for coordinating the existing scientific resources available in the member states for evaluation, supervision and pharmacovigilance of medicinal products. Certain medicinal products, as described in the Annex to Regulation 726/2004, must be authorized centrally. These are products that are developed by means of a biotechnological process in accordance with Paragraph 1 to the Annex to the Regulation or veterinary products designed to promote animal growth or increase yield in accordance with Paragraph 2. The mandatory centralized procedure is applicable to: (a) medicinal products for human use containing an active substance authorized in the EU after May 20, 2004 for which the therapeutic indication is the treatment of acquired immune deficiency syndrome, or AIDS, cancer, neurodegenerative disorder or diabetes; (b) autoimmune diseases and other immune dysfunctions and viral diseases; (c) all medicinal products that are designated as orphan medicinal products pursuant to Regulation 141/2000;   and (d) medicines derived from biotechnology processes or advanced therapy medicinal products, such as gene therapy, tissue engineered and somatic cell therapy products. An applicant may also opt for assessment through the centralized procedure if it can show that the medicinal product constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization centrally is in the interests of patients at the EU level. For each application submitted to the EMA for scientific assessment, the EMA is required to ensure that the opinion of the Committee for Medicinal Products for Human Use, or CHMP, is given within 210 days after receipt of a valid application or within 150 days by means of an accelerated procedure. If the opinion is positive, the EMA is required to send the opinion to the European Commission, which is responsible for preparing the decision granting a marketing authorization, within 67 days. If the initial opinion of the CHMP is negative, the applicant is afforded an opportunity to seek a re-examination of the opinion. The CHMP is required to re-examine its opinion within 60 days following receipt of the request by the applicant. A refusal of a centralized marketing authorization constitutes a prohibition on placing the given medicinal product on the market in the EU.
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Mutual Recognition and Decentralized Procedures.
 
With the exception of products that are authorized centrally, the competent authorities of the member states are responsible for granting marketing authorizations for medicinal products placed on their markets. If the applicant for a marketing authorization intends to market the same medicinal product in more than one member state, the applicant may seek an authorization progressively in the EU under the mutual recognition or decentralized procedure. Mutual recognition is used if the medicinal product has already been authorized in a member state. In this case, the holder of this marketing authorization requests the member state where the authorization has been granted to act as reference member state by preparing an updated assessment report that is then used to facilitate mutual recognition of the existing authorization in the other member states in which approval is sought (the so-called concerned member state(s)) in accordance with Article 28 of Directive 2001/83/EC. The reference member state must prepare an updated assessment report within 90 days of receipt of a valid application. This report together with the approved Summary of Product Characteristics, or SmPC (which sets out the conditions of use of the product), and a labeling and package leaflet are sent to the concerned member states for their consideration. The concerned member states are required to approve the assessment report, the SmPC and the labeling and package leaflet within 90 days of receipt of these documents. The total procedural time is 180 days.
 
The decentralized procedure is used in cases where the medicinal product has not received a marketing authorization in the EU at the time of application. The applicant requests a member state of its choice to act as reference member state to prepare an assessment report that is then used to facilitate agreement with the concerned member states and the grant of a national marketing authorization in all of these member states. In this procedure, the reference member state must prepare, for consideration by the concerned member states, the draft assessment report, a draft SmPC and a draft of the labeling and package leaflet within 120 days after receipt of a valid application. As in the case of mutual recognition, the concerned member states are required to approve these documents within 90 days of their receipt. In both procedures, national marketing authorizations shall be granted within 30 days after acknowledgement of the agreement.
 
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For both mutual recognition and decentralized procedures, if a concerned member state objects to the grant of a marketing authorization on the grounds of a potential serious risk to public health, it may raise a reasoned objection with the reference member state. The points of disagreement are in the first instance referred to the Co-ordination Group on Mutual Recognition and Decentralized Procedures, or CMD, to reach an agreement within 60 days of the communication of the points of disagreement. If member states fail to reach an agreement, then the matter is referred to the EMA’sEMA's scientific committee and CHMP for arbitration. The CHMP is required to deliver a reasoned opinion within 60 days of the date on which the matter is referred. The scientific opinion adopted by the CHMP forms the basis for a binding European Commission decision.
 
Irrespective of whether the medicinal product is assessed centrally, de-centrally or through a process of mutual recognition, the medicinal product must be manufactured in accordance with the principles of good manufacturing practice as set out in Directive 2003/94/EC for medicines and investigational medicines for human use or Directive 91/412/EEC for medicines for veterinary use and Volume 4 of the “Rules"Rules Governing Medicinal Products in the European Community”Community" and distributed in accordance with Directive 92/25/EEC and current guidance. Moreover, EU law requires the clinical results in support of clinical safety and efficacy to be based upon clinical trials conducted in the EU in compliance with the requirements of Directives 2001/20/EC and 2005/28/EC, which implement good clinical practice in the conduct of clinical trials on medicinal products for human use. Clinical trials conducted outside the EU and used to support applications for marketing within the EU must have been conducted in a way consistent with the principles set out in Directive 2001/20/EC. The conduct of a clinical trial in the EU requires, pursuant to Directive 2001/20/EC, authorization by the relevant national competent authority where a trial takes place, and an ethics committee to have issued a favorable opinion in relation to the arrangements for the trial. It also requires that the sponsor of the trial, or a person authorized to act on his behalf in relation to the trial, be established in the EU.
 
National Procedure
 
In order to increase availability of medicinal products, in particular on smaller markets, Article 126a of Directive 2001/83/EC, or Article 126a, provides that, in the absence of a marketing authorization or of a pending application for authorization for a medicinal product, which has already been authorized in another Member State,member state, a Member Statemember state may for justified public health reasons authorize the placing on the market of that medicinal product. In such cases, the competent authority of the Member Statemember state has to inform the marketing authorization holder in the Member Statemember state in which the medicinal product concerned is authorized, of the proposal to authorize the placing on the market under this Article.
 
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When a Member Statemember state avails itself of this possibility, it must adopt the necessary measures in order to ensure that the requirements for the labelling and package leaflet, classification of the medicinal product, advertising, pharmacovigilance and supervision and sanctions are complied with. For the specific mechanisms chosen by the Member Statesmember states to implement this provision, the relevant national legislation is referred to. The register of the medicinal products authorized under Article 126a is available at the European Commission web-site.
 
For medicinal products authorized in accordance with Article 126a of Directive 2001/83/EC, marketing authorization holders do not qualify for the pediatric development rewards as described in Regulation (EC) No. 1901/2006.
 
Types of Marketing Authorization Applications:
 
There are various types of applications for marketing authorizations. The legal basis for all types of application is set out in Directive 2001/83/EC and in Regulation (EC) No726/2004.
 
A. Full Applications. A full application is one that is made under any of the EU procedures described above and “stands alone”"stands alone" in the sense that it contains all of the particulars and information required by Article 8(3) of Directive 2001/83/EC, as amended, to allow the competent authority to assess the quality, safety and efficacy of the product and in particular the balance between benefit and risk. Article 8(3)(l) in particular refers to the need to present the results of the applicant’sapplicant's research on (1) pharmaceutical (physical-chemical, biological or microbiological) tests, (2) preclinical (toxicological and pharmacological) studies and (3) clinical trials in humans. The nature of these tests, studies and trials is explained in more detail in Annex I to Directive 2001/83/EC, as amended. Full applications would be required for products containing new active substances not previously approved by the competent authority, but may also be made for other products.
 
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B. Abridged Applications. Article 10 of Directive 2001/83/EC contains exemptions from the requirement that the applicant provide the results of its own preclinical and clinical research. There are four regulatory routes for an applicant to seek an exemption from providing such results, namely (1) cross-referral to an innovator’sinnovator's results without consent of the innovator (used for generic medicines or similar biological medicinal products), (2) well established use according to published literature, (3) fixed combination products, and (4) informed consent to refer to an existing dossier of research results filed by a previous applicant.
 
(1) Cross-referral to Innovator’sInnovator's Data
 
Generic Applications. Articles 10(1) and 10(2)(b) of Directive 2001/83/EC provide the legal basis for an applicant to seek a marketing authorization on the basis that its product is a generic medicinal product (a copy) of a reference medicinal product that has already been authorized, in accordance with EU provisions. A reference product is, in principle, an original product granted an authorization on the basis of a full dossier of particulars and information. This is the main exemption used by generic manufacturers for obtaining a marketing authorization for a copy product. The generic applicant is not required to provide the results of preclinical studies and of clinical trials if its product meets the definition of a generic medicinal product and the applicable regulatory results protection period for the results submitted by the innovator has expired. A generic medicinal product is defined as a medicinal product:
 
having the same qualitative and quantitative composition in active substance as the reference medicinal product;
 
having the same pharmaceutical form as the reference medicinal product; and
 
whose bioequivalence with the reference medicinal product has been demonstrated by appropriate bioavailability studies.
 
Applications in respect of a generic medicinal product cannot be made before the expiry of the protection period. For applications made after either October 30 or November 20, 2005 (depending on the approval route used), Regulation 726/2004 and amendments to Directive 2001/83/EC provide for a harmonized protection period regardless of the approval route utilized. The harmonized protection period is in total 10 years, including eight years of research data protection and two years of marketing protection. The effect is that the originator’soriginator's results can be the subject of a cross-referral application after eight years, but any resulting authorization cannot be exploited for a further two years. The rationale of this procedure is not that the competent authority does not have before it relevant tests and trials upon which to assess the efficacy and safety of the generic product, but that the relevant particulars can, if the research data protection period has expired, be found on the originator’soriginator's file and used for assessment of the generic medicinal product. The 10-year protection period can be extended to 11 years where, in the first eight years post-authorization, the holder of the authorization obtains approval for a new indication assessed as offering a significant clinical benefit in comparison with existing products.
 
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Hybrid Applications (equivalent to the U.S. 505(b)(2) NDA). If the copy product does not meet the definition of a generic medicinal product or if certain types of changes occur in the active substance(s) or in the therapeutic indications, strength, pharmaceutical form or route of administration in relation to the reference medicinal product, Article 10(3) of Directive 2001/83/EC provides that the results of the appropriate preclinical studies or clinical trials must be provided by the applicant.
 
Similar Biological Applications. Article 10(4) of Directive 2001/83/EC refers to a biological medicinal product which is similar to a reference biological product and does not meet the conditions in the definition of generic medicinal products, owing to, in particular, differences relating to raw materials or differences in manufacturing processes of the biological medicinal product and the reference biological medicinal product. For such products, the results of appropriate pre-clinical tests or clinical trials relating to these conditions must be provided in accordance with the criteria stated in the Annexannex and related guidelines. The results of other tests and trials from the reference medicinal product's dossier shall not be provided.
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(2) Well-established Medicinal Use
 
Under Article 10a of Directive 2001/83/EC, an applicant may, in substitution for the results of its own preclinical and clinical research, present detailed references to published literature demonstrating that the active substance(s) of a product have a well-established medicinal use within the EU with recognized efficacy and an acceptable level of safety. The applicant is entitled to refer to a variety of different types of literature, including reports of clinical trials with the same active substance(s) and epidemiological studies that indicate that the constituent or constituents of the product have an acceptable safety/efficacy profile for a particular indication. However, use of the published literature exemption is restricted by stating that in no circumstances will constituents be treated as having a well-established use if they have been used for less than 10 years from the first systematic and documented use of the substance as a medicinal product in the EU. Even after 10 years’years' systematic use, the threshold for well-established medicinal use might not be met. European pharmaceutical law requires the competent authorities to consider the period over which a substance has been used, the amount of patient use of the substance, the degree of scientific interest in the use of the substance (as reflected in the scientific literature) and the coherence (consistency) of all the scientific assessments made in the literature. For this reason, different substances may reach the threshold for well-established use after different periods, but the minimum period is 10 years. If the applicant seeks approval of an entirely new therapeutic use compared with that to which the published literature refers, additional preclinical and/or clinical results would have to be provided.
 
(3) Fixed Combination Application
 
Under Article 10(b) of Directive 2001/83/EC, as amended, and Annex I, Part II(5), fixed-combination applications are possible for medicinal products containing active substances used in the composition of authorized medicinal products (but not to be used in combination for therapeutic purposes). In that case, the results of new preclinical tests or new clinical trials relating to that combination shall be provided in accordance with Article 8(3)(i), of Directive 2001/83/EC, but it is not necessary to provide scientific references relating to each individual active substance. Moreover, any fixed combination may be considered a complete/full, independent application because it is a new and unique medicinal product requiring a separate summary of product characteristics, or SmPC.
 
(4) Informed Consent
 
Under Article 10c of Directive 2001/83/EC, following the grant of a marketing authorization the holder of such authorization may consent to a competent authority utilizing the pharmaceutical, preclinical and clinical documentation that it submitted to obtain approval for a medicinal product to assess a subsequent application relating to a medicinal product possessing the same qualitative and quantitative composition with respect to the active substances and the same pharmaceutical form.
 
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C. Mixed Marketing Authorization Applications
 
Annex I, Part II(7) of Directive 2001/83/EC, as amended, specifies that mixed marketing authorization applications, or MAAs, must present published scientific literature together with original results of tests and trials. Such applications must be submitted and processed following the complete, full and independent MAA dossier requirements. These requirements apply to the use of bibliographic references in mixed dossiers both as supporting data for the applicant’sapplicant's own tests and trials or in order to replace any tests or trials in Module 4 and/or 5. All other module(s) are in accordance with the structure described in Part I of the above-mentioned Annex 1. The Competent Authority will accept the applicant’sapplicant's proposed format on a case-by-case basis.
 
Law Relating to Pediatric Research
 
Regulation (EC) 1901/2006 (as amended by Regulation (EC) 1902/2006), or the Pediatric Regulation, was adopted on December 12, 2006. This Regulation governs the development of medicinal products for human use in order to meet the specific therapeutic needs of the pediatric population. It requires any application for marketing authorization made after July 26, 2008 in respect of a product not authorized in the EU on January 26, 2007, the time the Regulation entered into force, to include studies in children conducted in accordance with a pediatric investigation plan agreed to by the relevant European authorities, unless the product is subject to an agreed waiver or deferral or unless the product is excluded from the scope of Regulation 1902/2006 (generics, hybrid medicinal products, biosimilars, homeopathic and traditional (herbal) medicinal products and medicinal products containing one or more active substances of well-established medicinal use. Waivers can be granted in certain circumstances where pediatric studies are not required or desirable. Deferrals can be granted in certain circumstances where the initiation or completion of pediatric studies should be deferred until appropriate studies in adults have been performed. Moreover, this regulation imposes the same obligation from January 26, 2009 on an applicant seeking approval of a new indication, pharmaceutical form or route of administration for a product already authorized and still protected by a supplementary protection certificate granted under Regulation (EEC) 1768/92 codified as Regulation (EC) no. 469/2009 or by a patent that qualifies for the granting of such a supplementary protection certificate. The pediatric Regulation 1901/2006 also provides, subject to certain conditions, a reward for performing such pediatric studies, regardless of whether the pediatric results provided resulted in the grant of a pediatric indication. This reward comes in the form of an extension of six months to the supplementary protection certificate granted in respect of the product, unless the product is subject to orphan drugOrphan Drug designation, in which case the 10-year market exclusivity period for such orphan products is extended to 12 years. If any of the non-centralized procedures for marketing authorization have been used, the six month extension of the supplementary protection certificate is only granted if the medicinal product is authorized in all member states. Where the product is no longer covered by a patent or supplementary protection certificate, the applicant may make a separate application for a Pediatric Use Marketing Authorization, or PUMA, which, on approval, will provide eight years’years' protection for data and 10 years’years' marketing protection for the pediatric results.
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In June 2013, the European Commission published a report on the first five years of implementation of the Pediatric Regulation. The report concludes that pediatric development has become a more integral part of the overall development of medicinal products in the EU, with the Regulation working as a major catalyst to improve the situation for young patientspatients. In November 2016, the European Commission launched a public consultation in preparation for its second report on the Pediatric Regulation after nearly ten years of implementation. The European Commission expects to publish the final report in 2017. 
 
Post-authorization Obligations
 
An authorization to market a medicinal product in the EU carries with it an obligation to comply with many post-authorization regulations relating to the marketing and other activities of authorization holders. These include requirements relating to provision of a risk management plan and provision of annual periodic safety update reports, carrying out of post-authorization efficacy studies and/or post-authorization safety studies, maintenance of a pharmacovigilance system master file, adverse event reporting, signal detection and management and other pharmacovigilance activities conducted under an established quality system, advertising, packaging and labeling, patient package leaflets, distribution and wholesale dealing. The regulations frequently operate within a criminal law framework, and failure to comply with the requirements may not only affect the authorization, but also can lead to financial and other sanctions levied on the company in question and responsible officers.
 
AnyAnother relevant aspect in the EU regulatory framework is the "sunset clause": a provision leading to the cessation of the validity of any marketing authorization granted by member state authorities, which within three years of its grantingif it is not followed by the actual placing on the market of the authorized product in the authorizing member state ceases to be valid. When an authorized product previously placed on the market in the authorizing member statemarketing within three years or, if marketing is no longer actually present on the marketinterrupted for a period of three consecutive years, the authorization for that product shall cease to be valid. The same two three year periods apply to authorizations granted by the European Commission based on the centralized procedure.
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years.
 
Approval of Medical Devices
 
In the EEA there is a consolidated system for the authorization of medical devices as provided for in three core directive: the Medical Device Directive 93/42/EEC as amended by Directive 93/68/EEC on CE marking, Directive 90/385/EEC, as amended by Directive 2007/47/EC, regarding active implantable medical devices and Directive 98/79/EC regarding in vitro diagnostic medical devices. The European UnionEU requires that manufacturers of medical devices obtain the right to affix the CE mark to their products, which shows that the device has a Declaration of Conformity, before selling them in European UnionEU member countries. The CE mark is an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives. In order to obtain the right to affix the CE mark to products, a manufacturer must obtain certification that its processes meet certain European quality standards, which vary according to the nature of the device. Compliance with the Medical Device Directive, as certified by a recognized European Notified Body, permits the manufacturer to affix the CE mark on its products and commercially distribute those products throughout the European UnionEU without further conformance tests being required in other member states.
 
In September 2012, the European Commission adopted a Proposal for a Regulation of the European Parliament and of the Council of the IIA, or the Council, on medical devices and a Proposal for a Regulation of the European Parliament and of the Council on in vitro diagnostic medical devices which will, once adopted by the European Parliament and by the Council, replace the existing three medical devices directives. Revisions include extension of the scope for legislation, better supervision of independent assessment bodies, clear rights for manufacturers/distributors and stronger requirements for medical evidence. This legislative activity is ongoing as of the date of this report
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Israel
 
Israel Ministry of the Environment — Toxin Permit
 
In accordance with the Israeli Dangerous Substances Law - 1993, the Israeli Ministry of the Environment is required to grant a permit in order to use toxic materials. Because we utilize toxic materials in the course of operation of our laboratories, we were required to apply for a permit to use these materials. Our current toxin permit will remain in effect until December 2018.
 
Clinical Testing in Israel
 
In order to conduct clinical testing on humans in Israel, special authorization must first be obtained from the ethics committee and general manager of the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implemented pursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. These regulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certain circumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Israeli Ministry of Health’sHealth's overseeing ethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project to determine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for the rights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we intend to perform a portion of the clinical studies on certain of our therapeutic candidates in Israel, we will be required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conduct our clinical trials, and in most cases, from the Israeli Ministry of Health.
 
Other Countries
 
In addition to regulations in the United States, the EU and Israel, we are subject to a variety of other regulations governing clinical trials and commercial sales and distribution of drugs in other countries. Whether or not our products receive approval from the FDA, approval of such products must be obtained by the comparable regulatory authorities of countries other than the United States before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials and product licensing vary greatly from country to country.
 
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Related Matters
 
From time to time, legislation is drafted, introduced and passed in governmental bodies that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA or EMA and other applicable regulatory bodies to which we are subject. In addition, regulations and guidance are often revised or reinterpreted by the national agency in ways that may significantly affect our business and our therapeutic candidates. It is impossible to predict whether such legislative changes will be enacted, whether FDA or EMA regulations, guidance or interpretations will change, or what the impact of such changes, if any, may be. We may need to adapt our business and therapeutic candidates and products to changes that occur in the future.
 
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Israeli Government Programs
 
Office of the Chief Scientist
 
Research and Development Grants. A number of our therapeutic products have been financed, in part, through funding from the OCS in accordance with Research Law. Through December 31, 20152016 we have received approximately $19.5$19.8 million in aggregate funding from the OCS.OCS and have paid the OCS approximately $6.3 million in royalties under our approved programs.  As of December 31, 2015,2016, we have ano contingent obligation to the OCS (otherIIA other than for BL-8040 – see below) in the total amount of $0.2 million under all of our approved programs.BL-8040. In connection with the in-licensing of BL-8040 from Biokine, and as a condition to OCS consent to the transaction, we agreed to abide by any obligations resulting from funds previously received by Biokine from the OCS. The contingent liability to the OCSIIA assumed by us relating to this transaction (which liability has no relation to the funding actually received by us) amounts to $2.7 million as of December 31, 2015.2016. We have a full right of offset for amounts payable to the OCSIIA from payments that we may owe to Biokine in the future. Therefore, the likelihood of any payment obligation to the OCSIIA with regard to the Biokine transaction is remote. Under the Research Law as in effect prior to the R&D Amendment and the terms of the grants, royalties on the revenues derived from sales of products developed with the support of the OCS were payable to the Israeli government, generally at the rate of 3% during the first three years of repayment, 4% during the subsequent three years and 5% from the seventh year onwards, although these terms would be different if we were to receive OCSIIA approval to manufacture or to transfer the rights to manufacture our products developed with OCS grants outside of Israel. The obligation to make these payments terminates upon repayment of the amount of the received grants as adjusted for fluctuation in the dollar/shekel exchange rate, plus interest and any additional amounts as described below. However, we could be required to pay an increased total amount of royalties (possibly up to 300% of the grant amounts plus interest) if we receive approval to manufacture or to transfer the rights to manufacture our products developed with OCS or IIA grants outside of Israel, depending on the portion of total manufacturing that was performed outside of Israel, as further described below, and we could be required to pay additional amounts in respect of the technology developed under these projects that was otherwise transferred outside of Israel, as further described below. The amounts received bear interest equal to the 12-month London Interbank Offered Rate applicable to dollar deposits that was published on the first business day of each calendar year.
 
Pursuant to the Research Law as in effect prior to the R&D Amendment, recipients of funding from the OCS were prohibited from manufacturing products developed using OCS grants or derived from technology developed with OCS grants outside of the State of Israel and from transferring rights to manufacture such products outside of Israel. However, the OCS could, in special cases, approve the transfer of manufacture or of manufacturing rights of a product developed in an approved program or which resulted therefrom, outside of Israel. If we were to receive approval to manufacture or to transfer the rights to manufacture our products developed with OCS grants outside of Israel, we would be required to pay an increased total amount of royalties (possibly up to 300% of the grant amounts plus interest), depending on the portion of total manufacturing that was performed outside of Israel. In addition, the royalty rate applicable to us could possibly increase. Such increased royalties constituted the total repayment amount required in connection with the transfer of manufacturing rights of OCS funded products outside Israel. The Research Law, as in effect prior to the R&D Amendment, did enable companies to seek prior approval for conducting manufacturing activities outside of Israel without being subject to increased royalties (but resulting in a lower grant amount); however, the OCS rarely granted such prior approval.
 
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Under the Research Law, as in effect prior to the R&D Amendment, we were prohibited from transferring our OCS-financed technologies, technologies derived therefrom and related intellectual property rights outside of Israel except under limited circumstances and only with the approval of the OCS and generally upon making a payment to the OCS. The required approvals may not have been received for any proposed transfer and, if received, we could be required to pay the OCS an amount calculated in accordance with the applicable formula set out in the Research Law. The scope of the support received, the royalties that we already paid to the OCS, the amount of time that elapsed between the date on which the technology was transferred and the date on which the applicable project performance period for the OCS grants were receivedwas completed, and the sale price and the form of transaction were to be taken into account in order to calculate the amount of the payment to the OCS. The repayment amount was subject to a maximum limit calculated in accordance with a formula set forth in regulations enacted during 2012. In addition, any decrease in the percentage of manufacture performed in Israel of any product or technology, as originally declared in the application to the OCS with respect to the product or technology, could require us to notify, or to obtain the approval of, the OCS, and could result in increased royalty payments to the OCS of up to 300% of the total grant amounts received in connection with the product or technology, plus interest, depending on the portion of total manufacturing that was performed outside of Israel.
 
Approval of the transfer of technology to residents of Israel was required prior to the R&D Amendment, and could be granted in specific circumstances, only if the recipient agreed to abide by the provisions of applicable laws, including the restrictions on the transfer of know-how and the obligation to pay royalties.
 
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In July 2015, the Knesset enacted the R&D Amendment after reaching the conclusion that the pre-R&D Amendment regime was not flexible enough to allow the OCS and the recipients of research and development funding to respond quickly to the challenges of a changing world. Pursuant to the R&D Amendment, the OCS was replaced with the Authority,IIA, which is comprised of the Council of the Authority, or Council, a Director General and the Research Committees. The Chief Scientist will becomechief scientist of the OCS became the head of the Authority.IIA. According to the R&D Amendment, the Council will have broad discretion regarding material matters, including, among others, with respect to the new funding programs, or Tracks, and requirements with respect to manufacture in Israel and transfer of know-how manufacture abroad (including payment for such transfer). While the pre-R&D Amendment regime provided base-line default terms and conditions with respect to the core issues relevant for OCS grant recipients, as provided above, these default provisions have been largely rescinded by the R&D Amendment. Many of these matters willare now be decided separately for each Track by the Council, based on certain guidelines stipulated in the R&D Amendment. Such guidelines provide, for example, that considerable preference should be given to having ownership of Authority-fundedIIA-funded know-how and rights vest with the recipient of assistance and/or with an Israeli company, with transfer of know-how and related rights abroad to be permitted only in exceptional circumstances. In addition, the R&D Amendment stipulates that the transfer of manufacturing rights abroad, whether under a license or otherwise, shall only be allowed in special circumstances. Nonetheless, these matters are merely guidelines, and the essential matters will be determined by the Council in its discretion. While the R&D Amendment is designed to provide flexibility in a rapidly-changing business environment, leaving the above essential matters to the Council’sCouncil's discretion currently causes much ambiguity as to the implementation of the R&D Amendment.
 
The State of Israel does not own intellectual property rights in technology developed with OCS or AuthorityIIA funding and there is no restriction on the export of products manufactured using technology developed with OCS or AuthorityIIA funding. The technology is, however, subject to transfer of technology and manufacturing rights restrictions as described above.
 
Israel Ministry of Health
 
Israel’sIsrael's Ministry of Health, which regulates medical testing, has adopted protocols that correspond, generally, to those of the FDA and the European Medicines Agency,EMA, making it comparatively straightforward for studies conducted in Israel to satisfy FDA and the European Medicines AgencyEMA requirements, thereby enabling medical technologies subjected to clinical trials in Israel to reach U.S. and EU commercial markets in an expedited fashion. Many members of Israel’sIsrael's medical community have earned international prestige in their chosen fields of expertise and routinely collaborate, teach and lecture at leading medical centers throughout the world. Israel also has free trade agreements with the United States and the EU.
 
C. Organizational Structure
 
Our corporate structure consists of BioLineRx Ltd., a substantially wholly-owned subsidiary, Agalimmune Ltd. and its U.S. subsidiary, Agalimmune Inc., and one wholly-owned inactive subsidiary:subsidiary, BioLineRx USA Inc.
 Until the end of 2014, BioLineRx Ltd. had two other wholly-owned entities: BioLine Innovations Jerusalem Limited Partnership, or BIJ L.P. and BioLine Innovations Jerusalem Ltd., or BIJ Ltd. Both BIJ L.P. and BIJ Ltd. were engaged in the operation of our biotechnology incubator. Our incubator agreement with the OCS expired at the end of 2013. As a result, we decided to transfer all the employees, activities and assets from the incubator to BioLineRx Ltd., and liquidated BIJ L.P. and BIJ Ltd. in December 2014 and 2015, respectively.
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D. Property, Plant and Equipment
 
We are headquartered in Modi’in,Modi'in, Israel. Until June 2015, our headquarters were located in Jerusalem. The facility consists of 1,663 square meters (approximately 17,900 square feet) of space and lease payments are approximately $27,000 per month, including maintenance fees and parking. This facility houses both our administrative and research operations and our central laboratory. The central laboratory consists of approximately 380 square meters and includes an analytical chemistrya bioanalytical laboratory, a formulation laboratory and a tissue culture laboratory. Our centralbioanalytical laboratory is compliant with both cGMP and certifiedhas received GLP which allows us to manufacture therapeutic supplies for our current clinical trials.certification. All of our employees are based in this facility.
Agalimmune leases laboratory space in Discovery Park located in Sandwich, Kent County in the United Kingdom and rents office space in London as well.
 
ITEM 4A. UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this annual report.Annual Report on Form 20-F.  The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.  Our actual results could differ materially from those discussed in the forward-looking statements.  Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report,Annual Report on Form 20-F, particularly those in “Item"Item 3. Key Information — Risk Factors.”"
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We are a clinical stage biopharmaceutical development company dedicated to identifying, in-licensing and developing therapeutic candidates that have advantages over currently available therapies or address unmet medical needs. Our current development and commercialization pipeline consists of three main clinicala clinical-stage therapeutic candidates: BL-8040, BL-7010candidate, BL-8040; a near-clinical therapeutic candidate, AGI-134; and one commercialized product, BL-5010. In addition, we have threefive other therapeutic candidates in clinical and pre-clinical development. We generate our pipeline by systematically identifying, rigorously validating and in-licensing therapeutic candidates that we believe exhibit a relatively high probability of therapeutic and commercial success. Our strategy includes commercializing our therapeutic candidates through out-licensing arrangements with biotechnology and pharmaceutical companies and evaluating, on a case by case basis, the commercialization of our therapeutic candidates independently. Our focus is principally on the therapeutic areas of oncology and immunology. However, we may also in-license therapeutic compounds outside of these areas in connection with our strategic collaboration with Novartis, as well as to a limited extent for our independent pipeline as the opportunities arise.
 
Clinical Stage Pipeline
The following is a description of our three main clinical therapeutic candidates:
BL-8040 is a novel, short peptide that functions as a high-affinity antagonist for CXCR4, which we intend to develop for multiple cancer and hematological indications.
Ø
In June 2013, we commenced a Phase 2 trial for the treatment of r/r AML, which is currently being conducted at five world-leading cancer research centers in the U.S. and at five premier sites in Israel.  In November 2015, we announced positive results from the dose escalation stage of this study, including clinical response data. Top-line results of the study are expected in the first quarter of 2016.
ØIn March 2015 we reported successful top-line safety and efficacy results from a Phase 1 safety and efficacy trial for the use of BL-8040 as a novel treatment for stem cell mobilization, which was conducted at the Hadassah Medical Center in Jerusalem. More comprehensive data from this study was reported at the European Hematology Association (EHA) Conference in June 2015. In October 2015, we held a “Type B” meeting with the FDA to discuss the next steps in the clinical development plan for stem cell mobilization. In December 2015, we announced the filing of regulatory submissions required to commence a Phase 2 trial at Washington University School of Medicine in St. Louis for use of BL-8040 in stem cell mobilization for allogeneic transplantation. The trial is expected to commence shortly after receipt of regulatory approval, anticipated in the first quarter of 2016.
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ØIn August 2015, we initiated a Phase 2b trial in Germany, in collaboration with the German Study Alliance Leukemia Group, as a consolidation treatment for AML patients who have responded to standard induction treatment. The Phase 2b trial is a double-blind, placebo-controlled, randomized, multi-center study aimed at assessing the efficacy of BL-8040 in addition to standard consolidation therapy in AML patients. Up to 194 patients will be enrolled in the trial. The primary endpoint of the study is to compare the relapse free survival (RFS) time in AML subjects in their first remission during a minimum follow-up time of 18 months after randomization. Top-line results of this study are expected in 2018.
ØIn November 2015, we commenced a Phase 1/2 trial, in collaboration with the MD Anderson Cancer Center, for BL-8040 as a treatment for hypoplastic myelodysplastic syndrome (hMDS) and aplastic anemia (AA). The study will be open label and designed to evaluate the safety, tolerability and efficacy of the combination of BL-8040 with immunosuppressive therapies (hATG, cyclosporine and methylprednisone).
Ø
In January 2016, we entered into a collaboration with MSD, known as Merck in the U.S. and Canada, in the field of cancer immunotherapy. We plan to sponsor and conduct a Phase 2 study investigating BL-8040 in combination with KEYTRUDA® (pembrolizumab), MSD’s anti-PD-1 therapy, in patients with metastatic pancreatic adenocarcinoma. The study is an open-label, multicenter, single-arm trial designed to evaluate the clinical response, safety and tolerability of the combination of these therapies as well as multiple pharmacodynamic parameters, including the ability to improve infiltration of T cells into the tumor and their reactivity. The study is planned to commence by mid-2016.
ØWe are also planning to commence a Phase 2a trial for BL-8040 in the second half of 2016, also in collaboration with the MD Anderson Cancer Center, for the treatment of AML patients with the FLT3-ITD mutation.
ØIn September 2013, the FDA granted an Orphan Drug Designation to BL-8040 as a therapeutic for the treatment of AML; and in January 2014, the FDA granted an Orphan Drug Designation to BL-8040 as a treatment for stem cell mobilization. In January 2015, the FDA modified this Orphan Drug Designation for BL-8040 for use either as a single agent or in combination with G-CSF.
BL-7010 is a novel, non-absorbable, orally available, high-molecular-weight co-polymer intended for the treatment of celiac disease and gluten sensitivity. In December 2013, we commenced a Phase 1/2 trial for BL-7010 at Tampere Hospital in Finland, a leading site for celiac research. This study was conducted based on an initial medical device submission, under a conditional approval received from the regulatory authorities. In November 2014, we reported the final results of the study. BL-7010 was found to be safe and well tolerated in both single- and repeated-dose administrations. Based on these results, we selected the dosing regimen of one gram, three times per day, of BL-7010 as the optimal repeated dose in the next efficacy study for celiac patients. In January 2016, we received confirmation regarding the classification of BL-7010 as a Class IIb medical device in the European Union.
Over the last year, we have invested considerable efforts in examining alternative development and commercialization pathways for BL-7010, in addition to the celiac disease pathway, including as a food supplement, in order to potentially address the multi-billion dollar market for gluten sensitivity. We believe the gluten sensitivity market has a significantly shorter time to market than drug or device pathways, especially in the U.S. market, where the device pathway is not available for BL-7010. We are currently conducting a number of activities towards the development of BL-7010 as a food supplement, including the development of a suitable product formulation, preparation of the documents necessary for a GRAS designation submission, and preparations for a relatively small clinical trial to support the marketing efforts we may conduct regarding gluten and/or gluten sensitivity. We expect to complete these activities by mid-2017 in order to support partnering discussions for the food supplement market in the U.S. and other relevant territories at that time. We will also continue to evaluate the pathway in Europe for celiac disease and will make a decision about the timing and scope of the next efficacy study for European registration over the next few months.
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BL-5010 is a customized, proprietary pen-like applicator containing a novel, acidic, aqueous solution for the non-surgical removal of skin lesions. In December 2010, we announced positive results from a Phase 1/2 clinical trial of BL-5010. We have received European confirmation from BSI of the regulatory pathway classification of BL-5010 as a Class IIa medical device. In December 2014, we entered into an exclusive out-licensing arrangement with Omega Pharma (now a subsidiary of Perrigo Company plc) for the rights to BL-5010 for over-the-counter, or OTC, indications in the territory of Europe, Australia and additional selected countries. In September 2015, we reported that Omega Pharma submitted an application for CE marking for BL-5010. During 2015, Omega Pharma conducted a 30-patient, open-label clinical study in Turkey to evaluate the advantages of BL-5010 in one of the intended OTC indications. Study results indicate that BL-5010 is safe and efficacious. Omega Pharma submitted an application for CE Mark designation for BL-5010 during the third quarter of 2015, and has completed the initial manufacturing process automation to support the product launch. The commercial launch of the first OTC indication for this product is expected during 2016.
Principal Partnering and Collaboration Agreements
In December 2014, we entered into a strategic collaboration with Novartis for the co-development of selected Israeli-sourced novel drug candidates. Under the agreement, we intend, in collaboration with Novartis, to co-develop a number of pre-clinical and early clinical therapeutic projects through clinical proof-of-concept for potential future licensing by Novartis.
In December 2014, we entered into an exclusive out-licensing arrangement with Omega Pharma for the rights to BL-5010 for over-the-counter or OTC indications in the territory of Europe, Australia and additional selected countries. We will retain all OTC rights to BL-5010 in the United States and the rest of the world, as well as all non-OTC rights on a global basis. Under our out-licensing arrangement with Omega Pharma, Omega Pharma is obligated to use commercially reasonable best efforts to obtain regulatory approval in the licensed territory for at least two OTC indications and to commercialize BL-5010 for those two OTC indications. In addition, Omega Pharma will sponsor and manufacture BL-5010 in the relevant regions. Omega Pharma will pay us an agreed amount for each unit sold, and we will be entitled to certain commercial milestone payments. In addition, we will have full access to all clinical and research and development data, as well as manufacturing data, generated during the performance of the development plan and may use these data in order to develop or license the product in other territories and fields of use where we retain the rights.
In January 2016, we entered into a collaboration with MSD, known as Merck in the U.S. and Canada, in the field of cancer immunotherapy. We plan to sponsor and conduct a Phase 2 study investigating BL-8040 in combination with KEYTRUDA® (pembrolizumab), MSD’s anti-PD-1 therapy, in patients with metastatic pancreatic adenocarcinoma. The study is an open-label, multicenter, single-arm trial designed to evaluate the clinical response, safety and tolerability of the combination of these therapies as well as multiple pharmacodynamic parameters, including the ability to improve infiltration of T cells into the tumor and their reactivity. The study is planned to commence by mid-2016. Upon completion of the study, or at any earlier point, both parties will have the option to expand the collaboration to include a pivotal registration study.
Other Partnering and Collaboration Agreements
In 2009, we entered into an exclusive, worldwide, royalty-bearing licensing arrangement with Bellerophon. Under the agreement, we granted Bellerophon an exclusive, worldwide license to develop, manufacture and commercialize BL-1040 for use in the prevention, mitigation and treatment of injuries to the myocardial tissue of the heart. Under the arrangement, Bellerophon is obligated to use commercially reasonable efforts to complete clinical development of, and to commercialize, BL-1040 or products related thereto. We received an upfront payment of $7.0 million upon the execution of the license agreement. Upon successful completion of the Phase 1/2 clinical trial, Bellerophon paid us a milestone payment of $10.0 million in March 2010, and we are entitled to receive additional milestone and royalty payments upon the occurrence of certain events.
In June 2013, we signed an out-licensing agreement with CTTQ, the leading Chinese pharmaceutical company in the liver disease therapeutic area, granting CTTQ exclusive rights to develop, manufacture and commercialize BL-8030, an orally available treatment for HCV, in China and Hong Kong. In January 2016, we received notice from CTTQ that it was exercising its right to terminate the agreement with us, effective in April 2016. We have also provided notice to the licensors of BL-8030 of the termination of our in-licensing agreement with them, which took effect in early March 2016.
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In January 2014, we signed a collaboration agreement with JHL Biotech, or JHL, a biopharmaceutical company that develops, manufactures, and commercializes biologic medicines, pursuant to which we will collaborate with JHL in the development and commercialization of BL-9020, a novel monoclonal antibody in the preclinical development stage for the treatment of Type 1 diabetes. JHL Biotech will be responsible for all process development and manufacturing of BL-9020 during its pre-clinical and clinical development stages, and we will be responsible for all pre-clinical development of BL-9020. JHL will have global manufacturing rights to BL-9020, along with development and commercialization rights in China and Southeast Asia, and we will have development and commercialization rights in the rest of the world. In all development and manufacturing of BL-9020, JHL will adhere to FDA guidelines and regulations. Each party will have rights to all development and regulatory data generated under the agreement in order to commercialize BL-9020 in its respective territory. Each party will also be entitled to single-digit royalties on the sale of BL-9020 in the other party’s respective territory.
History of Losses
 
Since inception in 2003, we have generated significant losses in connection with our research and development. As of December 31, 2015,2016, we had an accumulated deficit of $159.4$175.0 million. Although we have previously recognized revenues in connection with our out-licensing arrangement with Bellerophon for BL-1040 and our former out-licensing arrangement with Cypress Bioscience for BL-1020, weWe may continue to generate losses in connection with the research and development activities relating to our pipeline of therapeutic candidates. Such research and development activities are budgeted to expand over time and will require further resources if we are to be successful. As a result, we may continue to incur operating losses, which may be substantial over the next several years, and we may need to obtain additional funds to further pursue our research and development programs.
 
We have funded our operations primarily through the sale of equity securities (both in public and private offerings), payments received under our strategic licensing and collaboration arrangements, interest earned on investments and funding received from the OCS, payments received under the licensing arrangements with Bellerophon and Cypress Bioscience, and interest earned on investments.OCS. We expect to continue to fund our operations over the next several years through our existing cash resources, potential future upfront, milestone, royalty or other payments that we may receive from Omega Pharma, Novartis and other out-licensing or collaboration transactions for our other therapeutic candidates, interest earned on our investments and additional capital to be raised through public or private equity offerings or debt financings. As of December 31, 2015,2016, we held approximately $47.7$35.6 million of cash, cash equivalents and short-term bank deposits.
 
Revenues
 
Our revenues to date have been generated primarily from milestone payments under current and previously existing out-licensing agreements.
 
We expect our revenues for the next several years to be derived primarily from payments under our current out-licensing agreement with Omega Pharma, our collaboration agreement with Novartis, as well as other potential collaboration arrangements, including future royalties on product sales.
 
Research and Development
 
Our research and development expenses consist primarily of salaries and related personnel expenses, fees paid to external service providers, up-front and milestone payments under our license agreements, patent-related legal fees, costs of preclinical studies and clinical trials, drug and laboratory supplies and costs for facilities and equipment. We primarily use external service providers to manufacture our product candidates for clinical trials and for the majority of our preclinical and clinical development work. We charge all research and development expenses to operations as they are incurred. We expect our research and development expense to remain our primary expense in the near future as we continue to develop our therapeutic candidates.
 
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The following table identifies our current major research and developmentpipeline projects:
 
ProjectStatus Expected Near-Term Milestone Status Expected Near Term Milestones
BL-8040
1.Phase 2 study for AML; dose expansion stage ongoing1.Top-line results expected in Q1 2016
1.
Phase 2a study for relapsed or refractory AML completed
1.
 Follow-up for overall survival rate is ongoing
   2.Phase 2b consolidation treatment for AML ongoing2.
Completion of enrollment and possible interim analysis results expected in H2 2018; top-line results expected in H2 2019
2.Phase 1 study in stem cell mobilization completed; Type B (end of Phase 1 meeting) with FDA conducted; regulatory submissions for Phase 2 study completed2.Phase 2 trial expected to commence in Q1 2016. Partial results expected by end of 20163.
Phase 2 study in stem cell mobilization ongoing
3.
Top-line results expected in Q4 2017.
   4.Phase 2a study in pancreatic cancer, in collaboration with Merck, initiated4.
Partial results expected in H2 2017; top-line results expected in H2 2018
3.Phase 2b consolidation treatment for AML initiated3.Completion of enrollment by mid-2017. Top-line results expected in 20185.
Phase 2b study in pancreatic cancer, in collaboration with MD Anderson Cancer Center
5.
Top-line results expected in H2 2018
   6. Phase 1b study in AML, in collaboration with Genentech6.
Commencement of study expected in H2 2017; top-line results expected in 2019
4.Phase 1/2 study for hMDS and AA initiated4.Partial results expected by end of 20167.Phase 1b studies in various solid tumors, in collaboration with Genentech7.
Commencement of studies expected in H2 2017; top-line results expected in 2019
   8.
Phase 3 registration study in autologous stem cell mobilization
8.
Commencement of study expected in H2 2017
5.Phase 2a study in pancreatic cancer, in collaboration with Merck, in final planning stages5.Commencement of study expected in mid-2016
   
6.Phase 2a study for AML patients with FLT3-ITD mutation in final planning stages6.Commencement of study expected in H2 2016
BL-7010Completed Phase 1/2 study; classified as Class IIb medical device in the EUSubmission of package for GRAS designation as food supplement in the  U.S.; completion of formulation development as food supplement; initiation of clinical study for marketing purposes as food supplement; determination of appropriate timing for continued medical device development in Europe
AGI-134
Near-clinical development studiesRegulatory submission for first-in-man study expected in H2 2017; commencement of study expected in H1 2018
BL-5010Out-licensed to Omega Pharma; application for CE mark submitted in Q3 2015CE mark approval; commercial launch of first OTC indication in Europe during 2016; pursuit of potential out-licensing partner(s) for OTC and non-OTC rights still held by usOut-licensed to Omega Pharma; CE mark approval obtained; commercial launch of first OTC indication in Europe commencedGradual full roll-out of commercial launch over next two years; pursuit of potential out-licensing partner(s) for OTC and non-OTC rights still held by us
 
In addition to the projects set forth above, we have threefive additional projects in clinical and pre-clinical stages of development (BL-8020, BL-1040(BL-9020, BL-1210, BL-1220, BL-1230 and BL-9020)BL-1040) that are significantly less material to the Company’sCompany's ongoing research and development expenditures. See “Item"Item 4. Information on the Company — Business Overview — Other Therapeutic Candidates in Preclinical Development.”
Prior to 2013, we recorded costs for each development project on a “direct cost” basis only. Direct costs, which include contract research organization expenses, consulting expenses, patent expenses, materials and other, similar expenses, were recorded to the project for which such expenses are incurred. However, salary and overhead costs, including, but not limited to, salary expenses (including salaries for research and development personnel), facilities, depreciation and stock-based compensation, were shared among all of our projects and were not recorded on a project-by-project basis. We did not allocate direct salaries to projects due to the fact that our project managers were generally involved in several projects at different stages of development, and the related salary expense was not significant to the overall cost of the applicable projects. In addition, indirect labor costs relating to our departments that support the research and development process, such as chemistry, manufacturing and controls (CMC), pre-clinical analysis, laboratory testing and initial drug sample production, as well as rent and other administrative overhead costs, were shared by many different projects and were never considered by management to be of significance in its decision-making process with respect to any specific project. Accordingly, such costs were not specifically allocated to individual projects. Beginning in 2013, as the result of a decision to reduce the total number of development projects in our pipeline, along with the fact that the number of more advanced clinical projects in our pipeline has increased on a proportionate basis, we decided to record costs for each development project on a “full cost” basis. Accordingly, beginning in 2013, costs for each development project included salary and overhead costs, as well as direct costs.Candidates."
 
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Set forth below is a summary of the costs allocated to our main projects on an individual basis, as well as the costs allocated to our less significant projects on an aggregate basis, for the years ended December 31, 2013, 2014, 2015 and 2015,2016, and on an aggregate basis since project inception. Certain of such costs are covered by OCS funding, although OCS funds received have not been deducted from the project costs in the table.

  Year Ended December 31,  
Total Costs
Since Project
 
  2013  2014  2015  Inception 
  (U.S. $ in thousands) 
             
BL-8040
  3,910   4,698   7,045   16,376 
BL-7010  1,905   3,756   1,657   8,152 
BL-5010  251   1,282   400   4,069 
Other projects
  5,097   1,537   1,916   103,332 
Total project costs
  11,163   11,273   11,018   131,929 
The costs and expenses of our projects have been partially financed by funds we have received from the OCS. Such funds are deducted from the related research and development expenses as the costs are incurred. For additional information regarding the OCS funding process, see “Government Regulation and Funding — Israeli Government Programs.” We have not received significant funding from the OCS since 2012, and there can be no assurance that we will receive significant funding from the OCS in the future, if at all.
  Year Ended December 31,  
Total Costs
Since Project
 
  2014  2015  2016  Inception 
  (U.S. $ in thousands) 
             
BL-8040 
  4,698   7,045   8,281   24,657 
BL-7010  3,756   1,657   1,471   9,623 
BL-5010 
  1,282   400   75   4,144 
Other projects 
  1,537   1,916   1,176   104,508 
Total project costs 
  11,273   11,018   11,003   142,932 
 
From our inception through December 31, 2015,2016, we have incurred research and development expense of approximately $166.0 million.$177.0 million. We expect that a large percentage of our research and development expense in the future will be incurred in support of our current and future preclinical and clinical development projects. Due to the inherently unpredictable nature of preclinical and clinical development processes and given the early stage of our preclinical product development projects, we are unable to estimate with any certainty the costs we will incur in the continued development of the therapeutic candidates in our pipeline for potential commercialization. Clinical development timelines, the probability of success and development costs can differ materially from expectations. We expect to continue to test our product candidates in preclinical studies for toxicology, safety and efficacy, and to conduct additional clinical trials for each product candidate. If we are not able to enter into an out-licensing arrangement with respect to any therapeutic candidate prior to the commencement of later stage clinical trials, we may fund the trials for the therapeutic candidate ourselves.
 
While we are currently focused on advancing each of our product development projects, our future research and development expenses will depend on the clinical success of each therapeutic candidate, as well as ongoing assessments of each therapeutic candidate’scandidate's commercial potential. In addition, we cannot forecast with any degree of certainty which therapeutic candidates may be subject to future out-licensing arrangements, when such out-licensing arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. See “Item"Item 3. Key Information — Risk Factors — If we or our licensees are unable to obtain U.S. and/or foreign regulatory approval for our therapeutic candidates, we will be unable to commercialize our therapeutic candidates.”
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"
 
As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for certain therapeutic candidates or projects in order to focus our resources on more promising therapeutic candidates or projects. Completion of clinical trials by us or our licensees may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a therapeutic candidate.
 
The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:
 
the number of sites included in the clinical trials;
 
the length of time required to enroll suitable patients;
 
the cost of drug substance/product manufacturing, storage and shipment;
 
the number of patients that participate in the clinical trials;
 
the duration of patient follow-up;
 
whether the patients require hospitalization or can be treated on an out-patient basis;
 
the development stage of the therapeutic candidate; and
 
the efficacy and safety profile of the therapeutic candidate.
 
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We expect our research and development expenses to remain our most significant cost as we continue the advancement of our clinical trials and preclinical product development projects and place significant emphasis on in-licensing new product candidates. The lengthy process of completing clinical trials and seeking regulatory approval for our product candidates requires expenditure of substantial resources. Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could cause a delay in generating product revenue and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Due to the factors set forth above, we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects.
 
Sales and Marketing Expenses
 
Sales and marketing expenses consist primarily of compensation for employees in business development and marketing functions. Other significant sales and marketing costs include costs for marketing and communication materials, professional fees for outside market research and consulting, legal services related to partnering transactions and travel costs.
 
General and Administrative Expenses
 
General and administrative expenses consist primarily of compensation for employees in executive and operational functions, including accounting, finance, legal, investor relations, information technology and human resources. Other significant general and administration costs include facilities costs, professional fees for outside accounting and legal services, travel costs, insurance premiums and depreciation.
 
Non-Operating Expense and Income
 
Non-operating expense and income includes fair-value adjustments of derivative liabilities on account of the warrants issued in the private and direct placements which we conducted in 2012 and 2013. These fair-value adjustments are highly influenced by our share price at each period end (revaluation date). Non-operating expense and income also includes the pro-rata share of issuance expenses from the private and direct placements related to the warrants. In addition, non-operating expense and income includes the initial commitment and finder’sfinder's fees, as well as other one-time expenses, associated with the initial set-up of the share purchase agreements with LPC.
 
Financial Expense and Income
 
Financial expense and income consist of interest earned on our cash, cash equivalents and short-term bank deposits; bank fees and other transactional costs; and expense or income resulting from fluctuations of the dollar and other currencies, in which a portion of our assets and liabilities are denominated, against the NIS (our functional currency).
 
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Critical Accounting Policies and Estimates
 
We describe our significant accounting policies more fully in Note 2 to our consolidated financial statements for the year ended December 31, 2015.2016. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.
 
The discussion and analysis of our financial condition and results of operations is based on our financial statements, which we prepare in accordance with IFRS. The preparation of these financial statements requires us to make estimates using assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates, including those described in greater detail below. We base our estimates on historical experience and on various assumptions that we believe are reasonable under the circumstances, the results of which impact the carrying value of our assets and liabilities that are not readily apparent from other sources. Actual results will differ from these estimates and such differences may be significant.
 
Functional and Presentational Currency
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 From the Company’s inception through December 31, 2014, the Company’s functional and presentation currency was the NIS. As a result of a number of factors, including the strategic collaboration agreement with Novartis that will be managed solely in dollars, as well as expectations regarding a significant increase in expenses denominated in dollars relating to advanced clinical trials, effective January 1, 2015, the Company’s functional and presentation currency was changed to the dollar. See Note 2c to our consolidated financial statements for the year ended December 31, 2015 included elsewhere in this report.
Revenue Recognition
 
We recognize revenues in accordance with International Financial Reporting Standards No. 15, or IFRS 15. Under IFRS 15, "Revenue from Contracts with Customers," which was issued in May 2014, amends revenue recognition requirements and establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard replaces International Accounting Standard, No. 18, or IAS, 18. Under18, "Revenue" and IAS 18,11, "Construction Contracts" and related interpretations. The standard is effective for annual periods beginning on or after January 1, 2018. The Company currently does not have any revenues, and will assess the impact of adopting IFRS 15 when relevant. Revenues incurred in connection with the out-licensing of ourthe Company's patents and other intellectual property are recognized when all of the following criteria have been met as of the applicable balance sheet date:
 
we haveThe Company has transferred to the licensee the significant risks and rewards of the rights toownership of the patents and intellectual property;property.
 
we doThe Company does not retain either the continuing managerial involvement to the degree usually associated with ownership or the effective control over the patentspatent and intellectual property;property.
 
we can reliably measure theThe amount of revenue tocan be recognized;measured reliably.
 
itIt is probable that the economic benefits associated with the transaction will flow to us; andthe Company.
 
we can reliably measure theThe costs incurred or to be incurred in respect of the out-licensing.sale can be measured reliably.
 
We recognize revenues incurred
Revenue from reaching additional milestones is recognized upon achievement of the specific milestone, in accordance with the relevant agreement.
Revenues in connection with the rendering of services are recognized by reference to the stage of completion of the transaction atas of the balance sheet date, if and when the outcome of the transaction can be estimated reliably.
 
We recognize revenuesRevenues from royalties are recognized on an accrual basis when they become probable in accordance with the substance of the relevant agreement.

Accrued Expenses
 
We are required to estimate accrued expenses as part of our process of preparing financial statements. This process involves estimating the level of service performed on our behalf and the associated cost incurred in instances where we have not been invoiced or otherwise notified of actual costs. Examples of areas in which subjective judgments may be required include costs associated with services provided by contract organizations for preclinical development, clinical trials and manufacturing of clinical materials. We account for expenses associated with these external services by determining the total cost of a given study based on the terms of the related contract. We accrue for costs incurred as the services are being provided by monitoring the status of the trials and the invoices received from our external service providers. In the case of clinical trials, the estimated cost normally relates to the projected costs of treating the patients in our trials, which we recognize over the estimated term of the trial according to the number of patients enrolled in the trial on an ongoing basis, beginning with patient enrollment. As actual costs become known to us, we adjust our accruals.
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Investments in Financial Assets
 
The primary objective of our investment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Our investments are exposed to market risk due to fluctuations in interest rates, which may affect our interest income and the fair market value of our investments. We manage this exposure by performing ongoing evaluations of our investments. Due to the short-term maturities of our investments to date, their carrying value has always approximated their fair value.
 
A financial asset is classified in this category if our management has designated it as a financial asset upon initial recognition, because it is managed and its performance is evaluated on a fair-value basis in accordance with a documented risk management or investment strategy. Our investment policy with regard to excess cash, as adopted by our Board of Directors, is composed of the following objectives: (i) preserving investment principal; (ii) providing liquidity; and (iii) providing optimum yields pursuant to the policy guidelines and market conditions. The policy provides detailed guidelines as to the securities and other financial instruments in which we are allowed to invest. In addition, in order to maintain liquidity, investments are structured to provide flexibility to liquidate at least 50% of all investments within 15 business days. Information about these assets, including details of the portfolio and income earned, is provided internally on a quarterly basis to our key management personnel and on a semi-annual basis to the Investment Monitoring Committee of our Board of Directors. Any divergence from this investment policy requires approval from our Board of Directors.
 
Government Participation in Research and Development Expenses
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We have received research and development funding from the State of Israel through the OCS, and we may receive such funding in the future. In accordance with the OCS programs, we are entitled to specific funding with respect to a development project only after we incur development costs related to the project. Such funding qualifies as “forgivable loans” in accordance with IAS 20, “Accounting for Government Grants and Disclosure of Government Assistance,” since it is repayable only if we generate revenues related to the underlying project.
In accordance with IAS 20, we account for each forgivable loan as a liability unless it is more likely than not that we will meet the terms of forgiveness of the loan, in which case the forgivable loan is accounted for as a government grant and carried to income as a reduction of the research and development expenses. Upon the initiation of any project for which we have received a loan, we consider it more likely than not that the project will not reach the revenue-generating stage during the entire development phase of the project when determining the accounting treatment of the related loan. Our determination is based on the high risk nature of pharmaceutical development generally and specifically on our strategy of initializing projects in early stages of development. Therefore, we record a liability in respect of forgivable loans on a project only when it becomes probable that we will repay the loan.
Liabilities to the OCS in respect of out-licensing transactions are generally discussed and negotiated with the OCS, due to the fact that such licensing transactions do not fit into the standard development funding model contemplated by the Israeli Research and Development Law.
Stock-based Compensation
 
We account for stock-based compensation arrangements in accordance with the provisions of IFRS 2. IFRS 2 requires companies to recognize stock compensation expense for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). The cost is recognized as compensation expense over the life of the instruments, based upon the grant-date fair value of the equity or liability instruments issued. The fair value of our optionstock-based compensation grants is computed as of the grant date based on the Black-Scholes model, using the standard parameters established in that model including estimates relating to volatility of our stock, risk-free interest rates, estimated life of the equity instruments issued and the market price of our stock. As our ordinary shares are publicly traded on the TASE, we do not need to estimate their fair market value. Rather, we use the actual closing market price of our ordinary shares on the date of grant, as reported by the TASE.
 
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Warrants
 
In connection with the private placement of approximately 5.25 million of our ADSs in February 2012, we issued warrants to purchase approximately 2.6 million of our ADSs at an exercise price of $3.57, subject to typical adjustments.  The warrants arewere exercisable for a period of five years from the date of issuance. Since the exercise price was not deemed to be fixed, the warrants are not qualifieddid qualify for classification as an equity instrument and havewere therefore been classified as a non-current financial liability. The warrants expired in February 2017 without having been exercised.
 
In connection with the direct placement to OrbimedOrbiMed Israel Partners Limited Partnership of approximately 2.67 million of our ADSs in February 2013, we issued warrants to purchase 1.6 million of our ADSs at an exercise price of $3.94, subject to typical adjustments.  The warrants are exercisable for a period of five years from the date of issuance. Since the exercise price was not deemed to be fixed, the warrants are not qualified for classification as an equity instrument and have therefore been classified as a non-current financial liability
 
Recent Accounting Changes and Pronouncements
 
The following standards have been adoptedThere were no changes in the accounting policies applied by the Company for the first time for the fiscal year beginning January 1, 2015:during 2016.
 
·Annual Improvements to IFRSs – 2010-2012 Cycle; 2011-2013 Cycle
·Defined Benefit Plans: Employee Contributions – Amendments to IAS 19
The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods. In addition, the Company also elected to early adopt the following two amendments:
·Annual Improvements to IFRSs – 2012-2014 Cycle
·Disclosure Initiative: Amendments to IAS 1.
As these amendments merely clarify the existing requirements, they do not affect the Company’s accounting policies or any of the disclosures.
For information concerning new standards and interpretations not yet adopted, see Note 2t2r to our consolidated financial statements for the year ended December 31, 20152016 included elsewhere in this report.
As of the date of this report, we are not able to estimate the impact of the new standards on the Company's financial statements, and continue to assess the possible impact. We will make more detailed assessments over the next 12 months.
 
Results of Operations -- Overview
 
Revenues
 
We did not record any material revenues for the years ended December 31, 2013, 2014, 2015 and 2015.2016.
 
Cost of revenues
 
We did not record any cost of revenues for the years ended December 31, 2013, 2014, 2015 and 2015.2016.
 
Research and development expenses
 
At December 31, 2012,2013, our drug development pipeline consisted of 14 therapeutic candidates. During 2013, we added two new compounds to our pipeline and discontinued the development of six compounds from the pipeline, so that our drug development pipeline as of December 31, 2013 consisted of 10 therapeutic candidates. During 2014, we added a new compound to our pipeline and discontinued the development of one compoundtwo compounds from the pipeline, so that our drug development pipeline as of December 31, 2014 consisted of 10nine therapeutic candidates. During 2015, we did not add any new compounds to our pipeline and we discontinued the development of one compound from the pipeline, so that our drug development pipeline as of December 31, 2015 consisted of nineeight therapeutic candidates. During 2016, we added three compounds to our pipeline and discontinued the development of three compounds in our pipeline, so that our drug development pipeline of as of December 31, 2016 consisted of eight therapeutic candidates. Subsequent to December 31, 2015,2016, we terminated threeone therapeutic candidatescandidate in our pipeline, and added one therapeutic candidate to the pipeline, so that our drug development pipeline of the date of this report consists of sixeight therapeutic candidates.
 
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Comparison of the Year Ended December 31, 2016 to the Year Ended December 31, 2015
 
Research and development expenses
Research and development expenses for the year ended December 31, 2016 were $11.2 million, a decrease of $0.3 million, or 2.6%, compared to $11.5 million for the year ended December 31, 2015. The decrease results primarily from a decrease in spending on BL-7010, partially offset by increased spending on new projects.
Sales and marketing expenses
Sales and marketing expenses for the year ended December 31, 2016 were $1.4 million, an increase of $0.4 million, or 40.0%, compared to $1.0 million for the year ended December 31, 2015. The increase results primarily from consultancy services related to BL-8040 and new projects.
General and administrative expenses
General and administrative expenses for the year ended December 31, 2016 were $4.0 million, an increase of $0.3 million or 8.1%, compared to $3.7 million for the year ended December 31, 2015. The increase results primarily from one-time salary-related payments and an increase in professional fees.
Non-operating income (expense), net
We recognized net non-operating income of $0.2 million for the year ended December, 2016, a decrease of $1.2 million compared to net non-operating income of $1.4 million for the year ended December 31, 2015. Non-operating expenses and income for both periods primarily relate to fair-value adjustments of liabilities on account of warrants issued in the private and direct placements which we conducted in February 2012 and 2013. These fair-value adjustments were highly influenced by our share price at each period end.
Financial income (expense), net
We recognized net financial income of $0.5 million for the year ended December 31, 2016 compared to net financial income of $0.4 million for the year ended December 31, 2015. Net financial income for the two periods primarily relates to investment income earned on our bank deposits, as well as banking fees.
 
Comparison of the Year Ended December 31, 2015 to the Year Ended December 31, 2014
 
Research and development expenses
 
Research and development expenses for the year ended December 31, 2015 were $11.5 million, a decrease of $0.4 million, or 3.4%, compared to $11.9 million for the year ended December 31, 2014. The decrease results primarily from a decrease in spending on BL-7010 and various other projects, partially offset by increased spending on BL-8040.
 
Sales and marketing expenses
 
Sales and marketing expenses for the year ended December 31, 2015 were $1.0 million, a decrease of $0.6 million, or 37.5%, compared to $1.6 million for the year ended December 31, 2014. The decrease resulted primarily from professional fees related to business development activities carried out in 2014, including professional services related to the collaboration agreement with Novartis and the out-licensing agreement with Omega Pharma regarding BL-5010.
 
General and administrative expenses
 
General and administrative expenses for the year ended December 31, 2015 were $3.7 million, a decrease of $0.1 million, or 2.6%, compared to $3.8 million for the year ended December 31, 2014. The decrease primarily results from a decrease in salary-related payments, partially offset by a small increase in professional fees.
 
Non-operating income (expense), net
 
We recognized net non-operating income of $1.4 million for the year ended December 31, 2015, compared to net non-operating income of $3.1 million for the year ended December 31, 2014. Non-operating income for both periods primarily relates to fair-value adjustments of liabilities on account of warrants issued in the private and direct placements which we conducted in February 2012 and 2013.2013. These fair-value adjustments were highly influenced by our share price at each period end (i.e., warrant revaluation date).
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Financial income (expense), net
 
We recognized net financial income of $0.4 million for the year ended December 31, 2015, compared to net financial income of $3.1$3.1 million for the year ended December 31, 2014.2014. Net financial income for 2015 primarily relates to investment income earned on our bank deposits, partially offset by banking fees. The 2014 period includes significant exchange rate differences primarily relating to changes in the USD/dollar/NIS exchange rate prior to the adoption of the dollar as our functional and reporting currency, effective as of January 1, 2015.
 
Comparison of the Year Ended December 31, 2014 to the Year Ended December 31, 2013
Research and development expenses
Research and development expenses for the year ended December 31, 2014 were $11.9 million, a decrease of $0.3 million, or 2.5%, compared to $12.2 million for the year ended December 31, 2013. The decrease resulted primarily from termination of the BL-1020 CLARITY clinical trial in March 2013 and certain one-time costs associated with several clinical-stage projects in 2013, partially offset by increased spending on BL-8040, BL-7010 and BL-5010 in 2014.
Sales and marketing expenses
Sales and marketing expenses for the year ended December 31, 2014 were $1.6 million, an increase of $0.5 million, or 45.4%, compared to $1.1 million for the year ended December 31, 2013. The increase resulted primarily from professional fees related to increased business development activities, including professional services related to the collaboration agreement with Novartis and the out-licensing agreement with Omega Pharma regarding BL-5010.
General and administrative expenses
General and administrative expenses for the year ended December 31, 2014 were $3.8 million, an increase of $0.1 million, or 2.7%, compared to $3.7 million for the year ended December 31, 2013. The small increase resulted primarily from an increase in salary-related payments.
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Non-operating income (expense), net
We recognized net non-operating income of $3.1 million for the year ended December, 2014, compared to net non-operating income of $1.2 million for the year ended December 31, 2013. Non-operating income for both periods primarily relates to fair-value adjustments of liabilities on account of warrants issued in the private and direct placements which we conducted in February 2012 and 2013. These fair-value adjustments were highly influenced by our share price at each period end (i.e., warrant revaluation date).
Financial income (expense), net
We recognized net financial income of $3.1 million for the year ended December 31, 2014, compared to net financial expenses of $1.2 million for the year ended December 31, 2013. Net financial income and expenses in 2013 and 2014 resulted primarily from changes in the average exchange rate of the dollar in relation to the NIS during the respective periods, prior to the adoption of the dollar as our functional and reporting currency as of January 1, 2015, which had a direct effect on our net assets denominated in dollars during those two years.

75
Quarterly Results of Operations
 
The following tables show our unaudited quarterly statements of operations for the periods indicated. We have prepared this quarterly information on a basis consistent with our audited consolidated financial statements and we believe it includes all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the information shown. Operating results for any quarter are not necessarily indicative of results for a full fiscal year.
 
 Three Months Ended  Three Months Ended 
 March 31  June 30  Sept. 30  Dec. 31  March 31  June 30  Sept. 30  Dec. 31  March 31  June 30  Sept. 30  Dec. 31  March 31  June 30  Sept. 30  Dec. 31 
 2014  2015  2015  2016 
 (in thousands of U.S. dollars)  (in thousands of U.S. dollars) 
Consolidated Statements of Operations                                                
Revenues
  –   –   –   –   –   –   –   –   –   –   –   –   –   –   –   – 
Cost of revenues
  –   –   –   –   –   –   –   –   –   –   –   –   –   –   –   – 
Research and development expenses, net  (2,719)  (2,792)  (2,975)  (3,380)  (3,211)  (2,891)  (2,576)  (2,811)  (3,211)  (2,891)  (2,576)  (2,811)  (2,539)  (2,740)  (2,954)  (2,944)
Sales and marketing expenses  (367)  (285)  (305)  (632)  (260)  (299)  (265)  (179)  (260)  (299)  (265)  (179)  (248)  (272)  (409)  (423)
General and administrative expenses  (990)  (834)  (791)  (1,185)  (856)  (976)  (762)  (1,110)  (856)  (976)  (762)  (1,110)  (989)  (854)  (1,125)  (1,016)
Operating loss
  (4,076)  (3,911)  (4,071)  (5,197)  (4,327)  (4,166)  (3,603)  (4,100)  (4,327)  (4,166)  (3,603)  (4,100)  (3,776)  (3,866)  (4,488)  (4,383)
Non-operating income expenses), net  1,687   279   1,380   (285)  (40)  (847)  1,983   349 
Non-operating income (expenses), net  (40)  (847)  1,983   349   148   48   (14)  32 
Financial income, net  355   –   1,991   1,288   73   205   85   98   73   205   85   98   143   88   172   77 
Financial expenses, net  (81)  (435)  –   –   (17)  (2)  (91)  –   (17)  (2)  (91)  –   (4)  (5)  (4)  (9)
Net loss
  (2,115)  (4,067)  (700)  (4,194)  (4,311)  (4,810)  (1,626)  (3,653)  (4,311)  (4,810)  (1,626)  (3,653)  (3,489)  (3,735)  (4,334)  (4,283)
Other comprehensive loss – currency translation differences  (136)  (424)  (2,027)  (1,095)  –   –   –   – 
Comprehensive loss  (2,251)  (3,643)  (2,727)  (5,289)  (4,311)  (4,810)  (1,626)  (3,653)
 
Our quarterly revenues and operating 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.
 
Liquidity and Capital Resources
 
Since inception, we have funded our operations primarily through public and private offerings of our equity securities, funding from the OCS, and payments received under our strategic licensing and collaboration arrangements.arrangements, interest earned on investments and funding from the OCS. At December 31, 2015,2016, we held approximately $47.7$35.6 million in cash, cash equivalents and short-term bank deposits. We have invested substantially all of our available cash funds in short-term bank deposits.
 
Pursuant to the share purchase agreement with LPC signed in May 2014, we may sell, from time to time, and at our discretion, up to $20 million of our ADSs to LPC during the 36-month term of the purchase agreement. From the effective date of the purchase agreement through the date of this annual report, we have sold an aggregate of approximately $2.6$7.0 million of our ADSs to LPC, leaving an available balance under the facility of approximately $17.4$13.0 million.
 
Net cash used in operating activities for the year ended December 31, 20152016 was $14.5 million, compared to $14.2 million compared tofor the year ended December 31, 2015 and $15.8 million for the year ended December 31, 2014 and $19.5 million for2014. The increase in net cash used in operating activities in 2016 was primarily the year ended December 31, 2013.result of an increase in our operating loss in 2016. The decrease in net cash used in operating activities in 2015 was primarily the result of a decrease in our operating loss in 2015. The decrease in net cash used in operating activities during 2014 resulted primarily from a large decrease in net trade payables and accruals during the 2013 period.
 
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Net cash provided by investing activities for the year ended December 31, 2016 was $9.3 million, compared to $15.6 million cash used in investing activities for the year ended December 31, 2015 was $15.6 million, compared toand $19.7 million for the year ended December 31, 2014 and $5.3 million for the year ended December 31, 2013.2014. The changes in cash flows from investing activities relate primarily to investments in, and maturities of, short-term bank deposits and other investments during the respective periods.
 
Net cash provided by financing activities for the year ended December 31, 20152016 was $2.1 million, compared to $29.5 million compared tofor the year ended December 31, 2015, and $32.6 million for the year ended December 31, 2014, and $15.1 million for2014. The cash flows in 2016 primarily reflect the year ended December 31, 2013.funding under the share purchase agreement with LPC.  The cash flows in 2015 primarily reflect the underwritten public offering of our ADSs in March 2015. The cash flows in 2014 primarily reflect the underwritten public offering of our ADSs in March 2014, as well as the investment made by Novartis pursuant to our strategic collaboration agreement with them signed in December 2014. The cash flows in 2013 primarily reflect the direct placement to OrbiMed completed in February 2013, as well as funding under the previous share purchase agreement with LPC.
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Developing drugs, conducting clinical trials and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. Although we believe our existing cash and other resources will be sufficient to fund our projected cash requirements into 2018,2019, we will require significant additional financing in the future to fund our operations. Additional financing may not be available on acceptable terms, if at all. Our future capital requirements will depend on many factors, including:
 
the progress and costs of our preclinical studies, clinical trials and other research and development activities;
 
the scope, prioritization and number of our clinical trials and other research and development programs;
 
the amount of revenues we receive under our collaboration or licensing arrangements;
 
the costs of the development and expansion of our operational infrastructure;
 
the costs and timing of obtaining regulatory approval of our therapeutic candidates;
 
the ability of our collaborators to achieve development milestones, marketing approval and other events or developments under our collaboration agreements;
 
the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
 
the costs and timing of securing manufacturing arrangements for clinical or commercial production;
 
the costs of establishing sales and marketing capabilities or contracting with third parties to provide these capabilities for us;
 
the costs of acquiring or undertaking development and commercialization efforts for any future product candidates;
 
the magnitude of our general and administrative expenses;
 
any cost that we may incur under current and future licensing arrangements relating to our therapeutic candidates; and
 
payments to the OCS.
 
Until we can generate significant continuing revenues, we expect to satisfy our future cash needs through payments received under our collaborations, debt or equity financings, or by out-licensing other product candidates. We cannot be certain that additional funding will be available to us on acceptable terms, or at all.
 
If funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or our commercialization efforts.
 
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Off-Balance Sheet Arrangements
 
Since inception, we have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.
 

77
Contractual Obligations
 
The following table summarizes our significant contractual obligations at December 31, 2015:2016:

 Total  
Less than
1 year
  1-3 years  4-5 years  
More than
5 years
  Total  
Less than
1 year
  1-3 years  4-5 years  
More than
5 years
 
 (in thousands of U.S. dollars)  (in thousands of U.S. dollars) 
                              
Car leasing obligations
  337   199   138   –   –   808   228   456   125   – 
Premises leasing obligations
  1,024   225   449   351   –   315   180   135   –   – 
Purchase commitments
  2,427   1,400   1,022   4   –   4,447   3,036   1,399   12   – 
Total
  3,788   1,824   1,609   355   –   5,570   3,444   1,990   137   – 
 
The premises leasing obligations in the foregoing table include our commitments under the lease agreement for our facility in Modi’in.Modi'in. See “Item"Item 4. Information on the Company — Property, Plant and Equipment.”" The term of the lease began on June 15, 2015 and will end June 30, 2020. The lease agreement grants us three options to extend the lease at our discretion, allowing us to continue leasing for an addition 10 years through June 30, 2030. During the lease term, we are obligated to pay initial monthly rental payments of approximately $18,500 and initial monthly parking charges of approximately $1,800. We are furthermore obligated to pay building maintenance charges during the lease term not exceeding approximately $6,700 per month.
 
The foregoing table does not include our in-licensing agreements. Under our in-licensing agreements, we are obligated to make certain payments to our licensors upon the achievement of agreed upon milestones. We are unable at this time to estimate the actual amount or timing of the costs we will incur in the future under these agreements; however, we do not expect any material milestones to be achieved within the next 12 months. If all of the milestones are achieved over the life of each in-licensing agreement, we will be required to pay approximately $5.5 million, in the aggregate, to the applicable licensors. Some of the in-licensing agreements are accompanied by consulting, support and cooperation agreements, pursuant to which we are required to pay the licensors a fixed monthly amount, over a period stipulated in the applicable agreement, for their assistance in the continued research and development under the applicable license. All of our in-licensing agreements are terminable at-will by us upon prior written notice of 30 to 90 days. We are unable at this time to estimate the actual amount or timing of the costs we will incur in the future under these agreements. See “Item"Item 4. Information on the Company — Business Overview — In-Licensing Agreements.”"
 
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
A. Directors and Senior Management
 
The following table sets forth information for our executive officers and directors as of March 1, 2016.20, 2017.  Unless otherwise stated, the address for our directors and officers is c/o BioLineRx Ltd., 2 HaMa’ayanHaMa'ayan Street, Modi’inModi'in 7177871, Israel.
 
Name Age Position(s)
     
Kinneret Savitsky, Ph.D.                                          
Philip Serlin, CPA, MBA
 4956 Chief Executive Officer
     
Philip Serlin,Mali Zeevi, CPA MBA                                           5541 Chief Financial and Operating Officer
     
Arnon Aharon, M.D.
David Malek, MBA
 47Chief Medical Officer
David Malek, MBA                                          3839 Chief Business Officer
     
Merril Gersten, M.D., Ph.D
Ella Sorani, Ph.D.
 6449 Chief Scientific OfficerVice President Development
     
Abi Vainstein-Haras, M.D42Vice President Clinical and Medical Affairs
Aharon Schwartz, Ph.D.
 7374 Chairman of the Board
     
Michael J. Anghel, Ph.D.
 7677 Director
     
Nurit Benjamini, MBA
 4950 External Director
     
B.J. Bormann, Ph.D. 5758 Director
     
Raphael Hofstein, Ph.D.
 6667 Director
     
Avraham Molcho, M.D.
 5859 External Director
     
Sandra Panem, Ph.D. 6970 Director
 
Kinneret Savitsky, Ph.D., has served as our Chief Executive Officer since January 2010. Prior to becoming our Chief Executive Officer, from 2004 through 2005, she served as our Vice President Drug Development and from 2005 through 2010 she served as the General Manager of BIJ, our wholly-owned subsidiary. Prior to joining BIJ, Dr. Savitsky served as the Vice President of Biology of Compugen Ltd. (Nasdaq: CGEN), from 2000 to 2004, and held other senior positions at Compugen from 1997 through 2000. During 2010 and 2011, Dr. Savitsky served as a director on our Board of Directors; she currently serves as an external director at Evogene Ltd. (Nasdaq:EVGN, TASE:EVGN). Dr. Savitsky received her Ph.D. in human genetics from Tel Aviv University, a Master’s degree in human genetics from Tel Aviv University and a B.Sc. in biology from The Hebrew University of Jerusalem.
Philip Serlin, CPA, MBA, has served as our Chief Executive Officer since October 2016. From May 2009 to October 2016, Mr. Serlin served as our Chief Financial and Operating Officer since May 2009.Officer. From January 2008 to August 2008, Mr. Serlin served as the Chief Financial Officer and Chief Operating Officer of Kayote Networks Inc. From January 2006 to December 2007, he served as the Chief Financial Officer of Tescom Software Systems Testing Ltd. (TASE:TSCM), an IT services company publicly traded in both Tel Aviv and London. His background also includes senior positions at Chiaro Networks Ltd. and at Deloitte, where he was head of the SEC and U.S. Accounting Department at the National Office in Tel Aviv, as well as seven years at the SEC at its Washington, D.C., headquarters. Mr. Serlin currently serves as an external director at Vascular Biogenics Ltd. (Nasdaq:VBLT). Mr. Serlin is a CPA and holds a B.Sc. in accounting from Yeshiva University and a Master’sMaster's degree in economics and public policy from The George Washington University.
 
Arnon Aharon, M.D.Mali Zeevi , has served as our Chief MedicalFinancial Officer since JanuaryOctober 2016. From January 2014 through December 2015, Dr. AharonPrior to becoming Chief Financial Officer, Ms. Zeevi served as our Senior Director of Finance and Reporting beginning in 2011 and as our Director of Finance and Reporting beginning in 2009. Before joining BioLineRx, Ms. Zeevi was employed by Tescom Software Systems Testing Ltd., her last position there being Vice President of Medical Affairs. Prior to joining the Company, Dr. AharonFinance. Ms. Zeevi also served as Clinical Director, Medical Director or VPa CPA at Kesselman & Kesselman, a member firm of Development at several biotechnology companies, the most recent being Thrombotech Ltd. (from 2009 to 2012) and LycoRed Ltd. (from 2009 to 2013). In addition, Dr. Aharon was a partner in R&D Integrative Solutions, a firm that provides consulting services to the biotechnology industry and academic centers. Dr. AharonPricewaterhouseCoopers International Limited. She holds a B.Sc.B.A. in medical sciencesbusiness and an M.D.accountancy from Tel Aviv University.the College of Management Academic Studies in Israel.
 
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David Malek, MBA, has served as our Chief Business Officer since January 2016. From October 2011 through December 2015, Mr. Malek served as of Vice President of Business Development. Prior to joining the Company, from 2006 to 2011 Mr. Malek served at Sanofi-Aventis in a number of management positions, including Marketing, Finance and Business Development. Most recently, he served as Director of Oncology - New Products and Business Development. Mr. Malek received an MBA from the Tuck Business School at Dartmouth University and a B.A. in statistics and political science from the University of Haifa.
 
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Merril GerstenElla Sorani, Ph.D., M.D., Ph.D., has signed an agreement to serveserved as our Chief Scientific Officer beginningVice President Development since February 2017. Before joining BioLineRx, from 2000 through 2016, Dr. Sorani served in May 2016.a number of management positions in the global R&D division at Teva Pharmaceutical Industries Ltd. In her most recent position as Senior Director and Global Project Leader, Dr. Sorani led the development of one of Teva's leading innovative late stage compounds. Dr. Sorani holds a B.Sc. in chemistry and an M.Sc. and Ph.D. in pharmacology, all from Tel Aviv University.
Abi Vainstein-Haras, M.D., has served as our Vice President Clinical and Medical Affairs since January 2017. From June 2014 to January 2017, Dr. Vainstein-Haras served as our Senior Medical Director responsible for the clinical development of all our clinical phase projects. Prior to joining the Company, Dr. Gersten was a post-doctoral research fellow at the Department of Bioengineering of the University of California, San Diego, from 2012 to 2016.2014, she served as the Director and Clinical Program Leader for COPAXONE® at Teva, and from 2007 to 2012, she served in several medical positions in Innovative R&D at Teva. Dr. Gersten’s experience includes serving as Senior Director, Head of Experimental Medicine at Pfizer Global Research and Development in La Jolla, California, Medical Research Director at Agouron Pharmaceuticals, Medical Director at Lidak Pharmaceuticals and as a consultant assisting Dr. Jonas Salk at the Salk Institute for Biological Sciences in La Jolla. Dr. GerstenVainstein-Haras holds a Ph.D. in Bioinformatics and Systems Biology from the University of California, San Diego, an M.D. from Cornell University Medical Collegeof Buenos Aires and a B.A.is licensed to practice medicine in chemistry from Barnard College, Columbia University.
Israel.
 
Aharon Schwartz, Ph.D., has served as the Chairman of our Board of Directors since 2004. He served in a number of positions in Teva from 1975 through 2011, the most recent being Vice President, Head of Teva Innovative Ventures from 2008. Dr. Schwartz is currently chairman of the boards of numerous life science companies, including D-Pharm Ltd., BioCancell Ltd., CureTech Ltd. and Biomas Ltd. Dr. Schwartz also serves on the board of directors of Protalix Ltd. and as a consultant to Clal Biotechnology Industries Ltd. Dr. Schwartz received his Ph.D. in organic chemistry from the Weizmann Institute, his M.Sc. in organic chemistry from the Technion and a B.Sc. in chemistry and physics from the Hebrew University of Jerusalem. In addition, Dr. Schwartz recently receivedholds a second Ph.D. from the Hebrew University of Jerusalem in the history and philosophy of science.
 
Michael J. Anghel, Ph.D., has served on our Board of Directors since 2010 and on our Investment Monitoring Committee since 2010. From 1977 to 1999, he led the Discount Investment Corporation Ltd. (of the IDB Group) activities in the fields of technology and communications. Dr. Anghel was instrumental in founding Tevel, one of the first Israeli cable television operators and later in founding Cellcom Israel Ltd. (NYSE:CEL), the second Israeli cellular operator. In 1999, he founded CAP Ventures, an advanced technology investment company. From 2004 to 2005, Dr. Anghel served as CEO of DCM, the investment banking arm of the Israel Discount Bank (TASE:DSCT). He has been involved in various technology enterprises and has served on the Boards of Directors of various major Israeli corporations and financial institutions including Elron Electronic Industries Ltd. (TASE:ELRN), Elbit Systems Ltd. (Nasdaq:ESLT, TASE:ESLT), Nice Systems (Nasdaq:NICE), Gilat Satellite Networks Ltd. (Nasdaq:GILT), American Israeli Paper Mills (now Hadera Paper Ltd. (AMEX:AIP)), Maalot (the Israeli affiliate of Standard and Poor’s)Poor's) and Hapoalim Capital Markets. He currently serves on the Boards of Directors of Partner Communications Company, Ltd. (Nasdaq:PTNR, TASE:PTNR), Syneron Medical Ltd. (Nasdaq:ELOS), Evogene Ltd. (Nasdaq:EVGN, TASE:EVGN), Dan Hotels Ltd. (TASE:DANH), Orbotech Ltd. (Nasdaq:ORBK, GSM:ORBK) and the Strauss Group Ltd. (TASE:STRS). Until recently, he was also the chairman of the Center for Educational Technology. Prior to launching his business career, Dr. Anghel served as a full-time member of the Recanati Graduate School of Business Administration of the Tel Aviv University, where he taught finance and corporate strategy. He currently serves as Chairman of the Tel Aviv University’sUniversity's Executive Program. Dr. Anghel holds a B.A. (Economics) from the Hebrew University in Jerusalem and an MBA. and Ph.D. (Finance) from Columbia University, New York.
 
Nurit Benjamini, MBA, has served as an external director on our Board of Directors and as the chairperson of our Audit Committee of our Board of Directors since 2010. In addition, Ms. Benjamini has served on our Investment Monitoring Committee since 2010 and on our Compensation Committee since 2012. Since December 2013, Ms. Benjamini has served as the Chief Financial Officer of TabTale Ltd. a company that develops, designs and manufactures interactive digital content to be displayed on electronic devices and websites.devices. From 2011 to 2013, Ms. Benjamini served as the Chief Financial Officer of WixpressWix.com Ltd.; from 2007 through 2011, she served as the Chief Financial Officer of CopperGate Communications Ltd.; and from 2000 through 2007, she served as the Chief Financial Officer of Compugen Ltd. (Nasdaq: CGEN). Prior to that, from 1993 through 1998, Ms. Benjamini served as the Chief Financial Officer of Aladdin Knowledge Systems Ltd., and from 1998 through 2000, as the Chief Financial Officer of Phone-Or Ltd. Ms. Benjamini serves on the board of directors, and as chairperson of the audit committee, of Allot Communications Ltd. (Nasdaq:ALLT, TASE:ALLT) and of RedHill Biopharma Ltd. (NASDAQ:RDHL, TASE:RDHL). Ms. Benjamini holds a B.A. in economics and business and an M.B.A. in finance, both from Bar Ilan University, Israel.
 
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BJ Bormann, Ph.D., has served on our Board of Directors since August 2013. Dr. Bormann currently serves as the CEO of Supportive Therapeutics, LLC, a Boston based company that is developing two molecules for use in the supportive care of oncology patients. In the past several years Dr. Bormann has held executive positions in several biotechnology companies including NanoMedical Systems (Austen, Texas), Harbour Antibodies (Rotterdam, The Netherlands) and Pivot Pharmaceuticals (PVTF: OTC listed). Prior to these engagements, Dr. Bormann was Senior Vice President responsible for world-wide alliances, licensing and business development at Boehringer Ingelheim Pharmaceuticals, Inc. from 2007 to 2013. From 1996 to 2007, she served in a number of positions at Pfizer, Inc., the last one being Vice President of Pfizer Global Research and Development and world-wide Head of Strategic Alliances. Dr. Bormann serves on the board of directors of various companies, including Supportive Therapeutics, LLC, and the Institute for Pediatric Innovation. Dr. Bormann received her Ph.D. in biomedical science from the University of Connecticut Health Center and her B.Sc. from Fairfield University in biology. Dr. Bormann completed postdoctoral training at Yale Medical School in the department of pathology.
 
Raphael Hofstein, Ph.D., has served on our Board of Directors since 2003, our Audit Committee since 2007 and our Compensation Committee since 2012. Dr. Hofstein has served as the President and Chief Executive Officer of MaRS Innovation (a commercialization company for 15 of Toronto's universities, institutions and research institutes plus the University of Toronto and 10 affiliated hospitals)MaRS Discovery District) since June 2009. From 2000 through June 2009, Dr. Hofstein was the President and Chief Executive Officer of Hadasit Medical Research Services and Development Ltd., or Hadasit, the technology transfer company of Hadassah University Hospitals. He has served as chairman of the board of directors of Hadasit since 2006. Prior to joining Hadasit, Dr. Hofstein was the President of Mindsense Biosystems Ltd. and the Business Unit Director of Ecogen Inc. and has held a variety of other positions, including manager of R&D and chief of immunochemistry at the International Genetic Science Partnership. Dr. Hofstein serves on the board of directors of numerous companies, including Hadasit Bio-Holdings Ltd. (TASE:HDST). Dr. Hofstein received his Ph.D. and M.Sc. from the Weizmann Institute of Science, and his B.Sc. in chemistry and physics from the Hebrew University in Jerusalem. Dr. Hofstein completed postdoctoral training at Harvard Medical School in both the departments of biological chemistry and neurobiology.
 
Avraham Molcho, M.D., MBA, has served as an external director on our Board of Directors and on our Audit Committee since 2010. In addition, Dr. Molcho has served on our Compensation Committee since 2012. Dr. Molcho is the Founder and Chairman of BiologicBiolojic Design Ltd., a technology platform that encourages human antibody discoveries, and is a venture partner at Forbion Capital Partners, a Dutch life sciences venture capital firm. In 2012, he became the co-founder, CEO and director of Ayana Pharma Ltd. (formerly DoxoCure), a privately-held company engaged in the manufacturing of liposome-based therapeutics. He currently serves on the board of directors of Circulite Inc. and NovoGI. From 2006 through 2008, Dr. Molcho served as the Chief Executive Officer and Chairman of Neovasc Medical, a privately-held Israeli medical device company. From 2001 through 2006, Dr. Molcho was a managing director and the head of life sciences of Giza Venture Capital and, in that capacity, was involved in the founding of our company. He was also the Deputy Director General of Abarbanel Mental Health Center, the largest acute psychiatric hospital in Israel, from 1999 to 2001. Dr. Molcho holds an M.D. from Tel-Aviv University School of Medicine and an MBA from Tel-Aviv University Recanati Business School.
 
Sandra Panem, Ph.D., has been a member of our Board since February 2014. She is currently a managing partner at Cross Atlantic Partners, which she joined in 2000. She is also co-founder and President of NeuroNetworks Fund, a not-for-profit venture capital fund focusing on epilepsy, schizophrenia and autism. From 1994 to 1999, Dr. Panem was President of Vector Fund Management, the then asset management affiliate of Vector Securities International. Prior thereto, Dr. Panem served as Vice President and Portfolio Manager for the Oppenheimer Global BioTech Fund, a mutual fund that invested in public and private biotechnology companies. Previously, she was Vice President at Salomon Brothers Venture Capital, a fund focused on early and later-stage life sciences and technology investments. Dr. Panem was also a Science and Public Policy Fellow in economic studies at the Brookings Institution, and an Assistant Professor of Pathology at the University of Chicago. Dr. Panem currently serves on the boards of directors of Acorda Therapeutics, Inc. (NASDAQ:ACOR), and Labcyte, Inc. and GQLife Sciences, Inc. Previously, Dr. Panem served on numerous boards of public and private companies, including Martek Biosciences (Nasdaq:MATK), IBAH Pharmaceuticals (Nasdaq:IBAH), Confluent Surgical and Molecular Informatics. She received a B.S. in biochemistry and a Ph.D. in microbiology from the University of Chicago.
 
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B. Compensation
 
Employment Agreements
 
We have entered into written employment agreements with each of our executive officers, the terms of which are consistent with the provisions of the Executiveof the Company's Compensation Policy of the Companyfor Executives and Directors, or Compensation Policy, which was approved by our shareholders in December 2013 (the “Compensation Policy”).July 2016. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law.
 
In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them to the fullest extent permitted by law to the extent that these liabilities are not covered by directors’directors' and officers’officers' insurance. The terms of these agreements and of our directors’directors' and officers’officers' insurance are consistent with the provisions of the Compensation Policy.
 
Compensation of Directors and Senior Management
 
The following table presents in the aggregate all compensation we paid to all of our directors and senior management as a group for the year ended December 31, 2015.2016. The table does not include any amounts we paid to reimburse any of such persons for costs incurred in providing us with services during this period.
 
  
Salaries, fees, commissions and bonuses (USD)
  
Pension, retirement, options and other similar benefits (USD)
 
All directors and senior management as a group, consisting of 12 persons  1,292,000   784,000 
  
Salaries, fees,
commissions and
bonuses
  
Pension, retirement,
options and other
similar benefits
 
  (USD in thousands) 
All directors and senior management as a group, consisting of 13 persons  1,456,285   772,672 
 
In accordance with the Companies Law, the following table presents information regarding compensation actually received by our five most highly paid executive officers during the year ended December 31, 2015.2016.
 
Name and Position Salary  
Social benefits(1)
  Bonuses  
Value of Options Granted(2)
  
All Other
Compensation(3)
  Total 
  (in thousands of U.S. dollars) 
Kinneret Savitsky, Chief Executive Officer  232   41   94   183   19   569 
Philip Serlin, Chief Financial and Operating Officer  170   47   75   71   22   385 
David Malek, Vice President of Business Development  143   37   14   70   19   283 
Leah Klapper, Chief Scientific Officer [until December 31, 2015]  156   22   -   72   93   343 
Arnon Aharon, Vice President of Medical Affairs  139   31   31   46   15   263 
Name and PositionSalary
Social benefits(1)
Bonuses
Value of Options Granted(2)
All Other
Compensation(3)
Total
 (in thousands of U.S. dollars)
Kinneret Savitsky,
Chief Executive Officer (until October 9, 2016)
18439402494381
Philip Serlin, Chief Executive Officer (beginning October 10, 2016)1885011610524483
David Malek, Chief Business Officer15136939017387
Arnon Aharon, Vice President of Medical Affairs (until November 30, 2016)12941−7129270
Mali Zeevi, Chief Financial Officer (beginning October 10, 2016)11333215319239
 
(1)“"Social Benefits”Benefits" include payments to the National Insurance Institute, advanced education funds, managers’managers' insurance and pension funds; vacation pay; and recuperation pay as mandated by Israeli law.

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(2)Consists of amounts recognized as share-based compensation expense on the Company’sCompany's statement of comprehensive loss for the year ended December 31, 2015.2016.

(3)
“"All Other Compensation”Compensation" includesautomobile-related expenses pursuant to the Company’sCompany's automobile leasing program, telephone, basic health insurance and holiday presents. In the case of Leah Klapper, it also includes a severance payment.
 
For additional information concerning our equity compensation plan, see “—"— Beneficial Ownership of Executive Officers and Directors — Equity Compensation Plan.”
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"
 
C. Board Practices
 
Board of Directors
 
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.
 
Under the Companies Law, we are not required to have a majority of independent directors. We are required to appoint at least two external directors.directors, unless we qualify as an Eligible Company (as defined below) and opt to follow an exemption provided under the Amendment to the Relief Regulations (as defined below). See “—"— External Directors.”"
 
According to our Articles of Association, our Board of Directors must consist of at least five and not more than 10 directors, including external directors. Currently, our Board of Directors consists of seven directors, including two external directors as required by the Companies Law. Pursuant to our Articles of Association, other than the external directors, for whom special election requirements apply under the Companies Law (unless the company is an Eligible Company and opted to follow the exemption provided under the Amendment to the Relief Regulations regarding appointment of external directors and composition of the audit and compensation committees) as detailed below, our directors are elected at a general or special meeting of our shareholders and serve on the Board of Directors until they are removed by the majority of our shareholders at a general or special meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our Articles of Association. In addition, our Articles of Association allow our Board of Directors to appoint directors, other than external directors, to fill vacancies on the Board of Directors to serve until the next general meeting or special meeting, or earlier if required by our Articles of Association or applicable law. We have held elections for each of our non-external directors at each annual meeting of our shareholders since our initial public offering in Israel. External directors are elected for an initial term of three years and may be elected, under certain conditions, to two additional terms, although the term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including the NASDAQ Capital Market,Nasdaq, may be further extended under certain conditions. External directors may be removed from office only pursuant to the terms of the Companies Law. Our last annual meeting of shareholders was held in March 2015.July 2016. For additional information concerning external directors, see “—"— External Directors.”"
 
The Companies Law provides that an Israeli company may, under certain circumstances, exculpate an office holder from liability with respect to a breach of his duty of care toward the company if appropriate provisions allowing such exculpation are included in its articles of association. See “—"— Exculpation, insurance and indemnification of office holders.”" Our Articles of Association contain such provisions, and we have entered into agreements with each of our office holders undertaking to indemnify them to the fullest extent permitted by law, including with respect to liabilities resulting from this offering to the extent that these liabilities are not covered by insurance.
 
In accordance with the exemption available to foreign private issuers under applicable Nasdaq rules, we do not follow the requirements of the Nasdaq rules with regard to the process of nominating directors, and instead follow Israeli law and practice, in accordance with which our Board of Directors is authorized to recommend to our shareholders director nominees for election, and, in some circumstances, our shareholders may nominate candidates for election as directors by the shareholders’shareholders' general meeting.
 
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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 listed company and initiate debate regarding the manner in which financial information is presented. In determining the number of directors required to have such expertise, a company’scompany's 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 director with the requisite financial and accounting expertise. Ms. Nurit Benjamini and Dr. Michael J. Anghel have such financial and accounting expertise.
 
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The term office holder is defined in the Companies Law as a general manager, chief business manager, deputy general manager, vice general manager, executive vice president, vice president, or any other person assuming the responsibilities of any of the foregoing positions, without regard to such person’sperson's title, or a director or any other manager directly subordinate to the general manager. Each person listed above under “Executive"Executive Officers and Directors”Directors" is an office holder under the Companies Law.
 
Chairman of the Board. Under the Companies Law, a person cannot hold the role of both chairman of the board of directors and chief executive officer of a company, without shareholder approval by special majority and for periods of time not exceeding three years each. Furthermore, a person who is directly or indirectly subordinate to a chief executive officer of a company may not serve as the chairman of the board of directors of that company and the chairman of the board of directors may not otherwise serve in any other capacity in a company or in a subsidiary of that company other than as the chairman of the board of directors of such a subsidiary.
 
External Directors
 
Under Israeli law, the boards of directors of companies whose shares are publicly traded are required to include at least two members who qualify as external directors. Each of our current external directors, Dr. Avraham Molcho and Ms. Nurit Benjamini, was elected as an external director by our shareholders in July 2010. Their initialsecond terms expired in July 2013,2016, at which time they were each re-elected by the shareholders of the Company for a secondthird three-year term as external directors.
 
External directors must be elected by majority vote of the shares present and voting at a shareholders meeting, provided that either:
 
the majority of the shares that are voted at the meeting, including at least a majority of the shares held by non-controlling shareholders who do not have a personal interest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) who voted at the meeting, excluding abstentions, vote in favor of the election of the external director; or
 
the total number of shares held by non-controlling, disinterested shareholders (as described in the preceding bullet point) that are voted against the election of the external director does not exceed 2% of the aggregate voting rights in the company.
 
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After an initial term of three years, external directors may be re-elected to serve in that capacity for up to two additional terms of three years provided that either (a) the board of directors has recommended such re-election and such re-election is approved by a majority vote at a shareholders’shareholders' meeting, subject to the conditions described above for election of external directors, (b) (1) the re-election has been recommended by one or more shareholders holding at least 1% of the company’scompany's voting rights and is approved by a majority of non-controlling, disinterested shareholders who hold among them at least 2% of the company’scompany's voting rights; and (2) pursuant to Amendment 22 of the Companies Law, effective as of January 2014, the external director who has been nominated in such fashion by the shareholders is not a linked or competing shareholder, and does not have or has not had, on or within the two years preceding the date of such person’sperson's appointment to serve as another term as external director, any affiliation with a linked or competing shareholder, or (c) pursuant to Amendment 26 to the Companies Law, effective as of November 2014, the external director has proposed himself for reappointment and the reappointment was approved by the majority described in (b)(1) above. The term “linked"linked or competing shareholder”shareholder" means the shareholder(s) who nominated the external director for reappointment or a material shareholder of the company holding more than 5% of the shares in the company, provided that at the time of the reappointment, such shareholder(s) of the company, the controlling shareholder of such shareholder(s) of the company, or a company under such shareholder(s) of the company’scompany's control, has a business relationship with the company or are competitors of the company; the Israeli Minister of Justice, in consultation with the Israeli Securities Authority, or ISA, may determine that certain matters will not constitute a business relationship or competition with the company. The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including the Nasdaq, Capital Market, may be extended beyond the initial three terms permitted under the Companies Law indefinitely in increments of additional three-year terms, provided in each case that the following conditions are met: (a) the audit committee and the board of directors confirm that, in light of the external director’sdirector's expertise and special contribution to the work of the board of directors and its committees, the re-election for such additional period(s) is beneficial to the company; (b) the re-election is approved by the shareholders by a special majority required for the re-election of external directors; and (c) the term of office of the external director, and the considerations of the audit committee and the Boardboard of Directorsdirectors in deciding to recommend re-election of the external director for such additional term of office, are presented to the shareholders prior to the vote on re-election. External directors may be removed from office by the same percentage of shareholders required for their election or by a court, in each case, only under limited circumstances, including ceasing to meet the statutory qualification for appointment or violating the duty of loyalty to the company. If an external directorship becomes vacant and there are less than two external directors on the board of directors at the time, then the board of directors is required under the Companies Law to call a shareholders’shareholders' meeting immediately to appoint a replacement external director. Each committee of the board of directors that exercises the powers of the board of directors must include at least one external director.director (unless the company is an Eligible Company and opted to follow the exemption provided under the Amendment to the Relief Regulations regarding appointment of external directors and composition of the audit and compensation committees). Under the Companies Law external directors of a company are prohibited from receiving, directly or indirectly, any compensation from the company other than for their services as external directors pursuant to the provisions and limitations set forth in regulations promulgated under the Companies Law.
 
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A person may not serve as an external director if (a) the person is a relative of a controlling shareholder of a company or (b) at the date of the person’sperson's appointment or within the prior two years, the person, the person’sperson's relatives, entities under the person’sperson's control, the person’sperson's partner, the person’sperson's employer, or anyone to whom that person is subordinate, whether directly or indirectly, have or have had any affiliation with (1) a company, (2) a company’scompany's controlling shareholder at the time of such person’sperson's appointment or (3) any entity that is either controlled by the company or under common control with the company at the time of such appointment or during the prior two years. If a company does not have a controlling shareholder or a shareholder who holds company shares entitling him to vote at least 25% of the votes in a shareholders meeting, then a person may not serve as an external director if, such person or such person’sperson's relative, partner, employer or any entity under the person’sperson's control, has or had, on or within the two years preceding the date of the person’sperson's appointment to serve as external director, any affiliation with the chairman of the company’scompany's board, chief executive officer, a substantial shareholder who holds at least 5% of the issued and outstanding shares of the company or voting rights which entitle him to vote at least 5% of the votes in a shareholders meeting, or the chief financial officer of the company.
 
The term “affiliation”"affiliation" includes:
 
an employment relationship;
 
a business or professional relationship even if not maintained on a regular basis (excluding insignificant relationships);
 
control; and
 
service as an office holder, excluding service as a director in a private company prior to the first offering of its shares to the public if such director was appointed as a director of the private company in order to serve as an external director following the public offering.
 
The term “relative”"relative" is defined as a spouse, sibling, parent, grandparent or descendant; a spouse’sspouse's sibling, parent or descendant; and the spouse of each of such persons.
 
In addition, no person may serve as an external director if that person’sperson's professional activities create, or may create, a conflict of interest with that person’sperson's responsibilities as a director or otherwise interfere with that person’sperson's ability to serve as an external director or if the person is an employee of the Israel Securities Authority or of an Israeli stock exchange. Furthermore, a person may not continue to serve as an external director if he or she received direct or indirect compensation from us for his or her role as a director. This prohibition does not apply to compensation paid or given for service as an external director in accordance with regulations promulgated under the Companies Law or amounts paid pursuant to indemnification and/or exculpation contracts or commitments and insurance coverage.
 
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Following the termination of an external director’sdirector's service on a board of directors, such former external director and his or her spouse and children may not be provided a direct or indirect benefit by the company, its controlling shareholder or any entity under its controlling shareholder’sshareholder's control. This includes engagement to serve as an executive officer or director of the company or a company controlled by its controlling shareholder or employment by, or providing services to, any such company for consideration, either directly or indirectly, including through a corporation controlled by the former external director, for a period of two years (and for a period of one year with respect to relatives of the former external director).
 
If at the time an external director is appointed all members of the board of directors are of the same gender, the external director must be of the other gender. A director of one company may not be appointed as an external director of another company if a director of the other company is acting as an external director of the first company at such time.
 
The Companies Law provides that an external director must meet certain professional qualifications or have financial and accounting expertise and that at least one external director must have financial and accounting expertise. However, if at least one of our other directors (1) meets the independence requirements of the Exchange Act, (2) meets the standards of the Nasdaq Marketplace Rules for membership on the audit committee and (3) has financial and accounting expertise as defined in the Companies Law and applicable regulations, then neither of our external directors is required to possess financial and accounting expertise as long as both possess other requisite professional qualifications. Our Board of Directors is required to determine whether a director possesses financial and accounting expertise by examining whether, due to the director’sdirector's education, experience and qualifications, the director is highly proficient and knowledgeable with regard to business-accounting issues and financial statements, to the extent that the director is able to engage in a discussion concerning the presentation of financial information in the company’scompany's financial statements, among others. Furthermore, our Board of Directors is also required to take into consideration a director’sdirector's education, experience and knowledge in any of the following: (1) accounting issues and accounting control issues characteristic to the segment in which the company operates and to companies of the size and complexity of the company, (2) the functions of the external auditor and the obligations imposed on such auditor, and (3) preparation of financial reports and their approval in accordance with the Companies Law and the Israeli Securities Law, 5728-1968 (the “Israeli"Israeli Securities Law”Law").The regulations define a director with the requisite professional qualifications as a director who satisfies one of the following requirements: (1) the director holds an academic degree in either economics, business administration, accounting, law or public administration; (2) the director either holds an academic degree in any other field or has completed another form of higher education in the company’scompany's primary field of business or in an area which is relevant to the office of an external director; or (3) the director has at least five years of experience serving in any one of the following, or at least five years of cumulative experience serving in two or more of the following capacities: (1) a senior business management position in a corporation with a substantial scope of business; (2) a senior position in the company’scompany's primary field of business; or (3) a senior position in public administration. Our Board of Directors has determined that Nurit Benjamini possesses “accounting"accounting and financial”financial" expertise, and that both of our external directors possess the requisite professional qualifications.
 
In addition, a recent amendment to the Companies Regulations (Relief for Companies the Shares of which are Registered for Trading Outside of Israel) – 2000, (the "Amendment to the Relief Regulations"), provides an exemption for companies the shares of which are listed for trading on specified exchanges outside of Israel, including the Nasdaq, provided that: (i) such company does not have a controlling shareholder; and (ii) the company complies with the requirements of the foreign securities laws and stock exchange regulations applicable to companies which are incorporated under the laws of such foreign countries with regard to appointing independent directors and composition of the audit and compensation committees (collectively, "Eligible Companies"). Any Eligible Company which opts to comply with the applicable foreign securities laws and stock exchange regulations, shall be exempt from the following rules under the Companies Law: (i) the requirement to have at least two external directors appointed to serve in a public company; (ii) that at least one of the external directors is required to have financial and accounting expertise and the rest are required to have professional expertise; (iii) that the external directors shall be appointed by the general meeting and subject to certain voting thresholds; (iv) that if all of the board members who are not controlling shareholders are of one gender, the appointed external director shall be of the other gender; (v) that all of the board committees which are empowered and authorized to exercise any of the board's authorities must consist of at least one external director. The exemption from these rules under the Amendment to the Relief Regulations requires that the board be composed of both male and female directors.
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Audit Committee
 
Under the Companies Law, the board of directors of a public company must appoint an audit committee. The audit committee must be comprised of at least three directors, including all of the external directors, and one of the external directors must serve as chairperson of the committee. The audit committee of a company may not include:
 
the chairman of the company’scompany's board of directors;
 
a controlling shareholder or a relative of a controlling shareholder of the company (as each such term is defined in the Companies Law); or
 
any director employed by the company, by a controlling shareholder of the company or by any other entity controlled by a controlling shareholder of the company, or any director who provides services to the company, to a controlling shareholder of the company or to any other entity controlled by a controlling shareholder of the company on a regular basis (other than as a member of the board of directors), or any other director whose main source of income derives from a controlling shareholder of the company.
 
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The term “controlling shareholder”"controlling shareholder" is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its general manager.
 
A majority of the total number of then-serving members of an audit committee shall constitute a quorum for the transaction of business at the audit committee meetings, provided, that the majority of the members present at such meeting are unaffiliated directors and at least one of such members is an external director.
 
The audit committee of a publicly-traded company must consist of a majority of unaffiliated directors. An “unaffiliated director”"unaffiliated director" is defined as either an external director or as a director who meets the following criteria:
 
he or she meets the qualifications for being appointed as an external director, except for (i) the requirement that the director be an Israeli resident (which does not apply to companies such as ours whose securities have been offered outside of Israel or are listed outside of Israel) and (ii) the requirement for accounting and financial expertise or professional qualifications; and
 
he or she has not served as a director of the company for a period exceeding nine consecutive years. For this purpose, a break of less than two years in the service shall not be deemed to interrupt the continuation of the service.
 
Any person who is not eligible to serve on the audit committee is further restricted from participating in its meetings and votes, unless the chairman of the audit committee determines that such person’sperson's presence is necessary in order to present a certain matter, provided however, that company employees who are not controlling shareholders or relatives of such shareholders may be present in the meetings but not for the actual votes, and likewise, company counsel or company secretary who are not controlling shareholders or relatives of such shareholders may be present in the meetings and for the decisions if such presence is requested by the audit committee.
 
The members of our Audit Committee are Nurit Benjamini (Chairman)(Chairperson), Dr. Avraham Molcho and Dr. Raphael Hofstein. Pursuant to the Marketplace Rules of the Nasdaq Stock Market, our Board of Directors may appoint one director to our Audit Committee who (1) is not an Independent Director as defined in Nasdaq Marketplace Rule 5605(a)(2), (2) meets the criteria set forth in Section 10A(m)(3) under the Exchange Act, and (3) is not one of our current officers or employees or “family"family member,”" as defined in Nasdaq Marketplace Rule 5605(a)(2), of an officer or employee, if our Board of Directors, under exceptional and limited circumstances, determines that the appointment is in our best interests and the best interest of our shareholders, and our Board of Directors discloses, in our next annual report subsequent to the determination, the nature of the relationship and the reasons for that determination.
 
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Our Board of Directors has determined that Nurit Benjamini (Chairman) qualifies as an audit committee financial expert as defined by rules of the SEC.
 
In November 2012, our Board of Directors adopted an audit committee charter that added to the responsibilities of our Audit Committee under the Companies Law, setting forth the responsibilities of the audit committee consistent with the rules of the SEC and the Marketplace Rules of the Nasdaq Stock Market, including the following:
 
oversight of the company’scompany's independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of the our independent registered public accounting firm to our Board of Directors in accordance with Israeli law;
 
recommending the engagement or termination of the office of the our internal auditor; and
 
reviewing and pre-approving the terms of audit and non-audit services provided by our independent auditors.
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Our Audit Committee provides assistance to our Board of Directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our Audit Committee also oversees the audit efforts of our independent accountants and takes those actions it deems necessary to satisfy itself that the accountants are independent of management. Pursuant to the Companies Law, the audit committee of a company shall be responsible for: (i) determining whether there are delinquencies in the business management practices of a company, including in consultation with an internal auditor or independent auditor, and making recommendations to the company’scompany's board of directors to improve such practices; (ii) determining whether to approve certain related party transactions (including compensation of office holders or transactions in which an office holder has a personal interest and whether such transaction is material or otherwise an extraordinary transaction); (iii) where the company’scompany's board of directors approves the working plan of the internal auditor, examining such working plan before its submission to the board and proposing amendments thereto; (iv) examining internal controls and the internal auditor’sauditor's performance, including whether the internal auditor has sufficient resources and tools to dispose of his responsibilities (taking into consideration the special needs and size of a company); (v) examining the scope of the auditor’sauditor's work and compensation and submitting its recommendation with respect thereto to the corporate body considering the appointment thereof (either the board or the general meeting of shareholders); and (vi) establishing procedures for the handling of employees’employees' complaints as to the management of the business and the protection to be provided to such employees. Pursuant to Amendment 22, effective as of January 10, 2014, the responsibilities of the audit committee under the Companies Law also include the following matters: (i) the establishment of procedures to be followed in respect of related party transactions with a controlling shareholder (where such are not extraordinary transactions), which may include, where applicable, the establishment of a competitive process for such transaction, under the supervision of the audit committee, or individual, or other committee or body selected by the audit committee, in accordance with criteria determined by the audit committee; and (ii) to determine procedures for approving certain related party transactions with a controlling shareholder, which having been determined by the audit committee not to be extraordinary transactions, were also determined by the audit committee not to be negligible transactions. Under the Companies Law, the approval of the audit committee is required for specified actions and transactions with office holders and controlling shareholders. See “—"— Approval of Related Party Transactions under Israeli Law.”"
 
Pursuant to the Amendment to the Relief Regulations, companies the shares of which are listed for trading on specified exchanges outside of Israel, including the Nasdaq, and which qualify as Eligible Companies, are exempt from the following rules regarding the audit committee under the Companies Law: (i) the committee shall be comprised of at least three members, who shall include all of the external directors, and the majority of the members shall be independent; (ii) certain persons may not be members of the audit committee; (iii) the controlling shareholder or his relatives shall not be members of the audit committee; (iv) the chairman of the audit committee shall be an external director; (v) a person who is prohibited from being a member of the audit committee shall not be present at the committee's meetings; (vi) if the committee also serves as a financial reports committee, the rules applicable to the financial reports committee shall apply; and (vii) the legal quorum shall be the majority of the committee members, provided that the majority of directors present are independent, at least one of whom is an external director.
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Compensation Committee
 
In December 2012, Amendment 20 to the Companies Law, or Amendment 20, went into effect. Amendment 20 requires, among other things, that the board of directors of Israeli publicly-traded companies appoint a compensation committee comprised of at least three members, including all of the external directors of a company, and one of the external directors must serve as chairman of the committee. Such compensation committee may not include:
 
the chairman of the company’scompany's board of directors;
 
a controlling shareholder or a relative of a controlling shareholder of the company (as each such term is defined in the Companies Law); or
 
any director employed by the company, by a controlling shareholder of the company or by any other entity controlled by a controlling shareholder of the company, or any director who provides services to the company on a permanent basis, to a controlling shareholder of the company or to any other entity controlled by a controlling shareholder of the company on a regular basis (other than as a member of the board of directors), or any other director whose main source of income derives from a controlling shareholder of the company.
 
The term “controlling shareholder”"controlling shareholder" is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its general manager.
 
A majority of the total number of then-serving members of a compensation committee shall constitute a quorum for the transaction of business at the compensation committee meetings.  The compensation committee of a publicly-traded company must consist of a majority of external directors.
 
Pursuant to the Amendment to the Relief Regulations, companies the shares of which are listed for trading on specified exchanges outside of Israel, including the Nasdaq and qualify as Eligible Companies are exempt from the following rules regarding the Compensation Committee under the Companies Law: (i) the board of a public company is required to appoint a compensation committee; (ii) the compensation committee shall be comprised of at least three members, all of the external directors shall be members and shall constitute the majority of its members and the rest of the members shall be members whose terms of service are as required under the Companies Law.
Any person who is not eligible to serve on the compensation committee is further restricted from participating in its meetings and votes, unless the chairman of the compensation committee determines that such person’sperson's presence is necessary in order to present a certain matter, provided however, that company employees who are not controlling shareholders or relatives of such shareholders may be present in the meetings but not for the actual votes, and likewise, company counsel and secretary who are not controlling shareholders or relatives of such shareholders may be present in the meetings and for the decisions if such presence is requested by the compensation committee.
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The responsibilities of the compensation committee include the following:
 
to make recommendations to the board of directors as to a compensation policy for officers, as well as to recommend once every three years to extend the compensation policy, subject to receipt of the required corporate approvals;
 
to make recommendations to the board of directors as to any updates to the compensation policy which may be required;
 
to review the implementation of the compensation policy by the company;
 
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to approve transactions relating to terms of office and employment of certain company office holders, which require the approval of the compensation committee pursuant to the Companies Law;
 
to exempt, under certain circumstances, a transaction relating to terms of office and employment from the requirement of approval of the shareholders meeting; and
 
In November 2012, in order to comply with the requirements of Amendment 20, our Board of Directors established a Compensation Committee, comprised of Nurit Benjamini and Dr. Avraham Molcho, our two external directors, and Dr. Raphael Hofstein. Nurit Benjamini serves as the Chairperson of our Compensation Committee.
 
Under Amendment 20, a board of directors of an Israeli publicly-traded company, following the recommendation of the compensation committee, is required to establish a compensation policy, to be approved by the shareholders of the company, and pursuant to which the terms of office and compensation of the company’scompany's officer holders will be decided.
 
A company’scompany's compensation policy shall be determined based on, and take into account, certain parameters set forth in Section 267B(a) and Parts A and B of Annex 1A of the Companies Law, which were legislated as part of Amendment 20.
 
The board of directors of a publicly-traded company is obligated to adopt a compensation policy after considering the recommendations of the compensation committee. The final adoption of the compensation policy is subject to the approval of the shareholders of the company, which such approval is subject to certain special majority requirements, as set forth in Amendment 20, pursuant to which one of the following must be met:
 
(i)the majority of the votes includes at least a majority of all the votes of shareholders who are not controlling shareholders of the company or who do not have a personal interest in the compensation policy and participating in the vote; abstentions shall not be included in the total of the votes of the aforesaid shareholders; or
 
(ii)
the total of opposing votes from among the shareholders described in subsection (i) above does not exceed 2% of all the voting rights in the company.
 
Nonetheless, even if the shareholders of the company do not approve the compensation policy, the board of directors of a company may approve the compensation policy, provided that the compensation committee and, thereafter, the board of directors resolved, based on detailed, documented, reasons and after a second review of the compensation policy, that the approval of the compensation policy is for the benefit of the company.
 
In December 2013, a general meeting of our shareholders approved the Executive Compensation Policy which had been recommended by our Compensation Committee and approved by our Board of Directors. The term of this initial policy was for three years from the date of its approval, or until December 2016. In July 2016, a general meeting of our shareholders approved an extension and revision of the initial policy, which has been renamed the Compensation Policy for Executives and Directors, or Compensation Policy. The Compensation Policy governs the terms of compensation for our directors and office holders, in accordance with the requirements of the Companies Law.  Below is a summary discussion of the provisions of the Compensation Policy:
 
The Compensation Policy includes, among other issues prescribed by the Companies Law, a framework for establishing the terms of office and employment of our office holders, a recoupment policy and guidelines with respect to the structure of the variable pay of our office holders.
 
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Compensation is considered performance-based to the extent that a direct link is maintained between compensation and performance and that rewards are consistent with long-term stakeholder value creation.
At the company level, we analyze the overall compensation trends of the market in order to make informed decisions about our compensation approach. With specific reference to our office holders, we have used a benchmarking analysis based on an internally developed list of publicly traded companies that represent, as closely as possible, our peer group, and as further set out in the Compensation Policy.
 
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According to the Compensation Policy, the fixed components of our office holder compensation will be examined at least every two years and compared to the market. Our Board of Directors may change the amount of the fixed components for one or more of our office holders after receiving a recommendation for such from our compensation committee. The change may be made if our Board of Directors concludes that such a change would promote our goals, operating plans and objectives and after taking into account the business and legal implications of the proposed change and its impact on our internal labor relations.  Any such changes are subject to formal approval by the relevant parties.  The fixed component of compensation remunerates the specific role covered and scope of responsibilities. It also reflects the experience and skills required for each position, as well as the level of excellence demonstrated and the overall quality of the office holder’sholder's contribution to our business. The weighting of fixed compensation within the overall package is designed to reduce the risk of excessively risk-oriented behavior, to discourage initiatives focused on short-term results which might jeopardize our mid and long-term business sustainability and value creation, and to allow us a flexible compensation approach.  We offer our employees benefit plans based on common practice in the local labor market of the office holder.
 
As for the variable components of compensation, the types and amounts of such components will be determined with an aim at creating maximum matching between the Compensation Policy and our operating plan and objectives. Variable components of compensation will be primarily based on measurable long-term criteria. Nevertheless, we are allowed to base a non-material part of variable compensation on qualitative non-measurable criteria which focus on the office holder’sholder's contribution to the Company.  Our variable compensation aims to remunerate for achievements by directly linking pay to performance outcomes in the short and long term. To strengthen the alignment of shareholder interests and the interests of management and employees, performance measurements reflect our actual results overall, as well as of the individual office holder. To support the aforementioned principles, we provide two types of variable compensation: Short-termshort-term - annual bonus; and Long-termlong-term - stock option plans.
 
Annual bonuses will be based on achievement of the business goals set out in our annual operating plan approved by the board of directors at the beginning of each year. The operating plan encompasses all aspects of our activities and as such sets the business targets for each member of the management team. Consequently, our compensation committee and board should be able to judge the suitability of a bonus payment by deliberating retrospectively at year end and comparing actual performance and target achievements against the forecasted operating plan. The annual bonus mechanism will be directly tied to meeting objectives - both our business objectives and the office holder’sholder's personal objectives. The board’sboard's satisfaction with the officer’sofficer's performance will also affect the bonus amount.  Annual bonus payments are subject to the limitations set out in the Compensation Policy and also subject to the discretion of our compensation committee and approval by the board of directors. In order to maintain some measure of flexibility, after calculating the compensation amount, the board of directors may exercise discretion about the final amount of the bonus.
 
Equity-based compensation may be granted in any form permitted under our share incentive plan in effect from time to time and shall be made in accordance with the terms of such share incentive plan. Equity-based compensation to office holders shall be granted from time to time and be individually determined and awarded according to the performance, educational background, prior business experience, qualifications, role and the personal responsibilities of each officer.  The vesting period will generally be four years, with the vesting schedule to be determined in accordance with market compensation trends. Our policy is to grant equity-based compensation with exercise prices at market value. Furthermore, in order to create a ceiling for the variable compensation: (1) the aggregate value of annual grants to any one office holder (based on the Black Scholes calculation on the date of grant) will be no more than the higher of 2% of our market capitalization at the end of the measurement period or $1.5 million; and (2) it is our intention that the maximum outstanding equity awards under its share incentive plan will not exceed 12% of our total fully-diluted share capital.  Our board of directors may, following approval by our compensation committee, make provisions with respect to the acceleration of the vesting period of any office holder’sholder's awards, including, without limitation, in connection with a corporate transaction involving a change of control.
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We have also established a defined ratio between the variable and the fixed components of compensation, as well as a maximum amount for all variable components as of the date on which they are paid (or as of the grant date for non-cash variable equity components), and subject to the limitations on variable compensation components which are set out in the Compensation Policy.
 
In addition, we have established guidelines under which an office holder will refund to us part of the compensation received, if it was paid based on information that was retroactively restated in our financial reports.  Office holders shall be required to make restitution for any payments made based on our operating performance, if such payments were based on false or restated financial statements prepared at any time during the three years preceding discovery of the error.
 
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All compensation arrangements of office holders are to be approved in the manner prescribed by applicable law.  Our Compensation Committee will review the Compensation Policy on an annual basis, and monitor its implementation, and recommend to our Board of Directors and shareholders to amend the Policy as it deems necessary from time to time. The term of the Compensation Policy shall beis three years as offrom the date of its adoption, on December 19, 2013.or July 5, 2019. Following such three yearthree-year term, the Compensation Policy, including any revisions recommended by our Compensation Committee and approved by our Board of Directors, as applicable, will be brought once again to the shareholders for approval.
 
In September 2014, the general meeting of our shareholders approved an amendment to the Compensation Policy to expressly authorize the purchase of insurance policies (including run-off policies) to cover the liability of directors and office holders. See “ — Exculpation, insurance and indemnification of office holders”
Nominating Committee
 
Our Board of Directors does not currently have a nominating committee, having availed BioLineRx of the exemption available to foreign private issuers under the Marketplace Rules of the Nasdaq Stock Market. See “Item"Item 16G. Corporate Governance.”"
 
Investment Monitoring Committee
 
Our Board of Directors has established an Investment Monitoring Committee consistingwhich until the end of 2016 consisted of the following four members: Directors Michael Anghel (Chairman) and Nurit Benjamini; Philip Serlin, our Chief Financial Officer and Chief OperatingExecutive Officer; and Raziel Fried, our Budget Control Manager and Treasurer. Beginning in 2017, Mali Zeevi, our Chief Financial Officer, replaced Mr. Serlin as member of the Committee. The function of the Investment Monitoring Committee includes providing recommendations to our Board of Directors regarding investment guidelines and performing an on-going review of the fulfillment of established investment guidelines. The Investment Monitoring Committee convenes for a meeting in accordance with our needs, but in any event at least twice per year. The Investment Monitoring Committee reports to our Board of Directors on a semi-annual basis.
 
Internal Auditor
 
Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor recommended by the audit committee and nominated by the board of directors. An internal auditor may not be:
 
a person (or a relative of a person) who holds more than 5% of the company’scompany's shares;
 
a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;
 
an executive officer or director of the company; or
 
a member of the company’scompany's independent accounting firm.
 
The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. Our internal auditor is Linur Dloomy, CPA (Israel), a partner of Brightman Almagor Zohar & Co. (a member firm of Deloitte Touche Tohmatsu Limited).
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Approval of Related Party Transactions under Israeli Law
 
Fiduciary duties of office holders
 
The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company. The duty of care of an office holder is based on the duty of care set forth in connection with the tort of negligence under the Israeli Torts Ordinance (New Version) 5728-1968. This duty of care requires an office holder to act with the degree of proficiency with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means, in light of the circumstances, to obtain:
 
information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and
 
all other important information pertaining to these actions.
 
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The duty of loyalty requires an office holder to act in good faith and for the benefit of the company, and includes the duty to:
 
refrain from any act involving a conflict of interest between the performance of his or her duties in the company and his or her other duties or personal affairs;
 
refrain from any activity that is competitive with the business of the company;
 
refrain from exploiting any business opportunity of the company for the purpose of gaining a personal advantage for himself or herself or others; and
 
disclose to the company any information or documents relating to the company’scompany's affairs which the office holder received as a result of his or her position as an office holder.
 
We may approve an act performed in breach of the duty of loyalty of an office holder provided that the office holder acted in good faith, the act or its approval does not harm the company, and the office holder discloses his or her personal interest, as described below.
 
Disclosure of personal interests of an office holder and approval of acts and transactions
 
The Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may have and all related material information or documents relating to any existing or proposed transaction by the company. An interested office holder’sholder's disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. An office holder is not obliged to disclose such information if the personal interest of the office holder derives solely from the personal interest of his or her relative in a transaction that is not considered as an extraordinary transaction.
 
The term personal interest is defined under the Companies Law to include the personal interest of a person in an action or in the business of a company, including the personal interest of such person’sperson's relative or the interest of any corporation in which the person is an interested party, but excluding a personal interest stemming solely from the fact of holding shares in the company. A personal interest furthermore includes the personal interest of a person for whom the office holder holds a voting proxy or the interest of the office holder with respect to his or her vote on behalf of the shareholder for whom he or she holds a proxy even if such shareholder itself has no personal interest in the approval of the matter. An office holder is not, however, obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction.
 
Under the Companies Law, an extraordinary transaction which requires approval is defined as any of the following:
 
a transaction other than in the ordinary course of business;
 
a transaction that is not on market terms; or
 
a transaction that may have a material impact on the company’scompany's profitability, assets or liabilities.
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Under the Companies Law, once an office holder has complied with the disclosure requirement described above, a company may approve a transaction between the company and the office holder or a third party in which the office holder has a personal interest, or approve an action by the office holder that would otherwise be deemed a breach of duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’scompany's interest or that is not performed by the office holder in good faith.
 
Under the Companies Law, unless the articles of association of a company provide otherwise, a transaction with an office holder, a transaction with a third party in which the office holder has a personal interest, and an action of an office holder that would otherwise be deemed a breach of duty of loyalty requires approval by the board of directors. Our Articles of Association do not provide otherwise. If the transaction or action considered is (i) an extraordinary transaction or (ii) an action of an office holder that would otherwise be deemed a breach of duty of loyalty and may have a material impact on a company’scompany's profitability, assets or liabilities, then audit committee approval is required prior to approval by the board of directors.
 
Under Amendment 20, a transaction with an office holder in a public company regarding his or her terms of office and employment should be determined in accordance with the company’scompany's compensation policy.  Nonetheless, provisions were established that allow a company, under special circumstances, to approve terms of office and employment that are not in line with the approved compensation policy. Accordingly, pursuant to Amendment 20, the approval requirements for the compensation and/or terms of office of a specific office holder may require the approval of each of the compensation committee, board of directors and the shareholders, in that order. As such, under Amendment 20, the following approvals are required for the following transactions:
 
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A transaction with an office holder in a public company that is neither a director nor the Chief Executive Officer regarding his or her terms of office and employment requires approval by the (i) compensation committee; and (ii) the board of directors. Approval of terms of office and employment for such officers which do not comply with the compensation policy may nonetheless be approved subject to two cumulative conditions: (i) the compensation committee and thereafter the board of directors, approved the terms after having  taken into account the various considerations and mandatory requirements set forth in Amendment 20 with respect to office holder compensation, and (ii) the shareholders of the company have approved the terms by means of the following special majority requirements (the “Special"Special Majority Requirements”Requirements"), as set forth in Amendment 20, pursuant to which the shareholder approval must either include at least one-half of the shares held by non-controlling and disinterested shareholders who actively participate in the voting process (without taking abstaining votes into account), or, alternatively, the total shareholdings of the non-controlling and disinterested shareholders who vote against the transaction must not represent more than two percent of the voting rights in the company.
 
A transaction with the chief executive officer in a public company regarding his or her terms of office and employment requires approval by the (i) compensation committee; (ii) the board of directors and (iii) the shareholders of the company by the Special Majority Requirements.  Approval of terms of office and employment for the chief executive officer which do not comply with the compensation policy may nonetheless be approved subject to two cumulative conditions: (i) the compensation committee and thereafter the board of directors, approved the terms after having  taken into account the various considerations and mandatory requirements set forth in Amendment 20 with respect to office holder compensation, and (ii) the shareholders of the company have approved the terms by means of the Special Majority Requirements, as detailed above.
 
A transaction with an office holder in a public company (including the CEO) thatwho is not a director regarding his or her terms of office and employment may be approved despite shareholder rejection, provided that a company’scompany's compensation committee and thereafter the board of directors have determined to approve the proposal, based on detailed reasoning, after having re-examined the terms of office and employment, and taken the shareholder rejection into consideration.  In addition, the compensation committee may exempt the transaction regarding terms of office and employment with a CEO who has no relationship with the controlling shareholder or the company from shareholder approval if it has found, based on detailed reasons, that bringing the transaction to the approval of the shareholders meeting shall prevent the employment of such candidate by the company. Such approval may be given only in respect of terms of office and employment which are in accordance with the company’scompany's compensation policy.
 
A transaction with a director in a public company regarding his or her terms of office and employment requires approval by the (i) compensation committee; (ii) the board of directors and (iii) the shareholders of the company. Approval of terms of office and employment for directors of a company which do not comply with the compensation policy may nonetheless be approved subject to two cumulative conditions: (i) the compensation committee and thereafter the board of directors, approved the terms after having  taken into account the various considerations and mandatory requirements set forth in Amendment 20 with respect to office holder compensation, and (ii) the shareholders of the company have approved the terms by means of the Special Majority Requirements, as detailed above. In addition, pursuant to a relief provided under the Companies Regulations (Relief in Interested Party Transactions), 2000, the compensation committee may exempt the transaction regarding terms of office and employment with a director, if the compensation committee and board of directors determined that such terms of office are only for the benefit of the company, or if the compensation terms of the director do not exceed the maximum compensation paid to external directors pursuant to the applicable regulations.
 
A director who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee may generally not be present at the meeting or vote on the matter unless a majority of the directors or members of the audit committee have a personal interest in the matter, or, unless the chairman of the audit committee or board of directors (as applicable) determines that he or she should be present to present the transaction that is subject to approval. If a majority of the directors have a personal interest in the matter, such matter also requires approval of the shareholders of the company.
 
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Disclosure of personal interests of a controlling shareholder and approval of transactions
 
Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. See “—"— Audit Committee”Committee" for the general definition of controlling shareholder under the Companies Law. The definition of “controlling shareholder”"controlling shareholder" in connection with matters governing: (i) extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, (ii) certain private placements in which the controlling shareholder has a personal interest, (iii) certain transactions with a controlling shareholder or relative with respect to services provided to or employment by the company, (iv) the terms of employment and compensation of the general manager, and (v) the terms of employment and compensation of office holders of the company when such terms deviate from the compensation policy previously approved by the company’scompany's shareholders, also includes shareholders that hold 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights in the company (and the holdings of two or more shareholders which each have a personal interest in such matter will be aggregated for the purposes of determining such threshold).
 
Under Amendment 20, extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest, as well as transactions for the provision of services whether directly or indirectly by a controlling shareholder or his or her relative, or a company such controlling shareholder controls, require the approval of the audit committee, the board of directors and the shareholders, in that order. Extraordinary Transactions concerning the terms of engagement of a controlling shareholder or a controlling shareholder’sshareholder's relative, whether as an office holder or an employee, require the approval of the compensation committee, the board of directors and the shareholders, in that order. In addition, the approval of such extraordinary transactions by the shareholders require at least a majority of the shares voted by the shareholders of the company participating and voting in a shareholders’shareholders' meeting, provided that one of the following requirements is fulfilled:
 
at least a majority of the shares held by shareholders who have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or
 
the shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no more than 2% of the voting rights in the company.
 
If such extraordinary transaction concerns the terms of office and employment of such controlling shareholder, in his capacity as an office holder or an employee of the company, such terms of office and employment approved by the compensation committee and board of directors shall be in accordance with the compensation policy of the company. Nonetheless, the compensation committee and the board of directors may approve terms of office and compensation of a controlling shareholder and which do not comply with the company’scompany's compensation policy, provided that the compensation committee and, thereafter, the board of directors approve such terms, based on, among other things, the considerations listed under Section 267B(a) and Parts A and B of Annex 1A of the Companies Law, as those are described above. Following such approval by the compensation committee and board of directors, shareholder approval would be required.
 
To the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval, in the same manner described above, is required once every three years, unless, with respect to extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, the audit committee determines that the duration of the transaction is reasonable given the circumstances related thereto.
 
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Duties of shareholders
 
Under the Companies Law, a shareholder has a duty to refrain from abusing its power in the company and to act in good faith and in an acceptable manner in exercising its rights and performing its obligations to the company and other shareholders, including, among other things, voting at general meetings of shareholders on the following matters:
 
an amendment to the articles of association;
 
an increase in the company’scompany's authorized share capital;
 
a merger; and
 
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the approval of related party transactions and acts of office holders that require shareholder approval.
 
A shareholder also has a general duty to refrain from discriminating against other shareholders.
 
The remedies generally available upon a breach of contract will also apply to a breach of the above mentioned duties, and in the event of discrimination against other shareholders, additional remedies are available to the injured shareholder.
 
In addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a company’scompany's articles of association, has the power to appoint or prevent the appointment of an office holder, or has another power with respect to a company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking the shareholder’sshareholder's position in the company into account.
 
Exculpation, insurance and indemnification of office holders
 
Under the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association. Our Articles of Association include such a provision. An Israeli company may not exculpate a director from liability arising out of a prohibited dividend or distribution to shareholders.
 
An Israeli company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed as an office holder, either in advance of an event or following an event, provided a provision authorizing such indemnification is contained in its articles of association:
 
financial liability imposed on him or her in favor of another person pursuant to a judgment, settlement or arbitrator’sarbitrator's award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’scompany's activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the abovementioned events and amount or criteria;

reasonable litigation expenses, including attorneys’attorneys' fees, incurred by the office holder as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (1) no indictment was filed against such office holder as a result of such investigation or proceeding; and (2) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and
 
reasonable litigation expenses, including attorneys’attorneys' fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal intent.
 
95
An Israeli company may insure an office holder against the following liabilities incurred for acts performed as an office holder if and to the extent provided in the company’scompany's articles of association:
 
a breach of duty of loyalty to the company, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
 
a breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder; and
 
a financial liability imposed on the office holder in favor of a third party.
 
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An Israeli company may not indemnify or insure an office holder against any of the following:
 
a breach of duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
 
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
 
an act or omission committed with intent to derive illegal personal benefit; or
 
a fine or forfeit levied against the office holder.
 
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by the audit committee and the board of directors and, with respect to directors, by shareholders.
 
An amendment to the Israeli Securities Law and a corresponding amendment to the Companies Law authorize the Israeli Securities AuthorityISA to impose administrative sanctions against companies like ours, and their office holders for certain violations of the Israeli Securities Law or the Companies Law.  These sanctions include monetary sanctions and certain restrictions on serving as a director or senior officer of a public company for certain periods of time. The amendments to the Israeli Securities Law and to the Companies Law provide that only certain types of such liabilities may be reimbursed by indemnification and insurance. Specifically, legal expenses (including attorneys’attorneys' fees) incurred by an individual in the applicable administrative enforcement proceeding and certain compensation payable to injured parties for damages suffered by them are permitted to be reimbursed via indemnification or insurance, provided that such indemnification and insurance are authorized by the company’scompany's articles of association, and receive the requisite corporate approvals.

Our Articles of Association allow us to indemnify and insure our office holders for any liability imposed on them as a consequence of an act (including any omission) which was performed by virtue of being an office holder. In November 2011, our shareholders approved (i) the amendment of our Articles of Association to authorize indemnification and insurance in connection with administrative enforcement proceedings, including without limitation, the specific amendments to the Israeli Securities Law and the Companies Law described above; and (ii) a new form of indemnification letter for our directors and officers so as to reflect the amendment to our Articles of Association, which new form of letter was also approved in October 2011 by our audit committee and board of directors, and in November 2011 by our shareholders. The terms of such agreements are consistent with the provisions of the Compensation Policy which was approved by our shareholders in December 2013 and amended as described in the next paragraph.
 
Our office holders are currently covered by a directors and officers’officers' liability insurance policy. The terms of such directorsdirectors' and officersofficers' insurance are consistent with the provisions of the Compensation Policy which was approved by our shareholders in December 2013, and with the provisions of an amendment to the Compensation Policy which approved by our shareholders in September 2014.July 2016. The purpose of the amendment was to clarify that we are authorized to purchase insurance policies (including run-off policies) to cover the liability of directors and office holders that are in office at such time and that shall be in office from time to time, including directors and office holders that may have a controlling interest in the Company. Such insurance policies are authorized within the following limits: (1) the premium for each policy period shall not exceed $250,000, (2) the maximum aggregate limit of liability pursuant to the policies shall not exceed $20 million for each insurance period, and (3) the maximum deductible shall not exceed $250,000. In addition, the Compensation Committee is authorized to increase the coverage purchased and/or the premium paid for such policies by up to 20% per year, as compared to the previous year, or cumulatively for a number of years, without an additional shareholders’shareholders' approval to the extent permitted under the Companies Law. As of the date of this Annual Report on Form 20-F, no claims for directors’directors' and officers’officers' liability insurance have been filed under this policy and we are not aware of any pending or threatened litigation or proceeding involving any of our directors or officers in which indemnification is sought. Pursuant to the approval of our shareholders which was obtainedat the annual general meeting held in September 2014, we carry directors’directors' and officers’officers' insurance covering each of our directors and executive officers for acts and omissions. See also “Related"Related Party Transactions — Indemnification Agreements.”
96
"
 
There is no pending litigation or proceeding against any of our directors or officers as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.
 
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For significant ways in which our corporate governance practices differ from those required by the Marketplace Rules of the Nasdaq Stock Market, see “Item"Item 16G. Corporate Governance.”"
 
D. Employees
 
As of December 31, 2015,2016, we had 4843 employees, all of whom are employed in Israel. Of our employees, 2119 hold M.D. or Ph.D. degrees.
 
 December 31,  December 31, 
 2013  2014  2015  2014  2015  2016 
                  
Management and administration   13   12   12   12   12   11 
Research and development   27   31   32   31   32   28 
Sales and marketing   3   3   4   3   4   4 
Total  46   48   43 
 
While none of our employees are party to any collective bargaining agreements, in Israel we are subject to certain labor statutes and national labor court precedent rulings, as well as to certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’Industrialists' Associations) are applicable to our employees by virtue of expansion orders issued in accordance with relevant labor laws by  the Israel Ministry of Labor and Welfare,  and which apply such agreement provisions to our employees even though they are not directly part of a union that has signed a collective bargaining agreement. The laws and labor court rulings that apply to our employees principally concern the minimum wage laws, procedures for dismissing employees, determination of severance pay, leaves of absence (such as annual vacation or maternity leave), sick pay and other conditions for employment. The expansion orders which apply to our employees principally concern the requirement for length of the work day and work week, mandatory contributions to a pension fund, annual recreation allowance, travel expenses payment and other conditions of employment. We generally provide our employees with benefits and working conditions beyond the required minimums.
 
We have never experienced any employment-related work stoppages and believe our relationship with our employees is good.
 
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E. Beneficial Ownership of Executive Officers and Directors
 
The following table sets forth information regarding the beneficial ownership of our outstanding ordinary shares as of March 1, 201620, 2017 of each of our directors and executive officers individually and as a group.
 
  Number of    
  Shares    
  Beneficially  Percent of 
  Held  Class 
       
Directors      
       
Aharon Schwartz(1)                                                                               
  20,836   * 
Michael J. Anghel(2)                                                                               
  20,836   * 
Nurit Benjamini(3)                                                                               
  18,750   * 
B.J. Bormann(4)                                                                               
  19,586   * 
Raphael Hofstein(5)                                                                               
  40,836   * 
Avraham Molcho(6)                                                                               
  18,750   * 
Sandra Panem(7)                                                                               
  17,086     
         
Executive officers        
Kinneret Savitsky(8)                                                                               
  257,220   * 
Philip Serlin(9)                                                                               
  117,920   * 
David Malek(10)                                                                               
  70,500   * 
Arnon Aharon(11)                                                                               
  15,000   * 
Merril Gersten  –   – 
All directors and executive officers as a group (11 persons)(12)
  617,320   1.1%
Number of
Ordinary Shares
BeneficiallyPercent of
HeldClass
Directors
Aharon Schwartz(1)
42,502*
Michael J. Anghel(2)
42,502*
Nurit Benjamini(3)
32,501*
B.J. Bormann(4)
42,502*
Raphael Hofstein(5)
42,502*
Avraham Molcho(6)
32,501*
Sandra Panem(7)
40,419
Executive officers
Philip Serlin(8)
215,108*
Mali Zeevi(9)
92,920*
David Malek(10)
173,219*
Ella Sorani(11)
-*
Abi Vainstein-Haras(12)
40,831
*
All directors and executive officers as a group (12 persons)(13)
797,507
___* % 

 
*Less than 1.0%.
  
(1)Includes 20,83642,502 ordinary shares issuable upon exercise of outstanding options within 60 days of March 1, 2016.20, 2017. Does not include 14,16442,498 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 1, 2016.20, 2017.
  
(2)Includes 20,83642,502 ordinary shares issuable upon exercise of outstanding options within 60 days of March 1, 2016.20, 2017. Does not include 14,16442,498 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 1, 2016.20, 2017.
  
(3)Includes 18,75032,501 ordinary shares issuable upon exercise of outstanding options within 60 days of March 1, 2016.20, 2017. Does not include 1,25037,499 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 1, 2016.20, 2017.
  
(4)Includes 19,58642,502 ordinary shares issuable upon exercise of outstanding options within 60 days of March 1, 2016.20, 2017. Does not include 15,41442,498 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 1, 2016.20, 2017.
  
(5)Includes 40,83642,502 ordinary shares issuable upon exercise of outstanding options within 60 days of March 1, 2016.20, 2017. Does not include 14,16442,498 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 1, 2016.20, 2017.
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(6)Includes 18,75032,501 ordinary shares issuable upon exercise of outstanding options within 60 days of March 1, 2016.20, 2017. Does not include 1,25037,499 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 1, 2016.20, 2017.
98
  
(7)Includes 17,08640,419 ordinary shares issuable upon exercise of outstanding options within 60 days of March 1, 2016.20, 2017. Does not include 15,41442,081 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 1, 2016.20, 2017.
  
(8)Includes 91,603215,108 issued ordinary shares and 165,617 ordinary shares issuable upon exercise of outstanding options within 60 days of March 1, 2016.20, 2017. Does not include 241,100279,296 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 1, 2016.20, 2017.
  
(9)Includes 117,92092,920 ordinary shares issuable upon exercise of outstanding options within 60 days of March 1, 2016.20, 2017. Does not include 249,800342,050 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 1, 2016.20, 2017.
  
(10)Includes 70,500173,219 ordinary shares issuable upon exercise of outstanding options within 60 days of March 1, 2016.20, 2017. Does not include 238,100416,581 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 1, 2016.20, 2017.
  
(11)Includes 15,000 ordinary shares issuable upon exercise of outstanding options within 60 days of March 1, 2016. Does not include 235,000252,800 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 1, 2016.20, 2017.
  
(12)
Includes 617,32040,831 ordinary shares issuable upon exercise of outstanding options within 60 days of March 1, 2016.20, 2017. Does not include 1,039,820317,169 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 1, 2016.20, 2017.
(13)
Includes 797,507 ordinary shares issuable upon exercise of outstanding options within 60 days of March 20, 2017. Does not include 1,894,967 ordinary shares issuable upon exercise of outstanding options that are not exercisable within 60 days of March 20, 2017.
 
Equity Compensation Plan
 
2003 Share Incentive Plan
 
In 2003, we adopted the BioLineRx Ltd. 2003 Share Incentive Plan, or the Plan. The Plan provides for the granting of options, ordinary shares, restricted stock units and performance stock units to our directors, employees, consultants and service providers, and to the directors, employees, consultants and service providers of our subsidiaries and affiliates. The Plan provides for equity grants to be made at the determination of our Board of Directors in accordance with applicable law. As of December 31, 2015,2016, there were 3.3approximately 4.7 million ordinary shares issuable upon the exercise of outstanding options under the Plan. As of March 1, 2016,20, 2017, there were 4.86.9 million ordinary shares issuable upon the exercise of outstanding options under the Plan.
 
In August 2013, our Board of Directors approved amendments to the Plan to take into account changes in laws and regulations that had occurred since its adoption and to extend the term of the plan until November 2023.
In January 2016, our Board of Directors approved amendments to the Plan in order to permit the granting of restricted stock units, or RSUs, and performance stock units, or PSUs, to eligible grantees.
 
From time to time, our Board of Directors has approved an increase in the number of shares reserved for the purpose of equity grants pursuant to the Plan. As of December 31, 2015,March 20, 2017, the number of shares so reserved was 5.31.9 million.
 
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Administration of Our Share Incentive Plan
 
Our Plan is administered by our Board of Directors for the purposes of making equity grants and approving the terms of those grants, including, in the case of options, exercise price, method of payment, vesting schedule, acceleration of vesting and the other matters necessary in the administration of these plans. Equity grants made under the Plan to eligible employees and office holders are made under Section 102 of the Israel Income Tax Ordinance pursuant to which the securities granted must be allocated or issued to a trustee and be held in trust for two years from the date upon which such grant was made, provided that securities granted prior to January 1, 2006, or the ordinary shares issued upon exercise of options, are subject to being held in trust for two years from the end of the year in which the securities are granted. Under Section 102, any tax payable by an employee from the grant of securities or the exercise of options is deferred until the transfer of the securities (or ordinary shares issued upon the exercise of options) by the trustee to the employee or upon the sale of the securities or ordinary shares, as the case may be, and gains may qualify to be taxed as capital gains at a rate equal to 25%, subject to compliance with specified conditions.
 
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Options granted under the Plan generally vest over four years, and they expire between seven to 10 years from the grant date. If we terminate an employee for cause, all of the employee’semployee's vested and unvested options expire immediately from the time of delivery of the notice of discharge, unless determined otherwise by the Audit Committee or the Board of Directors. Upon termination of employment for any other reason, including due to death or disability of the employee, vested options may be exercised within three months of the termination date, unless otherwise determined by the AuditCompensation Committee or the Board of Directors. Vested options which are not exercised and unvested options return to the pool of reserved ordinary shares under the Plan for reissuance. The right to receive ordinary shares pursuant to PSUs granted under the Plan will vest upon the grantee’sour achievement of certain performance goals to be established by the Board of Directors.
 
In the event of a merger, consolidation, reorganization or similar transaction or our voluntary liquidation or dissolution, all of our unexercised vested equity grants and any unvested equity grants will be automatically terminated. However, in the event of a change of control, or merger, consolidation, reorganization or similar transaction resulting in the acquisition of at least 50% of our voting power, or the sale or transfer of all or substantially all of our outstanding shares assets,  the equity grants then outstanding may be assumed or substituted for an appropriate number of shares of each class of shares or other securities and/or assets of the successor company in such transaction (or a parent or subsidiary or another affiliate of such successor company) as were distributed to our shareholders in respect of the transaction. In addition to the foregoing, our Board of Directors has approved the inclusion in the option agreements of the Company's officers of a provision for accelerated vesting of options if both a change of control of the Company occurs and, following such change of control, the officer's employment is terminated or there is a significant demotion in the officer's new job or position.
 
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 
A. Major Shareholders
 
The following table sets forth certain information regarding the beneficial ownership of our outstanding ordinary shares as of March 1, 201620, 2017 by each person who we know beneficially owns 5.0% or more of the outstanding ordinary shares. Each of our shareholders has identical voting rights with respect to its shares. All of the information with respect to beneficial ownership of the ordinary shares is given to the best of our knowledge. The beneficial ownership of ordinary shares is based on the 54,818,057ordinary61,782,434 ordinary shares outstanding as of March 1, 201620, 2017 and is determined in accordance with the rules of the SEC and generally includes any ordinary shares over which a person exercises sole or shared voting or investment power.  For purposes of the table below, we deem shares subject to options or warrants that are currently exercisable or exercisable within 60 days of March 1, 2016,20, 2017, to be outstanding and to be beneficially owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that person but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person.  To our knowledge, none of our shareholders of record are U.S. holders. Our principal shareholders do not have different or special voting rights.

 
Number of Shares
Beneficially Held
  
Percent of
Class
  
Number of
Ordinary Shares
Beneficially
Held
  
Percent of
Class
 
            
Novartis Pharma AG(1)
  5,000,000   9.1   5,000,000   
8.1
 
Senvest Management, LLC (2)
  3,952,950   7.2   4,767,619   
7.7
 
Broadfin Healthcare Master Fund, Ltd.(3)
  3,500,000   6.4 
Pan Atlantic Bank and Trust Limited(4)
  3,480,397   6.3 

(1)Based upon information provided by the shareholder in its Schedule 13G filed with the SEC on December 22, 2014. Novartis AG is the parent of Novartis Pharma AG and as such is indicated as sharing voting and dispositive power with respect to the ordinary shares underlying the securities held by Novartis Pharma AG and is deemed to have beneficial ownership of such securities. The address of the principal business office of each of Novartis Pharma AG and Novartis AG is Lichtstrasse 35, 4056 Basel, Switzerland.

(2)Includes 349,650 ordinary shares issuable upon exercise of outstanding warrants within 60 days of March 1, 2016. Based upon information provided by the shareholder in its Schedule 13G filed with the SEC on February 12, 2016.13, 2017. The securities indicated above are held in the accounts of Senvest Master Fund, L.P., Senvest Israel Partners, L.P., and a separately managed account (collectively with the Senvest Funds, the “Investment Vehicles”"Investment Vehicles"). Senvest Management, LLC may be deemed to beneficially own the securities held by the Investment Vehicles by virtue of Senvest Management, LLC's position as investment manager of the Investment Vehicles. Richard Mashaal may be deemed to beneficially own the securities held by the Investment Vehicles by virtue of Mr. Mashaal’sMashaal's status as the managing member of Senvest Management, LLC. None of the foregoing should be construed in and of itself as an admission by either Senvest Management, LLC or Mr. Mashaal as to beneficial ownership of the securities indicated above. The address of the principal business office of Senvest Management, LLC is 540 Madison Avenue, 32nd Floor, New York, New York 10022.
 
(3)Based upon information provided by the shareholder in its Schedule 13G filed with the SEC on February 12, 2016. In such filing, Broadfin Capital, LLC (Broadfin Capital) and Kevin Kotler are indicated as having shared voting and dispositive power with respect to the ordinary shares underlying the securities held by Broadfin Healthcare Master Fund, Ltd. (Broadfin Fund) and as having beneficial ownership of such securities. Broadfin Capital and Mr. Kotler disclaim beneficial ownership in the shares reported in the Schedule 13G except to the extent of their pecuniary interest therein. The address of the principal business office of Broadfin Fund is 20 Genesis Close, Ansbacher House, Second Floor, P.O. Box 1344, Grand Cayman KY1-1108, Cayman Islands.

(4)Includes 700,000 ordinary shares issuable upon exercise of outstanding warrants within 60 days of March 1, 2016. Based upon information provided by the shareholder in its Schedule 13D/A filed with the SEC on March 10, 2014. Pan Atlantic Bank and Trust Limited is a wholly owned subsidiary of FCMI Financial Corporation (FCMI). All of the outstanding shares of FCMI are owned by Albert D. Friedberg, members of his family and trusts for the benefit of members of his family. Mr. Friedberg retains possession of the voting and dispositive power over the FCMI shares held by members of the Friedberg family and trusts for the benefit of members of his family and, as a result, controls and may be deemed the beneficial owner of 100% of the outstanding shares of and sole controlling person of FCMI. By virtue of his control of FCMI, Mr. Friedberg may be deemed to possess voting and dispositive power over the shares owned directly by its wholly-owned subsidiary, Pan Atlantic Bank and Trust Limited. The address of the principal business office of Pan Atlantic Bank and Trust Limited is “Whitepark House,” 1st Floor, Whitepark Road, St. Michael BB11135, Barbados, West Indies.
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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"Item 6. Directors, Senior Management and Employees — Compensation of Directors and Senior Management.”"
 
Indemnification Agreements
 
Our Articles of Association and Executive Compensation Policy approved by our shareholders permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. We have entered into agreements with each of our office holders undertaking to indemnify them to the fullest extent permitted by law, including with respect to liabilities resulting from this offering to the extent that these liabilities are not covered by insurance. We have obtained directors’directors' and officers’officers' insurance for each of our officers and directors. See “Item"Item 6. Directors, Senior Management and Employees — Board Practices — Exculpation, insurance and indemnification of office holders.”"
 
C. Interests of Experts and Counsel
 
Not applicable.
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ITEM 8. FINANCIAL INFORMATION
 
A. Consolidated Statements and other Financial Information
 
See Item 18.
 
Legal Proceedings
 
We are not involved in any material legal proceedings.
 
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
 
None.

10398
ITEM 9. THE OFFER AND LISTING
 
A. Offer and Listing Details
 
Price Range of our ADSs
 
Our ADSs have been trading on the Nasdaq Capital Market under the symbol “BLRX”"BLRX" since July 2011.
 
The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ADSs on the Nasdaq Capital Market in dollars.
 
  
U.S.$
 
  
Price Per
ADS
 
  
High
  
Low
 
Annual:      
2015                                                                                   2.84   1.23 
2014                                                                                   3.07   1.23 
2013                                                                                   4.75   1.58 
2012                                                                                   5.55   2.23 
2011 (from July 25, 2011)                                                                                   5.44   2.75 
         
Quarterly:        
Fourth Quarter 2015                                                                                    1.62   1.24 
Third Quarter 2015                                                                                    2.65   1.23 
Second Quarter 2015                                                                                    2.66   1.85 
First Quarter 2015                                                                                    2.84   1.71 
Fourth Quarter 2014                                                                                    1.83   1.23 
Third Quarter 2014                                                                                    2.19   1.46 
Second Quarter 2014                                                                                    2.27   1.94 
First Quarter 2014                                                                                    3.07   2.21 
         
Most Recent Six Months:        
March 2016 (through March 8, 2016)                                                                                       1.14   1.03 
February 2016                                                                                       1.10   0.90 
January 2016                                                                                       1.30   0.94 
December 2015                                                                                       1.62   1.25 
November 2015                                                                                       1.45   1.24 
October 2015                                                                                       1.55   1.32 
September 2015                                                                                       1.81   1.50 
  U.S.$ 
  
Price Per
ADS
 
  High  Low 
Annual:      
2016 
  1.30   0.75 
2015 
  2.84   1.23 
2014 
  3.07   1.23 
2013 
  4.75   1.58 
2012 
  5.55   2.23 
         
Quarterly:        
Fourth Quarter 2016 
  1.16   0.92 
Third Quarter 2016 
  1.28   0.75 
Second Quarter 2016 
  1.02   0.79 
First Quarter 2016 
  1.30   0.90 
Fourth Quarter 2015 
  1.62   1.24 
Third Quarter 2015 
  2.65   1.23 
Second Quarter 2015 
  2.66   1.85 
First Quarter 2015 
  2.84   1.71 
         
Most Recent Six Months:        
March 2017 (through March 22, 2017)
  1.20   1.08 
February 2017 
  1.30   1.02 
January 2017 
  1.07   0.88 
December 2016 
  1.03   0.92 
November 2016 
  1.14   0.99 
October 2016 
  1.16   1.01 
September 2016 
  1.28   0.86 

On March 8, 2016,22, 2017, the last reported sales price of our ADSs on the Nasdaq Capital Market was $1.13$1.12 per ADS.  As of March 8, 201622, 2017 there was one shareholder of record of our ADSs. The number of record holders is not representative of the number of beneficial holders of our ADSs.
 
10499

Price Range of our Ordinary Shares
 
Our ordinary shares have been trading on the TASE under the symbol “BLRX”"BLRX" since February 2007.
 
The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares on the TASE in NIS and dollars.  Dollar per ordinary share amounts are calculated using the dollar representative rate of exchange on the date to which the high or low market price is applicable, as reported by the Bank of Israel.
 
  
NIS
  
U.S.$
 
  
Price Per
Ordinary Share
  
Price Per
Ordinary Share
 
  
High
  
Low
  
High
  
Low
 
Annual:            
2015                                                               10.23   4.94   2.57   1.27 
2014                                                               10.49   4.76   3.01   1.24 
2013                                                               17.99   5.90   4.89   1.62 
2012                                                               21.15   8.92   5.58   2.32 
2011                                                          ��    32.40   11.27   9.12   3.03 
                 
Quarterly:                
Fourth Quarter 2015                                                               6.16   5.05   1.58   1.30 
Third Quarter 2015                                                               10.21   4.94   2.70   1.27 
Second Quarter 2015                                                               9.83   7.36   2.61   1.92 
First Quarter 2015                                                               10.23   6.70   2.57   1.72 
Fourth Quarter 2014                                                               7.11   4.76   1.81   1.24 
Third Quarter 2014                                                               7.33   5.69   2.14   1.56 
Second Quarter 2014                                                               8.02   6.76   2.31   1.95 
First Quarter 2014                                                               10.49   7.70   3.01   2.21 
                 
Most Recent Six Months:                
March 2016 (through March 8, 2016)  4.55   4.08   1.16   1.05 
February 2015                                                               4.27   3.67   1.09   0.94 
January 2015                                                               5.21   3.68   1.34   0.92 
December 2015                                                               6.14   5.08   1.58   1.30 
November 2015                                                               6.16   5.05   1.58   1.30 
October 2015                                                               6.05   5.37   1.56   1.39 
September 2015                                                               7.25   5.78   1.85   1.47 
  NIS  U.S.$ 
  
Price Per
Ordinary Share
  
Price Per
Ordinary Share
 
  High  Low  High  Low 
Annual:            
2016 
  5.21   3.07   1.34   0.79 
2015 
  10.23   4.94   2.57   1.27 
2014 
  10.49   4.76   3.01   1.24 
2013 
  17.99   5.90   4.89   1.62 
2012 
  21.15   8.92   5.58   2.32 
                 
Quarterly:                
Fourth Quarter 2016 
  4.31   3.48   1.12   0.91 
Third Quarter 2016 
  4.60   3.07   1.22   0.80 
Second Quarter 2016 
  3.92   3.07   1.04   0.79 
First Quarter 2016 
  5.21   3.67   1.34   0.94 
Fourth Quarter 2015 
  6.16   5.05   1.58   1.30 
Third Quarter 2015 
  10.21   4.94   2.70   1.27 
Second Quarter 2015 
  9.83   7.36   2.61   1.92 
First Quarter 2015 
  10.23   6.70   2.57   1.72 
                 
Most Recent Six Months:                
March 2017 (through March 22, 2017)  4.29   3.93   1.17   1.07 
February 2017 
  4.67   3.82   1.26   1.02 
January 2017 
  3.92   3.52   1.04   0.92 
December 2016 
  3.88   3.48   1.02   0.91 
November 2016 
  4.31   3.73   1.11   0.98 
October 2016 
  4.24   3.78   1.12   0.98 
September 2016 
  4.60   3.26   1.22   0.86 

On March 8, 2016,22, 2017, the last reported sales price of our ordinary shares on the TASE was NIS 4.553.93 per share, or $1.16$1.07 per share (based on the exchange rate reported by the Bank of Israel for such date). On March 8, 2016,22, 2017, the exchange rate of the NIS to the dollar was $1.00 = NIS 3.911,3.66, as reported by the Bank of Israel.  As of March 8, 2016,22, 2017, there were two shareholders of record of our ordinary shares.  The number of record holders is not representative of the number of beneficial holders of our ordinary shares.
 
B. Plan of Distribution
 
Not applicable.
 
C. Reasons for the Offer and Use of Proceeds
 
Not applicable.
 
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ITEM 10. ADDITIONAL INFORMATION
 
A. Share Capital
 
Not applicable
 
100
B. Articles of Association
 
Our number with the Israeli Registrar of Companies is 513398750. Our purpose is set forth in Section 2 of our Articles of Association and includes every lawful purpose.
 
Our ordinary shares that are fully paid for are issued in registered form and may be freely transferred under our Articles of Association, unless the transfer is restricted or prohibited by applicable law or the rules of a stock exchange on which the shares are traded. The ownership or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our Articles of Association or the laws of the State of Israel, except for ownership by nationals of some countries that are, or have been, in a state of war with Israel.
 
Pursuant to the Companies Law and our Articles of Association, our Board of Directors may exercise all powers and take all actions that are not required under law or under our Articles of Association to be exercised or taken by our shareholders, including the power to borrow money for company purposes.
 
Our Articles of Association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must be approved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions that have the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance of shares for less than their nominal value (under certain circumstances), require a resolution of our Board of Directors and court approval. In May 2015, at an Extraordinary General Meeting of our shareholders, they approved a 1-for-10 reverse share split of our ordinary shares and a corresponding amendment to our Articles of Association, and further approved an increase to our share capital from NIS 7,500,000 divided into 75,000,000 ordinary shares of a nominal value of NIS 0.10 each to NIS 15,000,000 divided into 150,000,000 ordinary shares of nominal value NIS 0.10, and a corresponding amendment to our Articles of Association, effective immediately after the reverse share split became effective.
 
Dividends
 
We may declare a dividend to be paid to the holders of our ordinary shares in proportion to their respective shareholdings. Under the Companies Law, dividend distributions are determined by the board of directors and do not require the approval of the shareholders of a company unless the company’scompany's articles of association provide otherwise. Our Articles of Association do not require shareholder approval of a dividend distribution and provide that dividend distributions may be determined by our Board of Directors.
 
Pursuant to the Companies Law, we may only distribute dividends from our profits accrued over the previous two years, as defined in the Companies Law, according to our then last reviewed or audited financial reports, provided that the date of the financial reports is not more than six months prior to the date of distribution, or we may distribute dividends with court approval. In each case, we are only permitted to pay a dividend if there is no reasonable concern that payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
 
Election of Directors
 
Our ordinary shares do not have cumulative voting rights in the election of directors. As a result, the holders of a majority of the voting power represented at a shareholders meeting have the power to elect all of our directors, other than with respect to the special approval requirements for the election of external directors (unless we qualify as an Eligible Company and opt to follow the exemption provided under the Amendment to the Relief Regulations regarding appointment of external directors and composition of the audit and compensation committees) described under “Item"Item 6. Directors, Senior Management and Employees — Board Practices — External Directors.”"
 
Pursuant to our Articles of Association, other than the external directors, for whom special election requirements apply under the Companies Law (unless we qualify as an Eligible Company and opt to follow the exemption provided under the Amendment to the Relief Regulations regarding appointment of external directors and composition of the audit and compensation committees), our directors are elected at a general or special meeting of our shareholders and serve on the Board of Directors until they are removed by the majority of our shareholders at a general or special meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our Articles of Association. In addition, our Articles of Association allow our Board of Directors to appoint directors (other than external directors) to fill vacancies on the Board of Directors to serve until the next general meeting or special meeting, or earlier if required by our Articles of Association or applicable law. We have held elections for each of our non-external directors at each annual meeting of our shareholders since our initial public offering in Israel. ExternalUnless we qualify as an Eligible Company and opt to follow the exemption provided under the Amendment to the Relief Regulations regarding appointment of external directors and composition of the audit and compensation committees, external directors are elected for an initial term of three years and may be removed from office pursuant to the terms of the Companies Law. See “Item"Item 6. Directors, Senior Management and Employees — Board Practices — External Directors.”"
 
106101
Shareholder Meetings
 
Under Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year that must be no later than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our Board of Directors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law and our Articles of Association provide that our Board of Directors is required to convene a special meeting upon the written request of (a) any two of our directors or one quarter of our Board of Directors or (b) one or more shareholders holding, in the aggregate, either (1) 5% of our outstanding shares and 1% of our outstanding voting power or (2) 5% of our outstanding voting power.
 
Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which may be between four and 40 days prior to the date of the meeting. Furthermore, the Companies Law and our Articles of Association require that resolutions regarding the following matters must be passed at a general meeting of our shareholders:
 
amendments to our Articles of Association;
 
appointment or termination of our auditors;
 
appointment of directors and appointment and dismissal of external directors;
 
approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;
 
director compensation, indemnification and change of the principal executive officer;
 
increases or reductions of our authorized share capital;
 
a merger; and
 
the exercise of our Board of Director’sDirector's powers by a general meeting, if our Board of Directors is unable to exercise its powers and the exercise of any of its powers is required for our proper management.
 
The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, the approval of a compensation policy with respect to office holders or an approval of a merger, notice must be provided at least 35 days prior to the meeting.
 
Pursuant to our Articles of Association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before the shareholders at a general meeting.
 
Quorum
 
The quorum required for our general meetings of shareholders consists of at least two shareholders present in person, by proxy or written ballot who hold or represent between them at least 25% of the total outstanding voting rights.
 
102
A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in the summons or notice of the meeting. At the reconvened meeting, any number of our shareholders present in person or by proxy shall constitute a lawful quorum.
107
 
Resolutions
 
Our Articles of Association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.
 
Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholder indicates how he or she votes on resolutions relating to the following matters:
 
an appointment or removal of directors;
 
an approval of transactions with office holders or interested or related parties;
 
an approval of a merger or any other matter in respect of which there is a provision in the articles of association providing that decisions of the general meeting may also be passed by written ballot;
 
authorizing the chairman of the board of directors or his relative to act as the company’scompany's chief executive officer or act with such authority; or authorize the company’scompany's chief executive officer or his relative to act as the chairman of the board of directors or act with such authority; and
 
other matters which may be prescribed by Israel’sIsrael's Minister of Justice.
 
The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote. Our Articles of Association provides that our Board of Directors may prevent voting by means of a written ballot and this determination is required to be stated in the notice convening the general meeting.
 
The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its other shareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matters such as changes to the articles of association, increasing the company’scompany's registered capital, mergers and approval of related party transactions. A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under the company’scompany's articles of association, can appoint or prevent the appointment of an office holder, is required to act with fairness towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply to a breach of the duty to act with fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.
 
Unless otherwise stated under the Companies Law, or provided in a company’scompany's articles of association a resolution at a shareholders meeting requires approval by a simple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Under the Companies Law, unless otherwise provided in a company’scompany's articles of association or under applicable law, all resolutions of the shareholders of a company require a simple majority.
 
Under Amendment 20, the board of directors of an Israeli publicly traded company is required to establish a compensation policy, to be approved by the shareholders of the company, pursuant to which the terms of office and compensation of the company’scompany's officer holders will be decided.decided (unless the company qualifies as an Eligible Company and opt to follow the exemption provided under the Amendment to the Relief Regulations regarding appointment of external directors and composition of the audit and compensation committees). The final adoption of such compensation policy is subject to the approval of the shareholders, which approval is subject to certain special majority requirements, as set forth in the Companies Law, pursuant to which one of the following must be met:

(i)the majority of the votes includes at least a majority of all the votes of shareholders who are not controlling shareholders of the company or who do not have a personal interest in the compensation policy and participating in the vote; abstentions shall not be included in the total of the votes of the aforesaid shareholders; or

103
(ii)
the total of opposing votes from among the shareholders described in subsection (i) above does not exceed 2% of all the voting rights in the company.
 
For this purpose, under the Companies Law “personal interest”"personal interest" is defined as: (1) a shareholder’sshareholder's personal interest in the approval of an act or a transaction of the company, including (i) the personal interest of his or her relative (which includes for these purposes any members of his/her (or his/her spouse’s)spouse's) immediate family or the spouses of any such members of his or her (or his/her spouse’s)spouse's) immediate family); and (ii) a personal interest of a body corporate in which a shareholder or any of his/her aforementioned relatives serves as a director or the chief executive officer, owns at least 5% of its issued share capital or its voting rights or has the right to appoint a director or chief executive officer, but (2) excluding a personal interest arising solely from the fact of holding shares in the company or in a body corporate.
108
 
In addition, pursuant to the Companies Law, terms of office and employment of office holders in a public company, and terms of employment and/or terms of office of a controlling shareholder in a public company, require the approval of the shareholders, which such approval is subject to the special majority required for approving the compensation policy (as detailed above). See “Item"Item 6. Directors, Senior Management and Employees — Approval of Related Party Transactions under Israeli Law”Law" for information regarding the shareholders’shareholders' approval, and any additional approvals that might be required, with respect to the approval of terms of office and employment of office holders in a public company, pursuant to the Companies Law.
 
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential dividend or distribution rights that may be authorized in the future.
 
Access to Corporate Records
 
Under the Companies Law, all shareholders of a company generally have the right to review minutes of the company’scompany's general meetings, its shareholders register and principal shareholders register, articles of association, financial statements and any document it is required by law to file publicly with the Israeli Companies Registrar and the Israeli Securities Authority.ISA. Furthermore, any of our shareholders may request access to review any document in our possession that relates to any action or transaction with a related party, interested party or office holder that requires shareholder approval under the Companies Law. However, we may deny such a request to review a document if we determine that the request was not made in good faith, that the document contains a commercial secret or a patent or that the document’sdocument's disclosure may otherwise prejudice our interests.
 
Acquisitions under Israeli Law
 
Full Tender Offer
 
A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the target company’scompany's issued and outstanding share capital is required by the Companies Law to make a tender offer to all of the company’scompany's shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer except that if the total votes to reject the tender offer represent less than 2% of the company’scompany's issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer). However, a shareholder that had its shares so transferred may petition the court within six months from the date of acceptance of the full tender offer, whether or not such shareholder agreed to the tender, to determine whether the tender offer was for less than fair value and whether the fair value should be paid as determined by the court unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights. If the shareholders who did not accept the tender offer hold 5% or more of the issued and outstanding share capital of the company or of the applicable class, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’scompany's issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
 
109104
Special Tender Offer
 
The Companies Law provides that an acquisition of shares of a public Israeli 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 25% or more of the voting rights in the company, unless one of the exemptions in the Companies Law is met. 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 45% or more of the voting rights in the company, if there is no other shareholder of the company who holds 45% or more of the voting rights in the company, unless one of the exemptions in the Companies Law is met.
 
A special tender offer must be extended to all shareholders of a company but the offeror is not required to purchase shares representing more than 5% of the voting power attached to the company’scompany's outstanding shares, regardless of how many shares are tendered by shareholders. A special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’scompany's outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.

If a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into 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.
 
Merger
 
The Companies Law permits merger transactions if approved by each party’sparty's board of directors and, unless certain requirements described under the Companies Law are met, a majority of each party’sparty's shares voted on the proposed merger at a shareholders’shareholders' meeting called with at least 35 days’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 more of the directors of the other party, vote against the merger. If the transaction would have been approved but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of the 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 the 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 of any of the parties to the merger, and may further give instructions to secure the rights 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 party.
 
Antitakeover Measures
 
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. As of the date of this annual report, we do not have any authorized or issued shares other than our ordinary shares. In 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 of Association which requires the prior approval of the holders of a majority of our shares at a general meeting. Shareholders voting in such meeting will be subject to the restrictions provided in the Companies Law as described above.  In addition, the Israeli Securities Law and the rules and regulations of the TASE also limit the terms permitted with respect to a new class of shares created by a public company whose shares are traded on the TASE, and prohibit any such new class of shares from having voting rights.
 
110105
C. Material Contracts
 
For a discussion of our out-licensing and in-licensing agreements, see Item 4. The following are summary descriptions of certain other material contracts to which we are a party. The descriptions provided below do not purport to be complete and are qualified in their entirety by the complete agreements, which are attached as exhibits to this Annual Report on Form 20-F.
 
Share PurchaseClinical Trial Collaboration and Supply Agreement with LPCMerck
 
On May 28, 2014,In January 2016, we entered into a purchasecollaboration agreement with LPC, pursuantwe announced a collaboration with Merck sharp & Dohme, B.V., or Merck, to which LPC agreedsupport a Phase 2 study investigating our BL-8040 in combination with KEYTRUDA® (pembrolizumab), MSD's anti-PD-1 therapy, in patients with metastatic pancreatic cancer. The Phase 2 study will evaluate the clinical response, safety and tolerability of the combination of these therapies as well as multiple pharmacodynamic parameters, including the ability to purchase from us up to $20 millionimprove infiltration of our ADSs (subject to certain limitations) from time to time over a 36-month period. Also on May 28, 2014, we entered into a registration rights agreement with LPC, pursuant to which we filed a registration statement on May 30, 2014 with the SEC for 10,400,000 of our ADSs, covering the ADSs that have been issued or may be issued to LPC under the purchase agreement. The registration statement was declared effective on June 12, 2014.
In consideration for enteringT-cells into the purchase agreement, we issued to 150,000 ADSs to LPC upon execution of the purchase agreement as an initial commitment fee,tumor and we will issue additional ADSs to LPC as an additional commitment fee in connection with each purchase by LPC under the purchase agreement equal to 2.5% of the amount of ADSs issued on each applicable purchase date. We will issue these additional commitment ADSs only when, and if, we elect to sell ADSs to LPC under the purchase agreement.
We can sell up to $200,000 worth of ADSs to LPC (which amount may be increased based on the trading price of our ADSs on the applicable purchase date), so long as at least one business day has passed between (i) the date on which LPC received all of the purchased ADSs in connection with the most recent prior purchase and (ii) the date we direct LPC to make a purchase. We control the timing and amount of any sales of our ADSs to LPC. Each time we direct LPC to purchase ADSs, subjecttheir reactivity. According to the terms of the purchase agreement, LPC will be obligated to purchase such amounts directed by us. LPC does not havewe are sponsoring and performing the right to require us to sell any ADSs to them under the purchase agreementstudy, which was initiated in September 2016, and we have no obligation to sell any shares under the purchase agreement.
The purchase priceMerck is supplying its compound for purposes of the ADSs sold to LPC under the purchase agreement will be based on the market price of our ADSs immediately preceding the time of sale as computed under the purchase agreement, without any fixed discount and as more fully described in the purchase agreement. In addition, on any business day on which we have properly directed LPC to make a regular purchase, we can also accelerate the amount of our ADSs to be purchased under certain circumstances. Accelerated purchases may be made in amounts of up to the lesser of (i) 25% of the aggregate ADSs traded on Nasdaq during normal trading hours on the accelerated purchase date and (ii) three times the number of ADSs purchased pursuant to the corresponding regular purchase.
LPC may not assign or transfer its rights and obligations under the purchase agreement. We may at any time in our sole discretion terminate the purchase agreement without fee, penalty or cost. The purchase agreement will automatically terminate on July 1, 2017.
As of the date of this report, we have sold 1,292,601 ADSs to LPC in accordance with the purchase agreement.
Investment and Collaboration Agreement with Novartis
In December 2014, we entered into a multi-year strategic collaboration agreement with Novartis Pharma AG, or Novartis designed to facilitate development and commercialization of Israeli-sourced pharmaceutical candidates. Novartis will evaluate projects identified and presented by us for co-development and future licensing under the collaboration. The parties intend to co-develop a number of pre-clinical and clinical therapeutic projects up to clinical proof of concept. As part of the agreement, Novartis made an initial equity investment in BioLineRx of $10 million, for 12.8% of our then current shares outstanding. Novartis has agreed to certain restrictions on the percentage of our outstanding capital it may own, on the exercise of its rights as a shareholder and on its sales of the shares it owns.
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study. The parties have agreed on the establishment of a joint steeringdevelopment committee which has the responsibility of coordinating all regulatory and other activities under the agreement.
Upon completion of the study, or JSC,at any earlier point, both parties will have the option to oversee, implement and coordinateexpand the collaboration contemplated byto include a pivotal registration study.
Combination Study Agreement with Genentech
In September 2016, we entered into a collaboration with Genentech to support several Phase 1b studies investigating BL-8040 in combination with Atezolizumab, Genentech's anti-PDL1 cancer immunotherapy, in multiple cancer indications. Under the collaboration agreement, Genentech will sponsor and onconduct several trials in multiple solid cancer indications. In addition, we will sponsor and conduct a process for screeningstudy in AML patients. The Phase 1b studies, which are all expected to commence in the second half of 2017, will evaluate the clinical response, safety and selecting projects. For each clinical project which the JSC selects for in-licensing by us within the frameworktolerability of the collaboration (a “Selected Project”), Novartis will pay us a fixed, non-refundable option feecombination of $5 million (the “Option Fee”),these therapies, as well as fund 50%multiple pharmacodynamic parameters, in hematologic malignancies and solid tumors.
Upon completion of the anticipated remaining development costs associated with establishing clinical proof-of-concept, in the form of an additional equity investment in BioLineRx. Thestudies, both parties have agreed on procedures for funding and continuing the development of a Selected Project if cost overruns arise. We will retain full control over the development process of Selected Projects; provided, however, Novartis and we will continue to consult on the progress of the implementation of the development plan for the Selected Project.
For each Selected Project, Novartis will have, during a defined period (the “ROFN Period”), a first right to commence exclusive negotiations to obtain a sublicense with respect to the particular Selected Project. If no definitive sublicense agreement has been entered into prior to the end of the ROFN Period (or any longer period that may be agreed in writing between the parties), we will be entitled to pursue licensing or similar opportunities with third parties (“Third Party Opportunities”) with respect to such Selected Project.
In cases of pre-clinical projects selected by the JSC (a “Flagged Project”), we will develop these Flagged Projects under the guidance of the JSC, and once these projects reach the IND (i.e., clinical) stage, Novartis will have the rightoption to defineexpand the project ascollaboration to include a Selected Project under all the same terms as described above.
The arrangements between Novartis and us set out in the agreement are to be mutually exclusive and neither may take any action to circumvent the other with respect to the matters set out in the Agreement.
Before entering into a sublicense agreement with Novartis with respect to a specific project, all data, results, developments, inventions and know-how and all intellectual property rights therein and thereto, generated or discovered in the course of performing research and development activities in the context of any project (“Project IP”) shall be our exclusive property, regardless of whether Novartis has funded any activities that resulted in Project IP.
The term of the Agreement, unless earlier terminated as permitted by the agreement, will continue in effect until the first to occur of (i) payment by Novartis of the Option Fee in respect of a certain number of “Projects,” as defined in the Agreement or (ii) the later of (A) three years from the effective date of the agreement or (B) the presentation by us to Novartis at the JSC of a certain number of projects of the types agreed on by the parties.pivotal registration study.
 
D. Exchange Controls
 
There are no Israeli government laws, decrees or regulations that restrict or that affect our export or import of capital or the remittance of dividends, interest or other payments to non-resident holders of our securities, including the availability of cash and cash equivalents for use by us and our wholly-owned subsidiaries, except or otherwise as set forth under “Item"Item 10E. Additional Information — Taxation.”"
 
E. Taxation
 
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, both referred to in this Item 10E as the Shares.ordinary shares. 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.
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Israeli Tax Considerations
 
The following is a summary of the material Israeli tax laws applicable to us. This section also contains a discussion of material Israeli tax consequences concerning the ownership and disposition of our Shares.shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. Because certain parts of this discussion are based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion.
 
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General Corporate Tax Structure in Israel
 
Israeli companies are generally subject to corporate tax on their taxable income. The regular corporate tax rate in Israel for the year 2013 was 25%, for the years 2014 and 2015 it was 26.5% and it is now set to be 25% for the year 2016, 24% for the year 2017, and 23% for the year 2018 and thereafter. Capital gains derived by an Israeli company are now generally subject to tax at the same rate as the corporate tax rate.
 
In May 2012, the Israeli Tax Authority, or ITA, approved our eligibility for tax benefits as a “Benefited Enterprise”"Benefited Enterprise" under the Law for the Encouragement of Capital Investments, 5719-1959, as amended, or Investments Law, with respect to a portion of the consideration deriving from certain of our development programs, or Eligible Projects. Subject to compliance with the applicable requirements, the portion of our undistributed income derived from our Benefited Enterprise programs will be entitled to a seven-year period of tax benefits due to the Company’sCompany's location in Modi’inModi'in (a tax exemption for a period of two years, followed by five years at the Benefited Enterprise tax rate of 25%) commencing in the first year in which we generate taxable income after setting off our losses for Israeli tax purposes from prior years in the amount of approximately $152 million. The seven-year period may not extend beyond 12 years from the beginning of the Benefited Enterprise’sEnterprise's election year. We received Benefited Enterprise status with respect to the Eligible Projects in 2009 and 2012 tax years, so depending on when the Benefited Enterprise programs begin to generate taxable income, the benefit period could continue through 2023. However, any distribution of income derived from exempt income sourced in our Benefited Enterprise programs will result in such income being subject to a rate of corporate tax no greater than 25%.
 
We have the option to transition to a “Preferred Enterprise”"Preferred Enterprise" regime under the Investments Law with respect to the year 20162017 (through May 31, 2016)2017), according to which all of our income which is eligible for benefits under the regime would be subject to flat corporate tax rates of 16% in 20162017 and thereafter, whether or not distributed. A transition to a Preferred Enterprise regime may not be reversed.
 
In addition, the ITA approved certain of our operations as an “Industrial Enterprise”"Industrial Enterprise" under the Investments Law, meaning that we are eligible for accelerated depreciation with respect to certain tangible assets belonging to our Benefited Enterprise.
 
Should we not meet the requirements for maintaining these benefits, they may be reduced or cancelled and, among other things, our income deriving from the Eligible Projects (assuming we are profitable for tax purposes after offsetting losses) would be subject to regular corporate tax rate in Israel at the standard rate. If these tax benefits are reduced or eliminated, the amount of taxes that we pay would likely increase, as all of our operations would consequently be subject to corporate tax at the standard rate, which could adversely affect our results of operations.
 
Taxation of Israeli Individual Shareholders on Receipt of Dividends. Israeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our ordinary shares (other than bonus shares or share dividends) at a rate of either 25% or, if the recipient of such dividend is a substantial shareholder (as defined below) at the time of distribution or at any time during the preceding 12-month period 30%.
 
Taxation of Israeli Resident Corporations on Receipt of Dividends. Israeli resident corporations are generally exempt from Israeli corporate tax for dividends paid on our Shares.ordinary shares.
 
However, in the case of both Israeli individual shareholders and Israeli resident corporations, under the Investments Law, dividends distributed from taxable income accrued during the period of benefit of a Benefited Enterprise and which are attributable to a Benefited Enterprise are subject to tax at the rate of 15%20%, if the dividend is distributed during the tax benefit period under the Investment Law or within 12 years after that period. A weighted average rate may be set if the dividend is distributed from mixed types of income (regular and Benefited Enterprise income).  Different tax rates might apply to dividends sourced from profits attributable to a Preferred Enterprise, but this matter is not currently relevant to the Company.
 
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Taxation of Non-Israeli Shareholders on Receipt of Dividends.Dividends. Non-residents of Israel are generally subject to Israeli income tax on the receipt of dividends paid on our Sharesordinary shares at the rate of 25% (or 30% if such person is a “substantial shareholder”"substantial shareholder" at the time receiving the dividend or on any date in the 12 months preceding such date), which tax will be withheld at the source, unless a lower rate is provided in a tax treaty between Israel and the shareholder’sshareholder's country of residence. If the income out of which the dividend is being paid is sourced from profits attributable to a Benefited Enterprise under the Investments Law, the rate is generally not more than 15%20%.
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Under the U.S.-Israel Tax Treaty, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid out of the profits of a Benefited Enterprise, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the voting stock of the paying corporation during the part of the paying corporation’scorporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any) and the dividend is not paid from the profits of a Benefited Enterprise, the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.
 
A “substantial shareholder”"substantial shareholder" is generally a person who alone, or together with his relative or another person who collaborates with him on a regular basis, holds, directly or indirectly, at least 10% of any of the “means"means of control”control" of the corporation. “Means"Means of control”control" generally include the right to vote, receive profits, nominate a director or an officer, receive assets upon liquidation, or instruct someone who holds any of the aforesaid rights regarding the manner in which he or she is to exercise such right(s), and all regardless of the source of such right.
 
A non-resident of Israel who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.
 
Taxation of Capital Gains. Israeli law imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including shares in Israeli companies, by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’sshareholder's country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain that is equivalent to the increase of the relevant asset’sasset's purchase price which is attributable to the increase in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
 
Capital Gains Taxes Applicable to Israeli Resident Shareholders.Shareholders. An individual is subject to a tax at a rate of 25% on actual capital gains derived from the sale of shares, as long as the individual is not a substantial shareholder in the company issuing the shares.
 
An individual who is a substantial shareholder is subject to tax at a rate of 30% in respect of actual capital gains derived from the sale of shares issued by the company in which he or she is a substantial shareholder. The determination of whether the individual is a substantial shareholder will be made on the date that the securities are sold. In addition, the individual will be deemed to be a substantial shareholder if at any time during the 12 months preceding the date he or she had been a substantial shareholder.
 
Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders. Shareholders that are not Israeli residents are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our Shares,ordinary shares, provided that such shareholders did not acquire their Sharesordinary shares prior to our initial public offering on the TASE and such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemptions if one or more Israeli residents (a) have a controlling interest of 25% or more in such non-Israeli corporation or (b) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
 
In addition, under the U.S.-Israel Tax Treaty, the sale, exchange or disposition of our Sharesordinary shares by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) holding the Sharesordinary shares as a capital asset is exempt from Israeli capital gains tax unless (1) the shareholder holds, directly or indirectly, shares representing 10% or more of our voting capital during any part of the 12-month period preceding such sale, exchange or disposition; (2) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder located in Israel; (3) a shareholder who is an individual is present in Israel for a period or periods aggregating 183 days or more during a taxable year. In either case, the sale, exchange or disposition of Sharesordinary shares would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Tax Treaty, the U.S. resident would be permitted to claim a credit for the tax against the U.S. federal income tax imposed with respect to the sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes.
 
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Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale.
 
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U.S. Federal Income Tax Considerations
The following is a general summary of the material U.S. federal income tax considerations relating to the purchase, ownership and disposition of our Sharesordinary shares and ADSs by U.S. Investors (as defined below) that are initial purchasers of such ordinary shares or ADSs and that hold such Sharesordinary shares or ADSs as capital assets. This summary is based on the Internal Revenue Code of 1986, as amended, or the Code, the regulations of the U.S. Department of the Treasury issued pursuant to the Code, or the Treasury Regulations, and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect, or to different interpretation. This summary is for general information only and does not address all of the tax considerations that may be relevant to specific U.S. Investors in light of their particular circumstances or to U.S. Investors subject to special treatment under U.S. federal income tax law (such as banks, insurance companies, tax-exempt entities, retirement plans, regulated investment companies, partnerships, dealers in securities, brokers, real estate investment trusts, certain former citizens or residents of the United States, persons who acquire Sharesour ordinary shares or ADSs as part of a straddle, hedge, conversion transaction or other integrated investment, persons that have a “functional currency”"functional currency" other than the dollar,Dollar, persons that own (or are deemed to own, indirectly or by attribution) 10% or more of our ordinary shares or ADSs or persons that generally mark their securities to market for U.S. federal income tax purposes). This summary does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift or alternative minimum tax considerations.
 
As used in this summary, the term “U.S. Investor”"U.S. Investor" means a beneficial owner of Sharesour ordinary shares or ADSs that is, for U.S. federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, 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 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 an electinga trust that was in existence on August 19, 1996 and washas validly elected to be treated as a domestic trust on that date.U.S. person for U.S. federal income tax purposes, whose status as a U.S. person is not overwritten by an applicable tax treaty.
 
If an entity treated as a partnership for U.S. federal income tax purposes holds Shares,our ordinary shares or ADSs, the tax treatment of such partnership and each partner thereof will generally depend upon the status and activities of the partnership and such partner. A holder that is treated as a partnership for U.S. federal income tax purposes should consult its own tax advisor regarding the U.S. federal income tax considerations applicable to it and its partners of the purchase, ownership and disposition of Shares.its ordinary shares or ADSs.
 
Prospective investors should be aware that this summary does not address the tax consequences to investors who are not U.S. Investors. Prospective investors should consult their own tax advisors as to the particular tax considerations applicable to them relating to the purchase, ownership and disposition of Shares,their ordinary shares or ADSs, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.
 
Taxation of U.S. Investors
 
The discussions under “— Distributions”"— Distributions," and under “—"— Sale, Exchange or Other Disposition of Ordinary Shares”Shares or ADSs" below assumes that we will not be treated as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. However, we have not determined whether we will be a PFIC in 2016,for the taxable year ending December 31, 2017, and it is possible that we will be a PFIC in 2016for the taxable year ending December 31, 2017 or in any subsequent year. For a discussion of the rules that would apply if we are treated as a PFIC, see the discussion under “—"— Passive Foreign Investment Company.”"
 
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Distributions.Distributions. We have no current plans to pay dividends. To the extent we pay any dividends, a U.S. Investor will be required to include in gross income as a taxable dividend the amount of any distributions made on the Shares,ordinary shares or ADSs, including the amount of any Israeli taxes withheld, to the extent that those distributions are paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Any distributions in excess of our earnings and profits will be applied against and will reduce the U.S. Investor’sInvestor's tax basis in its Sharesordinary shares or ADSs and to the extent they exceed that tax basis, will be treated as gain from the sale or exchange of those Shares.ordinary shares or ADSs. If we were to pay dividends to holders of our ordinary shares, we expect to pay such dividends in NIS; however, dividends paid to holders of our ADSs will be paid in U.S. Dollars. A dividend paid in NIS, including the amount of any Israeli taxes withheld, will be includible in a U.S. Investor’sInvestor's income as a dollarDollar amount calculated by reference to the exchange rate in effect on the date such dividend is received, regardless of whether the payment is in fact converted into dollars.Dollars. If the dividend is converted to dollarsDollars on the date of receipt, a U.S. Investor generally will not recognize a foreign currency gain or loss. However, if the U.S. Investor converts the NIS into dollarsDollars on a later date, the U.S. Investor must include, in computing its income, any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the difference between (i) the dollarDollar value of the amount included in income when the dividend was received and (ii) the amount received on the conversion of the NIS into dollars.Dollars. Such gain or loss will generally be ordinary income or loss and United States source for U.S. foreign tax credit purposes. U.S. Investors should consult their own tax advisors regarding the tax consequences to them if we pay dividends in NIS or any other non-U.S. currency.
 
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Subject to certain significant conditions and limitations, including potential limitations under the United States-Israel income tax treaty, any Israeli taxes paid on or withheld from distributions from us and not refundable to a U.S. Investor may be credited against the investor’sinvestor's U.S. federal income tax liability or, alternatively, may be deducted from the investor’sinvestor's taxable income. This election is made on a year-by-year basis and applies to all foreign taxes paid by a U.S. Investor or withheld from amounts paid to a U.S. Investor that year. Dividends paid on the Sharesordinary shares or ADSs generally will constitute income from sources outside the United States and be categorized as “passive"passive category income”income" or, in the case of some U.S. Investors, as “general"general category income”income" for U.S. foreign tax credit purposes.
 
Since the rules governing foreign tax credits are complex, U.S. Investors should consult their own tax advisor regarding the availability of foreign tax credits in their particular circumstances. In addition, the U.S. Treasury Department has expressed concerns that parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. holders of ADSs. Accordingly, the creditability of Israeli taxes could be affected by future actions that may be taken by the U.S. Treasury Department or parties to whom ADSs are pre-released.
 
Dividends paid on the Sharesordinary shares and ADSs will not be eligible for the “dividends-received”"dividends-received" deduction generally allowed to corporate U.S. Investors with respect to dividends received from U.S. corporations.
 
Distributions treated as dividends that are received by an individual U.S. Investor from “qualified"qualified foreign corporations”corporations" generally qualify for a reduced maximum tax rate so long as certain holding period and other requirements are met. Dividends paid by us in a taxable year in which we are not a PFIC are expected to be eligible for the reduced maximum tax rate. However, any dividend paid by us in a taxable year in which we are a PFIC will be subject to tax at regular ordinary income rates. As mentioned above, we have not determined whether we are currently a PFIC or not.
 
Sale, Exchange or Other Disposition of Ordinary Shares.Shares and ADSs. Subject to the discussion under “—"— Passive Foreign Investment Company”Company" below, a U.S. Investor generally will recognize capital gain or loss upon the sale, exchange or other disposition of Sharesordinary shares or ADSs in an amount equal to the difference between the amount realized on the sale, exchange or other disposition and the U.S. Investor’sInvestor's adjusted tax basis in such Shares.ordinary shares or ADSs. This capital gain or loss will be long-term capital gain or loss if the U.S. Investor’sInvestor's holding period in the Sharesordinary shares or ADSs exceeds one year. Preferential tax rates for long-term capital gain will apply to individual U.S. Investors. The deductibility of capital losses is subject to limitations. The gain or loss will generally be income or loss from sources within the United States for U.S. foreign tax credit purposes.
 
U.S. Investors should consult their own tax advisors regarding the U.S. federal income tax consequences of receiving currency other than Dollars upon the disposition of ordinary shares or ADSs.
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Medicare Tax. TaxCertain. In addition, certain U.S. persons, including individuals, estates and trusts, will be subject to an additional 3.8% Medicare tax on unearned income. For individuals, the additional Medicare tax applies to the lesser of (i) “net"net investment income”income" or (ii) the excess of “modified"modified adjusted gross income”income" over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net"Net investment income”income" generally equals the taxpayer’staxpayer's gross investment income reduced by the deductions that are allocable to such income. Investment income generally includes passive income such as interest, dividends, annuities, royalties, rents, and capital gains. U.S. Investors are urged to consult their own tax advisors regarding the implications of the additional Medicare tax resulting from their ownership and disposition of Shares.
U.S. Investors should consult their own tax advisors regarding the U.S. federal income tax consequences of receiving currency other than dollars upon the disposition of Shares.
ordinary shares or ADSs.
 
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Passive Foreign Investment Company
 
In general, a corporation organized outside the United States will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of its gross income is “passive income”"passive income" or (ii) on average at least 50% of its assets by value produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in the public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.
 
Under the tests described above, whether or not we are a PFIC will be determined annually based upon the composition of our income and the composition and valuation of our assets, all of which are subject to change.
 
We believe that we were a PFIC for U.S. federal income tax purposes for taxable years ended prior to December 31, 2009 and infor taxable years ended December 31, 2011, 2012, 2014, 2015 and 2015.2016. We were not a PFIC infor taxable years ended 2009, 2010 and 2013, and we have not yet determined whether we will be a PFIC in 2016.for the taxable year ending December 31, 2017. Because the PFIC determination is highly fact intensive and made at the end of each taxable year, there can be no assurance that we will not be a PFIC in 2016for taxable year ending December 31,2017 or in any subsequent year. Upon request, we will annually inform U.S. Investors if we and any of our subsidiaries were a PFIC with respect to the preceding year.
 
U.S. Investors should be aware of certain tax consequences of investing directly or indirectly in us if we are a PFIC. A U.S. Investor is subject to different rules depending on whether the U.S. Investor makes an election to treat us as a “qualified"qualified electing fund,”" known as a QEF election, for the first taxable year that the U.S. Investor holds Shares,ordinary shares or ADSs, which is referred to in this disclosure as a “timely"timely QEF election,”" makes a “mark-to-market”"mark-to-market" election with respect to the Sharesordinary shares or ADSs (if such election is available) or makes neither election.
QEF Election. Election. A U.S. Investor who makes a timely QEF election, referred to in this disclosure as an “Electing"Electing U.S. Investor,”" with respect to us must report for U.S. federal income tax purposes his pro rata share of our ordinary earnings and net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing U.S. Investor. The “net"net capital gain”gain" of a PFIC is the excess, if any, of the PFIC’sPFIC's net long-term capital gains over its net short-term capital losses. The amount so included in income generally will be treated as ordinary income to the extent of such Electing U.S. Investor’sInvestor's allocable share of the PFIC’sPFIC's ordinary earnings and as long-term capital gain to the extent of such Electing U.S. Investor’sInvestor's allocable share of the PFIC’sPFIC's net capital gains. Such Electing U.S. Investor generally will be required to translate such income into dollarsDollars based on the average exchange rate for the PFIC’sPFIC's taxable year with respect to the PFIC’sPFIC's functional currency. Such income generally will be treated as income from sources outside the United States for U.S. foreign tax credit purposes. Amounts previously included in income by such Electing U.S. Investor under the QEF rules generally will not be subject to tax when they are distributed to such Electing U.S. Investor. The Electing U.S. Investor’sInvestor's tax basis in Sharesordinary shares or ADSs generally will increase by any amounts so included under the QEF rules and decrease by any amounts not included in income when distributed.
 
An Electing U.S. Investor will be subject to U.S. federal income tax on such amounts for each taxable year in which we are a PFIC, regardless of whether such amounts are actually distributed to such Electing U.S. Investor. However, an Electing U.S. Investor may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If an Electing U.S. Investor is an individual, any such interest will be treated as non-deductible “personal"personal interest.”"
 
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Any net operating losses or net capital losses of a PFIC will not pass through to the Electing U.S. Investor and will not offset any ordinary earnings or net capital gain of a PFIC recognized by Electing U.S. Investors in subsequent years (although such losses would ultimately reduce the gain, or increase the loss, recognized by the Electing U.S. Investor on its disposition of the Shares)ordinary shares or ADSs).
 
So long as an Electing U.S. Investor’sInvestor's QEF election with respect to us is in effect with respect to the entire holding period for Shares,ordinary shares or ADSs, any gain or loss recognized by such Electing U.S. Investor on the sale, exchange or other disposition of such Sharesordinary shares or ADSs generally will be long-term capital gain or loss if such Electing U.S. Investor has held such Sharesordinary shares or ADSs for more than one year at the time of such sale, exchange or other disposition. Preferential tax rates for long-term capital gain will apply to individual U.S. Investors. The deductibility of capital losses is subject to limitations.
 
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A U.S. Investor makes a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto.  A QEF election generally may not be revoked without the consent of the IRS.  Upon request, we will annually furnish U.S. Investors with information needed in order to complete IRS Form 8621 (which form would be required to be filed with the IRS on an annual basis by the U.S. Investor) and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC. A QEF election will not apply to any taxable year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become a PFIC. Each U.S. Investor is encouraged to consult its own tax advisor with respect to tax consequences of a QEF election with respect to us.
 
Mark-to-Market Election. Alternatively, if our Sharesordinary shares or ADSs are treated as “marketable"marketable stock,”" a U.S. Investor would be allowed to make a “mark-to-market”"mark-to-market" election with respect to our Shares,ordinary shares or ADSs, provided the U.S. Investor completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the U.S. Investor generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the Sharesordinary shares or ADSs at the end of the taxable year over such holder’sholder's adjusted tax basis in the Shares.ordinary shares or ADSs. Thus, the U.S. Investor may recognize taxable income without receiving any cash to pay its tax liability with respect to such income. The U.S. Investor would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Investor’sInvestor's adjusted tax basis in the Sharesordinary shares or ADSs over 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. Investor’sInvestor's tax basis in the Sharesordinary shares or ADSs would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of the Sharesordinary shares or ADSs would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the Sharesordinary shares or ADSs would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included in income by the U.S. Investor, 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, stock will be considered marketable stock if it is “regularly traded”"regularly traded" on a “qualified exchange”"qualified exchange" within the meaning of applicable Treasury regulations.Regulations. A class of stock is regularly traded on an exchange during any calendar year during which such class of stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Our ADSs will be marketable stock as long as they remain listed on the Nasdaq Capital Market and are regularly traded. A mark-to-market election will not apply to our ordinary shares or ADSs held by a U.S. Investor for any taxable year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become a PFIC.PFIC unless our ordinary shares or ADSs cease to be marketable.  A mark-to-market election generally may not be revoked without the consent of the IRS. Such election will not apply to any PFIC subsidiary that we own. Each U.S. Investor is encouraged to consult its own tax advisor with respect to the availability and tax consequences of a mark-to-market election with respect to our ordinary shares or ADSs.
 
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Default PFIC Rules. A U.S. Investor who does not make a timely QEF election or a mark-to-market election, referred to in this disclosure as a “Non-Electing"Non-Electing U.S. Investor,”" will be subject to special rules with respect to (a) any “excess distribution”"excess distribution" (generally, the portion of any distributions received by the Non-Electing U.S. Investor on the Sharesordinary shares or ADSs in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing U.S. Investor in the three preceding taxable years, or, if shorter, the Non-Electing U.S. Investor’sInvestor's holding period for his Shares)the ordinary shares or ADSs), and (b) any gain realized on the sale or other disposition of such Shares.ordinary shares or ADSs. Under these rules:
 
the excess distribution or gain would be allocated ratably over the Non-Electing U.S. Investor’s holding period for the Shares;
·the excess distribution or gain would be allocated ratably over the Non-Electing U.S. Investor's holding period for the ordinary shares or ADSs;
 
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 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.
·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. Investor who is an individual dies while owning our Shares,ordinary shares or ADSs, the Non-Electing U.S. Investor’sInvestor's successor would be ineligible to receive a step-up in tax basis of the Shares.ordinary shares or ADSs. Non-Electing U.S. Investors are encouraged to consult their tax advisors regarding the application of the PFIC rules to their specific situation.
 
A Non-Electing U.S. Investor who wishes to make a QEF election for a subsequent year may be able to make a special “purging election”"purging election" pursuant to Section 1291(d) of the Code. Pursuant to this election, a Non-Electing U.S. Investor would be treated as selling his or her stockordinary shares or ADSs for fair market value on the first day of the taxable year for which the QEF election is made. Any gain on such deemed sale would be subject to tax under the rules for Non-Electing U.S. Investors as discussed above. Non-Electing U.S. Investors are encouraged to consult their tax advisors regarding the availability of a “purging election”"purging election" as well as other available elections.
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To the extent a distribution on our Sharesordinary shares or ADSs does not constitute an excess distribution to a Non-Electing U.S. Investor, such Non-Electing U.S. Investor 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 are not allocated to excess distributions. The tax consequences of such distributions are discussed above under “—"— Taxation of U.S. Investors — Distributions.”" Each U.S. Investor 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.ordinary shares or ADSs.
 
If we are treated as a PFIC for any taxable year during the holding period of a Non-Electing U.S. Investor, we will continue to be treated as a PFIC for all succeeding years during which the Non-Electing U.S. Investor is treated as a direct or indirect Non-Electing U.S. Investor even if we are not a PFIC for such years. A U.S. Investor is encouraged to consult its tax advisor with respect to any available elections that may be applicable in such a situation, including the “deemed sale”"deemed sale" election of Code Section 1298(b)(1). In addition, U.S. Investors should consult their tax advisors regarding the IRS information reporting and filing obligations that may arise as a result of the ownership of shares in a PFIC.PFIC, including IRS Form 8621.
 
We may invest in the equity of foreign corporations that are PFICs or may own subsidiaries that own PFICs. U.S. Investors will be subject to the PFIC rules with respect to their indirect ownership interests in such PFICs, such that a disposition of the shares of the PFIC or receipt by us of a distribution from the PFIC generally will be treated as a deemed disposition of such shares or the deemed receipt of such distribution by the U.S. Investor, subject to taxation under the PFIC rules. There can be no assurance that a U.S. Investor will be able to make a QEF election or a mark-to-market election with respect to PFICs in which we invest. Each U.S. Investor is encouraged to consult its own tax advisor with respect to tax consequences of an investment by us in a corporation that is a PFIC.
 
The U.S. federal income tax rules relating to PFICs are complex. U.S. Investors are urged to consult their own tax advisors with respect to the purchase, ownership and disposition of Shares,ordinary shares or ADSs, any elections available with respect to such Sharesordinary shares or ADSs and the IRS information reporting obligations with respect to the purchase, ownership and disposition of Shares.ordinary shares or ADSs.
 
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Certain Reporting Requirements
 
Certain U.S. Investors areowning "specified foreign financial assets" with an aggregate value in excess of $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollar amount as may be prescribed by applicable IRS guidance) may be required to file IRS Form 926, Return8938, Statement of Specified Foreign Financial Assets, with respect to such assets with their tax returns. "Specified foreign financial assets" generally include any financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons, which may include the ordinary shares or ADSs, (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 from reporting under this provision (although the financial account itself, if maintained by a foreign financial institution, may remain subject to this reporting requirement).  U.S. TransferorInvestors are urged to consult their tax advisors regarding the application of Propertythese requirements to their ownership of the ordinary shares or ADSs.
If we are a Foreign Corporation, and certainPFIC, U.S. Investors may be required to file annual tax returns (including on IRS Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, reporting transfers of cash or other property to us and8621) containing such information relating toas the U.S. Investor and us. Substantial penalties may be imposed upon aTreasury requires.   A U.S. Investor that fails to comply. Each U.S. Investor should consult its own tax advisor regarding these requirements.
In addition, recently enacted legislation imposes new reporting requirements for the holder of certain foreign financial assets, including equity of foreign entities, if the aggregate value of all of these assets exceeds $50,000. The Shares are expected to be subject to these new reporting requirements unless the Shares are held in an account at a domestic financial institution. The requirementis not otherwise required to file a report is effectiveU.S. tax return must still file IRS Form 8621 in accordance with the instructions for taxable years beginning after March 18, 2010. Penalties apply to any failure to file a required report. U.S. Investors should consult their own tax advisors regarding the application of this legislation.Form.
 
Backup Withholding Tax and Information Reporting Requirements
 
Generally, information reporting requirements will apply to distributions on our Sharesordinary shares or ADSs or proceeds on the disposition of our Sharesordinary shares or ADSs paid within the United States (and, in certain cases, outside the United States) to U.S. Investors other than certain exempt recipients, such as corporations. Furthermore, backup withholding (currently at 28%) may apply to such amounts if the U.S. Investor fails to (i) provide a correct taxpayer identification number, (ii) report interest and dividends required to be shown on its U.S. federal income tax return, or (iii) make other appropriate certifications in the required manner. U.S. Investors who are required to establish their exempt status generally must provide such certification on IRS Form W-9.
 
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Backup withholding is not an additional tax. Amounts withheld as backup withholding from a payment may be credited against a U.S. Investor’sInvestor's U.S. federal income tax liability and such U.S. Investor may obtain a refund of any excess amounts withheld by timely filing the appropriate claim for refund with the IRS and furnishing any required information in a timely manner.
 
U.S. Investors should consult their own tax advisors concerning the tax consequences relating to the purchase, ownership and disposition of the Shares.ordinary shares or ADSs.
 
F. Dividends and Paying Agents
 
Not applicable
 
G. Statement by Experts
 
Not applicable.
 
H. Documents on Display
 
We are currently subject to the information and periodic reporting requirements of the Exchange Act, and file periodic reports and other information with the SEC through its electronic data gathering, analysis and retrieval (EDGAR) system. Our securities filings, including this Annual Report and the exhibits thereto, are available for inspection and copying at the public reference facilities of the SEC located at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains a website at http://www.sec.gov from which certain filings may be accessed.
 
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 annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.
 
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In addition, since our ordinary shares are traded on the TASE, we also file periodic and immediate reports with, and furnish information to, the TASE and the Israel Securities Authority,ISA, or the ISA, as required under Chapter Six of the Israel Securities Law, 1968 and the regulations enacted pursuant thereof, as applicable to a public company which also trades on the Nasdaq Capital Market.Nasdaq. Copies of our filings with the Israeli Securities AuthorityISA can be retrieved electronically through the MAGNA distribution site of the Israeli Securities AuthorityISA (www.magna.isa.gov.il) and the TASE website (www.maya.tase.co.il).
 
We maintain a corporate website at www.biolinerx.com. 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.
 
I. Subsidiary Information
 
Not applicable.
 
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ON MARKET RISK
 
Market risk is the risk of loss related to changes in market prices, including interest rates and foreign exchange rates, of financial instruments that may adversely impact our consolidated financial position, results of operations or cash flows. We do not use derivative financial instruments for trading purposes. Accordingly, we have concluded that there is no material market risk exposure of the type contemplated by Item 11, and that no quantitative tabular disclosures are required. We are exposed to certain other types of market risks, as described below.
 
Risk of Interest Rate Fluctuation
 
Our investments consist primarily of cash, cash equivalents and short-term bank deposits. We may also invest in investment-grade marketable securities with maturities of up to three years, including commercial paper, money market funds, and government/non-government debt securities. The primary objective of our investment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Our investments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. We manage this exposure by performing ongoing evaluations of our investments. Due to the short-term maturities of our investments to date, their carrying value has always approximated their fair value. It will be our policy to hold investments to maturity in order to limit our exposure to interest rate fluctuations.
 
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Foreign Currency Exchange Risk
 
Effective January 1, 2015, our reporting and functional currency is the dollar. However, we pay a significant portion of our expenses in NIS, and we expect this to continue. If the dollar weakens against the NIS in the future, there may be a negative impact on our results of operations. The revenues from our current out-licensing and co-development arrangements are payable in dollars and euros. Although we expect our revenues from future licensing arrangements to be denominated primarily in dollars, we are exposed to the currency fluctuation risks relating to the recording of our revenues in currencies other than dollars. For example, if the euro strengthens against the dollar, our reported revenues in dollars may be lower than anticipated. To date, fluctuations in the exchange rates have not materially affected our results of operations or financial condition for the periods under review.
 
From time to time, we have engaged in currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies, and we may continue to do so in the future. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.
 
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 
A. Debt Securities
 
Not applicable.
 
B. Warrants and Rights
 
Not applicable.
 
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C. Other Securities
 
Not applicable.
 
D. American Depositary Shares
 
Set forth below is a summary of the material terms of the deposit agreement, as amended, among our company, The Bank of New York Mellon as depositary, or the Depositary, and the owners and holders from time to time of our ADSs.
 
Description of the ADSs
 
Each of our ADSs represents one of our ordinary shares. Our ADSs trade on the Nasdaq Capital Market.Nasdaq.
 
The form of the deposit agreement for the ADS and the form of American Depositary Receipt (ADR) that represents an ADS have been incorporated by reference as exhibits to this Annual Report on Form 20-F. Copies of the deposit agreement are available for inspection at the principal office of The Bank of New York Mellon, located at 101 Barclay Street, New York, New York 10286, and at the principal office of our custodians, United Mizrahi-Tefahot Bank Leumi Le-Israel, 34 Yehuda Halevi St.Ltd., Tel-Aviv 65546, Israel and Bank Hapoalim B.M., 104 Hayarkon7 Jabotinsky Street, Tel Aviv 63432,Ramat Gan 52520, Israel.
 
Dividends, Other Distributions and Rights
 
Amounts distributed to ADS holders will be reduced by any taxes or other governmental charges required to be withheld by the custodian or the Depositary. If the Depositary determines that any distribution in cash or property is subject to any tax or governmental charges that the Depositary or the custodian is obligated to withhold, the Depositary may use the cash or sell or otherwise dispose of all or a portion of that property to pay the taxes or governmental charges. The Depositary will then distribute the balance of the cash and/or property to the ADS holders entitled to the distribution, in proportion to their holdings.
 
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Cash dividends and cash distributions. The Depositary will convert into dollars all cash dividends and other cash distributions that it or the custodian receives in a foreign currency. The Depositary will distribute to the ADS holders the amount it receives, after deducting any currency conversion expenses. If the Depositary determines that any foreign currency it receives cannot be converted and transferred on a reasonable basis, it may distribute the foreign currency (or an appropriate document evidencing the right to receive the currency), or hold that foreign currency uninvested, without liability for interest, for the accounts of the ADS holders entitled to receive it.
 
Distributions of ordinary shares. If we distribute ordinary shares as a dividend or free distribution, the Depositary may, with our approval, and will, at our request, distribute to ADS holders new ADSs representing the ordinary shares. The Depositary will distribute only whole ADSs. It will sell the ordinary shares that would have required it to use fractional ADSs and then distribute the proceeds in the same way it distributes cash. If the Depositary deposits the ordinary shares but does not distribute additional ADSs, the existing ADSs will also represent the new ordinary shares.
 
If holders of ordinary shares have the option of receiving a dividend in cash or in shares, we may also grant that option to ADS holders.
 
Other distributions. If the Depositary or the custodian receives a distribution of anything other than cash or shares, the Depositary will distribute the property or securities to the ADS holder, in proportion to such holder’sholder's holdings upon payment of its fees. If the Depositary determines that it cannot distribute the property or securities in this manner or that it is not feasible to do so, then, after consultation with us, it may distribute the property or securities by any means it thinks are equitable and practical, or it may sell the property or securities and distribute the net proceeds of the sale to the ADS holders. The Depositary may sell a portion of any distributed property that is sufficient to pay its fees.
 
Rights to subscribe for additional ordinary shares and other rights. If we offer our holders of ordinary shares any rights to subscribe for additional ordinary shares or any other rights, the Depositary will, if requested by us:
 
make the rights available to all or certain holders of ADSs, by means of warrants or otherwise, if lawful and practically feasible; or
 
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if it is not lawful or practically feasible to make the rights available, attempt to sell those rights or warrants or other instruments.
 
In that case, the Depositary will allocate the net proceeds of the sales to the account of the ADS holders entitled to the rights. The allocation will be made on an averaged or other practicable basis without regard to any distinctions among holders.
 
If registration under the Securities Act of 1933, as amended, is required in order to offer or sell to the ADS holders the securities represented by any rights, the Depositary will not make the rights available to ADS holders unless a registration statement is in effect or such securities are exempt from registration. We do not, however, have any obligation to file a registration statement or to have a registration statement declared effective. If the Depositary cannot make any rights available to ADS holders and cannot dispose of the rights and make the net proceeds available to ADS holders, then it will allow the rights to lapse, and the ADS holders will not receive any value for them.
 
Voting of the underlying shares. Under the deposit agreement, an ADS holder is entitled, subject to any applicable provisions of Israeli law, our Articles of Association and bylaws and the deposited securities, to exercise voting rights pertaining to the shares represented by its ADSs. If we so request, the Depositary will send to ADS holders such information as is contained in the notice of meeting that the Depositary receives from us, as well as a statement that holders of as the close of business on the specified record date will be entitled to instruct the Depositary as to the exercise of voting rights and a statement as to the manner in which the such instructions may be given. Under the terms of the Deposit Agreement, the Depositary shall endeavor (insofar as is practicable and in accordance with the applicable law and the articles of association of the Company) to vote or cause to be voted the number of shares represented by ADSs in accordance with the instructions provided by the holders of ADSs to the Depositary. If no instructions are received by the Depositary from any holder of ADSs with respect to any of the shares represented by the ADSs evidenced by such holder’sholder's receipts on or before the date established by the Depositary for such purpose, then the Depositary will deem the holder of the shares to have instructed the Depositary to give a discretionary proxy to a person designated by us with respect to the shares represented by such ADSs, and the Depositary will give such instruction. In such case, the restrictions of the Israeli Companies Law with respect to “personal"personal interest,”" as described elsewhere in this annual report, would apply as well.
 
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Changes affecting deposited securities. If there is any change in nominal value or any split-up, consolidation, cancellation or other reclassification of deposited securities, or any recapitalization, reorganization, business combination or consolidation or sale of assets involving us, then any securities that the Depositary receives in respect of deposited securities will become new deposited securities. Each ADS will automatically represent its share of the new deposited securities, unless the Depositary delivers new ADSs as described in the following sentence. The Depositary may distribute new ADSs or ask ADS holders to surrender their outstanding ADRs in exchange for new ADRs describing the new deposited securities.
 
Amendment of the deposit agreement. The Depositary and we may agree to amend the form of the ADSs and the deposit agreement at any time, without the consent of the ADS holders. If the amendment adds or increases any fees or charges (other than taxes or other governmental charges) or prejudices an important right of ADS holders, it will not take effect as to outstanding ADSs until 30 days after the Depositary has sent the ADS holders a notice of the amendment. At the expiration of that 30-day period, each ADS holder will be considered by continuing to hold its ADSs to agree to the amendment and to be bound by the deposit agreement as so amended. The Depositary and we may not amend the deposit agreement or the form of ADRs to impair the ADS holder’sholder's right to surrender its ADSs and receive the ordinary shares and any other property represented by the ADRs, except to comply with mandatory provisions of applicable law.
 
Termination of the deposit agreement. The Depositary will terminate the deposit agreement if we ask it to do so and will notify the ADS holders at least 30 days before the date of termination. The Depositary may also terminate the deposit agreement if it resigns and a successor depositary has not been appointed by us and accepted its appointment within 60 days after the Depositary has given us notice of its resignation. After termination of the deposit agreement, the Depositary will no longer register transfers of ADSs, distribute dividends to the ADS holders, accept deposits of ordinary shares, give any notices, or perform any other acts under the deposit agreement whatsoever, except that the Depositary will continue to:
 
collect dividends and other distributions pertaining to deposited securities;
 
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sell rights as described under the heading “Dividends,"Dividends, Other Distributions and Rights — Rights to subscribe for additional shares and other rights”rights" above; and
 
deliver deposited securities, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any rights or other property, in exchange for surrendered ADRs.
 
Four months after termination, the Depositary may sell the deposited securities and hold the proceeds of the sale, together with any other cash then held by it, for the pro rata benefit of ADS holders that have not surrendered their ADSs. The Depositary will not have liability for interest on the sale proceeds or any cash it holds.
 
Charges of Depositary
 
We will pay the fees, reasonable expenses and out-of-pocket charges of the Depositary and those of any registrar only in accordance with agreements in writing entered into between us and the Depositary from time to time. The following charges shall be incurred by any party depositing or withdrawing ordinary shares or by any party surrendering ADRs or to whom ADRs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADRs or deposited ordinary shares or a distribution of ADRs pursuant to the terms of the deposit agreement):
 
taxes and other governmental charges;
 
any applicable transfer or registration fees;
 
certain cable, telex and facsimile transmission charges as provided in the Deposit Agreement;
 
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any expenses incurred in the conversion of foreign currency;
 
a fee of $5.00 or less per 100 ADSs (or a portion thereof) for the execution and delivery of ADRs and the surrender of ADRs;
 
a fee of $.05 or less per ADS (or portion thereof) for any cash distribution made pursuant to the Deposit Agreement;
 
a fee for the distribution of securities pursuant to the Deposit Agreement;
 
in addition to any fee charged for a cash distribution, a fee of $.05 or less per ADS (or portion thereof) per annum for depositary services;
 
a fee for the distribution of proceeds of rights that the Depositary sells pursuant to the Deposit Agreement; and
 
any other charges payable by the Depositary, any of the Depositary’sDepositary's agents, or the agents of the Depositary’sDepositary's agents in connection with the servicing of Sharesordinary shares or other Deposited Securities.
 
The Depositary may own and deal in our securities and in our ADRs.
 
Liability of Holders for Taxes, Duties or Other Charges
 
Any tax or other governmental charge with respect to ADRs or any deposited ordinary shares represented by any ADR shall be payable by the holder of such ADR to the Depositary. The Depositary may refuse to effect transfer of such ADR or any withdrawal of deposited ordinary shares represented by such ADR until such payment is made, and may withhold any dividends or other distributions or may sell for the account of the holder any part or all of the deposited ordinary shares represented by such ADR and may apply such dividends or distributions or the proceeds of any such sale in payment of any such tax or other governmental charge and the holder of such ADR shall remain liable for any deficiency.
 
ITEM 13. DEFAULTS, DIVIDENDS, ARREARAGES AND DELINQUENCIES
 
Not applicable.
 
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ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 
Not applicable.
 
ITEM 15. CONTROLS AND PROCEDURES
 
(a) Disclosure 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 the CEO and CFO, has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended)Act) as of the end of the period covered by this report are effective. Notwithstanding the foregoing, there can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be set forth in our reports.
 
(b) Management’sManagement's Annual Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) promulgated under the Exchange 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.
 
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Our management, including the CEO and CFO, conducted an evaluation, pursuant to Rule 13a-15(c) promulgated under the Exchange Act, of the effectiveness, as of the end of the period covered by this Annual Report, of its internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on the results of this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2015.2016.
 
(c) Attestation Report of Registered Public Accounting Firm
 
Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International Ltd., our independent registered public accounting firm, has issued an attestation report on the effectiveness of our internal control over financial reporting, appearing under Item 18, “Financial Statements” on page F-2, and such report is incorporated herein by reference.Not applicable.
 
(d) Changes in Internal Controls over Financial Reporting
 
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 20152016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 16. [RESERVED]
 
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERTS
 
Our Board of Directors has determined that Nurit Benjamini is the audit committee financial expert. Ms. Benjamini is one of our independent directors for the purposes of the Nasdaq rules.
 
ITEM 16B. CODE OF ETHICS
 
In July 2011, our Board of Directors adopted a Code of Business Conduct and Ethics (the “Code”"Code of Conduct") that applies to all our employees, including without limitation our chief executive officer, chief financial officer and controller. Our Code of Conduct may be viewed on our website at www.biolinerx.com. A copy of our Code of Conduct may be obtained, without charge, upon a written request addressed to our investor relations department, 2 HaMa’ayanHaMa'ayan Street, Modi’inModi'in 7177871, Israel (Telephone no. +972-8-642-9100) (e-mail: info@BioLineRx.com)info@BioLineRx.com).
119
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Fees Paid to Independent Registered Public Accounting Firm
 
The following table sets forth, for each of the years indicated, the fees billed by Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International Ltd., our independent registered public accounting firm:firm.
 
 Year Ended December 31,  Year Ended December 31, 
 2014 2015  2015  2016 
Services Rendered 
( in thousands of U.S. dollars)
  
( in thousands of U.S. dollars)
 
         
Audit Fees(1)
  110  110  $110  $110 
Audit-Related Fees(2)
  13  7   7   – 
Tax Fees(3)
   22  26   26   21 
All Other Fees   –   –   –   – 
Total   145  143  $143  $131 

(1)Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements, including services that generally only the independent accountant can reasonably provide.
(2)Audit related services relate to reports to the OCS and work regarding a public listing or offering.
(3)Tax fees relate to tax compliance, planning and advice.
 
Our Audit Committee, in accordance with its charter, reviews and pre-approves all audit services and permitted non-audit services (including the fees and other terms) to be provided by our independent auditors.
 
125
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
 
Not applicable.
 
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 
Not applicable.
 
ITEM 16F. CHANGE IN REGISTRANT’SREGISTRANT'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 SEC, requires foreign private issuers, such as us, to comply with various corporate governance practices. In complying with the Marketplace Rules of the Nasdaq Stock Market, we have elected to follow certain corporate governance practices permitted under the Companies Law and the rules of the TASE in lieu of compliance with certain corporate governance requirements otherwise required by the Marketplace Rules of the Nasdaq Stock Market.
 
120
In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the Marketplace Rules of the Nasdaq Stock Market, we follow the provisions of the Companies Law, rather than the Marketplace Rules of the Nasdaq Stock Market, with respect to the following requirements:
 
Distribution of annual and quarterly reports to shareholders. Under Israeli law, as a public company whose shares are traded on the TASE, we are not required to distribute annual and quarterly reports directly to shareholders and the generally accepted business practice in Israel is not to distribute such reports to shareholders but to make such reports publicly available through the website of the Israeli Securities AuthorityISA and the TASE. In addition, we make our audited financial statements available to our shareholders at our offices. As a foreign private issuer, we are generally exempt from the SEC’sSEC's proxy solicitation rules.
 
Quorum. While the Marketplace Rules of the Nasdaq Stock Market require that the quorum for purposes of any meeting of the holders of a listed company’scompany's common voting stock, as specified in the company’scompany's bylaws, be no less than 33 1/3% of the company’scompany's outstanding common voting stock, under Israeli law, a company is entitled to determine in its articles of association the number of shareholders and percentage of holdings required for a quorum at a shareholders meeting. Our Articles of Association provide that a quorum of two or more shareholders holding at least 25% of the voting rights in person or by proxy is required for commencement of business at a general meeting. However, the quorum set forth in our Articles of Association with respect to an adjourned meeting consists of any number of shareholders present in person or by proxy.
 
Independent Directors. Our Board of Directors includes two external directors in accordance with the provisions contained in Sections 239-249 of the Companies Law and Rule 10A-3 of the general rules and regulations promulgated under the Securities Act of 1933, rather than a majority of external directors. Israeli law does not require, nor do our independent directors conduct, regularly scheduled meetings at which only they are present. We are required, however, to ensure that all members of our Audit Committee are “independent”"independent" under the applicable Nasdaq and SEC criteria for independence (as a foreign private issuer we are not exempt from the SEC independence requirement), and we must also ensure that a majority of the members of our Audit Committee are unaffiliated directors as defined in the Companies Law. Furthermore, Israeli law does not require, nor do our independent directors conduct, regularly scheduled meetings at which only they are present, which the Marketplace Rules of the Nasdaq Stock Market otherwise require. If we qualify as an Eligible Company and opt to follow the exemption provided under the Amendment to the Relief Regulations regarding appointment of external directors and composition of the audit and compensation committees, we will be required at all times to comply with the US rules and regulations governing the appointment of independent directors and composition of the audit and compensation committees applicable to US domestic issuers instead of complying with the Companies Law provisions relating to external directors and composition of the audit and compensation committees.
 
126
Audit Committee. Our Audit Committee complies with all of the requirements under Israeli law, and is composed of two external directors, which are all of our external directors, and only one other director, who cannot be the chairman of our Board of Directors. Consistent with Israeli law, the independent auditors are elected at a meeting of shareholders instead of being appointed by the Audit Committee. If we qualify as an Eligible Company and opt to follow the exemption provided under the Amendment to the Relief Regulations regarding appointment of external directors and composition of the audit and compensation committees, we will be required at all times to comply with the US rules and regulations governing the appointment of independent directors and composition of the Audit Committee applicable to US domestic issuers instead of complying with the Companies Law provisions relating to external directors and composition of the Audit Committee.
 
Nomination of our Directors. With the exception of our external directors and directors elected by our Board of Directors due to vacancy, our directors are elected by a general or special meeting of our shareholders, to hold office until they are removed from office by the majority of our shareholders at a general or special meeting of our shareholders. See “Item"Item 6. Directors, Senior Management and Employees — Board Practices — Board of Directors.”" The nominations for directors, which are presented to our shareholders, are generally made by our directors, but nominations may be made by one or more of our shareholders as provided in our Articles of Association, under the Companies Law or in an agreement between us and our shareholders. Currently, there is no agreement between us and any shareholder regarding the nomination of directors. In accordance with our Articles of Association, under the Companies Law, any one or more shareholders holding, in the aggregate, either (1) 5% of our outstanding shares and 1% of our outstanding voting power or (2) 5% of our outstanding voting power, may nominate one or more persons for election as directors at a general or special meeting by delivering a written notice of such shareholder’sshareholder's intent to make such nomination or nominations to our registered office. Each such notice must set forth all of the details and information as required to be provided in our Articles of Association.
 
121
Compensation Committee and Compensation of Officers. Israeli law, and our amended and restated articles of association, do not require that a compensation committee composed solely of independent members of our Board of Directors determine (or recommend to the board of directors for determination) an executive officer’sofficer's compensation, as required under Nasdaq’sNasdaq's listing standards related to compensation committee independence and responsibilities; nor do they require that the Company adopt and file a compensation committee charter.  Instead, our compensation committee has been established and conducts itself in accordance with provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law, and is composed of two external directors, which are all of our external directors, and one additional director, who is not the chairman of our Board of Directors or otherwise employed by the Company. If we qualify as an Eligible Company and opt to follow the exemption provided under the Amendment to the Relief Regulations regarding appointment of external directors and composition of the audit and compensation committees, we will be required at all times to comply with the US rules and regulations governing the appointment of independent directors and composition of the compensation committee applicable to US domestic issuers instead of complying with the Companies Law provisions relating to external directors and composition of the compensation committee. Additionally, we comply with the requirements set forth under the Companies Law, pursuant to which transactions with office holders regarding their terms of office and employment, and transaction with a controlling shareholder in a company regarding his or her employment and/or his or her terms of office with the company, may require the approval of the compensation committee, the board of directors and under certain circumstances the shareholders, either in accordance with our previously approved compensation policy or, in special circumstances in deviation therefrom, taking into account certain considerations set forth in the Companies Law. See “Item"Item 6. Directors, Senior Management and Employees — Board Practices — Compensation Committee”Committee" for information regarding the Compensation Committee, and “Item"Item 6. Directors, Senior Management and Employees — Approval of Related Party Transactions under Israeli Law”Law" for information regarding the special approvals required with respect to approval of terms of office and employment of office holders, pursuant to the Companies Law, as set forth under Amendment 20. The requirements for shareholder approval of any office holder compensation, and the relevant majority or special majority for such approval, are all as set forth in the Companies Law. Thus, we will seek shareholder approval for all corporate actions with respect to office holder compensation requiring such approval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain office holder compensation, rather than seeking approval for such corporate actions in accordance with Nasdaq Listing Rules.
 
127
Approval of Related Party Transactions. All related party transactions are approved in accordance with the requirements and procedures for approval of interested party acts and transactions, set forth in sections 268 to 275 of the Companies Law, and the regulations promulgated thereunder, which require the approval of the audit committee, the compensation committee, the board of directors and shareholders, as may be applicable, for specified transactions, rather than approval by the audit committee or other independent body of our Board of Directors as required under the Marketplace Rules of the Nasdaq Stock Market.
 
Shareholder Approval. We seek shareholder approval for all corporate actions requiring such approval in accordance with the requirements of the Companies Law, which are different or in addition to the requirements for seeking shareholder approval under Nasdaq Listing Rule 5635, rather than seeking approval for corporation actions in accordance with such listing rules.
 
122
Equity Compensation Plans. We do not necessarily seek shareholder approval shareholder approval for the establishment of, and amendments to, stock option or equity compensation plans (as set forth in NASDAQ Listing Rule 5635(c)), as such matters are not subject to shareholder approval under Israeli law. Our equity compensation plan is available to our employees, none of whom are currently U.S. employees, and provide features necessary to comply with applicable non-U.S. tax laws.
 
ITEM 16H. MINE SAFETY DISCLOSURE
 
Not applicable.
 
ITEM 17. FINANCIAL STATEMENTS
 
The Registrant has responded to Item 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:
 
128123
ITEM 19. EXHIBITS
 
ITEM 19. EXHIBITS
Exhibit
Number
 Exhibit Description
   
2.1(5)(4)
 Articles of Association, as amended May 31, 2015
   
2.2(2)
 Form of Deposit Agreement dated as of July 21, 2011 among the Registrant, The Bank of New York Mellon, as Depositary, and all Owners and Holders from time to time of American Depositary Shares issued thereunder
   
2.3(2)
 Form of American Depositary Receipt; the Form is Exhibit A of the Form of Depositary Agreement
   
4.3(1)
Employment Agreement with Kinneret Savitsky, Ph.D., dated October 13, 2004
4.5(1)
 Employment Agreement with Philip Serlin, dated May 24, 2009, as amended
   
4.6†(1)
 License Agreement entered into as of January 10, 2005, between BioLine Innovations Jerusalem L.P. and B.G. Negev Technologies and Applications Ltd.
   
4.7(1)
 Assignment Agreement entered into as of January 1, 2009 entered into between BioLine Innovations Jerusalem L.P. and the Registrant
   
4.16†(1)
 License Agreement entered into as of November 25, 2007 between BioLine Innovations Jerusalem L.P. and Innovative Pharmaceutical Concepts, Inc.
   
4.17(11)†4.18(12)
Amended and Restated License and Commercialization Agreement among Ikaria Development Subsidiary One LLC, the Registrant and BioLine Innovations Jerusalem L.P. dated August 26, 2009, as amended and supplemented
4.18 BioLineRx Ltd. Amended and Restated 2003 Share Incentive Plan
 
4.20(1)
Amendment to Employment Agreement with Kinneret Savitsky, Ph.D., dated January 2, 2004.
   
4.30(4)(3)
 Employment Agreement with David Malek, dated August 8, 2011
   
4.31(3)4.32(6)
 Form of Warrant to purchase American Depositary Shares
   
4.324.33(7)
Form of Warrant to purchase American Depositary Shares
4.33†(8)
 License Agreement entered into as of September 2, 2012 by and between the Registrant and Biokine Therapeutics Ltd.
   
4.34(10)
Consulting Agreement with Arnon Aharon, M.D., dated January 1, 2014
4.35(10)(9)†
 License Agreement entered into as of February 15, 2011 between the Registrant and Valorisation-Recherche, Limited Partnership
   
4.36(9)(8)
 Executive Compensation PlanPolicy for Executives and Directors
   
4.37(11)(10)
 Lease Agreement entered into as of August 7, 2014 between S.M.L. Solomon Industrial Buildings Ltd. and Infrastructure Management and Development Established by C.P.M. Ltd. as Lessor and the Registrant as Lessee, as amended (English summary of the Hebrew original)
   
4.38(11)(10)†
 Investment and Collaboration Agreement entered into as of December 16, 2014 between the Registrant and Novartis Pharma AG

129124

Exhibit Number Exhibit Description
   
4.39(11)†
 License Agreement entered into as of December 22, 2014 between the Registrant and Wartner Europe BV
   
4.40†
4.40(7)†
 Clinical Trial Collaboration and Supply Agreement entered into as of January 11, 2016 between the Registrant and Merck Sharp & Dohme B.V. and the Registrant
   
4.414.42†Combination Study Agreement entered into as of September 6, 2016 between the Registrant and Genentech, Inc.
4.43 Employment Agreement with Merril Gersten,Mali Zeevi, dated September 16, 2009, as amended
4.44Employment Agreement with Abi Vainstein-Haras, dated April 2, 2014, as amended
4.45Employment Agreement with Ella Sorani, dated January 11, 2017
4.46†
Amended and Restated Exclusive License Agreement entered into as of April 30, 2013 between the University of Massachusetts and Agalimmune Ltd.
4.47†
Evaluation License and Option Agreement entered into as of March 1, 201631, 2015 between Agalimmune Ltd. and Kode Biotech Limited
   
12.1 Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
12.2 Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
13.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
13.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
15.1(3)
Form of Purchase Agreement between the Registrant and the Purchasers named therein, dated February 2012
15.4(7)(6)
 Subscription Agreement entered into as of February 6, 2013 between the Registrant and OrbiMed Israel Partners Limited Partnership
   
15.5 Consent of Kesselman & Kesselman, Certified Public Accountant (Isr.), a member of PricewaterhouseCoopers International Limited, independent registered public accounting firm for the Registrant
   
15.6(6)(5)
 Purchase Agreement entered into as of May 28, 2014 between the Registrant and Lincoln Park Capital Fund, LLC
   
15.7(6)(5)
 Registration Rights Agreement entered into as of May 28, 2014 between the Registrant and Lincoln Park Capital Fund, LLC
 
†Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.
 
(1)Incorporated by reference to the Registrant’sRegistrant's Registration Statement on Form 20-F (No. 001-35223) filed on July 1, 2011.
 
(2)Incorporated by reference to Exhibit 1 of the Registration Statement on Form F-6 (No. 333-175360) filed by the Bank of New York Mellon with respect to the Registrant’sRegistrant's American Depositary Receipts.
 
(3)Incorporated by reference to the Registrant’s Form 6-K filed on February 15, 2012.
(4)Incorporated by reference to the Registrant’sRegistrant's Registration Statement on Form F-1 (No. 333-179792) filed on February 29, 2012.
 
(5)(4)Incorporated by reference to the Registrant’sRegistrant's Registration Statement on Form F-3 (No. 333-205700) filed on July 16, 2015.
 
(6)(5)Incorporated by reference to the Registrant’sRegistrant's Form 6-K filed on May 30, 2014.
 
(7)(6)Incorporated by reference to the Registrant’sRegistrant's Form 6-K filed on February 6, 2013.
 
(7)Incorporated by reference to the Registrant's Annual Report on Form 20-F/A filed on May 31, 2016
(8)Incorporated by reference to the Registrant’sRegistrant's Form 6-K filed on October 16, 2012.May 31, 2016.
 
(9)
Incorporated by reference to the Registrant’sRegistrant's Annual Report on Form 6-K20-F/A filed on November 13, 2013.
May 15, 2014.
 
(10)Incorporated by reference to the Registrant’s Annual Report on Form 20-F filed on March 17, 2014.
(11)Incorporated by reference to the Registrant’sRegistrant's Annual Report on Form 20-F filed on March 23, 2015.
 
(11)Incorporated by reference to the Registrant's Annual Report on Form 20-F/A filed on September 22, 2015.
 
(12)Incorporated by reference to the Registrant's Annual Report on Form 20-F filed on March 10, 2016.
130125
SIGNATURES
 
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
 
 BIOLINERX LTD.
   
 By:/s/ Kinneret SavitskyPhilip A. Serlin
  Kinneret Savitsky, Ph.D.Philip A. Serlin
  Chief Executive Officer
 
Date: March 10, 2016
23, 2017
131126
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Consolidated Financial Statements at December 31, 20152016 and 20142015 and for each of the three years in the period ended December 31, 20152016

 Page
  
Report of Independent Registered Public Accounting Firm
F-2F-1
Consolidated Statements of Financial Position
F-3F-2
Consolidated Statements of Comprehensive Loss
F-4F-3
Statements of Changes in Equity
F-4
Consolidated Cash Flow Statements
F-5
Consolidated Cash Flow Statements
F-6
Notes to the Financial Statements
F-8F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the shareholders of
BioLineRx Ltd.
BIOLINERX LTD.
In our opinion,We have audited the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in shareholders’ equity and cash flows present fairly, in all material respects, the financial position of BioLineRx Ltd. and its subsidiaries atas of December 31, 2015, 20142016 and 2013,2015 and the resultsrelated consolidated statements of their operationscomprehensive loss, changes in equity and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with International Financial Reporting Standards (“IFRS”), as issued by2016. These financial statements are the International Accounting Standards Board (“IASB”).  Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizationsresponsibility of the Treadway Commission (COSO).  The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reportingBoard of Directors and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting” appearing under Item 15(b).management. Our responsibility is to express opinionsan opinion on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements includedmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company’s Board of Directors and management, andas well as evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
In our opinion, the reliability of financial reporting and the preparation ofconsolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BioLineRx Ltd. and its subsidiaries as of December 31, 2016 and 2015 and their results of operations, and their cash flows for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositionseach of the assets ofthree years in the company; (ii) provide reasonable assurance that transactions are recordedperiod ended December 31, 2016, in conformity with International Financial Reporting Standards ("IFRS"), as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures ofissued by the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.International Accounting Standards Board ("IASB").
 
Because of its inherent limitations, internal control over financial reporting 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 the policies or procedures may deteriorate.
Without qualifying our opinion above, we draw attention to note 2c, as from January 1, 2015, the Company changed its functional and reporting currency from New Israeli Shekels to US dollars.
Tel-Aviv,Tel Aviv, Israel/s/ Kesselman & Kesselman
March 8, 2016Kesselman & Kesselman
23, 2017Certified Public Accountants (Isr.)
 A member firm of PricewaterhouseCoopers
International LimitedLtd.
 
Kesselman & Kesselman, Trade Tower, 25 Hamered Street, Tel-Aviv 6812508, Israel,
P.O Box 50oo5 Tel-Aviv 6150001  Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il
Kesselman & Kesselman is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity

Kesselman & Kesselman is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity

F - 2
BioLineRx Ltd.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
          
Note
 
December 31,
  Note  December 31, 
   2013(*)   2014   2015     2015  2016 
  
in USD thousands
     in USD thousands 
Assets                      
CURRENT ASSETS                      
Cash and cash equivalents5  8,899   5,790   5,544   5   5,544   2,469 
Short-term bank deposits6  9,319   28,890   42,119   6   42,119   33,154 
Prepaid expenses   258   221   229       229   255 
Other receivables15a  360   257   291   15a  291   223 
Total current assets
   18,836   35,158   48,183       48,183   36,101 
                         
NON-CURRENT ASSETS                         
Restricted deposits13b  165   166   - 
Long-term prepaid expenses15b  49   49   58   15b  58   52 
Property and equipment, net7  712   721   2,909   7   2,909   2,605 
Intangible assets, net8  253   117   152   8   152   181 
Total non-current assets
   1,179   1,053   3,119       3,119   2,838 
Total assets
   20,015   36,211   51,302       51,302   38,939 
                         
Liabilities and equity                         
CURRENT LIABILITIES                         
Current maturities of long-term bank loan9  -   -   93   9   93   93 
Accounts payable and accruals:                         
Trade
15c  2,289   1,654   1,910   15c  1,910   2,590 
Other
15c  764   1,252   1,137   15c  1,137   978 
Total current liabilities
   3,053   2,906   3,140       3,140   3,661 
                         
NON-CURRENT LIABILITIES                         
Long-term bank loan, net of current maturities9  -   -   344   9   344   250 
Warrants10c  5,240   1,500   208   10c  208   1 
Total non-current liabilities
   5,240   1,500   552       552   251 
            
COMMITMENTS AND CONTINGENT LIABILITIES13              13         
Total liabilities
   8,293   4,406   3,692       3,692   3,912 
                         
EQUITY10              10         
Ordinary shares   640   1,055   1,455       1,455   1,513 
Share premium   134,390   167,331   196,201       196,201   199,567 
Other comprehensive income (loss)   1,418   (1,416)  (1,416)
Capital reserve   9,163   9,800   10,735       10,735   10,569 
Other comprehensive loss      (1,416)  (1,416)
Accumulated deficit   (133,889)  (144,965)  (159,365)      (159,365)  (175,206)
Total equity
   11,722   31,805   47,610       47,610   35,027 
Total liabilities and equity
   20,015   36,211   51,302       51,302   38,939 

(*) See note 2c regarding the presentation of 2013 balance sheet information.

The accompanying notes are an integral part of the financial statements.
 
F - 32
BioLineRx Ltd.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 
Note
 
Year ended December 31,
  Note  Year ended December 31, 
   
2013
  
2014
  
2015
     2014  2015  2016 
   
in USD thousands
     in USD thousands 
                       
RESEARCH AND DEVELOPMENT EXPENSES, NET 15d  (12,208)  (11,866)  (11,489)
RESEARCH AND DEVELOPMENT EXPENSES 15d   (11,866)  (11,489)  (11,177)
SALES AND MARKETING EXPENSES 15e  (1,136)  (1,589)  (1,003) 15e   (1,589)  (1,003)  (1,352)
GENERAL AND ADMINISTRATIVE EXPENSES 15f  (3,664)  (3,800)  (3,704) 15f   (3,800)  (3,704)  (3,984)
OPERATING LOSS    (17,008)  (17,255)  (16,196)     (17,255)  (16,196)  (16,513)
NON-OPERATING INCOME, NET 15g  1,161   3,061   1,445  15g   3,061   1,445   214 
FINANCIAL INCOME 15h  720   3,566   457  15h   3,566   457   480 
FINANCIAL EXPENSES 15i  (1,897)  (448)  (106) 15i   (448)  (106)  (22)
NET LOSS    (17,024)  (11,076)  (14,400)     (11,076)  (14,400)  (15,841)
OTHER COMPREHENSIVE INCOME (LOSS):              
OTHER COMPREHENSIVE LOSS -               
CURRENCY TRANSLATION DIFFERENCES
    1,097   (2,834)  -      (2,834)  
-
   - 
COMPREHENSIVE LOSS    (15,927)  (13,910)  (14,400)     (13,910)  (14,400)  (15,841)
                             
   
in USD
     in USD 
LOSS PER ORDINARY SHARE – BASIC AND DILUTED 12  (0.76)  (0.34)  (0.28) 12   (0.34)  (0.28)  (0.28)
                             
WEIGHTED AVERAGE NUMBER OF SHARES USED IN CALCULATION OF LOSS PER ORDINARY SHARE 12  22,488,516  ��32,433,883   51,406,434  12   32,433,883   51,406,434   56,144,727 
 
The accompanying notes are an integral part of the financial statements.
 
F - 43
BioLineRx Ltd.
STATEMENTS OF CHANGES IN EQUITY

 
Ordinary
shares
  
Share
premium
  
Capital
reserve
  
Other
comprehensive
income (loss)
  
Accumulated
deficit
   
Total
  
Ordinary
shares
  
Share
premium
  
Capital
reserve
  
Other
comprehensive
income (loss)
  
Accumulated
deficit
  
Total
 
 
in USD thousands
  in USD thousands 
BALANCE AT JANUARY 1, 2013  482   121,998   9,046   321   (116,865)  14,982 
CHANGES IN 2013:                        
Issuance of share capital, net  157   11,596   -   -   -   11,753 
Employee stock options exercised  1   396   (394)  -   -   3 
Warrants exercised  -   69   -   -       69 
Employee stock options forfeited and expired  -   331   (331)  -   -   - 
Share-based compensation  -   -   842   -   -   842 
Other comprehensive income  -   -   -   1,097   -   1,097 
Comprehensive loss for the year  -   -   -   -   (17,024)  (17,024)
BALANCE AT DECEMBER 31, 2013  640   134,390   9,163   1,418   (133,889)  11,722 
BALANCE AT JANUARY 1, 2014  640   134,390   9,163   1,418   (133,889)  11,722 
CHANGES IN 2014:                                                
Issuance of share capital, net  415   32,523   -       -   32,938   415   32,523   -   -   -   32,938 
Employee stock options exercised  -   22   (22)      -   -   -   22   (22)  -   -   - 
Employee stock options forfeited and expired  -   396   (396)      -   - 
Employee stock options expired  -   396   (396)  -   -   - 
Share-based compensation  -   -   1,055       -   1,055   -   -   1,055   -   -   1,055 
Other comprehensive loss  -   -   -   (2,834)  -   (2,834)  -   -   -   (2,834)  -   (2,834)
Comprehensive loss for the year  -   -   -       (11,076)  (11,076)  
-
   
-
   
-
   
-
   (11,076)  (11,076)
BALANCE AT DECEMBER 31, 2014  1,055   167,331   9,800   (1,416)  (144,965)  31,805   1,055   167,331   9,800   (1,416)  (144,965)  31,805 
CHANGES IN 2015:                                                
Issuance of share capital, net  400   28,653   -   -   -   29,053   400   28,653   -   -   -   29,053 
Employee stock options exercised  -   -   -   -   -   - 
Employee stock options forfeited and expired  -   217   (217)  -   -   - 
Employee stock options expired  -   217   (217)  -   -   - 
Share-based compensation  -   -   1,152   -   -   1,152   -   -   1,152   -   -   1,152 
Comprehensive loss for the year  -   -   -   -   (14,400)  (14,400)  
-
   
-
       
-
   (14,400)  (14,400)
BALANCE AT DECEMBER 31, 2015  1,455   196,201   10,735   (1,416)  (159,365)  47,610   1,455   196,201   10,735   (1,416)  (159,365)  47,610 
CHANGES IN 2016:                        
Issuance of share capital, net  57   2,126   -   -   -   2,183 
Employee stock options exercised  1   171   (172)  -   -   - 
Employee stock options expired  -   1,069   (1,069)  -   -   - 
Share-based compensation  -   -   1,075   -   -   1,075 
Comprehensive loss for the year  
-
   
-
   
-
   
-
   (15,841)  (15,841)
BALANCE AT DECEMBER 31, 2016  
1,513
   
199,567
   
10,569
   (1,416)  (175,206)  
35,027
 

The accompanying notes are an integral part of the financial statements.
 
F - 54
BioLineRx Ltd.
CONSOLIDATED CASH FLOW STATEMENTS
   
 
Year ended December 31,
  Year ended December 31, 
 
2013
  
2014
  
2015
  2014  2015  2016 
 
in USD thousands
  in USD thousands 
CASH FLOWS - OPERATING ACTIVITIES                  
Net loss
  (17,024)  (11,076)  (14,400)  (11,076)  (14,400)  (15,841)
Adjustments required to reflect net cash used in operating activities (see appendix below)
  (2,501)  (4,674)  232   (4,674)  232   1,328 
Net cash used in operating activities  (19,525)  (15,750)  (14,168)  (15,750)  (14,168)  (14,513)
                        
CASH FLOWS - INVESTING ACTIVITIES                        
Investments in short-term deposits  (35,665)  (57,186)  (63,130)  (57,186)  (63,130)  (32,982)
Maturities of short-term deposits  29,669   37,650   50,083   37,650   50,083   42,334 
Maturities of restricted deposits
  795   -   166   -   166   - 
Purchase of property and equipment
  (85)  (187)  (2,683)  (187)  (2,683)  (52)
Purchase of intangible assets
  (32)  (6)  (36)  (6)  (36)  (3)
Net cash used in investing activities  (5,318)  (19,729)  (15,600)
Net cash provided by (used in) investing activities  (19,729)  (15,600)  9,297 
                        
CASH FLOWS - FINANCING ACTIVITIES                        
Issuance of share capital and warrants, net of issuance costs
  15,108   32,635   29,053   32,635   29,053   2,183 
Proceeds of bank loan  -   -   467   -   467   - 
Repayments of bank loan  (37)  -   (31)  -   (31)  (93)
Proceeds from exercise of employee stock options
  3   -   - 
Net cash provided by financing activities  15,074   32,635   29,489   32,635   29,489   2,090 
                        
DECREASE IN CASH AND CASH EQUIVALENTS  (9,769)  (2,844)  (279)  (2,844)  (279)  (3,126)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR  18,307   8,899   5,790   8,899   5,790   5,544 
EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS  361   (265)  33   (265)  33   51 
CASH AND CASH EQUIVALENTS - END OF YEAR  8,899   5,790   5,544   5,790   5,544   2,469 
 
The accompanying notes are an integral part of the financial statements.

F - 65
BioLineRx Ltd.
CONSOLIDATED CASH FLOW STATEMENTS

  
Year ended December 31,
 
  
2013
  
2014
  
2015
 
  
in USD thousands
 
APPENDIX         
          
Adjustments required to reflect net cash used in operating activities:         
          
Income and expenses not involving cash flows:         
Depreciation and amortization  318   269   441 
Write-off of intangible assets  38   105   - 
Retirement benefit obligations  2   (42)  - 
Long-term prepaid expenses  10   (6)  (9)
Exchange differences on cash and cash equivalents  653   (261)  (33)
Warrant issuance costs  130   -   - 
Gain on adjustment of warrants to fair value  (1,432)  (3,454)  (1,292)
Commitment fee paid by issuance of share capital  -   303   - 
Share-based compensation  842   1,055   1,152 
Interest and exchange differences on short-term deposits  395   (2,787)  (182)
Interest and linkage differences on bank loan  (3)  -   1 
Interest and exchange differences on restricted deposits  11   (20)  - 
   964   (4,838)  78 
             
Changes in operating asset and liability items:            
Decrease (increase) in trade accounts receivable and other receivables  253   80   (42)
Increase (decrease) in accounts payable and accruals  (3,718)  84   196 
   (3,465)  164   154 
             
   (2,501)  (4,674)  232 
             
Supplementary information on investing and financing activities not involving cashflows:
            
Credit received in connection with purchase of property and equipment  -   143   87 
             
Supplementary information on interest received in cash  139   97   173 
 
  Year ended December 31, 
  2014  2015  2016 
  in USD thousands 
APPENDIX         
          
Adjustments required to reflect net cash used in operating activities:         
Income and expenses not involving cash flows:         
Depreciation and amortization  269   441   482 
Write-off of intangible assets  105   -   - 
Retirement benefit obligations  (42)  -   - 
Long-term prepaid expenses  (6)  (9)  6 
Exchange differences on cash and cash equivalents  (261)  (33)  (51)
Gain on adjustment of warrants to fair value  (3,454)  (1,292)  (207)
Commitment fee paid by issuance of share capital  303   -   - 
Share-based compensation  1,055   1,152   1,075 
Interest and exchange differences on short-term deposits  (2,787)  (182)  (387)
Interest and linkage differences on bank loan  -   1   (1)
Interest and exchange differences on restricted deposits  (20)  -   - 
   (4,838)  78   917 
             
Changes in operating asset and liability items:            
Decrease (increase) in prepaid expenses and other receivables  80   (42)  42 
Increase in accounts payable and accruals  84   196   369 
   164   154   411 
             
   (4,674)  232   1,328 
             
Supplementary information on investing and financing activities not involving cash flows:            
Credit received in connection with purchase of property and equipment and intangible assets  143   87   152 
             
Supplementary information on interest received in cash  97   173   453 
The accompanying notes are an integral part of the financial statements.


F - 76
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 1 – GENERAL INFORMATION

a.General

BioLineRx Ltd. (“BioLineRx”), headquartered in Modi’in, Israel, was incorporated and commenced operations in April 2003.

Since incorporation, BioLineRx and its consolidated entitiessubsidiaries (collectively, the “Company”) have been engaged in the development of therapeutics, from pre-clinical development to advanced clinical trials, for a wide range of medical needs.

In December 2004, BioLineRx registered a limited partnership, BioLine Innovations Jerusalem L.P. (“BIJ LP”), which commenced operations in January 2005. BioLineRx held a 99% interest in BIJ LP, with the remaining 1% held by a wholly owned subsidiary of BioLineRx, BioLine Innovations Ltd. (“BIJ Ltd.”). BIJ LP was established to operate a biotechnology incubator located in Jerusalem (the “Incubator”) under an agreement with the State of Israel. The agreement with the State of Israel relating to the Incubator terminated on December 31, 2013, and BIJ LP was liquidated in 2014. BIJ Ltd. was liquidated in 2015. See Note 13a(1).

In February 2007, BioLineRx listed its ordinary shares on the Tel Aviv Stock Exchange (“TASE”) and they have been traded on the TASE since that time. Since July 2011, BioLineRx’s American Depositary Shares (“ADSs”) have also been traded on the NASDAQ Capital Market.


In March 2017, the Company acquired Agalimmune Ltd. (“Agalimmune”), a privately-held company incorporated in the United Kingdom, with a focus on the field of immuno-oncology. See Note 18.

The Company has been engaged in drug development since its incorporation. Although the Company has generated significant revenues from a number of out-licensing transactions in the past, the Company cannot determine with reasonable certainty when and if it will have sustainable profits.

b.Approval of consolidated financial statements

The consolidated financial statements of the Company for the year ended December 31, 2015 were approved by the Board of Directors on March 8, 2016, and signed on its behalf by the Chairman of the Board, the Chief Executive Officer and the Chief Financial and Operating Officer.
The consolidated financial statements of the Company for the year ended December 31, 2016 were approved by the Board of Directors on March 20, 2017, and signed on its behalf by the Chairman of the Board, the Chief Executive Officer and the Chief Financial Officer.
 
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

a.Basis of presentation

The Company’s consolidated financial statements as of December 31, 20152016 and 2014,2015, and for each of the three years in the period ended December 31, 2015,2016, have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The significant accounting policies described below have been applied on a consistent basis for all years presented, unless noted otherwise.

The consolidated financial statements have been prepared on the basis of historical cost, subject to adjustment of financial assets and liabilities to their fair value through profit or loss and adjustment of assets and liabilities in connection with retirement benefit obligations.loss.

F - 87
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)

a.
Basis of presentation (cont.)

The Company classifies its expenses on the statement of comprehensive loss based on the operating characteristics of such expenses.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. Areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4. Actual results may differ materially from estimates and assumptions used by the Company’s management.

b.Consolidation of the financial statements

Consolidated entities are all entities over which BioLineRx has control. BioLineRx controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidated entities are fully consolidated from the date on which control of such entities is transferred to BioLineRx and they are de-consolidated from the date that control ceases.

c.Functional and reporting currency

Effective January 1, 2015, the Company changed its functional currency to the U.S. dollar (“(“dollar”, “USD” or “$”) from the New Israeli Shekel (“NIS”). This change was based on an assessment by Company management that the dollar is the primary currency of the economic environment in which the Company operates. Accordingly, the functional and reporting currency of the Company in these financial statements is the U.S. dollar.

In determining the appropriate functional currency to be used, the Company followed the guidance in International Accounting Standard (IAS) 21, which states that economic factors relating to sales, costs and expenses, financing activities and cash flows, as well as other potential factors, should be considered both individually and collectively. In this regard, a significant element in the Company’s decision to effect the functional currency change resulted from the strategic collaboration agreement that it entered into with Novartis in December 2014, which will be managed solely in dollars. In addition, the Company expects a significant increase in expenses denominated in dollars relating to advanced clinical trials. These changes, as well as the fact that the Company’s principal source of financing is the U.S. capital market, and all of the Company’s budgeting and planning is conducted solely in dollars, led to the decision to make the change in functional currency as of January 1, 2015, as indicated above.

In effecting the change in functional currency to the dollar, as of January 1, 2015, all assets and liabilities of the Company were translated using the current rate method, using the dollar exchange rate as of December 31, 2014, and equity was translated using historical exchange rates at the relevant transaction dates. The resulting amounts translated into dollars for non-monetary items have been treated as their historical cost. Translation differences resulting from the change in functional currency have been reported as a component of shareholders' equity.

In accordance with paragraph 40 of IAS 1, due to the aforementioned change in functional currency, an additional balance sheet as of December 31, 2013 has been presented in the financial statements. IAS 1 does not require such additional information in the detailed financial statement notes.

F - 98
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)

c.
Functional and reporting currency (cont.)

For presentation purposes, comparative figures in these financial statements have been translated into dollars on the following basis: (i) assets and liabilities have been translated using the exchange rate prevailing at December 31, 2014; (ii) the statement of comprehensive loss has been translated at the average exchange rates for the relevant reporting periods; and (iii) the results of translation differences have been recorded as “currency translation differences” within other comprehensive income (loss).

d.Property and equipment

Property and equipment are stated at historical cost less depreciation and related grants received from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor (the “OCS”) – see also 2g below.depreciation. Historical cost includes expenditures that are directly attributable to the acquisition of the items. Assets are depreciated by the straight-line method over the estimated useful lives of the assets, provided that the Company’s management believes the residual values of the assets to be negligible, as follows:

 %
Computers and communications equipment20-33
Office furniture and equipment6-15
Laboratory equipment15-20
The assets’ residual values, methods of depreciation and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Leasehold improvements are amortized by the straight-line method over the shorter of the lease term or the estimated useful life of the improvements.
 
e.Intangible assets

The Company applies the cost method of accounting for initial and subsequent measurements of intangible assets. Under this method of accounting, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses.


Intellectual property
The Company recognizes in its financial statements intangible assets developed by the Company to the extent that the conditions stipulated in p. below are met. Intellectual property acquired by the Company is initially measured at cost. Intellectual property acquired by the Company for development purposes is not amortized and is tested annually for impairment. See f. below.

Computer software

Computer software
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over the estimated useful lives of the software (3-5 years).


F - 109
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)

f.Impairment of non-financial assets

Impairment testing of intellectual property is required when the Company decides to terminate or suspend the development of a project based on such intellectual property. The Company performs impairment reviews on an annual basis, or more frequently if events or changes in circumstances indicate a potential impairment. Property and equipment, as well as computer software, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized equal to the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and the asset’s value in use to the Company.

g.Government grants related to fixed assets

Government grants related to fixed assets are recorded as a reduction in the book value of the related assets, and are charged to profit and loss in accordance with the straight-line method.

h.Financial assets

1)Classification

The Company classifies its financial assets in the following categories: (i) at fair value through profit or loss and (ii) loans and receivables. The classification depends on the purpose for which each financial asset was acquired. The Company’s management determines the classification of financial assets at initial recognition.

a)Financial assets at fair value through profit or loss

The Company’s investment policy with regard to its excess cash, as adopted by its Board of Directors, is composed of the following objectives: (i) preserving investment principal, (ii) providing liquidity and (iii) providing optimum yields pursuant to the policy guidelines and market conditions. The policy provides detailed guidelines as to the securities and other financial instruments in which the Company is allowed to invest. In addition, in order to maintain liquidity, investments are structured to provide flexibility to liquidate at least 50% of all investments within 15 business days. Information about these assets, including details of the portfolio and income earned, is provided internally on at least a quarterly basis to the Company’s key management personnel and on a semi-annual basis to the Investment Monitoring Committee of the Board of Directors. Any divergence from this investment policy requires approval from the Board of Directors.

F - 1110
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)

h.
Financial assets (cont.)

b)Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These assets are included in current assets, except for installments which are due more than 12 months subsequent to the balance sheet date. Such installments are included in non-current assets. The Company’s loans and receivables include “other receivables,” “cash and cash equivalents”, and “bank deposits” and “restricted deposits” on the balance sheet.. See Notes 2i and 2j.Note 2i.

2)Recognition and measurement

Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in profit or loss. Financial assets are de-recognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Loans and receivables are subsequently carried at amortized cost using the effective interest method.

3)Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

i.Cash equivalents

Cash and cash equivalents include cash on hand and short-term bank deposits (up to three months from date of deposit) that are not restricted as to withdrawal or use, and are therefore considered to be cash equivalents.

j.Restricted deposits

The Company has placed a lien on dollar bank deposits to secure its liabilities and commitments to the lessor of its premises. Those deposits are presented separately as non-current assets, in accordance with the timing of the relevant restrictions. See Note 13b.
F - 12
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)

k.Warrants

Receipts in respect of warrants are classified as equity to the extent that they confer the right to purchase a fixed number of shares for a fixed exercise price. In the event that the exercise price is not deemed to be fixed, the warrants are classified as a non-current derivative financial liability. This liability is initially recognized at its fair value on the date the contract is entered into and subsequently accounted for at fair value at each reporting date. The fair value changes are charged to non-operating income and expense on the statement of comprehensive loss. Issuance costs allocable to warrants are also recorded as non-operating expense on the statement of comprehensive loss.

F - 11
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)

l.k.Share capital and reverse split of ordinary shares

BioLineRx’sThe Company’s ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new shares are shown in equity as a deduction from the issuance proceeds.

In June 2015, BioLineRx effected a 1:10 reverse split of its ordinary shares. All share and per share amounts in these financial statements have been retroactively adjusted to reflect the reverse split as if it had been effected prior to the earliest financial statement period included herein. Following the reverse split, one ordinary share traded on the TASE is equivalent to one ADS traded on NASDAQ (prior to the split, the ratio of ordinary shares to ADSs was 10:1). In connection with the reverse split, shareholders also approved an increase in BioLineRx’s authorized share capital to 150,000,000 ordinary shares, NIS 0.10 par value each.

m.l.Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. These payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

n.m.Deferred taxes

Deferred taxes are recognized using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax assets are recognized only to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized.

As the Company is currently engaged primarily in development activities and is not expected to generate taxable income in the foreseeable future, no deferred tax assets are included in the financial statements.

F - 13
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
 (cont.)

o.n.Revenue recognition

The Company recognizes revenue in accordance with International Accounting Standard (“IAS”) 18 – “Revenue,” including guidance regarding arrangements with multiple deliverables. Pursuant to this guidance, the Company applies revenue recognition criteria to the separately identifiable components of a single transaction. The consideration from the arrangement is allocated among the separately identifiable components by reference to their fair value.

Revenues incurred in connection with out-licensing of the Company’s patents and other intellectual property are recognized when all of the following criteria have been met as of the balance sheet date:
 
·The Company has transferred to the buyerlicensee the significant risks and rewards of ownership of the patents and intellectual property.
 
·The Company does not retain either the continuing managerial involvement to the degree usually associated with ownership or the effective control over the patent and intellectual property.
 
·The amount of revenue can be measured reliably.
 
·It is probable that the economic benefits associated with the transaction will flow to the Company.
 
·The costs incurred or to be incurred in respect of the sale can be measured reliably.
 
Revenue from reaching additional milestones is recognized upon achievement of the specific milestone, in accordance with the relevant agreement.
Revenues in connection with rendering of services are recognized by reference to the stage of completion of the transaction as of the balance sheet date, if and when the outcome of the transaction can be estimated reliably.reliably.
 
Revenues from royalties are recognized on an accrual basis in accordance with the substance of the relevant agreement.

F - 1412
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)

p.o.Research and development expenses

Research expenses are charged to profit or loss as incurred.

An intangible asset arising from development (or from the development phase of an internal project) is recognized if all of the following conditions are fulfilled:
 
·technological feasibility exists for completing development of the intangible asset so that it will be available for use or sale.
 
·it is management’s intention to complete development of the intangible asset for use or sale.
 
·the Company has the ability to use or sell the intangible asset.
 
·it is probable that the intangible asset will generate future economic benefits, including existence of a market for the output of the intangible asset or the intangible asset itself or, if the intangible asset is to be used internally, the usefulness of the intangible asset.
 
·adequate technical, financial and other resources are available to complete development of the intangible asset, as well as the use or sale thereof.
 
·the Company has the ability to reliably measure the expenditure attributable to the intangible asset during its development.
 
Other development costs that do not meet the foregoing conditions are charged to profit or loss as incurred. Development costs previously expensed are not recognized as an asset in subsequent periods. As of December 31, 2015,2016, the Company has not yet capitalized development expenses.

q.Government participation in research and development expenses

The Company has received participation in research and development expenses from the State of Israel through the OCS, both in the form of loans extended to the Incubator for research and development, as described in Note 13a(1), and in the form of grants, as described in Note 13a(2). The agreement with the State of Israel relating to the Incubator terminated on December 31, 2013; accordingly, the Company does not expect to receive additional funding in the form of loans extended to the Incubator.

Despite the formal difference between the two types of support from the OCS, there is no material financial difference between them. Each loan and grant qualifies as a “forgivable loan” in accordance with IAS 20, “Accounting for Government Grants and Disclosure of Government Assistance,” since the loans and grants are repayable only if the Company generates revenues related to the project that is the subject of the loan or grant.

F - 15
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)

q.
Government participation in research and development expenses (cont.)

The Company recognizes each forgivable loan on a systematic basis at the same time the Company records, as an expense, the related development costs for which the grant/loan is received, provided that there is reasonable assurance that (a) the Company complies with the conditions attached to the grant/loan, and (b) the grant/loan will be received. The amount of the forgivable loan is recognized based on the participation rate approved by the OCS.

The Company accounts for each forgivable loan as a liability unless it is more likely than not that the Company will meet the terms of forgiveness, in which case the forgivable loan is accounted for as a government grant and carried to income as a reduction of research and development expenses.

If forgivable loans are initially carried to income, as described above, and, in subsequent periods, it appears more likely than not that the project will be successful and that the loans will be repaid or royalties paid to the OCS, the Company recognizes a liability which is measured based on the Company’s best estimate of the amount required to settle the Company’s obligation at the end of each reporting period.

r.p.Employee benefits

1)Pension and severance pay obligations

Israeli labor laws and the Company’s employment agreements require the Company to pay retirement benefits to employees terminated or leaving their employment in certain other circumstances. Most of the Company’s employees are covered by a defined contribution plan under Section 14 of the Israel Severance Pay Law.

With respect to the remaining employees, the Company records a liability on its balance sheet for defined benefit plans that represents the present value of the defined benefit obligation as of each reporting date, net of the fair value of plan assets. The present value of the defined benefit liability is determined by discounting the anticipated future cash outflows, using interest rates that are denominated in the currency in which the benefits will be payable.

The amounts recorded as an employee benefit expense in respect of pension and severance pay obligations for the years 2013, 2014, 2015 and 20152016 were $484,000, $465,000, $466,000 and $466,000,$523,000, respectively.

F - 1613
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)

r.p.
Employee benefits (cont.)

2)Vacation days and recreation pay

Labor laws in Israel entitle every employee to vacation days and recreation pay, both of which are computed annually. The entitlement with respect to each employee is based on the employee’s length of service at the Company. The Company recognizes a liability and an expense in respect of vacation and recreation pay based on the individual entitlement of each employee.

3)Share-based payments

The Company operates an equity-settled, share-based compensation plan, under which it receivesgrants equity instruments (options, restricted stock units and performance stock units) of the Company as additional consideration for services from employees as consideration for equity instruments (options) of the Company.employees. The fair value of the employee services received in exchange for the grant of the optionsequity instruments is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the optionsequity instruments granted:
 
·including any market performance conditions (for example, the Company’s share price); and
 
·excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and the employee remaining with the entity over a specified time period).

Non-market performance and service conditions are included in assumptions about the number of optionsequity instruments that are expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied.

When the optionsequity instruments are exercised, the Company issues new shares. The proceeds received, net of any directly attributable transaction costs, are credited to share capital (at par value) and share premium when the optionsequity instruments are exercised.

s.q.Loss per share

1)Basic

The basic loss per share is calculated by dividing the loss attributable to the holders of ordinary shares by the weighted average number of ordinary shares outstanding during the year.

2)Diluted

The diluted loss per share is calculated by adjusting the weighted average number of outstanding ordinary shares, assuming conversion of all dilutive potential shares. The Company’s dilutive potential shares consist of warrants issued to investors, as well as optionsequity instruments granted to employees and service providers. The dilutive potential shares were not taken into account in computing loss per share in 2013, 2014, 2015 and 2015,2016, as their effect would not have been dilutive.anti-dilutive.

F - 1714
BioLineRx Ltd.

BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)

t.r.Changes in accounting policy and disclosures

New and amended standards adoptedThere were no changes in the accounting policies applied by the Company during 2016.

The following standards have been adopted by the Company for the first time for the fiscal year beginning January 1, 2015:

·Annual Improvements to IFRSs – 2010-2012 Cycle; 2011-2013 Cycle
·Defined Benefit Plans: Employee Contributions – Amendments to IAS 19

The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods.

In addition, the Company also elected to early adopt the following two amendments:

·Annual Improvements to IFRSs – 2012-2014 Cycle
·Disclosure Initiative: Amendments to IAS 1.

As these amendments merely clarify the existing requirements, they do not affect the Company’s accounting policies or any of the disclosures.

New standards and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for reporting periodperiods prior to January 1, 2016,2017, and have not been early adopted by the Company. The Company’s assessment of the impact of these new standards and interpretations is set out below.

IFRS 9, “Financial Instruments”,instruments,” addresses the classification, measurement and derecognitionrecognition of financial assets and financial liabilities and introduces new rules for hedge accounting, and it must be applied for financial years commencing on or after January 1, 2018. Inliabilities. The complete version of IFRS 9 was issued in July 2014,2014. It replaces the IASB made further changesguidance in IAS 39 that relates to the classification and measurement rulesof financial instruments. IFRS 9 retains but simplifies the mixed measurement model and also introduced a new impairment model. These latest amendments now complete the newestablishes three primary measurement categories for financial instruments standard.

Following the changes approved by the IASB in July 2014, the Company no longer expects any impact from the new classification, measurement and derecognition rules on the Company’s financial assets and financial liabilities. In addition, while the Company has yet to undertake a detailed assessment of the debt instruments currently classified as available-for-sale financial assets, it would appear that they would satisfy the conditions for classification as atassets: amortized cost, fair value through other comprehensive income, (FVOCI) basedand fair value through profit or loss. The basis of classification depends on their currentthe entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in other comprehensive income. Further, the expected credit losses model replaces the incurred loss impairment model used in IAS 39. For financial liabilities, there were no changes to classification and measurement except for these assets. Hence there will be no change to the accounting for these assets. There will also be no impact onrecognition of changes in the Company’s accountingown credit risk in other comprehensive income for financial liabilities as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss andloss. The standard is effective for accounting periods beginning on or after January 1, 2018. Early adoption is permitted. The Company is currently assessing the Company does not have any such liabilities.

F - 18
impact of adopting IFRS 9.

BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (cont.)

t.
Changes in accounting policy and disclosures (cont.)

The new hedging rules align hedge accounting more closely with the Company’s risk management practices. As a general rule it will be easier to apply hedge accounting going forward as the standard introduces a more principles-based approach. The new standard also introduces expanded disclosure requirements and changes in presentation. The new impairment model is an expected credit loss (ECL) model which may result in the earlier recognition of credit losses. The Company has not yet assessed how its own hedging arrangements and impairment provisions would be affected by the new rules.

IFRS 15, “Revenue from Contracts with Customers”, is a new standardCustomers,” which was issued in May 2014, amends revenue recognition requirements and establishes principles for reporting information about the recognitionnature, amount, timing and uncertainty of revenue issued by the IASB. This will replaceand cash flows arising from contracts with customers. The standard replaces IAS 18, which covers contracts for goods and services“Revenue” and IAS 11, which covers construction contracts.“Construction Contracts” and related interpretations. The standard permits a modified retrospective approachis effective for the adoption. Under this approach, entities will recognize transitional adjustments in retained earningsannual periods beginning on the date of initial application (Januaryor after January 1, 2017) – i.e., without restating the comparative period;2018. The Company currently does not have any revenues, and will only need to apply the new rules to contracts that are not completed as of the date of initial application.
The new standard is based on the principle that revenue is recognized when control of a good or service transfers to a customer – i.e., the notion of control replaces the existing notion of risks and rewards. Management is currently assessingassess the impact of the new rules and has identified the following areas that are likely to be affected:adopting IFRS 15 when relevant.

·extended warranties, which will need to be accounted for as separate performance obligations, which will delay the recognition of a portion of the revenue
·consignment sales where recognition of revenue will depend on the passing of control rather than the passing of risks and rewards
·the balance sheet presentation of rights of return, which will have to be grossed upIFRS 16, “Leases,” which was issued in future (separate recognition of the right to recover the goods from the customer and the refund obligation)
In January 2016, the IASB issued IFRS 16, “Leases”, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract and replaces the previous lease standard, IAS 17, “Leases”. IFRS 16 eliminates the classification of leases for the lessee as either operating leases or finance leases as required by IAS 17, and instead introduces a single lessee accounting model whereby a lessee is required to recognize assets and liabilities for all leases with a term that is greater than 12 months, unless the underlying asset is of low value, and to recognize amortization of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 is effective from January 1, 2019, with early adoption allowed only if IFRS 15, “ Revenue“Revenue from Contracts with Customers,” is also applied.

At this stage, the Company is not able to estimate the impact of the new rulesstandards on the Company’s financial statements.statements, and continues to assess the possible impact. The Company will make more detailed assessments of the impact over the next twelve months.

There are no other standards that are not yet effective and that would be expected to have a material impact on the Company in the current or future reporting periods and on foreseeable future transactions.

F - 1915
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 3 – FINANCIAL RISK MANAGEMENT

Based on assessments by Company management, the Company’s exposure to credit risk as of December 31, 20152016 is immaterial (see Note 3b). The activities of the Company expose it to market risk, particularly as a result of currency risk.

The Company’s Finance Department is responsible for carrying out risk management activities in accordance with policies approved by its Board of Directors. In this regard, the Finance Department identifies, defines and assesses financial risks in close cooperation with other Company departments. The Board of Directors provides written guidelines for overall risk management, as well as written policies dealing with specific areas, such as exchange rate risk, interest rate risk, credit risk, use of financial instruments, and investment of excess cash.

a.Market risk

1)Concentration of currency risk

The Company’s activities are partly denominated in non-dollar currencies (primarily the NIS), which exposes the Company to risks resulting from changes in exchange rates.

The effect of fluctuations in various exchange rates on the Company’s income and equity is as follows:

 
December 31, 2015
  December 31, 2016 
 
Income (loss)
  Value on  
Income (loss)
  Income (loss)  Value on  Income (loss) 
Sensitive instrument
 
10% increase
  
5% increase
  
balance sheet
  
5% decrease
  
10% decrease
  10% increase  5% increase  balance sheet  5% decrease  10% decrease 
 
in USD thousands
  in USD thousands 
NIS-linked balances:                              
Cash and cash equivalents
  (199)  (104)  2,192   244   115   (33)  (18)  368   19   41 
Other receivables
  (24)  (13)  266   30   14   (20)  (11)  223   12   25 
Trade payables
  34   18   (374)  (42)  (20)  40   21   (438)  (23)  (49)
Other payables
  103   54   (1,137)  (126)  (60)  82   43   (901)  (47)  (100)
Total NIS-linked balances  (86)  (45)  947   106   49   69   35   (748)  (39)  (83)
Euro-linked trade payables  (16)  (8)  (169)  19   9   36   19   (413)  (21)  (44)
Total  (102)  (53)  778   125   58   
105
   
54
   (1,161)  (60)  (127)
 
*   See also Note 13b.
The Company also maintains cash and cash equivalent balances that are linked toin other currencies in amounts that are not material.
 
 
December 31, 2014
  December 31, 2015 
 
Income (loss)
  Value on  
Income (loss)
  Income (loss)  Value on  Income (loss) 
Sensitive instrument
 
10% increase
  
5% increase
  
balance sheet
  
5% decrease
  
10% decrease
  10% increase  5% increase  balance sheet  5% decrease  10% decrease 
 
in USD thousands
  in USD thousands 
NIS-linked balances:                              
Cash and cash equivalents
  (215)  (112)  2,360   262   124   (199)  (104)  2,192   244   115 
Other receivables
  (23)  (12)  257   29   14   (24)  (13)  266   30   14 
Trade payables
  51   27   (558)  (62)  (29)  34   18   (374)  (42)  (20)
Other payables
  114   60   (1,252)  (139)  (66)  103   54   (1,137)  (126)  (60)
Total NIS-linked balances  (73)  (37)  807   90   43   (86)  (45)  947   106   49 
Euro-linked trade payables  19   10   (208)  (23)  (11)  (16)  (8)  (169)  19   9 
Total  (54)  (27)  599   67   32   (102)  (53)  
778
   
125
   
58
 

*   See also Note 13b.

F - 2016
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS

NOTE 3 – FINANCIAL RISK MANAGEMENT (cont.)

a.
Market risk (cont.)
 
1)Concentration of currency risk (cont.)

Set forth below is certain data regarding dollar exchange rates and the Israeli CPI:rates:

 
Exchange rate of
NIS per $1
  
Exchange rate of
Euro per $1
  
Israeli CPI*
 
 USD  USD  Points  Exchange rate of NIS per $1  Exchange rate of Euro per $1 
As of December 31:               
2014
  3.889   0.823   132.78 
2015
  3.902   0.919   131.45   3.902   0.919 
2016  3.845   0.951 
                    
Percentage increase (decrease) in:                    
2014
  12.0%  13.0%  (0.2)%
2015
  0.3%  11.7%  (1.0)%  0.3%  11.7%
2016  (1.5)%  3.5%

*Based on the CPI index for the month ending on each balance sheet date, on the basis that the average for year 2000 = 100.

Set forth below is information on the linkage of monetary items:

 
December 31, 2014
  
December 31, 2015
  December 31, 2015  December 31, 2016 
 
Dollar
  
NIS
  
Other 
currencies
  
Dollar
  
NIS
  
Other
currencies
  Dollar  NIS  Other currencies  Dollar  NIS  Other currencies 
 
USD in thousands
  USD in thousands  USD in thousands 
Assets:                                    
Current assets:                                    
Cash and cash equivalents  3,423   2,360   7   3,352   2,192   -   3,352   2,192   -   2,097   368   4 
Short term bank deposits  28,890   -   -   42,119   -   -   42,119   -   -   33,154         
Other receivables  -   257   -   -   266   25       266   25   -   223     
Non-current assets:                        
Restricted deposits  166   -   -   -   -   - 
Total assets  32,479   2,617   7   45,471   2,458   25   45,471   2,458   25   35,251   591   4 
                                                
Liabilities:                                                
Current liabilities:
                                                
Current maturities of bank loan  -   -   -   93   -   -   93   -   -   93   -   - 
Accounts payable and accruals:                                                
Trade
  831   558   265   1,218   374   318   1,218   374   318   1,631   438   521 
Other
  -   1,252   -   -   1,137   -   -   1,137   -       901   77 
Non-current liabilities                                                
Long-term bank loan, net of current maturities  -   -   -   344   -   -   344   -   -   250   -   - 
  831   1,810   265   1,655   1,511   318   1,655   1,511   318   1,974   1,340   598 
Net asset value  31,648   807   (258)  43,816   947   (293)  43,816   947   (293)  33,277   (749)  (594)
  
December 31, 2014
  
December 31, 2015
 
  
Dollar
  
NIS
  
Other currencies
  
Dollar
  
NIS
  
Other currencies
 
  
USD in thousands
 
Assets:                  
Current assets:                  
Cash and cash equivalents  3,423   2,360   7   3,352   2,192   - 
Short term bank deposits  28,890   -   -   42,119   -   - 
Other receivables  -   257   -   -   266   25 
Non-current assets:                        
Restricted deposits  166   -   -   -   -   - 
Total assets  32,479   2,617   7   45,471   2,458   25 
                         
Liabilities:                        
Current liabilities:
                        
       Current maturities of bank loan  -   -   -   93   -   - 
Accounts payable and accruals:                        
Trade
  831   558   265   1,218   374   318 
Other
  -   1,252   -   -   1,137   - 
 Non-current liabilities                        
     Long-term bank loan, net of current maturities  -   -   -   344   -   - 
   831   1,810   265   1,655   1,511   318 
Net asset value  31,648   807   (258)  43,816   947   (293)
                         

F - 2117
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 3 – FINANCIAL RISK MANAGEMENT (cont.)

a.
Market risk (cont.)
 
2)Fair value of financial instruments
 
As of December 31, 2015,2016, the financial instruments of the Company consist of non-derivative assets and liabilities (primarily working capital items and restricted deposits), as well as warrants classified as a liability on account of warrants.liability.
 
With regard to non-derivative assets and liabilities, in view ofgiven their nature, the fair value of the financial instruments included in working capital is generally close or identical to their carrying amount. The fair value of the restricted cash in long-term deposits also approximates the carrying amount, as these financial instruments bear interest at a rate approximating the prevailing interest rate.
 
With regard to the warrants classified as a liability, on account of warrants, see Note 10c(1), and 10c(2).

3)Exposure to market risk and the management thereof
 
In the opinion of Company management, the market risk to which the Company is exposed is primarily related to currency risk exposure, as mentioned above. Additionally, Company management does not consider the interest rate risk mentioned in paragraph 4 below to be material.

4)Interest rate risk
 
Company management does not consider interest rate risk to be material, as the Company holds deposits and short-term government bonds whose fair value and/or cash flows are not materially affected by changes in interest rates.

b.Credit risk
 
Credit risk is managed at the Company level. These risks relate to cash and cash equivalents, bank deposits and other receivables.
 
The Company’s cash, cash equivalents and short-term bank deposits at December 31, 20142015, and 20152016 were mainly deposited with highly-rated major Israeli and U.S. banks. In the Company’s opinion, the credit risk in respect ofassociated with these balances is remote.
 
The Company considers its maximum exposure to credit risk to be as follows:
 
 
December 31,
  December 31, 
 
2014
  
2015
  2015  2016 
 
in USD thousands
  in USD thousands 
Assets:            
Cash and cash equivalents  5,790   5,544   5,544   2,469 
Short-term bank deposits  28,890   42,119   42,119   33,154 
Other receivables  257   291   291   223 
Restricted deposits  166   - 
Total  35,103   47,954   47,954   35,846 
 
c.Liquidity risk
 
Company management monitors rolling forecasts of the Company’s liquidity reserves on the basis of anticipated cash flows and maintains the liquidity balances at a level that is sufficient to meet its needs.
 
F - 2218

BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 3 – FINANCIAL RISK MANAGEMENT (cont.)

c.
Liquidity risk (cont.)
 
Although the Company has succeeded in generating significant revenues from a number of out-licensing transactions in the past, it cannot determine with reasonable certainty if and when it will become profitable on a current basis. Management believes that the Company’s current cash and other resources will be sufficient to fund its projected cash requirements into 2018.2019. Accordingly, in the event that the Company does not continue to generate cash from its operating activities, the Company will need to raise additional capital in the future. Inability to raise additional capital would have a material adverse effect on the financial condition of the Company.

d.Financial instruments
 
As of December 31, 20142015 and 2015,2016, the Company’s financial instruments consisted of loans and receivables, and warrants classified as a liability on account of warrants.liability.

e.Fair value estimations
 
In February 2012 and 2013, BioLineRx completed financing transactions in which it issued ADSs and warrants to purchase additional ADSs – see Note 10c. The fair value of the warrants, which are not traded on an active market, is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates.

NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
 
As part of the financial reporting process, Company management is required to make estimates that affect the value of assets, liabilities, income, expenses and certain disclosures included in the Company’s consolidated financial statements. By their very nature, such estimates are subjective and complex and consequently may differ from actual results.
 
The accounting estimates used in the preparation of the financial statements are continually evaluated and adjusted based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances.
 
Described below are the critical accounting estimates used in the preparation of the financial statements, the formulation of which required Company management to make assumptions as to circumstances and events that involve significant uncertainty. In using its judgment to determine the accounting estimates, the Company takes into consideration, as appropriate, the relevant facts, past experience, the effect of external factors and reasonable assumptions under the circumstances.

a.Development expenses
 
Development expenses
Development expenses are capitalized in accordance with the accounting policy described in Note 2p.2o. The capitalization of costs is based on management’s judgment of technological and economic feasibility, which is usually achieved when a development project reaches a predefined milestone, or when the Company enters into a transaction to sell the know-how that resulted from the development process. In determining the amount to be capitalized, management makes assumptions as to the future anticipated cash inflows from the assets, and the anticipated period of future benefits. Company management has concluded that, as of December 31, 2015,2016, the foregoing conditions have not been met and therefore development expenses have not been capitalized for any project.
 
If management had determined that the aforementioned conditions had been met, the capitalization of development costs would have resulted in an increase in the Company’s profit or a decrease in its loss.
 
F - 2319

BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (cont.)

b.Grants/loans from the OCS
In accordance with the accounting treatment prescribed in Note 2q, Company management is required to evaluate whether there is reasonable assurance that the grant/loan received will be paid or repaid. Additionally, whenever the grant/loan is initially recognized as income, management is required to evaluate whether the payment of royalties/repayment of loans to the OCS is considered more likely than not.
See Notes 13a(1) and 13a(2) with regard to the potential amount repayable to the OCS as of December 31, 2015.

NOTE 5 – CASH AND CASH EQUIVALENTS

 
December 31,
  December 31, 
 
2014
  
2015
  2015  2016 
 
in USD thousands
  in USD thousands 
            
Cash on hand and in bank  2,233   747   747   969 
Short-term bank deposits  3,557   4,797   4,797   1,500 
  5,790   5,544   5,544   2,469 
 
The short-term bank deposits included in cash and cash equivalents bear interest at annual rates of between 0.06% and 0.30%. The carrying amount of cash and cash equivalents approximates their fair value, since they bear interest at rates similar to prevailing market interest rates.
 
NOTE 6 – SHORT-TERM BANK DEPOSITS
 
The short-term bank deposits are linked to the dollar and bear interest at annual rates of between 0.42%0.75% and 1.41%1.57%.
 
F - 2420

BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 7 – PROPERTY AND EQUIPMENT

Set forth below are the composition of property and equipment and the related accumulated depreciation, grouped by major classifications, as well as the changes therein for the respective years:

 
Cost
  
Accumulated depreciation
     Cost  Accumulated depreciation    
 Balance at  Additions  Deletions  Balance at  Balance at  Additions  Deletions  Balance at  
Net book value
  Balance at  Additions  Deletions  Balance at  Balance at  Additions  Deletions  Balance at  Net book value 
 beginning  during  during  end of  beginning  during  during  end of  
December 31,
  beginning  during  during  end of  beginning  during  during  end of  December 31, 
 
of year
  
year
  
year
  
year
  
of year
  
year
  
year
  
year
  
2012
  
2013
  of year  year  year  year  of year  year  year  year  2013  2014 
 
In USD thousands
  
In USD thousands
  
In USD thousands
  In USD thousands  In USD thousands  In USD thousands 
Composition in 2013                              
Composition in 2014                              
Office furniture and equipment  233   -   -   233   79   13   -   92   155   141   233   -   -   233   92   13   -   105   141   128 
Computers and communications equipment  432   37   (120)  349   327   74   (120)  281   105   68   349   40   -   389   281   53   -   334   67   55 
Laboratory equipment, net*  1,365   40   (842)  563   858   156   (842)  172   507   391 
Laboratory equipment, net  563   63   -   626   172   156   -   328   392   298 
Leasehold improvements  1,099   -   (908)  191   1,050   14   (908)  156   49   35   191   213   -   404   156   8   -   164   35   240 
  3,129   77   (1,870)  1,336   2,314   257   (1,870)  701   816   635   1,336   316   -   1,652   701   230   -   931   635   721 
*Item is net of OCS grants received - see 13a(1)  579   -   -   579   549   24   -   573   30   5 
                                        
 Cost  Accumulated depreciation         
 Balance at  Additions  Deletions  Balance at  Balance at  Additions  Deletions  Balance at  Net book value 
 beginning  during  during  end of  beginning  during  during  end of  December 31, 
 of year  year  year  year  of year  year  year  year   2014   2015 
 In USD thousands  In USD thousands  In USD thousands 
Composition in 2015                                        
Office furniture and equipment  233   177   (212)  198   105   120   (212)  13   128   185 
Computers and communications equipment  389   78   (21)  446   334   42   (21)  355   55   91 
Laboratory equipment  626   568   -   1,194   328   154   -   482   298   712 
Leasehold improvements  404   1,791   (170)  2,025   164   110   (170)  104   240   1,921 
  1,652   2,614   (403)  3,863   931   426   (403)  954   721   2,909 
 
  
Cost
  
Accumulated depreciation
    
  Balance at  Additions  Deletions  Balance at  Balance at  Additions  Deletions  Balance at  
Net book value
 
  beginning  during  during  end of  beginning  during  during  end of  
December 31,
 
  
of year
  
year
  
year
  
year
  
of year
  
year
  
year
  
year
  
2013
  
2014
 
  
In USD thousands
  
In USD thousands
  
In USD thousands
 
Composition in 2014                              
Office furniture and equipment  233   -   -   233   92   13   -   105   141   128 
Computers and communications equipment  349   40   -   389   281   53   -   334   67   55 
Laboratory equipment, net*  563   63   -   626   172   156   -   328   392   298 
Leasehold improvements  191   213   -   404   156   8   -   164   35   240 
   1,336   316   -   1,652   701   230   -   931   635   721 
*Item is net of OCS grants received – see 13a(1)  579   -   -   579   573   5   -   578   5   1 

F - 2521

BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 7 – PROPERTY AND EQUIPMENT (cont.)
 
 
Cost
  
Accumulated depreciation
     Cost  Accumulated depreciation    
 Balance at  Additions  Deletions  Balance at  Balance at  Additions  Deletions  Balance at  
Net book value
  Balance at  Additions  Deletions  Balance at  Balance at  Additions  Deletions  Balance at  Net book value 
 beginning  during  during  end of  beginning  during  during  end of  
December 31,
  beginning  during  during  end of  beginning  during  during  end of  December 31, 
 
of year
  
year
  
year
  
year
  
of year
  
year
  
year
  
year
  
2014
  
2015
  of year  year  year  year  of year  year  year  year  2015  2016 
 
In USD thousands
  
In USD thousands
  
In USD thousands
  In USD thousands  In USD thousands  In USD thousands 
Composition in 2015                              
Composition in 2016                              
Office furniture and equipment  233   177   (212)  198   105   120   (212)  13   128   185   198   -   -   198   13   12   -   25   185   173 
Computers and communications equipment  389   78   (21)  446   334   42   (21)  355   55   91   446   43   -   489   355   53   -   408   91   81 
Laboratory equipment, net*  626   568   -   1,194   328   154   -   482   298   712 
Laboratory equipment  1,194   104   -   1,298   482   188   -   670   712   628 
Leasehold improvements  404   1,791   (170)  2,025   164   110   (170)  104   240   1,921   2,025   3   -   2,028   104   201   -   305   1,921   1,723 
  1,652   2,614   (403)  3,863   931   426   (403)  954   721   2,909   3,863   150   -   4,013   954   454   -   1,408   2,909   2,605 
*Item is net of OCS grants received – see 13a(1)  579   -   -   579   578   1   -   579   1   - 
 
F - 2622
BioLineRx Ltd.

BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 8 – INTANGIBLE ASSETS


  Cost  Accumulated depreciation and impairment    
  Balance at  Additions  Deletions  Balance at  Balance at  Additions  Deletions  Balance at  Net book value 
  beginning  during  during  end of  beginning  during  during  end of  December 31, 
  of year  year  year  year  of year  year  year  year  2013  2014 
  In USD thousands  In USD thousands  In USD thousands 
Composition in 2014                              
Intellectual property  387   -   (194)  193   193   -   (97)  96   194   97 
Computer software  272   5   -   277   240   17   -   257   32   20 
   659   5   (194)  470   433   17   (97)  353   226   117 
                                         
  Cost  Accumulated depreciation and impairment         
  Balance at  Additions  Deletions  Balance at  Balance at  Additions  Deletions  Balance at  Net book value 
  beginning  during  during  end of  beginning  during  during  end of  December 31, 
  of year  year  year  year  of year  year  year  year   2014   2015 
  In USD thousands  In USD thousands  In USD thousands 
Composition in 2015                                        
Intellectual property  193   -   -   193   96   -   -   96   97   97 
Computer software  277   51   -   328   257   16   -   273   20   55 
   470   51   -   521   353   16   -   369   117   152 
                                         
  Cost  Accumulated depreciation and impairment         
  Balance at  Additions  Deletions  Balance at  Balance at  Additions  Deletions  Balance at  Net book value 
  beginning  during  during  end of  beginning  during  during  end of  December 31, 
  of year  year  year  year  of year  year  year  year   2015   2016 
  In USD thousands  In USD thousands  In USD thousands 
Composition in 2016                                        
Intellectual property  193   -   -   193   96   -   -   96   97   97 
Computer software  328   57   -   385   273   28   -   301   55   84 
   521   57   -   578   369   28   -   397   152   181 
  
Cost
  
Accumulated depreciation
 and impairment
    
  Balance at  Additions  Deletions  Balance at  Balance at  Additions  Deletions  Balance at  
Net book value
 
  beginning  during  during  end of  beginning  during  during  end of  
December 31,
 
  
of year
  
year
  
year
  
year
  
of year
  
year
  
year
  
year
  
2011
  
2013
 
  
In USD thousands
  
In USD thousands
  
In USD thousands
 
Composition in 2013                              
Intellectual property  422   -   (35)  387   193   -   -   193   229   194 
Computer software  309   25   (62)  272   265   37   (62)  240   44   32 
   731   25   (97)  659   458   37   (62)  433   273   226 
                                         
  
Cost
  
Accumulated depreciation
 and impairment
         
  Balance at  Additions  Deletions  Balance at  Balance at  Additions  Deletions  Balance at  
Net book value
 
  beginning  during  during  end of  beginning  during  during  end of  
December 31,
 
  
of year
  
year
  
year
  
year
  
of year
  
year
  
year
  
year
  2013  2014 
  
In USD thousands
  
In USD thousands
  
In USD thousands
 
Composition in 2014                                        
Intellectual property  387   -   (194)  193   193   -   (97)  96   194   97 
Computer software  272   5   -   277   240   17   -   257   32   20 
   659   5   (194)  470   433   17   (97)  353   226   117 
                                         
  Cost  
Accumulated depreciation
 and impairment
    
  Balance at  Additions  Deletions  Balance at  Balance at  Additions  Deletions  Balance at  
Net book value
 
  beginning  during  during  end of  beginning  during  during  end of  
December 31,
 
  
of year
  
year
  
year
  
year
  
of year
  
year
  
year
  
year
  2014  2015 
  
In USD thousands
  
In USD thousands
  
In USD thousands
 
Composition in 2015                                        
Intellectual property  193   -   -   193   96   -   -   96   97   97 
Computer software  277   51   -   328   257   16   -   273   20   55 
   470   51   -   521   353   16   -   369   117   152 


During 2013, the Company wrote-off intellectual property in the total amount of $35,000 in respect of the termination of BL-5040. During 2014, the Company wrote-off $97,000 of intellectual property in the total amount of $97,000 in respect of the out-licensing of BL-5010.

Depreciation in respect of computer software for all years presented as well as the impairment of intellectual property for 2013, was included in research and development expenses.


F - 2723
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 9 – LONG-TERM BANK  LOAN

a.Composition

 
December 31,
  December 31, 
 
2014
  
2015
  2015  
2016
 
 
In USD thousands
  In USD thousands 
            
Loan balance  -   437   437   343 
Less current maturities  -   (93)  (93)  (93)
  -   344   344   250 
 
The loan is denominated in USDdollars and bears interest at an annual rate of 3.75%. The book value of the loan approximates its fair value.
 
The loan is repayable in 60 monthly installments and is collateralized by certain lab equipment.

b.Future repayments
 
Future repayments of the long-term bank loan (other than current maturities) in the years subsequent to the balance sheet date are as follows (in USD thousands):

2017  93 
2018 thru 2020  251 
   344 

F - 28
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
2018
  93 
2019 through 2020
  157 
   250 

NOTE 10 – EQUITY

a.Share capital

As of December 31, 2015, and 2014,2016 the Company’s share capital is composed of ordinary shares, as follows:

 
Number of Ordinary Shares
  Number of Ordinary Shares 
 
December 31,
  December 31, 
 2014*  2015  2015  2016 
              
Authorized share capital  75,000,000   150,000,000   150,000,000   150,000,000 
                
Issued and paid-up share capital  39,115,051   54,818,057   54,818,057   57,033,355 

 
In USD and NIS
  In USD and NIS 
 
December 31,
  December 31, 
 
2014
  
2015
  2015  2016 
            
Authorized share capital (in NIS)  7,500,000   15,000,000   15,000,000   15,000,000 
                
Issued and paid-up share capital (in NIS)  3,911,505   5,481,806   5,481,806   5,703,336 
                
Issued and paid-up share capital (in USD)  1,054,851   1,455,159   1,455,159   1,513,294 

*Number of ordinary shares for 2014 reflects, on a retroactive basis, the 1:10 reverse split carried out by BioLineRx in June 2015. See Note 2L.

As of December 31, 2015,30, 2016, the market price on NASDAQ of BioLineRx’s ADSs was $1.30,$0.92, and the market price on the Tel Aviv Stock Exchange of BioLineRx’s ordinary shares was NIS 5.12.3.47

b.Rights related to shares

The ordinary shares confer upon their holders voting and dividend rights and the right to receive assets of the Company upon its liquidation. As of December 31, 2015 and 2014, all outstanding share capital consisted of ordinary shares.

F - 2924
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 10 – EQUITY (cont.)

b.
Rights related to shares
The ordinary shares confer upon their holders voting and dividend rights and the right to receive assets of the Company upon its liquidation. As of December 31, 2015 and 2016, all outstanding share capital consisted of ordinary shares.
c.Changes in the Company’s equity

1)In February 2012, BioLineRx issued in aas part of private placement, warrants to purchase up to 2,622,157 ADSs at an exercise price of $3.57 per ADS. The warrants are exercisable overfor a periodterm of five years from the date of their issuance. Since the exercise price was not deemed to be fixed, the warrants did not qualify for classification as an equity instrument and have therefore been classified as a non-current derivative financial liability. The amount of the private placement consideration allocated to the warrants was approximately $4,800,000 as of the issuance date, based on their fair value as calculated on the basis of the Black-Scholes model. The changes in fair value for the three years ended December 31, 2013, 2014, 2015 and 2015,2016, of approximately $100,000, $2,000,000, $700,000 and $700,000,$110,000, respectively, have been recorded as non-operating income on the statement of comprehensive loss. The warrants expired in full in February 2017, without being exercised.

2)In February 2013, the Company completed a direct placement to leading healthcare investor, OrbiMed Israel Partners Limited Partnership, an affiliate of OrbiMed Advisors LLC. The placement consisted of 2,666,667 ADSs and 1,600,000 warrants to purchase an additional 1,600,000 ADSs, at a unit price of $3.00. The warrants have an exercise price of $3.94 per ADS and are exercisable for a term of five years. The offering raised a total of $8,000,000, with net proceeds of approximately $7,700,000, after deducting fees and expenses. Since the exercise price was not deemed to be fixed, the warrants did not qualify for classification as an equity instrument and have therefore been classified as a non-current derivative financial liability.

In February 2013, the Company issued as part of a direct placement to leading healthcare investor, OrbiMed Israel Partners Limited Partnership, an affiliate of OrbiMed Advisors LLC., warrants to purchase up to 1,600,000 ADSs, at an exercise price of $3.94 per ADS. The warrants are exercisable for a term of five years from the date of their issuance. Since the exercise price was not deemed to be fixed, the warrants did not qualify for classification as an equity instrument and have therefore been classified as a non-current derivative financial liability. The amount of the direct placement consideration allocated to the warrants was approximately $3,400,000, as calculated on the basis of the Black-Scholes model, which reflected their fair value as of the issuance date. The portion of total issuance costs allocable to the warrants, in the amount of approximately $130,000, was recorded as a non-operating expense on the statement of comprehensive loss. The changechanges in fair value from the date of issuance through December 31, 2013, and for the years ended December 31, 2014, 2015 and 2015, amounting to2016, of approximately $1,600,000, $1,100,000, $600,000, and $600,000,$100,000 respectively, hashave been recorded as non-operating income on the statement of comprehensive loss.

F - 30
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 – EQUITY (cont.)

c.
Changes in the Company’s equity (cont.)
3)2)In March 2014, the Company completed an underwritten public offering of 9,660,000 ADSs at a public offering price of $2.50 per ADS. The offering raised a total of $24.2 million, with net proceeds of approximately $22.3 million, after deducting fees and expenses.

4)3)In March 2015, the Company completed an underwritten public offering of 14,375,000 ADSs at a public offering price of $2.00 per ADS. The offering raised a total of $28.8 million, with net proceeds of approximately $26.4 million, after deducting fees and expenses.

F - 25
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 – EQUITY (cont.)

d.Share purchase agreement

In September 2012, BioLineRx and Lincoln Park Capital Fund, LLC, an Illinois limited liability company (“LPC”), entered into a $15 million purchase agreement, together with a registration rights agreement, whereby LPC agreed to purchase, from time to time, up to $15 million of BioLineRx’s ADSs, subject to certain limitations, during the 36-month term of the Purchase Agreement.
In September 2012, BioLineRx and Lincoln Park Capital Fund, LLC, an Illinois limited liability company (“LPC”), entered into a $15 million purchase agreement, together with a registration rights agreement, whereby LPC agreed to purchase, from time to time, up to $15 million of BioLineRx’s ADSs, subject to certain limitations, during the 36-month term of the Purchase Agreement.

In consideration for entering into the $15 million agreement, BioLineRx paid to LPC an initial commitment fee, as well as an initial finder’s fee, in cash, to Oberon Securities, LLC Additional commitment and finder’s fees associated with the agreement, payable only upon the issuance of shares, were recorded as issuance expenses against share premium on the statement of financial position.
In consideration for entering into the $15 million agreement, BioLineRx paid to LPC an initial commitment fee, as well as an initial finder’s fee, in cash, to Oberon Securities, LLC Additional commitment and finder’s fees associated with the agreement, payable only upon the issuance of shares, were recorded as issuance expenses against share premium on the statement of financial position.

On a cumulative basis, from the effective date of the $15,000,000 purchase agreement through its termination in May 2014, BioLineRx sold a total of 3,793,209 ADSs to LPC for aggregate gross proceeds of $9,731,000. In connection with these issuances, a total of 94,832 ADSs was issued to LPC as an additional commitment fee and a total of $195,000 was paid to Oberon Securities as an additional finder’s fee.

F - 31

BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 – EQUITY (cont.)

d.
Share purchase agreement (cont.)

In May 2014, BioLineRx and LPC entered into a new $20 million, 36-month purchase agreement, and terminated the previous $15 million agreement. The terms of the new purchase agreement are substantially identical to the terms of the previous purchase agreement.

In consideration for entering into the new $20 million purchase agreement, BioLineRx paid to LPC an initial commitment fee of $300,000, paid via the issuance of 150,000 ADSs, and will pay a further commitment fee of up to $500,000, pro rata, as the facility is used over time, which will be paid in ADSs valued based on the prevailing market prices of BioLineRx’s ADSs at such time. The new purchase agreement may be terminated by BioLineRx at any time, at its sole discretion, without any cost or penalty.

In connection with the new purchase Agreement, BioLineRx agreed to pay an initial cash finder’s fee to Oberon Securities of $50,000, and will pay an additional cash finder’s fee equal to 2.0% of the dollar amount of ADSs sold under the new agreement, up to an aggregate additional finder’s fee of $200,000. BioLineRx has no other obligations to Oberon Securities with respect to this or any other potential future agreement.

The initial commitment fee payable to LPC and the initial finder’s fee payable to Oberon Securities, in the total aggregate amount of $350,000, were recorded as a non-operating expense in the statement of comprehensive loss for the year ended December 31, 2014. Future commitment and finders fees payable, if and when the facility is used over time, will be recorded as issuance expenses against share premium on the statement of financial position.

During the year ended December 31, 2015 and on a cumulative basis, BioLineRx sold a total of 1,292,601 ADSs to LPC for aggregate gross proceeds of $2,643,000.$9,731,000. In connection with these issuances, a total of 32,31594,832 ADSs was issued to LPC as an additional commitment fee and a total of $195,000 was paid to Oberon Securities as an additional finder’s fee.

In May 2014, BioLineRx and LPC entered into a new $20 million, 36-month purchase agreement, and terminated the previous $15 million agreement. The terms of the new purchase agreement are substantially identical to the terms of the previous purchase agreement.

In consideration for entering into the new $20 million purchase agreement, BioLineRx paid to LPC an initial commitment fee of $300,000, paid via the issuance of 150,000 ADSs, and will pay a further commitment fee of up to $500,000, pro rata, as the facility is used over time, which will be paid in ADSs valued based on the prevailing market prices of BioLineRx’s ADSs at such time. The new purchase agreement may be terminated by BioLineRx at any time, at its sole discretion, without any cost or penalty.

In connection with the new purchase Agreement, BioLineRx agreed to pay an initial cash finder’s fee to Oberon Securities of $50,000, and will pay an additional cash finder’s fee equal to 2.0% of the dollar amount of ADSs sold under the new agreement, up to an aggregate additional finder’s fee of $200,000. BioLineRx has no other obligations to Oberon Securities with respect to this or any other potential future agreement.

The initial commitment fee payable to LPC and the initial finder’s fee payable to Oberon Securities, in the total aggregate amount of $350,000, were recorded as a non-operating expense in the statement of comprehensive loss for the year ended December 31, 2014. Future commitment and finder’s fees payable, if and when the facility is used over time, will be recorded as issuance expenses against share premium on the statement of financial position.

During the year ended December 31, 2016 BioLineRx sold a total of 2,133,050 ADSs to LPC for aggregate gross proceeds of $2,227,000. In connection with these issuances, a total of 53,327 ADSs was issued to LPC as a commitment fee and a total of $53,000$45,000 was paid to Oberon Securities as a finder’s fee.
F - 26
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 – EQUITY (cont.)

d.
Share purchase agreement (cont.)

On a cumulative basis, from the effective date of the purchase agreement through the approval date of these financial statements, BioLineRx has sold a total of 5,550,603 ADSs to LPC for aggregate gross proceeds of $7,000,000. In connection with these issuances, a total of 138,766 ADSs were issued to LPC as a commitment fee and a total of $140,000 was paid to Oberon Securities as a finder’s fee.

e.Share-based payments

1)Stock optionShare Incentive plan – general
 
In 2003, BioLineRx adopted the 2003 Share OptionIncentive Plan (the “Plan”). The Plan provides for the granting of stock options and ordinary shares to the Company’s employees, directors, consultants and other service providers. Options are issued at the determination of the Board of Directors in accordance with applicable law. The options are generally exercisable for a seven-yearten-year period and the grants generally vest over a four-year period. DuringIn 2013, the Company’s Board of Directors approved amendments to the Plan to take into account changes in laws and regulations that had occurred since its adoption and to extend the term of the plan until November 2023. In 2016, the Board of Directors approved amendments to the Plan to allow the grant of restricted stock units (“RSUs”) and performance stock units (“PSUs”).
PSUs represent RSUs that are linked to any one or more performance goals (in addition to, or in lieu of, time-based vesting terms) determined appropriate by the Board of Directors. Once vested, each PSU granted is equivalent to one ordinary share. The specific performance goals, as well as the time period associated with achieving such goals, are approved by the Board and are set forth in the grantee’s grant agreement. To date, each PSU grant has had four performance goals on which vesting is based, each such goal being either a specified Company milestone and or the success of a specific project, with vesting of 25% on the achievement of each goal. As of December 31, 2015,2016, it was still not ascertainable whether the performance criteria to which the granted PSUs are linked would be met. The tranche of PSUs associated with a given milestone expires 12 months after the target date established for that milestone.
As of December 31, 2016, there were 3,560,1524,745,924 ordinary shares issuable upon the exercise of outstanding optionsequity instruments under the Plan.

Ordinary shares resulting from grants under the Plan confer the same rights as all other ordinary shares of BioLineRx.

F - 32
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 – EQUITY (cont.)

e.
Share-based payments (cont.)

1)Stock option plan – general (cont.)

Company employees and directors are granted options under Section 102 of the Israeli Income Tax Ordinance (the “Ordinance”), primarily under the “capital gains” track. Non-employees of the Company (consultants and other service providers), as well as controlling shareholders in BioLineRx (as this term is defined in Section 32(9) of the Ordinance), are granted options under Section 3(i) of the Ordinance.

In November 2014 and December 2015, the Company’s Board of Directors approved increases of 1.6 million and 5.0 million shares, respectively, to the total pool of authorized ordinary shares reserved for purposes of the Plan and any other present or future share incentive plans of the Company, bringing the pool to an aggregate of 9.6 million shares. As of December 31, 2015,2016, there were 5.34.0 million remaining authorized but unissued ordinary shares in the pool reserved for future share-based incentive grants.
 
F - 3327
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 10 – EQUITY (cont.)

e.
Share-based payments(cont.)

2)Employee stock options (cont.)share incentive plan:

The following table contains additional information concerning optionsequity instruments granted to employees and directors under the existing stock-optionshare incentive plans.

  Year ended December 31, 
  2014  2015  2016 
  
Number
of options
  
Weighted
average
exercise
price
(in NIS)
  
Number
of options
  
Weighted
average
exercise
price
(in NIS)
  
Number
of options
  
Weighted
average
exercise
price
(in NIS)
 
Outstanding at beginning of year  1,861,280   12.0   3,187,092   9.1   3,500,262   8.7 
Granted*  1,478,200   5.7   500,800   6.8   2,505,684   3.8 
Forfeited and expired  (150,985)  13.0   (187,630)  11.1   (1,435,990)  7.2 
Exercised  (1,403)  4.0   -   -   (12,029)  0.4 
Outstanding at end of year  
3,187,092
   
9.1
   
3,500,262
   
8.7
   
4,557,927
   
6.5
 
Exercisable at end of year  
641,960
   
15.1
   
1,169,540
   
12.6
   
1,786,209
   
9.4
 
* As of the December 31, 2016, includes PSUs at an exercise price of 0.10 NIS, for which performance obligations have not been met.

F - 28
  
Year ended December 31,
 
  2013  2014  2015 
  
Number
of options
  
Weighted average exercise price
(in NIS)
  
Number
of options
  
Weighted average exercise price
(in NIS)
  
Number
of options
  
Weighted average exercise price
(in NIS)
 
Outstanding at beginning of year  1,293,602   13.2   1,861,280   12.0   3,187,092   9.1 
Granted
  755,800   9.7   1,478,200   5.7   500,800   6.8 
Forfeited and expired
  (162,976)  13.5   (150,985)  13.0   (187,630)  11.1 
Exercised
  (25,146)  4.0   (1,403)  4.0   -   - 
Outstanding at end of year  1,861,280   12.0   3,187,092   9.1   3,500,262   8.7 
Exercisable at end of year  273,780   20.4   641,960   15.1   1,169,540   12.6 
BioLineRx Ltd.

NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 – EQUITY (cont.)

e.
Share-based payments (cont.)

The total consideration received from the exercise of stock optionsequity instruments during 2013, 2014, 2015 and 20152016 was not material.

The weighted average prices of BioLineRx’s shares on the dates of exercise were NIS 0.78 and NIS 0.77 for 2013 and 2014, respectively.
Set forth below is data regarding the range of exercise prices and weighted-average remaining contractual life (in years) for the optionsequity instruments outstanding at the end of each of the years indicated.

   
Year ended December 31,
 
   
2013
  
2014
  
2015
 
Range of
exercise prices
(in NIS)
  
Number
of options outstanding
  
Weighted average remaining contractual life (in yrs.)
  
Number
of options outstanding
  
Weighted average remaining contractual life (in yrs.)
  
Number
of options outstanding
  
Weighted average remaining contractual life (in yrs.)
 
Up to 10.00   250,889   6.12   1,717,686   6.61   2,117,886   5.76 
10.01-20.00   1,547,594   5.78   1,406,609   4.84   1,334,866   3.81 
20.01-30.00   10,903   2.82   10,903   1.82   10,340   0.88 
30.01-40.00   11,125   1.56   11,125   2.36   10,000   1.55 
Over 40.00   40,770   2.24   40,770   1.34   27,170   1.00 
    1,861,280   5.70   3,187,092   5.73   3,500,262   4.96 

F - 34

BioLineRx Ltd.
   Year ended December 31, 
   2014  2015  2016 
Range of
exercise
prices
(in NIS)
  
Number
of options
outstanding
  
Weighted
average
remaining
contractual
life (in yrs.)
  
Number
of options
outstanding
  
Weighted
average
remaining
contractual
life (in yrs.)
  
Number
of options
outstanding
  
Weighted
average
remaining
contractual
life (in yrs.)
 
Up to 10.00   1,717,686   6.61   2,117,886   5.76   3,502,043   6.47 
10.01-20.00   1,406,609   4.84   1,334,866   3.81   1,037,436   2.38 
20.01-30.00   10,903   1.82   10,340   0.88   3,278   0.74 
30.01-40.00   11,125   2.36   10,000   1.55   10,000   0.55 
Over 40.00   40,770   1.34   27,170   1.00   5,170   0.38 
    3,187,092   5.73   3,500,262   4.96   4,557,927   5.52 
 
With regard to the PSUs granted in 2016, the performance obligations attached to these instruments have not yet been met as of the date of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 – EQUITY (cont.)

e.
Share-based payments (cont.)

2)Employee stock options (cont.)

The fair value of all optionsother equity instruments granted to employees through December 31, 20152016 has been determined using the Black-Scholes option-pricing model. These values are based on the following assumptions as of the applicable grant dates:
 
 
2013
  
2014
  
2015
  2014  2015  2016 
Expected dividend yield  0%  0%  0%  0%  0%  0%
Expected volatility  69%  65%  68%  65%  68%  66%
Risk-free interest rate  2%  2%  2%  2%  2%  2%
Expected life of options (in years)  7   5   5   5   5   5 

F - 29
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 – EQUITY (cont.)

e.
Share-based payments (cont.)

3)Stock options to consultants
 
From inception through December 31, 2012,2014, the Company issued to consultants options for the purchase of 76,523 ordinary shares at a weighted average exercise price of NIS 21.54 per share.
 
In 2015 the Company issued options to consultants for the purchase of 5,000 ordinary shares at a weighted average exercise price of NIS 7.62 per share. No
In 2016, the company issued additional options were issued to consultants in 2013 and 2014.for the purchase of 150.000 ordinary shares at a weighted average price of NIS 4.55 per share
 
The options to consultants generally vest over four years and may be exercised for periods of between five and ten years. As of December 31, 2015, 59,8902016, 187,997 options to consultants were outstanding with a weighted average exercise price of NIS 21.99.58 per share and a weighted average contractual life of 1.687.57 years.
 
Company management estimates the fair value of the options granted to consultants based on the value of services received over the vesting period of the applicable options. The value of such services (primarily in respect of clinical advisory services) is estimated based on the additional cash compensation the Company would need to pay if such options were not granted. The value of services recorded in 2013, 2014, 2015 and 20152016 amounted to $40,000 each year.

4)Grant of equity instruments subsequent to balance sheet date
 
In February 2017, the Board of Directors approved a Company-wide grant to employees of approximately 2.5 million equity instruments, including stock options, RSUs and PSUs, with standard terms regarding vesting and contractual life.
F - 3530
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 11 – TAXES ON INCOME

a.Corporate taxation in Israel

The income of BioLineRx and BIJ Ltd. is taxed at the standard Israeli corporate tax rates,rate, which were 25% in 2013, andwas 26.5% in 2014 and 2015. The2015, and 25% in 2016. In December 2016, legislation was enacted to further reduce the Israeli corporate tax ratesrate to 24% for 20162017 and thereafter are currently set at 25%. Capital gains are generally subject to tax at the same rate as the corporate tax rate.23% for 2018 and thereafter.

During its existence, BIJ LP wasAs the Company has not subject tocreated any deferred tax under Israeli tax law; rather, each ofassets or liabilities (see Note 2m), these changes have no effect on the partners thereof (BioLineRx and BIJ Ltd.) was liable for the tax applicable to the operations of BIJ LP in proportion to their respective share in BIJ LP’s results.Company’s financial statements.

b.Approved enterprise benefits
 
In May 2012, the Israeli Tax Authority (“ITA”) approved BioLineRx’s eligibility for tax benefits as a “Benefited Enterprise” under the Law for the Encouragement of Capital Investments, 5719-1959, as amended (the “Investments Law”), with respect to certain development programs (the “Eligible Projects”).
 
Subject to compliance with the applicable requirements, the portion of undistributed income derived fromeligible for benefits under the Benefited Enterprise programsregime will be entitled to a tax exemption for a period of two years, followed by five years at the Benefited Enterprise tax rate of 25%, commencing in the first year in which BioLineRx generates taxable income after setting off losses for Israeli tax purposes from prior years (see c. below). The seven-year period may not extend beyond 12 years from the beginning of the Benefited Enterprise’s election year. BioLineRx received Benefited Enterprise status with respect to Eligible Projects in the 2009 and 2012 tax years, so depending on when the Benefited Enterprise programs begin to generate taxable income, the benefitbenefits period could continue through 2023. However, any distribution of incomedividends derived from exempt income sourced in the Benefited Enterprise programs will result in such income beingbe subject to a rate“claw back” of corporate tax at a rate no greater than 25%. In addition, dividends distributed by a publicly traded Israeli company to non-Israeli residents or Israeli individuals are generally subject to withholding tax of 25%. Under an applicable tax treaty, the withholding tax might be lower.
 
BioLineRx has the option to transition to a “Preferred Enterprise” regime under the Investments Law, accordingLaw. Upon an irrevocable election made by a company, a uniform corporate tax rate will apply to which all qualifying industrial income which is eligible for benefitsof such company, as opposed to the previous incentives under the regimeInvestments Law, which were limited to income from Benefited Enterprises during the benefits period. Under the Investments Law, when the election is made, the uniform tax rate for 2016 would be 16% for BioLineRx’s location in Israel. Preferred Enterprise profits are freely distributable as dividends, subject to a flat corporate20% withholding tax, rate of 16%, whether or not distributed. A transition to a Preferred Enterprise regime may not be reversed.lower under an applicable tax treaty.
 
In addition, the ITA approved BioLineRx’s operations as an “Industrial Enterprise” under the Investments Law in 2012, meaning that BioLineRx is eligible for accelerated depreciation with respect to certain tangible assets belonging to its Benefited Enterprise. Should BioLineRx not meet the requirements for maintaining these benefits, they may be reduced or cancelled and, among other things, income deriving from the Eligible Projects would be subject to Israeli corporate tax at the standard rate of 25%.rates.

F - 3631
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 11 – TAXES ON INCOME (cont.)

c.Tax loss carryforwards
 
As of December 31, 2014, 2015 and 2015,2016, the tax loss carryforwards of BioLineRx were approximately $135 million, $150 million and $152$170 million, respectively. The tax loss carryforwards have no expiration date.
 
The Company has not created deferred tax assets in respect of these tax loss carryforwards. See Note 2n.2m.

d.Tax assessments

In accordance with Israeli tax regulations, the tax returns filed by BioLineRx and BIJ Ltd. through the 20112012 tax year are considered final.

e.Theoretical taxes
 
As described in Note 2n,2m, the Company has not recognized any deferred tax assets in the financial statements, as it does not expect to generate taxable income in the foreseeable future. The tax on the Company’s income before taxes differs from the theoretical amount that would arise using the weighted average tax rate applicable to income of the consolidated entities as follows:

 
Year ended December 31,
  Year ended December 31, 
 
2013
  
2014
  
2015
  2014  2015  2016 
    USD in     USD in     USD in     USD in     USD in     USD in 
    
thousands
     
thousands
     
thousands
     thousands     thousands     thousands 
Loss before taxes  25%  (17,024)  26.5%  (11,076)  26.5%  (14,400)  26.5%  (11,076)  26.5%  (14,400)  25.0%  (15,841)
                                                
Theoretical tax benefit      (4,256)      (2,935)      (3,816)      (2,935)      (3,816)      (3,960)
Disallowed deductions (tax exempt income):                                                
Gain on adjustment of warrants to fair value      (358)      (915)      (342)      (915)      (342)      (52)
Share-based compensation      211       280       305       280       305       269 
Other      18       15       14       15       14       15 
Increase in taxes for tax losses and timing differences incurred in the reporting year for which deferred taxes were not created      4,385       3,555       3,839       3,555       3,839       3,728 
Taxes on income for the reported year      -       -       -       -       -       - 

 
F - 3732
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 12 – LOSS PER SHARE

The following table contains the data used in the computation of the basic loss per share:
The following table contains the data used in the computation of the basic loss per share:

  Year ended December 31, 
  
2013
  
2014
  
2015
 
  
In USD thousands
 
Loss attributed to ordinary shares  (17,024)  (11,076)  (14,400)
Number of shares used in basic calculation (in thousands)  22,488   32,434   51,406 
             
  
in USD
 
Basic loss per ordinary share  (0.76)  (0.34)  (0.28)
Diluted loss per ordinary share  (0.76)  (0.34)  (0.28)

NOTE 13 – COMMITMENTS AND CONTINGENT LIABILITIES

a.Commitments

1)Agreement with the State of Israel for operation of the Incubator
  Year ended December 31, 
  2014  2015  2016 
  In USD thousands 
Loss attributed to ordinary shares  (11,076)  (14,400)  (15,841)
Number of shares used in basic calculation (in thousands)  32,434   51,406   56,145 
             
  in USD 
Basic and diluted loss per ordinary share  (0.34)  (0.28)  (0.28)
 
Pursuant to an agreement with the State of Israel, the Company operated the Incubator from January 1, 2005 through December 31, 2013. Following expiration of the agreement on December 31, 2013, the Company terminated the activities of the Incubator and applied to the courts for a formal liquidation of BIJ LP, which took effect on December 31, 2014.
As part of the Incubator agreement between BIJ LP and the State of Israel, represented by the OCS, the State of Israel agreed to grant loans to BIJ LP to partially finance projects approved by the OCS. As security for such loans, the Incubator registered first-ranking pledges in favor of the OCS on a project-specific basis, which included a restriction on the transfer of, and/or licensing rights in, technologies which originated from the project, and on any equipment purchased for use in the project. In addition, the Incubator agreement contained various restrictions regarding compliance with the Israel R&D Law (the Encouragement of Research and Development in Industry Law) related to maintaining the intellectual property and manufacturing rights relating to each OCS-funded project in Israel.

The proceeds from the sale or use of project-related intellectual property serve as the exclusive source for repayment of OCS loans financing such projects, and the sole collateral for the repayment of project loans are pledges on project-related intellectual property and assets purchased with loan proceeds. Upon termination of a project, loan amounts are forgiven in their entirety by the OCS.

As of December 31, 2015, the Company has no further liabilities to the OCS in respect of loans received under the Incubator.

With respect to the accounting treatment of State loans, see Note 2q.

F - 38

BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)

a.
Commitments (cont.)

2)1)Obligation to pay royalties to the State of Israel – regular OCS funding

The Company is required to pay royalties to the State of Israel (represented by the OCS), computed on the basis of proceeds from the sale or license of products whose development was supported by StateOCS grants. This obligation relates solely to the State’s financial participation in the development of products by the Company outside the framework of the Incubator that was operated by BIJ LP through December 31, 2013.Company.

In accordance with the terms of grants provided by the OCS, the State is entitled to royalties on the sale or license of any product whose development was supported with State participation. These royalties are generally 3% in the first three years from initial repayment, 4% of sales in the three subsequent years and 5% of sales in the seventh year until repayment of 100% of the grants (linked to the dollar) received by the Company, plus annual interest at the LIBOR rate. Under certain circumstances, the royalty rate is calculated according to a formula based on the ratio of participation by the OCS in the project to the total project costs incurred by the Company. As of December 31, 2015, the contingent liability for potential royalties payable by the Company for OCS grants received (other than BL-8040 – see below) amounts to $0.2 million.

In connection with the in-licensing of BL-8040 from Biokine Therapeutics Ltd. (“Biokine”), and as a condition to OCS consent to the transaction, the Company agreed to abide by any obligations resulting from funds previously received by Biokine from the OCS. The contingent liability to the OCS assumed by the Company relating to this transaction amounts to approximately $2.7 million as of December 31, 2015.2016. The Company has a full right of offset for amounts payable to the OCS from payments due to Biokine in the future. Therefore, in the opinion of management, the likelihood of any future Company payment obligation to the OCS with regard to this matter is remote.

F - 33
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)

3)a.Commitments (cont.)

2)Licensing agreements

From time to time, the Company enters into in-licensing agreements with academic institutions, research institutions and companies (the “licensors”) in connection with the development of therapeutic compounds. Pursuant to these licensing agreements, the Company generally obtains the rights for one or more therapeutic compounds in pre-clinical and early-clinical stages of development, in order to continue development of the compounds through more advanced stages of development and, subsequently, to manufacture, distribute and market the drugs or to out-license the development, manufacturing and commercialization rights to third parties. Such development activities are carried out by either the Company and/or by companies or institutions to which the Company has entered into an out-license agreement, subject to certain restrictions stipulated in the various agreements.

F - 39

BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)

a.Commitments (cont.)

3)Licensing agreements (cont.)

The licenses that have been granted to the Company are broad and comprehensive, and generally include various provisions and usage rights as follows: (i) territorial scope of the license (global); (ii) term of the license (unrestricted but not shorter than the life of the patent); and (iii) development of the therapeutic compound (allowing the Company to perform all development activities on its own, or by outsourcing under Company supervision, as well as out-licensing development under the license to other companies, subject to the provisions of the licensing agreements).

According to the provisions of the licensing agreements, the intellectual property rights in the development of any licensed technology, through the date the applicable license agreement is effective, remain with the licensor, while the rights in products and/or other deliverables developed by the Company after the license is granted belong to the Company. In cases where the licensor has a claim to an invention that was jointly developed with the Company, the licensor also co-owns the related intellectual property. In any event, the scope of the license also covers these rights.

In addition, the Company generally undertakes in the licensing agreements to protect registered patents resulting from developments under the various licenses, to promote the registration of patents covering new developments in cooperation with the licensor, and to bear responsibility for all related costs. Pursuant to the various agreements, the Company generally works to register the various patents on a broad basis worldwide, and if the Company decides not to initiate or continue a patent registration proceeding in a given country, the Company is required to notify the applicable licensor to this effect and the licensor is entitled to take action for registration of the patent in such country.

F - 34
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)

a.Commitments (cont.)

2)Licensing agreements (cont.)

The consideration paid pursuant to the licensing agreements generally includes several components that may be payable over the license period and that relate, inter alia, to the progress made in research and development activities, as well as commercial success, as follows: (a) one-time payment of up to $200,000 and/or periodic payments of up to $30,000 per year; (b) payments through the early stages of development ( i.e. through the end of phase 2) of up to $150,000; (c) payments of up to $2,000,000 upon the achievement of milestones necessary for advancing to phase 3; (d) payments of up to $5,000,000$7,000,000 from the end of a successful phase 3 trial through approval of the therapeutic compound; and e) royalties on sales of the final product resulting from development under the license or including any component thereof, ranging between 3%-5% of the Company’s net sales of the product, although in specific instances the royalty rate has been higher or lower than this range. In instances where the Company has outlicensedout-licensed the product for further development, the Company pays a percentage of the net consideration received from the licensee (“Sublicense Receipts”) to the upstream licensor that generally range from 20% to 29.5% of such consideration , although in specific instances the percentage paid has been higher or lower than this range. These Sublicense Receipts generally take the place of most or all of the milestone and royalty payments set forth in (b) through (e) above.

F - 40
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)

a.
Commitments (cont.)

3)Licensing agreements (cont.)

The license agreements may be cancelled by the licensor only in specific circumstances, generally upon the occurrence of one of the following events: (a) the Company’s failure to meet certain milestones stipulated in the applicable license agreement and appended timetables; (b) default, insolvency, receivership, liquidation, etc. of the Company that is not imposed and/or lifted within the timeframe stipulated in the license agreement; and (c) fundamental breach of the license agreement that is not corrected within the stipulated timeframe. The Company may generally cancel a license agreement with prior notice of 30 to 90 days, due to unsuccessful development or any other cause.

The Company has undertaken to indemnify certain licensors, their employees, officers, representatives or anyone acting on their behalf for any damage and/or expense that they may incur in connection with the Company’s use of a license granted to it, all in accordance with the terms stipulated in the applicable license agreements.

Some of the license agreements are accompanied by consulting, support and cooperation agreements, pursuant to which the Company is committed to pay the various licensers a fixed monthly amount over the period stipulated in the agreement for their assistance in the continued research and development under the license.
F - 35
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)

4)a.Commitments (cont.)

3)Lease agreements

a)In August 2014, the Company entered into an operating lease agreement in connection with the lease of new premises. Payments under the new lease commenced in June 2015 and will expire in June 2020. The monthly lease fee is approximately $27,000 (including maintenance fees and parking). The Company has the option to extend the lease for 4 additional lease periods totaling up to an additional 10 years, each option at a 5% increase to the preceding lease payment amount.

As to guaranteesSee Note 13b regarding a guarantee provided to secure the Company’s liability under the lease agreements, see Note 13b.agreement.

b)The Company has entered into operating lease agreements in connection with a number of vehicles. The lease periods are generally for three years. The annual lease fees, linked to the CPI, are approximately $240,000.$210,000. To secure the terms of the lease agreements, the Company has made certain prepayments to the leasing companies, representing approximately two months of lease payments. These amounts have been recorded as prepaid expenses. See also Note 15b.

F - 41

BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 – COMMITMENTS AND CONTINGENT LIABILITIES (cont.)

a.
Commitments (cont.)

5)Early Development Program (“EDP”) agreement

On the signature date of an investment agreement with Pan Atlantic Bank and Trust Limited (“Pan Atlantic”) in 2007, BioLineRx also entered into an agreement with Pan Atlantic for the funding of an early development program (the “EDP Agreement”). According to the EDP Agreement, Pan Atlantic undertook to provide grants for the promotion of drug-development projects in the preliminary stages of research in an aggregate amount of up to $5,000,000, in semi-annual “calls” of up to $625,000 each. In parallel, for every dollar of EDP project funding provided by Pan Atlantic, BioLineRx committed to provide twenty cents of funding (i.e., a funding ratio of 5:1). Pan Atlantic’s undertakings under the EDP agreement were not subject to Pan Atlantic being a lender to, or a shareholder of, BioLineRx. During 2012, Pan Atlantic fulfilled its entire $5,000,000 funding commitment under the EDP agreement, and during 2013, the Company utilized the remaining funds available under the program. Amounts recognized as a reduction of research and development expenses in 2013 related to the EDP program were $669,000.

b.Contingent liabilities

Guarantees and liens:

To secure the Company’s lease obligation on its premises, the Company has provided a bank guarantee in the amount of approximately $100,000 for the benefit of the lessor, which wasremains outstanding as of December 31, 2015. As of December 31, 2014, the Company had pledged several dollar-denominated bank deposits in the aggregate amount of $166,000 to secure the lease on its premises.2016.

See Note 9a regarding equipment pledged as collateral to secure a bank loan.
 
F - 42
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS

NOTE 14 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES

Transactions with related parties

Expenses (income):Expenses:
 
 
Year ended December 31,
  Year ended December 31, 
 
2013
  
2014
  
2015
  2014  2015  2016 
 
In USD thousands
  In USD thousands 
Participation in EDP project funding*  (669)  -   - 
            
Benefits to related parties:                     
Compensation and benefits to senior management, including benefit component of option grants  1,590   2,084   1,843 
Compensation and benefits to senior management, including benefit component of equity instrument grants  2,084   1,843   1,912 
Number of individuals to which this benefit related  5   5   5   5   5   6 
Compensation and benefits to directors, including benefit component of option grants  192   218   233 
Compensation and benefits to directors, including benefit component of equity instrument grants  218   233   316 
Number of individuals to which this benefit related  6   7   7   7   7   7 

*This amount relates to a grant received from Pan Atlantic, in accordance with the EDP Agreement as detailed in Note 13a(5).
F - 36
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES (cont.)
Transactions with related parties (cont.)

Key management compensation

Key management includes directors (executive and non-executive), and executive officers and the internal auditor.officers. The compensation paid or payable to key management for services during each of the years indicated is presented below.

  
Year ended December 31,
 
  
2013
  
2014
  
2015
 
  
In USD thousands
 
Salaries and other short-term employee benefits  1,271   1,704   1,412 
Post-employment benefits  121   130   120 
Other long-term benefits  16   30   27 
Share-based compensation  374   438   517 
   1,782   2,302   2,076 

 
  Year ended December 31, 
  2014  2015  2016 
  In USD thousands 
Salaries and other short-term employee benefits  1,704   1,412   1,609 
Post-employment benefits  130   120   129 
Other long-term benefits  30   27   30 
Share-based compensation  438   517   460 
   2,302   2,076   2,228 

F - 4337
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 15 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION

a.Other receivables
 
 December 31,  December 31, 
 
2014
  
2015
  2015  2016 
 
In USD thousands
  In USD thousands 
Institutions  250   255   255   198 
Income receivables  -   26 
Other  7   10   36   25 
  257   291   291   223 
 
b.Long-term prepaid expenses

The prepaid expenses relate to operating lease agreements in respect of the vehicles leased by the Company.

c.Accounts payable and accruals
 
   
December 31,
 
   
2014
  
2015
 
   
In USD thousands
 
1)Trade:      
 Accounts payable:      
 In Israel  558   374 
 Overseas  1,096   1,536 
    1,654   1,910 
2)Other:        
 Payroll and related expenses  361   209 
 Accrual for vacation and recreationpay  277   213 
 Accrued expenses  610   705 
 Other  4   10 
    1,252   1,137 
  December 31, 
  2015  2016 
  In USD thousands 
1)   Trade:      
Accounts payable:      
Overseas  1,536   2,152 
In Israel  374   438 
   1,910   2,590 
2)   Other:        
Accrued expenses  705   560 
Accrual for vacation and recreation pay  213   186 
Payroll and related expenses  209   217 
Other  10   15 
   1,137   978 
         

The carrying amounts of accounts payable and accruals approximate their fair value, as the effect of discounting is not material.

F - 4438
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS

 
NOTE 15 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (cont.)

d.Research and development expenses – net
 
 
Year ended December 31,
  Year ended December 31, 
 
2013
  
2014
  
2015
  2014  2015  2016 
 
In USD thousands
  In USD thousands 
Research and development services  6,050   5,455   5,501 
Payroll and related expenses, including vehicles  3,545   3,771   3,754   3,771   3,754   3,475 
Lab, occupancy and telephone  940   926   769 
Professional fees  682   772   678 
Depreciation and amortization  226   253   414   253   414   452 
Write-off of intellectual property  38   97   -   97   -   - 
Research and development services  7,078   6,050   5,455 
Professional fees  1,082   682   772 
Materials  17   18   39 
Overseas travel  13   12   2 
Lab, occupancy and telephone  878   940   926 
Other  63   43   127   73   168   302 
  12,940   11,866   11,489   11,866   11,489   11,177 
Less – OCS participation in research and development costs - see also Notes 13a(1) and (2)  (63)  -   - 
Less – participation in research and development costs by a related party - see Note 14  (669)  -   - 
  12,208   11,866   11,489 

e.Sales and marketing expenses
 
 
Year ended December 31,
  Year ended December 31, 
 
2013
  
2014
  
2015
  2014  2015  2016 
 
In USD thousands
  In USD thousands 
Payroll and related expenses, including vehicles  486   668   690   668   690   659 
Marketing  554   799   243   799   243   600 
Overseas travel  96   122   70   122   70   93 
  1,136   1,589   1,003   1,589   1,003   1,352 

F - 4539
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS

 
NOTE 15 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (cont.)

f.General and administrative expenses

 
Year ended December 31,
  Year ended December 31, 
 
2013
  
2014
  
2015
  2014  2015  2016 
 
In USD thousands
  In USD thousands 
Payroll and related expenses, including vehicles  1,900   2,283   2,003   2,283   2,003   2,172 
Professional fees  1,159   884   1,053   884   1,053   1,144 
Office supplies and telephone  15   14   13 
Office maintenance  18   17   30 
Insurance  142   146   155   146   155   154 
Depreciation  91   16   27   16   27   30 
Other  339   440   423   471   466   484 
  3,664   3,800   3,704   3,800   3,704   3,984 

g.Non-operating income, net

 
Year ended December 31,
  Year ended December 31, 
 
2013
  
2014
  
2015
  2014  2015  2016 
 
In USD thousands
  In USD thousands 
Issuance costs  (271)  (103)  -   (103)  -   - 
Changes in fair value of warrants  1,432   3,454   1,292   3,454   1,292   207 
Cost reimbursement related to prior year  -   -   153   -   153   - 
Initial commitment and finder’s fees associated with LPC agreement  -   (290)  -   (290)  -   - 
Other  -   -   7 
  1,161   3,061   1,445   3,061   1,445   214 
 
h.Financial income

  
Year ended December 31,
 
  
2013
  
2014
  
2015
 
  
In USD thousands
 
Income from interest and exchange differences on deposits  720   3,566   457 
  Year ended December 31, 
  2014  2015  2016 
  In USD thousands 
Income from interest and exchange differences on deposits  3,566   457   480 

i.Financial expenses

 
Year ended December 31,
  Year ended December 31, 
 
2013
  
2014
  
2015
  2014  2015  2016 
 
In USD thousands
  In USD thousands 
Exchange differences  1,877   428   91   428   91   8 
Bank commissions  20   20   15   20   15   14 
  1,897   448   106   448   106   22 

F - 4640
 

BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16 – STRATEGIC COLLABORATION AGREEMENT WITH NOVARTIS

In December 2014, the Company entered into a multi-year strategic collaboration agreement with Novartis Pharma AG (“Novartis”) designed to facilitate development and commercialization of Israeli-sourced drug candidates. Novartis will evaluate projects identified and presented by the Company for co-development and future licensing under the collaboration. The parties intend to co-develop a number of pre-clinical and clinical therapeutic projects up to clinical proof of concept.

Under the terms of the agreement, Novartis acquired an initial 5,000,000 of the Company’s ADSs, representing 12.8% of the Company’s then outstanding share capital, in a private transaction at a price of $2.00 per ADS, for a total equity investment of $10 million. Novartis will not have any governance rights and has agreed to certain standstill provisions. Novartis and the Company will jointly evaluate both clinical and pre-clinical stage projects presented by the Company via a Joint Steering Committee, which will determine which projects to advance further in development and on what terms. Projects at or reaching the clinical stage will be eligible for selection by Novartis. Upon selection of a project, Novartis will pay the Company an option fee of $5 million, as well as fund 50% of the anticipated remaining development costs associated with establishing clinical proof-of-concept, in the form of an additional equity investment in the Company. Novartis will have an exclusive right of first negotiation to license from the Company each selected project upon establishment of clinical proof-of-concept. The companies intend to develop up to three programs through clinical proof-of-concept pursuant to this collaboration.

NOTE 17 – AGREEMENT WITH OMEGA PHARMA

In December 2014, the Company entered into an exclusive out-licensing arrangement with a subsidiary of Omega Pharma NV (“Omega Pharma”) for the rights to BL-5010 for OTC indications in the territory of Europe, Australia and additional selected countries. The Company will retain the OTC rights to BL-5010 in the United States and the rest of the world, as well as the non-OTC rights on a global basis. Under the out-licensing arrangement with Omega Pharma, Omega Pharma is obligated to use commercially reasonable best efforts to obtain regulatory approval in the licensed territory for at least two OTC indications and to commercialize BL-5010 for those two OTC indications. In addition, Omega Pharma will sponsor and manufacture BL-5010 in the relevant regions. Omega Pharma will pay the Company an agreed amount for each unit sold, and the Company will be entitled to certain commercial milestone payments. In addition, the Company will have full access to all clinical and development data generated during the performance of the development plan and may use these data in order to develop or license the product in other territories and fields of use where the Company retains the rights.

F - 4741
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
 
NOTE 18 – OTHER OUT-LICENSING AGREEMENTS
a.Agreement with Bellerophon

In 2009, the Company entered into an out-licensing agreement with Bellerophon BCM, LLC (“Bellerophon”), pursuant to which the Company granted Bellerophon an exclusive, worldwide license to develop, manufacture and commercialize BL-1040, a compound for the treatment of patients that have suffered an acute myocardial infarction. In accordance with the agreement, Bellerophon is obligated to use commercially reasonable efforts to complete clinical development of and to commercialize BL-1040, and will bear all subsequent costs involved in the continued development of the product, the conduct and funding of its commercialization, and the prosecution and maintenance of patents.

Total payments to the Company under the agreement (not including royalties) may reach up to $282,500,000, subject to the achievement of certain milestones. The Company has received payments totaling $17,000,000 since 2009. Approximately 50% of the remaining payments are subject to development and regulatory milestones and the rest are subject to commercialization milestones. The abovementioned payments were recognized as revenues in 2009, and future milestone payments will be recognized as revenues if and when their receipt will become probable and their amount can be reliably measured. The Company is also entitled to royalties on the net sales of any product developed under the agreement, ranging from 11% to 15%, depending on annual net sales levels. The out-licensing agreement with Bellerophon terminates on the date that the last patent rights in respect of BL-1040 are still valid (through at least 2029).

In July 2015, Bellerophon reported top-line results from the clinical trial it had been conducting, which showed no statistically significant difference between patients treated with BL-1040 versus placebo for both the primary and the secondary endpoints of the study. The Company has not yet received formal notification from Bellerophon about its plans regarding the future of its development program for BL-8040.

The Company is required to pay to the licensors of the BL-1040 compound 28% of all consideration received under the agreement.

b.CTTQ Agreement
In June 2014, the Company signed an out-licensing agreement with Jiangsu Chia-tai Tianqing Pharmaceutical Co., Ltd. (“CTTQ”), the leading Chinese pharmaceutical company in the liver disease therapeutic area, for the development and commercialization of BL-8030, an orally available treatment for HCV in the pre-clinical stages of development. Under the terms of the agreement, the Company granted CTTQ exclusive rights to develop, manufacture and commercialize BL-8030 in China and Hong Kong. In January 2016, CTTQ notified the Company of its intention to terminate the agreement, which will take effect in April 2016.
F - 48
BioLineRx Ltd.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19 – EVENT SUBSEQUENT TO THE BALANCE SHEET DATE

In January 2016,March 2017, the Company announced a collaboration with MSD, known as Merckacquired substantially all the outstanding shares of Agalimmune for initial consideration of $5.85 million, of which $2.85 million is in cash and the remainder in the USCompany’s ADSs. Additional consideration may be due to Agalimmune shareholders based on certain development and Canada, in the fieldcommercial milestones, including future sales of cancer immunotherapy.Agalimmune products. The Company plans to sponsor and conduct a Phase 2 study investigatingacquisition expands the Company’s BL-8040 oncology compound in combinationpipeline with KEYTRUDA®, MSD’s anti-PD-1 therapy, in patients with pancreatic cancer. The study is planned to commencea number of assets, including Agalimmune’s primary asset, AGI-134, a novel immuno-oncology agent for various cancer indications at the near-clinical stage of development. Agalimmune also has a number of early-stage preclinical assets for future evaluation by mid-2016. Upon completion of the study, or at any earlier point, both parties will have the option to expand the collaboration to include a pivotal registration study.Company.
 
F - 49
42