☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Sol-Gel Technologies Ltd. | ||
(Exact name of Registrant as specified in its charter) | ||
N/A | ||
(Translation of Registrant’s name into English) | ||
Israel | ||
(Jurisdiction of incorporation or organization) |
7 Golda Meir St., Weizmann Science Park, Ness Ziona, 7403650, Israel |
(Address of principal executive offices) |
Adv. Tamar Fishman Jutkowitz, Vice President & General Counsel |
7 Golda Meir St., Weizmann Science Park, Ness Ziona, 7403650, Israel |
Tel: 972-8-9313429; email: tami.fishman@sol-gel.com |
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) |
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Ordinary Shares, par value NIS 0.1 per share | SLGL | The Nasdaq Stock Market LLC |
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• | “SGT-610” - SGT-610 (patidegib), an investigational topical treatment designed to prevent new Basel Cell Carcinomas (BCCs) formation in adults with Gorlin Syndrome; |
• | “SGT-210” - SGT-210 (erlotinib), an investigational topical ointment for the treatment of rare hyperkeratinization disorders; “erlotinib” refers to an epidermal growth factor receptor inhibitor; |
• | “Twyneo” - our novel, once-daily, non-antibiotic topical cream that has been approved by the Food and Drug Administration for the treatment of acne vulgaris, or acne; |
• | “Epsolay” - our novel, once-daily topical cream containing encapsulated benzoyl peroxide that has been approved by the Food and Drug Administration for the treatment of papulopustular (subtype II) rosacea; |
• | “investigational product candidates” - include SGT-610 and SGT-210; |
• | “approved products” - Twyneo and Epsolay; |
• | "generic product candidate" - a generic program developed in collaboration with Padagis Israel Pharmaceuticals Ltd ("Padagis"); |
• | “product candidates” - both investigational product candidates and generic product candidates; and |
• | “our products” - both approved products and product candidates. |
• | the adequacy of our financial and other resources, particularly in light of our history of recurring losses and the uncertainty regarding the adequacy of our liquidity to pursue our complete business objectives; |
• | our ability to successfully integrate SGT-610 into our product candidate pipeline, and the benefits of and projections of our future financial performance as a result of our acquisition of SGT-610; |
• | our ability to enroll patients in our clinical trials and the possibility that patients would discontinue their participation in our clinical trials. |
• | our ability to complete the development of our product candidates; |
• | our ability to obtain the benefits associated with orphan drug designation, such as orphan drug exclusivity and, even if we do, that exclusivity may not prevent the U.S. Food and Drug Administration, or FDA, or other comparable foreign regulatory authorities from approving competing products; |
• | the timing and results of clinical trials that we may conduct or that our competitors and others may conduct relating to our or their product candidates; |
• | our dependence on the success of Galderma Holding SA (“Galderma”) and Searchlight Pharma Inc. (“Searchlight”) in commercializing our approved products in the U.S. and in Canada, respectively; |
• | the ability of Sol-Gel and Searchlight to obtain and maintain the regulatory approval of Twyneo and Epsolay in Canada; |
• | our ability to obtain and maintain regulatory approvals for our product candidates in our target markets and the possibility of adverse regulatory or legal actions relating to our product candidates even if regulatory approval is obtained; |
• | our ability to find suitable co-development, contract manufacturing and marketing partners to our products; |
• | our ability to commercialize and launch our investigational product candidates; |
• | our ability to obtain and maintain adequate protection of our intellectual property; |
• | our ability to manufacture our product candidates in commercial quantities, at an adequate quality or at an acceptable cost; |
• | acceptance of our products by healthcare professionals and patients; |
• | the possibility that we may face third-party claims of intellectual property infringement; |
• | intense competition in our industry, with competitors having substantially greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution and personnel resources than we do; |
• | potential product liability claims; |
• | potential adverse federal, state and local government regulation in the United States, Europe or Israel; |
• | the impact of the current global macroeconomic climate on our ability to source supplies for our operations or our ability or capacity to manufacture, sell and support the use of Twyneo, Epsolay and our product candidates; and |
• | loss or retirement of key executives and research scientists. |
• | We are a dermatology company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. |
• | We may need substantial additional funding to pursue our business objectives. If we are unable to raise capital when needed, we could be forced to curtail our planned operations and the pursuit of our growth strategy. If we are successful in raising additional capital, this may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our technologies or products. |
• | All of our product candidates are in development stage; therefore, we have not yet obtained regulatory approval for our product candidates in the United States or any other country. |
• | We are largely dependent on the success of Twyneo, Epsolay and our product candidates for the treatment of topical dermatological conditions. |
• | Our business is highly dependent on market perception of us and the safety and quality of Twyneo, Epsolay and our product candidates, if approved. Our business or products could be subject to negative publicity, which could have a material adverse effect on our business. |
• | Although we have entered into exclusive license agreements with Galderma and Searchlight for all U.S. and Canadian commercial activities for Twyneo and Epsolay, we have a limited operating history in the dermatological prescription drug space which may make it difficult to evaluate the success of our business to date and to assess our future viability. |
• | Twyneo, Epsolay and our product candidates, even if they receive regulatory approval, may fail to achieve the broad degree of physician adoption and market acceptance necessary for commercial success. |
• | Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and clinical trials may not be predictive of future trial results, which could result in development delays or a failure to obtain marketing approval. |
• | We may find it difficult to enroll patients in our clinical trials, and patients could discontinue their participation in our or our collaborators’ clinical trials, which could delay or prevent clinical trials for our product candidates. |
• | Twyneo and Epsolay, and our product candidates, if approved, will face, significant competition and our failure to compete effectively may prevent us and our commercial partners from achieving significant market penetration and expansion. |
• | We rely on Galderma to commercialize Twyneo and Epsolay in the U.S., on Searchlight to commercialize Twyneo and Epsolay in Canada and on Padagis to develop and commercialize our generic product candidates and may depend on other parties for commercialization of Twyneo and Epsolay outside of the U.S. and Canada, and the development and commercialization of our investigational product candidates, if approved. We also rely on Galderma to provide us with accurate reports in order for us to accurately report our royalty revenues and sales based milestone payments. Any collaborative arrangements that we have (including our agreements with Galderma, Searchlight and Padagis) or may establish in the future may not be successful or we may otherwise not realize the anticipated benefits from these collaborations. |
• | We and our partners rely on third parties and consultants to assist us in conducting our clinical trials. If these third parties or consultants do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed. |
• | The manufacture of pharmaceutical products is complex, and manufacturers often encounter difficulties in production. If we, our partners, or any of our third-party manufacturers encounter any difficulties, our ability to provide product candidates for clinical trials or our approved products to patients, and the development or commercialization of our product candidates could be delayed or stopped. |
• | We depend on our intellectual property, and our future success is dependent on our ability to protect our intellectual property and not infringe on the rights of others. |
• | 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. |
• | If we are not able to retain our key management, or attract and retain qualified scientific, technical and business personnel, our ability to implement our business plan may be adversely affected. |
• | complete Phase III clinical study of SGT-610; |
• | conduct Phase I clinical studies of SGT-210 and continue the research and development of other future investigational product candidates; |
• | seek regulatory approvals for any product candidate that successfully completes clinical development; |
• | establish commercial manufacturing capabilities through one or more contract manufacturing organizations to commercialize our approved products; |
• | continue the development, bioequivalence and other studies required for abbreviated new drug application, or ANDA, submissions for our generic product candidates; |
• | seek new drug candidates and expand our disease portfolio; |
• | maintain, expand and protect our intellectual property portfolio; |
• | seek to enhance our technology platform; |
• | add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development; and |
• | experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues or other regulatory challenges. |
• | the progress and results of our development activities for SGT-610 and SGT-210; |
• | the cost of manufacturing clinical supplies and exhibition batches of our investigational product candidates; |
• | the timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; |
• | the amount of revenue received from commercial sales of Twyneo, Epsolay and, if any, from our product candidates for which we may receive marketing approval; |
• | the scope, progress, results and costs of development, laboratory testing and clinical trials for our generic product candidates; |
• | the costs, timing and outcome of regulatory reviews of any of our product candidates; |
• | the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims by third parties that we are infringing upon their intellectual property rights; and |
• | the extent to which we acquire or invest in businesses, product candidates and technologies, including entering into licensing or collaboration arrangements for any of our investigational product candidates. |
• | we may not have adequate financial or other resources; |
• | we or our partners may not be able to manufacture our products in commercial quantities, in an adequate quality or at an acceptable cost; |
• | we or our partners may not be able to establish adequate sales, marketing and distribution channels for our products; |
• | we or our partners may not be able to find suitable co-development, contract manufacturing or marketing partners; |
• | healthcare professionals and patients may not accept our products; |
• | we may not be aware of possible complications from the continued use of our investigational product candidates since we have limited clinical experience with respect to the actual use of our investigational product candidates; |
• | changes in the market, new alliances between existing market participants and the entrance of new market participants may interfere with our or our partners market penetration efforts; |
• | third-party payors may not agree to reimburse patients for any or all of the purchase price of our products, which may adversely affect patients’ willingness to purchase our approved products or product candidates, once approved; |
• | uncertainty as to market demand may result in inefficient pricing of our approved products and product candidates, once approved; |
• | we may face third-party claims of intellectual property infringement; |
• | we or our partners may fail to obtain and maintain regulatory approvals for our product candidates in our target markets or may face adverse regulatory or legal actions relating to our product candidates even if regulatory approval is obtained; |
• | we are dependent upon the results of ongoing clinical trials relating to our product candidates and the products of our competitors; |
• | we may become involved in lawsuits pertaining to our clinical trials; and |
• | we may experience delays due to shortages in supply and human resources resulting from geopolitical instability (for more information, see “Item 3. Key Information – D. Risk Factors – Risks Related to Our Operations in Israel”). |
• | inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical trials; |
• | reaching a consensus with regulatory authorities on study design or implementation of clinical trials; |
• | obtaining regulatory authorization to commence a trial; |
• | reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
• | identifying, recruiting and training suitable clinical investigators; |
• | obtaining institutional review board, or IRB, or ethics committee approval at each site; |
• | recruiting suitable patients to participate in a trial; |
• | having patients complete a trial or return for post-treatment follow-up; |
• | clinical sites deviating from FDA regulations, or similar foreign requirements (where applicable), including GCPs, or the study protocol, or dropping out of a trial; |
• | adding new clinical trial sites; |
• | occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits, or occurrence of adverse events in trial of the same class of agents conducted by other companies; |
• | the cost of clinical trials of our product candidates being greater than we or our partners anticipate; |
• | transfer of manufacturing processes to larger-scale facilities operated by a contract manufacturing organization, or CMO, and delays or failure by our or our partners CMOs or us to make any necessary changes to such manufacturing process; |
• | third parties being unwilling or unable to satisfy their contractual obligations to us; |
• | manufacturing sufficient quantities of a product candidate for use in clinical trials; and damage to clinical supplies of a product candidate caused during storage and/or transportation. |
• | severity of the disease under investigation; |
• | size and nature of the patient population; |
• | eligibility criteria for the trial; |
• | design of the trial protocol; |
• | perceived risks and benefits of the product candidate under study; |
• | physicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any drugs that may be approved for the same indications we are investigating; |
• | proximity to and availability of clinical trial sites for prospective patients; |
• | availability of competing therapies and clinical trials; and |
• | ability to monitor patients adequately during and after treatment. |
• | the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials; |
• | we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication; |
• | the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval; |
• | we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; |
• | the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from pre-clinical studies or clinical trials; |
• | the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere; |
• | the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; or |
• | regulatory authorities may withdraw approvals of such products; |
• | regulatory authorities may require additional warnings on the label; |
• | we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; |
• | we may be required to implement a risk evaluation and mitigation strategy, or REMS, which may include a medication guide or patient package insert, a communication plan to educate healthcare providers of the drug’s risks, or other elements to assure safe use; |
• | we could be sued and held liable for harm caused to patients; and |
• | our reputation may suffer. |
• | the FDA or comparable foreign regulatory authorities could suspend or impose restrictions on operations, including costly new manufacturing requirements; |
• | the FDA or comparable foreign regulatory authorities could refuse to approve pending applications or supplements to applications; |
• | the FDA or comparable foreign regulatory authorities could suspend any ongoing clinical trials; |
• | the FDA or comparable foreign regulatory authorities could suspend or withdraw marketing approval; |
• | the FDA or comparable foreign regulatory authorities could seek an injunction or impose civil or criminal penalties or monetary fines; |
• | the FDA or comparable foreign regulatory authorities could ban or restrict imports and exports; |
• | the FDA or comparable foreign regulatory authorities could issue warning letters or untitled letters or similar enforcement actions alleging noncompliance with regulatory requirements; or |
• | the FDA or other governmental authorities including comparable foreign regulatory authorities could take other actions, such as imposition of product seizures or detentions, clinical holds or terminations, refusals to allow the import or export of products, disgorgement, restitution, or exclusion from federal healthcare programs. |
• | the clinical indications for which the product is approved; |
• | the safety and efficacy of our product as compared to existing therapies for those indications; |
• | the prevalence and severity of adverse side effects; |
• | patient satisfaction with the results and administration of our product and overall treatment experience, including relative convenience, ease of use and avoidance of, or reduction in, adverse side effects; |
• | patient demand for the treatment of acne and rosacea or other indications; |
• | the cost of treatment in relation to alternative treatments, the extent to which these costs are covered and reimbursed by third-party payors, and patients’ willingness to pay for our products and product candidates, if approved; and |
• | the effectiveness of our sales and marketing efforts, including any head-to-head studies, if conducted, especially the success of any targeted marketing efforts directed toward dermatologists, pediatricians, other physicians, clinics and any direct-to-consumer marketing efforts we may initiate. |
• | revisions to the Medicaid rebate program by: (a) increasing the rebate percentage for branded drugs to 23.1% of the average manufacturer price, or AMP, with limited exceptions, (b) increasing the rebate for outpatient generic, multiple source drugs dispensed to 13% of AMP; (c) changing the definition of AMP; and (d) extending the Medicaid rebate program to Medicaid managed care plans, with limited exceptions; |
• | the imposition of annual fees upon manufacturers or importers of branded prescription drugs, which fees will be in amounts determined by the Secretary of Treasury based upon market share and other data; |
• | providing a discount on brand-name prescriptions filled in the Medicare Part D coverage gap as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D; |
• | imposing increased penalties for the violation of fraud and abuse laws and funding for anti-fraud activities; and |
• | expanding the definition of “covered entities” that purchase certain outpatient drugs in the 340B Drug Pricing Program of Section 340B of the Public Health Service Act. |
• | the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation; |
• | the federal false claims laws, including the civil False Claims Act, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act; |
• | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or making false or fraudulent statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; |
• | the federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the government information related to certain payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners (nurse practitioners, certified nurse anesthetists, physician assistants, clinical nurse specialists, anesthesiology assistants and certified nurse midwives), and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to the government ownership and investment interests held by the physicians described above and their immediate family members and payments or other “transfers of value” to such physician owners. Covered manufacturers are required to submit reports to the government by the 90th day of each calendar year; |
• | federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; |
• | analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require licensing or reporting of sales representatives; and state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or that require the reporting of pricing information and marketing expenditures; |
• | similar healthcare laws and regulations in foreign jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers. |
• | we may not be able to control the amount and timing of resources that our collaborators may devote to Twyneo, Epsolay and our product candidates; |
• | we may not be able to locate third party partners for the commercialization of Twyneo and Epsolay for territories other than the United States and Canada; |
• | our current or future collaborators’ partners may fail to secure adequate commercial supplies of Twyneo, Epsolay and our product candidates, if approved; |
• | should a collaborator fail to comply with applicable laws, rules, or regulations when performing services for us, we could be held liable for such violations; |
• | our current or future collaborators may fail to comply with local or any foreign health authorities’ laws and regulations, and as a result, the receipt of a site manufacturing, export or import license may be delayed or withheld for an undefined period; |
• | our current or future collaborators may experience financial difficulties or changes in business focus; |
• | our current or future collaborators’ partners may have a shortage of qualified personnel; |
• | we may be required to relinquish important rights, such as marketing and distribution rights; |
• | business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement; |
• | under certain circumstances, a collaborator could move forward with a competing product developed either independently or in collaboration with others, including our competitors; |
• | our current or future collaborators may utilize our proprietary information in a way that could expose us to competitive harm; and |
• | collaborative arrangements are often terminated or allowed to expire, which could delay the development and may increase the cost of developing our product candidates. |
• | any of our future processes or product candidates will be patentable; |
• | our processes or products and product candidates will not infringe upon the patents of third parties; or |
• | we will have the resources to defend against charges of patent infringement or other violation or misappropriation of intellectual property by third parties or to protect our own intellectual property rights against infringement, misappropriation or violation by third parties. |
• | these agreements may be breached; |
• | these agreements may not provide adequate remedies for the applicable type of breach; |
• | our trade secrets or proprietary know-how will otherwise become known; or |
• | our competitors will independently develop similar technology or proprietary information. |
• | we established a quorum requirement such that the quorum for any meeting of shareholders is two or more shareholders holding at least 33 1∕3% of our voting rights, which complies with Nasdaq requirements; however, if the meeting is adjourned for lack of quorum, the quorum for such adjourned meeting will be any number of shareholders, instead of 33 1∕3% of our voting rights; |
• | we also intend to adopt and approve material changes to equity incentive plans in accordance with Israeli Companies Law, 5759-1999, or with the Companies Law, which does not impose a requirement of shareholder approval for such actions. In addition, we intend to follow Israeli corporate governance practice in lieu of Nasdaq Marketplace Rule 5635(c), which requires shareholder approval prior to an issuance of securities in connection with equity-based compensation of officers, directors, employees or consultants; |
• | as opposed to making periodic reports to shareholders in the manner specified by the Nasdaq corporate governance rules, the Companies Law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website. We will only mail such reports to shareholders upon request; and |
• | we will follow Israeli corporate governance practice instead of Nasdaq requirements to obtain shareholder approval for certain dilutive events (such as issuances that will result in a change of control, certain transactions other than a public offering involving issuances of a 20% or greater interest in us and certain acquisitions of the stock or assets of another company). Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq corporate governance rules. |
• | positive or negative results of testing and clinical trials by us, strategic partners and competitors; |
• | delays in entering into strategic relationships with respect to the commercialization of Twyneo and Epsolay outside the U.S. and Canada or with respect to the development and/or commercialization of our product candidates or entry into strategic relationships on terms that are not deemed to be favorable to us; |
• | technological innovations or commercial product introductions by us or competitors; |
• | changes in government regulations; |
• | developments concerning proprietary rights, including patents and litigation matters; |
• | public concern relating to the commercial value or safety of any of our products; |
• | financing or other corporate transactions; |
• | publication of research reports or comments by securities or industry analysts; |
• | general market conditions in the pharmaceutical industry or in the economy as a whole; or |
• | other events and factors, many of which are beyond our control. |
• | up to $6 million in total development and NDA acceptance milestone payments; |
• | up to $64 million in commercial milestone payments, which amount increases to $89 million when sales exceed $500 million; and |
• | single digit royalties, which increase to double digit royalties when sales exceed $500 million. |
• | blockage of hair follicles through abnormal keratinization in the follicle, which narrows pores; |
• | increase in oils, or sebum production, secreted by the sebaceous gland; |
• | overgrowth of naturally occurring bacteria caused by the colonization by the anaerobic lipohilic bacterium Propionibacterium acnes, or P. acnes; |
• | inflammatory response due to relapse of pro-inflammatory mediators into the skin. |
• | Mild acne: characterized by few papules or pustules (both comedonal and inflammatory); treated with an over-the-counter product or topical prescription therapies. |
• | Moderate acne: characterized by multiple papules and pustules with moderate inflammation and seborrhea (scaly red skin); treated with a combination of oral antibiotics and topical therapies. |
• | Topical over-the-counter monotherapies such as adapalene 0.1%, benzoyl peroxide and salicylic acid, in different concentrations, are the most commonly used therapies. These are generally tolerable first-line treatments for mild acne, but less efficacious than prescription therapies. |
• | Topical prescription antibiotic monotherapies such as clindamycin and erythromycin that are most commonly used as topical therapies in cases of mild-to-moderate acne. |
• | Topical prescription retinoid monotherapies such as tretinoin, adapalene 0.3% and tazarotene. Physicians view retinoids as moderately efficacious, but they have high rates of skin irritation. |
• | Topical prescription combination products such as combinations of BPO/adapalene, BPO/clindamycin, BPO/adapalene/clinidamycin, BPO/erythromycin and clindamycin/tretinoin. These target multiple components that contribute to the development of acne, though topical side effects are common. |
• | Oral prescription antibiotics such as doxycycline and minocycline. These are typically used as step-up treatments for more severe cases of acne, with risk of systemic side effects. |
• | Oral prescription isotretinoin, which is primarily used for severe cystic acne and acne that has not responded to other treatments. The use of oral prescription isotretinoin is tightly controlled due to tolerability issues. |
• | Epsolay creates a silica-based barrier between benzoyl peroxide crystals and the skin and, as a result, can reduce irritation typically associated with topical application of benzoyl peroxide, increasing the potential for more tolerable application to rosacea-affected skin. |
• | Epsolay’s release of the drug can reduce irritation while maintaining efficacy. |
• | completion of pre-clinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practices, or GLP, requirements or other applicable regulations; |
• | submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials in the United States may begin; |
• | approval by an independent institutional review board, or IRB, or ethics committee at each clinical site before each trial may be initiated; |
• | performance of adequate and well-controlled human clinical trials in accordance with good clinical practice, or GCP, requirements to establish the safety and efficacy of the proposed drug for its intended use; |
• | preparation and submission to the FDA of an NDA; |
• | satisfactory completion of an FDA advisory committee review, if applicable; |
• | satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product or components thereof are produced, to assess compliance with current good manufacturing practices, or cGMPs, and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; |
• | satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data; and |
• | payment of user fees and FDA review and approval of the NDA. |
• | Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage. |
• | Phase 2: The drug is administered to a limited patient population to identify possible short-term adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. |
• | Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. |
• | restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; |
• | fines, warning letters or holds on post-approval clinical trials; |
• | refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals; |
• | product seizure or detention, or refusal to permit the import or export of products; or |
• | injunctions or the imposition of civil or criminal penalties. |
• | “Centralized MAs” are issued by the EC through the centralized procedure based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, and are valid throughout the EU. The centralized procedure is compulsory for certain types of medicinal products such as (i) medicinal products derived from biotechnological processes, (ii) designated orphan medicinal products, (iii) advanced therapy medicinal products, or ATMPs (such as gene therapy, somatic cell therapy and tissue engineered products) and (iv) medicinal products containing a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative diseases or autoimmune diseases and other immune dysfunctions, and viral diseases. The centralized procedure is optional for products containing a new active substance not yet authorized in the EU, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU. |
• | “National MAs” are issued by the competent authorities of the EU member states, only cover their respective territory, and are available for product candidates not falling within the mandatory scope of the centralized procedure. Where a product has already been authorized for marketing in an EU member state, this national MA can be recognized in another member state through the mutual recognition procedure. If the product has not received a national MA in any member state at the time of application, it can be approved simultaneously in various member states through the decentralized procedure. Under the decentralized procedure an identical dossier is submitted to the competent authorities of each of the member states in which the MA is sought, one of which is selected by the applicant as the reference member state. |
• | Royalty Payment Obligation. In general, the Recipient Company may be obligated to pay the IIA royalties from any income deriving from the products (and related know-how and services), whether received by the grant recipient or any affiliated entity, developed (in all or in part), directly or indirectly, as a result of, an Approved Program, or deriving therefrom, at rates which are determined under the IIA’s rules and guidelines (currently a yearly rate of between 3% to 5% on sales of products or services developed under the Approved Programs, depending on the type of the Recipient Company — i.e., whether it is a “Small Company,” or a “Large Company” as such terms are defined in the IIA’s rules and guidelines), up to the aggregate amount of the total grants received by the IIA, plus Annual Interest for a File (as such term is defined in the IIA’s rules and guidelines). |
• | Local Manufacturing Obligation. Products developed using the IIA grants must, as a general matter, be manufactured in Israel. The transfer of manufacturing capacity outside of Israel in a manner that exceeds the manufacturing capacity that was declared in the Recipient Company's original IIA grant application is subject to prior written approval from the IIA (except for the transfer of less than 10% of the manufacturing capacity in the aggregate, which event requires only a notice to the IIA, which shall be provided in writing prior to the transfer of such manufacturing rights abroad, while the IIA has a right to deny such transfer within 30 days following the receipt of such notice). In general, the transfer of manufacturing capacity outside of Israel may be subject an increase in the royalties' cap (inter alia, depending on the manufacturing volume that is performed outside of Israel) and such transfer will be subject to payment of royalties in accelerated rate; and |
• | IIA Funded Know-How transfer limitation. Under the IIA’s rules and guidelines, a Recipient Company is prohibited from transferring the IIA Funded Know-How outside of Israel except with the approval of the Research Committee and in certain circumstances, subject to certain payments to the IIA calculated according to formulas provided under the IIA’s rules and guidelines (which are capped to amounts specified under such rules and guidelines, generally up to 6 time the grants received plus Annual Interest as such term is defined under the rules, or A Redemption Fee). For calculating the Redemption Fee which shall be paid to the IIA in the event of a transfer of IIA Funded Know-How outside of Israel, inter alia, the following factors will be taken into account: the scope of the IIA support received, the royalties that have already paid to the IIA, the amount of time that has lapsed since the Recipient Company has finalized the IIA Approved Program, the sale price and the form of transaction. A transfer for the purpose of the Innovation Law and the IIA’s rules means an actual sale of the IIA-Funded Know-How, or any other transaction which in essence constitutes a transfer of such know-how (such as providing an exclusive license to a foreign entity for R&D purposes, which precludes the Recipient Company from further using such IIA Funded Know-How). A mere license solely to market products resulting from the IIA Funded Know-How would not be deemed a transfer for the purpose of the Innovation Law and the IIA’s rules. Upon payment of the Redemption Fee, the IIA Funded Know-How and the manufacturing rights of the products developed using such IIA funding cease to be subject to the Innovation Law and the IIA’s rules. |
• | Subject to the IIA’s prior approval, a Recipient Company may transfer IIA Funded Know-How to another Israeli company, provided that the acquiring company assumes all of the Recipient Company’s responsibilities towards the IIA. Such transfer will not be subject to the payment of the Redemption Fee; however, the income from such transaction will generally be subject to the obligation to pay royalties to the IIA (other than in specific circumstances that will be examined by the IIA, mainly when the transfer is between related entities). |
• | IIA Funded Know-How license limitation. The grant to a foreign entity of a right to use the IIA Funded Know-How for R&D purposes (which does not entirely prevent the Recipient Company from using the Funded Know-How) is subject to receipt of the IIA’s prior approval. This approval is subject to payment to the IIA in accordance with the formulas stipulated in the IIA's rules (which distinguish between the manner of the payment for such license grant, i.e., one-time payment or payment in installments) and such payment shall be no less than the amount of the IIA grants received (plus Annual Interest), and no more than the cap stated in the IIA’s rules and will generally be due only upon the receipt of the license fee from the licensee). |
• | up to $6 million in total development and NDA acceptance milestone payments; |
• | up to $64 million in commercial milestone payments, which amount increases to $89 million when sales exceed $500 million; and |
• | single digit royalties, which increase to double digit royalties when sales exceed $500 million. |
• | salaries for research and development staff and related expenses, including employee benefits and share-based compensation expenses; |
• | expenses paid to suppliers of disposables and raw materials, including drug substances, and related expenses, such as, external laboratory testing and development of analytical methods; |
• | expenses for production of Twyneo, Epsolay and our product candidates both in-house and by contract manufacturers; |
• | expenses paid to contract research organizations and other third parties in connection with the performance of pre-clinical studies, clinical trials and related expenses; |
• | expenses incurred under agreements with other third parties, including subcontractors, suppliers and consultants that conduct formulation development, regulatory activities and pre-clinical studies; |
• | expenses incurred to acquire, develop and manufacture materials for use in pre-clinical and other studies; |
• | expenses incurred from the purchase and transfer of product candidates; and |
• | facilities, depreciation of fixed assets used to develop our product candidates, maintenance of equipment used to develop our product candidates and other expenses, including direct and allocated expenses for rent, maintenance of facilities, insurance and other operating expenses. |
• | the scope, rate of progress and expense of our research and development activities; |
• | clinical trials and early-stage results; |
• | the terms and timing of regulatory requirements and approvals; |
• | the expense of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; and |
• | the ability to market, commercialize and achieve market acceptance of any product candidate that we are developing or may develop in the future. |
Year ended December 31, | ||||||||||||
2021 | 2022 | 2023 | ||||||||||
(in thousands) | ||||||||||||
Collaboration Revenues | $ | 23,772 | $ | $ | ||||||||
License Revenues | 7,500 | 3,883 | 1,554 | |||||||||
Total Revenues | $ | 31,272 | $ | 3,883 | 1,554 | |||||||
Research and development | 20,381 | 12,682 | 23,541 | |||||||||
General and administrative | 8,451 | 7,445 | 7,373 | |||||||||
OTHER INCOME, net | 524 | - | 55 | |||||||||
Total operating income (loss) | 2,964 | (16,244 | ) | (29,305 | ) | |||||||
Financial income, net | 257 | 1,321 | 2,067 | |||||||||
Income (Loss) before income taxes | 3,221 | (14,923 | ) | (27,238 | ) | |||||||
Income (loss) for the year | $ | 3,221 | $ | (14,923 | ) | $ | (27,238 | ) |
Research and development expenses
Year Ended December 31, | ||||||||
2022 | 2023 | |||||||
(in thousands) | ||||||||
Payroll and related expenses | $ | 6,530 | $ | 5,650 | ||||
Clinical and preclinical trials expenses | 602 | 5,745 | ||||||
Professional consulting and subcontracted work | 2,173 | 10,134 | ||||||
Other | 3,376 | 2,012 | ||||||
Total research and development expenses | $ | 12,682 | $ | 23,541 |
Year Ended December 31, | ||||||||||||
2021 | 2022 | 2023 | ||||||||||
(in thousands) | ||||||||||||
Net cash used in operating activities | $ | (7,691 | ) | (9,484 | ) | $ | (17,730 | ) | ||||
Net cash provided by (used in) investing activities | 19,872 | 1,699 | (9,742 | ) | ||||||||
Net cash provided by financing activities | 837 | 15 | 21,810 | |||||||||
Effect of exchange rates on cash and cash equivalents | $ | (55 | ) | 133 | (73 | ) | ||||||
Increase (decrease) in cash and cash equivalents | $ | 12,908 | $ | (7,637 | ) | $ | (5,735 | ) |
• | the progress and expenses of our pre-clinical 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 expenses and timing of obtaining regulatory approval, if any, for our product candidates; |
• | the expenses of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; and |
• | the expenses of, and timing for, expanding our manufacturing agreements for production of sufficient clinical and commercial quantities of our product candidates. |
Name | Age | Position | |||
Moshe Arkin | 71 | Executive Chairman of the Board of Directors | |||
Alon Seri-Levy | 62 | Chief Executive Officer and Director | |||
Gilad Mamlok | 55 | Chief Financial Officer | |||
Ofer Toledano | 59 | Vice President Research and Development | |||
Ofra Levy-Hacham | 57 | Vice President Clinical, Regulatory Affairs and Quality | |||
Michael Glezin | 42 | Vice President Business Development | |||
Karine Neimann | 52 | Vice President Projects and Planning, Chief Chemist | |||
Itzik Yosef | 47 | Chief Operating Officer | |||
Tamar Fishman Jutkowitz | 48 | Vice President and General Counsel | |||
Itai Arkin | 35 | Director | |||
Hani Lerman | 51 | Director | |||
Sharon Kochan | 55 | Director | |||
Jonathan B. Siegel | 50 | Independent Director | |||
Ran Gottfried | 79 | Lead Independent Director | |||
Jerrold S. Gattegno | 71 | Independent Director | |||
Yuval Yanai | 71 | Independent Director |
Name and Position of director or officer | Base Salary or Other Payment (1) | Value of Social Benefits (2) | Value of Equity Based Compensation Granted (3) | All Other Compensation (4) | Total | |||||||||||||||
(Amounts in U.S. dollars are based on 2023 monthly average representative U.S. dollar – NIS rate of exchange) | ||||||||||||||||||||
Alon Seri-Levy / Chief Executive Officer | 325 | 63 | 787 | 23 | 1,198 | |||||||||||||||
Gilad Mamlok / Chief Financial Officer | 263 | 54 | 276 | 50 | 643 | |||||||||||||||
Ofer Toledano / VP R&D | 205 | 57 | 196 | 24 | 482 | |||||||||||||||
Ofra Levy-Hacham / VP Clinical, RA & QAA | 172 | 49 | 157 | 24 | 403 | |||||||||||||||
Itzik Yosef / Chief Operating Officer | 163 | 47 | 52 | 26 | 288 |
(1) | “Base Salary or Other Payment” means the aggregate yearly gross monthly salaries or other payments with respect to the Company's Executive Officers and members of the board of directors for the year 2023. |
(2) | “Social Benefits” include payments to the National Insurance Institute, advanced education funds, managers’ insurance and pension funds; vacation pay; and recuperation pay as mandated by Israeli law. |
(3) | Consists of the fair value of the equity-based compensation granted during 2023 in exchange for the directors and officers services recognized as an expense in profit or loss and is carried to the accumulated deficit under equity. The total amount recognized as an expense over the vesting period of the options. |
(4) | “All Other Compensation” includes, among other things, car-related expenses, communication expenses, basic health insurance, holiday presents, and 2021, 2022 and 2023 special bonuses that officers received. |
• | The term affiliation includes: |
• | an employment relationship; |
• | a business or professional relationship maintained on a regular basis; |
• | 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 initial public offering. |
• | the majority of the shares that are voted at the meeting in favor of the election of the external director, excluding abstentions, include at least a majority of the votes of shareholders who are not controlling shareholders and do not have a personal interest in the appointment (excluding a personal interest that did not result from the shareholder’s relationship with the controlling shareholder); or |
• | the total number of shares held by non-controlling shareholders or any one on their behalf that are voted against the election of the external director does not exceed two percent of the aggregate voting rights in the company. |
• | his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and is approved at a shareholders meeting by a disinterested majority, where the total number of shares held by non-controlling, disinterested shareholders voting for such reelection exceeds 2% of the aggregate voting rights in the company and subject to additional restrictions set forth in the Companies Law with respect to the affiliation of the external director nominee; |
• | the external director proposed his or her own nomination, and such nomination was approved in accordance with the requirements described in the paragraph above; or |
• | his or her service for each such additional term is recommended by the board of directors and is approved at a meeting of shareholders by the same majority required for the initial election of an external director (as described above). |
• | the chairman of the board of directors; |
• | a controlling shareholder or a relative of a controlling shareholder; |
• | any director employed by us or by one of our controlling shareholders or by an entity controlled by our controlling shareholders (other than as a member of the board of directors); or |
• | any director who regularly provides services to us, to one of our controlling shareholders or to an entity controlled by our controlling shareholders. |
• | retaining and terminating our independent auditors, subject to board of directors and shareholder ratification; |
• | overseeing the independence, compensation and performance of the Company’s independent auditors; |
• | the appointment, compensation, retention and oversight of any accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit services; |
• | pre-approval of audit and non-audit services to be provided by the independent auditors; |
• | reviewing with management and our independent directors our financial statements prior to their submission to the SEC; and |
• | approval of certain transactions with office holders and controlling shareholders, as described below, and other related party transactions. |
(1) | to recommend to the board of directors the compensation policy for directors and officers, and to recommend to the board of directors once every three years whether the compensation policy that had been approved should be extended for a period of more than three years; |
(2) | to recommend to the board of directors updates to the compensation policy, from time to time, and examine its implementation; |
(3) | to decide whether to approve the terms of office and employment of directors and officers that require approval of the compensation committee; and |
(4) | to decide whether the compensation terms of the chief executive officer, which were determined pursuant to the compensation policy, will be exempted from approval by the shareholders because such approval would harm the ability to engage the chief executive officer. |
• | the education, skills, experience, expertise and accomplishments of the relevant office holder; |
• | the office holder’s position, responsibilities and prior compensation agreements with him or her; |
• | the ratio between the cost of the terms of employment of an office holder and the cost of the employment of other employees of the company, including employees employed through contractors who provide services to the company, in particular the ratio between such cost, the average and median salary of the employees of the company, as well as the impact of such disparities on the work relationships in the company; |
• | if the terms of employment include variable components — the possibility of reducing variable components at the discretion of the board of directors and the possibility of setting a limit on the value of non-cash variable equity-based components; and |
• | if the terms of employment include severance compensation — the term of employment or office of the office holder, the terms of his or her compensation during such period, the company’s performance during such period, his or her individual contribution to the achievement of the company goals and the maximization of its profits and the circumstances under which he or she is leaving the company. |
• | with regards to variable components: |
- | with the exception of office holders who report directly to the chief executive officer, determining the variable components on long-term performance basis and on measurable criteria; however, the company may determine that an immaterial part of the variable components of the compensation package of an office holder’s shall be awarded based on non-measurable criteria, if such amount is not higher than three monthly salaries per annum, while taking into account such office holder contribution to the company; |
- | the ratio between variable and fixed components, as well as the limit of the values of variable components at the time of their grant. |
• | a condition under which the office holder will return to the company, according to conditions to be set forth in the compensation policy, any amounts paid as part of his or her terms of employment, if such amounts were paid based on information later to be discovered to be wrong, and such information was restated in the company’s financial statements; |
• | the minimum holding or vesting period of variable equity-based components to be set in the terms of office or employment, as applicable, while taking into consideration long-term incentives; and |
• | a limit to retirement grants. |
• | information on the business 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 such action. |
• | 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’s affairs which the office holder received as a result of his or her position as an office holder. |
• | 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’s profitability, assets or liabilities. |
• | 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 two percent (2%) of the voting rights in the company. |
• | at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in such matter, present and voting at such meeting, are voted in favor of the compensation package, excluding abstentions; or |
• | the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in such matter voting against the compensation package does not exceed two percent (2%) of the aggregate voting rights in the company. |
• | an amendment to the articles of association; |
• | an increase in the company’s authorized share capital; |
• | a merger; and |
• | the approval of related party transactions and acts of office holders that require shareholder approval. |
• | a monetary liability incurred by or imposed on the office holder in favor of another person pursuant to a court judgment, including pursuant to a settlement confirmed as judgment or arbitrator’s decision approved by a competent 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’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 foreseen events and amount or criteria; |
• | reasonable litigation expenses, including reasonable attorneys’ fees, which were incurred by the office holder as a result of an investigation or proceeding filed against the office holder by an authority authorized to conduct such investigation or proceeding, provided that such investigation or proceeding was either (i) concluded without the filing of an indictment against such office holder and without the imposition on him of any monetary obligation in lieu of a criminal proceeding; (ii) concluded without the filing of an indictment against the office holder but with the imposition of a monetary obligation on the office holder in lieu of criminal proceedings for an offense that does not require proof of criminal intent; or (iii) in connection with a monetary sanction; |
• | a monetary liability imposed on the office holder in favor of a payment for a breach offended at an Administrative Procedure (as defined below) as set forth in Section 52(54)(a)(1)(a) to the Securities Law; |
• | expenses expended by the office holder with respect to an Administrative Procedure under the Securities Law, including reasonable litigation expenses and reasonable attorneys’ fees; |
• | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or which were imposed on the office holder by a court (i) in a proceeding instituted against him or her by the company, on its behalf, or by a third party, (ii) in connection with criminal indictment of which the office holder was acquitted, or (iii) in a criminal indictment which the office holder was convicted of an offense that does not require proof of criminal intent; and |
• | any other obligation or expense in respect of which it is permitted or will be permitted under applicable law to indemnify an office holder, including, without limitation, matters referenced in Section 56H(b)(1) of the Securities Law. |
• | a breach of the fiduciary duty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company; |
• | a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; |
• | a monetary liability imposed on the office holder in favor of a third party; |
• | a monetary liability imposed on the office holder in favor of an injured party at an Administrative Procedure pursuant to Section 52(54)(a)(1)(a) of the Securities Law; and |
• | expenses incurred by an office holder in connection with an Administrative Procedure, including reasonable litigation expenses and reasonable attorneys’ fees. |
• | a breach of the fiduciary duty, except for indemnification and insurance for a breach of the fiduciary duty 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 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. |
As of December 31, | ||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||
Company | Company | Company | ||||||||||||||||||||||
Employees | Consultants | Employees | Consultants | Employees | Consultants | |||||||||||||||||||
Management | 9 | 9 | 8 | |||||||||||||||||||||
Research and development and other | 44 | 46 | 28 |
• | each person or entity known by us to own beneficially 5% or more of our outstanding ordinary shares; |
• | each of our directors, executive officers and director nominees; and |
• | all of our executive officers, directors and director nominees as a group. |
Shares Beneficially Owned | ||||||||
Name of Beneficial Owner | Number | Percentage | ||||||
5% or greater shareholders | ||||||||
M. Arkin Dermatology Ltd. (1) | 18,068,564 | 60.52 | % | |||||
Migdal Insurance & Financial Holdings Ltd. (2) | 1,227,548 | 4.40 | % | |||||
Phoenix Holdings Ltd. (3) | 2,574,922 | 9.24 | % | |||||
Directors and executive officers | ||||||||
Moshe Arkin (1) | 18,154,564 | 61.35 | % | |||||
Alon Seri-Levy (4) | 322,722 | 1.15 | % | |||||
Gilad Mamlok | * | * | ||||||
Ofer Toledano | * | * | ||||||
Ofra Levy-Hacham | * | * | ||||||
Karine Neimann | * | * | ||||||
Itzik Yosef | * | * | ||||||
Itai Arkin | * | * | ||||||
Ran Gottfried | * | * | ||||||
Jerrold S. Gattegno | * | * | ||||||
Hani Lerman | * | * | ||||||
Jonathan Siegel | ||||||||
Sharon Kochan | * | * | ||||||
Yuval Yanai | * | * | ||||||
All directors and executive officers as a group (14 persons) | 18,186,836 | 62.50 | % |
* Less than 1%. |
(1) | Arkin Dermatology directly owns 16,068,564 ordinary shares and 2,000,000 warrants to purchase up to 2,000,000 ordinary shares. Mr. Moshe Arkin, the chairman of our board of directors, is the sole shareholder and sole director of Arkin Dermatology and may therefore be deemed to be the indirect beneficial owner of the ordinary shares owned directly by Arkin Dermatology. In addition, Mr. Moshe Arkin directly owns 86,000 ordinary shares. |
(2) | Based on the Schedule 13G/A filed with the SEC on January 31, 2024, the ordinary shares are beneficially owned by, among others, (i) provident funds, mutual funds, pension funds and insurance policies, which are managed by direct and indirect subsidiaries of Migdal Insurance & Financial Holdings Ltd, each of which operates under independent management and makes independent voting and investment decisions, (ii) companies for the management of funds for joint investments in trusteeship, each of which operates under independent management and makes independent voting and investment decisions, and (iii) their own account (Nostro account). |
(3) | Based on the Schedule 13G/A filed with the SEC on February 12, 2024, the ordinary shares are beneficially owned by various direct or indirect, majority or wholly-owned subsidiaries of the Phoenix Holding Ltd., or the Subsidiaries. The Subsidiaries manage their own funds and/or the funds of others, including for holders of exchange-traded notes or various insurance policies, members of pension or provident funds, unit holders of mutual funds, and portfolio management clients. Each of the Subsidiaries operates under independent management and makes its own independent voting and investment decisions. |
(4) | Consists of options to purchase 322,722 ordinary shares exercisable within 60 days of March 1, 2024. The exercise price of these options ranges between $1.59 and $11.21 per share and the options expire between March 2025 and July 2033. |
• | amendments to our amended and restated articles of association; |
• | appointment or termination of our auditors; |
• | appointment of external directors; |
• | approval of certain related party transactions; |
• | increases or reductions of our authorized share capital; |
• | mergers; and |
• | the exercise of our board of director’s powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of its powers is required for our proper management. |
• | amortization over an eight-year period of the cost of purchased know-how and patents and rights to use a patent and know-how which were purchased in good faith and are used for the development or advancement of the Industrial Enterprise, commencing on the year in which they were first used; |
• | under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies; and |
• | expenses related to a public offering are deductible in equal amounts over three years commencing on the year of the offering. |
• | The research and expenditures are approved by the relevant Israeli government ministry, determined by the field of research; |
• | The research and development must be for the promotion of the company; and |
• | The research and development are carried out by or on behalf of the company seeking such tax deduction. |
Tax Year | Development Region “A” | Other Areas within Israel | ||||||
2011 – 2012 | 10 | % | 15 | % | ||||
2013 | 7 | % | 12.5 | % | ||||
2014 – 2016 | 9 | % | 16 | % | ||||
2017 and thereafter | 7.5 | % | 16 | % |
• | banks |
• | certain financial institutions; |
• | insurance companies; |
• | regulated investment companies; |
• | real estate investment trusts; |
• | broker-dealers; |
• | traders that elect to mark to market; |
• | U.S. expatriates; |
• | tax-exempt entities; |
• | persons holding our ordinary shares or warrants as part of a straddle, hedging, constructive sale, conversion or integrated transaction; |
• | persons that actually or constructively (including through the ownership of our warrants) own 10% or more of our share capital (by vote or value); |
• | persons that are resident or ordinarily resident in or have a permanent establishment in a jurisdiction outside the United States; |
• | persons who acquired our ordinary shares or warrants pursuant to the exercise of any employee share option or otherwise as compensation; |
• | persons subject to special tax accounting rules as a result of any item of gross income with respect to our ordinary shares or warrants being taken into account in an applicable financial statement; or |
• | pass-through entities, or persons holding our ordinary shares or warrants through pass-through entities. |
• | an individual who is a citizen or resident of the United States; |
• | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia; |
• | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
• | a trust that (i) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
• | at least 75% of its gross income for such year is passive income (such as interest income); or |
• | at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to cash or other assets that produce passive income or are held for the production of passive income. |
• | the excess distribution or gain will be allocated ratably over your holding period; |
• | the amount allocated to the current taxable year, and any taxable years in your holding period prior to the first taxable year in which we were a PFIC, will be treated as ordinary income; and |
• | the amount allocated to each other taxable year will be subject to the highest tax rate in effect for individuals or corporations, as applicable, for each such year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
• | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions; |
• | provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles; |
• | provide reasonable assurance that receipts and expenditures are made only in accordance with authorizations of our management and board of directors (as appropriate); and |
• | provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements. |
Year Ended December 31, | ||||||||
Services Rendered | 2023 | 2022 | ||||||
(U.S. dollars in thousands) | ||||||||
Audit Fees (1) | 220 | 189 | ||||||
Tax (2) | 7 | 19 | ||||||
Other (3) | 2 | 1 | ||||||
Total | 229 | 204 |
(1) | Audit Fees consist of professional services rendered in connection with the audit of our consolidated financial statements, review of our consolidated quarterly financial statements, issuance of comfort letters, consents and assistance with review of documents filed with the SEC. |
(2) | Tax fees relate to tax compliance, planning and advice. |
(3) | Other fees relate to license fees for use of accounting research tools. |
• | the quorum for any meeting of shareholders is two or more shareholders holding at least 33-1∕3% of our voting rights, which complies with Nasdaq requirements; however, if the meeting is adjourned for lack of quorum, the quorum for such adjourned meeting will be any number of shareholders, instead of 33-1∕3% of our voting rights; |
• | we adopt and approve material changes to equity incentive plans in accordance with the Companies Law, which does not impose a requirement of shareholder approval for such actions. In addition, we intend to follow Israeli corporate governance practice in lieu of Nasdaq Marketplace Rule 5635(c), which requires shareholder approval prior to an issuance of securities in connection with equity based compensation of officers, directors, employees or consultants; |
• | as opposed to making periodic reports to shareholders and proxy solicitation materials available to shareholders in the manner specified by the Nasdaq corporate governance rules, the Companies Law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website. We only mail such reports to shareholders upon request; and |
• | we follow Israeli corporate governance practice instead of Nasdaq requirements to obtain shareholder approval for certain dilutive events (such as issuances that will result in a change of control, certain transactions other than a public offering involving issuances of a 20% or greater interest in us and certain acquisitions of the stock or assets of another company). |
Controlled Company
• | risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise information technology environment; |
• | a team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents; |
• | the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; |
• | cybersecurity awareness training of our employees, incident response personnel, and senior management; |
• | a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and |
• | a third-party risk management process for service providers, suppliers, and vendors who have access to our critical systems and information. |
Exhibit Number | Exhibit Description |
4.13* | |
101 | The following financial statements from the Company’s 20-F for the fiscal year ended December 31, 2022, formatted in XBRL: (i) Consolidated Statements of Comprehensive Loss, (ii) Consolidated Statements of Financial Position, (iii) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements. |
* | Filed herewith. |
† | Certain confidential portions of this exhibit have been redacted from the publicly filed document because such portions are (i) not material and (ii) would be competitively harmful if publicly disclosed. |
^ | Certain schedules and/or exhibits to this Exhibit have been omitted in accordance with the instructions to Item 19 of Form 20-F. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission or its staff upon request. |
∞ | Informal translation of the original Hebrew document. |
SOL-GEL TECHNOLOGIES LTD. | ||||
By: | /s/ Alon Seri-Levy | |||
Name: | Alon Seri-Levy | |||
Title: | Chief Executive Officer and Director | |||
By: | /s/ Gilad Mamlok | |||
Name: | Gilad Mamlok | |||
Title: | Chief Financial Officer |
SOL-GEL TECHNOLOGIES LTD.
Page | |
F-2 | |
CONSOLIDATED FINANCIAL STATEMENTS: | |
F-3 | |
F-4 | |
F-5 | |
F-6 | |
F-7 |
Critical Audit Matters
Tel-Aviv, Israel | /s/ Kesselman & Kesselman |
March 13, 2024 | Certified Public Accountants (Isr.) |
A member firm of PricewaterhouseCoopers International Limited |
December 31 | ||||||||
2022 | 2023 | |||||||
Assets | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 12,448 | $ | 7,513 | ||||
Bank deposits | 12,500 | 10,012 | ||||||
Marketable securities | 8,678 | 20,471 | ||||||
Accounts receivables | 62 | 377 | ||||||
Receivables from collaborative arrangements | 7,858 | - | ||||||
Prepaid expenses and other current assets | 1,509 | 2,794 | ||||||
TOTAL CURRENT ASSETS | 43,055 | 41,167 | ||||||
NON-CURRENT ASSETS: | ||||||||
Restricted long-term deposits and cash equivalents | 1,288 | 1,284 | ||||||
Property and equipment, net | 660 | 434 | ||||||
Operating lease right-of-use assets | 876 | 1,721 | ||||||
Other long-term assets | - | 55 | ||||||
Funds in respect of employee rights upon retirement | 749 | 626 | ||||||
TOTAL NON-CURRENT ASSETS | 3,573 | 4,120 | ||||||
TOTAL ASSETS | $ | 46,628 | $ | 45,287 | ||||
Liabilities and shareholders' equity | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 251 | $ | 154 | ||||
Other accounts payable | 2,360 | 3,921 | ||||||
Current maturities of operating leases | 718 | 447 | ||||||
TOTAL CURRENT LIABILITIES | 3,329 | 4,522 | ||||||
LONG-TERM LIABILITIES: | ||||||||
Operating leases liabilities | 54 | 1,206 | ||||||
Liability for employee rights upon retirement | 1,032 | 915 | ||||||
TOTAL LONG-TERM LIABILITIES | 1,086 | 2,121 | ||||||
TOTAL LIABILITIES | 4,415 | 6,643 | ||||||
COMMITMENTS (Note 7) | ||||||||
SHAREHOLDERS' EQUITY: | ||||||||
Ordinary shares, NIS 0.1 par value – authorized: 50,000,000 as of December 31, 2022 and 2023, respectively; issued and outstanding: 23,129,469 and 27,857,620 as of December 31, 2022 and December 31, 2023, respectively | 638 | 774 | ||||||
Additional paid-in capital | 234,640 | 258,173 | ||||||
Accumulated deficit | (193,065 | ) | (220,303 | ) | ||||
TOTAL SHAREHOLDERS' EQUITY | 42,213 | 38,644 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 46,628 | $ | 45,287 |
Year ended December 31, | ||||||||||||
2021 | 2022 | 2023 | ||||||||||
COLLABORATION REVENUES | 23,772 | - | - | |||||||||
LICENSE REVENUES | 7,500 | 3,883 | 1,554 | |||||||||
TOTAL REVENUES | 31,272 | 3,883 | 1,554 | |||||||||
RESEARCH AND DEVELOPMENT EXPENSES | 20,381 | 12,682 | 23,541 | |||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 8,451 | 7,445 | 7,373 | |||||||||
OTHER INCOME, net | 524 | - | 55 | |||||||||
TOTAL OPERATING INCOME (LOSS) | 2,964 | (16,244 | ) | (29,305 | ) | |||||||
FINANCIAL INCOME, net | 257 | 1,321 | 2,067 | |||||||||
NET INCOME (LOSS) FOR THE YEAR | 3,221 | (14,923 | ) | (27,238 | ) | |||||||
BASIC EARNINGS (LOSS) PER ORDINARY SHARE | 0.14 | (0.65 | ) | (1.01 | ) | |||||||
DILUTED EARNINGS (LOSS) PER ORDINARY SHARE | 0.14 | (0.65 | ) | (1.01 | ) | |||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE: | ||||||||||||
BASIC | 23,063,493 | 23,128,722 | 27,087,081 | |||||||||
DILUTED | 23,566,182 | 23,128,722 | 27,087,081 |
Ordinary shares | Additional paid- in capital | Accumulated deficit | Total | |||||||||||||||||
Number of shares | Amounts | Amounts | ||||||||||||||||||
BALANCE AS OF JANUARY 1, 2021 | 23,000,782 | 635 | 231,577 | (181,363 | ) | 50,849 | ||||||||||||||
CHANGES DURING 2021: | ||||||||||||||||||||
Net income for the year | - | - | 3,221 | 3,221 | ||||||||||||||||
Issuance of shares through ATM, net of issuance costs | 41,154 | 1 | 504 | - | 505 | |||||||||||||||
Vesting of restricted share units | 19,170 | * | * | - | * | |||||||||||||||
Exercise of options | 65,698 | 2 | 330 | - | 332 | |||||||||||||||
Share-based compensation | - | - | 687 | - | 687 | |||||||||||||||
BALANCE AS OF DECEMBER 31, 2021 | 23,126,804 | 638 | 233,098 | (178,142 | ) | 55,594 | ||||||||||||||
CHANGES DURING 2022: | ||||||||||||||||||||
Net loss for the year | - | - | - | (14,923 | ) | (14,923 | ) | |||||||||||||
Exercise of options | 2,665 | * | 15 | - | 15 | |||||||||||||||
Share-based compensation | - | - | 1,527 | - | 1,527 | |||||||||||||||
BALANCE AS OF DECEMBER 31, 2022 | 23,129,469 | 638 | 234,640 | (193,065 | ) | 42,213 | ||||||||||||||
CHANGES DURING 2023: | ||||||||||||||||||||
Net loss for the year | (27,238 | ) | (27,238 | ) | ||||||||||||||||
Issuance of shares and warrants through public offering, net of issuance costs | 2,560,000 | 74 | 11,468 | 11,542 | ||||||||||||||||
Issuance of shares and warrants through private placement from the controlling shareholder | 2,000,000 | 56 | 9,944 | 10,000 | ||||||||||||||||
Exercise of options | 168,151 | 6 | 262 | 268 | ||||||||||||||||
Share-based compensation | 1,859 | 1,859 | ||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2023 | 27,857,620 | 774 | 258,173 | (220,303 | ) | 38,644 |
Year ended December 31, | ||||||||||||
2021 | 2022 | 2023 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) for the year | 3,221 | (14,923 | ) | (27,238 | ) | |||||||
Adjustments required to reconcile net income (loss) to net cash used in operating activities: | ||||||||||||
Depreciation | 880 | 562 | 342 | |||||||||
Loss (income) from disposal of property and equipment | 29 | - | (55 | ) | ||||||||
Changes in accrued liability for employee rights upon retirement | (32 | ) | 20 | 6 | ||||||||
Share-based compensation expenses | 687 | 1,527 | 1,859 | |||||||||
Net changes in operating leases | 14 | (194 | ) | 35 | ||||||||
Changes in fair value of marketable securities | (125 | ) | 119 | (436 | ) | |||||||
Financial expenses (income), net | 55 | (133 | ) | 89 | ||||||||
Changes in operating asset and liabilities: | ||||||||||||
Receivables from collaborative arrangements | (18,314 | ) | 12,609 | 7,858 | ||||||||
Accounts receivables | - | (62 | ) | (315 | ) | |||||||
Prepaid expenses and other current assets | 274 | (709 | ) | (1,340 | ) | |||||||
Accounts payable, accrued expenses and other | 5,620 | (8,300 | ) | 1,465 | ||||||||
Net cash used in operating activities | (7,691 | ) | (9,484 | ) | (17,730 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of property and equipment | (143 | ) | (171 | ) | (134 | ) | ||||||
Proceeds from sale of property and equipment | - | - | 74 | |||||||||
Short-term deposits | (48 | ) | 8,948 | 2,488 | ||||||||
Long-term deposits | (5 | ) | 10 | (813 | ) | |||||||
Investments in marketable securities | (6,716 | ) | (10,006 | ) | (23,164 | ) | ||||||
Proceeds from sale and maturity of marketable securities | 26,784 | 2,918 | 11,807 | |||||||||
Net cash provided by (used in) investing activities | 19,872 | 1,699 | (9,742 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from issuance of shares through ATM, net of issuance costs | 505 | - | - | |||||||||
Proceeds from exercise of options | 332 | 15 | 268 | |||||||||
Proceeds from issuance of shares and warrants through placement from the controlling shareholder | - | - | 10,000 | |||||||||
Proceeds from issuance of shares and warrants through public offering, net of issuance costs | - | - | 11,542 | |||||||||
Net cash provided by financing activities | 837 | 15 | 21,810 | |||||||||
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS | (55 | ) | 133 | (73 | ) | |||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS | 12,963 | (7,637 | ) | (5,735 | ) | |||||||
CASH AND CASH EQUIVALENTS AND RESRICTED CASH EQUIVALENTS AT BEGINNING OF THE YEAR | 8,272 | 21,235 | 13,598 | |||||||||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS AT END OF THE YEAR | 21,235 | 13,598 | 7,863 | |||||||||
Cash and Cash equivalents | 20,085 | 12,448 | 7,513 | |||||||||
Restricted cash equivalents | 1,150 | 1,150 | 350 | |||||||||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS SHOWN IN STATEMENT OF CASH FLOWS | 21,235 | 13,598 | 7,863 | |||||||||
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS: | ||||||||||||
Recognition of new operating lease ROU and liabilities | 253 | 88 | 1,590 | |||||||||
SUPPLEMENTARY INFORMATION: | ||||||||||||
Income taxes paid | 34 | - | - | |||||||||
Interest received | 774 | 392 | 1,261 |
SOL-GEL TECHNOLOGIES LTD.
The Company’s financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). |
a. | Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates. As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to the fair value of share-based compensation and the incremental borrowing rate for leases. |
b. | Functional and presentation currency The U.S. dollar (“dollar”) is the currency of the primary economic environment in which the operations of the Company and its subsidiary are conducted. The Company’s financing has been provided in dollars, revenues are primarily in dollars and a significant part of expenses are incurred in dollars. The financial statements are presented in dollars, which is the Company’s functional and presentation currency. Transactions and balances originally denominated in dollars are presented at their original amounts. Balances in non-dollar currencies are translated into dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-dollar transactions and other items in the statements of operations (indicated below), the following exchange rates are used: (1) for transactions — exchange rates at transaction dates or average rates; and (2) for other items (derived from non-monetary balance sheet items such as depreciation) — historical exchange rates. Currency transaction gains and losses are presented in financial income or expenses, as appropriate. |
c. | Cash and cash equivalents The Company considers as cash equivalents all short-term, highly liquid investments, which include short-term bank deposits with original maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash. |
d. | Bank deposits Bank deposits with original maturity dates of more than three months but less than one year are included in short-term deposits. Such short-term deposits bear interest at an average annual rate of approximately 1.8%-5.9% in 2023. Interest accrued on bank deposits was recorded as interest receivable as part of "Prepaid expenses and other current assets" in the company’s balance sheet. Bank deposits with maturity of more than one year are considered long-term. As of December 31, 2023, the Company has a restricted deposit in the amount of $1,167 in order to secure certain transactions with its banks. This amount is presented under restricted long-term deposits and cash. |
e. | Marketable securities Marketable securities consist of debt securities. The Company elected the fair value option to measure and recognize its investments in debt securities in accordance with ASC 825, Financial Instruments as the Company manages its portfolio and evaluates the performance on a fair value basis. Changes in fair value, realized gains and losses on sales of marketable securities, are reflected in the statements of operation as finance expense (income), net. Marketable securities are classified under current assets in the consolidated balance sheet as they represent the investment of funds available for the Company’s current operations. |
f. | Derivatives and hedging The Company carries out transactions involving foreign currency exchange derivative financial instruments. The transactions are designed to hedge the Company’s exposure in currencies other than the U.S. dollar. The derivatives do not qualify for hedge accounting, therefore the changes in the fair value are included in financial expense (income), net. The currency hedged items are denominated in New Israeli Shekel (NIS). The counterparties to the derivatives are major banks in Israel. |
g. | Accounts receivables Accounts receivable are initially recognized at the transaction price and subsequently measured at amortized cost less any allowance for expected credit losses. |
h. | Property and equipment |
1) | Property and equipment are stated at cost, net of accumulated depreciation and amortization. |
2) | The Company’s property and equipment are depreciated utilizing the straight-line method based on their estimated useful life. Annual rates of depreciation are as follows: |
% | |
Laboratory equipment | 10 – 33 (mainly 15 – 25) |
Office equipment and furniture | 7 – 15 |
Computers and related equipment | 33 |
Leasehold improvements are amortized utilizing the straight-line method over the shorter of the expected lease term or the estimated useful life of the improvements. | |
i. | Impairment of long-lived assets The Company tests long-lived assets for impairment whenever events or circumstances present an indication of impairment. If the sum of expected future cash flows (undiscounted and without interest charges) of the assets is less than these assets' carrying amount, an impairment loss would be recognized. The assets would then be written down to their estimated fair values. During the three years ended December 31, 2023, the Company did not recognize an impairment loss on its long-lived assets. |
j. | Share-based compensation The Company accounts for employees’ and non-employees' share-based payment awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment compensation is recognized as an expense over the requisite service period. The Company elected to recognize compensation costs for awards to employee conditioned only on continued service that have a graded vesting schedule using the accelerated method based on the multiple-option award approach. The Company has elected to recognize forfeitures as they occur. |
k. | Research and development expenses Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, lab expenses, consumable equipment and consulting fees. All costs associated with research and developments are expensed as incurred. Acquisitions of in-process research and development product candidates, which are not part of a business combination and that have no alternative use, are recognized as an expense as research and development expenses as incurred. Grants received from Israel Innovation Authority (hereafter — “IIA”), formerly known as the Office of the Chief Scientist of the Ministry of Economy and Industry, or the OCS are recognized when the grant becomes receivable, provided there is reasonable assurance that the Company will comply with the conditions attached to the grant and there is reasonable assurance the grant will be received. The grant is deducted from the research and development expenses as the applicable costs are incurred. See Note 7a(1). Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. The Company outsources its clinical trial activities utilizing external entities such as clinical research organizations, independent clinical investigators, and other third-party service providers to assist the Company with the execution of its clinical trials. Clinical trial costs are expensed as incurred. |
l. | Revenue recognition The Company applies ASC 606, Revenue from Contracts with Customers. According to the standard, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligation is satisfied. An entity only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer, after considering any price concession expected to be provided to the customer, as applicable. At contract inception, the entity assesses the goods or services promised within each contract, determines whether they are performance obligations and assesses whether each promised good or service is distinct. A good or service promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. The entity then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Collaborative Arrangements The Company entered into collaborative arrangements with partners that fall under the scope of Topic 808, Collaborative Arrangements (“ASC 808”). While these arrangements are in the scope of ASC 808, the Company may analogize to ASC 606 for some aspects of the arrangements. The Company analogizes to ASC 606 for certain activities within the collaborative arrangement for the delivery of a good or service (i.e., a unit of account) that is part of its ongoing major or central operations. Revenue recognized by analogizing to ASC 606 is recorded as “collaboration revenues”. The terms of the Company’s collaborative arrangements typically include one or more of the following: (i) royalties on net sales of licensed products; (ii) reimbursements or cost-sharing of R&D expenses. Each of these payments results in collaboration revenues or an offset against R&D expense. Royalties: For arrangements that include sales-based royalties and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes collaboration revenues at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Under certain collaborative arrangements, the Company has been reimbursed for a portion of its R&D expenses or participates in the cost-sharing of such R&D expenses. Such reimbursements and cost-sharing arrangements have been reflected as a reduction of R&D expense in the Company’s consolidated statements of operations, as the Company does not consider performing research and development services for reimbursement to be a part of its ongoing major or central operations. For arrangements that include a significant financing component, the company separates the significant financing component from the revenue and interest income is recorded when payments are received. See Note 8. |
l. | Revenue recognition (continued): |
Licensing agreements The Company has license agreements with two parties, Galderma and Searchlight. In its license agreements with Galderma, the Company has identified one performance obligation (see Note 9a): grant of the license and use of its IP. The grant of the license and use of its IP performance obligation is considered to be a right to use IP in accordance with ASC 606. Therefore, revenue is recognized at a point in time, upon transfer of control over the license to the licensee. In its license agreements with Searchlight (see Note 9b), the Company has identified two performance obligations: grant of the license and use of its IP, as well as continuing support during the regulatory approval process. The grant of the license is recognized at a point in time, upon transfer of control over the license to the licensee, while the services are recognized over time as the services are performed. ASC 606 defines the ‘Transaction Price’ as the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to a customer. License agreements may contain variable consideration contingent upon the licensee achieving certain milestones, as well as sales-based royalties, in accordance with the relevant agreement. Variable payments, contingent on achieving additional milestones, are included in the transaction price based on most likely amount method. Amounts included in the transaction price are recognized only when it is probable that a significant reversal of cumulative revenues will not occur, usually upon achievement of the specific milestone, in accordance with the relevant agreement. Sales-based royalties are not included in the transaction price. Rather, they are recognized as the related sale occurs, due to the specific exception of ASC 606 for sales-based royalties in licensing of intellectual properties. |
m. | Income taxes |
1) | Deferred taxes The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that a portion or all of the deferred tax assets will not be realized, based on the weight of available positive and negative evidence. Deferred tax liabilities and assets are classified as non-current. |
2) | Uncertainty in income taxes The Company follows a two-step approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained based on technical merits. If this threshold is met, the second step is to measure the tax position as the largest amount that has more than a 50% likelihood of being realized upon ultimate settlement. |
n. | Leases Right of use ("ROU") assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company’s lease terms may include periods covered by options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option to extend the lease or not exercise the option to terminate the lease. The Company uses the implicit rate when readily determinable. As the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease expense for operating lease is recognized on a straight-line basis over the lease term. The Company elected to not separate lease and non-lease components for the leases. The Company elected the practical expedient of the short-term lease recognition exemption for all leases with a term shorter than 12 months. Additionally, the company applies the portfolio approach to account for operating lease ROU asset and liabilities for certain car leases and incremental borrowing rates. |
o. | Concentration of credit risks Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, bank deposits, marketable securities and certain receivables. The Company deposits cash and cash equivalents with highly rated financial institutions. In addition, all marketable securities either carry a high rating or are government insured. The Company has not experienced any material credit losses in these accounts and does not believe it is exposed to significant credit risk on these instruments. |
p. | Earnings (loss) per share Basic earnings (loss) per share is computed based on net earnings (loss) for the period divided by the weighted average number of ordinary shares outstanding during the period. Diluted earnings (loss) per share is based upon the weighted average number of ordinary shares and of potential ordinary shares outstanding when dilutive. Potential ordinary shares include outstanding stock options and warrants, which are included under the treasury stock method when dilutive. The calculation of diluted earnings (loss) per share does not include 3,397,834 , 3,900,837 and 7,070,688 options and warrants for the years ended December 31, 2021, 2022 and 2023, respectively, because their effect would be anti-dilutive. |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
q. | Fair value measurement Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value. The fair value of bank deposits approximates their carrying value, since they bear interest at rates close to the prevailing market rates. In addition, due to the short-term nature and/or low-risk nature of the Company's cash and cash equivalents, restricted cash equivalents, accounts receivable, accounts payable and other payables , their carrying amounts approximates their fair value. |
r. | Recently issued accounting pronouncement In November 2023, the FASB issued ASU 2023-07 “Segment Reporting: Improvements to Reportable Segment Disclosures”. This guidance expands public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements and related disclosures. |
December 31, | ||||||||
2022 | 2023 | |||||||
Level 2 securities: | ||||||||
U.S government and agency bonds | 1,494 | 2,583 | ||||||
Other foreign government bonds | - | 1,946 | ||||||
Corporate bonds* | 7,184 | 15,942 | ||||||
Total | 8,678 | 20,471 |
December 31, | ||||||||
2022 | 2023 | |||||||
Balance at beginning of the year | $ | 1,709 | $ | 8,678 | ||||
Additions | 10,006 | 23,164 | ||||||
Sale or maturity | (2,918 | ) | (11,807 | ) | ||||
Changes in fair value during the year | (119 | ) | 436 | |||||
Balance at end of the year | $ | 8,678 | $ | 20,471 |
Market value | ||||
December 31, | ||||
2023 | ||||
Due within one year | 16,127 | |||
Between 1-2 years | 4,344 |
December 31 | ||||||||
2022 | 2023 | |||||||
Cost: | ||||||||
Laboratory equipment | $ | 3,688 | $ | 3,514 | ||||
Office equipment and furniture | 265 | 288 | ||||||
Computers and software | 428 | 451 | ||||||
Leasehold improvements | 1,993 | 1,985 | ||||||
6,374 | 6,238 | |||||||
Less: | ||||||||
Accumulated depreciation and amortization | (5,714 | ) | (5,804 | ) | ||||
Property and equipment, net | $ | 660 | $ | 434 |
NOTE 5 - LEASES (continued):
As of December 31, | ||||||||
2022 | 2023 | |||||||
Assets | ||||||||
Operating Leases | ||||||||
Operating lease right-of-use assets | 876 | 1,721 | ||||||
Liabilities | ||||||||
Current liabilities | ||||||||
Current maturities of operating leases | 718 | 447 | ||||||
Long-term liabilities | ||||||||
Non-current operating leases | 54 | 1,206 | ||||||
Weighted Average Remaining Lease Term | ||||||||
Operating leases | 0.45 | 3.73 | ||||||
Weighted Average Discount Rate | ||||||||
Operating leases | 6.11 | % | 13.3 | % |
Year Ended December 31, | ||||||||
2022 | 2023 | |||||||
Operating lease cost: | 797 | 745 |
Year Ended December 31, | ||||||||
2022 | 2023 | |||||||
Cash paid for amounts included in the measurement of leases liabilities: | ||||||||
Operating cash flows from operating leases | 989 | 799 |
NOTE 5 - LEASES (continued):
Operating Leases | ||||
For the year ending December 31, | ||||
2024 | 592 | |||
2025 | 539 | |||
2026 and thereafter | 912 | |||
Total minimum lease payments | 2,043 | |||
Less: amount of lease payments representing interest | (390 | ) | ||
Present value of future minimum lease payments | 1,653 | |||
Less: Current maturities of operating leases | 447 | |||
Long-term operating leases liabilities | 1,206 |
a. | Royalty Commitments: |
1) | The Company is obligated to pay royalties to the IIA on proceeds from the sale of products developed from research and development activities that were funded, partially, by grants from the IIA. Under the specific terms of the funding arrangements with the IIA, royalties of 3.5% to 25% are payable on the sale of products developed with funding received from the IIA, which payments shall not exceed, in the aggregate, 300% of the amount of the grant received (dollar linked), plus interest at annual rate based on the 12-month SOFR rate as published by CME Group on the first day of commerce or any other body certified by the Federal Reserve, or according to an alternative bulletin as published by the Bank of Israel. Up to December 31, 2023, the Company had recognized and received grants from the IIA in the aggregate amount of $1,430 (no grants were received in the years ended December 31, 2021, 2022 and 2023). Through December 31, 2023, the Company recorded an accumulated royalty expense of $2,170 as royalties to the IIA with respect to revenue recognized through December 31, 2023 ($23, $24 and $37 were recorded in 2021, 2022 and 2023 accordingly, as an expense in the consolidated statements of operations). |
2) | The Company has an agreement, that was amended several times (hereafter — the agreements) with Yissum Research Development Company (hereafter — “Yissum”), the technology-licensing arm of the Hebrew University of Jerusalem. According to the agreements, the Company received from Yissum an exclusive and a non-exclusive license for the commercialization of certain Yissum patents. According to the agreements the Company shall pay Yissum: Royalties of 1.5% of net sales related to certain patents. 1.5% – 8% of proceeds received by the Company for the sublicense or license of certain patents. Royalty expenses in immaterial amounts were recorded in 2021, 2022 and 2023 in respect of these agreements. According to the agreements, the Company may continue commercial use of certain Yissum’s patents in connection with the products and subject to the obligation to pay Yissum the royalties and the sub-license fees. The Company granted rights to a third party for use and commercialization of certain Yissum patents. |
b. | As to collaboration agreements, see detailed information in Note 8. |
a. | In 2007, the Company granted rights to a third party for use and commercialization of a product for skin protection. Under this agreement, the Company is entitled to royalties during the years 2016 to 2024. Based on current sales, royalties are not material. |
b. | In 2016 through 2020, the Company entered into several collaboration agreements mainly with one third party (the "Partner") for the development, manufacturing and commercialization of several product candidates (including an agreement assumed by the Company in August 2018, following the transfer of an in-process research and development product candidate from a related party). |
c. | Under the agreements, the Partner is obligated to conduct regulatory, scientific, clinical and technical activities necessary to develop the product and prepare and file an abbreviated new drug application ("ANDA"), with the FDA and gain regulatory approval. The Company participates in the development of the product candidates, including participation in joint steering committees and is obligated for sourcing the active pharmaceutical ingredient (API) during the development phase. Upon FDA approval, the Partner has exclusive rights and is required to use diligent efforts to commercialize these products in territories defined under the agreements, including all required sales, marketing and distributing activities associated with the agreements. The Company is entitled to a share of the Partner's gross profits related to the sale of the products, as such term is defined in each of the agreements. These Agreements are considered to be within the scope of ASC 808, as the parties are active participants and exposed to the risks and rewards of the collaborative activity. The Company recognizes collaboration revenues when the related sales occur. In November 2021, the Company entered into a new agreement ("New Agreement") with the Partner, to sell its rights to the Partner in relation to ten generic collaborative agreements between the parties in consideration of $21,500 which was paid over 24 months. Under the New Agreement, the Company has retained collaboration rights to two generic programs related to four generic drug candidates, and is no longer entitled to receive its share in profit as detailed above. In addition, the Company ceased paying any outstanding and future operational costs related to these collaborative agreements. |
a. | In June 2021, the Company entered into two exclusive license agreements with Galderma for the commercialization of two of the Company's most advanced investigational drug products (Twyneo® and Epsolay®) in the United States. The Company is entitled to amounts of up to $7.5 million per product in upfront payments and regulatory approval milestone payments assuming 2021 approval of each respective product. The Company is also eligible to receive tiered double-digit royalties ranging from mid-teen to high-teen percentage of net sales as well as up to $9 million in sales milestone payments. According to the agreement, the Company has an option to regain commercialization rights five years following first commercialization. On July 27, 2021, the Company announced that the FDA approved the Company’s first proprietary drug product, Twyneo®. On April 14, 2022, the Company announced that Twyneo® is available for purchase by consumers who obtain a prescription from their physician, see further details in Note 1. In March 2022, the Company had refunded the $4 million upfront payment to Galderma, since FDA approval for Epsolay® had not been received as of December 31, 2021. On April 25, 2022, the Company announced that the FDA approved the drug product, Epsolay®, which entitled the Company to a $3.5 million milestone payment, as per the license agreement. In May 2022, the Company has received the $3.5 million payment from Galderma. On June 2, 2022, the Company announced that Epsolay® is available for purchase by consumers who obtain a prescription from their physician, see further details in Note 1. During 2023 and 2022, the Company recognized $1,027 and $306, respectively, as revenue from royalties in respect of the license agreement for both products. |
NOTE 9 – LICENSE AGREEMENTS (continued):
b. | On June 6, 2023, the Company and Searchlight Pharma Inc. (“Searchlight”), a private Canadian specialty pharmaceutical company, signed on an exclusive license agreements for Twyneo® and Epsolay® for the Canadian market, over a fifteen-year term that is renewable for subsequent five-year periods. Searchlight will be responsible for obtaining and maintaining any regulatory approvals required to market and sell the drugs in Canada, with support from the Company. Under the agreement, the Company will receive up to $11 million in upfront payments and regulatory and sales milestones for both drugs, combined. In addition, the Company will be entitled to royalty percentages of all Canadian net sales ranging from low-double-digits to high teens. In June 2023, the Company received $500 as an upfront payment in connection with the license agreement and related support provided to Searchlight for obtaining the regulatory approval in the Canadian market. The Company is also required to support Searchlight during such period if needed based on agreed upon rates. The Company has identified two performance obligations in the license agreement as follows: (i) the license to market the products in Canada; and (ii) continuing support during the regulatory approval process. Accordingly, the Company recognized $380 as license revenue in the period and recorded $120 as contract liability in respect of the support services. |
a. | Ordinary shares Rights of the Company’s ordinary shares |
Each ordinary share is entitled to one vote. The holder of an ordinary share is also entitled to receive dividends whenever funds are legally available, when and if declared by the Board of Directors. Since its inception, the Company has not declared any dividends. |
1) | In July 2021, the Company entered into an ATM sales agreement ("2021 ATM Agreement") with Jefferies LLC ("Jefferies"), pursuant to which the Company was entitled, at its sole discretion, to offer and sell through Jefferies, acting as sales agent, shares having an aggregate offering price of up to $25.0 million throughout the period during which the ATM facility remains in effect. The Company agreed to pay Jefferies a commission of 3.0% of the gross proceeds from the sale of shares under the facility. Under the 2021 ATM Agreement, 41,154 shares were sold under the program for total gross proceeds of approximately $0.5 million. On April 2022, the Company terminated the 2021 ATM Agreement, effective on the same date. |
2) | On January 27, 2023, the Company entered into a securities purchase agreement (hereafter - “Purchase Agreement”) with Armistice Capital, pursuant to which the Company issued to Armistice Capital (i) 2,560,000 ordinary shares of the Company (the "Ordinary Shares"), par value NIS 0.1 per share in a registered direct offering (the " Registered Direct Offering") at a price of $5.00 per ordinary share and (ii) in a concurrent private placement unregistered warrants to purchase up to 2,560,000 Ordinary Shares (the "Investor Warrants"). Each of the Investor Warrants are exercisable for one ordinary share, have an exercise price of $5.85 and will become exercisable beginning six months from the date of issuance and will expire on January 27, 2028. The sale of the Ordinary Shares in the Registered Direct Offering was made by means of a shelf registration statement. The Offering closed on January 31, 2023. The gross proceeds from the Registered Direct Offering were approximately $12.8 million. Concurrently with the signing of the Purchase Agreement, the Company also entered into a subscription agreement (hereafter - “Subscription Agreement”) between the Company and M. Arkin Dermatology Ltd., the Controlling Shareholder of the Company, pursuant to which M. Arkin Dermatology Ltd. agreed to purchase 2,000,000 unregistered Ordinary Shares and unregistered warrants to purchase up to 2,000,000 ordinary shares (the “PIPE Warrants” and, together with the Investor Warrants, the “Warrants”) in a concurrent private placement (hereafter- “Affiliate Private Placement"), at a price equal to the offering price of the Ordinary Shares in the Offering. The Affiliate Private Placement agreement was contingent on certain conditions and was approved by the Company’s shareholders in March 2023. The total proceeds of $10,000 were received in April 2023. |
NOTE 10 - SHARE CAPITAL (continued):
b. | Share-based compensation: |
1) | Option plan In December 2014, the Company’s Board of Directors approved a share incentive plan (hereafter — the Plan) and reserved a pool of 629,025 ordinary shares, par value NIS 0.1 each, or such other number as the Board may determine, subject to certain terms and conditions as defined in the Plan. According to the Plan, the Company may issue shares or restricted shares, grant options or restricted share units and other share-based awards (hereafter — the Awards) to the Company's employees, consultants, directors and other service providers. In March 2023, the Company’s Board of Directors approved an increase of the ordinary shares that may be issued under the Company’s Plan by reserving an additional amount of 1,250,000 ordinary shares. The Plan is designed to enable the Company to grant awards to purchase ordinary shares under various and different tax regimes including, without limitation: pursuant and subject to Section 102 of the Israeli Tax Ordinance, pursuant and subject to Section 3(i) of the Israeli Tax Ordinance and under Internal Revenue Code Section 422. The awards may be exercised after vesting and in accordance with vesting schedules which will be determined by the Board of Directors for each grant. The maximum term of the awards is 10 years. The fair value of each option granted under the Plan is estimated using the Black-Scholes option pricing method. Expected volatility is based on the historical volatility of the company and of comparable peer companies. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the options granted in dollar terms. The expected term of the options is estimated based on the simplified method, as its historical experience for options grants as a public company is insufficient. In December 2019, the Company’s Board of Directors approved an increase of the ordinary shares that may be issued under the Company’s Plan by reserving an additional amount of 912,230 ordinary shares. As of December 31, 2023, 641,404 ordinary shares remain available for future grants under the Plan. |
NOTE 10 - SHARE CAPITAL (continued):
2) | Options grants |
a. | Option granted to employees and directors During the twelve months ended December 31, 2023, the Company granted 749,750 options to employees and executive officers: |
i. | In March 2023, the Company granted a total of 53,092 options to several employees to purchase ordinary shares at exercise prices of either $4.63 or $5.6 per share. The options vest over a period of 4 years; one quarter of the options vest on the first anniversary of the vesting commencement date (as described in each agreement) and the rest vest quarterly over the following three years. The options expire on the tenth anniversary of their grant date. |
ii. | In March 2023, the Company granted a total of 439,314 options to several executive officers to purchase ordinary shares at an exercise price of $4.63 or $5.6 per share. The options vest over a period of 4 years; one quarter of the options vest on the first anniversary of the vesting commencement date (as described in each agreement) and the rest vest quarterly over the following three years. The options expire on the tenth anniversary of their grant date. |
iii. | In March 2023, the board of directors approved and recommended the Company's shareholders to approve a grant of 257,344 options to the Company's CEO to purchase ordinary shares at an exercise price of $5.6 per share. The Company's shareholders approved the grant on July 26, 2023. The options vest over a period of 4 years; one quarter of the options vest on the first anniversary of the vesting commencement date (as described in each agreement) and the rest vest quarterly over the following three years. The options expire on the tenth anniversary of their grant date. The weighted average fair value of options granted in 2022 and 2023 was $4.49 and 2.01, respectively. The underlying data used for computing the fair value of the options are as follows: |
2022 | 2023 | |||||
Value of one ordinary share | $4.98-$10.0 | $3.59-$3.8 | ||||
Dividend yield | 0% | 0% | ||||
Expected volatility | 57.8%-62.6% | 55%-56% | ||||
Risk-free interest rate | 2.5%-4.2% | 3.97%-4.1% | ||||
Expected term | 7 years | 7 years |
The total unrecognized compensation cost of employee options at December 31, 2023 is $1,497, which is expected to be recognized over a period of 3.19 years.
NOTE 10 - SHARE CAPITAL (continued):
Year ended December 31 | ||||||||||||||||||||||||
2022 | 2023 | |||||||||||||||||||||||
Number of options | Weighted average exercise price | Weighted average remaining contractual life | Number of options | Weighted average exercise price | Weighted average remaining contractual life | |||||||||||||||||||
Options outstanding at the beginning of the year | 1,131,029 | $ | 5.64 | 5.73 | 1,864,377 | $ | 7.09 | 7.11 | ||||||||||||||||
Granted | 747,488 | $ | 9.31 | 9.21 | 749,750 | $ | 5.52 | 9.15 | ||||||||||||||||
Exercised | (2,665 | ) | $ | 5.69 | - | (168,151 | ) | $ | 2.8 | - | ||||||||||||||
Expired | (450 | ) | $ | 9.93 | - | (57,740 | ) | $ | 8.63 | - | ||||||||||||||
Forfeited | (11,025 | ) | $ | 7.58 | - | (67,114 | ) | $ | 7.8 | - | ||||||||||||||
Options outstanding at the end of the year | 1,864,377 | $ | 7.09 | 7.11 | 2,321,122 | $ | 6.57 | 6.54 | ||||||||||||||||
Options exercisable at the end of the year | 1,179,132 | $ | 5.14 | 3.99 | 1,547,237 | $ | 6.17 | 3.72 |
b. | Option granted to non-employees All compensation cost of non-employees' options were fully recognized as of December 31, 2023. The following table summarizes the number of options granted to non-employees under the Plan as of December 31, 2023, and related information (no options were granted to non-employees in 2023): |
December 31 | ||||||||||||
2023 | ||||||||||||
Number of options | Weighted average exercise price | Weighted average remaining contractual life | ||||||||||
Options outstanding at the end of the year | 198,575 | $ | 7.70 | 3.84 | ||||||||
Options exercisable at the end of the year | 198,575 | $ | 7.70 | 3.84 |
c. | Restricted Share Units (RSUs) granted to Directors In February 2018 and September 2018, the board of directors approved and recommended the Company shareholders to approve a total grant of 46,000 and 11,500 RSUs, respectively, to its independent and external directors that vest annually in equal portions over a three-year period. The fair value of shares as of the date of grant was $495 and $105 respectively. As of December 31, 2023, the RSUs had vested. |
NOTE 10 - SHARE CAPITAL (continued):
The following table illustrates the effect of share-based compensation on the statements of operations: |
Year ended December 31 | ||||||||||||
2021 | 2022 | 2023 | ||||||||||
Research and development expenses | $ | 33 | $ | 665 | $ | 701 | ||||||
General and administrative expenses | $ | 654 | $ | 862 | $ | 1,158 | ||||||
$ | 687 | $ | 1,527 | $ | 1,859 |
a. | Tax rates in Israel The Company is taxed in accordance with Israeli tax laws. The corporate tax rates applicable to 2021, 2022 and 2023 is 23%. Capital gain is subject to capital gain tax according to the corporate tax rate in the year the assets are sold. |
b. | Tax rates for the U.S Subsidiary The subsidiary is taxed according to U.S. tax laws. The Company’s income is taxed in the United States at the federal rate of 21%. |
c. | Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”) Under the Investment Law, including Amendment No. 60 to the Investment Law that was published in April 2005, by virtue of the Benefited Enterprise program for certain of its facilities; the Company may be entitled to various tax benefits. The main benefit arising from such status is the reduction in tax rates on income derived from a Benefited Enterprise. The extent of such benefits depends on the location of the enterprise. Since the Company’s facilities are not located in “national development zone A,” income derived from Benefited Enterprises will be tax exempt for a period of two years and then have a reduced tax rate for a period of up to an additional eight years. The period of tax benefits, as described above, is limited to 12 years from the beginning of the Benefited Enterprise election year (2012). As of December 31, 2023, the period of benefits has not yet commenced. In the event of distribution of cash dividends from income, which was tax exempt as above, the amount distributed will be subject to the tax rate it was exempted from. The Company is entitled to claim accelerated depreciation in respect of equipment used by the approved enterprises during five tax years. Entitlement to the above benefits is conditioned upon the Company fulfilling the conditions stipulated by the Investment Law and regulations published thereunder. In the event of failure to comply with these conditions, the benefits may be canceled, and the Company may be required to refund the amount of the benefits, in whole or in part, with the addition of linkage differences to the Israeli consumer price index and interest. The Investment Law was amended as part of the Economic Policy Law for the years 2011 – 2012 (the “Amendment”), which became effective on January 1, 2011 and was further amended in August 2013 and January 2017. Under the 2017 Amendment, and provided the conditions stipulated therein are met, income derived by Preferred Companies from ‘Preferred Technological Enterprises’ (“PTE”) (as defined in the 2017 Amendment), would be subject to reduced corporate tax rates of 7.5% in Development Zone “A” and 12% elsewhere, or 6% in case of a ‘Special Preferred Technological Enterprise’ (“SPTE”) as defined in the 2017 Amendment) regardless of the company’s geographical location within Israel. A Preferred Company distributing dividends from income derived from its PTE or SPTE, would subject the recipient to a 20% tax (or lower, if so provided under an applicable tax treaty). The 2017 Amendment further provides that, in certain circumstances, a dividend distributed to a corporate shareholder who is not an Israeli resident for tax purposes would be subject to a 4% tax (inter alia, if the amount of foreign investors in the distributing company exceeds 90%). Such taxes would generally be withheld at source by the distributing company. |
NOTE 11 - TAXES ON INCOME (continued):
On June 14, 2017, the Encouragement of Capital Investments Regulations (Preferred Technology Income and Capital Profits for a Technological Enterprise), 2017 (the “Regulations”) were published, which adopted Action 5 under the base erosion and profit shifting (“BEPS”) regulations. The Regulations describe, inter alia, the mechanism used to determine the calculation of the benefits under the PTE and under the SPTE Regime and determine certain requirements relating to documentation of intellectual property for the purpose of the PTE. According to these provisions, a company that complies with the terms under the PTE regime may be entitled to certain tax benefits with respect to income generated during the company’s regular course of business and derived from the preferred intangible asset (as determined in the Investments Law), excluding income derived from intangible assets used for marketing and income attributed to production activity. In the event that intangible assets used for marketing purposes generate over 10% of the PTE’s income, the relevant portion, calculated using a transfer pricing study, would be subject to regular corporate income tax. If such income does not exceed 10%, the PTE will not be required to exclude the marketing income from the PTE’s total income. The Regulations set a presumption of direct production expenses plus 10% with respect to income related to production, which can be countered by the results of a supporting transfer pricing study. Tax rates applicable to such production income expenses will be similar to the tax rates under the Preferred Enterprise regime, to the extent such income would be considered as eligible. In order to calculate the preferred income, the PTE is required to take into account the income and the research and development expenses that are attributed to each single preferred intangible asset. Nevertheless, it should be noted that the transitional provisions allow companies to take into account the income and research and development expenses attributed to all of the preferred intangible assets they have. Under the transitional provisions of the law, a company is allowed to continue to enjoy the tax benefits available under the law prior to its amendment until the end of the period of benefits, as defined in the law. In each year during the period of benefits as a Benefited Enterprise, the Company will be able to opt for application of the amendment, thereby making available the tax rates discussed above. The Company’s election to apply the amendment is irrecoverable. As of December 31, 2023, the Company’s management decided not to adopt the application of the Amendment. There is no assurance that future taxable income of the Company will qualify as benefited or preferred income or that the benefits described above will be available to the Company in the future. |
d. | Tax assessments Tax assessments filed by the Company through the year 2018 are considered to be final. |
e. | Losses for tax purposes carried forward to future years As of December 31, 2023, the Company had approximately $187.4 million of net carry forward tax losses which are available to reduce future taxable income with no limited period of use. |
NOTE 11 - TAXES ON INCOME (continued):
f. | Deferred income taxes: |
December, 31 | ||||||||
2022 | 2023 | |||||||
In respect of: | ||||||||
Net operating loss carry forward | 40,779 | 43,113 | ||||||
Research and development expenses | 3,254 | 4,337 | ||||||
Other | 661 | 462 | ||||||
Less – valuation allowance | (44,694 | ) | (47,912 | ) | ||||
Net deferred tax assets | - | - |
g. | Reconciliation of theoretical tax expenses to actual expenses Actual tax expenses are in respect of the U.S. subsidiary. The primary reconciling items between the statutory tax rate of the Company and the effective rate are the full valuation allowance of deferred tax assets and nondeductible expenses in relation to the operations in Israel. |
h. | Roll forward of valuation allowance |
Balance as of January 1, 2021 | $ | 43,053 | ||
Additions | 2,255 | |||
Balance as of December 31, 2021 | $ | 45,308 | ||
Deductions | (614 | ) | ||
Balance as of December 31, 2022 | $ | 44,694 | ||
Additions | 3,218 | |||
Balance as of December 31, 2023 | $ | 47,912 |
i. | Provision for uncertain tax positions As of December 31, 2022, and 2023, the Company does not have a provision for uncertain tax positions. |
December, 31 | ||||||||
2022 | 2023 | |||||||
Accrued expenses | $ | 1,257 | $ | 2,054 | ||||
Employees payables | 883 | 603 | ||||||
APA payable (see note 1) | - | 700 | ||||||
Other | 220 | 564 | ||||||
$ | 2,360 | $ | 3,921 |
a. | Related parties include the controlling shareholder and companies under his control, the Board of Directors and the executive officers of the Company. |
b. | As to options and restricted shares granted to directors and executive officers, see Note 10b(2)a and Note 10d. |
c. | As to the Subscription Agreement with the controlling shareholder, see Note 9a(2). |