|Item 17 ☐ Item 18 ☐|
|Item 1. Identity of Directors, Senior Management and Advisers|
|Item 2. Offer Statistics and Expected Timetable|
|Item 3. Key Information|
|Item 4. Information on The Company|
|Item 4A. Unresolved Staff Comments|
|Item 5. Operating and Financial Review and Prospects|
|Item 6. Directors, Senior Management and Employees|
|Item 7. Major Shareholders and Related Party Transactions|
|Item 8. Financial Information|
|Item 9. The Offer and Listing|
|Item 10. Additional Information|
|Item 11. Quantitative and Qualitative Disclosures About Market Risk|
|Item 12. Description of Securities Other Than Equity Securities|
|Item 13. Defaults, Dividend Arrearages and Delinquencies|
|Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds|
|Item 15. Controls and Procedures|
|Item 16. [Reserved]|
|Item 16A. Audit Committee Financial Expert|
|Item 16B. Code of Ethics|
|Item 16C. Principal Accountant Fees and Services|
|Item 16D. Exemptions From The Listing Standards for Audit Committees|
|Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers|
|Item 16F. Change in Registrant's Certifying Accountant|
|Item 16G. Corporate Governance|
|Item 16H. Mine Safety Disclosure|
|Item 17. Financial Statements|
|Item 18. Financial Statements|
|Item 19. Exhibits|
|Note 1: - General|
|Note 2: - Significant Accounting Policies|
|Note 3: - Significant Accounting Judgments, Estimates and Assumptions Used in The Preparation of The Financial Statements|
|Note 4: - Cash and Cash Equivalents|
|Note 5: - Other Receivables|
|Note 6: - Property, Plant and Equipment, Net|
|Note 7: - Leases|
|Note 8: - Other Long - Term Assets|
|Note 9: - Other Payables|
|Note 10: - Financial Instruments|
|Note 11: - Employee Benefit Liabilities|
|Note 12: - Contingent Liabilities and Commitments|
|Note 13: - Equity|
|Note 14: - Share - Based Compensation|
|Note 15: - Supplementary Information To The Statements of Comprehensive Income|
|Note 16: - Taxes on Income|
|Note 17: - Balances and Transactions with Related Parties|
|Note 18: - Subsequent Events|
|Balance Sheet||Income Statement||Cash Flow|
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
☐ 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, 2019
☐ 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
(Commission file number)
BiondVax Pharmaceuticals Ltd.
(Exact name of Registrant as specified in its charter)
(Jurisdiction of incorporation or organization)
Jerusalem BioPark, 2nd floor
Hadassah Ein Kerem Campus
(+972) 8-930-2531 (facsimile)
(Address of principal executive offices)
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
|Title of each class||Trading Symbol(s)||Name of each exchange on which registered|
|American Depositary Shares, each representing 40 ordinary share, no par value||BVXV||Nasdaq Capital Market|
|Ordinary Shares, no par value||Nasdaq Capital Market*|
* Not for trading; only in connection with the registration of American Depositary Shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act.
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 454,145,376 ordinary shares no par value each
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer||☐||Accelerated filer||☐|
|Non-accelerated filer||☐||Emerging growth company||☒|
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
|U.S. GAAP ☐||International Financial Reporting Standards as issued by the International Accounting Standards Board ☒||Other ☐|
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. N/A
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. N/A
Yes ☐ No ☐
BiondVax Pharmaceuticals Ltd.
ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019
TABLE OF CONTENTS
|Note Regarding Forward-Looking Statements||ii|
|Note Regarding the Filing of Form 20-F||ii|
|Item 1. Identity of Directors, Senior Management and Advisers||1|
|Item 2. Offer Statistics and Expected Timetable||1|
|Item 3. Key Information||1|
|Item 4. Information on the Company||34|
|Item 4A. Unresolved Staff Comments||59|
|Item 5. Operating and Financial Review and Prospects||60|
|Item 6. Directors, Senior Management and Employees||67|
|Item 7. Major Shareholders and Related Party Transactions||86|
|Item 8. Financial Information||88|
|Item 9. The Offer and Listing||89|
|Item 10. Additional Information||89|
|Item 11. Quantitative and Qualitative Disclosures About Market Risk||103|
|Item 12. Description of Securities Other than Equity Securities||103|
|Item 13. Defaults, Dividend Arrearages and Delinquencies||110|
|Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds||110|
|Item 15. Controls and Procedures||110|
|Item 16. [Reserved]||111|
|Item 16A. Audit Committee Financial Expert||111|
|Item 16B. Code of Ethics||111|
|Item 16C. Principal Accountant Fees and Services||112|
|Item 16D. Exemptions from the Listing Standards for Audit Committees||112|
|Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers||112|
|Item 16F. Change in Registrant’s Certifying Accountant||112|
|Item 16G. Corporate Governance||113|
|Item 16H. Mine Safety Disclosure||114|
|Item 17. Financial Statements||115|
|Item 18. Financial Statements||115|
|Item 19. Exhibits||115|
|Index to Consolidated Financial Statements||F-1|
In this annual report, unless the context otherwise requires:
|●||references to “BiondVax,” the “Company,” “us,” “we” and “our” refer to BiondVax Pharmaceuticals Ltd. (the “Registrant”), an Israeli company;|
|●||references to “ordinary shares,” “our shares” and similar expressions refer to the Registrant’s ordinary shares, no par value;|
|●||references to “ADS” refer to the Registrant’s American Depositary Shares;|
|●||references to “dollars,” “U.S. dollars” and “$” are to United States Dollars;|
|●||references to “shekels” and “NIS” are to New Israeli Shekels, the Israeli currency;|
|●||references to the “Companies Law” are to Israel’s Companies Law, 5759-1999, as amended; and|
|●||references to the “SEC” are to the United States Securities and Exchange Commission.|
Some of the statements under the sections entitled “Item 3. Key Information – Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects” and elsewhere in this Annual Report on Form 20-F constitute forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms including “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, but these are not the only ways these statements are identified. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. In addition, the section of this annual report on Form 20-F entitled “Item 4. Information on the Company” contains information obtained from independent industry and other sources that we have not independently verified. You should not put undue reliance on any forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements. Readers are encouraged to consult the Company’s filings made on Form 6-K, which are periodically filed with or furnished to the SEC.
Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:
|●||the initiation, timing, progress and results of our clinical trials;|
|●||the clinical development, commercialization and market acceptance of our product candidate;|
|●||our receipt of regulatory approvals for our product candidate, and the timing of other regulatory filings and approvals;|
|●||our ability to obtain and maintain ongoing regulatory requirements, even if our product candidate receives marketing approvals;|
|●||our ability to maintain and expand our intellectual property in connection with our product candidate;|
|●||our ability to compete with other current influenza vaccines or other competing product candidates;|
|●||estimates of our expenses, future revenues, capital requirements and our needs for additional financing; and|
|●||the impact of pandemics such as the Novel Coronavirus Disease 2019, or COVID-19, on our business and financial condition.|
The Company relied on an order by the Securities and Exchange Commission (the “SEC”) under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies dated March 25, 2020 (Release No. 34-88465) to delay the filing of its Annual Report on Form 20-F for the year ended December 31, 2019 (the “Report”) due to the circumstances related to COVID-19. In particular, COVID-19 and related precautionary responses imposed by the State of Israel have caused severe disruptions in travel and transportation, and limited access to the Company’s facilities to most of the Company’s employees. This, in turn, delayed the Company’s ability to complete its annual financial closing process and prepare and complete the Report in a timely manner. In addition, our management has had to devote significant time and attention to assessing the potential impact of COVID-19 and related events on our operations and financial position and to developing operational and financial plans to address those matters, which has diverted management resources from completing all of the tasks necessary to file the Report by its due date.
|Item 1.||IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS|
|Item 2.||OFFER STATISTICS AND EXPECTED TIMETABLE|
|Item 3.||KEY INFORMATION|
|A.||Selected Financial Data|
The following table sets forth our selected financial data for the periods ended and as of the dates indicated. The following selected historical financial data for our company should be read in conjunction with “Item 5. Operational and Financial Review and Prospects” and other information provided elsewhere in this annual report on Form 20-F and our financial statements and related notes. The selected financial data in this section is not intended to replace the financial statements and is qualified in its entirety thereby.
The selected statements of operations data for the years ended December 31, 2019, 2018, and 2017, and the selected balance sheet data as of December 31, 2019 and 2018, have been derived from our audited financial statements set forth elsewhere in this Annual Report on Form 20-F. The selected statements of operations data for the years ended December 31, 2016 and 2015, and the selected balance sheet data as of December 31, 2017, 2016 and 2015, have been derived from our audited financial statements not included in this Form 20-F.
Our financial statements included in this annual report were prepared in accordance with International Financial Reporting Standard, or the IFRS, as issued by the International Accounting Standards Board, and reported in NIS. This annual report contains conversions of NIS amounts into U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, for the purpose of the presentation of financial data for the period ending on December 31, 2019, all conversions from NIS to U.S. dollars and from U.S. dollars to NIS were made at a rate of 3.456 NIS to $1 U.S. dollar, the daily representative rate in effect as of December 31, 2019. No representation is made that the NIS amounts referred to in this annual report could have been or could be converted into U.S. dollars at any particular rate or at all.
|Year ended December 31,|
|NIS in thousands||Convenience translation into USD in thousands(2)|
|Statements of comprehensive loss data:(1)|
|Research and development expenses||10,736||9,397||19,423||72,056||68,645||19,863|
|Participation by the IIA and UNISEC||(2,830||)||(1,603||)||(646||)||(143||)||-||-|
|Research and development, net of participations expenses||7,906||7,794||18,777||71,913||68,645||19,863|
|Marketing, general and administrative expenses||3,397||4,106||4,879||5,154||9,706||2,808|
|Financial income (expenses), net||1,104||2,716||(10,895||(10,660||)||(30,843||)||(8,926||)|
|Loss from available-for-sale financial assets||5||6||6||-||-||-|
|Total comprehensive loss||(10,204||)||(9,190||)||(34,557||)||(87,727||)||(109,194||)||(31,596||)|
|Basic and Diluted net loss per share (NIS)||(0.1||)||(0.07||)||(0.17||)||(0.34||)||(0.33||)||(0.09||)|
|Weighted average number of shares outstanding used to compute basic and diluted loss per share (in thousands)||105,523||135,097||201,031||261,420||326,651||326,651|
|NIS in thousands||Convenience translation into USD in thousands(2)|
|Statement of financial position|
|Cash and cash equivalents||71,382||75,883||72,467||20,968|
|Rights of use assets||-||-||7,136||2,065|
|Property, plant and equipment||5,510||28,249||34,981||10,122|
|Other long term assets||880||740||510||148|
|Current maturities of lease liabilities||-||-||694||201|
|Liability in respect of government grants||10,300||14,643||14,812||4,286|
|Loan from others||-||94,360||123,780||35,816|
|Severance pay liability, net||83||82||89||26|
|Total shareholders’ equity||(56,252||)||(31,215||)||(65,053||)||(18,823||)|
|(1)||Diluted loss per share data is not presented because the effect of the exercise of our outstanding options is anti-dilutive.|
|(2)||Calculated using the exchange rate reported by the Bank of Israel for December 31, 2019, at the rate of one U.S. dollar per NIS 3.456.|
|B.||Capitalization and Indebtedness|
|C.||Reasons for the Offer and Use of Proceeds|
An investment in our securities involves a high degree of risk. We operate in a dynamic industry that involves numerous risks and uncertainties. You should carefully consider the factors described below, together with all other information contained in this annual report, including our consolidated financial statements and the related notes included elsewhere in this annual report, before deciding whether to invest in the securities. The following risks may adversely affect our business, financial condition, operating results and cash flows and cause the trading price of the securities to decline, and you could lose all or part of your investment.
Risks Related to Our Financial Position and Capital Requirements
We are a clinical stage biopharmaceutical company with a history of operating losses, are not currently profitable, do not expect to become profitable in the near future and may never become profitable.
We are a clinical stage biopharmaceutical company that was incorporated in 2003. Since our incorporation, we have primarily focused our efforts on research and development and clinical trials of our product candidate, M-001. M-001 is in clinical trials and has not yet been approved for commercial sale. We may not receive the necessary regulatory approvals to commercialize our product candidate. We are not profitable and have incurred losses since inception, principally as a result of research and development, clinical trials and general administrative expenses in support of our operations. We have not generated any revenue, expect to incur substantial losses for the foreseeable future and may never become profitable. For the years ended December 31, 2017, 2018 and 2019, we had net losses of $9,999, $25,384 and $31,596 thousands, respectively, and we expect such losses to continue for the foreseeable future. In addition, as of December 31, 2019, we had an accumulated deficit of approximately $92,690 thousands, and we expect to experience negative cash flow for the foreseeable future. As a result, we will ultimately need to generate significant revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability in the future. If M-001 fails in clinical trials or does not gain regulatory clearance or approval, or if M-001 does not achieve market acceptance, we may never become profitable. Our failure to achieve or maintain profitability, or substantial delays in achieving profitability, could negatively impact the value of the securities and our ability to raise additional financing. A substantial decline in the value of the securities would also affect the price at which we could sell them to secure future funding, which could dilute the ownership interest of current shareholders. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Accordingly, it is difficult to evaluate our business prospects. Moreover, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage company in highly regulated and competitive markets, such as the biopharmaceutical market, where regulatory approval and market acceptance of our products are uncertain. There can be no assurance that our efforts will ultimately be successful or result in revenues or profits.
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.
As of December 31, 2019, we had approximately $20,968 thousands in cash and cash equivalents, working capital of $15,672 thousands and an accumulated deficit of $92,690 thousands. As of December 31, 2019, we had sufficient cash and cash commitments to fund operations for at least twelve months if we do not raise additional capital. Since our inception, most of our resources have been dedicated to the development of M-001. In particular, we have expended and believe that we will continue to expend significant operating and capital expenditures for the foreseeable future developing M-001 and any future product candidate as well as preparing for the potential submission of applications towards licensure or marketing approval to relevant regulatory bodies, such as the United States Food and Drug Administration, or the FDA, and the European Medicines Agency, or the EMA, for M-001. These expenditures may include, but are not limited to, costs associated with research and development, manufacturing, conducting clinical trials, contracting CMOs, hiring additional management and other personnel, applying for regulatory approvals, acquisition of equipment, as well as commercializing any products approved for sale. Furthermore, we incur additional costs associated with operating as a public company in the United States. Because the outcome of our current Phase 3 clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates. We also expect to incur additional costs for the purpose of conducting our ongoing and potential future clinical trials.
As a result of these and other factors currently unknown to us, we will require additional funds, through public or private equity or debt financings or non-dilutive sources or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activities may harm our growth strategy, competitive position, quality compliance and financial condition.
Our future capital requirements depend on many factors, including:
|●||the scope, progress, results and costs of researching and developing M-001 and any future product candidate, and conducting preclinical and clinical trials;|
|●||the timing of, and the costs involved in, obtaining regulatory approvals for M-001 and any future product candidate;|
|●||the cost of commercialization activities, if any, of M-001 and any future product candidates approved for sale, including marketing, sales and distribution costs;|
|●||the cost of manufacturing M-001 and any future product candidate and any products we successfully commercialize;|
|●||our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;|
|●||the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;|
|●||the timing, receipt and amount of sales of, or royalties on, any future products;|
|●||the expenses needed to attract and retain skilled personnel; and|
|●||any product liability or other lawsuits related to any future products.|
Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for M-001 or any future product candidate or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize M-001 or any future product candidate.
We have entered into a finance contract with the European Investment Bank, or EIB, for the receipt of a loan of 24 million Euro and into a security agreement and creation of a first ranking floating charge over all assets of the Company in favor of EIB, and a breach of such finance contract or security agreement may cause EIB to exercise the pledge and materialize certain of our assets.
We entered into a finance contract, or the Finance Contract, with the European Investment Bank, or EIB, for the financing of up to 20 million Euro, which was extended to 24 million Euro, and up to 50% of the Company’s expected cost of developing and marketing our product candidate, M-001. The main provisions of the Finance Contract are described in this annual report. As of the date of this annual report, we have drawn down an amount of the loan equal to 24 million Euro.
We have also entered into a security agreement, or the Security Agreement, whereby we created a first ranking floating charge over all of our assets in favor of EIB, excluding assets and/or intellectual property rights subject to the license agreement with YEDA Research and Development Company Limited (“Yeda”). While intellectual property rights are excluded from the floating charge pledge, any breach of the Finance Contract or the Security Agreement may cause the EIB to exercise the floating charge pledge and to foreclose on certain of our assets at the time of such exercise.
Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring future indebtedness, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships, alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or any product candidate or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Risks Related to Development, Clinical Testing and Regulatory Approval of M-001 and Any Future Product Candidate
We have not yet commercialized any products, and we may never become profitable.
We currently have one product candidate, M-001, in Phase 3 clinical development and no products on the market or close to entering the market. We do not know when or if we will complete our product development efforts, obtain regulatory approval for M-001 or successfully commercialize M-001. Even if we are successful in developing M-001 or any product candidate that we may develop in the future (if any), we will not be successful unless such product gains market acceptance for appropriate indications at favorable reimbursement rates. The degree of market acceptance of these products will depend on a number of factors, including, but not limited to:
|●||the timing of regulatory approvals in the U.S. and other countries, and for the uses, we intend to pursue with respect to the commercialization of M-001 or any future product candidate;|
|●||the competitive environment;|
|●||the establishment and demonstration in, and acceptance by, the medical community of the safety and clinical efficacy of our product candidate and its potential advantages over other competitive products;|
|●||our ability to enter into supply agreements with health organizations and governments around the world for the supply of our product candidate or our ability to enter into strategic agreements with pharmaceutical and biopharmaceutical companies with strong marketing and sales capabilities;|
|●||the establishment of external, and potentially, internal, sales and marketing capabilities to effectively market and sell M-001 or any future product candidate in the United States, Israel, Europe and other jurisdictions;|
|●||the adequacy and success of our distribution, sales and marketing efforts; and|
|●||the pricing and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations and other plan administrators.|
Physicians, participants, third-party payors or the medical community in general may be unwilling to accept, utilize or recommend, and in the case of third-party payors, cover payment for M-001 or any future product candidate. As a result, we are unable to predict the extent of our future losses or the time required for us to achieve profitability, if at all. Even if we successfully develop one or more products, we may not become profitable.
We depend heavily on the success of our M-001. If we are unable to successfully complete our Phase 3 clinical trial for M-001 as and when expected and obtain marketing approvals for M-001, or if thereafter we fail to commercialize M-001 or experience significant delays in doing so, our business will be materially harmed.
We have invested a significant portion of our efforts and financial resources in the development of M-001. There remains significant risk that we will fail to successfully develop M-001 for any indication. We do not expect to have top line data from our pivotal clinical efficacy Phase 3 trial for M-001 available until the end of 2020, and there is no guarantee that the top line data will be available by then. The timing of the availability of such top-line data and the completion of our pivotal clinical efficacy Phase 3 trial is dependent in part on our ability to reach the statistically necessary number of laboratory confirmed influenza cases in order to complete the study. If we ultimately obtain favorable results from this Phase 3 trial of M-001, we intend to submit application(s) for marketing approval for M-001.
We may experience numerous unforeseen events during, or as a result of, our Phase 3 clinical trial of M-001, that could delay or prevent our ability to receive marketing approvals to commercialize M-001, including:
|●||Possible negative or inconclusive results, compelling us to conduct additional clinical trials or abandon product development programs;|
|●||Higher dropout rate of trial participants than anticipated;|
|●||Our third party contactors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner;|
|●||Regulators, institutional review board or independent ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site, or may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;|
|●||The cost of clinical trials of our product candidate may be greater than we anticipate;|
|●||The supply or quality of our product candidate or other materials necessary to conduct clinical trials may be insufficient or inadequate;|
|●||Our M-001 may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators, institutional review board or independent ethics committees to suspend or terminate the trial(s);|
The naturally occurring influenza attack rate may be lower than anticipated, thereby compelling us to increase the number of trial participants and/or extend the trial to an additional season, as per our flexible enrollment trial protocol design; and
|●||The potential impact of the COVID-19 pandemic.|
We may not develop additional product candidates other than M-001.
M-001 is currently our only product candidate in development. Other than M-001, we may not develop additional product candidates based on our research and know-how and we may never attempt to develop other peptide-based products. As a result, our business and future success may depend on our ability to obtain regulatory approvals of, and then successfully commercialize, only M-001.
We may never receive FDA regulatory approval for the performance of additional clinical trials in the U.S.
We entered into a pivotal clinical efficacy Phase 3 trial in Europe and a clinical trial agreement with the National Institute of Allergy and Infection Diseases (NIAID) for a Phase 2 clinical trial in the U.S. using M-001, for which the first participants were enrolled in 2018. In February 2020, we published the preliminary data regarding the Phase 2 clinical trial, and the clinical study report (CSR) was submitted to NIAID to the FDA in June, 2020. We intend, subject to the successful results of our Phase 3 clinical trial in Europe, to enter into discussions with the regulatory authorities regarding market approval of M-001 and to comply with the applicable requirements. The FDA, however, may require that we conduct additional clinical trials in the U.S. prior to providing market approval in the U.S. Although we believe that the previous approved preclinical and clinical trials we performed will serve as an adequate basis for future FDA regulated clinical trials in the U.S., we may not receive FDA approval to conduct Phase 3 or other clinical trials in the U.S. Failure to receive FDA approval to conduct Phase 3 or other clinical trials in the U.S. will materially reduce our target market and the future profitability of M-001, may have a material adverse effect on our business and could potentially cause us to cease operations. It is also possible that we may decide or that the FDA may require that we provide additional data and information and meet additional standards for receipt of approval. If this were to occur, the time and financial resources required for obtaining FDA approval for Phase 3 clinical trials, and complications and risks associated therewith, would likely increase. Moreover, while receipt of clinical trial approval by the FDA does not ensure the receipt of clinical trial approval in other countries, failure or delay in obtaining clinical trial approval by the FDA may have a negative effect on the regulatory process in other countries. Any failure or any delay or setback in obtaining clinical trial approval in the U.S. or in other countries would impair our ability to develop and commercialize M-001.
M-001 is subject to extensive regulation and may never obtain regulatory approval.
M-001 must satisfy rigorous standards of safety and efficacy before it can be approved for commercial use by the EMA or FDA or any other regulatory authorities for all or any of the indications for which it has undergone or is planned to undergo testing. The EMA, FDA and any other regulatory authorities have full discretion over this approval process. We may need to conduct significant additional research, including testing in animals and in humans, before we can file applications for product approval. Typically, in the pharmaceutical industry, there is a high rate of attrition for product candidates in preclinical testing and clinical trials. Satisfying EMA, FDA and any other regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. For example, a number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. In addition, delays or rejections may be encountered based upon additional government regulation, including any changes in legislation or EMA, FDA or any other regulatory policy, during the process of product development, clinical trials and regulatory reviews. Failure to obtain EMA, FDA or any other regulatory approval of M-001 in a timely manner or at all will severely undermine our business by delaying or halting commercialization of our products, imposing costly procedures, diminishing competitive advantages and reducing the number of saleable products and, therefore, corresponding product revenues.
M-001 and any product candidate we may develop in the future will remain subject to ongoing regulatory requirements even if we receive regulatory approval to market such product, and if we fail to comply with such requirements, we may not obtain such approvals or could lose those approvals that have been obtained, and the sales of any approved commercial products could be suspended.
Even if we receive regulatory approval to market M-001 and/or other product candidates, any such product will remain subject to extensive regulatory requirements, including requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, distribution and record keeping. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the uses for which the product may be marketed or the conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product, which could negatively impact us or our collaboration partners by reducing revenues or increasing expenses, and cause the approved product candidate not to be commercially viable. In addition, as clinical experience with a drug expands after approval, typically because it is used by a greater number and more diverse group of people after approval than during clinical trials, side effects and other problems may be observed over time after approval that were not seen or anticipated during pre-approval clinical trials or other studies. Any adverse effects observed after the approval and marketing of a product candidate could result in limitations on the use of, withdrawal of EMA, FDA or any other regulatory approval or withdrawal of any approved products from the marketplace. Absence of long-term safety data may also limit the approved uses of our products, if any. If we fail to comply with the regulatory requirements of the EMA, FDA and any other applicable regulatory authorities, or previously unknown problems with any approved commercial products, manufacturers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions or other setbacks, including, without limitation, the following:
|●||suspension or imposition of restrictions on the products, manufacturers or manufacturing processes, including costly new manufacturing requirements;|
|●||civil or criminal penalties, fines and/or injunctions;|
|●||product seizures or detentions;|
|●||import or export bans or restrictions;|
|●||voluntary or mandatory product recalls and related publicity requirements;|
|●||suspension or withdrawal of regulatory approvals;|
|●||total or partial suspension of production; and|
|●||refusal to approve pending applications for marketing approval of new products or supplements to approved applications.|
If we or our collaborators are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or adoption of new regulatory requirements or policies, marketing approval for our product candidates may be lost or cease to be achievable, resulting in decreased revenue from milestones, product sales or royalties, which would have a material adverse effect on our business, financial condition or results of operations.
If clinical trials for M-001 are prolonged or delayed, we would be unable to commercialize our M-001 on a timely basis, which would require us to incur additional costs and delay our receipt of any revenues from potential M-001 sales.
We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical trials that will cause us or any regulatory authority to delay or suspend those clinical trials or delay the analysis of data derived from them. A number of events, including any of the following, could delay the completion of our ongoing and planned clinical trials and negatively impact our ability to obtain regulatory approval for, and to market and sell, a particular product candidate:
|●||conditions imposed on us by the FDA or any applicable foreign regulatory authority regarding the scope or design of our clinical trials;|
|●||delays in recruiting and enrolling participants or volunteers into any potential future clinical trials;|
|●||delays in obtaining, or our inability to obtain, required approvals from institutional review boards or other reviewing entities at clinical sites selected for participation in our clinical trials;|
|●||insufficient supply or deficient quality of our product candidates or other materials necessary to conduct our clinical trials;|
|●||lower than anticipated retention rate of subjects and participants in clinical trials;|
|●||negative or inconclusive results from clinical trials, or results that are inconsistent with earlier results, that necessitate additional clinical studies;|
|●||serious and unexpected drug-related side effects experienced by subjects and participants in clinical trials; or|
|●||failure of our third-party contractors to comply with regulatory requirements or otherwise meet their contractual obligations to us in a timely manner.|
Clinical trials require sufficient participant enrollment, which is a function of many factors, including the size of the participant population, the nature of the trial protocol, the proximity of participants to clinical sites, the availability of effective treatments for the relevant disease and the eligibility criteria for the clinical trial. Delays in participant enrollment can result in increased costs and longer development times. The failure to enroll participants in a clinical trial could delay the completion of the clinical trial beyond our current expectations. In addition, the FDA or foreign applicable regulatory authorities could require us to conduct clinical trials with a larger number of subjects than we have projected for any of our product candidates. We may not be able to enroll a sufficient number of participants in a timely or cost-effective manner. Furthermore, enrolled participants may drop out of clinical trials, which could impair the validity or statistical significance of those clinical trials.
Prior to commencing clinical trials in the United States, we must submit an Investigational New Drug (IND) application to the FDA and the IND application must become effective.
We do not know whether additional clinical trials will begin as planned, will need to be restructured or will be completed on schedule, if at all. Delays in our clinical trials will result in increased development costs for M-001. In addition, if our clinical trials are delayed, our competitors may be able to bring products to market before we do and the commercial viability of M-001 or any other future candidates could be limited.
Clinical trials are very expensive, time-consuming and difficult to design and implement, and, as a result, we may suffer delays or suspensions in future trials which would have a material adverse effect on our ability to generate revenues
Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Regulatory authorities, such as the EMA and FDA, may preclude clinical trials from proceeding. Additionally, the clinical trial process is time-consuming, failure can occur at any stage of the trials and we may encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including:
|●||unforeseen safety issues;|
|●||determination of proper dosing;|
|●||lack of effectiveness or efficacy during clinical trials;|
|●||failure of our contract manufacturers or inability of our in-house facility to manufacture our product candidates in accordance with cGMP;|
|●||failure of third party suppliers to perform final manufacturing steps for the drug substance;|
|●||slower than expected rates of participant recruitment and enrollment;|
|●||lack of healthy volunteers and participants to conduct trials;|
|●||inability to monitor participants adequately during or after treatment;|
|●||failure of third party contract research organizations to properly implement or monitor the clinical trial protocols;|
|●||failure of the FDA, institutional review boards, or IRBs, or other regulatory bodies to approve our clinical trial protocols;|
|●||inability or unwillingness of medical investigators and IRBs to follow our clinical trial protocols; and|
|●||lack of sufficient funding to finance the clinical trials.|
In addition, we or regulatory authorities may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the regulatory authorities find deficiencies in our regulatory submissions or the conduct of these trials. Any suspension of clinical trials will delay possible regulatory approval, if any, and adversely impact our ability to develop products and generate revenue.
Specifically, we are conducting a phase 3 clinical trial in Europe. If we fail to meet the obligations and planned time table for the performance of this trial, either due to delays caused by factors that are not in our control or that are caused by third parties, we may suffer delays in the commencement of the second cohort of the clinical trial. In addition, other factors, such as delays in the construction of the mid-sized manufacturing facility and the manufacturing of M-001 batches for the clinical trial, may also delay or jeopardize the completion of the planned clinical trial.
Although we are currently conducting a pivotal clinical efficacy Phase 3 trial in Europe, we have never conducted a Phase 3 clinical trial in the U.S., and may be unable to do so for M-001 or any other future product candidates we may develop.
We have never conducted a Phase 3 clinical trial in the U.S, but we are currently conducting a clinical trial in Europe.
The submission of a successful clinical trial plan, or IND application, and conducting of later-stage clinical trials are complicated processes. As an organization, we have conducted only Phase 1 and Phase 2 clinical trials in Israel in accordance with Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable Israeli legislation, and a Phase 2b clinical trial in Europe, as part of the UNISEC consortium, and we are currently in the process of conducting a pivotal clinical efficacy phase 3 trial in Europe. We also have had limited interactions with the FDA and have not discussed our proposed future Phase 3 clinical trial designs or implementation with the FDA. Consequently, we may be unable to successfully and efficiently execute and complete our planned and ongoing clinical trials in a way that leads to the approval of Phase 3 clinical trials for M-001 in the U.S., if such clinical trials are required. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of M-001. Failure to commence or complete, or delays in our planned clinical trials, would prevent us from or delay us in developing and commercializing M-001 or any other product candidate we are developing.
We may be forced to abandon development of M-001 altogether, which will significantly impair our ability to generate product revenues.
The results of any clinical trial may not meet any or all of the trial’s endpoints. Further, success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of later clinical trials may not replicate the results of prior clinical trials and preclinical testing. The clinical trial process may fail to demonstrate that M-001 is safe for humans and effective for indicated uses. Any such failure may cause us to abandon M-001 and may delay development of other product candidates. Any delay in, or termination or suspension of, our clinical trials will delay the requisite filings with the relevant foreign regulatory authorities and, ultimately, our ability to commercialize M-001 and generate product revenues. If the clinical trials do not support our drug product claims, the completion of development of M-001 may be significantly delayed or abandoned, which would materially adversely affect our business, financial condition or results of operations.
Positive results in the previous clinical trials of M-001 may not be replicated in future clinical trials, which could result in development delays or a failure to obtain marketing approval.
Positive results in the previous clinical trials of M-001 may not be predictive of similar results in future clinical trials. Also, interim results during a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biopharmaceutical industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in early-stage development. Accordingly, the results from the completed preclinical studies and clinical trials for M-001 may not be predictive of the results we may obtain in later stage trials. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials. Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain FDA or European Medicines Agency, or other applicable regulatory agency, approval for their products.
If we experience delays in the enrollment of participants in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for M-001 or any future product candidate. Participant enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the population eligible to participate, the proximity of potential participants to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and participants’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. If we fail to enroll and maintain the number of participants for which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder to demonstrate that the product candidate being tested in such clinical trial is safe and effective. Additionally, enrollment delays in our clinical trials may result in increased development costs for M-001 and any future product candidate, which would cause our value to decline and limit our ability to obtain additional financing. Our inability to enroll a sufficient number of participants for any of our future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.
If we are not successful in discovering, developing and commercializing additional product candidates, our ability to expand our business and achieve our strategic objectives may be impaired.
Although all of our efforts to date have been, and a substantial amount of our efforts in the future are expected to be focused on the development of M-001, another possible future element of our strategy may include identifying and testing additional compounds that are optimized for peptide-based products. Research programs designed to identify additional product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development or commercialization for many reasons, including the following:
|●||the research methodology used may not be successful in identifying potential product candidates;|
|●||competitors may develop alternatives that render our product candidates obsolete;|
|●||a product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;|
|●||a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and|
|●||a product candidate may not be accepted as safe and effective by regulatory authorities, participants, the medical community or third-party payors.|
If we are unable to identify suitable compounds for preclinical and clinical development, we may not be able to obtain sufficient product revenues in future periods, which likely would result in significant harm to our financial position and adversely impact our ADS price.
Natural disasters, public health and other states of emergency, such as the novel coronavirus outbreak, could adversely impact our business, including our Phase 3 trial for M-001.
Natural disasters, public health and other states of emergency affecting the countries in which we operate, or the global economic markets may have an adverse impact on our business. For example, in December 2019, a strain of novel COVID-19 virus surfaced in Wuhan, China and, in January 2020, the World Health Organization (WHO) declared the novel COVID-19 virus outbreak a “Public Health Emergency of International Concern” and the U.S. Department of State instructed travelers to avoid all nonessential travel to China. Since then, the WHO declared the novel COVID-19 virus as a pandemic and many countries, including the U.S., Israel, Japan, the United Kingdom and many other countries have imposed various measures designed to minimize the spread of the COVID-19 virus, such as restrictions on international travel, domestic commute, public gatherings, employment and business operations, as well as limitations on the presence of employees in any work place at a given time. Such measures, designed to limit the spread of the COVID-19 virus, may impact our operations, including in connection with the conduct of clinical trials. We will continue to take appropriate and feasible steps to enable us to publish results of this trial by the end of this year. However, we cannot guarantee that the COVID-19 virus pandemic will not delay the availability of the top line results from the trial currently scheduled to be received by the end of this year.
The clinical portion of the Phase 2 trial conducted by the U.S. National Institutes of Health (NIH) in the U.S. is complete, and data was published by the NIH in January 2020. The NIH, which was responsible for creating and publishing the Clinical Study Report (CSR), completed it in June 2020. We do not know if and to what extent the pandemic is impacting trial’s lead investigator’s efforts to create and publish a manuscript
Also, as governments and regulators focus on containing the recent COVID-19 virus outbreak, and prioritize their work and resources accordingly, there is no guarantee that interruptions or delays in the operations of the U.S. Food and Drug Administration (FDA) will not impact the review and approval timelines for the New Drug Application (NDA) we may submit for M-001.
Lastly, at this point in time, there is significant uncertainty relating to the ongoing effect of the novel coronavirus on our business and, while we maintain business continuity plans, they might not adequately protect us, travel restrictions and other restrictions may remain or worsen, all of which would have a negative impact on our business, financial condition and results of operations.
Reimbursement may not be available for M-001 (if and when approved for commercial sale) or any future product candidates, which could make it difficult for us to sell such products profitably.
Market acceptance and sales of M-001 or any future product candidate will depend on coverage and reimbursement policies and may be affected by healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which products they will pay for and establish reimbursement levels. We cannot be sure that coverage and reimbursement will be available for our products. We also cannot be sure that the amount of reimbursement available, if any, will not reduce the demand for, or the price of, our products. If reimbursement is not available or is available only at limited levels, we may not be able to successfully compete through sales of our proposed products.
We are subject to extensive and costly government regulation.
The product we are developing is, and any products we may develop in the future will be, subject to extensive and rigorous domestic government regulation, including with respect to Europe, regulation by the EMA and other relevant regional, national and local authorities, with respect to Israel, regulation by the Israeli Ministry of Health, and with respect to the U.S., regulation by the FDA, the CMS, other divisions of the U.S. Department of Health and Human Services, including its Office of Inspector General, the U.S. Department of Justice, the Departments of Defense and Veterans Affairs and, to the extent our products are paid for directly or indirectly by those departments, state and local governments and their respective foreign equivalents. The FDA regulates the research, development, preclinical and clinical testing, manufacture, safety, effectiveness, record keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, and import and export of pharmaceutical products under various regulatory provisions. M-001 or any product candidates we may develop, which will be tested and marketed abroad, will be subject to extensive regulation by foreign governments, whether or not we have obtained EMA, the Israeli Ministry of Health’s approval and/or FDA approval for M-001 or any other given product and its uses. Such foreign regulation may be equally or more demanding than corresponding European, Israeli or U.S. regulation.
Government regulation substantially increases the cost and risk of researching, developing, manufacturing, and selling products. Our failure to comply with these regulations could result in, by way of example, significant fines, criminal and civil liability, product seizures, recalls, withdrawals, withdrawals of approvals, and exclusion and debarment from government programs. Any of these actions, including the inability of our proposed products to obtain and maintain regulatory approval, would have a materially adverse effect on our business, financial condition, results of operations and prospects.
Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, which may result in necessary changes to clinical trial protocols, which could result in increased costs to us, delay our development timeline or reduce the likelihood of successful completion of our clinical trials.
Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, as a result of which we may need to amend clinical trial protocols. Amendments may require us to resubmit our clinical trial protocols to IRBs for review and approval, which may adversely affect the cost, timing and successful completion of a clinical trial. If we experience delays in the completion of, or if we terminate, any of our clinical trials, the commercial prospects for any affected product candidate would be harmed and our ability to generate product revenue would be delayed, possibly materially.
If we acquire or license additional technologies or product candidates, we may incur a number of additional costs, have integration difficulties and/or experience other risks that could harm our business and results of operations.
We may acquire and in-license additional product candidates and technologies. Any product candidate or technologies we in-license or acquire will likely require additional development efforts prior to commercial sale, including extensive preclinical or clinical testing, or both, and approval by the FDA and applicable foreign regulatory authorities, if any. All product candidates are prone to risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate or product developed based on in-licensed technology will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot assure you that any product candidate that we develop based on acquired or licensed technology that is granted regulatory approval will be manufactured or produced economically, successfully commercialized or widely accepted or competitive in the marketplace. Moreover, integrating any newly acquired or in-licensed product candidates could be expensive and time-consuming. If we cannot effectively manage these aspects of our business strategy, our business may not succeed.
Risks Related to Our Business and Industry
We are a clinical stage biopharmaceutical company with no approved products, which makes it difficult to assess our future viability.
We are a clinical stage biopharmaceutical company with a limited operating history. We have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in rapidly evolving fields, particularly in the pharmaceutical area. For example, to execute our business plan, we will need to successfully:
|●||execute product candidate development activities;|
|●||obtain required FDA and applicable foreign regulatory approvals for the development and commercialization of any product candidate;|
|●||maintain, leverage and expand our intellectual property portfolio;|
|●||build and maintain robust sales, distribution and marketing capabilities, either on our own or in collaboration with strategic partners;|
|●||gain market acceptance for our products;|
|●||develop and maintain any strategic relationships we elect to enter into; and|
|●||manage our spending as costs and expenses increase due to drug discovery, preclinical development, clinical trials, regulatory approvals and commercialization.|
If we are unsuccessful in accomplishing these objectives, we may not be able to develop product candidates, raise capital, expand our business or continue our operations.
The members of our management team and certain consultants are important to the efficient and effective operation of our business, and we may need to add and retain additional leading experts. Failure to retain our management and consulting team and add additional leading experts could have a material adverse effect on our business, financial condition or results of operations.
Our executive officers, our management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of our business, particularly Dr. Ron Babecoff, our Chief Executive Officer, and Dr. Tamar Ben-Yedidia, our Chief Scientific Officer. Our failure to retain the personnel that have developed much of the technology we utilize today, or any other key management and technical personnel, could have a material adverse effect on our future operations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical, and management personnel, among others, to continue the development and commercialization of our current and future products.
We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.
We will compete against fully integrated pharmaceutical and biopharmaceutical companies and smaller companies that are collaborating with pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than we do, and have substantially greater financial resources than we do, as well as significantly greater experience in:
|●||developing immuno-modulating products (including vaccines);|
|●||undertaking preclinical testing and human clinical trials;|
|●||obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals of drugs;|
|●||formulating and manufacturing drugs; and|
|●||launching, marketing and selling drugs.|
Generally, our competitors currently include large fully integrated pharmaceutical companies such as Sanofi-Pasteur, GlaxoSmithKline, Seqirus (Ex bioCSL and Novartis flu vaccines), AstraZeneca and Abbott (Solvay) as well as companies and academic research institutes in various developmental stages attempting to develop improved influenza vaccines, such as AltImmune, FluGen, Icahn School of Medicine at Mount Sinai, Imutex, Medicago, National Institute of Allergy and Infectious Diseases, Vaxart, and Vivaldi Biosciences. If our competitors develop and commercialize products faster than we do, or develop and commercialize products that are superior to our product candidates, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing and commercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors may also develop products or technologies that are superior to those we are developing, and render our product candidate obsolete or non-competitive. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.
The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competition in the biotechnology and biopharmaceutical industry is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:
|●||attract parties for acquisitions, joint ventures or other collaborations;|
|●||license proprietary technology that is competitive with M-001;|
|●||attract funding; and|
|●||attract and hire scientific talent and other qualified personnel.|
We may be subject to legal proceedings and/or to product liability lawsuits.
We could incur substantial costs in connection with product liability claims relating to our current or potential product candidates. We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits, which may result in substantial losses.
M-001 or any future product candidate could cause adverse events, including injury, disease or adverse side effects. These adverse events may not be observed in clinical trials, but may nonetheless occur in the future. If any of these adverse events occur, they may render M-001 or any future product candidate ineffective or harmful in some participants, and any future sales would suffer, materially adversely affecting our business, financial condition and results of operations.
In addition, potential adverse events caused by M-001 or any future product candidate could lead to product liability lawsuits. If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit the marketing and commercialization of any future product. Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale of pharmaceutical products. We may not be able to avoid product liability claims. For example, changes in laws outside the U.S. are expanding our potential liability for injuries that occur during clinical trials. Product liability insurance is expensive, subject to deductibles and coverage limitations, and may not be available in the amounts that we desire for a price we are willing to pay. Product liability insurance for the pharmaceutical and biotechnology industries is generally expensive, if available at all. If, at any time, we are unable to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to clinically test, market or commercialize our product candidate. A successful product liability claim brought against us in excess of our insurance coverage, if any, may cause us to incur substantial liabilities, and, as a result, our business, liquidity and results of operations would be materially adversely affected. In addition, the existence of a product liability claim could affect the market price of the ADSs.
If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements, and insider trading, our business may experience serious adverse consequences.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures: to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state health-care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Our board of directors adopted a Code of Ethics. However, it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
In addition, during the course of our operations, our directors, executives and employees may have access to material, non-public information regarding our business, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to be brought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such a claim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks important to the success of our business.
We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results of operations and financial condition.
We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentially rapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capital resources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, train and manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational, financial and management controls, reporting systems and procedures, and to attract and retain sufficient talented personnel. If we are unable to scale up and implement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not be able to successfully commercialize our product candidate or future products. Failure to attract and retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, the management, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel and to improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on our business, results of operations and financial condition.
If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss or damage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtaining adequate directors’ and officers’ liability insurance.
Our business will expose us to potential liability that results from risks associated with conducting clinical trials of M-001 and any future product candidate. We are currently conducting a Phase 3 clinical trial in several countries in Europe. The clinical trial liability insurance is subject in each country to local laws and ranges between $1,150 to $19,000 thousands per each country. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects, financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. The current and planned insurance coverages may only mitigate a small portion of a substantial claim against us.
In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claims made against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers and directors to manage the Company.
Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital.
In recent years, the U.S. and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financial crises as well as a variety of other factors including, among other things, the current COVID-19 pandemic, extreme volatility in security prices, severely diminished liquidity and credit availability, ratings downgrades of certain investments and declining valuations of others. The U.S. and certain foreign governments have taken unprecedented actions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actions taken by these governments are not successful, the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed, on a timely basis and on acceptable terms or at all.
Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately comply with federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results of operations and financial condition.
Although our ordinary shares were traded on the Tel Aviv Stock Exchange and we filed public reports in Israel in the past, our current management team has limited experience managing and operating a company publicly traded in the U.S. Failure to comply or adequately comply with any laws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results of operation or financial condition and could result in delays in achieving the development of an active and liquid trading market for the ADSs.
We may be subject to extensive environmental, health and safety, and other laws and regulations in multiple jurisdictions.
Our business involves the controlled use, directly or indirectly through our service providers, of hazardous materials, various biological compounds and chemicals; therefore, we, our agents and our service providers may be subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges, noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. The risk of accidental contamination or injury from these materials cannot be eliminated. If an accident, spill or release of any regulated chemicals or substances occurs, we could be held liable for resulting damages, including for investigation, remediation and monitoring of the contamination, including natural resource damages, the costs of which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials and chemicals. Although we maintain workers’ compensation insurance to cover the costs and expenses that may be incurred because of injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. Additional or more stringent federal, state, local or foreign laws and regulations affecting our operations may be adopted in the future. We may incur substantial capital costs and operating expenses and may be required to obtain consents to comply with any of these or certain other laws or regulations and the terms and conditions of any permits or licenses required pursuant to such laws and regulations, including costs to install new or updated pollution control equipment, modify our operations or perform other corrective actions at our respective facilities or the facilities of our service providers. We have undergone inspections and obtained approvals from various governmental agencies though limited our experience may be.
Governments may impose strict price controls, which may adversely affect our revenues, if any.
In some countries, including the countries comprising the European Union, or the EU, the pricing of pharmaceuticals and certain other therapeutics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
Risks Related to Dependence on Third Parties
M-001 is based on an exclusive license from Yeda, and we could lose our rights to this license if a dispute with Yeda arises or if we fail to comply with the financial and other terms of the license.
We license our core intellectual property from Yeda under an exclusive license agreement, pursuant to which we received an exclusive worldwide license for the development, manufacturing, use, marketing, sale, distribution and importing of products that are directly or indirectly based on certain patents and patent applications owned by Yeda and/or certain other intellectual property to be developed by Yeda and related thereto. Pursuant to the terms of the license agreement, unless earlier terminated in accordance with the provisions thereof, the license agreement will expire upon the later of: (i) the expiration date of the last patent licensed thereunder; or (ii) in the event only one product will be developed and/or commercialized by utilizing the licensed intellectual property, 15 years from the date of first commercial sale of such product in either the U.S or Europe, following receipt of New Drug Approval from the FDA or equivalent approval in any European country for such product; or (iii) in the event that more than one product will be developed and/or commercialized by utilizing the licensed intellectual property, following the receipt of New Drug Approval from the FDA or equivalent approval in any European country for such product, the expiry of a 20 year period during which there shall not have been a sale of any such products in either the U.S. or any country in Europe. However, Yeda is entitled to terminate the exclusivity rights or to terminate the license agreement with 30 days prior written notice to us if: (a) no commercial sales of at least one product are initiated during six months after receipt of an FDA or similar regulatory approval for commercial marketing; or (b) no sales of any products are reported for over a year after sales of a product have commenced. Yeda and/or the Company (where applicable) will also be entitled to terminate the license agreement by written notice: (x) in the event either party materially breaches any of its obligations under the agreement, provided that such material breach is uncurable or, if curable, is not cured by us within 30 days (or in the case of failure by us to make payments due to Yeda in connection with the license agreement, 10 days) from receipt of notice of such breach; or (y) in the event a temporary or permanent liquidator is appointed for our Company, a resolution is passed to voluntarily wind up our Company, or an order or act is granted for the winding up of our Company, provided that if such order or act was initiated by any third party, such order or act is not cancelled within 120 days; or (z) we contest the validity of one of the patents registered by Yeda. Upon termination of the license agreement, all rights and documents will be returned to Yeda, and other than in the case of expiration pursuant to (i) through (iii) above we will be required to grant Yeda an exclusive world-wide irrevocable license to our know-how and products which are based on the intellectual property licensed from Yeda or that were discovered or occur or arise from the performance of our development work pursuant to the license agreement. In the event of termination of the license agreement due to any reason other than (a), (b) or (x) through (z) above, we will be entitled to receive royalty payments equal to 25% of the net proceeds received by Yeda from the grant to third parties, within the five years following the termination of the license agreement, of a license or other rights which include our developments, up to the aggregate amount of research funds actually expended by us for development. If Yeda terminates the license agreement, or licenses to a third party the intellectual property it had licensed to us pursuant to this license agreement, or if any dispute arises with respect to our arrangement with Yeda, such dispute may disrupt our operations and would likely have a material and adverse impact on us if resolved in a manner that is unfavorable to us. Our current product candidate is based on the intellectual property licensed under the license agreement, and if the license agreement is terminated prior to its expiration, it would have a material adverse effect on our business, prospects and results of operations.
We rely on third parties to conduct our clinical trials and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials
We do not independently conduct our Phase 3 clinical trial of M-001 in Europe. We rely on third parties such as contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to perform this function. We expect to continue to rely on such third parties in conducting our clinical trials of M-001, and expect to rely on these third parties to conduct clinical trials of any other product candidate that we develop. Any of these third parties may terminate their engagement with us at any time. If we need to enter into alternative arrangements, it would delay our product development activities.
Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. We remain responsible for ensuring that our clinical trial is conducted in accordance with the requirements of the relevant regulator, and failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, third parties that we rely on for our clinical development activities may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for M-001. Our product development costs will increase if we experience delays in testing or obtaining marketing approvals.
Use of third parties to manufacture our M-001 may increase the risk that we will not have sufficient quantities of M-001 at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
In August 2018, and as planned, we relocated to our mid-sized manufacturing facility in Jerusalem, with potential capacity to annually produce up to forty million doses of M-001 for Phase 3 clinical trial supply or commercial supply. Our production line is still under construction. We currently rely on a third party CMO for the supply of M-001 until the completion of our independent production line.
Reliance on a third party CMO entails risks, including:
|●||Reliance on third party for regulatory compliance and quality assurance;|
The possible breach of the manufacturing agreement by the third party;
|●||The possible failure to manufacture sufficient quantities of M-001 due to reasons outside of the reasonable control of the third party;|
|●||The possible misappropriation of our proprietary information, including our know-how; and|
|●||The possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.|
Our CMO may not be able to comply with current cGMP regulations or similar regulatory requirements outside of the U.S. Our failure, or the failure of our third party manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.
Failure to complete the construction of our independent production line in our new facility, in a timely manner or at all, will prolong our dependency on third parties for the manufacturing of M-001 and may result in insufficient quantities of M-001.
In August 2018 we moved to our new facility in Jerusalem. Construction of our independent production line of M-001 for the purpose of future clinical trials and commercialization is complete, and we plan to be ready to produce commercial batches in 2021, subject to the successful completion of the pivotal clinical efficacy Phase 3 trial we are currently conducting in Europe. If we fail to complete our production line in a timely manner or at all, we will enter into agreements with CMOs or expand our existing agreement to manufacture M-001 for the purpose of conducting future clinical trials, as the case may be, and commercialization. If we fail to expand our existing manufacturing agreement and/or enter into additional agreements, or if our partners do not manufacture adequate amounts of M-001 for reasons that are not within our control, we may not possess adequate amounts of M-001 for our anticipated purposes. Insufficient amounts of M-001 may cause delays in our clinical development and commercialization of M-001.
We may not obtain the necessary materials for the performance of additional clinical trials in the U.S. or other countries around the world.
Some of our clinical trials involve obtaining materials and information that may not currently be in our possession and that we rely on suppliers and manufacturers to provide. Specifically, as an example, we were not able to satisfy the FDA’s request for information regarding the H5N1 vaccine (including information as to manufacturing, dosage, formulation, etc.) required for our previously contemplated Phase 2 clinical trial in the U.S., and as a result we elected to convert our IND application submitted in June 2013 into a Drug Master File. It is possible that the FDA or any other relevant regulatory body will request us to provide materials or information that are not in our possession at that time before approving any proposed clinical trials.
Risks Related to Our Intellectual Property
If we fail to adequately protect, enforce or secure rights to the patents which we own or that were licensed to us or any patents we may own or license in the future, the value of our intellectual property rights would diminish and our business and competitive position would suffer.
Our success, competitive position and future revenues, if any, depend in part on our ability to obtain and successfully leverage intellectual property covering our products and product candidates, know-how, methods, processes and other technologies, to protect our trade secrets, to prevent others from using our intellectual property and to operate without infringing the intellectual property rights of third parties.
The risks and uncertainties that we face with respect to our intellectual property rights include, but are not limited to, the following:
|●||the degree and range of protection any patents will afford us against competitors;|
|●||the patents concerning our business activities were not registered in all countries and therefore our patent protection may be lacking in some territories;|
|●||if and when patents will be issued;|
|●||whether or not others will obtain patents claiming aspects similar to those covered by our own or licensed patents and patent applications;|
|●||we may be subject to interference proceedings;|
|●||we may be subject to opposition or post-grant proceedings in foreign countries;|
|●||any patents that are issued may not provide meaningful protection;|
|●||we may not be able to develop additional proprietary technologies that are patentable;|
|●||other companies may challenge patents licensed or issued to us or our customers;|
|●||other companies may independently develop similar or alternative technologies, or duplicate our technologies;|
|●||other companies may design around technologies we have licensed or developed;|
|●||enforcement of patents is complex, uncertain and expensive; and|
|●||we may need to initiate litigation or administrative proceedings that may be costly whether we win or lose.|
If patent rights covering our products and methods are not sufficiently broad, they may not provide us with any protection against competitors with similar products and technologies. Furthermore, if the United States Patent and Trademark Office, or the USPTO, or any foreign patent office issue patents to us or our licensors, others may challenge the patents or design around the patents, or the patent office or the courts may invalidate the patents. Thus, any patents we own or license from or to third parties may not provide any protection against our competitors.
We cannot be certain that patents will be issued as a result of any pending applications, and we cannot be certain that any of our issued patents or patents licensed from Yeda (or any other third-party in the future) will give us adequate protection from competing products. For example, issued patents, including the patents licensed by us, may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope.
In addition, since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions or to file patent applications covering those inventions.
It is also possible that others may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so.
In addition to patents and patent applications, we depend upon proprietary know-how to protect our proprietary technology. We require our employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information to any other parties. We also require our employees and consultants to disclose and assign to us their ideas, developments, discoveries and inventions. These agreements may not, however, provide adequate protection for our know-how or other proprietary information in the event of any unauthorized use or disclosure.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.
Costly litigation may be necessary to protect our intellectual property rights and we may be subject to claims alleging the violation of the intellectual property rights of others.
We may face significant expense and liability as a result of litigation or other proceedings relating to patents and other intellectual property rights of others. In the event that another party has also filed a patent application or been issued a patent relating to an invention or technology claimed by us in pending applications, we may be required to participate in an interference proceeding declared by the USPTO to determine priority of invention, which could result in substantial uncertainties and costs for us, even if the eventual outcome is favorable to us. We, or our licensors, also could be required to participate in interference proceedings involving issued patents and pending applications of another entity. An adverse outcome in an interference proceeding could require us to cease using the technology or to license rights from prevailing third parties.
The cost to us of any patent litigation or other proceeding relating to our licensed patents or patent applications, even if resolved in our favor, could be substantial and could divert management’s resources and attention. Our ability to enforce our patent protection could be limited by our financial resources, and may be subject to lengthy delays. A third party may claim that we are using inventions claimed by their patents and may go to court to stop us from engaging in our normal operations and activities, such as research, development and the sale of any future products. Such lawsuits are expensive and would consume time and other resources. There is a risk that a court will decide that we are infringing the third party’s patents and will order us to stop the activities claimed by the patents, redesign our products or processes to avoid infringement or obtain licenses (which may not be available on commercially reasonable terms or at all). In addition, there is a risk that a court will order us to pay the other party damages for having infringed their patents.
Moreover, there is no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed by the patent, or that such a license, if made available to us, could be acquired on commercially acceptable terms. In addition, third parties may, in the future, assert other intellectual property infringement claims against us with respect to our product candidate, technologies or other matters. Any claims of infringement asserted against us, whether or not successful, may have a material adverse effect on us.
We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual property to compete against us.
Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure of confidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek to enter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize or independently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with M-001 or any future product candidates. If a dispute arises, a court may determine that the right belongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary know-how that we seek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ, we still face the risk that:
|●||these agreements may be breached;|
|●||these agreements may not provide adequate remedies for the applicable type of breach;|
|●||our proprietary know-how will otherwise become known; or|
|●||our competitors will independently develop similar technology or proprietary information.|
International patent protection is particularly uncertain, and if we are involved in opposition proceedings in foreign countries, we may have to expend substantial sums and management resources.
Patent law outside the United States may be different than in the United States. Further, the laws of some foreign countries, such as China where certain patents owned or licensed by us were granted, may not protect our intellectual property rights to the same extent as the laws of the United States, if at all. A failure to obtain sufficient intellectual property protection in any foreign country could materially and adversely affect our business, results of operations and future prospects. Moreover, we may participate in opposition proceedings to determine the validity of our foreign patents or our competitors’ foreign patents, which could result in substantial costs and divert management’s resources and attention. Additionally, due to uncertainty in patent protection law, we have not filed patent applications in many countries where significant markets exist.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
|●||others may be able to make compounds that are the same as or similar to M-001 or any future product candidate but that are not covered by the claims of the patents that we own or have exclusively licensed;|
|●||we or our licensors or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;|
|●||we or our licensors or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;|
|●||others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;|
|●||it is possible that our pending patent applications will not lead to issued patents;|
|●||issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;|
|●||our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;|
|●||we may not develop additional proprietary technologies that are patentable; and|
|●||the patents of others may have an adverse effect on our business.|
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives a patent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if the employee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The Israeli Supreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation, does not rule out the right of the employee to claim their right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our future revenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectual property, which in turn could impact our future profitability.
Risks Related to Our Operations in Israel
Potential political, economic and military instability in the State of Israel, where our senior management, our head executive office, research and development, and manufacturing facilities are located, may adversely affect our results of operations.
Our head executive office, our research and development facilities, our current manufacturing facility, as well as some of our clinical sites are located in Israel. Our officers and most of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. In the last decade, there have been escalations in violence between Israel, on the one hand, and Hamas, the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missiles being fired from Gaza into southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel. Our offices and laboratory, located in Jerusalem, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities and towns from Gaza sporadically since 2006, with escalations in violence during which there were a substantially larger number of rocket and missile attacks aimed at Israel. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Further, in the past, the State of Israel and Israeli companies were subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business.
Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.
Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups, which may include the call-up of members of our management. Such disruption could materially adversely affect our business, financial condition and results of operations.
Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws, against us, or our executive officers and directors or asserting U.S. securities laws claims in Israel.
We are incorporated in Israel. Most of our current executive officers and directors reside in Israel and most of our assets reside outside of the United States. Therefore, a judgment obtained against us or any of these persons in the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It may also be difficult to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel.
Even if an Israeli court agrees to hear such a claim, it may determine that Israeli, and not U.S., law is applicable to the claim. Under Israeli law, if U.S. law is found to be applicable to such a claim, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would be governed by Israeli law. There is little binding case law in Israel addressing these matters.
Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective of their agreements with us, which in turn could impact our future profitability.
We generally enter into non-competition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.
Your rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S. corporations.
Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.-based corporations. In particular, a shareholder of an Israeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and other shareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or other power towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. Since Israeli corporate law underwent extensive revisions approximately 15 years ago, the parameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of each class of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of the issued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, except that if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter the consideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).
Our articles of association provide that our directors (other than external directors) are elected to terms, with only two or three of our directors (other than external directors) to be elected each year, in each case for a term of three years. Our 2015 annual general meeting approved the staggering and extension of the term of our board members. The staggering of the terms of our directors prevents a potential acquirer from readily replacing our entire board of directors at a single annual general shareholder meeting. This could prevent an acquirer from seeking to effect a change in control of our company by proposing an acquisition proposal offer opposed by our board, even if beneficial to our shareholders.
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred.
These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.
The Israeli government grants that we received require us to meet several conditions and may restrict our ability to manufacture some of our product candidates and transfer relevant know-how outside of Israel and require us to satisfy specified conditions.
We received Israeli government grants for certain research and development expenditures. The terms of these grants may require us to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel. In addition, under the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984, or the Innovation Law, and related rules and regulations promulgated thereunder to which we are subject due to our receipt of grants from the Israeli Innovations Authority, or IIA (formerly known as the Office of the Chief Scientist of the Israeli Ministry of Economy, or OCS), a recipient of IIA grants such as us must report to the IIA regarding any change of control or any change in the holding of the means of control of our Company which transforms any non-Israeli citizen or resident into an “interested party”, as defined in the Innovation Law, in our Company, and in the latter event, the non-Israeli citizen or resident shall execute an undertaking in favor of the IIA, in a form provided under the IIA guidelines.
Because a certain portion of our expenses is incurred in currencies other than the U.S. Dollar, our results of operations may be harmed by currency fluctuations and inflation.
Our reporting and functional currency is the NIS, but some portion of our clinical trials and operational expenses are in U.S. Dollars and Euros. As a result, we are exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us from adverse effects.
We received Israeli government grants towards some of our research and development activities. The terms of these grants may require us to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel. We may be required to pay penalties in addition to the repayment of the grants. Such grants may be terminated or reduced in the future, which would increase our costs.
Our research and development efforts have been financed, partially, through grants that we received from the IIA, formerly known as the OCS. We therefore must comply with the requirements of the Innovation Law and related rules and guidelines, including, but not limited to, paying royalties to the IIA on income generated from the sale of products and related services associated with research and development programs funded by the IIA. As of December 31, 2019, we received $5.5 million in IIA grants.
The discretionary approval of an IIA committee will be required for any transfer to third parties outside of Israel of know-how related to M-001, which has been developed with IIA funding. We may not receive the required approvals should we wish to transfer this technology, manufacturing and/or development outside of Israel in the future. We may be required to pay penalties and/or additional payments for such activities, such as with respect to a transfer of IIA funded know-how abroad, payment of a redemption fee calculated according to the formulas provided in the IIA’s rules and guidelines, in addition to repayment of the grants. Such grants may be terminated or reduced in the future, which would increase our costs. IIA approval is not required for the export of any products resulting from the IIA funded research or development in the ordinary course of business.
Risks Related to our Securities
The controlling share ownership position of Angels Investments in High Tech Ltd. will limit your ability to elect the members of our board of directors, may adversely affect our share price and will result in our non-affiliated investors having limited influence on corporate actions.
Angels Investments in High Tech Ltd. (“AIHT”) is currently our controlling shareholder. As of May 15, 2020, AIHT beneficially owned 37.6% of the voting power of our outstanding ordinary shares. Therefore, AIHT has the ability to substantially influence us through this ownership position. For example, AIHT may be able to substantially influence elections of directors, amendments of our organizational documents, and approval of any merger, amalgamation, sale of assets or other major corporate transaction. AIHT’s interests may not always coincide with our corporate interests or the interests of other shareholders, and it may exercise its voting and other rights in a manner with which you may not agree or that may not be in the best interests of our other shareholders. So long as it continues to own a significant amount of our equity, AIHT will continue to be able to strongly influence our decisions.
We incur significant costs as a public company in the United States, and our management is required to devote substantial additional time to new compliance initiatives as well as to compliance with ongoing U.S. and Israeli reporting requirements.
We are a publicly traded company in the U.S. As a public company in the U.S., we incur additional significant accounting, legal and other expenses. We also incur costs associated with corporate governance requirements of the SEC and the NASDAQ Capital Market, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act. The implementation and testing of such processes and systems may require us to hire outside consultants and incur other significant costs. Any future changes in the laws and regulations affecting public companies in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, and the rules and regulations adopted by the SEC and the NASDAQ Capital Market, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, if any, or as executive officers.
We may currently be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes or may become one in any subsequent year. There may be negative tax consequences for U.S. taxpayers that are holders of our ordinary shares or our ADSs.
Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income, we would be characterized as a PFIC for U.S. federal income tax purposes. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes such amounts derived due to the temporary investment of funds, including those raised in a public offering. In determining whether a non-US corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is considered.
We believe we may have become a PFIC in 2018, and although we have not determined whether we were a PFIC in 2019, or in any subsequent year, our operating results for any such years may cause us to be a PFIC. If we were a PFIC in 2019, or any subsequent year, and a U.S. shareholder does not make an election to treat us as a “qualified electing fund,” or QEF, or make a “mark-to-market” election, then “excess distributions” to a U.S. shareholder, and any gain realized on the sale or other disposition of our ordinary shares or ADSs will be subject to special rules. Under these rules: (i) the excess distribution or gain would be allocated ratably over the U.S. shareholder’s holding period for the ordinary shares (or ADSs, as the case may be); (ii) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (iii) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the U.S. Internal Revenue Service, or the IRS, determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. shareholder to make a timely QEF or mark-to-market election. U.S. shareholders who hold our ordinary shares or ADSs during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. shareholders who made a timely QEF or mark-to-market election. A U.S. shareholder can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto. A QEF election generally may not be revoked without the consent of the IRS. Upon request, we will annually furnish U.S. shareholders with information needed in order to complete IRS Form 8621 (which form would be required to be filed with the IRS on an annual basis by the U.S. shareholder) and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC.
The application of the PFIC rules may result in a U.S. shareholder incurring a tax liability in excess of cash received. For instance, the application of the deemed deferral benefit under the excess distribution rules can result in an effective tax rate of more than one hundred percent. Further, if a U.S. shareholder makes a QEF election, such U.S. shareholder will be subject to U.S. federal income tax on a modified passthrough basis and may be allocated taxable income without receiving a corresponding distribution of cash to pay any resulting tax. Likewise, a U.S. shareholder who makes a mark-to-market election will not receive a distribution of cash to pay any resulting tax. Finally, the disposition of PFIC stock in an otherwise tax-deferred transaction may require a U.S. shareholder to recognize the resulting gain as a PFIC inclusion.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting, which could have a material adverse effect on the price of the ADSs.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal controls, failing to remediate these deficiencies or weaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reported financial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed.
As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, which could make the ADSs less attractive to investors.
For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable to other public companies, including:
|●||an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; and|
|●||an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements.|
We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion or more, (ii) December 31, 2020, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt or (iv) the date on which we are deemed a “large accelerated issuer” as defined in Regulation S-K of the Securities Act.
We cannot predict if investors will find the securities less attractive because we may rely on these exemptions. If some investors find the securities less attractive as a result, there may be a less active trading market for securities and the market price of the securities may be more volatile.
We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.
We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we are not required to issue quarterly reports or proxy statements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under the regulations promulgated under the Companies Law, as an Israeli public company listed overseas we will be required to disclose the compensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli public companies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We also have four months after the end of each fiscal year to file our annual reports with the SEC and are not required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders are exempt from the requirements to report short-swing profit recovery contained in Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies reduce the frequency and scope of information and protections available to you in comparison to those applicable to U.S. domestic reporting companies.
As a “foreign private issuer,” we are permitted, and follow certain home country corporate governance practices instead of otherwise applicable SEC and NASDAQ Capital Market requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.
As a “foreign private issuer,” we are permitted, and follow certain home country corporate governance practices instead of those otherwise required under the listing rules of the NASDAQ Capital Market for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among other things, board independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country law instead of the listing rules of the NASDAQ Capital Market that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control, certain transactions other than a public offering involving issuances of a 20% or greater interest in the Company, and certain acquisitions of the stock or assets of another company. We also intend to follow our home country rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of the NASDAQ Capital Market. We may in the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the NASDAQ Capital Market may provide less protection to you than what is accorded to investors under the listing rules of the NASDAQ Capital Market applicable to domestic U.S. issuers.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negatively impacted.
The trading market for our securities may be influenced by the research and reports that industry or securities analysts publish about us, our business, our market or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding the securities, or provide more favorable relative recommendations about our competitors, the price of our securities would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of our securities or their trading volume.
The market price for the ADSs may be volatile.
The market price for the ADSs is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including the following:
|●||our failure to obtain the approvals necessary to commence further clinical trials;|
|●||results of clinical and preclinical studies;|
|●||announcements of regulatory approval or the failure to obtain it, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process;|
|●||announcements of technological innovations, new products or product enhancements by us or others;|
|●||adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;|
|●||changes or developments in laws, regulations or decisions applicable to our product candidates or patents;|
|●||any adverse changes to our relationship with manufacturers or suppliers;|
|●||announcements concerning our competitors or the pharmaceutical or biotechnology industries in general;|
|●||achievement of expected product sales and profitability or our failure to meet expectations;|
|●||our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringement actions;|
|●||any major changes in our board of directors, management or other key personnel;|
|●||legislation in the United States, Europe and other foreign countries relating to the sale or pricing of pharmaceuticals;|
|●||announcements by us of entering into or termination of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions or capital commitments;|
|●||expiration or terminations of licenses, research contracts or other collaboration agreements;|
|●||public concern as to the safety of therapeutics we, our licensees or others develop;|
|●||success of research and development projects;|
|●||developments concerning intellectual property rights or regulatory approvals;|
|●||variations in our and our competitors’ results of operations;|
|●||changes in earnings estimates or recommendations by securities analysts, if our ADSs are covered by these analysts;|
|●||future issuances of ordinary shares, ADSs or other securities;|
|●||general market conditions, including the volatility of market prices for shares of biotechnology companies generally, and other factors, including factors unrelated to our operating performance; and|
|●||the other factors described in this “Risk Factors” section.|
These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs, which would result in substantial losses by our investors.
In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs.
Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.
Substantial sales of our ADSs on the NASDAQ may cause the market price of our ADSs to decline. Sales by us or our security holders of substantial amounts of our ADSs, or the perception that these sales may occur in the future, could cause a reduction in the market price of our ADSs.
The issuance of any additional ADSs, or any securities that are exercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ADSs and will have a dilutive effect on our existing shareholders and holders of ADSs.
We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors may not benefit from holding our securities.
We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future. Moreover, the Israeli Companies Law, as amended, or the Companies Law, imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs will not be able to benefit from owning these securities unless their market price becomes greater than the price paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price more than the price paid.
You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.
The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act, but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositary may withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.
Holders of ADSs must act through the depositary to exercise their rights as our shareholders.
Holders of the ADSs do not have the same rights of our ordinary shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting is no less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders of the ADSs may not receive sufficient notice of a shareholders’ meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders’ meeting.
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.
Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholders vote.
Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares, including ordinary shares and ADSs issuable upon the exercise of outstanding options. Issuances of additional shares and ADSs would reduce your influence over matters on which our shareholders vote.
Management will have broad discretion as to the use of the proceeds from the exercise of the warrants, and we may not use the proceeds effectively.
As of May 15, 2020, the period for exercising ADS warrants issued to investors in our initial public offering in the U.S. and the representative’s warrants issued to underwriters in such offering has ended and we received aggregate gross proceeds of $4.2 million since issuance of the warrants from the exercise of such warrants, some of which were exercised on a cashless basis. Our management has broad discretion in the application of the proceeds from the exercise of the such warrants and could spend the proceeds in ways that you do not agree with or that do not improve our results of operations or enhance the value of the ADSs. Our failure to apply these funds effectively could have a material adverse effect on our business and cause the price of the ADSs to decline.
|Item 4.||INFORMATION ON THE COMPANY|
|A.||History and Development of the Company|
Our legal commercial name is BiondVax Pharmaceuticals Ltd. We are a company limited by shares organized under the laws of Israel. We were incorporated in Israel in 2003 as a privately held company. In February 2007, we completed an initial public offering of our ordinary shares on the Tel Aviv Stock Exchange (TASE)., In May 2015, we completed an initial public offering of our ADSs and ADS Warrants on the Nasdaq Capital Market, and we were dual listed from that date until we voluntarily delisted from the TASE as of January 22, 2018. As of May 15, 2020, the period for exercising the ADS Warrants ended and almost all were exercised.
Our principal executive offices are located at Jerusalem BioPark, 2nd floor, Hadassah Ein Kerem Campus, Jerusalem, Israel, and our telephone number is +972-8-930-2529. Our website is www.biondvax.com. Information contained on, or accessible through, our website is not incorporated by reference herein and shall not be considered part of this annual report. Our agent for service of process in the United States is Puglisi & Associates, whose address is 850 Library Avenue, Suite 204, Newark, Delaware, and whose telephone number is (302) 738-6680.
Our capital expenditures for 2019, 2018, and 2017 amounted to approximately $2,150, $6,866 and $1,304 thousands, respectively. These expenditures were primarily for factory leasehold improvements, computers and laboratory equipment.
We are a clinical stage biopharmaceutical company focused on developing and, ultimately, commercializing immunomodulation therapies for infectious diseases. Our current product candidate, M-001, is a synthetic peptide-based protein targeting both seasonal and pandemic strains of the influenza virus. Unlike existing influenza vaccines, which offer only strain specific seasonal protection or pandemic prevention, M-001 is designed to provide long-lasting protection against multiple existing and future influenza strains. As a result, we believe that M-001 has the potential to become an attractive alternative to existing influenza vaccines.
M-001 is based on research initially conducted at the Weizmann Institute of Science in Israel, or the Weizmann Institute, over a period of approximately 10 years prior to our inception in 2003. In 2003, we acquired from Yeda Research and Development Company Ltd., or Yeda, an affiliate of the Weizmann Institute, an exclusive worldwide license for the development, manufacture, use, marketing, sale, distribution and importation of products based, directly or indirectly, on patents and patent applications filed pursuant to the invention titled “Peptide Based Vaccine for Influenza”, developed on the basis of the research conducted by Professor Ruth Arnon and her team at the Weizmann Institute. Since 2003, we continued the research and development of M-001 under the supervision of our Chief Scientific Officer, Dr. Tamar Ben Yedidia (who completed her doctorate in the lab of Professor Arnon at the Weizmann Institute) and, at present, we own or license five families of patents filed in a large number of jurisdictions, the latest of which is expected to be in force until 2035.
According to the US Centers for Disease Control and Prevention (CDC), , the estimated adjusted seasonal influenza vaccine effectiveness (VE) from 2004 to 2019 in the U.S. varied between 10% during the 2004/2005 season to 60% during the 2010/2011 season. According to this data, the average VE is about 40%. Most existing influenza vaccines are formulated based on weakened or dead strains of the influenza virus that are predicted to be the most common circulating strains during the then upcoming influenza season or that are perceived to have the greatest potential to cause a future pandemic outbreak. While the influenza virus frequently and unpredictably mutates, resulting in novel strains, existing seasonal and pandemic influenza vaccines are strain-specific, and only target those specific strains, and are not expected to protect against novel emerging influenza strains. In addition, the production cycle of most existing influenza vaccines is long (approximately 5 to 6 months), considerably limiting the ability to quickly immunize the population in case of a pandemic outbreak.
We intend to seek regulatory approvals to market M-001 for the following indications: (i) as a universal influenza vaccine suitable to be administered to the general population to provide protection against seasonal and pandemic strains of influenza; and (ii) as a pre-pandemic influenza vaccine, or primer, for national stockpile, suitable to be administered to the general population, prior to a strain specific pandemic vaccine, for enhanced pandemic preparedness.
We are conducting a pivotal clinical efficacy Phase 3 trial in 85 clinical trial sites in seven Eastern European countries, subject, among others, to the regulations of the European Medicines Agency (EMA). In March 2018 we entered into a master service agreement and work order with a European contract research organization, or CRO, to conduct the first pivotal clinical efficacy Phase 3 trial of M-001. Launched in August 2018, the primary endpoints of this trial are to demonstrate safety of M-001 and the clinical efficacy conferred by M-001 administration, measured by reduction of confirmed flu cases in the vaccinated group versus placebo. A secondary endpoint will assess reduction in flu illness severity among those receiving M-001 versus placebo. In October 2018 we announced the successful enrollment of the last participant of the first cohort, consisting of 4,042 participants, for the first season of this clinical trial. The Company also enrolled 8,421 participants in the trial’s second cohort (2019/20 flu season) in 85 sites in seven countries in eastern Europe. Results are expected by the end of 2020. The Data Safety Monitoring Board, or DSMB, met in January 2019 in Warsaw, Poland, to review the safety data for our first cohort available at that time and notified us that they have no safety concerns and recommended that the study continue as planned.
In addition, in November 2017 we entered into a Phase 2 clinical trial agreement in the U.S. for the administration of M-001 with the National Institute of Allergy and Infectious Diseases (NIAID) one of the institutes and centers that make up the National Institutes of Health (NIH), an agency of HHS . In April 2018 we reported the first participant enrollment in this clinical trial. In February 2020, preliminary data regarding the Phase 2 clinical trial was published by NIAID, and NIAID completed the clinical study report (CSR) in June 2020.
In addition to these ongoing clinical trials, we completed two Phase 1/2 clinical trials and three Phase 2 clinical trials in Israel pursuant to clinical trial protocols approved by the Israeli Ministry of Health, and a Phase 2b clinical trial in Europe. These clinical trials were designed for adults between the ages of 18 to 65 and older and included an aggregate of 698 participants. Because our product candidate is a vaccine, we conducted our Phase 1/2 clinical trials on healthy participants to test both safety of M-001 as our primary endpoint and the immunogenicity of M-001 as our secondary endpoint. Results from all our Phase 1/2 and Phase 2 clinical trials indicated that M-001 was well tolerated and safe across all treatment groups within the trial population and that M-001 was effective in causing an immune reaction in clinical trial participants administered with M-001.
In October 2015 we entered into a Development and Manufacturing Agreement for the production of clinical batches of M-001 with a CMO, based in the U.S., for the purpose of upscaling the small-scale cGMP manufacturing process of M-001 for Phase 3 and commercial production. As planned, on August 20, 2018, we announced our move to a new mid-sized factory in Jerusalem, with potential capacity to annually produce up to forty million doses of M-001. The facility is planned for annual manufacturing capacity of 20 million doses in bulk including up to 10 million doses in filled and finished (PFS packed) syringes. For this purpose, on July 18, 2017, we entered into an agreement to lease approximately 1,800 square meters (20,000 square feet) in the Jerusalem BioPark, located in the Ein Kerem Hadassah campus, next to Hadassah University Hospital and Hebrew University’s Medical School. We financed the costs of the first stage of construction, in an amount of approximately $10 million, with funds and grants received by us, as well as with our own financial resources. This first stage of construction included setting up laboratories, offices, and upstream and downstream manufacturing suites for bulk production and limited capacity for single-dose syringe filling. We also completed setting up an infrastructure to support our plans to be implemented upon successful Phase 3 results, when we intend to install additional equipment such as a higher capacity syringe filling machine, automatic visual inspection, and packing machines in order to establish commercial fill-and-finish capacity.
On June 19, 2017, we entered into a Finance Contract with the EIB, for the financing of up to Euro 20 million, which was later expanded to Euro 24 million, and up to 50% of the Company’s expected cost of developing and marketing the Company’s product candidate, M-001. To date, we have drawn down the amount of Euro 24 million and have entered into a security agreement placing a first ranking floating charge over all our assets in favor of EIB, excluding assets and/or intellectual property rights subject to the license agreement between the Company and Yeda.
The Israeli Innovation Authority (IIA), formerly known as the Office of the Chief Scientist, has granted us since 2006 approximately $5.5 million in funding, for the ongoing development of M-001. In addition, and subject to certain terms and conditions, we have been approved by the Ministry of Economy and Industry of the State of Israel for a grant of approximately NIS 4 million to be utilized towards the construction of our factory for the production of Phase 3 and commercial batches of M-001 in Jerusalem, Israel.
We intend, subject to the successful results of our pivotal clinical efficacy Phase 3 clinical trial in Europe, to enter into discussions with the Food and Drug Administration (FDA), another of the Federal agencies of HHS, regarding market approval of M-001 in the U.S., and to comply with the applicable requirements. Although we have not yet submitted a Phase 3 Investigational New Drug (IND) application to the FDA, we believe that the results of the Phase 2 clinical trials conducted by us so far or to be conducted in the future, as well as those of our ongoing pivotal clinical efficacy Phase 3 trial in Europe, will further expand our data to provide greater support for any Phase 3 clinical trial of M-001 we may conduct in the U.S. in the future.
We do not currently have sufficient financial resources to complete new Phase 3 clinical trials of M-001 on our own. We may seek to establish collaborations with large multinational pharmaceutical companies and/or national health authorities to finance additional Phase 3 clinical trials of M-001. However, to the extent that we have sufficient capital to do so (whether through sales of debt or equity securities or otherwise), we may seek to conduct Phase 3 clinical trials of M-001 without such collaborations.
Our Market Opportunity
Influenza is an infectious disease caused by different strains of the influenza virus. The disease is common around the world and appears as seasonal or pandemic outbreaks. The various strains of influenza are classified into A and B groups according to the type of proteins in the virus. According to information published by the World Health Organization (WHO), a specialized agency of the United Nations, the global annual attack rate of seasonal influenza is estimated at 5% – 10% in adults and 20% – 30% in children, and up to 650,000 of those infected die annually as a result of influenza and associated respiratory diseases. In the U.S., the CDC estimates that influenza was associated with an estimated 45 million illnesses during the 2017/18 flu season, including 810,000 hospitalizations and 61,000 deaths. Most severe morbidity and mortality was observed in adults aged 65 years and older. In addition, during seasonal influenza epidemics from 1979/80 through 2000/01, the estimated overall number of influenza-associated hospitalizations in the United States ranged from approximately 54,000 to 430,000 per epidemic, and 63% of these cases occurred among persons over the age of 65. Infants, adults over the age of 50 and chronic disease patients are most likely to contract influenza and suffer from complications.
The influenza virus undergoes frequent mutations. These mutations decrease the effectiveness of the immune reaction of the human body. If the mutations are very significant, the mutated virus strains may cause global pandemics. Over the last few years, new strains of the influenza virus previously only existing in animals have appeared in humans, including Avian flu strains such as H5 and H7. We believe that the appearance of new potentially pandemic strains is a growing concern among health authorities, as these strains increase the risk of worldwide pandemics and high mortality and morbidity rates. Indeed, the WHO listed the threat of global influenza pandemic as one of the “Ten threats to global health in 2019.” Furthermore, according to the scientific journal Vaccine (Molinari et al. 2007), the direct financial loss attributed to the influenza disease in the U.S. was estimated at a total of $87.1 billion annually, of which $55.7 billion related to incidents of the disease among adults aged 65 years or older. More recently, the White House Council of Economic Advisors estimated that the annual economic burden for seasonal influenza is over $361 billion in the U.S. (Mitigating the Impact of Pandemic Influenza through Vaccine Innovation, September 2019).
To date, the most common therapeutic treatment methods for influenza focus on pain and symptom relief. While anti-viral treatments may shorten the duration and severity of the disease, such treatments must be applied in the early stages of the course of the disease to be effective. Many countries around the world, including the United States, provide preventative treatment in the form of annual or seasonal influenza vaccines, which are especially recommended to patients in risk groups. Because seasonal vaccines target only particular influenza strains predicted for the coming year, such vaccines may not be effective against the strains that actually do appear (if different from those predicted) and may not protect against unexpected mutations of a particular influenza strain that was predicted.
The seasonal influenza vaccine market was dominated in 2018 by three large pharmaceutical companies Sanofi Pasteur, Seqirus, and GlaxoSmithKline plc (GSK). According to GlobalData’s “Seasonal Influenza Vaccines – Global Drug Forecast and Market Analysis to 2025” report, dated November 2016, sales of seasonal influenza vaccines in the seven major markets (US, France, Germany, Italy, Spain, UK, and Japan), will rise from $3.1 billion in 2015 to $4.3 billion by 2025. A CNBC report dated October 19, 2015, quoted estimated seasonal flu vaccine revenue in the U.S. alone at $1.61 billion in 2014, with total distribution of 147.8 million doses. The same CNBC report quotes a vaccine manufacturer’s estimated global market in 2015 at $4 billion.
Our Product Candidate M-001
Our current product candidate, M-001, is comprised of nine peptides that activate the entire immune system (including both a humoral reaction, an immune reaction causing the body to create antibodies against a pathogen or parts thereof, and a cellular immune reaction, an immune reaction causing the body to kill or assist in killing pathogens), to prevent the spread of the influenza disease within the body and shorten the duration of the illness. The selected peptides are from the HA, NP and M1 proteins of both influenza Type A and Type B virus, and each peptide comprises up to 22 amino-acids. These peptides are common in the vast majority of influenza virus strains and are combined into a single protein used in M-001.
In order to produce M-001, we use an expression system that consists of bacteria and a DNA plasmid encoding for M-001. The DNA plasmid encoding is inserted into a proprietary E. coli bacteria specifically designed for the production of peptide-based products. The bacteria express M-001 synthetic protein from the DNA, and once expressed, M-001 is further purified from other non-related bacterial proteins. M-001 is then formulated and filled into sterile vials or syringes (as in our new facility) that are kept in cooled storage until used.
The following image demonstrates the selection of certain peptides common in the influenza virus and the formulation of M-001:
M-001 is intended to be intramuscularly injected into the body. Once administered, M-001 is designed to be recognized by the immune system, triggering both humoral and cellular immune reactions. This process is expected to result in the creation of new memory cells which, upon influenza infection, secrete antibodies to fight the influenza virus.
Our Competitive Strengths
We believe our product candidate can potentially improve influenza protection by providing several distinct advantages, including:
|●||Multi-strain flu protection. We believe that the peptide-based structure of M-001 will allow our product to be effective against many existing and future strains of the influenza virus and to remain effective in protecting against new strains without required updates and alterations. To test this hypothesis, in January and July 2014, we conducted a sequence examination and when possible, animal studies in our laboratories, to compare the structure of M-001 with new flu strains (H7N7, H6N1, H5N8, H7N9 and H10N8) discovered in humans in recent years similarly to the H5N1 strain. Although these strains have not yet been classified as pandemic, they are dangerous for humans and have caused morbidity and death in the past. The results of such examination and studies demonstrated that M-001 was compatible against these strains. This data supports our claim of the universality of M-001 for existing and future influenza virus strains.|
|●||Long-lasting flu protection. M-001 is designed to enhance humoral and activate cellular reactions of the immune system. We therefore believe that M-001, if approved for commercial sale, will be more effective and long-lasting compared to currently commercially available vaccines that generally stimulate only humoral immune responses.|
|●||Continuous sales cycle not affected by seasonality. Because M-001 is designed to provide a multi-strain flu protection that is long lasting and is not expected to require updates for future virus strains or mutations, we do not expect future sales of M-001 as a universal standalone vaccine or as a pandemic primer to be affected by the influenza season. Unlike traditional influenza vaccines, which are sold and administered in western countries primarily during the period from September through November, we believe that M-001 for these indications can be sold and administered or sold and stored throughout the entire year.|
|●||Shorter production times. We believe that the production time for M-001 will be only 6 to 8 weeks, as opposed to the 16 to 24 weeks (on average) required to produce most currently available seasonal influenza vaccines. We expect that shorter production times will give manufacturers greater flexibility in their production planning, as well as the ability to execute large orders of vaccine doses in a short timeframe in response to pandemics.|
|●||Absence of allergy inducing egg proteins. Most influenza vaccines are produced in hen eggs and may therefore cause an allergic reaction to those allergic to certain egg proteins. An epidemiological study performed by the European Food Safety Authority (EFSA) in 2011 found that eggs are some of the most common allergens in the population. In contrast, M-001 is not produced using eggs and does not cause egg protein allergic reactions.|
We also believe the following key strengths provide us with competitive advantages relative to other companies seeking to develop novel treatments for the prevention of influenza:
|●||M-001 is currently in advanced clinical stage (Phase 3). We are currently conducting a Phase 3 clinical trial in Europe and have completed two Phase 1/2 clinical trials and three Phase 2 clinical trials in Israel pursuant to clinical trial protocols approved by the Israeli Ministry of Health, and an additional Phase 2b clinical trial in Europe. Our Phase 1/2 and Phase 2 clinical trial results indicated that M-001 was well tolerated and safe across all treatment groups within the trial population and was effective in causing an immune reaction in clinical trial participants administered with M-001.|
|●||Extensive knowledge and expertise in the use of peptide-based vaccines. We have extensive experience researching and developing peptide-based compounds, including M-001. Our product candidate is based on years of research, including the research headed by Professor Ruth Arnon at the Weizmann Institute during the 10 years prior to our inception. Over the course of that 10 year period the scientific concept of a peptide-based influenza vaccine was established and confirmed in numerous preclinical and clinical trials for various influenza virus strains. We believe that this knowledge and expertise gives us a competitive advantage over other universal influenza vaccine developers with less significant experience and knowledge of these fields of study.|
|●||In-house cGMP production capacity and advanced stage of construction for a commercial manufacturing capacity. Our previous production facility in Ness Ziona was Phase 1 and 2 clinical trial audited and approved for production according to cGMP standards by a European qualified person. In October 2015 we entered into a Development and Manufacturing Agreement with a Contract Manufacturing Organization (CMO) based in the U.S. for the production of clinical batches of M-001 for our current Phase 3 clinical trial. As planned, on August 20, 2018, we announced our move to a new mid-sized manufacturing facility in Jerusalem, with potential capacity to annually produce up to forty million doses of M-001 for Phase 3 and commercial use.|
Indications for our Product Candidate
M-001 is currently in advanced stages of a pivotal clinical efficacy Phase 3 clinical trial.
The use of M-001 as a universal flu vaccine for the general population is intended to provide prolonged protection against existing and future influenza strains for a period of at least one year, and may be extended to periods of three to five years, subject to future regulatory approval. According to the US CDC, approximately 40% of the adult population and 60% of the elderly population in the U.S. (ages 65 and up) is annually vaccinated against the influenza virus. Subject to competitive risks (including the risk that our competitors may develop vaccines that are or are perceived by doctors to be more effective, longer lasting or less expensive), we expect that M-001, if approved for commercial sale, will achieve a high penetration rate within its intended markets.
We believe that the approval of M-001 will allow health authorities to more quickly and effectively protect the general population or targeted groups from seasonal influenza and/or pandemic outbreaks, using national stockpiles.
Our Business Strategy
Our strategy is to complete development of, and, thereafter, manufacture and commercialize M-001 for use as a global influenza prevention therapy. Key elements of our current strategy include the following:
|●||Receive all required regulatory approvals for the commercialization of M-001 as a preventative therapy for influenza. We have launched a pivotal clinical efficacy Phase 3 clinical trial in Europe under the EMA, following the completion of several Phase 2 clinical trials conducted in Israel and Europe. We have also entered into a clinical trial agreement with the NIAID for a Phase 2 clinical trial in the U.S. for the administration of M-001 in participants.|
|●||Seek attractive partnership opportunities. We believe that the proprietary rights provided by M-001, together with the successful clinical results and commercial scale manufacturing capacity, will create attractive partnership opportunities for large pharmaceutical companies or health authorities in different countries around the world. We intend to seek to build a portfolio of commercially attractive partnerships consisting of co-developments and licenses, which will allow us to commercialize M-001 worldwide.|
|●||Further develop our independent production line. Our previous production facility was Phase 1 and 2 clinical trial audited and approved for production according to cGMP standards, by a European qualified person. In October 2015 we entered into a Development and Manufacturing Agreement with a CMO located in the U.S. for the production of clinical batches of M-001 for our current Phase 3 clinical trial. As planned, on August 20, 2018, we announced our move to a new mid-sized manufacturing facility in Jerusalem, with potential capacity to annually produce up to forty million doses of M-001 for Phase 3 and commercial use. We intend to complete the construction of our independent production line of our facility. We intend to complete the construction of our independent production line of our facility by the end of 2021, subject to successfully completing the phase 3 pivotal clinical trial we are currently conducting in Europe.|
Results of Our Clinical and Preclinical Trials
All clinical trial protocols and their results, including preceding safety and efficacy data, are submitted to the regulatory authorities in the country where the trial is being conducted. The regulatory authority may demand additional preliminary tests before approving the clinical trial as well as changes to the submitted outline of the clinical trial. These changes may affect the planned timetables, costs and method of performance of our trials. Furthermore, regulatory authorities in different countries may have different requirements.
The design and execution of the clinical trials and achieving performance benchmarks at different stages of the trials is a process normally required in order to receive approval for marketing pharmaceutical products in countries where the clinical trials are performed. Generally, it is possible to market the product in a country only if such product was approved by that specific country, however in some countries it is possible to market the product even if the trials were not performed in that territory.
We are currently conducting a pivotal clinical efficacy Phase 3 trial in 85 clinical trial sites in seven Eastern European countries, subject to, among others, the regulation of the European Medicines Agency (EMA). Our Phase 3 clinical trial was initiated after we completed two Phase 1/2 clinical trials and three Phase 2 clinical trials in Israel pursuant to clinical trial protocols approved by the Israeli Ministry of Health, and a Phase 2b clinical trial in Europe. We are assisted by professional advisers in examining the possibilities of performing clinical trials in additional countries, taking into consideration the costs of the trials, speed of receiving the approvals, and manner of performing the trials. We consider this information, together with marketing information regarding future products in each country and whether each country regulatory authority consents to relying on prior approvals and research performed in other countries, in choosing clinical trial sites.
Failure of clinical trials at any stage may cause us to perform an additional trial or to cease the development of the product candidate entirely for a specific indication. We make such decisions based on the nature of the results of the trials. In order to receive the various approvals required in different countries, we set timetables, taking into account the seasonality of the influenza disease.
Ongoing Phase 3 Clinical trial
As planned, we initiated a Phase 3 clinical trial in Europe starting at the 2018/2019 flu season. In this clinical trial, we are administering M-001 for the following indication: as a universal influenza vaccine suitable to be administered to the general population to provide protection against seasonal and pandemic strains of influenza. The placebo-controlled pivotal clinical efficacy Phase 3 trial enrolled a total of 12,463 participants over two years, including 4,094 who were enrolled in the trial’s first cohort prior to the 2018/19 flu season and 8,421 who were enrolled in the trial’s second cohort for the 2019/20 flu season. Since assessment of clinical efficacy of influenza vaccines largely depends on the attack rates of circulating influenza strains, the study features flexible enrollment to adjust the required number of participants in the second year, and, optionally, the protocol allows us to extend the clinical trial to a third flu season and a third cohort. The participants are 50 years and older, with at least half over 65 years of age. The EMA’s Committee for Medicinal Products for Human Use (CHMP) reviewed our Phase 3 trial plan, provided advice, and allowed us to proceed with the Phase 3 clinical trial plan for M-001. The Data Safety Monitoring Board, or DSMB, met in January 2019 in Warsaw, Poland to review the safety data for our first cohort available at that time, and notified us they have no safety concerns and recommended that the study continue as planned.
|Clinical trial number||Phase||Location||Regulatory Authority||Trial Design||Trial Purpose||Population||Number of Subjects|
|BVX-010||3||Europe||EMA||A randomized, double-blind, placebo-controlled pivotal phase 3 trial||Primary Endpoints: safety and clinical efficacy; Secondary Endpoint: reduction of severity of flu illness||Adults ages 50 and older, at least 50% of participants are over 65 years old||Total 12,463, including Cohorts 1 and 2 (flexible enrollment, divided into cohorts)|
Results of our completed Clinical Trials
The following table summarizes the structure, design and purpose of our completed Phase 2 clinical trials conducted in Israel, Europe and the U.S., subject to the relevant regulatory approvals for each clinical trial:
|Phase||Trial Design||Trial Purpose||Population||Number of |
|BVX-002||1/2||randomized, single-centered, single-blind, placebo-controlled escalating double-dose|| |
Primary endpoint: Safety;
Secondary Endpoint: Immunogenicity
between ages 18 to 49
|63||Well tolerated, safe and induced priming|
|BVX-003||1/2||randomized, single-blind, placebo-controlled escalating double-dose|| |
Primary endpoint: Safety;
Secondary Endpoint: Immunogenicity
between ages 55 to 75
|60||M-001 was well tolerated and a humoral and cellular immune reaction was observed.|
|BVX-004||2||randomized, two centered, two stage, double-blind, placebo controlled double-dose||Primary Endpoint: safety; Secondary Endpoint: Immunogenicity||Adults between |
ages 18 to 49
|200||M-001 was well tolerated and a humoral and cellular immune reaction was observed.|
|BVX-005||2||multicenter, randomized, placebo-controlled||Primary Endpoint: safety; Secondary Endpoint: Immunogenicity||Elderly |
|120||M-001 was well tolerated and a humoral and cellular immune reaction was observed.|
|BVX-006||2||Randomized, Placebo-Controlled, Double-Blind||Primary Endpoint: safety; Secondary Endpoint: immunogenicity||Adults between ages 50 to 64||36||M-001 was well tolerated and a humoral and cellular immune reaction was observed.|
|BVX-007||2b||Randomized, Placebo-Controlled, Double-Blind||Primary Endpoints: safety and cell mediated immunity||Adults between ages 18 to 60||219||Safety and cellular immune response of M-001 confirmed.|
|BVX-008||2||A randomized, double-blind, active-controlled phase 2 trial in collaboration with NIAID||Primary Endpoints: Safety & cell mediated immunity||Adults between ages 18 to 49||120||Both primary endpoints were achieved|
We completed our BVX-002 Phase 1/2 clinical trial during the third quarter of 2009. This Phase 1/2 study was a single-center, single-blind, placebo-controlled, first-in-man trial, intended to test the safety of M-001 as our primary endpoint and the immunogenicity of M-001 as our secondary endpoint. More specifically, the study was aimed at assessing the safety of repeated intramuscular administration of two different doses of the influenza-targeted M-001 vaccine prepared with or without an adjuvant. Three subjects designated as “pre-pioneer”, were vaccinated once with a low dose (125 mcg) of M-001 and monitored for 7–9 days thereafter to ensure the vaccine’s relative safety before exposing further subjects to higher doses. Only after evaluation of the responses of these three subjects, and a minimum 72-hour observation window after release of the third subject, were further vaccinations and doses authorized. In the remaining cohorts, three subjects of each cohort were always treated before the remainder of the cohort to ensure basic vaccine safety. In addition, a dose escalation was only allowed after a 10-day observation period between the last dosing of the lower dose cohorts and the first vaccination of the higher dose cohorts. The appropriate dosage of M-001 was intramuscularly administered on days 0 and 21 of the clinical trial. Blood was drawn on vaccination days and on day 42 to assess safety and immune parameters. Follow-up and recording of any adverse events extended up to three weeks after administration of the second vaccine dose.
The broadest immune response was recorded among subjects vaccinated with two doses of 250mcg or 500mcg of M-001 with or without an adjuvant formulation. M-001 exhibited a positive safety profile, in that no serious or severe adverse events were reported and no adverse events were defined as probably or definitely related to treatment. The fewest number of adverse events were reported for the experimental group administered with the 500mcg of M-001 with an adjuvant. Of the adverse events described as possibly-related to treatment regimen, 92.6% were graded mild and 61% were overcome within one day of appearance. Only four participants suffered from fever above 100.4°F.
We completed our BVX-003 Phase 1/2 clinical trial in April 2010. This study was a single-center, single-blind, placebo-controlled trial, intended for further testing the safety of M-001 as our primary endpoint and the immunogenicity of M-001 as our secondary endpoint. More specifically, the study was aimed at assessing the safety and tolerability of two successive intramuscular administrations of M-001, prepared with or without an adjuvant, in elderly volunteers (ages 55 to 75). Subjects were randomly allocated to one of two dosing cohorts, with 30 subjects per cohort, and treated with either 250mcg or 500 mcg active vaccines. An optional third vaccination with the commercial trivalent seasonal influenza 2009/10 vaccine (TIV) (Vaxigrip, Sanofi-Pasteur or equivalent product) was supplied to those interested subjects not immunized prior to the study.
The strongest immune reactions, both humoral and cellular, were detected among subjects receiving the M-001-based vaccines in 250 or 500 mcg doses with or without an adjuvant, compared to those receiving placebo with an adjuvant. Humoral responses to M-001 were most significant among subjects primed with either of the adjuvanted or non adjuvanted M-001-based formulations and subsequently boosted with the TIV, when compared to the combined control groups that were not previously primed with M-001. All variations of M-001 administration (with an adjuvant or in different doses) proved safe and tolerable among the participants. The number of subjects reporting adverse events after treatment with active vaccines was similar to their respective placebo cohorts, showing that the M-001 was well tolerated and safe.
We completed our BVX-004 Phase 2 clinical trial in June 2011. This Phase 2 study was a multi-center, randomized, two stage, double-blind, placebo-controlled, double-dosed administration study, intended for further testing the safety of M-001 as our primary endpoint and the immunogenicity of M-001 as our secondary endpoint. More specifically, the study was aimed at assessing the safety and tolerability of intramuscular administration of 500 mcg M-001, prepared with an adjuvant, in younger adult volunteers. 200 subjects of the study were randomized to receive either: (i) two doses of adjuvanted 500 mcg M-001 vaccine (ii) two doses of the placebo (iii) two doses of the adjuvanted placebo, and (iv) a single co-administration of adjuvanted M-001. The groups were then treated with a third administration of TIV in different doses approximately 60 days from the second administration.
The results showed increased humoral and cellular responses after two immunizations with adjuvanted M-001 as compared to after immunization with adjuvanted placebo. In addition, increased humoral and cellular responses were detected after co-administration of adjuvanted M-001 with TIV as compared to after co-administration of placebo and TIV. M-001 was found to be well tolerated and safe in all treatment groups and no relation was found between adverse events and the administration of M-001.
We completed our BVX-005 Phase 2 clinical trial in February 2012. This Phase 2 clinical trial was intended for further testing the safety of M-001 as our primary endpoint and the immunogenicity of M-001 as our secondary endpoint. Within the framework of this BVX-005 Phase 2 clinical trial, 120 subjects received two injections of 500 mcg M-001, with or without an adjuvant, or placebo followed by TIV. Accordingly, subjects were randomly allocated to the following treatment groups: (i) two administrations of M-001 followed by a third administration of TIV (ii) one administration of M-001 followed by TIV (iii) one administration of adjuvanted M-001 followed by TIV, and (iv) one administration of placebo followed by TIV.
Results revealed a significant increase in the proportions of Interferon Gamma secreting cells and influenza infection-fighting antibodies, or influenza antigens, which indicated an anti-viral immune response that was not observed in the placebo groups. A humoral immunity reaction was strongest in participants treated with M-001 as a primer and boosted with TIV compared to the placebo group. In addition, all formulations of M-001 were well tolerated and safe across all treatment groups.
We exposed the blood plasma samples from the BVX-005 participants (taken following the completion of the trial in 2012) to the current influenza flu epidemic H3N2, which in 2012 did not yet exist, and examined the immunogenicity (HAI) antibodies in each blood plasma sample. We found significantly increased level of protective antibodies against the H3N2 strain in the samples taken from participants that received the M-001 vaccine in comparison to the control group. An average of 50% or greater of the participants in the experimental group receiving M-001 showed immunogenicity against this new strain versus only 10% on average in the control group, a result which has statistically high significance. This concurs with the similar results found in our recent BVX-006 phase 2 trial showing increased antibody response to the H3N2 epidemic flu strain in those that received our universal vaccine, although it was not included in the commercially available seasonal flu vaccine of the 2014/15 season. We believe this data confirms the universal nature of M-001, effective against all types of flu strains.
We completed our BVX-006 Phase 2 clinical trial in June 2015. This Phase 2 clinical trial was intended for further testing the safety and immunogenicity of M-001 at regular and higher doses (0.5 mg and 1 mg, respectively) and after three consecutive administrations. Within the framework of this BVX-006 Phase 2 clinical trial, 36 subjects between the ages of 50-65, divided into three groups, were intramuscularly injected three times with M-001 or placebo, followed by an administration of the 2014/2015 season trivalent influenza vaccine (TIV) 3 weeks later. Accordingly, subjects were randomly allocated to the following treatment groups: (i) three administrations of 0.5mg of M-001 followed by an administration of TIV (ii) three administrations of 1.0 mg of M-001 followed by an administration of TIV (iii) three administrations of placebo followed by TIV.
Clinical trial results indicated that the administration of M-001 is safe and efficient against many strains of the influenza virus when administered at 1mg for participants at the age of 50-65. M-001 in 1mg dose primed for immune responses in a manner consistent with previous data in this age group. M-001 also elevated the immune response to other strains that were not included in the current influenza seasonal vaccine, including against the drifted H3N2 strain of influenza that has caused 2014/2015 season’s epidemic in the United States. In addition, cell mediated immunity which is specific to different pandemic strains (bird-flu strains) was elicited after immunization with M-001 alone. These results support our claim that M-001 provides a broadened and improved protection against multiple influenza type A and B virus strains.
We completed our BVX-007 Phase 2b clinical trial in September 2016. This Phase 2b clinical trial was conducted in Budapest, Hungry, as part of our membership in the UNISEC Consortium that focused on development and evaluation of promising concepts for a universal influenza vaccine. Prior to commencement, we received the requisite regulatory approvals for the clinical trial from the EMA and the relevant Hungarian Regulatory Authority. BVX-007 was designed to evaluate the safety and immunogenicity of M-001 when used ahead of a sub optimal dose of H5N1, an avian influenza vaccine, provided by a Hungarian supplier of seasonal and H5N1 flu vaccines. BVX-007 was conducted in adults between the ages 18 to 60, initially including 222 participants. Following the withdrawal of three participants, the clinical trial was completed with the participation of 219 participants. In July 2017, we announced positive results for the Phase 2b BVX-007 clinical trial: The safety of M-001 (primary endpoint) was confirmed: no treatment related severe adverse events were observed. The primary immunogenicity endpoint was also achieved with a significant cell mediated immunity observed in the group immunized with 1mg dose of M-001. The secondary immunogenicity endpoint aimed to show enhanced HAI antibodies to the H5N1 viruses. Such enhancement was observed in 1 out of 4 strains tested. It should be noted that the sub optimal dose of the H5N1 vaccine alone induced minimal responses and hence, it might be the reason that the priming effect conferred by the M-001 vaccine was not observed in all H5N1 strains tested in this study.
On November 20, 2017 we announced the signing of a clinical trial agreement with the NIAID of the U.S. National Institutes of Health for a Phase 2 clinical trial in the U.S. using our product candidate, M-001. The primary endpoints of this clinical trial focused on safety and cell-mediated immune response to the M-001. In addition, it assessed the ability of M-001 in humans to enhance immune response provided by a currently marketed QIV seasonal vaccine (an inactivated quadrivalent split-virus seasonal influenza vaccine. In April 2018, the first participant enrollment in this clinical trial was reported, and in February 2020 the NIAID published the preliminary data regarding the clinical trial. The data, which are consistent with results of previous clinical trials of M-001, indicate that both primary objectives were achieved. The clinical study report (CSR) was completed in June 2020 and submitted by NIAID to the FDA
Safety and Efficacy Preclinical Trials
We conducted safety and efficacy preclinical trials in rats and mice. These preclinical trials have demonstrated that M-001 provides an effective flu protection, and an immune reaction against different flu virus strains. During these preclinical trials both humoral and cellular immune reactions were recorded. The preclinical trials provided a proof of concept for all indications. While these results are encouraging, we cannot determine the safety and efficacy of M-001 in human participants based on such preclinical trials.
At a pre-IND meeting held with the FDA in 2012, the FDA indicated that our preclinical trials conducted to that date were sufficient to continue our Phase 2 and Phase 3 clinical trials.
Future Phase 3 Clinical trials
We intend, subject to the successful results of our Phase 3 clinical trial in Europe, to enter into discussions with the FDA regarding market approval of M-001 in the U.S., and to comply with the applicable requirements. Although we have not yet submitted a Phase 3 Investigational New Drug Application, or IND, to the FDA, we believe that the results of the Phase 2 clinical trials conducted by us so far or to be conducted in the future, as well as those of our ongoing pivotal clinical efficacy Phase 3 trial in Europe, will further expand our data to provide greater support for any Phase 3 clinical trial of M-001 we may opt to conduct in the U.S. in the future.
We do not currently have sufficient financial resources to complete Phase 3 clinical trials of M-001 on our own. We intend to seek to establish collaborations with large multinational pharmaceutical companies and/or national health authorities to finance Phase 3 clinical trials of M-001. However, to the extent that we have sufficient capital to do so (whether through sales of debt or equity securities or otherwise), we may seek to conduct Phase 3 clinical trials of M-001 without such collaborations.
Upon completion of Phase 3 clinical trials for some or all of our indications, we may initiate Phase 4 post-marketing clinical trials to validate the clinical efficacy of our product candidate. We also intend to use future revenues accrued from the commercialization of M-001 (if approved for commercial sale) for a specific indication to finance Phase 3 clinical trials for additional indications.
Currently marketed flu vaccines are strain-specific. There are many vaccine candidates in development that feature either improved production processes and/or broadened coverage against drifted vaccine strains. BiondVax’s M-001 is unique in that it is (i) A single formulation designed to be effective against seasonal and pandemic influenza strains, including Influenza A and Influenza B; (ii) Most advanced universal flu candidate (7 completed clinical trials, including five Phase 2, of which one is the NIH-sponsored Phase 2 trial in the U.S., and an ongoing Phase 3 trial in Europe); (iii) Manufactured in E.coli, resulting in significantly shorter production times and cost efficiency; and, finally (iv) Shelf-life of up to 24 months in refrigerated conditions (testing ongoing), and 6 months at approximately 25°C (room temperature) enabling stockpiling for proactive preparedness.
Currently marketed Influenza Vaccines
Current influenza vaccines are mostly produced and marketed by large fully integrated pharmaceutical companies such as Sanofi Pasteur (FluZone, FluZone High-dose, Vaxigrip, Intanza, Mutagrip, Istivac, and FluBlok following the 2017 acquisition of Protein Sciences Corporation), GlaxoSmithKline (Fluarix, FluLaval, Alpharix , Influsplit ), Seqirus (Afluria, Fluvirin, Fluad, Flucelvax, Agrippal), AstraZeneca (FluMist, Fluenz tetra), and Abbott (Influvac, Imuvac). (Note that some of these are the same vaccine but marketed under different names in different jurisdictions). Flublok is a recombinant protein strain-based influenza vaccine. All currently marketed influenza vaccines are strain-specific, with each vaccine targeting three or four strains.
Influenza Vaccine Candidates in Development
To our knowledge, there are a number of companies and academic labs attempting to develop new influenza vaccines. Our information as to the identity of our competitors, the nature of the competing product candidates and the development stage of such competing product candidates relies solely on publicly available information. The following is a summary of known competitors and competing product candidates:
Imutex Limited, a joint venture between SEEK, a privately held UK-based company, and hVIVO PLC, is developing a vaccine based on six specific peptides to induce cellular immunity. In 2011 SEEK published Phase 2 challenge clinical trial results in 28 people which indicated that its vaccine stimulated the immune system and was found to be safe. In April 2016, it was reported that SEEK and hVIVO invested approximately $20 million to create Imutex, a startup with a “Phase 2a ready” universal flu vaccine candidate. In March 2018 and January 2019, Imutex reported their FLU-v 004 Phase2b challenge trial achieved the primary endpoint of a statistically significant reduction in mild to moderate influenza.
AltImmune’s NasoVax is an intranasally delivered broad seasonal and pandemic T-cell booster recombinant candidate. Results of a Phase 2 trial were reported in Q3 2018. FluGen is developing REDEE, a vaccine based on a live virus which cannot multiply or cause illness. The U.S. based company has apparently raised $27 million from investors and received $27 million in federal funds. In 2018, the company announced results of a Phase 1a trial and initiated a Phase 2 challenge trial. The Phase 2 interim results announced in 2019 reported a ‘serum antibody response’.
Medicago, majority owned by Mitsubishi Tanabe Pharma, manufactures strain-specific vaccines in tobacco, which enables high capacity production compared to current egg-based vaccines. In Q3 2018, the company announced the start of a Phase 3 trial.
Vivaldi Biosciences reported two completed Phase 1 and one Phase 1/2 clinical trial of their deltaFLU LAIV vaccine. Vivaldi reports deltaFLU has been shown to stimulate coverage against non-vaccine strains.
Vaxart reported results from a Phase 2 trials of its oral adenovirus-based influenza vaccine in Q4 2018. Vaxart has also recently reported a Universal Influenza vaccine collaboration with Janssen, and published results of an H1 seasonal influenza oral tablet vaccine challenge study.
Osivax anticipates results of a Phase 2a trial in 2021. NIAID are also developing new influenza vaccine candidates. It has been reported that companies including Sanofi and Johnson & Johnson are also working to improve upon currently marketed influenza vaccines. As well, a number of academic laboratories across the world are in the early stages of research of additional potential influenza vaccines including a “chimeric” vaccine at the Icahn School of Medicine at Mount Sinai, New York.
Marketing and Sales
We do not currently have any marketing or sales capabilities. We intend to license to, or enter into strategic alliances, with governments, health systems or companies in the pharmaceutical business, which are equipped to market and/or sell our products, if and when approved. We may seek to establish marketing and/or sales forces in the future, if and when appropriate, in addition to any such licensing arrangements or strategic alliances.
Generally, influenza vaccines sales mostly occur during the months of September through November of each year. However, because M-001 is designed to provide long-lasting (multi-year) protection and not just seasonal protection, we believe that M-001 as a universal standalone vaccine, if approved, will not be subject to the seasonality experienced by current (seasonal) influenza vaccines on the market.
M-001 is produced using modified, non-pathogenic, E.coli bacteria. We produce M-001 in a standard, robust and low cost manufacturing process according to cGMP standard. Our previous production facility was Phase 1 and 2 clinical trial audited and approved for production according to cGMP, by a European qualified person. In October 2015 we entered into a Development and Manufacturing Agreement with a CMO based in the U.S. for the production of clinical batches of M-001 for our current Phase 3 clinical trial. As planned, on August 20, 2018, we announced our move to a new mid-sized factory in Jerusalem, with potential capacity to annually produce up to forty million doses of M-001 for Phase 3 and commercial use. Although we contracted with a CMO for the manufacturing of M-001 for Phase 3 clinical trial and commercialization, subject to the completion of our independent production line in our new facility and obtaining the necessary funding and resources, we may decide to manufacture M-001 in-house.
Office Leasing Agreement
Since August 2018, our principal executive offices and main laboratory are located at Jerusalem BioPark, 2nd floor, Hadassah Ein Kerem Campus, Jerusalem, Israel, next to Hadassah University Hospitals and Hebrew University’s Medical School. We lease this space, which presently consists of a total area of approximately 1,845 square feet, from an unaffiliated third party as of July 18, 2017. The lease period is 10 years with an option for an additional 5 years at our discretion.
We believe this existing property is sufficient for our needs in the foreseeable future and that we have the ability to renew our lease at market terms and expand if required.
Our fixed assets are comprised of factory leasehold improvements, laboratory equipment, furniture, software and improvements in the leased property. The accumulated depreciation as stated in our financial reports is deducted from the fixed assets value. Our fixed assets, less deduction for the accumulated depreciation, were at NIS 34.9 million ($10.1 million) for the period ended on December 31, 2019 and at NIS 28.3 million ($8.18 million) for the period ended on December 31, 2018.
Our Main Laboratory
Our Ness Ziona laboratory was audited and approved according to the Good Manufacturing Practice standard pursuant to the European QP directive. Our new facility in Jerusalem consists of laboratories, manufacturing suites, and offices. The laboratories include (i) an analytical lab, which conducts quality tests on our products using our designated analytical methods; (ii) virology lab; and (iii) research and development lab. The manufacturing suites, defined as “clean rooms”, include a fermentation suite (“upstream”), a protein purification suite (“downstream”) and formulation suite.
The analytical lab is equipped with advanced equipment and machinery including computerized analytical devices for qualitative and quantitative analysis, equipment for measuring light absorption properties for identifying substances, equipment for measuring weight, acidity and temperature, and equipment for identifying replication of DNA sequences.
Our laboratory also includes a separate technician room which contains our computers and software used to collect the data received from our different devices for the purpose of analyzing it. The lab also contains refrigerators and freezers which are consistently monitored and that are connected to a computerized control system. The production rooms are equipped with a fermentation facility, machinery for filtering and concentrating proteins, a computerized system for the characterization and separation of proteins, as well as equipment allowing us to work under sterile conditions.
The virology lab is equipped with microscopes, incubators for growing bacteria, animal cells and viruses, and equipment enabling us to work under sterile conditions. The work performed at the virology lab involves various virus strains and therefore mandates strict safety conditions and is subject to Israeli environmental regulation.
The facility also includes a Water for Injection (WFI) water purification system. The WFI system is controlled and monitored continuously.
Research and other Grants
Grants under the Israeli Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984
On July 29, 2015, the Israeli parliament amended the Innvoation Law to establish the Israel Innovation Authority, or IIA, which replaced the OCS. The IIA is intended to have greater power and freedom than the OCS in launching creative funding tracks and instituting new guidelines that will govern the transferability and licensing of the resulting technology. IIA was formed as of January 1, 2016, and new grant tracks and guidelines are published from time to time. Under the amendment, the IIA was granted vast authority to regulate rules and procedures pertaining to obligations of recipients towards the IIA especially in the matters listed in this memorandum. The following is a summary of OCS regulations that apply to us following the receipt of grants since 2006:
Under the Innovation Law, research and development programs which meet specified criteria and are approved by the research committee of IIA, are eligible for grants. The grants awarded are typically for up to 50% of the project’s expenditures, as determined by the research committee. The grantee is required to pay royalties to the State of Israel on income generated from the sale of products (and related services associated with such products), whether received by the grantee or any affiliated entity, developed, in whole or in part, within the framework of an IIA--funded project or deriving therefrom at rates which are determined under the IIA’s rules and guidelines (currently a yearly rate of 1.3% 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,” a “Large Company” or a “Traditional Industrial 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 based on LIBOR (as determined in the IIA’s rules and guidelines). The terms of the IIA support also require that products developed using such grants be manufactured in Israel and that the know-how and technology developed thereunder may not be transferred outside of Israel, unless approval is received from the IIA (and 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). Nothing in the foregoing restricts the export of products that incorporate the funded technology. Should the Research Committee of the IIA approve the transfer of manufacturing rights outside of Israel, the royalty payments will be subject to an increase of up to a cap of 120%, 150% or 300% of the total IIA funding and accrued interest (LIBOR) (depending upon the portion of manufacture outside of Israel), and the royalty rates will be subject to an increase as well. Such approval is not required for the transfer of a portion of the manufacturing capacity which does not exceed, in the aggregate, 10% of the portion declared to be manufactured abroad in the applications for funding, in which case there is a notification requirement, and the IIA has the discretion to forbid the transfer. A Recipient Company also has the option of declaring in its IIA grant application its intention to exercise a portion of the manufacturing capacity abroad, thus avoiding the need to obtain additional approval following the receipt of the grant.
Ordinarily, as a condition to obtaining approval to manufacture outside Israel, we would be required to pay increased royalties, as set forth in the Innovation Law and related rules and guidelines. The total amount to be repaid to the IIA would also be adjusted to between 120% and 300% of the grants, plus interest at annual rate based on LIBOR, depending on the volume of manufacturing that is carried out outside Israel.
The Innovation Law restricts the transfer of know-how funded by the IIA outside of Israel. Transfer of IIA-funded know-how outside of Israel requires prior IIA approval and is subject to certain payments to the IIA calculated according to formulae provided under the IIA’s rules and guidelines (which are capped to amounts specified under such rules and guidelines). A transfer for the purpose of the Innovation Law means an actual sale of the IIA-funded know-how, or any other transaction which in essence constitutes a transfer of the know-how (such as providing an exclusive license to a foreign entity for R&D purposes, which precludes the IIA funded company from further using such 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.
The IIA has published rules and guidelines with respect to the grant to a foreign entity of the right to use know-how that was developed using the IIA’s grants. According to these rules, the grant to a foreign entity of a right to use the funded know-how (which does not entirely prevent the IIA funded company from using such 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 these rules. On August 2018, the IIA updated the abovementioned rules and established a new mechanism with respect to the grant of a license by a company (which is part of a multinational corporation) that received grants from the IIA to its group entities to use its IIA funded know-how. Such license is subject to the IIA's prior approval and to the payment of 5% royalties from the income deriving from such license. Such mechanism includes certain restrictions which must be met in order to be able to enjoy such lower royalty payments.
If we wish to transfer IIA-funded know-how, the terms for approval will be determined according to inter alia, the nature of the transaction and the consideration paid to us for such transfer. The IIA approval to transfer know-how created, in whole or in part, in connection with an IIA-funded project to a third party outside Israel where the transferring company remains an operating Israeli entity is subject to payment of a redemption fee to the IIA calculated according to a formula provided under the Innovation Law that is based, in general, on the ratio between the aggregate IIA grants to the company’s aggregate investments in the project that was funded by these IIA grants, multiplied by the transaction consideration considering depreciation mechanism and less royalties already paid to the IIA. The transfer of such know-how to a party outside Israel where the transferring company ceases to exist as an Israeli entity is subject to a different redemption fee formula that is based, in general, on the ratio between the aggregate amount of IIA grants received by the company and the company’s aggregate research expenses, multiplied by the transaction consideration considering depreciation mechanism and less royalties already paid to the IIA. the Innovation Law and related rules and guidelines establish a maximum payment of the redemption fee paid to the IIA under the above mentioned formulas and differentiates between two situations: (i) in the event that the company sells its IIA-funded know-how, in whole or in part, or is sold as part of certain merger and acquisition transactions, and subsequently ceases to conduct business in Israel, the maximum redemption fee under the above mentioned formulas will be no more than six times the amount received (plus annual interest) for the applicable know-how being transferred, or the entire amount received, as applicable; (ii) in the event that following the transactions described above, under contract with the acquiror, the company continues to conduct its research activity in Israel (for at least three years following such transfer and retains on staff at least 75% of the number of research employees it had for the six months before the know-how was transferred), then the company is eligible for a reduced cap of the redemption fee of no more than three times the amounts received (plus annual interest) for the applicable know-how being transferred, or the entire amount received, as applicable. There are specific caps that are applicable to licensing transactions, whereby such payments shall be no less than the amount of the grants received, and shall be no more than the cap stated in the Innovation Authority’s applicable rules.
Subject to prior consent of the IIA, the company may transfer the IIA-funded know-how to another Israeli company. If the IIA-funded know-how is transferred to another Israeli entity, the transfer would still require IIA approval but will not be subject to the payment of the redemption fee (we note that there will be an obligation to pay royalties to the IIA from the income of such sale transaction as part of the royalty payment obligation). In such case, the acquiring company would have to assume all of the selling company’s responsibilities towards the IIA as a condition to IIA approval.
Our research and development efforts have been financed, partially, through grants that we have received from the IIA. We therefore must comply with the requirements of the Research Law and related regulations. As of December 31, 2019, we have received a total of $5.5 million in IIA grants.
We have not received additional IIA grants from December 31, 2019 through the date of this annual report.
Finance Contract – European Investment Bank
We entered into a finance contract, or the Finance Contract, with the European Investment Bank, or EIB, for the financing of up to Euro 20 million, which was extended to Euro 24 million, and up to 50% of the Company’s expected cost of developing and marketing the Company’s product candidate, M-001. The finance contract is subject to the Horizon 2020 framework programme of the European Union for Research and Technological Development (2014-2020) (Horizon 2020 Framework EU Programme), which provides that the financing shall be used rationally and in the interest of the European Bank.
Prior to its expansion to Euro 24 million, the EIB financing was made available in three tranches, all subject to receiving evidence that the Company has funding available to it in an amount equal to the amount of the respective tranche, as follows: (i) the first tranche was available during the 12 months following the date of the finance contract, in an amount of Euro 4-6 million; (ii) the second tranche was available during the 24 months following the date of the Finance Contract, in an amount of Euro 4-6 million, and subject to receiving evidence of the manufacturing of the first clinical batch for the planned phase 3 clinical trials; (iii) the third tranche was available during the 36 months following the date of the Finance Contract, in amount that together with the first and second tranche equalled Euro 20 million and was paid subject to receipt of authorization to launch the phase 3 clinical trials. To date, we have drawn down all tranches of the loan and has received Euro 24 million.
The additional Euro 4 million approved by the Management Committee of the European Investment Bank (EIB) was used in support of the ongoing Phase 3 trial to increase the trial’s second cohort to approximately 8,000 participants, bringing the total size of the trial to approximately 12,000 participants. The increase in the number of participants was intended to compensate for the relatively mild 2018/19 flu season in Europe. The additional Euro 4 million was disbursed upon enrollment of the first participant in the clinical trial’s second season and $US 10 million of funds disbursed pro rata being provided by the Company.
The EIB financing is interest free and is repayable, per each tranche, in a single installment five years following the date each tranche was received. A failure to pay any amount payable under the Finance Contract shall cause interest to accrue on each unduly paid amount, at an annual rate equal to EURIBOR plus 2%.
In the event the Company elects to prepay the EIB financing, or in the event the EIB shall demand prepayment following certain events, including a change of control, senior management change or merger events, the Company shall be required to pay EIB the principal amount of the tranches already paid, or the Prepayment Amount, plus the greater of: (i) the amount, as determined by EIB required in order for the EIB to realize an internal rate of return on the relevant amount prepaid of 20%; and (ii) the Prepayment Amount. The finance contract also stipulates that in the event the EIB demands prepayment of the loan due to any prepayment event to non-EIB lenders, the Company shall be obligated to pay the Prepayment Amount plus an additional reduced amount.
In addition, and as consideration for the EIB financing, EIB shall be entitled to 3% of any annual M-001 sales revenues as reported in the Company’s annual financial statements, for a period of twelve years, or for a period longer than twelve years and subject to the EIB realizing a cash-on-cash multiple of 2.8 times the principal amount of the tranche.
As of December 31, 2019, we have drawn a sum of Euro 24 million ($26.4 million) in EIB loans.
The Finance Contract includes certain representations and warranties provided by the Company. The Company shall pay all taxes, duties, fees and other impositions applied in connection with this Finance Contract. The Finance Contract shall be governed by the laws of England and Wales and the courts of England shall have exclusive jurisdiction to settle any dispute.
The Finance Contract shall be subject to a security agreement, or the Security Agreement, creating a first ranking floating charge over all assets of the Company in favor of the EIB, which will exclude assets and/or intellectual property rights subject to the license agreement between the Company and YEDA.
Grant from the European Union – UNISEC
We were a member of the UNISEC Consortium. The UNISEC Consortium received a grant in the amount of Euro 6 million from the European Union, of which we expected to receive approximately Euro 0.5 million (approximately $0.6 million) to finance our BVX-007 clinical trial. In June 2013, we entered into a framework agreement with the Department of Pharmaceutical Technology and Biopharmacy of Groningen University, or the Coordinator, and the 11 other members of the Consortium. The framework agreement, which had a term of four years, defined the rules of conduct of the Consortium as well as the conditions of our grant, based upon Regulation (EC) No 1906/2006 of the European Parliament and the council of 18 December 2006. Pursuant to the framework agreement, we undertook to lead and coordinate the research of cellular immune reaction as a possible indicator for the effectiveness of a universal influenza vaccine. Results, including information, whether or not they can be protected, that are generated under the project, and including rights related to copyright, design rights, plant variety rights or similar forms of protection, or foreground intellectual property, shall be owned by the party carrying the work under the framework agreement. The Foreground shall be transferrable or published only by the owner with a written prior notice to the parties of the framework agreement. Where Foreground is capable of industrial or commercial application, its owner must provide for adequate and effective protection. If the owner does not intend to proceed with filing the necessary intellectual property protections, it must provide notice to the European Commission, that then may file the protection itself. According to the framework agreement, we may enter into a subcontract agreement with a third party; however, we will remain solely responsible for the implementation and compliance under the framework agreement. In addition, we are solely liable for the use of any proprietary rights of third parties. We will not be responsible to any other party to this framework agreement for any indirect or consequential loss or similar damage, provided such act was not caused by a willful act or by a breach of confidentiality. We will not be considered in breach of the framework agreement in the event that the breach is caused by Force Majeure, defined as any unforeseeable and exceptional event affecting the fulfillment of any obligation under this framework agreement by the parties, which is beyond their control and cannot be overcome despite their reasonable endeavors. The framework agreement sets the terms and conditions by which the parties may make joint decisions, and, under certain provisions, allows us to cast a veto vote on a specific decision. All payments shall be paid to us by the Coordinator according to a payment schedule and following the submission of a financial management report. Should we spend less than the grant we received, we shall be funded according to our actual expenditures. If we terminate the framework agreement, we will be obligated to return all payments received and bear any reasonable and justifiable additional costs occurring to the other Parties in order to perform their tasks, except the amount of contribution accepted by the European Commission or another contributor. The framework agreement is subject to European Union Law and the laws of Belgium, and the Court of Justice of the European Union shall have sole jurisdiction.
Grant for the Construction of a Manufacturing Facility in Jerusalem
On March 28, 2017, we received an approval from the Investment Center of the Ministry of Economy and Industry of the State of Israel, for a grant representing 20% of NIS 20 million budget, to be utilized towards the construction of our facility for the production of Phase 3 and commercial batches of the Company’s product candidate, M-001.
The receipt of the Grant is subject to certain terms and conditions, including those outlined under the Israeli Encouragement of Capital Investment Law, 1959. The terms and conditions include, inter alia, the following: (a) at least 24% of the investments in the planned manufacturing facility’s fixed assets will be financed by additional share capital; (b) the Company will maintain its intellectual property and manufacturing facility in Israel for a period of at least 10 years following receipt of the grant; (c) subject to the EIB’s approval, a floating charge over our assets (excluding assets and/or intellectual property rights subject to the license agreement between the Company and YEDA).
Raw Materials and Supplies
Our suppliers provide us with equipment, materials and services used for the research and development of M-001. The main raw materials required for producing M-001 are standard bacteria culture mediums. The equipment, materials and services we use for research varies in accordance with the specific research and development we perform. We believe that the raw materials that we require to manufacture M-001, as well as the raw materials that we require for our research and development operations relating to M-001, are widely available from numerous suppliers and are generally considered to be generic pharmaceutical materials and supplies. However, replacing approved suppliers may incur delays and require additional efforts.
In the United States, the FDA regulates pharmaceuticals and biologics under the Food, Drug & Cosmetics Act, and the Public Health Service Act, and their implementing regulations. These products are also subject to other federal, state, and local statutes and regulations, including federal and state consumer protection laws, laws protecting the privacy of health-related information, and laws prohibiting unfair and deceptive acts and trade practices.
The process required by the FDA before a new drug product may be marketed in the United States generally involves the following: completion of extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s Good Laboratory Practice, or GLP, regulations; submission to the FDA of an IND application, which the FDA must allow to become effective before human clinical trials may begin and must be updated annually; performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication; and submission to the FDA of an NDA for a drug, and Biologic License Application (BLA) for biological product, after completion of all pivotal clinical trials.
An IND application while technically a request for a Federal approval to transport or distribute a drug across state lines, is, in effect, a request for authorization from the FDA to administer an investigational drug product to humans. Although none of our clinical trials protocols were conducted pursuant to an FDA approval, the NIH study (BVX-008) was done under an IND authorization of the FDA. The IND was submitted by the Division of Microbiology and Infectious Diseases (DMID) of the NIAID and the NIH with cross reference to our active IND for the product manufacturing (CMC) data. We had two pre-IND meetings in 2008 and 2012 with FDA representatives on various aspects of M-001 and the clinical development program. The 2012 meeting served as the basis for our IND application submission in June 2013. In June 2013 we submitted an IND application to the FDA for a contemplated Phase 2 clinical trial intended to be conducted in the U.S. This Phase 2 clinical trial was designed to test the safety and efficacy of M-001 when administered as a primer for the H5N1 Avian flu pandemic vaccine, by administering M-001 to participants prior to the administration of the H5N1 vaccine. This IND application included data, reports and summaries from our previously conducted Israeli preclinical and clinical trials. The FDA reviewed and commented on our IND application and requested, among other things, that we provide to the FDA, prior to the commencement of the proposed clinical trial, information regarding the H5N1 vaccine selected for use in this proposed clinical trial and a summary of the toxicological effects of M-001.We provided the information regarding the toxicology of M-001 as requested; however, we were unable to locate a source for or otherwise acquire the H5N1 vaccine (which was not publicly available) from a manufacturer approved for the purpose of performing clinical trials in the U.S. As a result, we were not able to satisfy the FDA’s request for information regarding such vaccine (including information as to manufacturing, dosage, formulation, etc.). Without such information, we could not complete our IND application and the FDA placed a clinical hold on the trial. In light of these events, we elected to convert our IND application into a Drug Master File. In the future, we intend to submit an IND application to the FDA for initiating Phase 3 clinical trials or, if required, to conduct a bridging clinical study to allow licensure of the M-001 in the U.S. pursuant to the successful completion of the ongoing Phase 3 clinical trial for M-001 in Europe. subject to the success of the current European Phase 3 trial, subject to approval we plan to conduct these U.S. clinical trials, either with one or more future collaborators, or, with available funds, on our own, in support of FDA approval to market M-001 in the U.S.
Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators in accordance with current Good Clinical Practices, or GCP, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Additionally, approval must also be obtained from each clinical trial site’s IRB, before the trials may be initiated, and the IRB must monitor the trial until completed. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.
Generally, three phases of clinical trials are conducted prior to receiving regulatory marketing approval: Phase 1 clinical trials are normally conducted in small groups of healthy volunteers to assess safety and find the potential dosing range. After a safe dose has been established, the drug is administered to small populations of eligible participants (Phase 2) to look for initial signs of efficacy in treating the targeted disease or condition and to continue to assess safety. In the case of vaccines, the participants are healthy and the signs of efficacy can be obtained in early Phase 1, therefore this Phase is defined as Phase 1/2. Phase 3 clinical trials are usually multi-center, double-blind controlled trials in hundreds or even thousands of subjects at various sites to assess as fully as possible both the safety and effectiveness of the drug.
The FDA, the IRB, or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group reviews unblinded data from clinical trials and provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial. We may also suspend or terminate a clinical trial based on evolving business objectives and/or the competitive climate.
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational drug product information is submitted to the FDA in the form of a BLA as compared to an NDA for generally traditional small molecule drugs requesting approval to market the product for one or more indications. The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, and controls and proposed labeling, among other things. Given the complexities of manufacturing biological products that are processed from living material, BLA content must also demonstrate purity specifically in terms of showing that the final product does not contain extra material.
Once the BLA submission has been accepted for filing, the FDA’s goal is to review applications within 10 months of filing. However, the review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations.
After the FDA evaluates the BLA and conducts inspections of manufacturing facilities where the drug product will be formulated and where the drug will be produced, it may issue an approval letter or, instead, a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter may require additional clinical data and/or an additional Phase 3 clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the BLA does not satisfy the criteria for approval. The FDA could also approve the BLA with a risk evaluation and mitigation strategy to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, participant registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase 4 clinical trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.
After regulatory approval of a drug product is obtained, the drug producer is required to comply with a number of post-approval regulations. As a holder of an approved BLA, we would be required to report, among other things, certain adverse reactions and production problems to the FDA, to provide updated safety and efficacy information, and to comply with requirements concerning advertising and promotional labeling for any of our products. These promotion and advertising requirements include, among others, standards for direct-to-consumer advertising, prohibitions against promoting drugs for uses in participant populations that are not described in the drug’s approved labeling (known as “off-label use”), rules for conducting industry-sponsored scientific and educational activities and other promotional activities, Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses. Failure to comply with FDA requirements can have negative consequences, including the immediate discontinuation of marketing activities and noncomplying materials, adverse publicity, enforcement letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Such enforcement may also lead to scrutiny and enforcement by other government and regulatory bodies.
Also, quality control and manufacturing procedures must continue to conform to cGMP after approval to ensure and preserve the long term stability of the drug product. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive, and record keeping requirements. In addition, changes to the manufacturing process are strictly regulated and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
Future FDA and state inspections may identify compliance issues at our facilities or at the facilities of our CMOs or licensees that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved BLA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our current product candidate or any product candidate we may develop in the future (if any).
The FDA also may require post-marketing testing, or Phase 4 testing, as well as risk minimization action plans and surveillance to monitor the effects of an approved product or place conditions on an approval that could otherwise restrict the distribution or use of the product.
Other U.S. Healthcare Laws and Compliance Requirements
For products distributed in the United States, we will also be subject to additional healthcare regulation and enforcement by the federal government and the states in which we conduct our business.
Efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations could be costly. Although we believe our business practices are structured to be compliant with applicable laws, it is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our future operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from third party payor programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians, providers or entities with whom we may do business with will be found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusion from government funded healthcare programs.
Many aspects of these laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of subjective interpretations which increases the risk of potential violations. In addition, these laws and their interpretations are subject to change. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business, and damage our reputation.
In addition, from time to time in the future, we may become subject to additional laws or regulations administered by the FDA, the Federal Trade Commission, or by other federal, state, local or foreign regulatory authorities, to the repeal of laws or regulations that we generally consider favorable, or to more stringent interpretations of current laws or regulations. We are not able to predict the nature of such future laws, regulations, repeals or interpretations, and we cannot predict what effect additional governmental regulation, if and when it occurs, would have on our business in the future. Such developments could, however, require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, additional personnel, or other new requirements. Any such developments could have a material adverse effect on our business.
Israeli regulations regarding clinical trials
Before an entity or person can conduct clinical testing on humans in Israel, such entity or person must receive special authorization from the ethics committee (also known as a “Helsinki Committee”) and general manager of the institution in which such entity or person intends to conduct its study, as required under the Guidelines for Clinical Trials in Human Subjects implemented pursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. These regulations also require authorization from the Israeli Ministry of Health, except in certain circumstances, and in the case of genetic trials, special fertility trials and similar trials, an additional authorization of the overseeing institutional ethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project to determine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for the rights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. To date, five of seven completed clinical trials of M-001 were conducted in Israel, one in Europe and one in the U.S. If we perform future clinical studies in Israel, we will be required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conduct our clinical trials, and in most cases, from the Israeli Ministry of Health.
The Encouragement of Industrial Research and Development Law, 5744-1984
We received grants from the IIA and are therefore subject to the provisions of the R&D Law and a number of related restrictions. See “Business — Research Grants — Grants under the Israeli Encouragement of Industrial and Development Law.”
Europe/Rest of World
Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. For example, in the European Union, a clinical trial application, or CTA, must be submitted to each member state’s national health authority and an independent ethics committee. The CTA must be approved by both the national health authority and the independent ethics committee prior to the commencement of a clinical trial in the member state. The approval process varies from country to country and the time frame may be longer or shorter than that required for FDA approval. In addition, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. In all cases, clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Helsinki Declaration.
To obtain marketing approval of a drug under European Union regulatory systems, we may submit marketing authorization applications under a centralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The centralized procedure is compulsory for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment of certain diseases, including M-001, and optional for those products that are highly innovative or for which a centralized process is in the interest of participants. M-001 falls under the compulsory centralized procedure category. Under the centralized procedure category in the European Union, the maximum time frame for the evaluation of a marketing authorization application is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the Scientific Advice Working Party of the Committee of Medicinal Products for Human Use, or CHMP). Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, defined by three cumulative criteria: the seriousness of the disease, such as seriously disabling or life-threatening diseases, to be treated; the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high therapeutic benefit. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days.
The decentralized procedure provides for approval by one or more other, or concerned, member states of an assessment of an application performed by one member state, known as the reference member state. Under this procedure, an applicant submits an application, or dossier, and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report, each concerned member state must decide whether to approve the assessment report and related materials. If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed points may eventually be referred to the European Commission, whose decision is binding on all member states.
For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCPs and the applicable regulatory requirements and the ethical principles that have their origin in the Helsinki Declaration.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
As of December 31, 2019, we exclusively licensed two families of patents and own three additional families to use within our field of business. Such patents were granted in various countries, including the United States, Israel, China, Canada, Australia, New Zealand, Mexico, South Korea, Hong Kong, France, Germany, Spain, Switzerland, Ireland, the United Kingdom, Russia, Brazil, Japan and other countries. There are also pending patent applications relating to these patent families in various jurisdictions, all of which are active applications that have yet to be approved. Our patents and patent applications generally relate to influenza vaccines, particularly M-001, and to their manufacture and use. Our patents and patent applications are expected to expire between 2020 and 2035.
The tables below summarize material information regarding our patent families, including expected expiration date by territory:
Title: PEPTIDE-BASED VACCINE FOR INFLUENZA
Assignee: YEDA RESEARCH AND DEVELOPMENT CO. LTD.
Priority: Israel 127331 filed: 30-Nov-1998
PCT: WO 00/032228 filed 28-Nov-1999
|Country||Application No.||Filing Date||Patent No.||Expiration Date||Status|
|U.S. -1 Div.||10/846548||28-Nov-1999||7192595||31-Aug-2020*||granted|
|*||Due to patent term adjustment of 277 days|
Title: IMPROVED INFLUENZA VACCINE
Assignee: YEDA RESEARCH AND DEVELOPMENT CO. LTD.
Priority: US Prov. 60/742574 filed: 06-Dec-2005
PCT: WO2007/066334 filed 06-Dec-2006
|Country||Application No.||Filing Date||Patent No.||Expiration Date||Status|
|**||Due to patent term adjustment of 47 days|
Title: MULTIMERIC MULTIEPITOPE INFLUENZA VACCINES
Assignee: BiondVax Pharmaceuticals Ltd.
Priority: US Prov. 60/953498 filed 02-Aug-2007
PCT WO2009/016639 filed: 03-Aug-2008
|Country||Application No.||Filing Date||Patent/Publication No.||Expiration Date||Status|
*** Due to patent term adjustment of 1110 days
Title: MULTIMERIC MULTIEPITOPE POLYPEPTIDES AS ENHANCERS FOR SEASONAL AND PANDEMIC INFLUENZA VACCINES
Assignee: BiondVax Pharmaceuticals Ltd.
PCT WO2012/114323 filed: 22-Feb-2011
|Country||Application No.||Filing Date||Patent/Publication No.||Expiration Date||Status|
* Due to patent term adjustment of 80 days
Title: VACCINE COMPOSITIONS OF MULTIMERIC MULTIEPITOPE INFLUENZA POLYPEPTIDES AND THEIR PRODUCTION
Assignee: BiondVax Pharmaceuticals Ltd.
PCT WO2015/151103 filed: 01-April-2015
Priority: US Prov. 61/974449 filed 03-Apr-2014
|Country||Application No.||Filing Date||Publication No.||Expiration Date||Status|
We do not know of any oppositions filed, difficulties or delays in connection with applications submitted by us for the registration of the above-mentioned material patents, including claims submitted against the aforementioned patents that may adversely affect the registration of the patent.
We do not know whether any of our pending patent applications will result in the issuance of any future patents. Our issued patents and those that may be issued in the future, or patents that we exclusively license, may be challenged, narrowed, circumvented or found to be invalid or unenforceable, which could limit our ability to stop competitors from marketing related products or the length of term of patent protection that we may have for our products. We cannot be certain that we were the first to invent the inventions claimed in patents or patent applications owned by or assigned to us, nor can we be certain that the scientists of the Weizmann Institute were the first to invent the invention claimed in the patents that we exclusively license from Yeda. In addition, our competitors may independently develop similar technologies or duplicate any technology developed by us, and the rights granted under any issued patents may not provide us with any meaningful competitive advantages against these competitors. Furthermore, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.
Yeda License Agreement
At present, among other patents, we have an exclusive worldwide license to two families of patents from Yeda, the technology transfer arm of the Weizmann Institute of Science of Rehovot, Israel, pursuant to a license agreement entered into with Yeda in 2003, as amended in 2005.
Pursuant to the license agreement, Yeda granted us an exclusive worldwide license for the development, manufacturing, marketing, sale, distribution and importing of products based, directly or indirectly, on patents and patent applications to be approved or submitted pursuant to the invention titled “Peptide Based Vaccine for Influenza” and the invention titled “Improved Influenza Vaccine”, developed by research headed by Prof. Ruth Arnon.
Unless terminated earlier in accordance with the terms described below, the license granted will remain in effect in each county and for each product developed based on the invention until the earliest of: (i) if a patent was granted in a specific county, the patent expiration date in such country of the last of the patents; (ii) 15 years from the date of first commercial sale of a product, by us or a sublicensee, in either the U.S or Europe, after obtaining of FDA New Drug Approval or equivalent approval in any European country, if there is no patent covering such product in such country but there is however know how that is identifiable as a secret and is not in the public domain which relates to such product, provided that such know how remains secret and of value.
In exchange for the license grant, we or our future sub licensers will be obligated to pay royalties equaling 3% of the total amount invoiced by us or a sub licensee in connection with the sale of products based on Yeda’s patents, or 2% of such amounts if they originated from a country which did not grant a patent in connection with such products. All sales of products in connection with the license agreement for any purpose other than for the purpose of clinical trials are required to be made for monetary consideration.
We are not permitted to assign the license agreement to third parties without Yeda’s prior consent, unless in the framework of our merger with another entity, as a result of which we are not the surviving entity, subject to certain conditions and requirements under the license agreement. We are however entitled to grant sublicenses under the license agreement, subject to Yeda’s prior written approval, provided, among other things, that any sublicense shall expire upon termination of the license agreement and that the licensee (s) shall be bound by confidentiality obligations similar to our confidentiality obligations under the license agreement. The sublicense shall not be transferable or sub licensable. To date we have yet to enter into any such sublicense agreement. We sublicense our products we will be obligated to pay Yeda the following royalties: (i) 45% of consideration received (whether monetary or otherwise) by us for the grant of or pursuant to sublicenses or in connection with sublicense options executed prior to the completion of Phase 1 clinical trials; (ii) 35% of consideration received by us up to the first $20 million and 25% of any consideration received by us exceeding such first $20 million, for the grant of or pursuant to sublicenses or in connection with sublicense options executed after the completion of Phase 1 clinical trials and prior to the completion of Phase 2 clinical trials; (iii) 20% of consideration received by us up to the first $20 million and 15% of any consideration received by us exceeding such first $20 million, for the grant of or pursuant to sublicenses or in connection with sublicense options executed after the completion of Phase 2 clinical trials. We are not obligated to pay Yeda any royalties or other payments with respect to (a) the use or disposal of a product, without consideration, for the sole purpose of conducting clinical trials in respect of such product; or (b) any product in any country after the expiry of the license in such country with respect to the product.
We maintain the patents and patent applications licensed from Yeda, and we are obligated to submit to Yeda a development plan for each potential product.
The license agreement will terminate upon the later of: (i) the expiration date of the last patent licensed under the license agreement; (ii) in the event only one product will be developed and/or commercialized by utilizing the licensed intellectual property, 15 years from the date of first commercial sale of such product in either the U.S or Europe, following receipt of New Drug Approval from the FDA or equivalent approval in any European country for such product; (iii) in the event that more than one product will be developed and/or commercialized by utilizing the licensed intellectual property, following the receipt of New Drug Approval from the FDA or equivalent approval in any European country for such product the expiry of a 20 year period during which there shall not have been a sale of any such products in either the U.S. or Europe. However, Yeda shall be entitled, at its option and without our consent, to modify the license so that it is non-exclusive or to terminate the license with 30 days prior written notice to us, if any of the following occurs: (1) we fail to commence the commercial sale of at least one product based on the licensee’s intellectual property, in at least one country, within six months following receipt of an FDA or similar foreign regulatory approval for commercial marketing of such product and taking into account the seasonal nature of the products; or (2) we fail to sell any product based on the licensee’s intellectual property, during a period of one year after commercial sale of a product has commenced, during which no sales of the product take place (in both cases, except as a result of force majeure or other factors beyond our control). In addition, Yeda is permitted to terminate our license agreement by written notice (a) in the event we materially breach any of our obligations under the license agreement, provided that such material breach is incurable or, if curable, is not cured by us within thirty days (or in the case of failure by us to make payments due to Yeda in connection with the license agreement, ten days) from receipt of notice of such breach; or (b) in the event of the appointment of a temporary or permanent liquidator to our Company or a resolution is passed to voluntarily wind up our Company, or if an order or act is granted for the winding up of our Company, provided that if such order or act was initiated by any third party, such order or act is not cancelled within 120 days; or (c) if we contest the validity of one of the patents registered by Yeda. Upon termination of the license agreement, other than pursuant to (i) through (iii) above, all rights and documents will be returned to Yeda, and we will grant Yeda an exclusive world-wide irrevocable license to our know-how and products which are based on the intellectual property licensed from Yeda or that were discovered or occur or arise from the performance of our development work pursuant to the license agreement. In the event that Yeda terminates the license agreement due to any reason other than termination in accordance with (1), (2) and (a) through (c) above, we will be entitled to receive royalty payments equal to 25% of net proceeds received by Yeda from the grant to third parties, within the five years following the termination of the license agreement, of a license or other rights, which include our developments, up to the aggregate amount of research funds actually expended by us for development.
We are subject to various environmental, health and safety laws and regulations, including those governing the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believe that our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations. Our laboratory personnel have ongoing communication with the Israeli Ministry of Environmental Protection in order to verify compliance with relevant instructions and regulations. In addition, all of our laboratory personnel participate in instruction on the proper handling of chemicals, including hazardous substances before commencing employment, and during the course of their employment, with us. In addition, all information with respect to any chemical substance that we use is filed and stored as a Material Safety Data Sheet, as required by applicable environmental regulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. The operation of our facilities, however, entails risks in these areas. Significant expenditures could be required in the future if we are required to comply with new or more stringent environmental or health and safety laws, regulations or requirements.
We do not have any subsidiaries and do not hold any investments in other entities.
|D.||Property, Plants and Equipment|
Since August 2018, our principal executive offices and main laboratory are located at Jerusalem BioPark, 2nd floor, Hadassah Ein Kerem Campus, Jerusalem, Israel, next to Hadassah University Hospitals and Hebrew University’s Medical School.
For the year ended December 31, 2019, our office and laboratory cash outflow for leases amounted to NIS 1.1 million ($ 0.32 million).
Our fixed assets are comprised of factory leasehold improvements, laboratory equipment, furniture and software. The accumulated depreciation as stated in our financial reports is deducted from the fixed assets value. Our fixed assets, less deduction for the accumulated depreciation, were at NIS 34.9 million ($10.1 million) for the period ended on December 31, 2019 and at NIS 28.3 million ($8.18 million) for the period ended on December 31, 2018.
For a description of our current laboratory see Item 4B. “Business Overview – Manufacturing”.
|Item 4A.||UNRESOLVED STAFF COMMENTS|
|Item 5.||OPERATING AND FINANCIAL REVIEW AND PROSPECTS|
The information contained in this section should be read in conjunction with our consolidated financial statements for the year ended December 31, 2019 and related notes and the information contained elsewhere in this annual report. Our financial statements have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board, or the IASB.
We are a clinical stage biopharmaceutical company focused on developing and, ultimately, commercializing immunomodulation therapies for infectious diseases. Our current product candidate, M-001, is a synthetic peptide-based protein targeting both seasonal and pandemic strains of the influenza virus. Unlike existing influenza vaccines, which offer only strain specific seasonal protection or pandemic prevention, M-001 is designed to provide long-lasting protection against multiple existing and future influenza strains. As a result, we believe that M-001 has the potential to become an attractive alternative to existing influenza vaccines.
M-001 is based on research initially conducted at the Weizmann Institute over a period of approximately 10 years prior to our inception in 2003. In 2003, we acquired from Yeda an exclusive worldwide license for the development, manufacture, use, marketing, sale, distribution and importation of products based, directly or indirectly, on patents and patent applications filed pursuant to the invention titled “Peptide Based Vaccine for Influenza”, developed on the basis of the research conducted by Professor Ruth Arnon and her team at the Weizmann Institute. Since 2003, we have continued the research and development of M-001 under the supervision of our Chief Scientific Officer, Dr. Tamar Ben-Yedidia and, at present, we own or license five families of patents filed in a large number of jurisdictions, the latest of which is expected to be in force until 2035.
According to the Centers for Disease Control and Prevention, or CDC, an agency of the U.S. Department of Health & Human Services (HHS), the estimated adjusted seasonal influenza vaccine effectiveness, or VE, from 2004 to 2019 in the U.S. varied between 10% during the 2004/2005 season to 60% during the 2010/2011 season. According to this data, the average VE is about 40%. Most existing influenza vaccines are formulated based on weakened or dead strains of the influenza virus that are predicted to be the most common circulating strains during the then upcoming influenza season or that are perceived to have the greatest potential to cause a future pandemic outbreak. While the influenza virus frequently and unpredictably mutates, resulting in novel strains, existing seasonal and pandemic influenza vaccines are strain-specific, and only target those specific strains, and are not expected to protect against novel emerging influenza strains. In addition, the production cycle of most existing influenza vaccines is long (approximately 5 to 6 months), considerably limiting the ability to quickly immunize the population in case of a pandemic outbreak.
Since our incorporation, we have primarily focused our efforts on research and development and clinical trials of our product candidate, M-001. We are not profitable and have incurred losses since inception, principally as a result of research and development, clinical trials and general administrative expenses in support of our operations. We have not generated any revenue, expect to incur substantial losses for the foreseeable future and may never become profitable. For the years ended December 31, 2017, 2018 and 2019, we had net losses of $9,999, $25,384 and $31,596 thousands, respectively, and we expect such losses to continue for the foreseeable future. In addition, as of December 31, 2019, we had an accumulated deficit of approximately $92,690 thousands and we expect to experience negative cash flow for the foreseeable future.
Key Components of Statements of Operations
Sources of revenues. Since our inception, we have generated significant losses in connection with our research and development, clinical trials and general administrative expenses in support of our operations and, to date, have not generated revenues.
To date, we have funded our operations primarily through the sale of equity securities (both in private placements, in public offerings on the TASE and the NASDAQ Capital Market) and funding received from the IIA formerly known as the OCS. From our inception until our initial public offering in Israel in June 2007, we raised approximately NIS 20.1 million ($5.3 million) in various private placements. We received approximately NIS 10.12 million ($2.7 million) in net proceeds from our initial public offering in Israel and raised an additional NIS 49.6 million ($13.2 million) from various public offerings since June 2007 in Israel. We also received gross proceeds of approximately $10.12 million and approximately $8.54 million in net proceeds from our initial public offering in the U.S. in May 2015. In January 2017, we received gross proceeds of approximately $2.8 million from a private placement transaction with Angels Investments in High Tech Ltd., a private Israeli company controlled by Mr. Marius Nacht, and an additional $3.2 million was raised from ADS issuance under our ATM program, which was terminated as of September 13, 2017. We also raised approximately $10.4 million in gross proceeds in a public underwritten offering completed in September 2017. We also raised total gross proceeds of $20 million in a rights offering in July 2019 and raised total gross proceeds of $53 thousands following a warrant exercise in June 2019. During 2019, we received NIS 15.8 million ($4.4 million) as loans from the European Investment Bank (EIB). As of December 31, 2019, we had approximately NIS 72.4 million ($20.9 million) of cash and cash equivalents. We expect that we will incur additional losses soon as a result of our research and development activities. Such research and development activities will require us to obtain and expend further resources if we are to be successful. As a result, we expect to continue to incur operating losses, and we may be required to obtain additional funds during 2020 to further develop our research and development programs and our product candidate as well as prepare for the potential submission of an NDA with the FDA for M-001. As a result of, among other things, our research and development activities, as well as our failure to generate revenues since our inception, for the year ended December 31, 2019, our net loss was approximately NIS 109.2 million ($31.6 million), respectively.
Cost of Revenues
Our total cost of revenues includes expenses for the manufacturing of M-001, including the cost of raw materials, employee-related expenses including salaries, equity based-compensation and other benefits and related expenses, rental fees, utilities and depreciation. We expect that our cost of revenues will continue to increase.
Research and development expenses. Our research and development expenses consist primarily of salaries and related personnel expenses, fees paid to consultants, patent-related legal fees, costs of preclinical studies and clinical studies, drug and laboratory supplies, and costs for facilities and equipment. We charge all research and development expenses to operations as they are incurred. We expect our research and development expenses to remain our primary expense in the near future as we continue to develop M-001. Increases or decreases in research and development expenditures are attributable to the number and/or duration of the clinical studies that we conduct.
We expect that a large percentage of our research and development expenses in the future will be incurred in support of our current and future clinical development projects. Due to the inherently unpredictable nature of clinical development processes, we are unable to estimate with any certainty the costs we will incur in the continued development of M-001 for potential commercialization. Clinical development timelines, the probability of success and development costs can differ materially from expectations. We expect to continue to conduct additional clinical trials for M-001 with associated research and development expenses.
While we are currently focused on advancing our product development, our future research and development expenses will depend on the clinical success of M-001, as well as ongoing assessments of M-001’s, and any future product candidates’ commercial potential. As we obtain results from clinical studies, we may elect to discontinue or delay clinical studies for M-001 and any future product candidate in certain indications in order to focus our resources on more promising product candidates. Completion of clinical studies may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate.
We expect our research and development expenses to increase in the future from current levels as we continue the advancement of our clinical product development. The lengthy process of completing clinical studies and seeking regulatory approval for M-001 requires the expenditure of substantial resources. Any failure or delay in completing clinical studies, or in obtaining regulatory approvals, could cause a delay in generating product revenue and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Because of the factors set forth above, we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects.
Developing drugs, conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. Although we believe that our existing cash resources will be sufficient to fund our projected cash requirements for at least the next 15 months, we will require significant additional financing in the future to fund our operations, including if and when we progress into additional clinical trials of our product candidate, obtain regulatory approval for M-001, obtain commercial manufacturing capabilities and commercialize our product candidate. Our future capital requirements will depend on many factors, including:
|●||the progress and costs of our clinical trials and other research and development activities;|
|●||the scope, prioritization and number of our clinical trials and other research and development programs;|
|●||the amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements with respect to our product candidates;|
|●||the costs of the development and expansion of our operational infrastructure;|
|●||the costs and timing of obtaining regulatory approvals for our product candidate;|
|●||the ability of us, or our collaborators, to achieve development milestones, marketing approvals and other events or developments under our potential future licensing agreements;|
|●||the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;|
|●||the costs and timing of building and securing manufacturing arrangements for clinical or commercial production;|
|●||the costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves;|
|●||the costs of acquiring or undertaking development and commercialization efforts for any future products, product candidates or platforms;|
|●||the magnitude of our general and administrative expenses; and|
|●||any cost that we may incur under future in- and out-licensing arrangements relating to one or more of our product candidates.|
Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through the net proceeds received from future private or public equity raising, grants from governmental agencies such as the IIA, debt or equity or other non-dilutive financings such as the loan from EIB, among other financing mechanisms. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of or eliminate research or development plans for, or commercialization efforts with respect to, M-001 or any future product candidate.
Since 2006 and through December 31, 2019, we received $5.5 million in IIA grants.
Marketing, General and Administrative Expenses:
Our general and administrative expenses consist primarily of salaries and expenses related to employee benefits, including share-based compensation, for our general and administrative employees, which includes employees in executive and operational roles, including finance and human resources, as well as consulting, legal and professional services related to our general and administrative operations.
Financial Income and Expenses
Financial income consists primarily of interest income on our cash and cash equivalents, foreign currency exchange income and warrants valuation. Financial expenses consist primarily of expenses related to bank charges foreign currency exchange expense and financial liabilities valuation.
Participation by Third Parties
Our research and development expenses are net of the following participations by third parties.
Participation by the Office of the Chief Scientist.
Research and development grants received from the OCS, today known as the IIA, are recognized upon receipt as a liability if future economic benefits are expected from the project that will result in royalty-bearing sales. The amount of the liability for the grant is first measured at fair value using a discount rate that reflects a market rate of interest that reflects the appropriate degree of risks inherent in our business. If no economic benefits are expected from the research activity, the grant receipts are recognized as a reduction of the related research and development expenses. In that event, the royalty obligation is treated as a contingent liability in accordance with IAS 37, “Provisions, Contingent Liabilities and Contingent Assets.”
At the end of each reporting period, we evaluate whether there is reasonable assurance that the received grants will not be repaid based on its best estimate of future sales and, if so, no liability is recognized and the grants are recorded against a corresponding reduction in research and development expenses.
Since our development projects are currently in Phase 3 clinical trials, management estimates that future economic benefits of the project are possible, and therefore liability with respect to the IIA has been recorded to date in the sum of NIS 14.8 million (approximately $4.2 million).
Research and development grants received from the European Union are recorded against a corresponding reduction in research and development expenses.
Taxes on Income
Israeli resident companies, such as the Company, are generally subject to corporate tax at the rate of 23% as of 2019.
Capital gains derived by an Israeli resident company are generally subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will be considered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercised in Israel.
Comparison of Period to Period Results of Operations
The table below provides our results of operations for the year ended December 31, 2019 as compared to the years ended December 31, 2018, 2017, 2016 and 2015:
into USD in
|Statements of comprehensive loss data:(1)|
|Research and development expenses||10,736||9,397||19,423||72,056||68,645||19,863|
|Participation by the IIA and UNISEC||(2,830||)||(1,603||)||(646||)||(143||)||-||-|
|Research and development, net of participations expenses||7,906||7,794||18,777||71,913||68,645||19,863|
|Marketing, general and administrative expenses||3,397||4,106||4,879||5,154||9,706||2,808|
|Financial income (expenses), net||1,104||2,716||(10,895||)||(10,660||)||(30,843||)||(8,925||)|
|Loss from available-for-sale financial assets||5||6||6||-||-||-|
|Total comprehensive loss||(10,204||)||(9,190||)||(34,557||)||(87,727||)||(109,194||)||(31,596||)|
|Basic and Diluted net loss per share (NIS)||0.1||0.07||0.17||0.34||(0.33||)||(0.09||)|
|Weighted average number of shares outstanding used to compute basic and diluted loss per share (in thousands)||105,523||135,097||201,031||261,420||326,651||326,651|
|NIS in thousands||Convenience |
into USD in
|Statement of financial position|
|Cash and cash equivalents||71,382||75,883||72,467||20,968|
|Rights of use assets||-||-||7,136||2,065|
|Property, plant and equipment||5,510||28,249||34,981||10,122|
|Other long term assets||880||740||510||148|
|Current maturities of lease liabilities||-||-||694||201|
|Liability in respect of government grants||10,300||14,643||14,812||4,286|
|Loan from others||-||94,360||123,780||35,816|
|Severance pay liability, net||83||82||89||26|
|Total shareholders’ equity||56,252||(31,215||)||(65,053||)||(18,832||)|
|(1)||Diluted loss per share data is not presented because the effect of the exercise of our outstanding options is anti-dilutive.|
|(2)||Calculated using the exchange rate reported by the Bank of Israel for December 31, 2019, at the rate of one U.S. dollar per NIS 3.456|
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Research and Development Expenses, net
Our research and development expenses, net for the year ended December 31, 2019 amounted to NIS 68.6 million ($19.8 million) compared NIS 71.9 ($20.8 million) for the year ended December 31, 2018. The decrease in 2019 compared to 2018 was primarily a result of the clinical trial phase 3 expenses of NIS 15.4 ($4.45 million).
Marketing, General and Administrative Expenses
Our marketing, general and administrative expenses for the year ended December 31, 2019 amounted to NIS 9.7 million (approximately $2.8 million) compared to NIS 5.1 million (approximately 1.47 million) for the year ended December 31, 2018. The increase primarily results from higher professional services and salaries expenses.
Financial Expense (Income), Net
Our financial expenses, net for the year ended December 31, 2019 amounted to NIS 30.8 million ($8.9 million) primarily from financial expenses in respect of loans from EIB, warrants revaluation and currency exchange expenses.
Our financial expenses, net for the year ended December 31, 2018 amounted to NIS 10.6 million ($3.06 million) from primarily from primarily from financial expenses in respect of loans from EIB and government grants.
As a result of the foregoing research and development, marketing general and administrative expenses, and as we have not yet generated revenues since our inception, our net loss for the year ended December 31, 2019 was NIS 109.2 million ($31.6 million), compared to our net loss for the year ended December 31, 2018 of NIS 87.7 million ($25.37 million). The increase in 2019 compared to 2018 primarily resulted from increases in marketing, general and administrative expenses, and financial expenses, net, as described above.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
This analysis can be found in Item 5 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018.
Quarterly Results of Operations
The following tables show our unaudited quarterly statements of operations for the periods indicated. We have prepared this quarterly information on a basis consistent with our audited consolidated financial statements and we believe it includes all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the information shown. Operating results for any quarter are not necessarily indicative of results for a full fiscal year.
|Three Months Ended|
|Mar-31||Jun-30||Sept. 30||Dec. 31||Mar-31||Jun-30||Sept. 30||Dec. 31|
|Research and development, net of participations (in thousand NIS)||11,745||29,205||4,347||26,616||5,732||15,172||16,133||31,608|
|Research and development, net of participations (in thousand US dollars)(1)||3,398||8,451||1,258||7,701||1,659||4,390||4,668||9,146|
|marketing, general and administrative (in thousand NIS)(1)||884||1,445||1,475||1,350||1,433||4,518||2,790||965|
|marketing, general and administrative (in thousand US dollars)||255||418||427||390||415||1,307||807||279|
|Operating loss (in thousand NIS)||12,629||30,650||5,822||27,966||7,165||19,690||18,923||32,573|
|Operating loss (in thousand US dollars) (1)||3,653||8,869||1,685||8,091||2,073||5,697||5,475||9,426|
|Financial expenses (income), net (in thousand NIS)||(1,573||)||(339||)||902||8,524||(2,023||)||(27,699||)||(432||)||(693||)|
|Financial expenses (income), net (in thousand US dollars) (1)||455||98||261||2,466||(585||)||(8,015||)||(125||)||(201||)|
|Net loss (in thousand NIS)||14,202||30,311||6,724||36,490||(9,188||)||(47,389||)||(19,355||)||(33,262||)|
|Net loss (in thousand US dollars) (1)||4,108||8,771||1,946||10,557||2,658||(13,712||)||(5,600||)||(14,942||)|
|(1)||Calculated using the exchange rate reported by the Bank of Israel for December 31, 2019, at the rate of one U.S. dollar per NIS 3.456.|
Our quarterly revenues and operating results of operations have varied in the past and can be expected to vary in the future due to numerous factors. We believe that period to period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance.
Liquidity and Capital Resources
Since our inception, we have funded our operations primarily through public and private offerings of our equity securities in Israel and the U.S., grants from the OCS (today known as the IIA), grants received by the Israeli Ministry of Economy and European grants under the UNISEC consortium and the loan from the EIB.
As of December 31, 2019, we had cash and cash equivalents of NIS 72.4 million ($20.9 million) as compared to NIS 75.8 million ($21.9 million) as of December 31, 2018. This increase is attributable to a loan taken from the European Investment Bank in the sum of NIS 15.3 million ($4.4 million) during the year ended December 31, 2019.
Net cash used in operating activities was NIS 77.06 million ($22.3 million) for the year ended December 31, 2019, compared with net cash used in operating activities of NIS 57.2 million ($16.55 million) for the year ended December 31, 2018.
Net cash used by investing activities for the year ended December 31, 2019, was NIS 7.2 million ($2.08 million) compared with net cash provided by investing activities of NIS 23.5 million ($6.8 million) for the year ended December 31, 2018, and primarily reflects purchase of fixed assets and change in long term assets.
Net cash provided by financing activities for the year ended December 31, 2019 was NIS 85.2 million ($24.6 million) mostly from proceeds from the issuance of shares and options in total of NIS 70.2 million ($20.3 million) and a loan taken from the European Investment Bank in total of NIS 15.3 million ($4.4 million) compared 84.3 million ($24.4 million) as of December 31, 2018, which derived from loans taken from the European Investment Bank.
At December 31, 2019, our accumulated deficit amounted to $92.7 million. We had working capital of $15.6 million as of December 31, 2019. In the future, we may raise additional capital from external sources in order to continue the longer term efforts contemplated under our business plan. We expect to continue incurring losses for the foreseeable future and may need to raise additional capital to pursue our product development initiatives, to penetrate markets for the sale of our product candidates and continue operations as presently maintained. We cannot provide any assurance that we will raise additional capital. Our management believes that we have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means; however, we have not secured any commitment for new financing at this time nor can we provide any assurance that new financing will be available on commercially acceptable terms, if at all. If the economic climate in the U.S. deteriorates, our ability to raise additional capital could be negatively impacted. If we are unable to secure additional capital, we may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve cash in amounts sufficient to sustain operations and meet our obligations. These measures could cause significant delays in our efforts to commercialize our products, which is critical to the realization of our business plan and our future operations.
On July 16, 2019 the Company received subscriptions from existing shareholders for all the offered American Depositary Shares (“ADSs”) and ordinary shares from a rights offering conducted by the Company, being a total of 3,057,466 ADSs and 18,298,898 ordinary shares, raising total gross proceeds of US$20 million.
Mr. Marius Nacht fully subscribed for the entire allotment available to him in the rights offering through his wholly owned entity Angels Investments in High Tech Ltd. (“AIHT”). He also exercised his option to purchase, under the same terms of the rights offering, 2,203,640 ADSs and 141,538 ordinary shares offered in the rights offering that were not purchased by other shareholders. In total, Mr. Nacht’s investment through AIHT in this offering was US$16.67 million, making Mr. Nacht a Controlling Shareholder (as defined under the Israeli Companies Law) with a holding of approximately 37.6% of the voting power of the Company.
As of May 15, 2020, the period for exercising ADS warrants issued to investors in our initial public offering in the U.S. and the representative’s warrants issued to underwriters in such offering has ended, and we received gross proceeds of $54 thousand during 2019 and aggregate gross proceeds of $4.2 million since issuance of the warrants from the exercise of such warrants, some of which were exercised on a cashless basis.
We are a development stage company with no revenues to date. Accordingly, it is not possible for us to predict with any degree of accuracy the outcome of our research, development or commercialization efforts, or identify any significant trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect in the future on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources. However, to the extent possible, certain trends, uncertainties, demands, commitments and events are identified in the preceding subsections of this Item 5.
Application of Critical Accounting Policies and Estimates
We describe our significant accounting policies in Note 2 to our financial statements for the year ended December 31, 2019.
The discussion and the analysis of our financial results of operation are based on our financial statements, which we prepare in accordance with IFRS as issued by the IASB.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Our significant contractual obligations as of December 31, 2019 included the following (in thousands):
|1 – 3 Years||4 – 5 Years||More than |
|Operating Lease Obligations in NIS||3,385||2,348||4,109||9,842|
|Operating Lease Obligations in USD||979||679||1,189||2,848|
|Item 6.||DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES|
|A.||Directors and Senior Management|
Executive Officers and Directors
We are managed by a board of directors, which is currently comprised of eight members, and our executive officers. Each of our executive officers is appointed by our board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/o BiondVax Pharmaceuticals Ltd., Jerusalem BioPark, 2nd floor, Hadassah Ein Kerem Campus, Jerusalem, Israel.
|Mark Germain||69||Chairman of the Board of Directors|
|Ron Babecoff||57||Chief Executive Officer and Director|
|Tamar Ben Yedidia||56||Chief Scientist|
|Uri Ben Or||49||Chief Financial Officer|
|Elad Mark||38||Chief Operating Officer|
|Ester Abramov||42||QA Manager|
|Adi Raviv(1) (2)||64||Director|
|George H. Lowell||73||Director|
|Ruth Ben Yakar(1) (2)||49||Director|
|Yael Margolin(1) (2)||65||Director|
|(1)||Member of the Audit Committee.|
|(2)||Member of the Compensation Committee.|
Dr. Ron Babecoff co-founded us in 2003 and has served as our President and Chief Executive Officer since our inception. Prior to our founding, Dr. Babecoff served as Marketing Manager at Omrix Biopharmaceuticals Ltd. from 2000 to 2003. Dr. Babecoff holds a D.V.M. degree from the University of Liège (ULg), Belgium and a Master of Entrepreneurship and Innovation (MEI) from the Swinburne University of Technology of Melbourne, Australia. We believe that Dr. Babecoff is qualified to serve on our board of directors based on his many years of service as our President and CEO, his extensive knowledge of our company and his intimate knowledge of our business plans and strategies as a co-founder of our business, and his experience within our industry.
Dr. Tamar Ben Yedidia has served as our Chief Scientist since 2004 and is responsible for the pre-clinical and clinical development and trials of the Company. Dr. Ben-Yedidia began her career at Biotechnology General (Israel) Ltd., BTG (Rehovot), where she was employed as lab manager from 1991 to 1994. Dr. Ben-Yedidia joined the Department of Immunology at the Weizmann Institute of Science from 1994 – 2004. Dr. Ben-Yedidia was involved in two European Consortium projects related to the evaluation of different approaches for vaccination, has been invited to address conferences worldwide and is published in various scientific journals. Dr. Ben-Yedidia received her Ph.D. in immunology from the Weizmann Institute after completion of her doctoral thesis titled “A Peptide-Based Vaccine Against Influenza”.
Mr. Uri Ben Or, CPA, MBA, has served as our Chief Financial Officer since 2007. In January, 2007, Mr. Ben Or founded CFO Direct, in which he has served as the chief executive officer and through which he provides his services to our company. Mr. Ben Or has over 20 years of experience and significant expertise in corporate finance, accounting, M&A transactions and IPOs, and has served as CFO with life science companies traded on the TASE, on Nasdaq and over the counter. Mr. Ben Or holds a B.A. degree in Business from the College of Administration, and a M.B.A degree from the Bar Ilan University and is a certified public accountant in Israel.
Mr. Elad Mark joined the Company in 2018 as Site Head and has served as Chief Operating Officer since September 2019. As COO he oversees BiondVax’s manufacturing facility and scale up and technology transfer activities, including potential future CMO’s. Prior to joining BiondVax, Mr. Mark served for more than three years at Novartis as TPM (Technical Process Manager) and Area Lead Process for a large-scale biological facility establishment in Singapore, a $800 million investment in a biologics facility focused on drug substance manufacturing based on cell culture technology, which was designed to support both clinical and commercial production of potential new products that include monoclonal antibodies for use in helping patients with autoimmune, respiratory and oncology disorders. Before that Mr. Mark served as the Head of the Engineering Department in Biopharmax Group, a company which focusing on EPCM (Engineering, Procurement, Construction and Management) in the Pharmaceutical field. Mr. Mark is a principal bioprocess engineer with over 12 consecutive years of biotechnology engineering experience with diverse project stages including feasibility study, conceptual and detail design, commissioning, qualification and process validation. Mr. Mark holds a B.Sc. in Engineering from the Afeka Academic College of Engineering in Tel Aviv and an MBA from the Open University of Israel.
Dr. Ester Abramov has served as our QA Manager since 2013 and is responsible for managing quality systems, writing SOPs, policies, protocols and reports, implementation of regulatory requirements, stability studies management, and validation of equipment and clean rooms. Dr. Abramov began her career at the Company in 2007 as a QC Researcher and from 2011 to 2013 served as QC Manager. Dr. Abramov received a B.Sc. in Biological Sciences in 1999 from Bar-Ilan University in Ramat-Gan, Israel, a M.Sc. in Molecular Biology from Bar-Ilan in 2001 and a PhD. in Molecular & Cell Biology from Bar-Ilan in 2007.
Professor Avner Rotman has been Chairman of our board of directors since 2005. Prof. Rotman founded in 2000, and has served since then and continues to serve as the Chief Executive Officer and Chairman of the Board of Directors of Rodar Technologies Ltd. Prof. Rotman also founded Bio-Dar Ltd. in 1984, and served as its President and CEO from 1985 until 2000. Prof. Rotman was also the chairman of the I-Tech incubator at Kyriat Weizmann. Prof. Rotman is the Founder and Chairman of the Foundation of Cardiovascular Research in Israel. Prof. Rotman holds a PhD in chemistry from the Weizmann Institute of Science, Israel, and an M.Sc and B.Sc in chemistry from the Hebrew University of Jerusalem, Israel. We believe that Prof. Rotman is qualified to serve on our board of directors based on his extensive experience and knowledge in the field of biotechnology and as an executive officer and director of multiple biotechnology companies. On August 31, 2017, Following the European Investment Bank (EIB)’s significant €20 million funding agreement, and as we progress towards Phase 3 clinical trials and construction of its commercial mid-size manufacturing facility, our board of directors at the initiation of Prof. Rotman decided that we will focus its efforts on the international scene. In that regard, it was decided, inter alia, to identify a new chairman of the board of directors with relevant global experience to guide us through the anticipated upcoming international Phase 3 trials and global commercialization.
Mr. Mark Germain has been involved as a founder, director, chairman of the board of, and/or investor in, over twenty companies in the biotech field and assisted many of them in arranging corporate partnerships, acquiring technology, entering into mergers and acquisitions, and executing financings and going public transactions. He graduated from New York University School of Law in 1975, Order of the Coif, and was a partner in a New York law firm practicing corporate and securities law before leaving in 1986. Since then, and until he entered the biotech field in 1991, he served in senior executive capacities, including as president of a public company that was sold in 1991. In addition to being a director of BiondVax, Mr. Germain is a Managing Director at The Aentib Group, a boutique merchant bank, and has served as a director on the board of Pluristem Therapeutics since 2007, including time as Co-Chairman. Mr. Germain also serves or served as a director of the following companies that were reporting companies in the past: ChromaDex, Inc., Stem Cell Innovations, Inc., Omnimmune Corp. and Collexis Holdings, Inc. He is also a co-founder and director of a number of private companies in and outside the biotech field.
Prof. George H. Lowell, M.D. has served as a member of our board of directors since 2008.He is also since 2019 a member of the Board of Directors and the Chief Scientific Officer (CSO) of Healabels Ltd., an Israeli digital health start-up company. Prior to joining our company, Prof. Lowell served as Chief Scientific Officer for BioDefense at GlaxoSmithkline Biologicals (GSK) (2006-2007) which acquired ID Biomedical Corp. (IDB) and CSO of IDB (2001-2006) which acquired Intellivax Intl. and Intellivax Inc. Prof. Lowell served as founding CEO and then as President and CSO of the vaccine R&D companies he founded, Intellivax, Inc. in Baltimore and Intellivax International Inc. in Montreal from 1995 until 2001. From 1974, Prof. Lowell served on active duty in the US Army Medical R&D Command, retiring in 1994 with the rank of Colonel. During this period he served as consultant in pediatric infectious diseases at The Walter Reed Army Medical Center and director of his laboratories at The Walter Reed Army Institute of Research in Washington, D.C. Prof. Lowell has held a number of academic posts, including Visiting Scientist at the Weizmann Institute of Science (Israel) and Visiting Professor, Hebrew University-Hadassah Medical Center (Israel). Prof. Lowell holds a B.A. from Yeshiva University, NY, NY, and an M.D. from the Albert Einstein College of Medicine of Yeshiva University, NY, NY. Prof. Lowell performed three years of post-doctoral training in pediatrics and pediatric infectious diseases and immunology at NYU-Bellevue Medical Center, NY, NY and The Mount Sinai Medical Center, NY, NY. We believe that Prof. Lowell is qualified to serve on our board of directors based on his extensive experience and knowledge in the field of health care and years of executive leadership in the biomedical industry.
Dr. Ruth Ben Yakar, PhD. is currently CEO and member of the Board of Directors at BioSight Ltd., a private biopharmaceutical company focused on research and development of innovative hemato-ongology drugs. She has over 20 years of experience in the biomedical field, including 15 years of management in the biotech industry, leading diverse corporate, business, operational, financial, clinical and regulatory activities. Dr. Ben Yakar also serves as a Director at Maayan Ventures Ltd boards of directors. Dr. Ben Yakar formerly served as the CEO of Procognia, a public biotech company, a Director at SHL telemedicine, Cellect Biomed, and IATI, the CEO of Thrombotech, where she led a multi-center clinical trial and led the company towards acquisition, the Chief Business Officer of YEDA, the technology transfer company of the Weizmann Institute of Science, and a Vice President in several Biotech companies. Dr. Ben Yakar holds a PhD Cum Laude in molecular cell biology from the Weizmann Institute of Science.
Mr. Isaac Devash is a business and social entrepreneur with over twenty years of experience in venture capital and private equity investments, and several years of experience as an investment banker in mergers and acquisitions at Credit Suisse First Boston in New York, London, and Tokyo. Mr. Devash established a number of private equity funds and assisted a variety of Israeli companies in their international development and a number of leading international investors in their investments in Israel. Mr. Devash was a member of the Goshen Committee for formulating the standards of corporate governance for Israeli public companies. Mr. Devash founded and serves as the Chairman and President, respectively, of the Wharton and Harvard Business School alumni clubs of Israel. Mr. Devash holds a bachelor’s degree, summa cum laude, from the Wharton School of the University of Pennsylvania and an MBA from Harvard University.
Dr. Morris Laster has served as a member of our board of directors since November 2017. Dr. Laster is a healthcare executive and entrepreneur with close to 30 years of experience in the biopharmaceutical industry. His expertise lies in the identification, development, management and financing of advanced biomedical drugs and technologies. Dr. Laster is currently the CEO of Clil Medical Ltd., a biomedical consultancy company, a position he has held since 2010. Since 2013, he is a Medical Venture Partner at OurCrowd, where he has led 28 investments and represents OurCrowd on the board of directors of HiL Applied Medical, BrainQ Technologies and DreaMed Diabetes. Additionally, he serves as the chairman of the board of Oncohost. Dr. Laster has founded six companies that have gone public in the U.S., UK or Israel, including co-founding and serving as CEO from 2010 to 2014 of Kitov Pharmaceuticals, which has received FDA approval for its drug Consensi. Previously, he was the founding CEO of BioLineRx Ltd. (TASE:BLRX) from 2003 to 2009. In addition, he was the chairman and CEO of Keryx Biopharmaceuticals (NASDAQ:KERX) from 1997 to 2002. Dr. Laster began his career as a VP of medical venture capital at Paramount Capital in NYC. Dr. Laster received his MD from Downstate Medical Center, Brooklyn, NY in 1990 and a BS in Biology from SUNY Albany.
Adi Raviv is a senior financial executive with a career spanning over 30 years. Since April 2016, Mr. Raviv has been a Principal at Capacity Funding LLC, a company providing working capital solutions to small businesses. Prior to that, Mr. Raviv served in a chief financial officer position in two other companies that provide similar types of funding alternatives – New Era Lending from May 2015 to March 2016, and Kapitus (formerly, Strategic Funding Source) from 2009 to 2014. Mr. Raviv has extensive capital markets, cash management, corporate finance, investor relations, restructuring, tax and treasury, and transactional experience along with knowledge of the private equity and venture capital arenas. Mr. Raviv co-founded THCG, Inc., a publicly traded technology merchant banking and consulting company (where he was also CFO), and has been involved with companies in challenging startup, growth, and turnaround environments. Mr. Raviv has served on the boards of directors of many private and several public companies, as well as various non-profit entities. He received a bachelor’s degree in International Relations with honors from the Hebrew University of Jerusalem and an MBA, with honors, from Columbia University in New York City.
Yael Margolin has more than 35 years of experience as senior manager, CEO and board member in venture capital and in the pharmaceutical and biotech industries, leading strategic and business planning, financing, team building, product development and corporate partnerships. From 2005 to 2019, Dr. Margolin served as President, Chief Executive Officer and director of Gamida Cell Ltd., a clinical stage biopharmaceutical company, leading the company from preclinical development through phase 3 international registration studies. Prior to that, Dr. Margolin was Vice President of Denali Ventures LLC, a venture capital firm focused on healthcare, and a program manager at Teva Pharmaceuticals. Dr. Margolin holds a bachelor of science in biology and a master of science Cum Laude from the department of microbiology, both from Tel Aviv University in Israel, a Ph.D. from the department of membrane research at the Weitzman Institute of Science in Rehovot, Israel and was a post-doctoral associate at the Yael University School of Medicine.
Samuel Moed has served as Senior Vice President, Corporate Strategy at Bristol Myers Squibb (“BMS”), a global biopharma company focused on innovative therapeutics, for the past six years, where he has led the strategic direction of the company with close linkage to all of its major businesses, functions and geographies. Previously, Mr. Moed oversaw strategy for BMS’s Worldwide Pharmaceuticals Group, encompassing a range of global strategic initiatives, and managed a global portfolio of strategic alliances. He also led a number of businesses including President, US Pharma, and President WW Consumer Healthcare. Mr. Moed received a bachelor of arts degree in history from Columbia University in New York City.
Our Scientific Advisory Team
Our Scientific Advisory Team includes specialists and experts in Israel, with experience in the fields of biochemistry, infectious diseases and medical research. Our Scientific Advisory Team plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Pursuant to their respective appointment letters, our advisory team members are entitled to receive the following compensation: (i) a per diem cash payment of $1,000 plus VAT (aside from Professor Ruth Arnon who is entitled to receive $1,400 plus VAT), for Scientific Advisory Team meetings attended in Israel or consultation services provided during a period longer than 4 consecutive hours, or a proportion of such amount for a partial day of less than 4 consecutive hours (aside from Professor Ruth Arnon, who shall be entitled to a full day amount or any proportion of such full day amount based on a full day being 8 hours); (ii) a per diem cash payment of $2,000 plus VAT (aside from Professor Ruth Arnon who is entitled to receive $2,400 plus VAT), per full day of Scientific Advisory Team meetings or full session consultation attended outside of Israel, provided, that, in the event travel time exceeds 48 hours, additional compensation will be provided at a rate of $1,000 per each 24 hours; and (iii) with respect to Professor Michel Revel, for occasional consultations (less than 4 consecutive hours per each consultation) which do not fall under any of the above categories, the compensation shall be calculated based on a fee of $250 per full hour of consultation. In addition, Prof. Arnon is also employed by us on a part time (5%) basis in exchange for a monthly salary of $1,800. Each member of our Scientific Advisory Team was granted options to purchase ordinary shares of our Company pursuant to their respective appointment letters.
The following table sets forth certain biographical information with respect to our Scientific Advisory Team members:
Professor Ruth Arnon is the inventor of the new synthetic influenza vaccine and head of BiondVax’s Scientific Advisory Board. Formerly Vice-President of the Weizmann Institute of Science (1988-1997), Professor Arnon is an internationally acclaimed immunologist. Along with Prof. Michael Sela, she conceptualized and developed Copaxone®, a drug for the treatment of multiple sclerosis which was approved by the FDA and is presently marketed worldwide. Prior to her appointment as Vice-President of the Weismann Institute, Prof. Arnon served as Head of the Department of Chemical Immunology and as Dean of the Faculty of Biology. From 1985 to 1994, Prof. Arnon was Director of the Weisman Institute’s McArthur Center for Molecular Biology of Tropical Diseases. Prof. Arnon has made significant contributions in the fields of vaccine development, cancer research and to the study of parasitic diseases. She has served as President of the European Federation of Immunological Societies, and as Secretary-General of the International Union of Immunological Societies. Dr. Arnon is the recipient of numerous international and Israeli awards including the prestigious Israel Prize. Prof. Arnon was also the Advisor for Science to the President of Israel. She is a member of the Israel Academy of Sciences, where she served as President from 2010-2015. Prof. Arnon is the incumbent of the Paul Ehrlich Chair in Immunochemistry at the Weizmann Institute.
Prof. Michel Revel, has M.D. and Ph.D. degrees. Born in 1938 in France, he joined the Weizmann Institute of Science, Rehovot, Israel in 1968, where he has been a full professor since 1973, heading for several periods the Departments of Virology and of Molecular Genetics. He has been an emeritus professor since 2010. Prof. Revel is best known for his work on the mechanism of action of interferon and the cloning of the genes for human interferon beta (IFN-β) and interleukin-6 (IL-6). He developed the first efficient genetic engineering production of a protein (IFN-b) in animal cells (CHO cells). He was Chief Scientist of InterPharm (Serono group), which produced the recombinant IFN-b (Rebif), a leading drug for treatment of multiple sclerosis, now 20 years in the market and sold in 90 countries by Merck Kga. Since 2010, Prof. Revel is co-founder and Chief Scientist of Kadimastem, an Israeli company producing human tissues by differentiation of pluripotent stem cells (ESC). The first product of Kadimastem, AstroRx, has recently been approved for clinical trial in Amyotrophic Lateral Sclerosis (ALS). Kadimastem also develops ESC-derived islet-like cells for the treatment of diabetes. Prof. Revel has received the Israel Prize for Medicine in 1999 and the Emet Prize in 2004. He was elected at the Israel National Academy of Science and Humanities in 2005. He served as chairman of the National Biotechnology Committee of Israel (1999-2002).
Compensation of Directors and Executive Officers
Compensation to Directors
During 2019, we paid our directors a total of NIS 544 thousand ($157 thousand) in annual and meeting participation fees.
We are party to a services agreement between the Company and Mr. Mark Germain, the vice chairman and director of the Company, to include: (1) the grant of options under the Company’s ESOP exercisable to purchase up to 130,710 ADSs, representing 2% of the current outstanding share capital of the Company (1.5% on a fully diluted basis); (2) a monthly payment of $10,000.
On March 24, 2020, our general shareholders meeting approved that our external directors and our other current or future non-management directors (other than our chairman) will be entitled to (i) an annual cash payment of NIS 26,080 (representing a quarterly cash payment of NIS 6,520), and (ii) a cash payment of NIS 1,245 for attendance at each meeting of the Board of Directors and at each of its committees, a cash payment of NIS 747 for each participation at each meeting of the Board of Directors and at each of its committees by teleconference, and cash payment of NIS 622.50 for each written consent of the Board of Directors and each of its committees. All such amounts listed above shall be paid in NIS or the U.S. dollars equivalent. The general shareholders meeting further approved the grant to each external director of options to purchase 18,000 ADSs of the Company at an exercise price of $7.28 per ADS (equals to $0.182 per Ordinary Share), which is equal to 130% of the average closing price of the Company’s ADSs during the 30 trading days prior to November 20, 2019, the date of the Board of Directors meeting at which the grant was approved. The options would vest in equal annual installments during a period of three years commencing one year following November 20, 2019. First vesting is scheduled on November 20, 2020 and the options will become fully vested, in accordance with the terms of the grant, on November 20, 2022. The options will have a term of 10 years following November 20, 2019. The number of options and their terms are consistent with grants of options provided to other non-management directors of the Company (not including our chairman). The compensation of the Company’s external directors is under the “relative compensation” track for external directors in accordance with the Companies Law Regulations (Rules Regarding the Compensation and Expenses of an External Director), 5760-2000, as amended by the Companies Regulations (Relief for Public Companies with Securities Listed for Trade on Stock Exchange Outside of Israel), 5760-2000, as may be amended from time to time.
In addition, in August 2012 our general shareholders meeting approved the grant of the following conditioned bonuses to all our directors serving at the time of such approval, except the external directors, during the term of their service: in the event that we duly enter into one or more material agreement, defined as an agreement or a series of agreements, pertaining to a transaction with us (or any other entity designated by us for the transaction by us) in connection with the sale of all or substantially all of our assets or a commercialization of one of our products in the field of business, with aggregate proceeds received resultant of such agreement are no less than a sum of $10,000,000 with any third party during their term, such directors shall each be entitled to receive a one-time bonus per material agreement equal to 0.5% of the proceeds received by us as a result of the material agreement. According to our compensation policy as amended and approved by our shareholders on March 1, 2015, this bonus shall be limited to an aggregate amount of NIS 50 million ($14.5 million).
Compensation of Directors and Executive Officers
The following table presents in the aggregate all compensation we paid to all of our directors and senior management as a group for the year ended December 31, 2019. The table does not include any amounts we paid to reimburse any of such persons for costs incurred in providing us with services during this period.
|Salaries, fees, |
|All directors and senior management as a group, consisting of 11 persons||4,831||1,398||4,217||1,220|
|(1)||Calculated using the exchange rate reported by the Bank of Israel for December 31, 2019, at the rate of one U.S. dollar per NIS 3.456.|
The following table presents information regarding compensation actually received by our executive officers during the year ended December 31, 2019.
|Annual Compensation (excluding option grants)||December 31, 2019||December 31, 2018|
|Name||Salary and |
|Salary and |
|Salary and |
|Salary and |
|Dr. Ron Babecoff, CEO and director||2,710||784||1,088||315|
|Dr. Tamar Ben Yedidia, Chief Scientific Officer||610||177||573||166|
|Mr. Mark Germain, Vice Chairman / Chairman (3)||432||125||249||72|
|Mr. Uri Ben Or, Chief Financial Officer||440||127||335||97|
|Mr. Elad Mark, Chief Operating Officer||489||141||131||38|
|(1)||“Salary and related benefits” include payments to the National Insurance Institute, advanced education funds, managers’ insurance and pension funds; vacation pay; and recuperations pay as mandated by Israeli law.|
|(3)||Mr. Germain served as Vice Chairman of the Board until September 30, 2019 when he began serving as Chairman of the Board.|
Employment and Services Agreements
Our employees are employed under the terms prescribed in their respective personal contracts, in accordance with the decisions of our management. Under these employment contracts, the employees are entitled to the social benefits prescribed by law and as otherwise provided in their personal contracts. These employment contracts each contain provisions standard for a company in our industry regarding non-competition, confidentiality of information and assignment of inventions. Under current applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. We also provide certain of our employees with a company car, which is leased from a leasing company, and a mobile phone and additional benefits.
Our executive officers are also employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive base salary and benefits. These agreements also contain customary provisions regarding non-competition, confidentiality of information and assignment of inventions.
Services and Employment Agreements with Our Chief Executive Officer
Dr. Babecoff is one of our founders and has served as the CEO and a member of our board of directors since 2005. We retained Dr. Babecoff’s services through Ron Executive Ltd., a company solely owned by him, with which we entered into a management services agreement on April 1, 2007, as later amended on April 18, 2012, and extended and further amended as described below. Under the agreement, Dr. Babecoff received a monthly salary of NIS 52,500 plus VAT. We also provide Dr. Babecoff with a leased company car. In addition, in the event that we duly enter into one or more material agreement(s) (i.e. an agreement or a series of agreements, pertaining to a transaction with us (or any other entity designated by us for the transaction by us) in connection with the sale of all or substantially all of our assets or a commercialization of one of our products in the field of business, with aggregate proceeds received resultant of such agreement are no less than a sum of US$10,000,000) with any third party during the term of Dr. Babecoff’s engagement with us or during a period of three years commencing on the date of the termination of the management services agreement by us, Dr. Babecoff shall be entitled to receive a one-time bonus per material agreement equal to 1.75% of the proceeds received by us as a result of the material agreement. The term of Dr. Babecoff’s agreement was to expire on April 1, 2015, unless earlier terminated. Dr. Babecoff’s service agreement may be terminated by us upon nine months prior written notice or immediately if terminated for cause (i.e., termination due to a material breach by Ron Executive Ltd. of its obligations under the employment agreement, a breach of trust, malfeasance or gross negligence by Ron Executive Ltd. and/or Dr. Babecoff; or the conviction of Ron Executive Ltd. and/or Dr. Babecoff of any felony). Ron Executive Ltd. may also terminate the service agreement upon 90 days’ prior written notice.
On January 18, 2015, our shareholders meeting approved an extension of Dr. Babecoff’s agreement, under the same terms and conditions, for an additional period of five years. Dr. Babecoff also serves as a director in our company, for which he received unregistered options as compensation.
On May 28, 2019, the Company’s shareholders approved an extension of the management service agreement with Dr. Babecoff for additional five (5) years and approved new compensation terms, as follows: (1) Dr. Babecoff shall be entitled to a 2% salary raise each year for 5 years; (2) the grant of 8,633,310 restricted share units, or RSUs, represented by 215,832 American Depositary Shares (“ADSs”, each ADS represents 40 ordinary shares no par value) representing 3.3% of the current outstanding share capital of the Company (2.48% on a fully diluted basis), in lieu of his forfeiture of 5,929,503 options previously granted to Dr. Babecoff; (3) the grant of a onetime bonus equal to 12 monthly salaries in an aggregate amount of NIS 960,000, in recognition of Dr. Babecoff’s recent extraordinary achievements and performance; (4) the grant of an annual bonus for the year of 2018, in an amount equal to up to 9 monthly salaries of Dr. Babecoff, subject to the fulfillment of annual targets as determined by the board of directors. On January 16, 2019, our compensation committee determined that Dr. Babecoff had fulfilled the relevant annual targets with respect to the annual bonus for the year of 2018.
On August 27, 2019, the Board approved an annual bonus for the year 2019 in an amount equal to up to nine monthly salaries for Dr. Babecoff, subject to fulfillment of annual targets as determined by the Board. In June 2020, the compensation committee and Board determined that Dr. Babecoff had fulfilled the relevant annual targets and approved the bonus subject to approval by Company shareholders.
Services and Employment Agreements with Our Chief Scientific Officer
Tamar Ben Yedidia
Pursuant to her employment agreement entered into with us on March 15, 2005, as amended to date, Dr. Ben Yedidia is employed on a full time basis and is currently entitled to a monthly salary of NIS 40,000 which also includes monthly contributions equal to 7.5% of her monthly salary to an Education Fund (“Keren Hishtalmut”, a short term savings plan available in Israel which is tax free to the employee up to a cap determined by law). In addition, we provide Dr. Ben Yedidia with a leased company car and a mobile phone. Dr. Ben Yedidia is entitled to 22 annual paid vacation days.
Dr. Ben Yedidia’s employment agreement may be terminated by either us or Dr. Ben Yedidia upon 120 days’ prior written notice or by us immediately for cause (i.e., termination due to embezzlement of our funds, or the material breach of the terms and conditions of the employment agreement, or if Dr. Ben Yedidia is involved in an act which constitutes a breach of trust between her and us or constitutes a severe breach of discipline, or conduct causing grave injury to us any, monetarily or otherwise, or Dr. Ben Yedidia’s inability to carry out her duties for a period exceeding 120 consecutive days, provided that the her resumption of her duties for a period of less than 15 consecutive days shall not be deemed to have broken the continuity of the aforementioned 120 days). Under her employment agreement, Dr. Ben Yedidia received options to purchase 25,000 ordinary shares.
In addition, in February 2012 our board of directors approved the grant of the following conditioned bonus to Tamar Ben Yedidia: in the event that we duly enter into one or more material agreement(s) (i.e. an agreement or a series of agreements, pertaining to a transaction with us (or any other entity designated by us for the transaction by us) in connection with the sale of all or substantially all of our assets or a commercialization of one of our products in the field of business, with aggregate proceeds received resultant of such agreement are no less than a sum of $10 million) with any third party during the term of Dr. Ben Yedidia’s engagement with us or during a period of three years commencing on the date of the termination of the employment agreement by us, Dr. Ben Yedidia shall be entitled to receive a one-time bonus per material agreement equal to 1.25% of the proceeds received by us as a result of the material agreement.
In May 2015, our compensation committee and the Board of Directors approved increasing Ms. Tamar Ben Yedidia’s monthly salary from NIS 27,300 to NIS 30,000 and in August 2018 from 30,000 to 32,500 in compliance with our compensation plan. On the same dates, our compensation committee and the Board of Directors also approved granting Ms. Tamar Ben Yedidia additional 500,000 unregistered options in accordance with our 2005 Israeli Share Option Plan. The options are scheduled to vest over a period of three (3) years and shall expire 10 years from the grant date. Each option shall be exercisable at an exercise price equal to 130% of the average sale share price on TASE during the thirty (30) trading days prior to the options’ grant date. In June 2020, our compensation committee and Board voted to award Dr. Ben Yedidia an annual bonus for the year 2019 in an amount equal to NIS 162,500 and to increase Dr. Ben Yedidia’s monthly salary to NIS 40,000. As of the date of this annual report, Dr. Ben Yedidia held options to purchase 920,000 ordinary shares, of which 920,000 are fully vested.
Services and Employment Agreement with Our Chief Financial Officer
Uri Ben Or
Pursuant to the service agreement entered into on June 20, 2007, between us, Mr. Ben Or and CFO Direct, an Israeli company solely owned by him through which he provides his services to us, as amended on August 31, 2014 and extended on June 11, 2020. CFO Direct is entitled to a monthly fee of NIS 15,000. The service agreement will remain in effect until June 2021, unless earlier terminated by either us or CFO Direct with 60 days prior written notice. We may terminate our service agreement with CFO Direct at any time and effective immediately, without need for prior written notice, and without derogating from any other remedy to which we may be entitled, for cause (i.e., termination due to the conviction of CFO Direct and/or Uri Ben Or of any felony, the liability of CFO Direct by a court of competent jurisdiction for fraud against us, any conduct that has a material adverse effect or is materially detrimental to us, including but not limited to, a breach of contract or any claim by CFO direct or any one connect thereto that CFO Direct is our employee. CFO Direct is entitled to receive a monthly compensation under the services agreement.
In addition, pursuant to a separate employment agreement entered into between us and Mr. Ben Or on August 31, 2014 and extended on June 11, 2020, Mr. Ben Or is also employed by us in a 60% employment capacity, for which he is entitled to a monthly salary of NIS 10,000. Mr. Ben Or is entitled to 60% of the annual paid vacation days prescribed under applicable law, and we shall obtain and maintain with Mr. Ben Or a pension insurance to Mr. Ben Or, in a Managers Insurance and/or a pension fund, according to Mr. Ben Or’s discretion. Mr. Ben Or’s employment agreement will remain in effect until June 2021, unless earlier terminated by either us or Mr. Ben Or with 60 days prior written notice, or by us immediately for cause.
On May 28, 2019, the Company’s shareholders approved the grant of 260,000 options in accordance with our 2005 Israeli Share Option Plan. The options are scheduled to vest over a period of three (3) years and shall expire 10 years from the grant date. Each option shall be exercisable at an exercise price equal to 130% of the average sale share price on TASE during the thirty (30) trading days prior to the options’ grant date. last 1/3 vest April 2021, three years from April 2018 Board approval date. During 2019 our compensation committee and the Board of Directors approved aggregate one-time payments to Mr. Ben Or equal to NIS 140,000, and in June 2020 approved a one-time payment to Mr. Ben Or equal to NIS 90,000.
Equity Compensation Plans
2005 Israeli Share Option Plan
The 2005 Israeli Share Option Plan, or the 2005 Plan, permits grants of options to employees, directors, consultants, service providers and other entities which the board shall decide their services are considered valuable to the Company. Options granted under the 2005 Plan are subject to applicable vesting schedules and generally expire 10 years from the grant date.
Upon the termination of a recipient’s engagement with us for any reason other than death, disability or for cause, all unvested options allocated shall automatically expire and all vested options allocated will automatically expire 90 days after the termination, unless expired earlier due to their term. If the recipient’s engagement was terminated for cause (as defined in the 2005 Plan), the recipient’s right to exercise any unexercised options, awarded and allocated in favor of such recipient, whether vested or not, will immediately cease and expire as of the date of such termination. If the recipient dies or is disabled, any vested but unexercised options will automatically expire 12 months from the termination of the engagement, unless expired earlier due to their term.
In the event that options allocated under the 2005 Plan expire or otherwise terminate in accordance with the provisions of the 2005 Plan, such expired or terminated options will become available for future grant awards and allocations under the 2005 Plan. In the event of (i) the sale of all or substantially all of our assets; (ii) a sale (including an exchange) of all or substantially all of our share capital; or (iii) a merger, acquisition or reorganization of the Company with or into another corporation, then, subject to obtaining the applicable approvals of the Israeli tax authorities, unexercised options then outstanding shall be assumed or substituted for an appropriate number of shares of the successor company subject to certain adjustments as determined by the board of directors in its sole discretion. Subject to certain conditions, the board shall also have the power to provide for immediate acceleration in a recipient’s option agreement in the event of such a transaction.
On May 15, 2020, the Company had outstanding grants under the 2005 Option Plan to acquire 24,266,720 ordinary shares.
2018 Israeli Share Option Plan
The 2018 Israeli Share Option Plan, or the 2018 Plan, permits the granting of options, restricted share units or allotment of shares or other equity-based awards to employees, directors, consultants, service providers and other entities which the board shall decide their services are considered valuable to the Company, under similar terms and conditions to the 2005 Plan.
Options granted under the 2018 Plan are subject to applicable vesting schedules and generally expire 10 years from the grant date.
Upon the termination of a recipient’s engagement with us for any reason other than death, disability or for cause, all unvested options allocated shall automatically expire and all vested options allocated will automatically expire 90 days after the termination, unless expired earlier due to their term. If the recipient’s engagement was terminated for cause (as defined in the 2018 Plan), the recipient’s right to exercise any unexercised options, awarded and allocated in favor of such recipient, whether vested or not, will immediately cease and expire as of the date of such termination. If the recipient dies or is disabled, any vested but unexercised options will automatically expire 12 months from the termination of the engagement, unless expired earlier due to their term.
In the event that options allocated under the 2018 Plan expire or otherwise terminate in accordance with the provisions of the 2018 Plan, such expired or terminated options will become available for future grant awards and allocations under the 2018 Plan.
Restricted share units granted under the 2018 Plan are subject to applicable vesting schedules, and the Board may condition the grant or vesting of restricted share units upon the attainment of specified performance targets or such other factors as the Board may determine, in its sole discretion.
In the event of (i) the sale of all or substantially all of our assets; (ii) a sale (including an exchange) of all or substantially all of our share capital; or (iii) a merger, acquisition or reorganization of the Company with or into another corporation, then, subject to obtaining the applicable approvals of the Israeli tax authorities, unexercised awards then outstanding shall be assumed or substituted for an appropriate number of shares of the successor company subject to certain adjustments as determined by the board of directors in its sole discretion. Subject to certain conditions, the board shall also have the power to provide for immediate acceleration in a recipient’s award agreement in the event of such a transaction.
The Company has reserved an unlimited amount of the issued and outstanding capital of the Company available for issuance under the 2018 Plan.
On May 15, 2020, the Company had awarded grants under the 2018 Option Plan to acquire 2,880,000 ordinary shares.
Board of Directors
Under the Companies Law and our articles of association, our board of directors shall direct the Company’s policy and shall supervise the performance of the Company’s Chief Executive Officer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by, and serves at the discretion of our board of directors, subject to a services agreement entered into with Ron Executive Ltd., a company solely owned Dr. Ron Babecoff. All other executive officers are also appointed by our board of directors, and are subject to the terms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services. Other than Dr. Babecoff, who is entitled to certain termination payments under his employment agreement with us, none of our directors are entitled to benefits upon termination of their service.
Our board of directors has affirmatively determined that a majority of our directors are independent, in compliance with the NASDAQ Capital Market rules. The definition of independent director includes a set of statutory criteria that must be satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the independent director to exercise independent judgment in addition to the requirement that the board consider any factor which would impair the ability of the independent director to exercise independent judgment. Independent directors may be elected by an ordinary majority of the general shareholders meeting.
Under our articles of association, our board of directors must consist of at least three and not more than eleven directors, including any external directors required by Israeli law. Our board of directors currently consists of ten members, including our non-executive Chairman of the board of directors. Our directors, excluding the external directors, may be divided into three groups, as nearly equal in number as practicable, with staggered three-year terms. group A, group B and group C shall each consist of one-third of the directors, constituting our entire board of directors (other than the external directors). At each annual meeting, the three-year duration of service of one group of directors shall expire and the directors of such group will stand for election. Each of the directors or the successors elected to replace the directors of a group whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting held after the date of his or her election and until his or her respective successor is elected. If no directors are appointed at the annual meeting, the directors appointed at the previous annual meeting will continue their service. Directors whose service period has ended may be appointed again.
Under our articles of association, our board of directors may appoint directors to fill vacancies on our board of directors, for a term of office for the remaining period of time during which the director whose service has ended was filled would have held office, or the conclusion of the term of office in accordance with our articles or any applicable law, subject to the maximum number of directors allowed under the articles of association. In addition, our shareholders may appoint an additional director/s to the Company, whether for the purpose of filling a position that was vacated or as an additional director/s.
Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise. In determining the number of directors required to have such expertise, our board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of our company who are required to have accounting and financial expertise is two. Our board of directors has determined that Adi Raviv and Isaac Devash have accounting and financial expertise and possess professional qualifications as required under the Companies Law.
Chairman of the Board
Our articles of association provide that the chairman of the board is appointed and dismissed by the members of the board of directors and serves as chairman of the board throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the chief executive officer or a relative of the chief executive officer may not serve as the chairman of the board of directors, and the chairman or a relative of the chairman may not be vested with authorities of the chief executive officer without shareholder approval by special majority and for periods of time not exceeding three years each.
In addition, a person subordinated, directly or indirectly, to the chief executive officer may not serve as the chairman of the board of directors; the chairman of the board may not be vested with authorities that are granted to those subordinated to the chief executive officer; and the chairman of the board may not serve in any other position in the company or a controlled company, except as a director or chairman of a controlled company.
We have elected to make advantage of an exception under the Companies Law, requiring us to elect at least two members who qualify as external directors, one of which has accounting and financial expertise, subject to the following conditions: (i) none of our shareholders is a controlling shareholder; (ii) we comply with NASDAQ rules and regulations with respect to the composition of our audit and compensation committees; (iii) we comply with NASDAQ rules and regulations with respect to the requirements of independent directors. For so long as we meet the requisite requirements, we intend to apply the exemption from appointing at least two external directors under the Companies Law.
An external director is elected for a period of three years. The provisions of the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by a majority vote of the shares present and voting at a shareholders meeting, provided that either:
|●||such majority includes at least a majority of the shares held by all shareholders who are non-controlling shareholders and do not have a personal interest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions, to which we refer as a disinterested majority; or|
|●||the total number of shares voted by non-controlling shareholders and by shareholders who do not have a personal interest in the election of the external director, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.|
The term controlling shareholder is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding such ability deriving solely from his or her position as a director of the company or from any other position with the company. A shareholder is presumed to be a controlling shareholder if the shareholder holds 45% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its general manager. With respect to certain matters, a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a public company if no other shareholder holds more than 45% of the voting rights in the company.
Our audit committee consists of Mr. Adi Raviv, Dr. Yael Margolin, Dr. Ruth Ben Yakar and Dr. Morris Laster. Mr. Adi Raviv also serves as the chairman of the audit committee.
Under the NASDAQ Capital Market corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each of whom is financially literate and one of whom has accounting or related financial management expertise.
All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQ Capital Market corporate governance rules. Our board of directors has affirmatively determined that Mr. Adi Raviv is an audit committee financial expert as defined by the SEC rules and has the requisite financial experience as defined by the NASDAQ Capital Market corporate governance rules.
Each of the members of the audit committee are deemed “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act, which is different from the general test for independence of board and committee members.
Audit Committee Role
Our board of directors adopted an audit committee charter effective upon the listing of our ADSs and warrants on the NASDAQ Capital Market that set forth the responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of the NASDAQ Capital Market, as well as the requirements for such committee under the Companies Law, including the following:
|●||oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in accordance with Israeli law;|
|●||recommending the engagement or termination of the person filling the office of our internal auditor; and|
|●||recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our board of directors.|
Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.
Compensation Committee and Compensation Policy
Our compensation committee currently consists of Mr. Adi Raviv, Dr. Yael Margolin and Dr. Ruth Ben Yakar. Dr. Yael Margolin also serves as the Chairman of the Compensation committee. The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement of office holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering the recommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a special approval for Compensation as described below under “Approval of Related Party Transactions Under Israeli Law — Fiduciary Duties of Directors and Executive Officers”.
Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy.
The Compensation Policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in the Companies Law. The Compensation Policy must be approved by the company’s board of directors after considering the recommendations of the compensation committee. In addition, the Compensation Policy needs to be approved by the company’s shareholders by a simple majority, provided that (i) such majority includes a majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting (abstentions are disregarded) or (ii) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter who were present and voted against the Compensation Policy, constitute two percent or less of the voting power of the company. Such majority determined in accordance with clause (i) or (ii) is hereinafter referred to as the Compensation Majority.
To the extent a Compensation Policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company may override the resolution of the shareholders following a re-discussion of the matter by the board of directors and the compensation committee and for specified reasons, and after determining that despite the rejection by the shareholders, the adoption of the Compensation Policy is for the benefit of the company.
A Compensation Policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.
Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders and their relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is not material in relation to its existing terms.
Pursuant to the Companies Law amendment, following the recommendation of our compensation committee, our board of directors approved our compensation policy, and our shareholders, in turn, approved the Compensation Policy at our annual general meeting of shareholders that was held in January 16, 2014. In 2018, following the approval of the compensation committee and our board of directors, our general shareholders meeting approved an update to the compensation policy and further update to the compensation policy was approved by the general shareholders meeting on March 24, 2020 increasing the maximum amount of officer liability insurance premium coverage to $628,000.
The Compensation Policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The Compensation Policy must relate to certain factors, including advancement of the Company’s objectives, the Company’s business plan and its long-term strategy, and creation of appropriate incentives for office holders. It must also consider, among other things, the Company’s risk management, size and the nature of its operations. The Compensation Policy must furthermore consider the following additional factors:
|●||the knowledge, skills, expertise and accomplishments of the relevant office holder;|
|●||the office holder’s roles and 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 compensation of the other employees of the company, including those employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees of the company, as well as the impact such disparities may have on the work relationships in the company;|
|●||the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and|
|●||as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company.|
The Compensation Policy must also include:
|●||a link between variable compensation and long-term performance and measurable criteria;|
|●||the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;|
|●||the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements;|
|●||the minimum holding or vesting period for variable, equity-based compensation; and|
|●||maximum limits for severance compensation.|
The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequent approval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functions previously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:
|●||recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years);|
|●||recommending to the board of directors periodic updates to the compensation policy;|
|●||assessing implementation of the compensation policy; and|
|●||determining whether the compensation terms of the chief executive officer of the company need not be brought to approval of the shareholders.|
Compensation Committee Role
Our compensation committee’s responsibilities include:
|●||reviewing and recommending overall compensation policies with respect to our Chief Executive Officers and other executive officers;|
|●||reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officers and other executive officers including evaluating their performance in light of such goals and objectives;|
|●||reviewing and approving the granting of options and other incentive awards; and|
|●||reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors.|
Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of the audit committee. An internal auditor may not be:
|●||a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;|
|●||a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;|
|●||an office holder (including a director) of the company (or a relative thereof); or|
|●||a member of the company’s independent accounting firm, or anyone on his or her behalf.|
|●||The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee is required to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On October 22, 2014, we appointed Mr. Gewirtz Yisrael as our internal auditor. Mr. Gewirtz Yisrael is a certified internal auditor and a partner at Fahn Kanne & Co. Grant Thornton Israel, a certified public accounting firm in Israel.|
|●||The board of directors shall determine the direct supervisor of the internal auditor. The internal auditor is required to submit his findings to the audit committee, unless specified otherwise by the board of directors.|
Approval of Related Party Transactions under Israeli Law
Fiduciary Duties of Directors and Executive Officers
The Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Executive Officers and Directors” is an office holder under the Companies Law.
An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in good faith and in the best interests of the company.
The duty of care includes a duty to use reasonable means to obtain:
|●||information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and|
|●||all other important information pertaining to any such action.|
The duty of loyalty includes a duty to:
|●||refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;|
|●||refrain from any activity that is competitive with the company;|
|●||refrain from exploiting any business opportunity of the company to receive a personal gain 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.|
Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions
The Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all related material information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest of any person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, but excluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person for whom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or she holds a proxy even if such shareholder has no personal interest in the matter. An office holder is not however, obligated to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinary transaction is defined as any of the following:
|●||a transaction other than in the ordinary course of business;|
|●||a transaction that is not on market terms; or|
|●||a transaction that may have a material impact on a company’s profitability, assets or liabilities.|
If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless the company’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an office holder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemed a breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed by the office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s audit committee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requires approval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking to indemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number of specific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided that either: (a) such majority includes 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 compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights. We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require the approval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a Special Approval for Compensation.
Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be present at such a meeting or vote on that matter unless the chairman of the relevant committee or board of directors, as applicable, determines that he or she should be present in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, as applicable, have a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors, as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereof shall also require the approval of the shareholders.
Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions
Pursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controlling shareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds more than 45% of the voting rights in the company. For this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensation committee, as the case may be, the board of directors and the shareholders of the company, in that order is required for (a) extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directly or indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who is not an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred as Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:
|●||at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meeting approving the transaction, excluding abstentions; or|
|●||the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting do not exceed 2% of the voting rights in the company.|
To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years, unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances related thereto.
Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require the approval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with the company’s stated compensation policy.
Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or a director that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the audit committee and board of directors.
Pursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect to the following matters:
|●||an amendment to the company’s articles of association;|
|●||an increase of the company’s authorized share capital;|
|●||a merger; or|
|●||the approval of related party transactions and acts of office holders that require shareholder approval.|
In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.
Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows that he or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define the substance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness.
Exculpation, Insurance and Indemnification of Directors and Officers
Under the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpate in advance a director from liability arising out of a prohibited dividend or distribution to shareholders.
Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:
|●||financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be reasonably 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 attorneys’ fees, incurred by the office holder (i) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (A) no indictment was filed against such office holder as a result of such investigation or proceeding; and (B) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and (ii) in connection with a monetary sanction; and|
|●||reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of a conviction for an offense that does not require proof of criminal intent.|
Under the Companies Law and the Israeli Securities Law 5728-1968, or the Israeli Securities Law, a company may insure an office holder against the following liabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:
|●||a breach of the duty of loyalty 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; and|
|●||a financial liability imposed on the office holder in favor of a third party.|
Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:
|●||a breach of duty of care to the company or to a third party.|
|●||any other action against which we are permitted by law to insure an office holder;|
|●||expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including the Efficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 5771-2011 and the Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and|
|●||a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.|
Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
|●||a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;|
|●||a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;|
|●||an act or omission committed with intent to derive illegal personal benefit; or|
|●||a fine, civil fine, administrative fine or ransom or levied against the office holder.|
Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committee and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “— Approval of Related Party Transactions under Israeli Law.”
Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Law and the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.
We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles of association, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This indemnification is limited to events determined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances.
The maximum indemnification amount set forth in such agreements is limited to an amount which shall not exceed 25% of our net assets based on our most recently audited or reviewed financial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/or by a third-party pursuant to an indemnification arrangement
In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act of 1933, however, is against public policy and therefore unenforceable.
We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay all premiums thereunder to the fullest extent permitted by the Companies Law. In addition, we entered into agreements with each of our office holders undertaking to indemnify them to the fullest extent permitted by the Companies Law, including with respect to liabilities resulting from the initial public offering in the U.S., to the extent that these liabilities are not covered by insurance.
As of December 31, 2019, we have 25 employees, three of whom are employed in finance and administration and 22 of whom were employed in research and development. These employees are in Israel.
Israeli labor laws principally govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination laws and other conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the retirement, death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute, which is similar to the U.S. Social Security Administration. Our employees have defined benefit pension plans that comply with applicable Israeli legal requirements, which also include the mandatory pension payments required by applicable law and allocations for severance pay.
While none of our employees are party to any collective bargaining agreements, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations) are applicable to our employees by extension orders issued by the Israel Ministry of Economy (previously the Israeli Ministry of Trade, Industry and Labor). These provisions primarily concern the length of the workweek, pension fund benefits for all employees and for employees in the industry section, insurance for work-related accidents, travel expenses reimbursement, holiday leave, convalescent payments and entitlement for vacation days. We generally provide our employees with benefits and working conditions beyond the required minimums. We have never experienced any employment-related work stoppages and believe our relationship with our employees is good.
For information regarding the share ownership of our directors and executive officers, see “Item 7.A. Major Shareholders.”
|Item 7.||MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS|
The following table and notes set forth information, as of May 15, 2020, concerning the beneficial ownership of our securities by:
|●||each of our directors and executive officers;|
|●||all of our executive officers and directors as a group; and|
|●||each person (or group of affiliated persons) known by us to be the beneficial owner of more than 5% of the outstanding ordinary shares.|
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to ordinary shares or Ordinary shares represented by our ADSs. Ordinary shares issuable under share options or other conversion rights that were exercisable within 60 days after May 15, 2020, are deemed outstanding for the purpose of computing the percentage ownership of the person holding the options or other conversion rights but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. The percentage of ordinary shares beneficially owned is based on 454,145,376 ordinary shares outstanding as of May 15, 2020.
None of our shareholders has different voting rights from other shareholders. To the best of our knowledge, we are not owned or controlled, directly or indirectly, by another corporation or by any foreign government. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
Except as otherwise indicated in the footnotes to this table, we believe the persons named in this table have sole voting and investment power with respect to all the ordinary shares indicated.
|Directors and Executive Officers||Ordinary |
|Percent of |
|Ron Babecoff (1)||12,434,648||3||%|
|Avner Rotman (2)||238,900||*|
|George H. Lowell||*||*|
|Uri Ben Or||*||*|
|Tamar Ben Yedidia||&nb|