PART I.
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3.
KEY INFORMATION
A. [RESERVED]
Not applicable.
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
An investment in our ordinary shares involves a high
degree of risk and many factors could affect our results, financial condition, cash flows and results of operations. You should carefully
consider the following risk factors, as well as the other information in this Annual Report. If we do not, or cannot, successfully address
the risks to which we are subject, we could experience a material adverse effect on our business, results of operations and financial
condition, which could include the need to limit or even discontinue our business operations, and accordingly our share price may decline,
and you could lose all or part of your investment. We can give no assurance that we will successfully address any of these risks. The
principal risks we face are described below.
Summary Risk Factors
Our business is subject to a number of risks of which you should
be aware of before making an investment decision. These risks are discussed more fully under the caption “Item 3. Key Information
- D. Risk Factors” section of this Annual Report. These risks include, but are not limited to, the following:
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We have a history of losses and we expect to incur future losses and may never achieve or sustain profitability. |
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We may need to raise additional funds in the future, and if we are unable to raise such additional funds, we may need to limit, curtail
or cease operations. To the extent any such funding is based on the sale of equity, our existing shareholders would experience dilution
of their shareholdings. |
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We cannot provide assurance that our business model will succeed in generating substantial revenues. |
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In the near term, we are highly dependent on the success of COM701, COM902 and COM503. We may not be able to advance our internal
clinical stage programs through clinical development or manufacturing or successfully partner or commercialize them, or obtain marketing
approval, either alone or with a collaborator, or may experience significant delays in doing so. |
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Clinical trials of any product candidates that we, or any current or future collaborators may conduct, may fail to satisfactorily
demonstrate safety and/or efficacy, and we, or any collaborator, may incur additional costs or experience delays in completing, or ultimately
be unable to complete the development and commercialization of these product candidates. |
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Clinical development involves a lengthy and expensive process, with an uncertain outcome. We may encounter substantial delays or
even an inability to begin clinical trials for any specific product or may not be able to conduct or complete our trials on the timelines
we expect. |
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From time to time we publicly disclose preliminary data from our ongoing clinical trials. As more patient data become available the
data and the interpretation of the data may change. |
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We rely and expect to continue to rely on third parties to conduct our clinical trials. These third parties may not successfully
or professionally carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, and we may experience
significant delays in the conduct of our clinical trials as well as significant increased expenditures. |
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Serious adverse events or undesirable side effects or lack of efficacy, may emerge in clinical trials conducted by other companies
running clinical trials investigating the same target as us, which could adversely affect our development programs or our capability to
enroll patients or partner the program for further development and commercialization. |
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We are subject to certain manufacturing risks, any of which could either result in additional costs or delays in completing, or ultimately
make us unable to complete, the development and commercialization of our product candidates. |
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From time to time, we may also publish preliminary biomarker data from our ongoing clinical trials. As more patient data become available
the data and the interpretation of the data may change. |
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Our current and future relationships, and/or the relationships of our collaborators through which we may market, sell, and distribute
our products, with healthcare professionals, physicians and other parties in the United States and elsewhere may be subject, directly
or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information and general
privacy and security and other healthcare laws and regulations, which could expose us to adverse consequences. |
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There are risks that are inherent in the development and commercialization of new therapeutic products. |
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We have limited experience in the development of therapeutic product candidates, and we may be unable to implement our business strategy.
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Our approach to the discovery of therapeutic products is based on our predictive computational discovery capabilities that are not
yet fully proven clinically, and we do not know whether we will be able to discover and develop additional potential product candidates
or products of commercial value. |
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We are focusing our discovery and therapeutic development activities on therapeutic product candidates for uses in immuno-oncology.
Our current candidates may fail, and we may fail to continue to discover and develop therapeutic product candidates of industry interest
in this field. |
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We depend significantly on third parties to carry out the research, development and commercialization of our therapeutic product
candidates. If we are unable to maintain our existing agreements or to enter into additional agreements with such third parties, mainly
collaborators, in the future, our business will likely be materially harmed. |
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Our dependence on collaboration agreements with third parties presents number of risks. |
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Our existing partnership agreement with Gilead is subject to many risks. |
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We operate in a highly competitive and rapidly changing industry which may result in others discovering, developing or commercializing
competing products ahead of us or more successfully than we do. |
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Given our level of managerial, operational, financial and other resources, our current activities and future growth may be limited.
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Our information technology systems, or those of the third parties upon whom we rely, including our cloud providers, CROs or other
contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our pipeline and our
business, as well as to regulatory investigations or actions; litigation; fines and penalties; reputational harm; loss of revenue and
other adverse consequences. |
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We are subject to stringent and changing obligations related to data privacy and security. Failure or perceived failure to comply
with current or future obligations could lead to government enforcement actions (which could include civil or criminal penalties), private
litigation, and/or adverse publicity and could negatively affect our operating results and business. |
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If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, our ability
to prevent our competitors from commercializing similar or identical product candidates would be adversely affected. |
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We may need to obtain additional licenses of third-party technology or other rights that may not be available to us or are available
only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that
was not anticipated. |
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We, or potential collaborators and licensees, may infringe third-party rights and may become involved in litigation, which may materially
harm our business. |
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We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time
consuming and unsuccessful. |
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Conditions in Israel and in the Middle East may adversely affect our operations. |
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Our results of operations may be adversely affected by the exchange rate fluctuations between the dollar and the New Israeli Shekel.
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We may not be able to meet the continued listing standards of Nasdaq, which require a minimum closing bid price of $1.00 per share,
which could result in our delisting and negatively impact the price of our ordinary shares and our ability to access the capital markets.
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Future sales of our ordinary shares or securities convertible or exchangeable for our ordinary shares may depress our share price.
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If we sell ordinary shares in future financings, shareholders may experience immediate dilution and, as a result, our share price
may decline. |
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Our share price and trading volume have been volatile and may be volatile in the future and that could limit investors’ ability
to sell our shares at a profit and could limit our ability to successfully raise funds. |
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If we are a passive foreign investment company, or PFIC, our U.S. shareholders may be subject to adverse U.S. federal income tax
consequences. |
Risks Related to our Business, Financial Results and Financing Needs
We have a history of losses and we expect to
incur future losses and may never achieve or sustain profitability.
As of December 31, 2023, we had an accumulated deficit of approximately $474.5 million
and had incurred net losses of approximately $18.8 million in 2023, $33.7 million in 2022 and approximately $34.2 million in 2021, in
large part due to the expenditures associated with our ongoing research and development and limited revenues received to date. In addition,
we expect to continue to incur net losses in the future due to our anticipated costs and expenses, primarily associated with our preclinical
and clinical activities. We previously entered into three therapeutic pipeline program-based partnership agreements, one with Bayer Pharma
AG, or Bayer, the other with AstraZeneca plc, or AstraZeneca, and the third with Bristol Myers Squibb Company, or Bristol Myers Squibb,
under which, through the end of 2022, we received an aggregate amount of $90.7 million, including a $32.0 million equity investment from
Bristol Myers Squibb. Currently, following the termination of the Bristol Myers Squibb and the Bayer collaborations in August 2022 and
in February 2023, respectively, and after entering into an exclusive license agreement, or the License Agreement, with Gilead Sciences,
Inc., or Gilead, on December 18, 2023, we have two therapeutic pipeline program-based partnership agreements in effect, one with AstraZeneca
and the second with Gilead. In the first quarter of 2024, we received $51 million as an upfront payment from Gilead (after $9 million
tax withheld at source) and $10 million as a milestone payment from AstraZeneca. We cannot be certain that we will receive additional
revenues under any of these partnership agreements or that we will enter into additional arrangements for any of our therapeutic pipeline
programs or with respect to our predictive computational discovery capabilities, or that such additional arrangements, if any, will provide
sufficient revenues to achieve profitability.
We may need to raise additional funds
in the future, and if we are unable to raise such additional funds, we may need to limit, curtail or cease operations. To the extent any
such funding is based on the sale of equity, our existing shareholders would experience dilution of their shareholdings.
Based on our current plans and our expectation that IND clearance for COM503 will
take place in the second half of 2024, we believe that our current existing cash and cash equivalents, short-term bank deposits, investment
in marketable securities together with the COM503 IND clearance milestone payment from Gilead will be sufficient to fund operations into
2027, without considering the possible receipt of any additional funds, such as proceeds from existing or additional licensing and/or
collaborative agreements, or from financings. However, if our plans change, our cash balances may only be sufficient for a shorter period
of time. We cannot predict with any degree of certainty when, or even if, we will generate significant revenues or achieve profitability,
and therefore we may need additional funds to continue financing our operations. We may seek additional capital for various reasons, including
for our ongoing operations or strategic considerations, even if we believe we have sufficient funds for our current and future operating
plans. Additional funds, including proceeds from license or collaborative agreements, or from other financings, may not be available to
us on acceptable terms, or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our existing
shareholders. For example, if we raise additional funds by issuing equity securities, our existing shareholders will experience dilution
of their shareholdings. Debt financing, if available, may involve restrictive covenants that could limit our flexibility in conducting
future business activities.
Any failure to raise funds as and when needed would materially harm our business,
financial condition and results of operations, and result in us having to significantly curtail one or more of our research or development
programs or otherwise reduce our operations and thereby not having the ability to have some or all of such therapeutic product candidates
developed and have a negative impact on our ability to pursue our business strategy. We also could be required to seek funds through arrangements
with partners or other investors that may require us to enter into arrangements on terms that would otherwise not be acceptable to us
which could materially harm our business, financial condition and results of operations.
We cannot provide assurance that our business
model will succeed in generating substantial revenues.
Our business model is primarily based on expected future revenues in various forms,
including upfront fees, research funding, in-kind funding, milestone payments, license fees, royalties on product sales and other revenue
sharing payments from development and commercialization of products by third parties, pursuant to various forms of collaborations for
our novel targets and related drug product candidates at various stages of research and development. Our primary focus in immuno-oncology
utilizes our predictive computational discovery capabilities to identify novel drug targets and develop potentially first-in-class therapeutics
in the field of cancer immunotherapy. Drug target candidates discovered by our predictive computational discovery capabilities undergo
initial target validation studies and, in selected cases, are advanced to the discovery and development of the therapeutic product candidate.
Such drug target candidates and their related therapeutic product candidates may serve as the basis for licensing and other forms of third-party
collaborations. Following the termination of the Bristol Myers Squibb and the Bayer collaborations in August 2022 and in February 2023,
respectively, and after entering into the License Agreement with Gilead on December 18, 2023, we currently have two collaborations in
effect, one with AstraZeneca and the second with Gilead. The termination of our existing or any future collaboration agreements may have
varying impacts on our financial position and, specifically, our ability to generate revenue. For example, while the termination of our
agreement with Bristol Myers Squibb has different effects on our operations, this termination caused us to lose free access to PD-1 immune
checkpoint inhibitor, which has an adverse impact on our expenditure thereby requiring us to purchase PD-1 inhibitor for our clinical
studies. The main effect of the termination of the collaboration agreement with Bayer was extinguishing our potential to achieve future
revenues from such collaboration. The inability to derive adequate revenues, or at all, from our business model would materially
harm our business, financial condition and results of operations and could result in the need to limit or even discontinue our business
operations.
We have a limited operating
history with respect to the partnering and commercialization aspects of our business model upon which investors can base an investment
decision or upon which to predict future revenues.
Our ability to generate revenues from partnerships for our novel drug targets and
related therapeutic product candidates at various stages of research and development has been limited. To date, we have entered into four
partnership agreements with respect to our therapeutic pipeline programs under which we have received a total amount of $151.7 million
(after $9 million withholding taxes), of which $32 million was the form of an equity investment. We recognized revenue of $33.5 million
in 2023, $7.5 million in 2022 and $6.0 million in 2021 from our partnerships. There can be no guarantee that we will achieve the same
level of revenue in the future.
We cannot be certain that our focus on discovery, research and drug development in
the field of immuno-oncology, along with advancing selected programs to preclinical and clinical development partially or fully at our
own expense, will generate a stable or significant revenue stream. Additionally, financial terms for agreements by other companies, to
the degree disclosed, vary greatly and therefore financial terms that may be available for our candidates at the various R&D stages
may vary greatly. The inability to derive adequate revenues within our field of focus and for our specific drug targets or product candidates
would materially harm our business, financial condition and results of operations and could result in the need to limit or even discontinue
our business operations. Moreover, our operating history with respect to the partnering and commercialization aspects of our model provides
a limited basis to assess our ability to generate significant fees, research revenues, milestone payments, royalties or other revenue
sharing payments from the licensing, development and anticipated future commercialization of our programs based on our existing and future
novel drug targets and related therapeutic products and any future product candidates.
Our failure to establish
and maintain effective internal control over financial reporting could result in material misstatements in our financial statements or
a failure to meet our reporting obligations. This may cause investors to lose confidence in our reported financial information, which
could result in the trading price of our shares to decline.
Our management is responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation
of our management, including the Chief Executive Officer and the Chief Financial Officer, we carried out an evaluation of the effectiveness
of our internal control over financial reporting as of December 31, 2023, using the criteria established in “Internal Control
- Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO
criteria). Based on our assessment under that framework and the criteria established therein, our management concluded that the Company’s
internal control over financial reporting was effective as of December 31, 2023, in providing reasonable assurance regarding the reliability
of the Company’s financial reporting.
However, if we conclude in the future that our internal controls over financial reporting
are not effective, we may fail to meet our future reporting obligations on a timely basis, our financial statements may contain material
misstatements, our operating results may be negatively impacted, and we may be subject to litigation and regulatory actions, causing investor
perceptions to be adversely affected and potentially resulting in a decline in the market price of our shares. Even if we conclude that
our internal controls over financial reporting are adequate, any internal control or procedure, no matter how well designed and operated,
can only provide reasonable assurance of achieving desired control objectives and cannot prevent all mistakes or intentional misconduct
or fraud.
Risks Related to Development, Manufacturing, Clinical Trials and Government Regulation
In the near term, we are
highly dependent on the success of COM701, COM902 and COM503. We may not be able to advance our internal clinical stage programs through
clinical development or manufacturing or successfully partner or commercialize them, or obtain marketing approval, either alone or with
a collaborator, or may experience significant delays in doing so.
We currently have no products approved for sale and are investing a significant portion
of our efforts and financial resources in the clinical development of COM701 and of COM902 and preclinical development of COM503. Our
prospects are substantially dependent on our ability, or that of any existing and future partners, to manufacture, develop, obtain marketing
approval for and successfully commercialize COM701, COM902 and COM503 as a stand alone or in combination with other drugs. We have reported
favorable safety and toxicity profile and preliminary signals of antitumor activity in our ongoing Phase 1 trial with COM701 monotherapy,
COM701 combination with nivolumab, and in the triplet combination of COM701, nivolumab and BMS-986207 (anti-TIGIT antibody). We have reported
preliminary signals of antitumor activity from our Phase 1 dose escalation monotherapy trial of COM902 with a best response of stable
disease. These preliminary clinical results may not predict the final results of the on-going clinical trials or future clinical trials
or otherwise be sufficient to attract a partner or support a future drug approval. Many companies in the pharmaceutical, biopharmaceutical
and biotechnology industries have suffered significant setbacks or failures in clinical trials after achieving positive results, and we
cannot be certain that we will not face similar setbacks or failures.
Our pipeline currently consists of three clinical stage programs, which are at early
stage of clinical development. Two, COM701 and COM902 are being developed internally and the third, rilvegostomig, is being developed
by our collaborator, AstraZeneca. Our pipeline also consists of additional programs in early stage, the most advanced of which is COM503,
which is in IND enabling studies and is licensed to Gilead and requires substantial development and investment.
If we are able to advance our programs throughout the different clinical development
phases, we will need to expand our personnel and operational capabilities to support these activities. We may also need to raise additional
capital in such event. In part because of our limited infrastructure, limited experience in conducting clinical trials and limited experience
in interacting with regulatory authorities, we cannot be certain that our clinical trials will be completed on time, that our planned
clinical trials will be initiated on time, if at all, that our planned development programs and development path forward will be designed
well or would be acceptable to the U.S. Food and Drug Administration, or FDA, or other comparable foreign regulatory authorities, or that,
even if approval is obtained, such investigational products can be successfully commercialized.
The success of COM701, COM902 and COM503 is dependent upon several factors, including
the following:
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the successful clearance of IND for COM503; |
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the successful clinical trial design (and implementation thereof) and results; |
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our ability to fund clinical trials designed to obtain regulatory approval and to become commercially successful; |
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our ability to design trials required to allow for a path for registration or obtain
regulatory approval; |
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the success of trials designed to allow for a path for registration/approval by regulatory
authorities; |
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our selected regulatory strategy; |
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our timely initiation, enrollment and completion of clinical trials; |
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the enrolled patient population’s demographics, prior therapy/ies and other
patients characteristics, even if they meet the inclusion/exclusion enrollment criteria; |
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a safety, tolerability and efficacy profile, alone or in combination with other approved
or investigational products, that is satisfactory to the FDA or comparable foreign regulatory authorities; |
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a safety, tolerability and efficacy profile, alone or in combination with other approved
or investigational products, that fits the competitive treatment landscape/ unmet patients’ need; |
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selection of drug dosing; |
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selection of indications; |
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selection of patient populations; |
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selection of comparator study arm |
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selection of drug(s) for combinations; |
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access to drugs required for combination studies or approval; |
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successful identification of biomarkers, including for patient selection; |
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timely receipt of marketing approvals from applicable regulatory authorities;
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the performance of our current and future collaborators, if any; |
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the extent of any required post-marketing approval commitments to applicable regulatory
authorities; |
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establishment, management and monitoring of CRO arrangements and processes with third-party
service providers for conducting the clinical trial; |
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ability to convince clinical investigators in the potential of our clinical drug candidates
and their interest in enrolling patients to our studies; |
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establishment and monitoring of manufacturing arrangements and processes with third-party
service providers and clinical manufacturing organizations for manufacturing drug substance and drug product; |
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establishment and monitoring of arrangements with third-party suppliers of raw materials
and service for fill-finish, packaging and labeling; |
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stability of our drug substance and drug products; |
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supply of our drugs in sufficient quantities and quality for our clinical trials;
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establishment of arrangements with third-party manufacturers and processes monitoring
to obtain commercial quality drug product that is appropriately packaged for sale; |
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adequate ongoing availability of raw materials and drug product for clinical development
and any commercial sales; |
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protection of our rights in our intellectual property portfolio; |
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successful launch of commercial sales following any marketing approval; |
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a continued acceptable safety profile following any marketing approval; and
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commercial acceptance by patients, the medical community and third-party payors.
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Many of these factors are beyond our control, including clinical development by us
and our competitors, the regulatory submission and review process, potential threats to our intellectual property rights and the manufacturing,
marketing and sales efforts of any current and future third party. If we are unable to develop, receive marketing approval for and successfully
commercialize COM701, COM902 and COM503, on our own or with any collaborator, or experience delays as a result of any of these factors
or otherwise, our business could be substantially harmed.
We depend on enrollment
of patients in our clinical trials in order to continue development of our product candidates.
We are currently conducting two Phase 1 clinical trials one in metastatic microsatellite
stable colorectal cancer and one in platinum resistant ovarian cancer, in which we test the combination of COM701 with COM902 and pembrolizumab.
We completed our enrollment of 20 patients in the metastatic microsatellite stable colorectal cancer trial and expect to complete enrollment
of at least 20 patients with platinum resistant ovarian cancer in the first quarter of 2024, later than we initially projected due to
various reasons, including competing studies, trying to identify suitable enrolling sites and the general treatment landscape in this
indication. Our anticipated time to data in these trials is subject to our ability to enroll a sufficient number of eligible patients
that will need to be enrolled for observing clinical activity, if at all. There can be no assurance that we will complete enrollment or
have data from the trials when we anticipate or at all or that our data will support the further development of our proposed combination.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient
number of patients that are in line with our inclusions and exclusion criteria and our ability to monitor these patients as required.
We may experience difficulties in patient enrollment in our clinical trials for a
variety of reasons. Patient enrollment is affected by many factors including the size and nature of the patient population, the eligibility
criteria for the trial, the design of the clinical trial, the size of the patient population required for analysis of the trial’s
primary endpoints, the proximity of patients to clinical trial sites, our ability to recruit clinical trial investigators with the appropriate
competencies and experience, the number of enrolling clinical sites, our ability to obtain and maintain patient consents, the risk that
patients enrolled in clinical trials will drop out of the trials before completion or even before any/sufficient imaging assessment, the
willingness of patients to attend clinic visits given epidemic and pandemic concerns, and competing clinical trials (including other clinical
trials that we are conducting or will conduct in the future) and clinicians’ and patients’ perceptions as to the potential
advantages of the drug being studied in relation to other available therapies, or competing drugs against the same target as well as a
changing treatment landscape, including any new drugs that may be approved for the indications we are investigating. For example, the
platinum resistant ovarian cancer landscape is continually evolving and becoming more competitive, with the approval of mirvetuximab and
other competing studies, which may have an impact on our enrollment rate and may raise the bar for success in our clinical trial results.
Many pharmaceutical companies are conducting clinical trials in
patients with the disease indications that COM701, COM902, COM503 and our future potential drug products may target. Additionally, other
pharmaceutical companies are already clinically investigating their own therapeutic candidates against PVRIG, the target of COM701, or
against TIGIT, the target of COM902, and the IL-18 pathway, which COM503 is targeting, which may hamper the enrollment of patients in
our trials for COM701, COM902, or COM503. For example, in the case of COM701, there are currently several PVRIG antibodies in Phase
1 studies, such as GSK’s GSK4381562 (formerly SRF813), Hengrui’s PVRIG/TIGIT bi-specific, SHR-2002, Simcere’s TIGIT/PVRIG
bispecific antibody, SIM0348, Biotheus’s PVRIG/TIGIT bi-specific, PM-1009, and Hefei TG ImmunoPharma’s NM1F.
In the case of COM902, the landscape includes a significant number of anti-TIGIT antibodies
at various stages of development, with the leading ones currently in Phase 3 clinical trials, such as tiragolumab by Roche, vibostolumab
by Merck, rilvegostomigby AstraZeneca, ociperlimab by Beigene, domvanalimab by Arcus, as well as others at earlier stages in development.
In the IL-18 pathway field, the programs that are more advanced than COM503 and are in clinical stage are ST-067, a mutated IL-18 fusion
protein at Phase 1/2 and two IL-18 CART therapies in Phase 1. As a result, we must compete with these competitors for clinical sites,
clinicians’ interest and the limited number of patients who fulfill the stringent requirements for participation in clinical trials
in general. Also, patient enrollment may be limited due to changes in the regulatory landscape in the indications of interest to us. Our
clinical trials may be delayed or terminated due to the inability to enroll enough patients or lack of successful drug performance. The
delay or inability to meet planned patient enrollment or successful results may result in increased costs and delay or termination of
our trials, which could have a harmful effect on our ability to develop products.
Clinical trials of any product
candidates that we, or any current or future collaborators may conduct, may fail to satisfactorily demonstrate safety and/or efficacy,
and we, or any collaborator, may incur additional costs or experience delays in completing, or ultimately be unable to complete the development
and commercialization of these product candidates.
We, and any current or future collaborators, are not permitted to commercialize, market,
promote or sell any therapeutic product candidate in any jurisdiction without obtaining marketing approval from the relevant regulatory
authority, such as the FDA in case of the United States. We, and any collaborators, must complete clinical trials to demonstrate the safety
and efficacy of our therapeutic product candidates in humans before we will be able to obtain these approvals.
Clinical testing is expensive, is difficult to design and implement, can take many
years to complete and is inherently uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned
or completed on schedule, if at all. The clinical development of our therapeutic product candidates is susceptible to the risk of failure
inherent at any stage of product development, including failure to demonstrate efficacy in a clinical trial or across population of patients,
choosing the incorrect patient population or indication, the occurrence of adverse events that are severe or medically or commercially
unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the FDA that a therapeutic product
candidate may not continue development or is not approvable. The outcome of preclinical studies and early clinical trials may not predict
the success of later clinical trials and interim results of a clinical trial do not necessarily predict final results. A number of companies
in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy
or unacceptable safety profiles, notwithstanding promising results in earlier trials. Despite the preliminary safety and anti-tumor activity
results reported to date from our ongoing Phase 1 trial for COM701 and COM902, we do not know whether the clinical trials we or our partners
may conduct will demonstrate adequate efficacy and safety to result in the further advancement of clinical development or regulatory approval
to market of COM701 and/or COM902, or any other of our product candidates when they reach the clinic, in any particular jurisdiction or
jurisdictions. The same applies to COM503 which has not yet entered the clinic. It is also possible that, even if one or more of our therapeutic
product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of
a variety of factors, including the size, patient population, duration, design, measurements, conduct or analysis of our clinical trials,
patient monitoring, the dosing we choose and other factors.
Any inability to successfully complete preclinical and clinical development could
result in additional costs to us, or any collaborators, and impair our ability to generate revenues from product sales, development, regulatory
and commercialization milestones and royalties. Moreover, if we, or any collaborators, are required to conduct additional clinical trials
or repeat clinical trials or other testing of our product candidates beyond the trials and testing that we or they contemplate, if we,
or they, are unable to successfully complete clinical trials of our product candidates or other testing, or the results of these trials
or tests are unfavorable, uncertain or are only modestly favorable, or there are unacceptable safety concerns associated with our product
candidates, we, or any collaborators, may, among others:
• cease
the development of the product candidates;
• incur
additional unplanned costs;
• terminate
or amend the respective collaboration, if applicable;
• not
obtain approval to proceed to next development phase;
• be
delayed in obtaining marketing approval for our product candidates;
• not
obtain marketing approval at all;
• obtain
approval for indications or patient populations that are not as broad as intended or desired;
• obtain
approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;
• be
subject to additional post-marketing testing or other requirements; or
• be
required to remove the product from the market after obtaining marketing approval.
Our failure to successfully initiate and complete clinical trials of our product candidates
and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our product candidates would significantly
harm our business, could further result in significant harm to our financial position and results of operations and could result in the
need to limit or even discontinue our business operations.
Clinical development involves a lengthy and
expensive process, with an uncertain outcome. We may encounter substantial delays or even an inability to begin clinical trials for any
specific product or may not be able to conduct or complete our trials on the timelines we expect.
Obtaining marketing approval from regulatory authorities for the
sale of any therapeutic product requires substantial preclinical development and then extensive human clinical trials to demonstrate the
safety and efficacy of such product candidates. It is impossible to predict when or if any of our programs or those of our collaborators
based on our target discoveries will yield products that will be approved for human testing, or, if such testing is proven sufficiently
safe and effective for further development or to receive regulatory approval for marketing. Preclinical and clinical testing is expensive,
time consuming, and subject to uncertainty and will require significant additional financial and management resources. As a company, we
have limited experience in conducting clinical trials and have never progressed a product candidate through to regulatory approval. In
part because of this lack of experience, our clinical trials may require more time and incur greater costs than we anticipate. We cannot
guarantee that any of our therapeutic drug candidates from our pipeline will be advanced into clinical trials or that our clinical trials
will be conducted as planned or completed on schedule, if at all. The outcome of preclinical testing and early clinical trials may not
be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results.
Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed
their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to continue to achieve
such successes at later stages of the clinical studies or to obtain marketing approval for such products.
We submitted to the FDA an Investigational New Drug application,
or IND, for COM701, which was cleared by the FDA in June 2018 and an IND for COM902, which was cleared by the FDA in October 2019 and
we plan to submit IND to the FDA for COM503 in 2024. However, there can be no assurance that we will submit additional INDs, including
for COM503, nor if submitted, the actual timing for such submission (including amendments), nor that such submissions will be accepted
by the FDA at all or within anticipated timeframe, allowing clinical trials to begin or continue. There can be no assurance that clinical
trials will begin at any predicted date or will be completed on schedule, if at all. Moreover, even if these clinical trials begin, issues
may arise that could result in the suspension of or termination of such clinical trials. A failure of one or more clinical trials can
occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:
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inability to generate sufficient preclinical, toxicology, or other data to support the initiation of clinical trials; |
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lack of authorization from regulators or institutional review boards, or IRBs, or ethics committees to allow us or our investigators
to amend a clinical trial or commence a clinical trial or conduct a clinical trial at a prospective trial site or continue such clinical
trial; |
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delays in sufficiently developing, characterizing, or controlling a manufacturing process suitable for clinical trials; |
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inability to generate sufficient quantities or quality of our drug substance or drug product to support the initiation or continuation
of clinical trials; |
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delays in reaching a consensus with collaborators or regulatory agencies on trial design or trial amendment; |
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delays in reaching agreement on acceptable terms with prospective CROs, and clinical trial sites, the terms of which can be subject
to extensive negotiation and may vary significantly among different CROs and clinical trial sites; |
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imposition of a temporary or permanent clinical hold by the FDA, or a similar delay imposed by foreign regulatory agencies for a
number of reasons, including after review of an IND, other application or amendment; (i) as a result of a new safety finding that presents
unreasonable risk to clinical trial participants; (ii) a negative finding from an inspection of our clinical trial operations or trial
sites; (iii) developments on trials conducted by competitors for related technology that raises FDA concerns about risk to patients of
the technology broadly; or (iv) if FDA finds that the investigational protocol or plan is clearly deficient to meet its stated objectives;
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clinical trials of any product candidates may fail to show safety or efficacy, produce negative or inconclusive results and we may
decide, or regulators may require us, to conduct additional preclinical studies or clinical trials or we may decide to abandon product
development programs; |
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difficulty collaborating with patient groups and investigators; |
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failure by our CROs, other third parties, or us to adhere to clinical trial and related regulatory requirements; |
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failure to perform in accordance with the FDA’s Good Clinical Practice, or GCP, requirements, or similar applicable regulatory
guidelines in other countries; |
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failure to perform in accordance with the FDA’s Good Manufacturing Practice, or GMP, requirements, or similar applicable regulatory
guidelines in other countries; |
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the number of patients required for clinical trials of any product candidates may be larger than we anticipate or can financially
support, enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials or
fail to return for post-treatment follow-up at a higher rate than we anticipate; |
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delays in having patients complete their participation in a trial or return for post-treatment follow-up; |
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occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits; |
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changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; |
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changes in the standard of care or in the regulatory landscape on which a clinical development plan was based, which may require
new or additional trials; |
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the cost of clinical trials of our product candidates being greater than we anticipate; |
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clinical trials of our product candidates producing negative or inconclusive results, or early results that will not be repeated
in larger or future cohorts or randomized studies, which may result in our deciding, or regulators requiring us, to conduct additional
clinical trials or abandon product development programs; |
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choosing the wrong dosing regimen and/or the wrong drug combination; |
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delays or failure to secure supply agreements with suitable reagent suppliers, or any failures by suppliers to meet our quantity
or quality requirements for necessary reagents; and |
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delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates
for use in clinical trials or the inability to do any of the foregoing. |
Our product development and other costs will increase if we experience delays in clinical
trials (including termination thereof) or in obtaining marketing approvals. We do not know whether any of our preclinical studies or clinical
trials will begin as planned, and once begun whether will need to be restructured or will be completed on schedule, or at all. Significant
preclinical or clinical trial delays also may allow our competitors to bring products to market before we do, potentially impairing our
ability to be first-in-class or successfully commercialize our product candidates and harming our potential market share and business
and results of operations. Any delays in our preclinical or clinical development programs may harm our business, financial condition and
prospects significantly.
From time to time, we publicly disclose preliminary
data from our ongoing clinical trials. As more patient data become available the data and the interpretation of the data may change.
From time to time, we publish preliminary or interim investigator assessed data from
our ongoing clinical trials. Preliminary data remain subject to audit confirmation and verification procedures that may result in the
final data being materially different from the preliminary data we previously published. Preliminary data are also subject to the risk
that one or more of the clinical outcomes may materially change as time goes by and cutoff date changes, patient enrollment continues
and with further patient monitoring where more patient data become available. As a result, preliminary data should be viewed with caution
until clinical trial completion where the final data are available. Also, data may also change upon the further assessment in additional
studies. Material adverse changes in the data along the clinical development process could significantly harm our business prospects,
financial condition and results of operations.
We rely and expect to continue to rely on third
parties to conduct our clinical trials. These third parties may not successfully or professionally carry out their contractual duties,
comply with regulatory requirements or meet expected deadlines, and we may experience significant delays in the conduct of our clinical
trials as well as significant increased expenditures.
We do not have the ability to independently conduct clinical trials. We rely and will
continue to rely on medical institutions, clinical investigators, contract manufacturing research organizations, contract laboratories,
outsourced preclinical and clinical service providers and other third parties, such as CROs and advisors, to conduct or otherwise support
our clinical trials. We rely heavily and will continue to rely heavily on these parties for execution of clinical trials for COM701 and
COM902 and any other future product candidates we may take to the clinic, including COM503 (to the extent we take it to the clinic), and
we control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our internal clinical
trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance
on these third parties, including our CROs, will not relieve us of our regulatory responsibilities. For any violations of laws and regulations
during the conduct of our clinical trials, we could be subject to untitled and warning letters or enforcement action that may include
civil penalties up to and including criminal prosecution.
We believe that our financial results and the commercial prospects for COM701, COM902,
and any other future therapeutic product candidates we may take to the clinic, including COM503 (to the extent we take it to the clinic),
would be harmed, our costs could materially increase and our ability to generate revenue could be significantly adversely impacted, if
our clinical investigators, CROs or other third parties providing us services fail to successfully carry out their contractual duties
or obligations diligently and in a professional manner or fail to meet their expected deadlines.
Serious adverse events or undesirable side
effects or lack of efficacy, may emerge in clinical trials conducted by other companies running clinical trials investigating the same
drug target as us, which could adversely affect our development programs or our capability to enroll patients or partner the program for
further development and commercialization.
We initiated a Phase 1 clinical trial for COM902, which targets TIGIT, in March 2020.
There are additional companies that have a program targeting TIGIT in advanced clinical trials, such as Merck, Roche, Gilead/Arcus, AstraZeneca,
and BeiGene. We have no control over their clinical trials or development programs, and lack of or insufficient efficacy such as recently
reported for Roche’s TIGIT targeting antibody tiragolumab in SCLC and NSCLC, adverse events or undesirable side effects experienced
by subjects in their clinical trials could affect our development and regulatory path of COM902 or the enthusiasm of clinicians recruiting
patients for our clinical trials for COM902 or any other service provider or harm its potential to be partnered for further development
and commercialization and generate revenues for the Company.
Furthermore, any negative results that may be reported in clinical
trials of other programs targeting TIGIT may make it difficult or impossible to recruit and retain subjects in our clinical trials of
COM902. Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials,
which could prevent completion of these trials and adversely affect our ability to advance the development of COM902. Failures in planned
subject enrollment or retention may result in increased costs or program delays and could render further development impossible.
The same risk applies to COM701 since other anti-PVRIG antibodies
such as GSK’s GSK4381562 (formerly SRF813), Hengrui’s PVRIG/TIGIT bi-specific, SHR-2002, Simcere’s TIGIT/PVRIG bispecific
antibody, SIM0348, Biotheus’s PVRIG/TIGIT bi-specific, PM-1009, and Hefei TG ImmunoPharma’s NM1F which entered the clinic.
The same risk applies to COM503 as Simcha Therapeutics Inc. entered
its Phase I/II with ST-067, with results expected by June 2024. There are three IL-18 related CAR-T therapies CMN-008 by Co-Immune, huCART19-IL18
by University of Pennsylvania and EU-307 by Eutilex that have entered Phase 1 studies.
We are subject to certain manufacturing risks,
any of which could either result in additional costs or delays in completing, or ultimately make us unable to complete, the development
and commercialization of our product candidates.
The process of manufacturing biologics, in addition to the shipment and storage thereof,
is susceptible to product loss or unavailability due to contamination, degradation, instability, equipment failure, lack of critical reagents
or disposables, improper installation or operation of equipment, vendor or operator error leading to process deviations or any other factor.
Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply
disruptions up to supply termination. If microbial, viral or other contaminations are discovered in our products or in the manufacturing
facilities in which our products are made, the products may need to be manufactured again and/or such manufacturing facilities may need
to be closed for an extended time to investigate and remediate the contamination. In addition, the product manufactured may be determined
at later stage to be insufficiently stable or qualified as a therapeutic agent, even following treatment.
We have not contracted with alternate suppliers to support us in the event we experience
any problems with our current manufacturers. If we are unable to arrange for alternative third-party manufacturing sources or are unable
to reserve another manufacturing slot with our current manufacturers or are unable to do so on commercially reasonable terms or in a timely
manner, or are unable to provide backup drug, we may incur additional costs or be delayed in the development or delivery of our current
and future product candidates, and even fail to supply drug to patients on study treatment on time or at all, or meet other obligations,
each event of which can cause us material harm.
It may be difficult to manufacture therapeutic products addressing
our drug target candidates.
Our therapeutic pipeline is focused mainly on monoclonal antibodies,
or mAbs, generated against our discovered targets. These types of therapeutics can be difficult to manufacture in the quantity and quality
needed for preclinical, clinical and commercial use. The production of mAbs must be conducted pursuant to a well-controlled and reproducible
process and the resulting product testing must conform to defined quality standards. Should it prove to be difficult to manufacture or
repeat manufacturing, of any therapeutics addressing our drug candidates in sufficient quantities or commercial scale, meeting the required
quality standards or in an economical manner to conduct clinical trials and to commercialize any approved therapeutic candidate, our business,
financial condition and results of operations would be materially harmed.
We or any of our collaborators, or third-party
manufacturers, may fail to comply with regulatory and legal requirements, and we or they could be subject to enforcement or other regulatory
actions.
If we or any of our collaborators or third-party manufacturers
with whom we work or with whom we may enter into agreements in the future fail to comply with applicable federal, state or foreign laws
or regulations, or other legal obligations we or they could be subject to enforcement or other regulatory actions. These actions may include:
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recalls, product seizures or medical product safety alerts; |
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data lock or order to destroy or not use personal data; |
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restrictions on, or prohibitions against, marketing such products; |
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restrictions on importation of such products; |
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suspension of review or refusal to accept or approve new or pending applications; |
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withdrawal of product approvals; |
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civil and criminal penalties and fines; or |
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debarment or other exclusions from government programs. |
If we or our collaborators become subject to such enforcement actions, these enforcement
actions could affect the ability to successfully develop, market and sell therapeutic products based on our discoveries and could significantly
harm our financial status and/or reputation and lead to reduced acceptance of such products by the market. In addition, we may be
subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement or imprisonment.
We may require companion or complementary diagnostics
and/or biomarkers for our clinical trials, or a portion of our clinical trials, and may be required to have such in order to obtain marketing
approval or commercialization of our therapeutic programs. Failure to successfully discover, develop, validate and obtain regulatory clearance
or approval for such tests could harm our patients’ selection strategy and may harm our clinical outcome.
Companion or complementary diagnostics are subject to regulation by the FDA and comparable
foreign regulatory authorities and may require separate regulatory authorization prior to commercialization. We may require for our clinical
trials or for certain portions of our clinical programs, companion diagnostics and/or biomarkers to correctly identify the right patients
for the appropriate indications. We rely on access to patient tumor and blood samples for analysis of protein, DNA, and RNA biomarkers.
We may rely on third parties for the tumor and blood samples’ handling, processing, and analysis, discovery, development, and validation
of these potential biomarker candidates, biomarkers and/or companion diagnostics, as well as the application for and receipt of any required
regulatory authorization. If we, or the third parties we engage for this purpose, are unable to successfully discover, validate and/or
develop the required companion diagnostics and/or biomarkers for our clinical programs, or develop with altered specifications, or experience
delays in doing so, the development of our clinical candidates may be adversely affected and this can harm our patient selection and our
clinical outcome, as well as obtaining marketing authorization for these product candidates.
From time to time, we may also publish preliminary
biomarker data from our ongoing clinical trials. As more patient data become available the data and the interpretation of the data may
change.
Preliminary biomarker data are subject to the risk that it may materially change as
patient enrollment continues, as assay or reagents conditions change, as selected signal cutoff changes and it remains subject to audit
confirmation and verification procedures that may result in the final data being materially different from the preliminary data we previously
published. As a result, preliminary data should be viewed with caution. Material adverse changes in the biomarker data along the clinical
development process could harm our patient selection, the success of our studies and could cause other damages and could eventually significantly
harm our business prospects, financial condition and results of operations.
Our current and future relationships, and/or
the relationships of our collaborators through which we may market, sell, and distribute our products, with healthcare professionals,
physicians and other parties in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud
and abuse, false claims, physician payment transparency, health information and general privacy and security and other healthcare laws
and regulations, which could expose us to adverse consequences.
Our current and future business operations, and our or our collaborators’ business
and financial arrangements and relationships with healthcare providers, physicians and other parties through which we or our collaborators
may market, sell and distribute our products, once approved, may be subject to extensive U.S. federal, U.S. state and foreign healthcare
fraud and abuse, transparency, health information and general data privacy and security laws. For example, U.S. federal civil and criminal
laws and regulations prohibit, among other things: knowingly and willfully soliciting, receiving, offering or providing remuneration,
directly or indirectly, to induce or reward either the referral of an individual, or the furnishing, recommending or arranging for a good
or service, for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs; knowingly presenting
or causing to be presented, a false or fraudulent claim for payment by a federal healthcare program; and knowingly and willfully executing,
or attempting to execute, a scheme to defraud any healthcare benefit program (including a private payor), or knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false statement in connection with the delivery of, or payment for,
healthcare benefits, items or services. Many U.S. states and foreign countries have analogous prohibitions that may be broader in scope
and apply regardless of payor. In addition, we may be subject to U.S. federal, U.S. state and foreign laws that require us to report information
related to certain payments and other transfers of value to certain health care professionals, as well as ownership and investment interests
in our company held by those health care professionals and their immediate family members, and health information and general security
and privacy laws that restrict our practices with respect to the use and storage of certain health information and other data.
If we or our collaborators are found to be in violation of any of these laws, we or
our collaborators could be subject to significant civil, criminal and administrative penalties, including damages, fines, disgorgement,
imprisonment, exclusion from participation in government healthcare programs, additional integrity oversight and reporting obligations,
contractual damages, reputational harm and the curtailment or restructuring of our operations, any of which, whether enforced against
us or our collaborators, could significantly harm our business and our royalties from any of our products, once approved, that we license
to such collaborators.
Risks Related to our Discovery and Development Activities
There are risks that are inherent in the development
and commercialization of new therapeutic products.
We and our collaborators face a number of risks of failure that are inherent in the
lengthy and costly process of developing and commercializing new therapeutic products. These risks, which typically result in very high
failure rates even for successful biopharmaceutical companies, include, among others, the possibility that:
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we will not be able to discover additional drug targets; |
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our new target candidates will prove to be inappropriate for treatment of cancer; |
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our new target candidates will prove to be inappropriate targets for therapeutic product candidates; |
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our new target candidates will prove to be inappropriate targets for immunotherapy; |
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we will not succeed in selecting the appropriate tumor type, indication or patient population for the therapeutic product candidate;
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we will not succeed in developing or choosing the appropriate mAb for these targets, or the appropriate mAb lead or the appropriate
mAb isotype; |
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we will not succeed in identifying or developing a biomarker or companion diagnostic for our therapeutic product candidates;
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we will not succeed in choosing the appropriate drug modality for these targets; |
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our therapeutic product candidates will fail to progress to preclinical studies or clinical trials; |
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our therapeutic product candidates will be found to be therapeutically ineffective; |
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we will not choose or have access to the right drug combination for our therapeutic product candidates;
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we will not select or find the appropriate dosing regimen; |
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our therapeutic product candidates will be found to be toxic or to have other unacceptable side effects or negative consequences;
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our therapeutic product candidates will be inferior, or not show added value, compared to competing products or the standard of care;
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our early-stage development efforts may provoke competition by others or may face competition by others; |
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our early-stage development efforts will bear significant delays in the development of additional preclinical stage programs;
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our products covered by our collaborations may face internal competition from our partners’ internal pipeline; |
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we or our collaborators will fail to receive required regulatory approvals; |
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we or our collaborators will fail to manufacture our therapeutic product candidates in the quantity or quality needed for preclinical
studies or clinical trials on a large or commercial scale, on time or in a cost-effective manner or with the drug stability required;
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the discovery of drug targets and the discovery, development or commercialization of our therapeutic product candidates will infringe
third-party intellectual property rights; |
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the development, marketing or sale of our therapeutic product candidates will fail because of our inability or failure to protect
or maintain our own intellectual property rights; |
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once a product is commercially available, there will be little or no demand for it for a number of possible reasons, including lack
of acceptance by the medical community or by patients, lack of or insufficient coverage and payment by third-party payors, inefficient
or insufficient marketing and sales activities or as a result of there being more attractive, less risky or less expensive, products available
for the same use; and |
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the product will be withdrawn from the market, or sales limited due to side effects observed in clinical practice. |
If one or more of these risks or any similar risks should materialize, our business,
financial condition and results of operations may be materially harmed.
We have limited experience in the development
of therapeutic product candidates, and we may be unable to implement our business strategy.
Our experience in the development of therapeutic product candidates is limited. Therefore,
we may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business
objectives. To successfully develop and commercialize therapeutic products, we must either access such expertise via collaborations, consultants
or service providers, and/or enhance and improve our internal expertise and capabilities.
If we are not able to attract, retain and motivate necessary personnel or third party
service providers or collaborators to accomplish our business objectives or fail to have available, at the appropriate times, the required
experience and expertise for the further development and commercialization of our therapeutic product candidates, we may be unsuccessful
in these activities, or these activities may be significantly delayed and as a result we may be unable to implement our business strategy
and our business would be materially harmed.
Our computational target discovery activities
are primarily focused on the discovery of new drug target candidates and our therapeutic pipeline is based on our discovered targets.
While we believe that our drug target programs represent a compelling and unique opportunity
to generate potentially first-in-class therapeutics in the field of cancer immunotherapy, they require significant investment in the research
and validation of the drug target candidate and in the discovery and development of the respective therapeutic product candidate and bear
high risk. Our predictive computational discovery capabilities are a source for the development of potential first-in-class therapeutics
in the field of cancer immunotherapy, but the inherent lack of sufficient published scientific and clinical data to support the potential
of these new drug targets candidates to serve as therapeutic opportunities, increases the risk of failure. Although we have built the
target identification, validation and drug discovery infrastructure and capabilities that we believe are required to scientifically validate
our new drug targets and to later translate them into therapeutic antibody development programs, we cannot be assured that our investment
in such new discoveries will result in validated drug targets that will enable the development of effective cancer immunotherapies, nor
that we will realize success in product development or our ability to partner and commercialize such opportunities and generate revenues.
Our approach to the discovery of therapeutic
products is based on our predictive computational discovery capabilities that are not yet fully proven clinically, and we do not know
whether we will be able to discover and develop additional potential product candidates or products of commercial value.
Our method of identifying novel drug targets is based on our predictive computational
discovery capabilities and involves first identifying unmet needs in the field of cancer immunotherapy, where we believe our predictive
computational discovery capabilities would be relevant or could be modified to be relevant. We focus on the discovery of drug targets
that could serve as the basis for the development of possible treatments for patients non-responsive, refractory or relapsing to existing
cancer immunotherapies. In this field, we apply our predictive computational target discovery capabilities, or develop new capabilities,
to identify novel drug targets for addressing such unmet patient need.
While we believe that applying our predictive computational discovery capabilities
to identify new drug targets may potentially enable the development of potentially first-in-class therapeutics in the field of cancer
immunotherapy, our capabilities are yet not fully proven clinically and our efforts may not result in the discovery and development of
therapeutic products, or commercially viable or successful therapeutic products. Although our approach has resulted in the discovery of
several new drug targets and their related potential first-in-class or best-in-class therapeutic product candidates in the field of cancer
immunotherapy, they are in early stages of research and development or in clinical stage, with COM701 having entered the clinic in 2018,
COM902 which entered the clinic in March 2020 and rilvegostomigwhich entered the clinic in the fourth quarter of 2021. Our approach may
not result in time savings, higher success rates or reduced costs, or clinically meaningful programs and if not, we may not attract collaborators
or develop new drugs as quickly or cost effectively or at all and therefore we may not be able to partner and commercialize our products
as expected.
We are focusing our discovery and therapeutic
development activities on therapeutic product candidates for uses in immuno-oncology. Our current candidates may fail, and we may fail
to continue to discover and develop therapeutic product candidates of industry interest in this field.
The focus of our discovery and therapeutic development activities is on mAb therapeutics
in the field of immuno-oncology for treatment of cancer. As a result, we are not undertaking internal discovery and development activities
in other therapeutic areas, and presently we only pursue activities in our area of focus. If our current candidates fail, or if we fail
to continue to discover and develop therapeutic product candidates of clinical value and medical interest in this field, or if we are
unable to discover drug targets for mAb therapeutics, or if other modalities would be more successful in treating cancer patients, our
business will likely be materially harmed. With respect to cancer immunotherapies, although there have been positive clinical results
reported by others resulting in some products gaining approval by the FDA, there can be no assurance that our therapeutic product candidates
or our earlier stage immuno-oncology target candidates in our pipeline, will provide similar clinical advantages or interest, that no
long term adverse effects will be seen, or that other classes of targets or other products will not be discovered and developed with comparable
or superior attributes or clinical activity. In the event of any of these occurrences, the actual and/or perceived value of a substantial
portion of our pipeline would likely be reduced in which case our business may be materially harmed. To date, we have signed four partnership
agreements involving our therapeutic product candidates, two of which, one with AstraZeneca and one with Gilead, are in effect. There
is no assurance that we will be able to enter into additional collaborations or agreements on reasonable terms, if at all. In addition,
if we fail to continue to discover and validate drug targets or develop product candidates of industry interest in our field of focus,
our business will likely be materially harmed. There are many risks associated with our decision to focus on immuno-oncology that include,
among others:
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not being able to discover new drug targets in this field; |
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our full scope of target discovery capabilities may not be adequate; |
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not having chosen the right therapeutic area; |
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having chosen a therapeutic area with a very high degree of competition; |
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industry interest in this area or in specific classes/families of drug targets within this area of focus would decrease over time;
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the checkpoint inhibitors field is facing fatigue; |
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having chosen a therapeutic area of great biological complexity and with very high failure rates in product development; |
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not choosing the appropriate drug modality; |
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having insufficient knowledge, expertise, personnel or capabilities in our chosen therapeutic area to identify the right unmet medical
needs, or drug targets, or to timely, properly and efficiently validate the targets and/or select the appropriate mAb for further development
as therapeutic product candidates, or to timely, properly or efficiently further them in development; and |
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the inherent risk of high program failure rate throughout therapeutic development. |
In each case, our failure could be due to lack of experience and expertise, delays
in our internal research programs or applying the wrong criteria or experimental systems and procedures, or selecting an inappropriate
drug modality, or unanticipated scientific, safety, activity or efficacy issues with our selected drug targets or product candidates,
with the possible result that none of our product candidates result in licensed or marketable products. If any of these risks should materialize,
our business, financial condition and results of operations would be materially harmed.
Risks Related to Our Dependence on Third Parties
We depend significantly on third parties to
carry out the research, development and commercialization of our therapeutic product candidates. If we are unable to maintain our existing
agreements or to enter into additional agreements with such third parties, mainly collaborators, in the future, our business will likely
be materially harmed.
Our primary strategy for the development and commercialization
of products based on our drug targets and therapeutic product candidates depends on third parties to carry out and/or finance, the research,
development and commercialization of such products, principally by pharmaceutical and biotechnology companies and other healthcare related
organizations and CROs, either on their own or in collaboration with us. To date, we have entered into four partnership agreements with
respect to our drug target candidates, two of which (one with AstraZeneca and one with Gilead) are in effect. We cannot be sure that the
partnership agreements with AstraZeneca or Gilead will result in the successful development or commercialization of any product. Further,
we cannot provide assurance that we will succeed in identifying additional suitable parties or entering into any other additional agreements
on satisfactory terms or at all for the discovery, research, development and/or commercialization of our drug target or therapeutic product
candidates. If we are unable to identify such additional suitable parties or enter into new agreements on satisfactory terms, or at all,
our business will likely be materially harmed.
We rely and expect to continue to rely completely
on third parties to manufacture and supply our preclinical and clinical drug supplies. Our business could be harmed if those third parties
fail to provide us with sufficient quantities of drug product or fail to do so at acceptable quality and quantity levels, prices or timelines.
We do not currently have, nor do we plan to acquire, the infrastructure or capability
internally to manufacture our preclinical and clinical drug supplies for use in the conduct of preclinical testing and our clinical trials,
and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. In order
to develop products, apply for regulatory approvals and commercialize our products, we need to develop, contract for, or otherwise arrange
for access to the necessary manufacturing capabilities. We rely and expect to continue to rely on contract manufacturing organizations,
or CMOs, and other third-party contractors to manufacture formulations and produce larger scale amounts and/or commercial-scale of drug
substance and drug products required for any clinical trials that we initiate and other related services. Such third parties may not be
able to deliver in a timely manner, or at all, or may fail to comply with the FDA’s current Good Manufacturing Practice, or cGMP,
to manufacture our drugs in the required quality or quantity. We have entered into manufacturing and supply agreements with third parties
for the manufacturing and respective analytics of each of COM701, COM902 and COM503.
The manufacturing process for any products based on our technologies that we or our
partners may develop is subject to the FDA regulation and foreign regulatory authority approval process, and we will need to contract
with manufacturers who can meet cGMP requirements and foreign regulatory authority requirements on an ongoing basis. In addition, if we
receive the necessary regulatory approval for any therapeutic drug candidate, we also expect to rely on third parties, to produce materials
required for late-stage pivotal clinical trial(s) and commercial supply. We may experience difficulty in obtaining adequate manufacturing
capacity for our needs, adequate and sufficient material as well as difficulties and challenges in technology transfer from one manufacturer
to the other, as needed. If we are unable to obtain or maintain adequate manufacturing sources for these product candidates, or to do
so on commercially reasonable terms and adequate timeline, quality and quantity, we may not be able to successfully develop and commercialize
our products.
We are also dependent upon these third parties with respect to critical reagents supply,
supplies required for our manufacturing and quality control, packaging, labelling, storage and others. The failure of a third-party manufacturer
or supplier to perform its obligations as expected could adversely affect our business in a number of ways, including:
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we may not be able to initiate or continue preclinical and clinical trials of products that are under development; |
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we may experience significant disruption and delay to our clinical supply chain; |
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we may experience significant adverse effect if we are unable to transfer the manufacturing process to a different third-party manufacturer
in a timely and efficient manner; |
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we may need to repeat clinical trials or stop our clinical trials; |
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we may be delayed in submitting regulatory applications, or receiving regulatory approvals, for our product candidates; |
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we may lose the cooperation of our collaborators; |
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we may be required to cease distribution or recall some or all batches of our products; and |
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ultimately, we may not be able to meet commercial demands for our products, if approved. |
If a third-party manufacturer or supplier with whom we contract fails to perform its
obligations, we may be forced to manufacture or otherwise obtain the materials ourselves, for which we do not currently and may not in
the future have the capabilities or resources, or identify and qualify a different third-party manufacturer, which we may not be able
to do timely or on reasonable terms, if at all. In some cases, the technical skills or processes required to manufacture our product may
be unique to the original manufacturer and we may have difficulty transferring such skills or processes to a back-up or alternate manufacturer
or supplier, or we may be unable to transfer such skills or processes at all. In addition, if we are required to change manufacturers
for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards
and with all applicable regulations and guidelines. We will also be required to demonstrate that the newly manufactured material is similar
to the previously manufactured material, or we may need to repeat clinical trials with the newly manufactured material. The delays associated
with the verification of a new manufacturer could negatively affect our ability to develop product candidates or commercialize approved
products in a timely manner or within budget. Furthermore, a manufacturer may possess technology related to the manufacture of our product
candidate that such manufacturer owns independently, which would increase our reliance on such manufacturer or require us to obtain a
license from such manufacturer in order to have another third-party manufacture our products.
Our dependence on collaboration agreements
with third parties presents number of risks.
The risks that we face in connection with our existing collaborations
and other business alliances as well as those that we may enter into in the future include, among others, the following:
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we may be unable to reach mutually agreeable terms and conditions with respect to potential new collaborations; |
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we or our current and/or future collaborators may be unable to comply or fully comply with the obligations under collaboration agreements
to which we are (or will become) a party, and as a result, we may not generate milestone payments or royalties from such agreements, and
our ability to enter into additional agreements may be harmed; |
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our obligations under existing or future collaboration agreements may harm our ability to enter into additional collaboration agreements;
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collaborators generally have significant discretion in electing whether to pursue any of the planned activities and the manner in
which it will be done, including the amount and nature of the resources to be devoted to the development and commercialization of our
product candidates; |
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collaborators generally have significant discretion in terminating the collaborations for scientific, clinical, business or other
reasons; |
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if our current and/or future collaborators breach or terminate an agreement with us, the development and commercialization of our
therapeutic product candidates could be adversely affected because at such time we may not have sufficient financial or other resources
or capabilities or access to the other partner’s data and drug(s) to successfully develop and commercialize these therapeutics on
our own or find other partners or enforce our rights under breached or terminated agreement; |
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our current and/or future collaborators may require us changing or adopting the trial design to fit their business priorities, standards
and other objectives; |
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changes in a collaborator’s business strategy may negatively affect its willingness or ability to complete its obligations
under its arrangement or to continue with its collaboration with us; |
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our current and/or future collaborators may terminate the program or the agreement and then compete against us in the development
or commercialization of similar therapeutics; |
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disagreements between us and our current and/or future collaborators may lead to delays in, or termination of, the collaboration;
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our current and/or future collaborations may face internal competition by their internal pipelines; |
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prospective collaborators may hesitate to pursue collaborations on novel target candidates that lack robust validation to serve as
a basis for the development of therapeutics; and |
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our current and/or future collaborators may be acquired by, acquire, or merge with, another company, and the resulting entity may
have different priorities or competitive products to the collaboration product being developed previously by these collaborators.
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If any of these risks should materialize, our business, financial condition and results of operations may
be materially harmed.
Our existing partnership agreement with AstraZeneca
is subject to many risks.
In March 2018, we entered into an exclusive license agreement with MedImmune Limited,
the global biologics research and development arm of AstraZeneca, which is currently part of AstraZeneca. Under the terms of the license
agreement, we provided an exclusive license to AstraZeneca to use our monospecific antibodies that bind to TIGIT, including COM902, for
the development of bi-specific and multi-specific antibody products, excluding such bi-specific and multi-specific antibodies that also
bind to PVRIG, PVRL2 and/or TIGIT. In connection with such license agreement, AstraZeneca developed rilvegostomig, a novel TIGIT/PD-1
bi-specific antibody with a TIGIT component that is derived from our COM902. Subject to termination rights for material breach, bankruptcy
or by us for patent challenge by AstraZeneca, the term of the license agreement continues until the expiration of the last royalty term
in the territory as further specified in the license agreement. In addition, AstraZeneca may terminate the agreement for convenience upon
prior written notice.
If significant adverse unforeseen events occur in this collaboration or it is terminated,
particularly prior to our signing additional collaboration agreements, our business and financial condition may be materially harmed.
Our existing partnership agreement with Gilead
is subject to many risks.
In December 2023, we entered into the License Agreement with Gilead. Under the terms
of the License Agreement, we granted Gilead an exclusive license under our preclinical antibody program against IL-18 binding protein
and all intellectual property rights subsisting therein, to use, research, develop, manufacture and commercialize products, including
COM503, and additional products that may be so developed by Gilead, together with COM503, or the Licensed Products.
Pursuant to the License Agreement, we will be responsible for conducting a Phase 1
clinical trial for COM503, including handling the regulatory matters in connection therewith, and will bear the costs of such trial (including
the COM503 drug supply), with Gilead providing at no cost an anti-PD-1/PD-L1 antibody for such trial. Nevertheless, in certain circumstances,
Gilead may require us to transfer to them the role of conducting the Phase 1 clinical trial, before the Phase 1 clinical trial is initiated
or completed. In such case,our business and financial condition may be harmed.
In addition, Gilead may terminate the agreement for material breach, bankruptcy and
even for convenience and therefore, if this agreement is terminated, particularly prior to our signing additional collaboration agreement
at that scale, our business and financial condition may be materially harmed. If significant adverse unforeseen events occur in this collaboration
or it is terminated, our business and financial condition may be materially harmed.
Our reliance on third parties for the performance
of key activities heightens the risks faced by our business.
We outsource many of our activities and many key functions to third parties, including
major preclinical activities, drug development activities, manufacturing operations, research, validation, discovery and others. We do
not control the third parties to whom we outsourced these functions and have limited internal expertise to appropriately manage their
activities. However, we are dependent on them to undertake activities and provide services, results, our product candidates or materials,
including the production of certain biological reagents, which may be significant to us. If these third parties fail to properly or timely
perform these activities or provide us with incorrect or incomplete services or results or fail to produce and/or provide certain materials,
tests or analysis, this could lead to significant delays in the program or even program failure, along with significant additional costs
and damage. In addition, should any of these third parties fail to comply with the applicable laws and regulations and/or research and
development or manufacturing accepted standards in the course of their performance of services for us, there is a risk that we could be
held responsible for such violations of law as well. Any such failures by third parties could have a material adverse effect on our business,
financial condition or results of operations.
Moreover, we do not always independently verify the results obtained by such third
parties and in some cases, primarily with respect to clinical data, we have to rely upon the data provided by the third-party. If we fail
to identify and obtain accurate and quality data, services and/or technologies from such third parties, or if the contractual demands
of such third parties become unreasonable and we are not able to reach satisfactory agreements with such third parties, we may lose our
investment in these services, fail to receive the expected benefits from our discoveries, and our validation and development capabilities,
clinical trials or other activities or our final products, may be significantly harmed, delayed or terminated.
We may need to obtain third-party drugs for
combination with our clinical programs that may not be available to us or are available only on commercially unreasonable terms or may
not serve us as well as other drugs.
We may need to obtain certain drugs from third parties or to acquire
marketed drugs to further develop our drug candidates to work in combinations with other drugs for selected indications.
If we fail to obtain these drugs or license thereof, our drug candidates may not be sufficiently efficient, and we may not be able to
pursue them through development. We will also need to obtain certain drugs from third parties in order to register and commercialize our drug
candidates. If we fail to enter into collaboration with the marketing authorization holder, we may not be able to pursue our combination
drugs through registration and commercialization. Furthermore, if we pursue clinical trials with third parties to further develop our
drug candidates to work in combinations with such other drugs for selected indications and those third parties’ drugs have not received
regulatory approval for an indication of interest to us, such clinical trials may not provide us a path for registration and therefore
may not serve us best as other drug(s) in the relevant indication.
Risks Related to Competition and Commercialization
Our business model is challenging to implement
and to date has not yielded significant revenues.
Our discovery and development capabilities are designed to identify and develop novel
products addressing a specific unmet need and enter into collaborations with partners with respect to such novel products. Our objective
is that under these collaborations, we will have the right to receive various forms of revenues from such products or product candidates.
To date, we have entered into four partnership agreements with respect to our pipeline programs, only two of which are in effect. There
can be no assurance that our current or any future agreements for novel targets based on our discoveries and associated product candidates
will be successful and thus provide significant revenues to us, nor can there be any assurance that we will be able to enter into additional
future agreements. If we are unable to succeed in securing additional license agreements or other collaboration arrangements related to
our discoveries and product candidates, our business may be materially harmed.
Currently we have an ongoing collaboration with AstraZeneca, pursuant to which rilvegostomig,
a novel PD-1/TIGIT bispecific antibody with a TIGIT component that is derived from our COM902 program, entered into a Phase 3 clinical
trial in the fourth quarter of 2023 and a collaboration with Gilead, pursuant to which we granted Gilead an exclusive license under our
preclinical antibody program against IL-18 binding protein and all intellectual property rights subsisting therein, to use, research,
develop, manufacture and commercialize products, including our COM503 product candidate, which is in IND enabling studies, and additional
products that may be so developed by Gilead. In addition, we have two clinical programs fully owned by us, COM701 and COM902, that are
available for partnering arrangements.
There can be no assurance that we will be able to establish collaborations for COM701
or COM902 or any collaboration for our early-stage programs. Failure to enter into collaborations, may materially harm our business. The
research and validation data generated to date for our early-stage pipeline and the clinical data generated to date for COM701 and COM902
may not be sufficient to attract interest from prospective collaborators and we may fail to generate data suitable to draw interest with
potential partners. Furthermore, our drug target candidates or therapeutic product candidates may not fit their corporate or clinical
strategy or will present a sufficient market competitive edge, or not at all. These companies may require more data, including their independent
testing of our early-stage therapeutic product candidate, before considering a collaboration. We are therefore dependent on the potential
fit of our programs with individual pharmaceutical company strategies and there can be no assurance that we will be able to identify additional
partners interested in our programs at their current stages. This may adversely affect our ability to enter into additional agreements
for the research, development, license or other form of collaborative arrangements of our therapeutic product candidates, and as a result
may harm our business.
Additionally, we may not be able to demonstrate efficacy or safety, prove our scientific
or preclinical hypothesis or obtain approval for and commercialize our products as monotherapy treatments. We may be required to combine
our product candidates with other products to provide sufficient data for approval by FDA and other regulatory authorities, in all or
in specific indications (which may require our dependency on third-party drugs). As part of our business strategy, we are looking to establish
clinical collaborations with pharmaceutical and biotechnology companies to specifically test the hypothesis that there may be greater
effects when combining our products with other products. There can be no assurance that we will be able to establish clinical collaborations
or to maintain our existing collaborations. Failure to enter into clinical collaborations to pursue drug combinations may materially harm
our business. These potential combination products may include both marketed as well as investigational products, and as such, adverse
events resulting from combining the products or investigational agents are unknown and could be severe, including resulting in death of
the patient due to these unknown toxicities. Furthermore, using our therapeutic product candidates as part of combinations therapy may
result in a situation under which our therapeutic product candidates will be entitled to only a fraction of the anticipated product revenues.
We operate in a highly competitive and rapidly
changing industry which may result in others discovering, developing or commercializing competing products ahead of us or more successfully
than we do.
The biotechnology and biopharmaceutical industries are highly competitive, characterized
by rapid and significant technological advancements, and have a strong emphasis on proprietary products. Our success is highly dependent
upon our ability to identify, develop and obtain regulatory approvals for therapeutic products based on our discovered novel drug targets.
In doing so, we face and will continue to face intense competition from a variety of businesses, including large, fully integrated, well-established
pharmaceutical companies, specialty pharmaceutical and biopharmaceutical companies, academic institutions, government agencies and other
private and public companies and research institutions.
Many of the companies against which we are competing or against which we may compete
in the future have significantly greater resources and expertise in research and development, manufacturing, preclinical testing, conducting
clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. These competitors and others may develop competing
products targeting the same mechanisms, the same drug targets and pathways as our products, or the same therapeutic indications and they
can leverage their resources or use different approaches than we do to receive marketing approval before our products. For example, in
case of COM701, there are currently several PVRIG antibodies in Phase 1 studies, such as GSK’s GSK4381562 (formerly SRF813), Hengrui’s
PVRIG/TIGIT bi-specific, SHR-2002, Simcere’s TIGIT/PVRIG bispecific antibody, SIM0348, Biotheus’s TIGIT/PVRIG bispecific,
PM-1009, and Hefei TG ImmunoPharma’s NM1F. In the IL-18 pathway field, Simcha therapeutics is leading with its ST-067, a mutated
IL-18 fusion protein at Ph 1/2. There are three IL-18 related CAR-T therapies CMN-008 by Co-Immune, huCART19-IL18 by University of Pennsylvania
and EU-307 by Eutilex that have entered Phase 1 studies. BrightPeak Therapeutics, Sonnet Biotherapeutics, and Xencor are examples of companies
who are developing recombinant IL-18 and are in the preclinical phase or IND enabling stages. Antibodies for IL-18BP are also being developed
in Lassen Therapeutics (LASN-500) in the discovery stage. Additionally, these third parties compete with us in recruiting and retaining
qualified scientific, drug development and management personnel and advisors, establishing clinical trial sites and patient enrollment
for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Mergers and acquisitions in
the biopharmaceutical industry could result in even more resources being concentrated among a small number of our competitors or a change
in potential acquirers’ preferences. In addition, increased industry interest and deals in the anti-TIGIT and anti-PVRIG field may
further enhance the competition for our clinical stage assets COM902 and COM701 and may include companies with significantly greater resources
and capabilities than we have. For example, in January 2022 Coherus exercised its option to Junshi Biosciences’ TIGIT-targeted antibody
JS006 and initiated phase 1 clinical trials, in May 2021 Bristol Myers Squibb licensed Agenus’s anti TIGIT bi specific program,
in November 2021 Gilead and Taiho each exercised its option to Arcus’ anti-TIGIT antibodies domvanalimab and AB308 each pursuant
to its respective territorial rights, in June 2021 GSK and iTeos Therapeutics entered into an agreement to co-develop and co-commercialize
iTeos’ anti-TIGIT antibody EOS-448, and in December 2020 GSK licensed worldwide development and commercial rights to Surface Oncology’s
preclinical program SRF813 (now GSK4381562), an antibody targeting PVRIG which has received FDA IND clearance in December 2021 and initiated
phase I studies.
In addition to the competition we face in the drug target space, we also face competition
in the drug modality field. Technological breakthroughs in new modalities will be a key driver of growth for the biopharma industry
over the next decade. Drug discovery and development has undergone an impressive transformation over recent years driven by the emergence
of new drug modalities. This expansion in innovative drug modalities has provided an impressive drug modality toolbox to enhance the drug
effectiveness and also allow to enhance the potential from such targets that the efficacy of a naked antibody targeting these drug targets
has been limited. Such drug modalities include among others, bi-specifics, T cell engagers (TCE), cell therapies, antibody drug conjugates
(ADC), protein degraders, molecular glues, and mRNA therapeutics. An example of a drug modality gaining a lot of interest and attention
are the ADC, with eleven (11) FDA approvals as of June 2023 and the significant investment as exemplified by the Pfizer’s $43 billion
acquisition Seagen for its ADC.
Competition may further increase as a result of advances in the commercial applicability
of technologies similar to our predictive computational discovery capabilities and greater availability of capital for investment in these
industries. Over the last several years, there has been an increase in the interest of pharmaceutical companies, the healthcare community
and the investment community in applying computational methodologies, mostly Artificial Intelligence (AI) and Machine Learning (ML) algorithms,
to the field of data-driven drug discovery/healthcare. This interest may be seen in the increase in the number of companies within the
pharmaceutical and biotech industries which focus on this area, including by way of establishing internal AI and/or ML capabilities or
receiving investments or entering into partnerships or acquisitions in furtherance thereof. Several companies that utilize AI/ML for target
discovery in the field of immuno-oncology/cancer include Exscientia, Recursion, Benevolent, and InSilico Medicine. Our competitors may
succeed in discovering targets and therefore also develop products that are competitive to ours.
In addition, there is a trend towards mergers and acquisitions in the pharmaceutical,
diagnostic and biotechnology industry, which may result in the remaining companies having greater financial resources and discovery and
technological capabilities, thus intensifying competition in our industry. Several top mergers and acquisitions in 2023 include Pfizer’s
acquisition of Seattle Genetics for $43 billion, Amgen’s acquisition of Horizon Therapeutics for approximately $27.8 billion, and
Merck’s acquisition of Promethus for approximately $10.8 billion. In January 2024, several planned mergers and acquisitions were
announced, such as J&J/Ambrx, Merck/Harpoon Therapeutics, and Novartis/ Calypso Biotech. In addition, it is possible that because
of adverse or volatile capital market conditions, companies may be willing to enter into mergers and acquisition transactions or other
sale of asset transactions on terms more favorable to acquirer and thereby further intensify competition. This trend may also result in
fewer potential collaborators or licensees for our therapeutic product candidates. Also, if a consolidating company is already doing business
with our competitors, we may lose existing or potential licensees or collaborators as a result of such consolidation. In addition, if
a consolidating company is already doing business with us, we may lose the interest of the consolidating parties in our discovery capabilities
or individual discoveries or product candidates as a result of a modified strategy, new priorities, competition and revised capabilities
or portfolio of such consolidated entity. This trend may adversely affect our ability to enter into agreements for the development and
commercialization of our therapeutic product candidates or to keep current collaboration in place or on-track and as a result may harm
our business.
Established biopharmaceutical companies may invest heavily to accelerate discovery
and development of novel drug targets or therapeutic products or to in-license novel drug targets or therapeutic products that could make
our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling
advantages in efficacy, compliance regimen, tolerability and safety in order to overcome price competition and to be commercially successful.
Accordingly, our competitors may succeed in obtaining patent protection, discovering, developing, receiving FDA approval for or commercializing
drugs before we do, which would have an adverse impact on our business and results of operations.
Potential collaborators, including major pharmaceutical
companies, might be hesitant to pursue target validation and preclinical and clinical development programs based on novel targets lacking
robust experimental scientific support particularly those discovered through a computational discovery approach.
There is a need for new drug targets generating new treatment options for patients
who are non-responsive or refractory to current immunotherapies. Our business model includes selectively entering into collaborations
for novel targets and related therapeutic product candidates at various stages of research and development under various revenue-sharing
arrangements. Entering into collaborations with product candidates and targets at an early validation stage or drug discovery stage is
significantly more challenging than identifying partnerships for later-stage products that would have a more complete data package to
support its clinical, business and commercial potential. In addition, although we have demonstrated success in validating our predictive
computational discovery capabilities with product candidates in human clinical trials, major pharmaceutical companies may be hesitant
to enter into early-stage collaborations based on newly discovered targets, more so if discovered by computer prediction and has no or
limited published scientific support, as opposed to drug targets backed with human clinical trial data, or product candidates with significant
published experimental validation and scientific support. Therefore, we cannot assure that our business model to enter into partnering
arrangements for our early-stage novel targets and product candidates will be successful.
The agreement cycle for potential
collaborations is complex and long to implement and, if we are not able to establish collaborations on commercially reasonable terms,
we may expend substantial funds and management resources with no assurance of success.
In general, each potential license agreement or other form of collaboration we may
enter into will require negotiating with our potential collaborator, a large number of scientific, legal and business terms and conditions
that can vary significantly in each instance due to the specific drug target or therapeutic product candidate or candidates involved,
the potential market opportunity, the potential collaborator’s licensing, development and business operations and strategy, and
competition in the partnering and business development space. The accommodation of these requirements mandates a thorough consideration
of both the scientific and business aspects of each transaction.
Whether we reach a definitive agreement for new collaborations will depend, among
other things, upon our assessment of the collaborator’s resources, capabilities and expertise, the terms and conditions of the proposed
collaboration, the proposed collaborator’s evaluation of our business, drug targets and therapeutic product candidates, and the
competition in the business development space. We may not be successful in our efforts to establish a collaboration or other alternative
arrangements for future product candidates because they may be deemed to be at too early of a stage of development for collaborative effort
and third parties may not view them as having the requisite potential to demonstrate safety and efficacy or may find any other development
hurdles and challenges as a limiting factor. If we are unable to do so, we will need to expend substantial funds and substantial key personnel
time and effort into these business development activities with no assurance of successfully entering into agreements with potential collaborators
and this could harm our business.
We rely on our predictive computational discovery
capabilities to identify drug targets. Our competitive position could be materially harmed if our competitors develop capabilities similar
to ours and identify and develop rival drug targets and product candidates.
We rely on know-how and other proprietary computational processes and tools to maintain
our competitive computational discovery position. We consider know-how to be our primary intellectual property with respect to our predictive
computational discovery capabilities. Know-how can be difficult to protect and enforce. In particular, we anticipate that with respect
to our capabilities, this know-how may over time be disseminated within the industry through independent development and the movement
of skilled personnel.
We cannot rule out that our competitors may have or obtain the knowledge necessary
to identify and develop therapeutic products based on novel drug targets that could compete with the drug targets we identify. Our competitors
may have significantly greater experience in artificial intelligence, computer sciences, algorithmic tool development and alike to identify
targets and greater experience in using translational science to develop product candidates and may also have significantly greater financial,
product development, scientific, technical and human resources than we do to discover novel drug targets and develop product candidates.
We may not be able to prohibit our competitors from using methods to identify and
develop product candidates, including such methods that are the same as or similar to our own. Since our competitors develop products
that compete with COM701, COM902 or COM503 or any future product candidates we develop, our ability to develop and commercialize these
product candidates may diminish substantially, which could have a material adverse effect on our business prospects, financial condition,
and results of operations.
The biotechnology and pharmaceutical industries
are highly competitive, and we may be unable to compete effectively.
The biotechnology and pharmaceutical industries in general, and the immuno-oncology
field in particular, are highly competitive. Numerous entities in the United States, Europe and elsewhere compete with our efforts to
discover, validate, develop and partner with licensees and/or collaborators to commercialize drug target and therapeutic products candidates.
Clinical trial failures of novel agents in the immuno-oncology field may adversely impact our ability to sign early-stage collaborations,
and as a result we may be required to advance our programs into clinical development and show clinical proof of concept before we may
attract potential collaborators. Our competitors include pharmaceutical and biotechnology companies, academic and research institutions
and governmental and other publicly funded agencies. We face, for COM701, COM902, and COM503, and expect to continue to face for our future
therapeutic product candidates, competition from these entities to the extent they develop products that have a function similar or identical
to or competing with the function of our therapeutic product candidates in the field of immuno-oncology that may attract our potential
collaborators or that may reach the market sooner. We also face, and expect to continue to face, competition from entities that seek to
develop technologies that enable the discovery of novel targets and therapeutic agents in the field of immuno-oncology. These competitors
include traditional pharmaceutical and biotechnology companies and additionally, an increasing number of new entities looking to apply
computer science, bioinformatics, AI or ML technologies to the field of target discovery. Many of our competitors have one or more of
the following:
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much greater financial, technical and human resources than we have at every stage of the discovery, development, manufacture and
commercialization process; |
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more extensive experience in computational discovery, preclinical testing, conducting clinical trials, obtaining regulatory approvals,
and in manufacturing and marketing therapeutics; |
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more extensive experience in oncology and immuno-oncology and in the fields of mAb therapeutics; |
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accessibility to enhanced technologies that may result in better products; |
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access to and experience in the development of therapeutic modalities that are competitive to mAb therapeutics; |
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more extensive experience in oncology and immuno-oncology and in the field of target discovery; |
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more extensive experience in the research and development of biological or genetic markers to determine response of or responders
to therapeutic agents or for patient selection; |
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greater accessibility to data and proprietary data from patients; |
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access to internally developed, proprietary technologies for the discovery, research, development, or manufacturing of therapeutic
agents; |
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greater resources and means to compete with us on target discovery and as well as in acquiring or generating technologies complementary
to, or necessary for, our programs as well as in recruiting and retaining qualified scientific and management personnel and establishing
clinical trial sites; |
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products that have been approved or are in late stages of development and in many cases, PD-1 or PDL-1 inhibitors that are serving
or will be serving as the backbone of cancer immunotherapy; |
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reduced reliance on collaborations or partnerships with third parties in order to further develop and commercialize competitive therapeutic
products; and |
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collaborative arrangements in our target markets with leading companies and research institutions. |
Since we are a small company with limited human and financial resources, we are not
able to work with a large number of collaborators in parallel and/or advance a large number of drug target or therapeutic product candidates
in parallel. Our competitors may develop or commercialize products with significant advantages over any therapeutic products we, our collaborators
or third-party licensees may develop. They may also obtain patents and other intellectual property rights before us, or broader than ours,
and thereby prevent us from pursuing the development and commercialization of our discoveries. They may also develop products faster than
us and therefore limit our market share. Our competitors may therefore be more successful in developing and/or commercializing products
than we, our collaborators, or third-party licensees are, which could adversely affect our competitive position and business. If we are
unable to compete successfully against existing or potential competitors, our financial results and business may be materially harmed.
Healthcare policy is volatile and changes in
healthcare policy could increase our expenses, decrease our revenues and impact sales of, and reimbursement for, our products.
Our ability to commercialize our future therapeutic product candidates successfully,
alone or with collaborators, will depend in part on the extent to which coverage and reimbursement for these product candidates will be
available from government health programs, such as Medicare and Medicaid in the United States, private health insurers and other third-party
payors. At present, significant changes in healthcare policy, in particular the continuing efforts of the U.S. and other governments,
insurance companies, managed care organizations and other payors to contain or reduce health care costs are being discussed, considered
and proposed. Drug prices in particular are under significant scrutiny and continue to be subject to intense political and societal
pressures, which we anticipate will continue and escalate on a global basis.
For example, in the United States, there have been several initiatives implemented
to achieve these aims. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation
Act, and collectively, the ACA, represents the biggest regulatory overhaul to the health care system in decades and substantially changes
the way health care is financed by both governmental and private insurers. Since its enactment, there have been congressional, judicial,
and executive challenges to the ACA, which have resulted in delays in the implementation of, and action taken to repeal or replace,
certain aspects of the ACA For example, on June 17, 2021 the U.S. Supreme Court dismissed a challenge on procedural grounds that argued
the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. In addition, there
have been a number of health reform initiatives by the Biden administration that have impacted the ACA. On August 16, 2022, President
Biden signed the Inflation Reduction Act of 2022, or the IRA, into law, which among other things, extends enhanced subsidies for individuals
purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA also eliminates the “donut hole”
under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost through a newly
established manufacturer discount program. It is possible that the ACA will be subject to judicial or congressional challenges or additional
health reform measures of the Biden administration will impact the ACA and our business.
In addition, the IRA, among other things, (i) directs the Secretary of HHS to negotiate
the price of certain high-expenditure, single-source drugs and biologics covered under Medicare Part B and Medicare Part D, and subjects
drug manufacturers to civil monetary penalties and a potential excise tax by offering a price that is not equal to or less than the negotiated
“maximum fair price” under the law, and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases
that outpace inflation. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the
initial years. These provisions take effect progressively starting in fiscal year 2023. On August 29, 2023, HHS announced the list of
the first ten drugs that will be subject to price negotiations, although the Medicare drug price negotiation program is currently subject
to legal challenges. It is currently unclear how the IRA will be implemented but is likely to have a significant impact on the pharmaceutical
industry. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical
and biological product pricing, including price or patient reimbursement constraints, discounts, and restrictions on certain product access.
In some cases, such legislation and regulations have been designed to encourage importation from other countries and bulk purchasing.
We expect that the ACA, the IRA, and any other healthcare reform measures that may
be adopted in the future may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria,
new payment methodologies and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement
from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost
containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize
our product candidates, if approved.
The commercial success of our products depends
on the availability and sufficiency of third-party payor coverage and reimbursement.
Market acceptance of drug products is dependent on the extent to which coverage and
reimbursement is available from third-party payors. Significant uncertainty exists as to the coverage and reimbursement status of any
products for which we may obtain regulatory approval. Coverage decisions may not favor new products when more established or lower cost
therapeutic alternatives are already available. Even if we obtain coverage for a given product, the associated reimbursement rate may
not be adequate to cover our costs, including research, development, intellectual property, manufacture, sale and distribution expenses,
or may require co-payments that patients find unacceptably high. Patients are unlikely to use our products unless reimbursement is adequate
to cover all or a significant portion of the cost of our products.
Coverage and reimbursement policies for products can differ significantly from payor
to payor as there is no uniform policy of coverage and reimbursement for products among third-party payors in the United States. There
may be significant delays in obtaining coverage and reimbursement as the process of determining coverage and reimbursement is often time
consuming and costly which will require us to provide scientific and clinical support for the use of our products to each payor separately,
with no assurance that coverage or adequate reimbursement will be obtained. It is difficult to predict at this time what government authorities
and third-party payors will decide with respect to coverage and reimbursement for our drug products.
Additionally, we or our collaborators may develop companion diagnostic tests for use
with our product candidates. We, or our collaborators, will be required to obtain coverage and reimbursement for these tests separate
and apart from the coverage and reimbursement we seek for our product candidates, once approved. While we have not yet developed any companion
diagnostic test for our product candidates, if we or our collaborators do, there is significant uncertainty regarding our ability to obtain
coverage and adequate reimbursement for the same reasons applicable to our product candidates.
Risks Related to our Operations and Other Risks
Related to our Business
Given our level of managerial, operational,
financial and other resources, our current activities and future growth may be limited.
We manage our operations, including clinical trials and preclinical development activities
of our therapeutic candidates with a limited workforce, which is spread globally, and by using third parties to provide us services that
we do not possess in-house. Our personnel, systems and facilities currently in place may not be adequate to support our current activities
or future growth.
If we are unable to maintain or expand our managerial, operational, financial and
other resources to the extent required to manage our development and commercialization activities, our business may be materially adversely
affected.
We may be unable to hire or retain key personnel
or sufficiently qualified management, clinical and scientific personnel.
Our business is highly dependent upon the continued services of our senior management
and key scientific and clinical personnel. While members of our senior management and other key personnel have entered into employment
or consulting agreements and non-competition and non-disclosure agreements, they can terminate their employment agreements with us at
any time without cause. We cannot be sure that these key personnel and others will not leave us or compete with us, which could harm our
business activities and operations.
It can also be difficult for us to find employees with appropriate experience for
our business, which difficulty is further heightened when seeking experienced personnel in Israel, and specifically considering the ongoing
war situation in Israel. We require a multidisciplinary approach and some of our researchers require an understanding in both exact and
biological sciences. In addition, we require experience in drug and clinical development and immuno-oncology, for which there is significant
competition for highly qualified personnel in these fields. As a result and taking into consideration the ongoing war in Israel and the
effect thereof outside of Israel, we may face higher than average employee turnover or challenges in hiring due to such competition.
The competition for qualified personnel in the pharmaceutical and biotech industry
is intense. The loss of service of any of our key personnel could harm our business. Due to our limited resources, we may not be able
to effectively retain our existing key personnel or attract and recruit additional qualified key personnel.
Our information technology systems, or those
of the third parties upon whom we rely, including our cloud providers, CROs or other contractors or consultants, may fail or suffer security
breaches, which could result in a material disruption of our pipeline and our business, as well as to regulatory investigations or actions;
litigation; fines and penalties; reputational harm; loss of revenue and other adverse consequences.
We, and the third parties upon whom we rely, process, collect,
receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively,
process) proprietary, confidential, and sensitive data, including personal data (such as health-related data and clinical trial data),
intellectual property, trade secrets and other sensitive data (collectively, sensitive information). Our business is increasingly dependent
on critical, complex and interdependent information technology systems to support business processes as well as internal and external
communications. Despite the implementation of security measures, our information technology systems, cloud-based computers and those of
the third parties upon whom we rely, including without limitation our CROs and other contractors and consultants, are vulnerable to damage.
Cyber-attacks, malicious internet-based activity, online and offline fraud, and other
similar activities threaten the confidentiality, integrity, and availability of our sensitive information and information technology systems,
and those of the third parties upon which we rely. Such threats are prevalent and continue to rise, are increasingly difficult to detect,
and come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” organized
criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some
actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical
reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, including the
current situation in Israel, we or the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including
retaliatory cyber-attacks, that could materially disrupt our systems and operations. For example, we have operations in Israel, where
businesses have experienced an increase in cyberattacks in relation to the Israel/Hamas conflict.
Our information technology systems, and those of the third parties upon which we rely,
are vulnerable to a variety of evolving threats including, but are not limited to, social-engineering attacks (including through deep
fakes, which may be increasingly more difficult to identify as fake, and phishing attacks), malicious code (such as viruses), malware,
denial-of-service attacks, credential stuffing attacks, credential harvesting, personnel misconduct or error, ransomware attacks, supply-chain
attacks, server malfunctions, software or hardware failures, attacks enhanced or facilitated by artificial intelligence, or other disruptive
events including but not limited to natural disasters such as fire, storm, flood, power loss, earthquakes, telecommunications failures,
physical or software break-ins or similar events.
In particular, severe ransomware attacks are becoming increasingly prevalent and can
lead to significant interruptions in our operations, loss of sensitive data, reputational harm, and diversion of funds. Extortion payments
may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example,
applicable laws or regulations prohibiting such payments.
Remote work has become more common and has increased risks to our information technology
systems and data, as more of our employees utilize network connections, computers and devices outside our premises or network, including
working at home, while in transit and in public locations. Future business transactions (such as acquisitions or integrations) could expose
us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired
or integrated entities’ systems and technologies.
We rely on certain third parties, including service providers, vendors, and partners,
and their technologies to operate critical business systems to process sensitive information in a variety of contexts, including, without
limitation, cloud-based infrastructure, data center facilities, encryption and authentication technology, employee email and other communication
functions, and other functions, and to provide other services necessary to operate our business, including our CROs and to keep financial
and corporate records. Our ability to monitor these third parties’ information security practices is limited, and these third parties
may not have adequate information security measures in place. If the third parties upon which we rely experience a security incident or
other interruption, we could experience adverse consequences. While we may be entitled to damages if the third parties upon which we rely
fail to satisfy their privacy or security-related obligations to us, any award may be insufficient to cover our damages, or we may be
unable to recover such award. In addition, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that
third parties’ infrastructure in our supply chain or the third parties’ upon whom we rely supply chains have not been or will
not be compromised.
If we or the third parties upon whom we rely were to suffer a security breach or other
interruption, we could experience unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption,
disclosure of, or access to our data or data held by us or our vendors and partners (including personally identifiable information or
personal data and other confidential information). Although we have implemented security measures designed to protect against security
breaches and other incidents and maintain offsite back-ups of our data, such measures may fail. We may not detect and remediate all vulnerabilities,
including on a timely basis. Further, we may experience delays in developing and deploying remedial measures and patches designed
to address identified vulnerabilities. Vulnerabilities could be exploited and result in a security incident.
We may expend significant resources or modify our activities to try to protect against
security incidents. Certain data privacy and security obligations may require us to implement and maintain specific security measures
or industry-standard or reasonable security measures to protect our information technology systems and sensitive information. Applicable
data privacy and security obligations may require us to notify relevant stakeholders, including affected individuals, customers, regulators,
and investors, of security incidents. Such disclosures are costly, and the disclosure or the failure to comply with such requirements
could lead to adverse consequences.
If we or the third parties upon whom we rely experience (or are perceived to have
experienced) a security breach or other incident or disruption, we may experience adverse consequences, including but not limited to,
government enforcement actions (e.g., investigations, fines, penalties, audits, and inspections), federal, state and/or foreign data breach
notification obligations, additional reporting requirements and/or oversight, restrictions on processing data (including clinical trial
data and other personal data), litigation, indemnification obligations, loss of data (including clinical trial data and other sensitive
information) or damage to the integrity of that data, negative publicity, reputational harm, monetary fund diversions, interruptions in
our operations, financial loss, and other similar harms. Such attendant consequences may interrupt our clinical trials, reduce demand
for our product candidates, and delay or negatively impact the development and commercialization of our product candidates and ability
to grow and operate our business. For example, the loss of clinical trial data from the clinical trials of our therapeutic product candidate
could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Furthermore,
our contracts may not contain limitations of liability, and even where they do, there can be no assurances that limitations of liability
in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations.
We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out
of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or
that such coverage will pay future claims.
We are subject to stringent and changing obligations
related to data privacy and security. Failure or perceived failure to comply with current or future obligations could lead to government
enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively
affect our operating results and business.
We and the third parties upon whom we rely process sensitive information. We and the
third parties upon whom we rely may be subject to numerous data privacy and security obligations, such as various federal, state, local
and foreign data laws, regulations, guidance, industry standards, external and internal privacy and security policies, contracts, and
other obligations that govern the processing of personal data by us and on our behalf.
In the United States, numerous federal, state, and local laws and regulations, including
federal health information privacy laws, state data breach notification laws, state health information privacy laws and federal and state
consumer protection laws, that govern the collection, use, disclosure and protection of health-related and other personal data may apply
to our operations or the operations of our collaborators. For example, the federal Health Insurance Portability and Accountability Act
of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, imposes specific requirements
relating to the privacy, security, and transmission of individually identifiable health information. As another example, the Controlling
the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN-SPAM”) imposes specific requirements on our correspondence
with subscribers for email communication. Additionally, laws in all 50 states require businesses to provide notice to parties whose personally
identifiable information has been disclosed as a result of a data breach. The laws are not consistent, and compliance in the event of
a widespread data breach is costly.
Furthermore, California enacted the California Consumer Privacy Act, or the CCPA,
which provides for civil penalties for violations, as well as a private right of action for data breaches. The CCPA, as amended requires
businesses to provide specific disclosures in privacy notices and honor requests of California residents (including consumers, business
representatives, and employees) to exercise certain privacy rights. The CCPA provides for fines of up to $7,500 per intentional violation
and allows private litigants affected by certain data breaches to recover significant statutory damages. Although the CCPA exempts some
data processed in the context of clinical trials, the CCPA increases compliance costs and potential liability with respect to other personal
data we maintain about California residents. Other states, such as Virginia and Colorado, have also passed comprehensive privacy laws,
and similar laws are being considered in several other states, as well as at the federal and local levels. While these states, like the
CCPA, also exempt some data processed in the context of clinical trials, these developments further complicate compliance efforts, and
increase legal risk and compliance costs for us and the third parties upon whom we rely.
Additionally, an increasing number of foreign data protection laws may also apply
to health-related and other personal data obtained from individuals outside of the United States. For example, the European Union’s
General Data Protection Regulation, or EU GDPR introduced new data protection requirements in the EU, as well as potential fines for noncompliant
companies of up to the greater of €20 million or 4% of annual global revenue, temporary or definitive bans on data processing, and
other corrective actions. Additionally, private litigation related to processing of personal data can be brought under the EU GDPR by
classes of data subjects or consumer protection organizations authorized at law to represent their interests. In addition, we are also
subject to the Israeli Privacy Protection Law 5741-1981 and the regulations promulgated thereunder, or the PPL, including the
Israeli Privacy Protection Regulations (Data Security) 2017, imposing obligations with respect to the manner personal data is processed,
maintained, transferred, disclosed, accessed and secured, as well as the guidelines of the Israeli Privacy Protection Authority. In this
respect, the PPL may require us to adjust certain data protection and data security practices, information security measures, certain
organizational procedures, applicable positions and other technical and organizational security measures. Failure to comply with the PPL
and with guidelines issued by the Israeli Privacy Protection Authority, may expose us to administrative fines, civil claims (including
class actions) and in certain cases criminal liability.
Furthermore, Europe and other jurisdictions have enacted data localization laws and
cross-border personal data transfer laws, which could make it more difficult to transfer information across jurisdictions (such as transferring
or receiving personal data that originates in the European Economic Area). In particular, the European Economic Area (EEA) and the United
Kingdom (UK) have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it
generally believes are inadequate. Although there are currently various mechanisms that may be used to transfer personal data from the
EEA and UK to the United States in compliance with law, such as the EEA standard contractual clauses, the UK’s International Data
Transfer Agreement / Addendum, and the EU-U.S. Data Privacy Framework and the UK extension thereto (which allows for transfers to relevant
U.S.-based organizations who self-certify compliance and participate in the Framework), existing mechanisms that may facilitate cross-border
personal data transfers may change, be challenged or be invalidated, and there is no assurance that we can satisfy or rely on these measures
to lawfully transfer personal data to the United States. If we cannot implement a valid compliance mechanism for cross-border data transfers,
we could experience material adverse effects.
We publish privacy policies and other statements regarding data privacy and security.
If these policies or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices,
we may be subject to investigation, enforcement actions by regulators or other adverse consequences.
Our obligations related to privacy and security are quickly changing in an increasingly
stringent fashion, creating some uncertainty as to the effective future legal framework. Additionally, these obligations may be subject
to differing applications and interpretations, which may be inconsistent or in conflict among jurisdictions. Preparing for and complying
with these obligations requires us to devote significant resources (including, without limitation, financial and time-related resources).
These obligations may necessitate changes to our practices and to those of any third parties that process personal data on our behalf.
In addition, these obligations may require us to change our business model. Compliance with privacy and security obligations could require
us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact
our ability to operate in certain jurisdictions. Failure or perceived failure by us or the third parties upon whom we rely to comply with
U.S. and foreign data privacy or security obligations could result in government enforcement actions (which could include civil or criminal
penalties), private litigation or mass arbitration demands, bans on processing personal data, additional reporting requirements or oversight,
orders to destroy or not use personal data, and/or adverse publicity and could negatively affect our operating results and business. Claims
that we have violated individuals’ privacy rights or failed to comply with privacy or security obligations, even if we are not found
liable, could be expensive and time consuming to defend, could result in adverse publicity and could have a material adverse effect on
our business, financial condition, results of operations and prospects.
If a successful liability claim or other claim
for damages or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, we could be forced
to pay substantial damage awards.
The use of any of our therapeutic product candidates in clinical trials might expose
us to liability. We have obtained clinical trial insurance coverage in amounts that we believe are reasonable and customary in our industry
based on the size and design of our clinical trials. However, there can be no assurance that such insurance coverage will fully protect
us against some or all of the claims to which we might become subject. We might not be able to maintain adequate insurance coverage at
a reasonable cost or in sufficient amounts or scope to protect us against potential losses. In the event a claim is brought against us,
we might be required to pay legal and other expenses to defend the claim, as well as uncovered damages awards resulting from a claim brought
successfully against us. Furthermore, whether or not we are ultimately successful in defending any such claims, we might be required to
direct financial and managerial resources to such defense and adverse publicity could result, all of which could harm our business.
If we fail to comply with laws regulating the
protection of the environment and health and human safety, our business could be adversely affected.
Our research and development activities involve the use of hazardous materials and
chemicals, and we maintain quantities of microbial agents, various flammable and toxic chemicals in our facilities. Although we believe
our safety and other procedures for storing, handling and disposing these materials in our facilities comply with applicable governmental
and local regulations and guidelines, the risk to our employees or others of accidental contamination or injury from these materials cannot
be eliminated. If an accident occurs, we could be held liable for resulting damages, which may exceed our financial resources and may
seriously harm our business. 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. We may be subject
to liability and may be required to comply with new or existing laws and regulations regulating pharmaceuticals or be subject to substantial
fines or penalties if we violate any of these laws or regulations.
Risks Related to Intellectual Property.
If the scope of any patent protection we obtain
is not sufficiently broad, or if we lose any of our patent protection, our ability to prevent our competitors from commercializing similar
or identical product candidates would be adversely affected.
We have applied for patents covering proteins, therapeutic and diagnostic product
candidates and their method of use, and the success of our business depends, to a large extent, on our ability to obtain and maintain
such patents and any additional patents covering our future product candidates. We design our patent strategy to fit the business competitive
landscape and continual legislative changes. In addition, we periodically analyze and examine our patent portfolio to align it with our
pipeline strategy and business needs. We have issued patents and pending patent applications that are related to our product candidates
in the U.S., Europe, and other territories. We plan to continue to apply for patent protection for our therapeutic and diagnostic inventions,
but we cannot be sure that any of our patent applications will be accepted, or that they will be accepted to the extent that we seek or
that they will not be challenged. Additionally, we file for patent protection in selected countries and not in all countries of the world.
Therefore, we are exposed to competition in those countries in which we have no patent protection. Also, due to our early-stage pipeline
and various business considerations, we may be required to seek patent protection at a very early-stage. This may cause us to file with
insufficient supportive data, possibly making it difficult to obtain patents in jurisdictions that do not accept post filing evidence
to support the claims, and thus enabling others to compete with us. This may also cause issuance of a patent at an earlier stage creating
a shorter commercialization period under patent protection, possibly enabling others to compete with us. Delays in filing patents may
preclude us from obtaining protection on some or all of our product candidates due to others filing ahead of us. Patent applications filed
before us, but yet unpublished, may cause us to spend significant resources in areas that due to these previously filed patents or applications
we will not be able to obtain patent protection, practice the claimed invention without infringing upon such earlier patents (if granted),
or will only be able to obtain a narrower scope of protection than contemplated.
Because the patent position of biopharmaceutical companies involves complex legal
and factual questions, we cannot predict the validity, scope or enforceability of patents with certainty. The issuance of a patent is
not conclusive as to its inventorship, scope, validity or enforceability and our patents may be subject to a third party pre issuance
submission of prior art to the patent authorities or become involved in opposition, derivation, revocation, reexamination, post-grant
and inter partes review, or other similar proceedings challenging our patent rights in the United
States and other jurisdictions which may result in such patents being narrowed, invalidated, or held unenforceable, and thus could limit
our ability to stop competitors from marketing related products or limit the length of the term of patent protection that we may have
for our product candidates. Such proceedings also may result in substantial cost and require our pending patent applications, and those
we may file in the future may not result in patents being issued. Furthermore, even if our patents do issue, and even if they are unchallenged,
our patents may not adequately protect all our intellectual property or prevent others from designing their products in a way to avoid
being covered by our claims. If the breadth or strength of protection provided by the patents we hold is threatened, this could dissuade
companies from collaborating with us to develop and could threaten our ability to commercialize product candidates and expose us to unexpected
competition that could have a material adverse impact on our business. For example, in October 2020, two parties, one being GSK (following
an assignment), filed oppositions in the European Patent Office, or EPO, requesting revocation of our granted European patent relating
to anti-PVRIG antibodies and following different proceedings, on July 11, 2023 in an oral proceedings hearing, the opposition division
of the European Patent Office ruled in favor of maintaining the broad claims in the patent as granted to us. The opposition division’s
written decision was received on January 18, 2024. The opponents have until March 18, 2024 to file an appeal. If an appeal is not filed
by that time, the decision will become final and unappealable. In January 2023, another opposition was filed by GSK, requesting revocation
of our granted European patent relating to method of screening for inhibitors of the binding association of PVRIG polypeptide with PVRL2
and we already responded to this opposition. In May 2023, two other European oppositions were filed by GSK and another party, with respect
to anti-PVRIG antibodies competing with COM701 and we already provided our response.
Furthermore, changes in either the patent laws or interpretation of the patent laws
in the United States or other jurisdictions could weaken our ability to obtain new patents or to enforce our existing patents and patents
that we might obtain in the future and increase the uncertainties and costs surrounding the prosecution of patent applications, and the
enforcement or defense of our issued patents. Such changes could diminish the value of our patents and applications, thereby impairing
our ability to protect our product candidates, and could have a material adverse effect on our business, financial condition, results
of operations and prospects. For example, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the
scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In October
2017, in Amgen v. Sanofi, the Federal Circuit overturned the “newly characterized antigen”
test, which permitted patentees to claim a genus of antibodies by describing the structure of a corresponding antigen, on the grounds
that it failed to satisfy the requirements found in Section 112 of the Patent Act, 35 U.S.C. § 112. In doing so, the Federal Circuit
called into question the validity of numerous existing patents. On May 18, 2023, the Supreme Court affirmed the Federal Circuit’s
judgement in Amgen v. Sanofi. Thus, in the current IP environment in the U.S., we may not be able
to obtain or defend broad patent protection on our antibody inventions. In addition, recent U.S. court decisions raise questions regarding
the award of patent term adjustment (PTA) for patens in families where related patents have issued without PTA. Thus, it cannot be said
without certainty how PTA will/will not be viewed in the future and whether patent expiration dates may be impacted. Similarly,
changes in patent law and regulations in other countries or jurisdictions or changes in the governmental bodies that enforce them or changes
in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce
patents. For example, the complexity and uncertainty of European patent laws have increased in recent years. In Europe, a new unitary
patent system took effect June 1, 2023, which will significantly impact European patents, including those granted before introduction
of the system. Under the unitary patent system, European applications have the option, upon receipt of a patent, of becoming a Unitary
Patent subject to the jurisdictions of the Unitary Patent Court (UPC). As the UPC is a new court system, there is no precedent for the
court, increasing the uncertainty of any litigation. Patents granted before implementation of the UPC have the option of opting out of
the jurisdiction of the UPC and remaining as national patents in the UPC countries. Patents that remain under jurisdiction of the UPC
will be potentially vulnerable to a single UPC-based revocation challenge that, if successful, could invalidate the patent in all countries
who are signatories to the UPC. All our patents and patent applications for which a request for opt out was available in the sunrise period
were opted out. We cannot predict with certainty the long-term effects of any potential changes.
Moreover, because of the extensive time required for development, testing and regulatory
review of a potential product, it is possible that, before any particular product candidate 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 protection.
The process of obtaining patents for inventions that cover our products is uncertain
for a number of reasons, including but not limited to:
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the patenting of inventions involves complex legal issues relating to intellectual property laws, prosecution and enforcement of
patent claims across a number or patent jurisdictions, many of which have not yet been settled; |
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legislative and judicial changes, or changes in the examination guidelines of governmental patent offices may negatively affect our
ability to obtain patent claims to certain biological molecules- and/or use of certain therapeutic targets; |
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if we are not the first to file a patent application on one of our inventions, we may not be able to obtain a patent on our invention,
and may not be able to protect one or more of our therapeutic product candidates; |
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competition from other biotechnology and pharmaceutical companies who have already sought patent protection relating to proteins
and protein based products, as well as therapeutic antibodies or other modulators specifically binding these proteins, and their utility
based discoveries that we may intend to develop and commercialize; such prior patents may negatively affect our ability to obtain patent
claims on antibodies or certain proteins or other biologic modulators, or may hinder our ability to obtain sufficiently broad patent claims
for our inventions, and/or may limit our freedom to operate; |
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publication of data on gene products or proteins by non-commercial and commercial entities may hinder our ability to obtain sufficiently
broad patent claims for our inventions; |
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even if we succeed in obtaining patent protection, such protection may not be sufficient to prevent third parties from circumventing
our patent claims; |
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even if we succeed in obtaining patent protection, we may face freedom to operate issues; |
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even if we succeed in obtaining patent claims protecting our inventions and product candidates, our patents could be subject to challenge
and litigation by our competitors, and may be partially or wholly invalidated as a result of such legal/judicial challenges and in connection
with such challenges; |
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significant costs that may need to be incurred in registering and filing patents; |
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insufficient data to support our claims and/or may support others in strengthening their patents; |
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seeking patent protection at an early stage may prevent us from providing comprehensive data supporting the patent claims and may
prevent allowance of certain patent claims or limit the scope of patent claim coverage; |
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we may not be able to supply sufficient data to support our claims, within the legally prescribed time following our initial filing
in order to support our patent claims and this may harm our ability to get appropriate patent protection or protection at all; |
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our claims may be too broad and not have sufficient enablement, in which case such claims might be rejected by patent offices or
invalidated in court; and |
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we might fail to demonstrate a unique technical feature for our antibodies as compared to existing prior art, in which case our claims
might be rejected by the respective patent office, requiring superiority over prior art. |
If we do not succeed in obtaining patent protection for our inventions (should it
be discoveries, drug targets candidates and product candidates) to the fullest extent for which we seek protection, or if we fail to select
the best inventions to seek such protection, our business and financial results could be materially harmed.
We may not be able to protect
our intellectual property rights throughout the world.
Patents are of national or regional effect, and filing, prosecuting and defending
patents on all of our investigational products throughout the world would be extremely expensive. Thus, we may not be able to prevent
third parties from practicing or from selling or importing products made using our inventions in all countries. Further, the legal systems
of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property
protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation
of our proprietary rights generally. In addition, certain countries have compulsory licensing laws under which a patent owner may be compelled
to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if
we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This
could limit our potential revenues. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate
to obtain a significant commercial advantage from the intellectual property that we develop or license.
The existence of third-party
intellectual property rights may prevent us from developing our discoveries and/or discoveries we licensed to partners, or require us
to expend financial and other resources to be able to continue to do so.
In selecting a drug target or a therapeutic product candidate for
development, we take into account, among other considerations, the existence of third-party intellectual property rights that may hinder
our right to develop and commercialize that product candidate. To our knowledge, third parties, including our competitors, have been filing
patent applications covering an increasing portion of the human proteome or antibodies directed thereto. As a result of the existence
of third-party intellectual property rights, we may be further required to:
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forgo the research, development and commercialization of certain drug target candidates and product candidates that we discover,
notwithstanding their promising scientific and commercial merits; or |
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invest substantial management and financial resources to either challenge or in-license such third-party intellectual property, and
we cannot be sure that we will succeed in doing so on commercially reasonable terms, if at all. |
We do not always have available to us, in a timely manner, information
of the existence of third-party intellectual property rights related to our own discoveries. The content of U.S. and other patent applications
remains unavailable to the public for a period of approximately 18 months from the filing date and therefore we cannot be certain that
we were the first to file any patent application related to our product candidate. In some instances, the content of U.S. patent applications
remains unavailable to the public until the patents are issued. Moreover, when patents ultimately are issued, the claims may be substantially
different from those that were originally published and may vary from country to country. Furthermore, there may be issued patents or
pending patent applications that we are aware of, but that we believe are irrelevant to our therapeutic product candidates, but which
may ultimately be found to be infringed by the manufacture, sale, or use of such product candidates. As a result, we can never be certain
that programs that we commence will be free of third-party intellectual property rights. If we become aware of the existence of third-party
intellectual property rights only after we have commenced a particular program, we may have to forgo such project after having invested
substantial resources in it or, to the extent such third-party right has not expired, obtain a license which may involve substantial financial
resources.
We may need to obtain additional
licenses of third-party technology or other rights that may not be available to us or are available only on commercially unreasonable
terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated.
We may be required to license technology or other rights from third
parties to further develop or commercialize our investigational products. Should we be required to obtain licenses to any third-party
technology, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party
license required to develop or commercialize any of our products could cause us to abandon any related efforts, which could seriously
harm our business and operations.
We, or potential collaborators
and licensees, may infringe third-party rights and may become involved in litigation, which may materially harm our business.
If a third-party accuses us, our collaborators or a potential collaborator
and licensee of infringing its intellectual property rights or if a third-party commences litigation against us, our collaborators or
a potential collaborator and licensee for the infringement of patent or other intellectual property rights, we may incur significant costs
in obtaining a license or defending such action, whether or not we ultimately prevail. We are aware of U.S. and foreign issued patents
and pending patent applications controlled by third parties that may relate to the areas in which we are developing therapeutic products.
Because all issued patents are entitled to a presumption of validity in many countries, including the United States and many European
countries, issued patents held by others with claims related to products, may limit our freedom to operate unless and until these patents
expire or are declared invalid or unenforceable in a court of applicable jurisdiction, if we do not obtain a license or other right to
practice the claimed inventions. Typically, patent litigation in the pharmaceutical and biotechnology industry is expensive and prolonged.
Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property
litigation to a greater degree and for longer periods of time than we could. Costs that we may incur in defending third-party infringement
actions would also result in the diversion of management’s and technical personnel’s time. In addition, parties making claims
against us may be able to obtain injunctive or other equitable relief that could prevent us or our collaborators and licensees from further
developing our discoveries or commercializing our products.
In the event of a successful claim of infringement against us or
a potential collaborator and licensee, we may be required to pay damages, including treble damages and attorney’s fees if we are
found to be willfully infringing a third-party’s patent, or obtain one or more licenses from the prevailing third-party (if not
obtained prior to such litigation), which may not be available to us on commercially reasonable terms, if at all. Even if we were able
to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. If we
are not able to obtain such a license or not able to obtain such a license at a reasonable cost, we could be prevented from commercializing
a product until the relevant patents expired, or we could be forced to redesign our products, or to cease some aspect of our business
operations, and we could encounter delays in product introductions and loss of substantial resources while we attempt to develop alternative
products. Defense of any lawsuit or failure to obtain any such license could prevent us or our partners from commercializing available
products and could cause us to incur substantial expenditures and would divert management’s attention from our core business.
We may become involved in
lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe, misappropriate or otherwise violate our
patents, trademarks, copyrights or other intellectual property, or those of our licensors. To counter infringement, misappropriation,
unauthorized use or other violations, we may be required to file legal claims, which can be expensive and time consuming and divert the
time and attention of our management and scientific personnel.
Additionally, after a patent is granted, it can be annulled, or
its scope of protection restricted through an appeal, revocation or invalidation procedure. Such procedures are lengthy, expensive and
time consuming, and may have an adverse effect on us.
We may not be able to prevent, alone or with our licensees or any
future licensees, infringement, misappropriation or other violations of our intellectual property rights, particularly in countries where
the laws may not protect those rights as fully as in the United States. Any claims we assert against perceived infringers could provoke
these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement or opposition
proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that
we do not have the right to stop the other party from using the invention at issue. In this respect, as stated above, we are currently
facing two outstanding European oppositions and one opposition in which we prevailed but remains subject to appeal. There is also a risk
that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do
not have the right to stop the other party from using the invention at issue on the grounds that our patents do not cover the invention.
An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties
or other competitors and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products.
Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly,
if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that
the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately
be forced to cease use of such trademarks.
In any infringement, misappropriation or other intellectual property
litigation, any award of monetary damages we receive may not be commercially valuable. Even if we establish infringement, the court may
decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be
an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation,
there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive
these results to be negative, it could have an adverse effect on our share price. Moreover, there can be no assurance that we will have
sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded.
Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management
and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
Increased progress in our scientific and technological
environment may reduce our chances of obtaining a patent.
In order to obtain a patent to protect one of our therapeutic product candidates,
we must show that the underlying invention (that is, the product candidate itself or its use) is inventive. As an increasing amount of
scientific knowledge is becoming available regarding genes, proteins, biological mechanisms, and the relevance of the genes and proteins
to various clinical indications, the bar is increasingly raised to show sufficient inventiveness, as inventiveness is judged against all
publicly available information available prior to filing of the patent application (the exact date may vary by country or due to other
circumstances). As an increasing amount of scientific knowledge is becoming available for various proteins and their potential use as
drug targets, with time we may be limited or may not be able to obtain patents for our product candidates due to the increased information
published in this area. Our own published patent applications and other publications also serve as prior art against our new inventions
and patent applications and may prevent us from obtaining new patents.
We may become subject to claims for remuneration or royalties for
assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
We enter into assignment of invention agreements with our employees pursuant to which
such individuals agree to assign to us all rights to any inventions created in the scope of their employment or engagement with us. A
significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the
Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee due to and during his or her employment with a company
are regarded as “service inventions”, which belong to the employer, unless the employee and employer have entered into a specific
agreement stating otherwise, except if the employer waived the service invention within six months of receipt of a notice by the employee
regarding the creation of the service invention (in accordance with provisions of the Patent Law). The Patent Law also provides that if
there is no agreement with respect to whether the employee is entitled to remuneration for his or her service invention, to what extent
and under what conditions, such entitlement and terms shall be determined by the Israeli Compensation and Royalties Committee, or the
Committee, a body constituted under the Patent Law. Decisions by the Committee and Israeli courts have created some uncertainty in this
area. Although our employees have agreed to assign to us service invention rights and have waived any rights for additional compensation
for such service inventions, we may still face claims demanding remuneration in consideration for assigned service inventions. As a consequence
of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced
to litigate such claims, which could negatively affect our business.
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 non-compliance with these requirements.
The USPTO and various foreign patent agencies require compliance with a number of
procedural, documentary, fee payment and other provisions to maintain patent applications and issued patents. Noncompliance with these
requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights
in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the
case.
We may be subject to claims that we or our
employees or consultants have infringed, misappropriated or otherwise violated the intellectual property of a third-party, or claiming
ownership of what we regard as our own intellectual property.
We may be subject to claims that we or our employees or consultants have inadvertently
or otherwise used or disclosed confidential information of former employers, competitors or other third-parties. We may be further subject
to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing
our product candidates, resulting, among others, in disputes regarding ownership interest in our patents or other intellectual property.
Although we have implemented reasonable measures to ensure that our employees and consultants do not use the intellectual property of
others in their work for us, we may become subject to claims that we caused an employee or consultant to breach, among others, the terms
of his or her non-competition, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged proprietary
information of a former employer, competitor or other third-party.
While we may litigate to defend ourselves against these claims, even if we are successful,
litigation could result in substantial costs and could distract the attention of our management. If our defenses to these claims fail,
in addition to requiring us to pay monetary damages, a court could deprive our rights in such technologies or features that are essential
to our investigational products, if such technologies or features are found to incorporate or be derived from the proprietary information
of third-parties and prohibit us from using them. Moreover, any such litigation may adversely affect our ability to form strategic alliances,
engage with scientific advisors or hire employees or consultants.
In addition, while we typically require our employees, consultants and contractors
who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may
be unsuccessful in executing such an agreement with each party who in fact develops intellectual property. To the extent that we fail
to obtain such assignments, or such assignments do not contain a self-executing assignment of intellectual property rights, or such assignments
are breached, we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership
of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights. Such intellectual property rights could be awarded to a third-party, and we
could be required to obtain a license from such third-party to commercialize our technology or products. Such a license may not be available
on commercially reasonable terms or at all. Even if we are successful in prosecuting or defending against such claims, litigation could
result in substantial costs and be a distraction to our management and scientific personnel.
We may become subject to claims challenging
the inventorship or ownership of our patents.
We may be subject to claims that former employees, collaborators or other third parties
have an interest in our patents as co-inventor. The failure to name the proper inventors on a patent application can result in the patents
issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals,
the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations
of third parties involved or as a result of questions regarding co-ownership of potential joint inventions. Litigation may be necessary
to resolve claims challenging inventorship and/or ownership. 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.
Patent terms may be inadequate to protect our
competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are
timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions
may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates
are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics or biosimilars.
Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such
candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio
may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
Intellectual property rights do not necessarily
address all potential threats to our business.
Once granted, patents may remain open to opposition (as specified above generally
and with respect to us specifically), interference, re-examination, post-grant review, inter partes
review, nullification or derivation action in court or before patent offices or similar proceedings for a given period after allowance
or grant, during which time third parties can raise objections against such grant. In the course of such proceedings, which may continue
for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims thus attacked or
may lose the allowed or granted claims altogether. In addition, the degree of future protection afforded by our intellectual property
rights is uncertain because even granted intellectual property rights have limitations and may not adequately protect our business. The
following examples are illustrative:
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issued patents that we may own or that we license may be held invalid or unenforceable,
as a result of legal challenges; |
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others may be able to make products that are similar to our products but that are
not covered by the claims of our patent rights; |
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we or our licensors or any future strategic partners might not have been the first
to file patent applications on the inventions covered by the issued patent or pending patent application that we own or have exclusively
licensed; |
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others may independently develop similar or alternative technologies without infringing
our intellectual property rights; |
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it is possible that our pending patent applications will not lead to issued patents;
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issued patents that we may own or that we license may not provide us with any competitive
advantage; |
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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; |
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third parties performing manufacturing or testing for us using our product candidates
or technologies could use the intellectual property of others without obtaining a proper license; |
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we may not develop additional proprietary technologies that are patentable; and
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the patents of others may have an adverse effect on our business. |
Should any of these events occur, they could have a material adverse effect on our
business, financial condition, results of operations and prospects.
We may rely on trade secret and proprietary
know-how which can be difficult to trace and enforce.
In addition to seeking patent protection for some of our technology and investigational
products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our
competitive position. Trade secrets and know-how can be difficult to protect. Any disclosure, either intentional or unintentional, by
our employees or third-party consultants and vendors that we engage to perform research, clinical trials or manufacturing activities,
or misappropriation by third parties (such as through a security breach) of our trade secrets or proprietary information could enable
competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market.
We require our employees to enter into written employment agreements containing provisions
of confidentiality and obligations to assign to us any inventions generated in the course of their employment. We further seek to protect
our potential trade secrets and proprietary know-how by entering into non-disclosure and confidentiality agreements with any third parties
who are given access to them, including our collaborators, contract manufacturers, consultants, advisors and other third parties. With
our consultants, contractors, and collaborators, these agreements typically include invention assignment obligations. Despite these efforts,
any of these parties may breach the agreements and disclose our proprietary information or assign our inventions to third parties, which
may be difficult to trace, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally
disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable.
If we are unable to adequately protect our proprietary know-how and trade secrets,
competitors may be able to develop technologies and resulting discoveries and inventions that are identical, similar to or better than
our own discoveries and inventions, which could materially harm our business, financial condition and results of operations. Costly and
time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade
secret protection could adversely affect our competitive business position. In addition, others may independently discover or develop
our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent
discovery.
Risks Related to Operations in Israel
Conditions in Israel and in the Middle East may adversely affect
our operations.
Our headquarters and research and development facilities are located in Israel. Accordingly,
we are directly influenced by the political, economic and military conditions affecting Israel. Specifically, we could be adversely affected
by:
• hostilities
involving Israel;
• a
full or partial mobilization of the reserve forces of the Israeli army;
• the
interruption or curtailment of trade between Israel and its present trading partners; and
• a
downturn in the economic, political, social or financial condition in Israel.
Since its establishment in 1948, Israel has been subject to a number of armed conflicts
that have taken place between it and its Middle Eastern neighbors. While Israel has entered into peace agreements with both Egypt and
Jordan and has entered into several normalization agreements in 2020 with the United Arab Emirates, Bahrain, Sudan and Morocco, Israel
has no peace or arrangements with any other neighboring or Arab country. Further, all efforts to improve Israel’s relationship with
the Palestinians have failed to result in a permanent peaceful solution, and there have been numerous periods of hostility as well as
civil insurrection of Palestinians in the West Bank and the Gaza Strip in recent years. In general, Israel is engaged, from time to time
(and more recently during the ongoing “Swards of Iron” war), in armed conflicts with Hamas (a militia group and political
party controlling the Gaza Strip), which in some occasions resulted in missiles being fired from the Gaza Strip against civilian targets
in various parts of Israel, including areas in which our employees are located, and negatively affected business conditions in Israel.
On October 7, 2023, the “Swords of Iron” war broke between Israel and
the terrorist organizations in the Gaza Strip, following a surprise attack on Israel led by certain armed groups in the Gaza Strip that
included massacres, terrorism and crimes against humanity. As of the date hereof, the majority of the fighting is concentrated in the
southern region of the State of Israel, whereas the Hezbollah (a Shia Islamist political party and militant group
based in Lebanon) also joined the war with low intensity. In addition, the Houthi movement in Yemen, aligned with Hamas, launched
attacks targeting Israel and ships claimed to be destined for Israel, and in response to such attacks, the U.S. announced the creation
of a multilateral naval task force of protective escorts for commercial vessels in the region, and has launched “Operation Prosperity
Guardian” in December 2023. Israel responds to the attacks against it with airstrikes and extensive mobilization of armed forces,
including reserves, in the Gaza Strip and in the north of Israel. Our headquarters and research and development facilities are located
in Holon, which is about 50 kilometers from the Gaza Strip. Our facilities did not sustain any damage and in accordance with the instructions
of the Israeli National Emergency Management Authority, there is currently no limitation or denial of access or activity limitation in
our facilities. None of our employees were directly harmed as a result of the war. As of the date hereof, we operate continuously, and
so far, the situation in Israel does not have a material effect on our operations and business. We monitor closely the directives of the
Israeli National Emergency Management Authority and where needed, make required adjustments to our operations in accordance with such
directives, including by instructing our workforce to work remotely.
Also, relations between Israel and Iran continue to be hostile, due to the fact that
Iran is perceived by Israel as sponsor of Hamas and Hezbollah, while maintaining a military presence in Syria and Lebanon and has threatened
to attack Israel in the course of the “Swords of Iron”, and with regard to Iran’s nuclear program. In addition, the
normalization agreements that Israel has entered into with some Arab countries in the Middle East may affect the geo-political condition
in the Middle East in general, and the relations between Israel and Iran in particular.
All of the above raise a concern as to the stability in the region which may affect
the security, social, economic and political landscape in Israel and therefore could adversely affect our business, financial condition
and results of operations.
Furthermore, certain countries, primarily in the Middle East but also in Malaysia
and Indonesia, as well as certain companies and organizations in different parts of the world, continue to participate in a boycott of
Israeli brands and others doing business with Israel and Israeli companies. The boycott, restrictive laws, policies or practices directed
towards Israel or Israeli businesses could, individually or in the aggregate, have a material adverse effect on our business in the future.
In addition, should the BDS Movement, the movement for boycotting, divesting and sanctioning Israel and Israeli institutions (including
universities) and products become increasingly influential in the United States and Europe, this may also adversely affect our business
and financial condition. Further deterioration of Israel’s relationship with the Palestinians or countries in the Middle East could
expand the disruption of international trading activities in Israel, may materially and negatively affect our business conditions, could
harm our results of operation and adversely affect the share price of our Company.
Our business may also be disturbed by the obligation of personnel to perform military
service. Our employees who are Israeli citizens are generally subject to a periodic obligation to perform reserve military service, until
they reach the age of 40 (or older, for reservists with certain occupations), but during military conflicts, these employees may be called
to active duty for longer periods of time, as occurred, and may continue to occur, during the “Swords of Iron” war. In response
to the increase in violence and terrorist activity in the past years, and especially during the “Swords of Iron” war, there
have been, and may continue to be, periods of significant call-ups for military reservists. In case of further regional instability such
employees, who may include one or more of our key employees, may be absent for extended periods of time which may materially adversely
affect our business.
In addition, recent political and civil actions in Israel which began in early 2023,
resulting from, among other things, proposed changes to certain Israeli constitutional legislation, may have an adverse effect on the
Israeli social, economic and political landscape and in turn, on us. However, it is difficult to predict at this time what the effect
of such actions will be, if any.
We can give no assurance that the political, economic and security situation in Israel
will not have a material adverse impact on our business in the future.
Furthermore, our Company’s insurance does not cover any loss arising of events
related to the security situation in the Middle East. While the Israeli government generally covers the reinstatement value of direct
damages caused by acts of war or terror attacks, we cannot be certain that such coverage will be maintained or that it will sufficiently
cover our damages.
Our results of operations may be adversely
affected by the exchange rate fluctuations between the dollar and the New Israeli Shekel.
We hold most of our cash, cash equivalents and short-term and long-term bank deposits
in dollars but incur a significant portion of our expenses, principally salaries and related personnel expenses and administrative expenses
for our Israeli based operations, in NIS. As a result, we are exposed to exchange rate fluctuations between the dollar and the NIS, which
may have a material adverse effect on our financial condition. For example, if the dollar significantly devaluates against the NIS, then
the dollar cost of our operations in Israel would increase and our results of operations would be adversely affected. In 2023 and
2022 the dollar appreciated against the NIS by 3.1% and 13.2%, respectively, while in 2021 the dollar depreciated against the NIS by 3.3%.
As a result of these fluctuations, our NIS denominated expenses were affected.
The dollar cost of our operations in Israel
will increase to the extent increases in the rate of inflation in Israel are not offset by a devaluation of the NIS in relation to the
dollar, which would harm our results of operations.
Inflation in Israel, was 3.0% and 5.3% in 2023 and 2022, respectively,
has affected us by increasing the costs of materials and labor needed to operate our business and could continue to adversely affect us
in future periods. Additionally, since a considerable portion of our expenses such as employees’ salaries are linked to an extent
to the rate of inflation in Israel, the dollar cost of our operations is influenced by the extent to which any increase in the rate of
inflation in Israel is or is not offset by the devaluation of the NIS in relation to the dollar. As a result, we are exposed to the risk
that the NIS, after adjustment for inflation in Israel, will appreciate in relation to the dollar. In that event, the dollar cost of our
operations in Israel will increase and our dollar-measured results of operations will be adversely affected. We cannot predict whether
the NIS will appreciate against the dollar or vice versa in the future. Any increase in the rate of inflation in Israel, unless the increase
is offset on a timely basis by a devaluation of the NIS in relation to the dollar, will increase labor and other costs, which will increase
the dollar cost of our operations in Israel and harm our results of operations.
We may not be entitled to certain Israeli tax
benefits.
In the future, we may be entitled to benefit from certain Israeli government programs
and enjoy certain tax benefits, particularly tax exemptions, resulting from the ‘Benefiting Enterprise’ status, or Benefiting
Enterprise, granted to us under the Israel Law for Encouragement of Capital Investments, 1959, or the Investment Law. The availability
of these tax benefits, however, is subject to us meeting certain conditions under the Investment Law, including making specified investments
in fixed assets and equipment. The tax benefits that we anticipate receiving under the “Benefiting Enterprise” program may
not be continued in the future at their current levels or at all. To date, we have not actually received any such tax benefits because
we have not yet generated any taxable income.
It may be difficult to enforce certain U.S.
judgments against us, or our officers and directors or to assert U.S. Securities law claims in Israel.
We are incorporated under the laws of the State of Israel. Service of process upon
our directors and officers, the majority of whom reside outside the United States, may be difficult to obtain within the United States.
Furthermore, because the majority of our assets and investments, and a majority of our directors and officers are located outside the
United States, any judgment obtained in the United States against us or any of them may not be collectible within the United States.
Furthermore, it may be difficult for an investor, or any other person or entity, to
assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged
violation of U.S. securities laws reasoning that Israel is not the most appropriate forum to bring such a claim. In addition, even if
an Israeli court agrees to hear such a claim, it is not certain whether Israeli law or U.S. law will be applicable to the claim. If U.S.
law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming
and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that
addresses the matters described above. Under certain circumstances, Israeli courts might not enforce judgments rendered outside Israel,
which may make it difficult to collect on judgments rendered against us or our non-U.S. officers and directors.
Moreover, an Israeli court will not enforce a non-Israeli judgment if it was given
in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases), if its enforcement
is likely to prejudice the sovereignty or security of the State of Israel, if it was obtained by fraud or in the absence of due process,
if it is at variance with another valid judgment that was given in the same matter between the same parties, or if a suit in the same
matter between the same parties was pending before a court or tribunal in Israel at the time the foreign action was brought.
Our amended and restated Articles of Association
provide that unless we consent to an alternative forum, the federal district courts of the United States of America shall be the exclusive
forum of resolution of any claims arising under the Securities Act which may impose additional litigation costs on our shareholders
Our amended and restated Articles of Association, or Articles, provide that the federal
district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause or causes of action,
or a claim or claims arising under the Securities Act, including all causes of action or claims asserted against any defendant to such
complaint. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities
Act actions. Accordingly, both U.S. state and federal courts have jurisdiction to entertain such claims. This choice of forum provision
may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors,
officers or other employees and may increase the costs associated with such lawsuits, which may discourage such lawsuits against us and
our directors, officers and employees. Alternatively, if a court were to find these provisions of our Articles inapplicable to, or unenforceable
in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such
matters in other jurisdictions, which could adversely affect our business and financial condition. Any person or entity purchasing or
otherwise acquiring any interest in our share capital shall be deemed to have notice of and to have consented to the choice of forum provisions
of our Articles described above. This provision does not apply to causes of action arising under the Exchange Act.
Our Articles of Association provide that unless
the Company consents otherwise, the competent courts of Tel Aviv, Israel shall be the sole and exclusive forum for substantially all disputes
between the Company and its shareholders under the Companies Law and the Israeli Securities Law, which could limit its shareholders ability
to bring claims and proceedings against, as well as obtain favorable judicial forum for disputes with the Company, its directors, officers
and other employees.
The competent courts of Tel Aviv, Israel shall be the exclusive forum for (i) any
derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of fiduciary duty owed by
any director, officer or other employee of the Company to the Company or the Company’s shareholders, or (iii) any action asserting
a claim arising pursuant to any provision of the Companies Law, 5759-1999, as amended together with all regulations promulgated thereunder,
or the Companies Law, or the Securities Law, 5728-1968, as amended and the regulations promulgated thereunder, or the Israeli Securities
Law. This exclusive forum provision is intended to apply to claims arising under Israeli Law and would not apply to claims brought pursuant
to the Securities Act or the Exchange Act or any other claim for which federal courts would have exclusive jurisdiction. Such exclusive
forum provision in our Articles will not relieve the Company of its duties to comply with federal securities laws and the rules and regulations
thereunder, and shareholders of the Company will not be deemed to have waived the Company’s compliance with these laws, rules and
regulations. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing
for disputes with the Company or its directors or other employees which may discourage lawsuits against the Company, its directors, officers
and employees.
Provisions of Israeli law may delay, prevent
or make undesirable an acquisition of all or a significant portion of our shares or assets.
Israeli corporate law regulates mergers and acquisitions and requires that a tender
offer be affected when certain thresholds of percentage ownership of voting power in a company are exceeded (subject to certain conditions),
which may have the effect of delaying, preventing or making more difficult a merger with, or acquisition of, us. See “Item 10. Additional
Information – B. Memorandum and Articles of Association.” Further, Israeli tax considerations may make potential transactions
undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief
to such shareholders from Israeli tax. 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 certain 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. See “Item 10. Additional Information – E. Taxation – Israeli Taxation.”
In addition, in accordance with the Restrictive Trade Practices Law, 1988 and under
the Israeli Law for the Encouragement of Industrial Research and Development of 1984 and regulations promulgated thereunder, together,
the R&D Law, approvals regarding a change in control (such as a merger or similar transaction) may be required in certain circumstances.
For more information regarding such required approvals please see “Item 5. Operating and Financial Review and Prospects - C. Research
and Development, Patents and Licenses – The Israel Innovation Authority.” In addition, as a corporation incorporated under
the laws of the State of Israel, we are subject to the Israeli Economic Competition Law, 1988 and the regulations promulgated thereunder
(formerly known as the Israeli Antitrust Law, 1988), under which we may be required in certain circumstances to obtain the approval of
the Israel Competition Authority (formerly known as the Israel Antitrust Authority) in order to consummate a merger or a sale of all or
substantially all of our assets.
These provisions of Israeli law could have the effect of delaying
or preventing a change in control and may make it more difficult for a third-party to acquire us, even if doing so would be beneficial
to our shareholders and may limit the price that investors may be willing to pay in the future for our ordinary shares.
We received grants from the IIA that may require
us to payment of royalties and restrict the transfer of know-how that we develop.
We have received governmental grants from the Israeli Innovation
Authority, or the IIA, for the financing of a portion of our research and development expenditures. Accordingly, we are obligated to repay
the grants by way of royalty payments from revenues generated by the sale of products and/or services developed in the framework of the
approved R&D program using financing from such grants, or Financed Know-How. Such royalties are payable until 100% of the amount of
the grant (as adjusted for fluctuation in the USD/NIS exchange rate) is repaid with applicable interest. Even following full repayment
of any IIA grants (together with the applicable interest), and unless agreed otherwise by the applicable authority of the IIA, we must
nevertheless continue to comply with the requirements of the R&D Law with respect to the Financed Know-How. In addition to the obligation
to pay royalties to the IIA, the R&D Law requires that products which incorporate Financed Know-How be manufactured in Israel and
prohibits the transfer of the Financed Know-How and any right derived therefrom to third parties, unless otherwise approved in advance
by the IIA; Such prior approval may be given by the IIA subject to payment of increased royalties. Failure to comply with the requirements
under the R&D Law may subject us to financial sanctions, to mandatory repayment of grants received by us (together with interest and
penalties), as well as expose us to criminal proceedings. Although such restrictions do not apply to the export from Israel of Company’s
products developed with such Financed Know-How, they may prevent us from engaging in transactions involving the sale, outsource or transfer
of such Financed Know-How or of manufacturing activities with respect to any product or technology based on Financed Know-How, outside
of Israel, which might otherwise be beneficial to us. Furthermore, the consideration available to our shareholders in a transaction involving
the transfer outside of Israel of Financed Know-How (such as a merger or similar transaction) may be reduced by any amounts that we are
required to pay to the IIA. Moreover, the government of Israel may from time to time audit sales of products which it claims incorporate
Financed Know-How and this may lead to royalties being payable on additional products, and may subject such products to the restrictions
and obligations specified hereunder. For more information regarding such restrictions please see “Item 5. Operating and Financial
Review and Prospects- C. Research and Development, Patents and Licenses – The Israel Innovation Authority.”
Being a foreign private issuer exempts us from
certain SEC requirements and Nasdaq rules, which may result in less protection that is afforded to investors under rules applicable to
domestic issuers.
We are a “foreign private issuer” within the meaning of rules promulgated
by the SEC. As such, we are exempt from certain provisions under the Exchange Act, applicable
to U.S. public companies, including:
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the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q and current reports on Form
8-K; |
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the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered
under the Exchange Act, including extensive disclosure of compensation paid or payable to certain of our highly compensated executives
as well as disclosure of the compensation determination process; |
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the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and
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the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing
insider liability for profits realized from any “short-swing” trading transaction (a purchase and sale, or sale and purchase,
of the issuer’s equity securities within less than six months). |
In addition, we may follow home country corporate governance practices
and law instead of those rules and practices otherwise required by Nasdaq for domestic issuers. For instance, we have relied on the foreign
private issuer exemption with respect to shareholder approval requirements for equity-based incentive plans for our employees. For the
list of specific exemptions that we chose to adopt, please see “Item 16G – Corporate Governance.”
Following our home country corporate governance practices as opposed
to the requirements that would otherwise apply to a U.S. company listed on Nasdaq may provide less protection to investors than is afforded
to investors under the Nasdaq Listing Rules applicable to domestic issuers.
We may lose our status as
a foreign private issuer, which would increase our compliance costs and could negatively impact our operations results.
We may lose our foreign private issuer status if (a) a majority
of our outstanding voting securities are either directly or indirectly owned of record by residents of the United States and (b)(i) a
majority of our executive officers or directors are U.S. citizens or residents, (ii) more than 50% of our assets are located in the United
States or (iii) our business is administered principally in the United States. If we will not be a foreign private issuer, we will be
required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more extensive than
the forms available to a foreign private issuer. We would also be required to follow U.S. proxy disclosure requirements, including the
requirement to disclose, under U.S. law, more detailed information about the compensation of our senior executive officers on an individual
basis. We may also be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic
issuers. Such conversion and modifications will involve increased costs. In addition, we would lose our ability to rely upon exemptions
from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers, as described in
the previous risk factor above.
Our shareholders rights
and responsibilities are governed by Israeli law which differs in some material respects from the rights and responsibilities of shareholders
of U.S. companies.
Because we are incorporated under Israeli law, the rights and responsibilities of
our shareholders are governed by our Articles and Israeli law. These rights and responsibilities differ in some respects from the rights
and responsibilities of shareholders in U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act
in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders
and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders
on certain matters, such as an amendment to a company’s articles of association, an increase of a company’s authorized share
capital, a merger of a company and approval of interested 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 in a company or has another power with respect to a company, has a duty to act in fairness towards such company. Israeli
law does not define the substance of this duty of fairness and there is limited case law available to assist us in understanding the nature
of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities
on our shareholders that are not typically imposed on shareholders of U.S. corporations.
Risks Related to our Ordinary Shares
We may not be able to meet
the continued listing standards of Nasdaq, which require a minimum closing bid price of $1.00 per share, which could result in our delisting
and negatively impact the price of our ordinary shares and our ability to access the capital markets.
Our ordinary shares are listed on The Nasdaq Capital Market. The
Nasdaq Stock Market LLC, or the Nasdaq, provides various continued listing requirements that a company must meet in order for its shares
to continue trading on the exchange. Among these requirements is the requirement that our shares trade at a minimum bid price of $1.00
per share. On October 31, 2022, we received a written notice from the Listing Qualifications Department of Nasdaq, notifying us that
our ordinary shares failed to maintain a minimum bid price of $1.00 over the previous 30 consecutive business days as required by the
applicable Nasdaq minimum bid price rules and on June 12, 2023 (after the transfer of the listing of our ordinary shares from the Nasdaq
Global Market to the Nasdaq Capital Market), we received a notification letter from the Listing Qualifications Department of Nasdaq notifying
us that we had regained compliance with the applicable minimum bid price rules.
Thereafter, on November 3, 2023, we received a notification letter
from the Listing Qualifications Department of Nasdaq notifying us that our ordinary shares failed to maintain a minimum bid price of $1.00
over the previous 30 consecutive business days as required by the applicable minimum bid price rules and on January 4, 2024, we received
a notification letter from the Listing Qualifications Department of Nasdaq notifying us that we had regained compliance with the applicable
minimum bid price requirement.
While currently we are in compliance with the applicable Nasdaq minimum bid price
rules, there is no assurance that our share price will trade at or above a minimum bid price of $1.00 per share and if we fail to
meet minimum listing requirements, there can be no assurance that we will be able to regain compliance with the applicable minimum
bid price rules or will otherwise be in compliance with other Nasdaq listing criteria. Any such delisting could adversely affect our ability
to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, collaborators and
employees.
Future sales of our ordinary
shares or securities convertible or exchangeable for our ordinary shares may depress our share price.
If our existing shareholders or holders of our options sell, or indicate an intention
to sell, substantial amounts of our ordinary shares in the public market, the trading price of our ordinary shares could decline. The
perception in the market that these sales may occur could also cause the trading price of our ordinary shares to decline. As of December
31, 2023, we had a total of 89,237,465 ordinary shares outstanding.
Based on the number of shares subject to awards under our 2010 Share Incentive Plan,
as amended, or 2010 Plan, and our 2021 Employee Share Purchase Plan, or ESPP, as of December 31, 2023, 9,690,192 ordinary shares that
are either subject to outstanding options or reserved for future issuance under our 2010 Plan and ESPP were eligible for sale in the public
market, subject to, in the case of shares issued to directors, executive officers and other affiliates, the volume limitations under Rule
144 under the Securities Act. If these additional ordinary shares are sold, or if it is perceived that they will be sold, in the public
market, the trading price of our ordinary shares could decline.
In addition, our directors, executive officers and other affiliates may establish,
and certain executive officers and directors have established, programmed selling plans under Rule 10b5-1 of the Exchange Act, for the
purpose of effecting sales of our ordinary shares. Any sales of securities by these shareholders, or the perception that those sales may
occur, including the entry into such programmed selling plans, could have a material adverse effect on the trading price of our ordinary
shares.
If we sell ordinary shares
in future financings, shareholders may experience immediate dilution and, as a result, our share price may decline.
In order to raise additional capital, we may at any time offer additional ordinary
shares or other securities convertible into or exchangeable for our ordinary shares, through our “at-the-market offering”
(ATM) facility pursuant to a sales agreement entered with Leerink Partners on January 31, 2023 or other manners, at prices that may not
be the same as the price paid for our ordinary shares by our shareholders. The price per share at which we sell additional ordinary shares,
or securities convertible or exchangeable into ordinary shares, in future transactions may be higher or lower than the price per share
paid by our existing shareholders. If we issue ordinary shares or securities convertible into ordinary shares, our shareholders will experience
additional dilution and, as a result, our share price may decline.
In addition, as opportunities present themselves, we may enter into financing or similar
arrangements in the future, including the issuance of debt securities or ordinary shares with or without additional securities convertible
or exchangeable into ordinary shares. Whether or not we issue additional shares at a discount, any issuance of ordinary shares will, and
any issuance of other equity securities or of options, warrants or other rights to purchase ordinary shares may, result in additional
dilution of the percentage ownership of our shareholders and could cause our share price to decline. New investors could also gain rights,
preference and privileges senior to those of our shareholders, which could cause the price of our ordinary shares to decline. Debt securities
may also contain covenants that restrict our operational flexibility or impose liens or other restrictions on our assets, which could
also cause the price of our ordinary shares to decline.
Our share price and trading
volume have been volatile and may be volatile in the future and that could limit investors’ ability to sell our shares at a profit
and could limit our ability to successfully raise funds.
During the 2023 calendar year, our closing share price on Nasdaq ranged from a low
of $0.53 to a high of $2.00 and trading volume was volatile. The volatile price of our shares and periodic volatile trading volume may
make it difficult for investors to predict the value of their investment, to sell shares at a profit at any given time, or to plan purchases
and sales in advance. A variety of factors may affect the market price of our ordinary shares including:
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global or regional macroeconomic developments; |
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general market, political and economic conditions in the countries in which Compugen operates, including Israel and the effect of
the evolving nature of the recent “Swords of Iron” war in Israel; |
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the spread, and resulting actions, of COVID-19 or other global or regional health pandemics or epidemics; |
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clinical data disclosed by us or our competitors; |
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massive sell of our shares by a large shareholder; |
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our success (or lack thereof) in entering into collaboration agreements and achieving certain research and developmental milestones
thereunder; |
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our need to raise additional capital and our success or failure in doing so; |
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our ability (or lack thereof) to disclose key discoveries or developments due to competitive concerns or need to secure our intellectual
property position; |
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achievement or denial of regulatory approvals by us or our competitors; |
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announcements of technological innovations or new commercial products by our competitors; |
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trends in share price of companies in our field or industry; |
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announcement of corporate transactions, merger and acquisition activities or other similar events by companies in our field or industry;
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changes and developments effecting our field or industry; |
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developments concerning material proprietary rights, including material patents; |
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developments concerning our existing or new collaborations; |
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regulatory developments in the United States, Israel and other countries; |
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changes in the structure of healthcare payment systems; |
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delay or failure by us or our partners in initiating, completing or analyzing preclinical or clinical trials or the unsatisfactory
design or results of such trials; |
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period to period fluctuations in our results of operations; |
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changes in estimates by securities analysts; |
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changes in senior management or the board of directors or changes in the size or structure of the company; |
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our ability (or lack thereof) to disclose the commercial terms of, or progress under, our collaborations; |
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our ability (or lack thereof) to show and accurately predict revenues; and |
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transactions with respect to our ordinary shares by insiders or institutional investors. |
We are not able to control many of these factors, and we believe that period-to-period
comparisons of our financial results will not necessarily be indicative of our future performance.
In addition, the stock market in general, and the market for biotechnology
companies in particular, have experienced extreme price and volume fluctuations that may be unrelated or disproportionate to the operating
performance of individual companies. These broad market and industry factors may seriously harm the market price of our ordinary shares,
regardless of our operating performance.
Furthermore, the market prices of equity securities of companies
that have a significant presence in Israel may also be affected by the current and changing security situation in the Middle East and
particularly in Israel and the effect of the evolving nature of the recent “Swords of Iron” war. As a result, these companies
may experience volatility in their stock prices and/or difficulties in raising additional financing required to effectively operate and
grow their businesses. Thus, market and industry-wide fluctuations and political, economic and military conditions in the Middle East,
but also in the United States and worldwide may adversely affect the trading price of our ordinary shares, regardless of our actual operating
performance.
As a result of the volatility of our share price, we could be subject
to securities litigation, which could result in substantial costs and divert management’s attention and company resources from our
business.
Because we do not intend to declare cash dividends
on our ordinary shares in the foreseeable future, shareholders must rely on appreciation of the value of our ordinary shares for any return
on their investment and may not receive any funds without selling their ordinary shares.
We have never declared or paid cash dividends on our ordinary shares
and do not anticipate declaring or paying any cash dividends in the foreseeable future. In addition, the terms of any future debt agreements
may preclude us from paying dividends. As a result, we expect that only appreciation of the price of our ordinary shares, if any, could
provide a return to investors for the foreseeable future. In addition, because we do not intend to declare cash dividends on our ordinary
shares in the foreseeable future, if our shareholders want to receive funds in respect of our ordinary shares, they must sell their ordinary
shares to do so.
Our ordinary shares are traded on more than one market and this
may result in price variations.
In addition to being traded on The Nasdaq Capital Market, our ordinary shares are
also traded on the Tel Aviv Stock Exchange, or TASE. Trading in our ordinary shares on these markets take place in different currencies
(dollars on Nasdaq and NIS on the TASE), and at different times (resulting from different time zones, trading days and public holidays
in the United States and Israel). The trading prices of our ordinary shares on these two markets may differ due to these and other factors.
Any decrease in the price of our ordinary shares on one market could cause a decrease in the trading price of our ordinary shares on the
other market.
If we are a passive foreign investment company,
or PFIC, our U.S. shareholders may be subject to adverse U.S. federal income tax consequences.
For U.S. federal income tax purposes, we generally will be classified
as a PFIC for any taxable year in which, after the application of certain look-through rules with respect to our subsidiaries, either:
(i) 75% or more of our gross income is passive income or (ii) at least 50% of the average value (determined on the basis of a weighted
quarterly average) of our total assets for the taxable year produce or are held for the production of passive income. For purposes of
these tests, passive income includes, among other things, dividends, interest, and gains from the sale or exchange of investment property
and certain rents or royalties (excluding rents and royalties that are received from unrelated parties in connection with the active conduct
of a trade or business). Assets that produce or are held for the production of passive income may include cash, (unless held in a non-interest
bearing account for short term working capital needs), marketable securities, and other assets that may produce passive income. Generally,
in determining whether a non-U.S. corporation is a PFIC, a non-U.S. corporation that directly or indirectly owns at least 25% by value
of the shares of another corporation is treated as holding and receiving directly its proportionate share of assets and income of such
corporation.
Based on our analysis of our estimated income, estimated assets,
activities and market capitalization, we believe that we were a PFIC for the taxable year ended December 31, 2023. However, the determination
of whether or not we are a PFIC is a fact-intensive determination made on an annual basis and because the applicable law is subject to
varying interpretations, we cannot provide any assurance regarding our PFIC status and our U.S. counsel expresses no opinion with respect
to our PFIC status for any taxable year. If we are classified as a PFIC for any taxable year during which a U.S. shareholder holds our
ordinary shares, U.S. investors could be subject to adverse tax consequences regardless of whether we continue to qualify as a PFIC, including
the treatment of gains realized on the sale of our ordinary shares as ordinary income, rather than as capital gain, the loss of the preferential
rate applicable to dividends received on our ordinary shares by individuals who are U.S. holders (as defined in “Item 10. Additional
Information – E. Taxation – Certain Material U.S. Federal Income Tax Considerations to U.S. Holders”), the addition
of interest charges on certain taxes treated as deferred taxes, and additional reporting requirements. A U.S. shareholder of a PFIC generally
may mitigate these adverse U.S. federal income tax consequences by making a “qualified electing fund” election, or QEF election,
or, in some circumstances, a “mark to market” election. We may provide the information necessary for U.S. holders to make
QEF elections if we were treated as a PFIC for any taxable year. There is no assurance that we will have timely knowledge of our status
as a PFIC in the future. Accordingly, U.S. holders may be unable to make a timely QEF election with respect to our ordinary shares.
For further discussion of the PFIC rules and the adverse U.S. federal
income tax consequences in the event we are classified as a PFIC, as well as certain elections that may be available to U.S. holders,
see “Item 10. Additional Information – E. Taxation – Certain Material U.S. Federal Income Tax Considerations to U.S.
Holders – Passive Foreign Investment Company Rules”.
If we are a controlled foreign corporation,
there could be materially adverse U.S. federal income tax consequences to certain U.S. Holders of our ordinary shares.
Each “Ten Percent Shareholder” (as defined below) in
a non-U.S. corporation that is classified as a controlled foreign corporation, or a “CFC”, for U.S. federal income tax purposes
generally is required to include in income for U.S. federal tax purposes such Ten Percent Shareholder’s pro rata share of the CFC’s
“Subpart F income” (as defined below), “global intangible low taxed income,” and investment of earnings in U.S.
property, regardless of whether we make any distributions. Subpart F income generally includes dividends, interest, rents, royalties,
gains from the sale of securities and income from certain transactions with related parties. In addition, a Ten Percent Shareholder that
realizes gain from the sale or exchange of shares in a CFC may be required to classify a portion of such gain as dividend income rather
than capital gain. An individual that is a Ten Percent Shareholder with respect to a CFC generally would not be allowed certain tax deductions
or foreign tax credits that would be allowed to a Ten Percent Shareholder that is a U.S. corporation. We cannot provide any assurance
that we will assist investors in determining whether we or any of our future non-U.S. subsidiaries are treated as a CFC or furnish to
any U.S. holder the information required to comply with the reporting and tax-paying obligations discussed above. Failure to comply with
these reporting obligations may subject a Ten Percent Shareholder to significant monetary penalties and may prevent the statute of limitations
with respect to such Ten Percent Shareholder’s U.S. federal income tax return for the year for which reporting was due from starting.
A non-U.S. corporation generally will be classified as a CFC for
U.S. federal income tax purposes if Ten Percent Shareholders own, directly or indirectly, more than 50% of either the total combined voting
power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. A “Ten
Percent Shareholder” is a United States person (as defined by the Internal Revenue Code of 1986, as amended, or, the Code) who owns
(directly or indirectly) 10% or more of the total combined voting power of all classes of stock entitled to vote or 10% or more of the
total value of all classes of stock of such corporation.
The determination of CFC status is complex and includes attribution
rules, the application of which is not entirely certain. In addition, changes to the attribution rules relating to the determination of
CFC status may make it difficult to determine our CFC status for any taxable year. Because our group includes at least one U.S. subsidiary
(Compugen USA, Inc.), those changes to the attribution rules may cause any non-U.S. subsidiaries that we form or acquire in the future
to be treated as controlled foreign corporations.
Each U.S. holder (as defined in Item 10. Additional Information
– E. Taxation – Certain Material U.S. Federal Income Tax Considerations to U.S. Holders”) should consult its own tax
advisors with respect to the potential adverse U.S. tax consequences of becoming a Ten Percent Shareholder in a CFC. If we are classified
as both a CFC and a PFIC (as defined above), we generally will not be treated as a PFIC with respect to those U.S. holders that meet the
definition of a Ten Percent Shareholder during the period in which we are a CFC.
Shareholder activism can negatively affect our business.
In recent years, shareholder activists have become involved in
numerous public companies. Shareholder activists could propose to involve themselves in the governance, strategic direction and operations
of a company. We encountered such activism prior to our 2017 annual general shareholders’ meeting, when we received a formal request
from an individual private shareholder, holding approximately 1.3% of the Company’s voting rights at that time, to add to the agenda
of the meeting the proposed appointment of two new director candidates, both of whom were not recommended by management. This proposal
was rejected by the shareholders at the meeting. Shareholder activism, including potential proxy contests, divert our management’s
and board of directors’ attention and resources from our business, could give rise to perceived uncertainties as to our future direction
and could result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel
for positions in both management and on the board level and to raise funds. If nominees advanced by activist shareholders are elected
or appointed to our board of directors with a specific agenda, it may adversely affect our ability to effectively and timely implement
our strategic plans or to realize long-term value from our assets. Also, we may be required to incur significant expenses including legal
fees related to activist shareholder matters. Further, our share price could be subject to significant fluctuations or otherwise be adversely
affected by the events, risks and uncertainties of any shareholder activism.
General Risks
Unfavorable global or domestic political or economic conditions
could adversely affect our business, financial condition or results of operations.
The global economy continues to experience significant volatility,
and the economic environment may continue to be, or become, less favorable than that of past years. Higher costs for goods and services,
inflation, deflation, the imposition of tariffs or other measures that create barriers to or increase the costs associated with international
trade, overall economic slowdown or recession and other economic factors in Israel, the U.S. or in any other markets in which we operate
could adversely affect our operations and operating results. Among other matters, the continued risk of a debt default by one or more
European countries, related financial restructuring efforts in Europe, and/or evolving deficit and spending reduction programs instituted
by the U.S. and other governments could negatively impact the global economy and/or pharmaceutical industry.
In addition, recent political and civil actions in Israel which
commenced in the beginning of 2023, resulting from, among other things, proposed changes to certain Israeli constitutional legislation,
may have an adverse effect on the Israeli social, economic and political landscape and in turn, on us. However, it is difficult to predict
at this time what the effect of such actions will be, if any. Furthermore, although to date we have not been directly impacted by the
current military conflict between Russia and Ukraine, this conflict, or any expansion thereof, could disrupt or otherwise adversely impact
our operations and those of third parties upon which we rely. Related sanctions, export controls or other actions have been or may in
the future be initiated by nations including the United States, the European Union or Russia (e.g., potential cyberattacks, disruption
of energy flows, etc.), which could adversely affect our business and/or our supply chain, our CROs, CMOs and other third parties with
whom we conduct business. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic
climate and financial market conditions could adversely impact our business.
Environmental, social and governance matters may impact our business
and reputation.
In addition to the importance of their financial performance, companies
are being increasingly judged by their performance on a variety of environmental, social and governance, or ESG, matters, which are considered
to contribute to the long-term sustainability of companies’ performance.
A variety of organizations measure the performance of companies
on such ESG topics, and the results of these assessments are widely publicized. In addition, investment in funds that specialize in companies
that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance
of such ESG measures to their investment decisions. Topics taken into account in such assessments include, among others, the company’s
efforts and impacts on climate change and human rights, ethics and compliance with the law, and the role of the company’s
board of directors in supervising various sustainability issues. In addition to the topics typically considered in such assessments, in
the healthcare industry, issues of the public’s ability to access a company’s medicines are of particular importance.
In light of investors’ increased focus on ESG matters, there
can be no certainty that we will manage such issues successfully, or that we will successfully meet society’s expectations as to
our proper role. Our actual or perceived failure to meet investors, partners or employees’ expectations on ESG matters could
adversely affect our brand and reputation, our employees’ engagement and reputation, and the willingness of our partners to do business
with us.
Climate change, or
legal or regulatory measures to address climate change, may negatively affect us.
Climate change resulting from increased concentrations of
carbon dioxide and other greenhouse gases in the atmosphere could present risks to our operations. For example, we have operations in
California, where serious drought has made water less available and more costly and has increased the risk of wildfires. Changes in climate patterns
leading to extreme heat waves or unusual cold weather at some of our locations can lead to increased energy usage and costs, or otherwise
adversely impact our facilities and operations and disrupt our supply chains and distribution systems. Concern over climate change
can also result in new or additional legal or regulatory requirements designed to reduce greenhouse gas emissions or mitigate the effects
of climate change on the environment. Any such new or additional legal or regulatory requirements may increase the costs associated
with, or disrupt, sourcing, manufacturing and distribution of our products, which may adversely affect our business and financial results.
In addition, any failure to adequately address stakeholder expectations with respect to ESG matters may result in the loss of business,
adverse reputational impacts, diluted market valuations and challenges in attracting and retaining customers and talented employees. In
addition, our adoption of certain standards or mandated compliance to certain requirements could necessitate additional investments that
could impact our cash position and expected cash runway.
ITEM 4.
INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
History
Our legal and commercial name is Compugen Ltd. We were incorporated on February 10,
1993, as an Israeli corporation and operate under the Companies Law. Our principal offices are located at 26 Harokmim Street, Holon 5885849,
Israel, and our telephone number is +972-3-765-8585. Our web address is www.cgen.com. Information
contained on our website does not constitute a part of this Annual Report. The SEC maintains an internet site, http://www.sec.gov that
contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Neither
such internet addresses are a part of this Annual Report.
Our agent for service of process in the United States is Compugen USA, Inc., our wholly
owned U.S. subsidiary located at 225 Bush Street, Suite 348, San Francisco, CA 94104, which was incorporated in Delaware in March 1997
and is qualified to do business in California. This subsidiary did not have any significant operations from 2008 to March 2012.
Principal Capital Expenditures
In the years ended December 31, 2023, 2022 and 2021, our capital expenditures were
$0.2 million, $0.4 million and $0.4 million, respectively. As of December 31, 2023, we had no significant commitments for capital expenditures.
B. BUSINESS OVERVIEW
Summary
We are a clinical-stage therapeutic discovery and development company utilizing our
broadly applicable predictive computational discovery capabilities to identify novel drug targets and new biological pathways to develop
therapeutics in the field of cancer immunotherapy. Our innovative immuno-oncology pipeline consists of three clinical stage programs,
COM701, COM902 and rilvegostomig, targeting immune checkpoints we discovered computationally. Two programs that we are pursuing internally,
COM701, a potential first-in-class anti-PVRIG antibody, and COM902, a potential best-in-class therapeutic anti-TIGIT antibody, are in
Phase 1 clinical trials and have been evaluated for the treatment of solid tumors as a monotherapy and in combination of dual (PVRIG/PD-1,
PVRIG/TIGIT) and triple (PVRIG/PD-1/TIGIT) blockade. Based on the data from the Phase 1 trials and as part of our focus on two specific
tumor types for the further clinical evaluation of COM701 and COM902, we initiated in 2023 two clinical trials evaluating the triple combination
treatment of COM701, COM902 and pembrolizumab, one in metastatic microsatellite stable colorectal cancer patients and one in platinum
resistant ovarian cancer patients. We plan to report data from our metastatic microsatellite stable colorectal clinical trial in the first
half of 2024 and from our platinum resistance ovarian cancer in the fourth quarter of 2024. Rilvegostomig, a novel anti PD-1/TIGIT
bispecific antibody with a TIGIT-specific component that is derived from our COM902 antibody, is being developed by AstraZeneca pursuant
to an exclusive license agreement between us and AstraZeneca and is being evaluated in multiple clinical trials, including in Phase 3
clinical trial in patients with biliary tract cancer who will be randomized to receive rilvegostomig or placebo with investigator choice
chemotherapy as adjuvant treatment after resection with curative intent. Our therapeutic pipeline of early-stage immuno-oncology programs
consists of programs aiming to address various mechanisms of immune resistance. Our most advanced early-stage program, COM503, is in IND
enabling studies and was licensed to Gilead in December 2023. COM503 is a potential first-in-class high affinity antibody, which blocks
the interaction between IL-18 binding protein and IL-18, thereby freeing natural IL-18 in the tumor microenvironment to inhibit cancer
growth. Our business model is to selectively enter into collaborations for our novel targets and drug product candidates at various stages
of research and development under various revenue-sharing arrangements. Integrating cutting edge computational capabilities with ground-breaking
immuno-oncology research and drug development expertise is our differentiator and has enabled the advancement of drug targets from computer
prediction through successful preclinical studies to the clinic and as a result, we believe that we are uniquely positioned to discover
and develop potential new, first-in-class treatment options for cancer patients.
Our Strategy
We aim to transform patient lives by developing first-in-class therapeutics in the
field of cancer immunotherapy based on our computational target discovery capabilities. Our pipeline strategy for the development of potentially
first-in-class cancer immunotherapies is differentiated in the competitive landscape of immuno-oncology in the following manner:
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We integrate our cutting-edge computational capabilities with our ground-breaking immuno-oncology research and drug development expertise
to discover novel drug targets and biological pathways with the potential to address the unmet need of patients non-responsive to current
cancer immunotherapies |
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We harness these capabilities to inform our drug development process; and |
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We identify drug combinations and design biomarker strategy for potential future patient selection. |
We believe this uniquely positions us in the discovery and the development of first-in-class
drugs for cancer immunotherapy.
In our clinical therapeutic pipeline, our most advanced programs are:
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COM701 is our internal lead immuno-oncology pipeline program. COM701 is a humanized antibody
that binds with high affinity to PVRIG, a novel immune checkpoint target candidate discovered by us that blocks the interaction with its
ligand, PVRL2. Our data suggests that the PVRIG pathway is parallel and complementary to TIGIT, an immune checkpoint discovered computationally
by us in 2009. These two pathways intersect with DNAM-1, a costimulatory receptor on T cells and NK cells. The PD-1 pathway also intersects
with DNAM-1. In certain tumors, and in certain patient populations, the simultaneous blockade of these pathways may be required to stimulate
an antitumor immune response. Phase 1 trials for COM701 were initiated in September 2018. |
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COM902 is a high affinity, fully human antibody developed by us, targeting TIGIT, an immune
checkpoint. COM902 blocks the interaction of TIGIT with PVR, its ligand. As part of the DNAM-1 axis signaling, in certain tumors, and
in certain patient populations, the simultaneous blockade of TIGIT, PVRIG and PD-1 may be required to stimulate an antitumor immune response.
Phase 1 trials for COM902 were initiated in March 2020. |
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Rilvegostomig is a novel PD-1/TIGIT bispecific antibody with a TIGIT component that is
derived from COM902 and is being developed by AstraZeneca pursuant to an exclusive license agreement with AstraZeneca. AstraZeneca initiated
its Phase 3 ARTEMIDE-Bil01 trial as adjuvant therapy for biliary tract cancer after resection in combination with chemotherapy at the
end of 2023 dosing its first patient in such trial in December 2023. In addition, AstraZeneca is also running several Phase 1 and 2 trials
with rilvegostomig in additional indications. |
In addition to our clinical therapeutic pipeline, bapotulimab, an antibody targeting
ILDR2, a drug target discovered by us, which was licensed for further research and development to Bayer, under a research and discovery
collaboration and license agreement, the RDCLA. Bapotulimab has been evaluated in Phase 1 clinical trials in naïve head and neck
squamous cell carcinoma patients. As of February 27, 2023, the license granted to Bayer was terminated, and the rights previously licensed
to Bayer reverted us, at which time, we also exercised our right to get a license to certain intellectual property rights developed by
Bayer under such license agreement. We have the right to continue the development and commercialization of bapotulimab, should we choose
to do so.
In our preclinical therapeutic pipeline, our most advanced program is:
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COM503 is a potential first-in-class high affinity antibody, which blocks the interaction
between IL-18 binding protein and IL-18, thereby freeing natural IL-18 in the tumor microenvironment to inhibit cancer growth. “interleukin-18
binding protein and interleukin-18 complex” is a potential dominant immunosuppressive mechanism which is used by tumors to escape
the immune system. The inflammasome-induced pro-inflammatory cytokine, interleukin-18, is present at high levels in the tumor microenvironment,
where it is expected to naturally activate anti-tumor effector cells, such as T and NK cells. But IL-18 is one of the rare cytokines that
is naturally blocked by an endogenous high affinity inhibitor, called IL-18 binding protein. |
Research Focus - Immuno-Oncology
Our research and development efforts focus on identifying novel drug targets and developing
first-in-class therapeutics in the field of cancer immunotherapy.
Cancer immunotherapies represents a significant commercial market. Sales of therapies
targeting immune checkpoints registered approximately $37.12 billion worldwide in 2022 and $43 billion in 2023 and are predicted to reach
approximately $169 billion by 2032 with a registered CAGR of 16.4% during the forecast period 2023 to 2032, as reported by Precedence
Research.
The immune system is naturally programmed to seek out and destroy abnormal cells.
Cancer is believed to thrive, in part, because of a number of cellular mechanisms that aid in the evasion of immune response. Such mechanisms
of immune system evasion include masking or reducing the expression of tumor antigens to avoid detection, recruiting T-cell suppressor
cells or expressing inhibitory molecules that suppress immune activation, inducing conditions in the tumor microenvironment that promote
tumor cell proliferation and survival, and a number of other factors. Immuno-oncology therapies that overcome immune suppression by stimulating
responses directed to cancer cells are emerging as a powerful means of counteracting the cellular mechanisms that enable the growth and
spread of tumors. Immuno-oncology agents are expanding as a potential path to durable and long-lasting responses in certain patients.
Our discovery strategy is focused on the discovery of new drug targets involved in
mechanisms of immune resistance and which may consequently provide new cancer immunotherapies for enhancing anti-tumor immune responses
in cancer patients.
While immunotherapy revolutionized the landscape for oncology treatments by providing
a new treatment option leading to lasting benefits for some patients; the response rates to immunotherapy vary greatly across different
cancer indications. However, a large proportion of patients do not respond to these therapies, averaging approximately between 15% to
30% overall, thereby leaving a significant unmet medical need for many patients that may be addressed by the discovery of new biological
pathways that could serve for the development of new cancer immunotherapies.
Therapeutic Pipeline
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COM701 - a therapeutic antibody targeting PVRIG |
Pathway expression and preclinical data
COM701 is a potentially first-in-class humanized antibody that
binds with high affinity to PVRIG, a novel immune checkpoint target candidate discovered by Compugen, blocking the interaction with its
ligand, PVRL2. Blockade of PVRIG by COM701 has demonstrated potent, reproducible enhancement of T cell activation, consistent with the
desired mechanism of action of activating T cells in the tumor microenvironment to generate anti-tumor immune responses. In addition,
COM701 combined with anti-PD-1 antibodies has demonstrated synergistic effects in enhancing human T cell stimulation and inhibiting tumor
growth in murine models, supporting the suggested intersection of the PVRIG and PD-1 inhibitory pathways and the potential of these combinations
to further enhance immune response against tumors.
PVRIG and TIGIT constitute parallel immune checkpoint pathways
that interact with DNAM-1, a costimulatory molecule on T cells and NK cells. While PVRIG and TIGIT are complementary and part of the same
biological axis, our research shows that they are in fact distinct. PVRIG and TIGIT bind to different ligands (PVRL2 and PVR,
respectively), they are expressed on different immune cell types and their ligands have different expression patterns.
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Furthermore, our data show that, PVRIG is expressed in stem-like memory T cells (TSCM) and PVRL2 is expressed in both dendritic cells
and tertiary lymphoid structures, as well as in PD-L1 low less inflamed tumors. TSCM cells, dendritic cells and tertiary lymphoid
structures have all been shown to be important in clinical response to checkpoint inhibitors and this unique expression pattern might
enable PVRIG blockade to be active in patients with less inflamed tumors. In addition, expression studies showed that PVRIG, TIGIT, and
their respective ligands, are expressed in a broad variety of tumor types, such as breast endometrial and ovarian. These two pathways
intersect with DNAM-1, a costimulatory receptor on T cells and NK cells. The PD-1 pathway also intersects with DNAM-1. In certain tumors,
and in certain patient populations, the simultaneous blockade of these pathways may be required to stimulate an antitumor immune response.
COM701 is in a Phase 1 clinical trial in patients with advanced solid tumors, to evaluate in combination therapy with PD-1 inhibitor +
TIGIT inhibitor. |
Clinical Development - Bristol Myers Squibb
Collaboration
In October 2018, we entered into a master clinical trial collaboration
agreement, or the MCTC, with Bristol Myers Squibb to evaluate the safety and tolerability of COM701 in combination with Bristol Myers
Squibb’s PD-1 immune checkpoint inhibitor Opdivo®
(nivolumab). In February 2020, the MCTC was amended to include a Phase 1/2 clinical trial, sponsored by Compugen, to evaluate the safety,
tolerability and antitumor activity of COM701 in combination with Opdivo® (nivolumab), and Bristol Myers Squibb’s investigational
antibody targeting TIGIT known as BMS-986207, in patients with advanced solid tumors. In February 2021, the MCTC was further amended to
include an expansion of the Phase 1 combination trial designed to evaluate the dual combination of COM701 and Opdivo® in patients
with advanced solid tumors and in November 2021 the MCTC was amended again to, among other things, establish a joint steering committee
(alongside the existing joint development committee which acts at an operational level) to facilitate strategic oversight and guidance
for the programs run under the collaboration.
On August 3, 2022, in efforts to adapt to challenging market conditions,
we took a strategic decision to focus on prioritized indications and to wind down our broad Phase 1 cohort expansion program and therefore
entered into a letter agreement with Bristol Myers Squibb pursuant to which the MCTC between the parties was terminated as of such date.
In connection with such termination, the parties agreed to use reasonable efforts to wind down activities under the CTCA with respect
to the dual combination study of COM701 with Opdivo® and the triple combination study of COM701 with Opdivo® and Bristol Myers
Squibb’s investigational anti-TIGIT antibody BMS- 986207 and to create a sub-team of the parties to oversee such wind-down activities.
See “Business Strategy and Partnerships - Bristol Myers Squibb Collaboration” below. Until the conclusion of the wind down
of the combination studies with Bristol Myers Squibb, Bristol Myers Squibb continues to supply at no cost Opdivo® and its investigational
antibody targeting TIGIT known as BMS-986207 for the triple combination trial. As of January 1, 2024, we had two patients receiving study
treatment on the triplet study of COM701 with Opdivo® BMS- 986207.
COM701 Clinical Programs
In September 2018, we dosed our first patient in the Phase 1 clinical
trial of COM701.
Phase 1 Arm A of the trial
evaluated the safety and tolerability and preliminary antitumor activity of COM701 monotherapy. We completed the enrollment to both the
dose escalation and expansion cohorts.
The patient population enrolled in the dose escalation was all
comers and included patients who have failed prior therapies including other checkpoint inhibitors and have no other available approved
therapies.
Phase 1 Arm B of the trial
evaluated the safety and tolerability and preliminary antitumor activity of COM701 in combination with a PD-1 inhibitor (nivolumab). A
patient population with similar eligibility criteria as enrolled for the dose escalation cohorts in Arm A was enrolled for this part of
the trial and enrollment was completed during 2020.
In June 2021, we announced that the first patient in the combination
expansion cohort of this Phase 1 Arm B clinical has been dosed. The indications for the combination therapy expansion cohort, ovarian,
breast, endometrial and colorectal cancers were selected based on preclinical biomarker assessments and based on emerging clinical data
from the dose-escalation cohorts of the trial.
Following the completion of enrollment of few cohorts in the study
and data disclosure from completed cohorts, we are currently winding down this study and do not plan to further enroll additional patients.
Data disclosed from this
arm in 2022:
In November 2022, at the 37th
Annual Meeting of the Society for Immunotherapy of Cancer (SITC), we presented preliminary data in a poster titled “PVRIG, a novel
T cell checkpoint, is preferentially expressed in TLS on stem-like memory T cells, potentially inhibiting their expansion”. Key
findings from the poster included:
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COM701 in combination with nivolumab induced preliminary anti-tumor activity and TME immune-modulation in patients with MSS-CRC typically
not responsive to approved checkpoint inhibitors |
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PVRIG has a unique dominant expression on early differentiated T like stem cells (Tscm) and its ligand, PVRL2, is expressed on dendritic
cells (DCs) |
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Spatial transcriptomic analysis showed that Tscm and DCs preferentially localize to Tertiary Lymphoid Structures (TLS) regions while
exhausted T cells localize to the tumor |
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PVRIG is dominantly expressed on CD8+ T cells in TLS region |
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PVRIG blockade may enhance Tscm activation by DCs in lymph-nodes and TLS, a mechanism which potentially could lead to increased T
cell expansion and infiltration into cold tumors |
In November 2022, at the 37th
Annual Meeting of the Society for Immunotherapy of Cancer (SITC), we presented preliminary data in a poster titled “COM701 plus
nivolumab demonstrates preliminary antitumor activity and immune modulation of tumor microenvironment in patients with metastatic MSS-CRC
and liver metastases”. Key findings from the poster, with a data cut-off date of June 17, 2022, included:
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COM701+ nivolumab combination is well tolerated with a favorable safety profile |
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ORR 2/22 (9%) higher than ORR (1-2%) reported for standard of care - regorafenib or TAS-102 |
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Encouraging preliminary antitumor activity in the subset of MSS-CRC patients with liver metastases, ORR 2/17 (12%), compared to 0%
ORR historically for other immunotherapies in a U.S. patient population |
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Translational data demonstrated potent TME immune activation, in the majority of patients based on 13 paired biopsies, most notable
in responders and consistent with COM701 mechanism of action. Such modulation is not typical of checkpoint inhibitors in cold indications
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In December 2022, at the European Society of Medical Oncology
Immuno-Oncology (ESMO-IO), we presented preliminary data from poster “COM701 in combination with nivolumab demonstrates preliminary
antitumor activity in patients with platinum resistant epithelial ovarian cancer”. Key findings from the poster, with a data cut-off
date of November 23, 2022, included:
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In 20 patients who had exhausted all standard therapies, with a median number of 6 prior therapies, the dual combination demonstrated:
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Encouraging overall response rate of 10%, with 2 partial responses and 1 ongoing at the data cut-off date |
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Disease control rate of 45% (2 confirmed partial responses, 7 stable disease) |
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Translational assessment of peripheral blood, showed a pharmacodynamic activation of the immune system |
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One patient with a partial response supported by increased infiltration of CD8 cells into the tumor microenvironment, had high grade
serous adenocarcinoma, 7 prior lines of treatment including best response of progressive disease on the combination of nivolumab and lucitanib
(an investigational agent) |
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Most frequent treatment related adverse events grade 1/2, no grade 4/5 adverse events |
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65% of the patients had high-grade serous adenocarcinoma, including the two responders |
In December 2022, at the European Society of Medical Oncology
Immuno-Oncology (ESMO-IO), we presented preliminary data from poster “COM701 ± Nivolumab – preliminary results of
antitumor activity from a phase 1 trial in patients with metastatic NSCLC who have received prior PD-1/PD-L1 inhibitor”. Key findings
from the poster, with a data cut-off date of November 23, 2022, showed that COM701 ± nivolumab demonstrates preliminary encouraging
signal of antitumor activity in a heavily pretreated population of patients with NSCLC with prior ICI treatment. Most of the patients
4/7 [57%] received ≥2 prior lines of immune checkpoint inhibitors, all 4 patients with SD, with 2/4 [50%] with SD ≥6 months
median overall survival (median of 4 prior lines of therapy including multiple ICI in 57% of patients): COM701 + nivolumab (10 months),
COM701 monotherapy (9.5 months). Historical data with LungMAP2: post ICI NSCLC data - 1 prior line of ICI in metastatic setting, median
overall survival 14.5 months (80% CI: 13.9 to 16.1) for ramucirumab + pembrolizumab vs standard of care of 11.6 months (80% CI 9.9 to
13.0).
Data disclosed from this
arm in 2023:
In November 2023, at the Annual Meeting of the Society for Immunotherapy
of Cancer (SITC) we presented data from poster: “The combination of COM701 + nivolumab demonstrates preliminary antitumor activity
in patients with metastatic breast cancer.” Key findings from the poster, with a data cut-off date of September 5, 2023, included:
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Metastatic breast cancer adds to previous indications in which COM701 combinations show clinical benefit in tumors typically not
responding to immunotherapy |
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Presentation of new data from the metastatic breast cancer cohort expansion study of patients treated with COM701 and nivolumab,
another indication showing clinical benefit in patients typically not responding to immunotherapy with initial data showing that baseline
PVRL2 levels are higher in patients with clinical benefit supporting the findings in platinum resistant ovarian cancer patients (see below
finding in platinum resistant ovarian cancer patients) |
Phase 1/2 trial was designed
to evaluate the safety, tolerability and antitumor activity of COM701 in combination with Opdivo® and BMS-986207. The trial
was designed to evaluate a safe and tolerable dose of the combination during dose escalation and antitumor activity in selected tumor
types in the expansion cohorts (ovarian cancer, endometrial cancer, head and neck and a biomarker-driven arm of tumor types with high
expression of PVRL2). Dose levels for Opdivo® and BMS-986207 combinations have already been determined through prior testing
by Bristol Myers Squibb, allowing for dose escalation of COM701 with fixed doses of Opdivo® and BMS‑986207.
In July 2021 we dosed the first patient in this trial. Following
the completion of enrollment of the ovarian cohort in the study and its respective data disclosure we are currently winding down this
study and do not plan to further enroll additional patients.
Data disclosed from this
trial in 2022:
In December 2022, at the European Society of Medical Oncology Immuno-Oncology
(ESMO-IO), we presented data from poster: “Triple blockade of the DNAM-axis with COM701 + BMS-986207 + nivolumab demonstrates
preliminary antitumor activity in patients with platinum resistant OVCA.” Key findings from the poster, with a data cut-off date
of November 23, 2022, included:
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In 20 patients who had exhausted all standard therapies, with a median number of 4 prior therapies, the triple combination demonstrated:
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Encouraging overall response rate of 20%, with 4 confirmed partial responses, out of which 3 are responding for at least 9 months.
All 4 responders are still on study treatment at the data cut-off date, therefore median duration of response has not been reached
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Disease control rate of 45% (4 confirmed partial responses, 5 stable disease) |
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Low pre-treatment PD-L1 expression in 2 of the responders (CPS <1 and 3), analysis of the other responders is still ongoing
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Translational assessment of peripheral blood, including profiling of cytokines and circulating immune cells, showed a pharmacodynamic
activation of the immune system |
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Most frequent treatment related adverse events grade 1/2, no grade 4/5 treatment related adverse events |
55% of the patients had high-grade serous adenocarcinoma, including
three of the responders
Data disclosed from this
arm in 2023:
In June 2023, at the American Society of Clinical Oncology (ASCO)
Annual Meeting we presented data from poster: “Preliminary antitumor activity of the combination of COM701 + BMS-986207 + nivolumab
in patients with recurrent, metastatic MSS endometrial cancer.” Key findings from the poster, with a data cut-off date of April
10, 2023, included:
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COM701 in combination with nivolumab and BMS-986207 (anti-TIGIT) resulted in encouraging confirmed durable partial responses (overall
response rate 22% (2/9) and disease control rate 44%) with a favorable safety profile |
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Partial response reported in a patient on study treatment for almost 7 months who was previously refractory to standard of care lenvatinib
and pembrolizumab |
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Greater peripheral immune activation seen in patients experiencing clinical benefit |
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Data further support potential of COM701 in hard-to-treat tumors including those refractory to immune checkpoint inhibitors
|
In November 2023, at the Annual Meeting of the Society for Immunotherapy
of Cancer (SITC) we presented several posters. Key findings from the posters, included:
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COM701 + nivolumab + BMS-986207 (anti-TIGIT) resulted in clinically meaningful durable partial responses > 16 months in platinum
resistant ovarian cancer patients |
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COM701 dual and triple combinations mediated clinical benefit in platinum resistant ovarian cancer patients, independent of baseline
inflammatory status and was associated with an increase in T cell infiltration to the tumor |
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PVRL2, the PVRIG ligand, identified as potential predictive biomarker to help enrich for patients who may derive benefit from COM701
combinations for certain indications |
Phase 1 Combination of COM902 with
COM701 – For details please see information below under the header “COM902 - a therapeutic antibody targeting TIGIT”.
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COM902 - a therapeutic antibody targeting TIGIT |
Pathway expression and preclinical data
COM902, a high affinity, fully human and a potentially best-in-class
antibody targeting TIGIT, an immune checkpoint is developed by us. COM902 was shown to have superior binding affinity to T cells with
similar and or greater in vitro function compared to several clinical anti-TIGIT antibodies. COM902 is a mouse-cross reactive Ab and inhibited
tumor growth and increased survival when combined with anti-PVRIG or anti-PD-L1 antibodies in in-vivo studies. Preclinical data demonstrated
that TIGIT inhibition, either alone or in combination with other checkpoint inhibitors, can enhance T cell activation and increase
anti-tumor immune responses. In preclinical studies, parallel inhibition of TIGIT and PVRIG, two coinhibitory arms of the DNAM-1 axis,
resulted in synergistic effects on effector T cell function and tumor growth inhibition in various model systems that can be further
increased with the addition of PD-1 blockade. Based on preclinical data these combinations may be clinically important for enhancing anti-tumor
immune response and expanding the patient population responsive to checkpoint inhibition.
We discovered TIGIT in 2009 with our immune checkpoint computational
discovery capabilities through which PVRIG was also discovered. The TIGIT discovery was published by us in October 2009 in the Proceedings
of the National Academy of Sciences (PNAS).
Expression studies show that PVRIG and TIGIT, and their respective
ligands, are expressed in a broad variety of tumor types, such as breast, endometrial, ovarian, lung, kidney, and head & neck cancers.
These results indicate that within the same tumor indications there are variations with respect to the possible dominance of the two pathways,
and that in patient populations where the two pathways are operative, the blockade of both TIGIT and PVRIG may be required to sufficiently
stimulate an anti-tumor immune response.
Clinical Development
In March 2020, we dosed our first patient in the Phase 1 clinical
trial of COM902.
COM902 Clinical Programs
Phase 1 Monotherapy trial
evaluated the safety and tolerability of COM902 in patients with advanced malignancies through sequential dose escalations. The patient
population enrolled to the dose escalation cohort is all comers and included patients who have failed prior therapies including other
checkpoint inhibitors and have no other available approved therapies.
We completed the monotherapy dose escalation trial, and enrolled
patients to the expansion cohort.
Phase 1 Combination of COM902 with
COM701 was designed to assess the safety, tolerability and preliminary antitumor activity of COM902 in combination with COM701
in patients with advanced malignancies during dose escalation and in selected tumor types in the expansion cohorts (colorectal cancer,
non-small cell lung cancer and head and neck). Enrollment to these cohorts was terminated in conjunction with the winding down of the
studies under collaboration with Bristol Myers Squibb and the decision to focus on two tumor types for further studies. We amended the
study protocol to include patients with metastatic CRC (MSS) and platinum resistant ovarian cancer. These patients with MSS-CRC and platinum
resistant ovarian cancer receive study treatment with COM902 + COM701 + pembrolizumab.
Phase 1 Combination of COM902 with
COM701 and Pembrolizumab small proof-of-concept trials were designed to evaluate this triplet combination in patients with microsatellite
stable colorectal cancer and platinum resistant ovarian cancer. In March 2023 we announced the dosing of the first patient in themicrosatellite
stable colorectal cancer cohort in this Phase 1 triple immunotherapy combination proof-of-concept trial and in November 2023 we announced
the enrollment completion of all patients in such cohort (n=20). In June 2023 we announced the dosing of the first patient in platinum
resistant ovarian cancer cohort in this trial.
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Rilvegostomig - a therapeutic PD-1/TIGIT bi-specific antibody with a TIGIT component
that is derived from our COM902 |
Rilvegostomig is a novel PD-1/TIGIT bi-specific antibody with a
TIGIT component that is derived from our COM902 being developed by AstraZeneca pursuant to an exclusive license between us and AstraZeneca.
In March 2018, we entered into an exclusive license agreement with
AstraZeneca, pursuant to which, we granted to AstraZeneca an exclusive license to use our monospecific antibodies that bind to TIGIT,
including COM902, for the development of bi-specific and multi-specific antibody products, excluding such bi-specific and multi-specific
antibodies that also bind to PVRIG, PVRL2 and/or TIGIT.
Rilvegostomig is currently being evaluated by AstraZeneca in a
Phase 3 ARTEMIDE-Bil01 trial as adjuvant therapy for biliary tract cancer after resection in combination with chemotherapy with the first
patient dosed in December 2023. In addition, AstraZeneca is also running several Phase 1 and 2 trials with rilvegostomig in additional
indications.
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Bapotulimab (formerly known as BAY1905254) – a therapeutic antibody targeting
CGEN-15001T/ILDR2 |
Bapotulimab (formerly known as BAY1905254, an antibody to ILDR2
(formerly CGEN-15001T), a novel immune checkpoint target discovered by Compugen, was developed with Bayer pursuant to a research and discovery
collaboration and license agreement signed in August 2013. See “Business Strategy and Partnerships - Bayer Collaboration”
below. Studies testing the immune function of ILDR2 demonstrated inhibitory effects on T cells consistent with it being an immune checkpoint
ligand. ILDR2 appears to have a unique mechanism of action relative to other immune checkpoints currently being targeted in clinical testing.
ILDR2 is expressed in lymph nodes, suggesting that bapotulimab exerts its effects on immune cell priming rather than on directly
enhancing immune cell killing effects in the tumor microenvironment.
In April 2018, Bayer disclosed bapotulimab a human/monkey/mouse
cross-reactive antibody blocking the immunosuppressive activity of ILDR2. Bapotulimab has exhibited anti-tumor activity as a monotherapy
in various mouse models and was also shown to have additive anti-tumor effects in combination with other cancer therapy approaches, indicating
the possibility for multiple combination uses in cancer immunotherapy.
Under the collaboration agreement, bapotulimab was previously
evaluated by Bayer in a Phase 1 expansion trial in combination with Keytruda, in head and neck cancer that has returned or is discovered
to be metastatic and is expressing PDL1 to evaluate the combination treatment.
On November 29, 2022, Bayer notified us that it has resolved to
terminate, effective as of February 27, 2023, our 2013 research and development collaboration and license agreement.
In accordance with the terms of said agreement, we obtained from
Bayer such rights necessary to allow us to continue the development and commercialization of bapotulimab, should we choose to do so.
Biomarker Driven Strategy
We recognize that one of the major limitations of current immunotherapy approaches
is the lack of tools to help predict patient responses. Through the use of informed biomarker driven strategies, based on the new biological
pathways we discover, we aim to identify biomarkers that can help us predict which patients are most likely to respond to our novel therapies.
This long-term approach also seeks to improve the probability of success of our clinical studies.
We are using three approaches in our biomarker strategy. We are computationally analyzing
omics data to identify tumor indications in which the pathway of our target is elevated. This analysis is thereafter being validated experimentally,
and the validated data is used for indication selection for our clinical trials. We used this approach for COM701 to select the tumor
types for inclusion in our cohort expansion studies. Such antitumor activity further supports our biomarker-informed approach and predictive
discovery capabilities.
The second part of our biomarker strategy is the identification of potential biomarkers
for future patient selection. In this approach, being used for our COM701 program as a stand-alone and in combination, we are using various
cutting-edge technologies and methodologies on both biopsies, liquid biopsies, and blood samples. The different technologies include immunohistochemistry,
transcriptomic, genomic and proteomic analysis. Data generated by these technologies also inform us on the suggested mechanism of action
of COM701. In the immunohistochemistry analysis, we are currently evaluating the correlation between the expression of PDL-1 and the PVRIG
pathway with clinical response.
Thirdly, we have a pharmacodynamic biomarker approach where we measure immune modulation
induced by COM701 and combinations in peripheral and tumor patient samples obtained before and during treatment. In this analysis we measure
both protein and sequence analytics, such as cytokine analysis, immune phenotyping, proteomic changes, transcriptomics analysis, and TCR
clonality. This again serves for the identification of potential biomarkers and also inform us on the suggested mechanism of action of
COM701.
At SITC 2023, we presented new translational data and initial biomarker data from
platinum resistant ovarian cancer studies evaluating COM701 + nivolumab ± BMS anti-TIGIT and in a small breast cancer cohort treated
with COM701 +/- nivolumab, both supporting a COM701 mediated clinical benefit and initial data to suggest PVRL2 as a potential biomarker
for patients who may derive benefit from COM701 combinations.
Early-Stage Pipeline
Immuno-oncology represents a paradigm shift in the treatment of cancer, and biological
drugs blocking immune checkpoint targets have already resulted in long-term patient survival in certain cancer types. Despite their potential,
current checkpoint inhibitors are limited to a few targets and are only effective in certain patients and in certain cancers. We believe
that the identification of new drug targets and new biological pathways has the potential to broaden the reach of cancer immunotherapies
to more types of cancers and many more patients.
Our early-stage programs were discovered using our discovery capabilities and consists
of drug targets with the potential to address various mechanisms of immune resistance and consequently may provide new cancer immunotherapies
for patients non-responsive to current cancer therapies.
Our most advanced early-stage program, COM503, was licensed to Gilead in December
2023 and is currently being advanced by us towards IND clearance, which we expect to take place in 2024.
Our Predictive Computational Discovery Approach
Our target discovery is a predictive, proprietary computational process that we initiate
based on a clinical need. The unmet clinical need and the therapeutic strategy dictate the target discovery approach, the appropriate
tools and most relevant data to be employed. We have developed predictive drug target discovery capabilities that leverage the power of
computational modeling, guided by our scientific expertise and extensive public and proprietary datasets, to identify novel drug targets
and new biological pathways towards the development of new cancer immunotherapy treatments. Our multi-omics data analysis is designed
to identify first-in-class drug target candidates, which are generally difficult to identify using traditional experimental approaches. We
believe that our cutting-edge computational capabilities integrated with our ground-breaking immuno-oncology research and drug development
expertise is a key differentiator from others employing computational discovery approaches.
Our broadly applicable predictive drug target discovery capabilities employ a suite
of cloud-based computational solutions and purpose-built algorithms to sort through both public and proprietary datasets encompassing
genomics, single cell and spatial transcriptomics, proteomics and machine learning based analysis of IHC images. From these massive datasets,
our platforms analyze characteristics, such as gene structure, protein domains, predicted cellular localization, expression pattern, as
well as other characteristics to identify potential druggable targets and predict their biological functions. Over the past decade, we
have continued to refine our analysis by incorporating new public and in-house experimental data.
We have demonstrated the applicability of our discovery approach in computationally
identifying multiple in-silico targets, including PVRIG, TIGIT and ILDR2, the first two now serve as the targets for
therapeutic antibodies currently being evaluated in the clinic by us and others. The antibodies designed to block these targets have all
been evaluated in Phase 1 clinical trials by us (COM701 and COM902) or by our partners (bapotulimab and rilvegostomig). In addition, more
recently we have identified IL-18BP as a dominant tumor-associated-macrophages immune resistance mechanism and based on this biological
understanding, developed COM503, a potential first-in-class antibody that is licensed to Gilead in accordance with our license agreement
dated December 18, 2023, and is currently being advanced by us towards IND clearance.
Business Strategy and Partnerships
Our business strategy includes entering into various forms of revenue-sharing collaborations
with pharmaceutical or biotechnology partners for our novel drug targets and product candidates at various stages of research and development.
Such collaborations or other types of partnering arrangements might include one or more of our therapeutic pipeline programs. Through
these collaborations we seek to create, further develop and commercialize our therapeutic product candidates. Additionally, our discovery
capabilities designed to feed our internal pipeline may allow for future research and discovery collaborations aimed at harnessing our
capabilities towards a potential partner’s pipeline needs. Potential revenue sources in line with this business strategy could include
upfront fees, research funding, in-kind funding, milestones payments, license fees, royalties and other revenue sharing payments. We may
also seek co-development arrangements pursuant to which we would further advance partnered programs under any such partnership in order
to potentially retain a higher share of proceeds from future collaborations.
Gilead License
On December 18, 2023, we entered into the License Agreement, pursuant to which we
granted Gilead an exclusive license under our preclinical antibody program against IL-18 binding protein and all intellectual property
rights subsisting therein, to use, research, develop, manufacture and commercialize products, including COM503, and additional products
that may be so developed by Gilead, together with COM503, referred to herein as the Licensed Products.
Pursuant to the License Agreement, Gilead paid us a $60 million upfront license payment
and we are also eligible to receive from Gilead $30 million in the form of a milestone payment upon clearance of the IND application for
COM503. We are also eligible to receive up to approximately $758 million in additional milestone payments upon the achievement of certain
development, regulatory and commercial milestones. We are further eligible to receive single-digit to low double-digit tiered royalties
on worldwide net sales of Licensed Products. We are required to make certain upstream payments to certain service providers with respect
to the Licensed Products.
We will be responsible for conducting a Phase 1 clinical trial for COM503, including
handling the regulatory matters in connection therewith, and will bear the costs of such trial (including the COM503 drug supply), with
Gilead providing at no cost an anti-PD-1/PD-L1 antibody for such trial. In certain circumstances, Gilead may assume the role of conducting
the Phase 1 clinical trial.
Upon completion of the Phase 1 clinical trial for COM503, we will initiate the transfer
of development activities related to COM503 to Gilead, following which, Gilead will have sole responsibility to develop and commercialize
the Licensed Products.
During the term of the License Agreement, we are prohibited from researching, developing,
making and commercializing any compounds, molecules, products or treatment methods that are directed to IL-18 or any companion diagnostics
for an IL-18 product.
Unless terminated early by a party pursuant to its terms, the License Agreement will
continue in effect on a Licensed Product-by-Licensed Product and country-by-country basis until the expiration of the last royalty term
in such country.
Gilead withheld at source 15% from the upfront payment amount paid to us in January
2024, and is expected to continue to withhold at source all taxes required by law from all payments payable to us under the License Agreement.
The License Agreement contains customary representations, warranties, covenants, and
terms governing the prosecution and enforcement of certain intellectual property and issues related to technology transfer, manufacturing
transfer, provisions with respect to establishment of joint steering committee and its governance covenants with respect change of control
and others.
AstraZeneca License
In March 2018, we entered into an exclusive license agreement with AstraZeneca, to
enable the development of bi-specific and multi-specific immuno-oncology antibody products.
Under the terms of the license agreement, we granted an exclusive license to AstraZeneca
to use our monospecific antibodies that bind to TIGIT, including COM902, for the development of bi-specific and multi-specific antibody
products, excluding such bi-specific and multi-specific antibodies that also bind to PVRIG, PVRL2 and/or TIGIT. AstraZeneca has the right
to create multiple products under this license and will be solely responsible for all research, development and commercial activities
under the agreement. In connection with such license agreement, AstraZeneca developed rilvegostomig, a novel PD-/TIGIT bi-specific antibody
with a TIGIT component that is derived from our COM902 and entered the clinic in September 2021 and initiated Phase 3 with first patient
dosing in Phase 3 in December 2023.
We received a $10 million upfront payment and are eligible to receive up to
$200 million in development, regulatory and commercial milestones for the first product as well as tiered royalties on future product
sales, out of which we accrued $2 million in 2020 as a preclinical milestone, $6 million in 2021 as a clinical milestone (triggered by
the dosing of the first patient in a Phase 1/2 trial evaluating rilvegostomig), additional $7.5 million in 2022 as a clinical milestone
(triggered by the dosing of the first patient in its ARTEMIDE Phase 2 trial evaluating rilvegostomig) and an additional $10 million in
2023 as a clinical milestone (triggered by the dosing of the first patient in its ARTEMIDE-Bil01 Phase 3 trial evaluating rilvegostomig).
If additional products are developed, additional milestones and royalties would be due to us for each product. We retained all other rights
to our entire pipeline of programs as monotherapies and in combination with other products.
Subject to termination rights for material breach, bankruptcy or by us for patent
challenge by AstraZeneca, the term of the license agreement continues until the expiration of the last Royalty Term in the Territory,
each as defined in the license agreement. In addition, AstraZeneca may terminate the agreement for convenience upon prior written notice.
Bayer Collaboration
On August 5, 2013, we entered into a collaboration with Bayer, or the Bayer Collaboration,
for the research, development, and commercialization of antibody-based therapeutics against two novel Compugen-discovered immune checkpoint
regulators, CGEN 15001T/ILDR2 and CGEN 15022.
Under the terms of the Bayer Collaboration, we received an upfront payment of $10
million, and, following the return of the CGEN 15022 program to us, we were eligible to receive an aggregate of over $250 million in potential
milestone payments for bapotulimab (formerly known as BAY1905254) (an antibody against CGEN 15001T/ILDR2), not including aggregate
milestone payments of approximately $23 million received to date. Additionally, we were eligible to receive mid-to-high single digit royalties
on global net sales of any approved products under the collaboration.
In 2014, we achieved the first and second preclinical milestones and in 2015 we achieved
the third preclinical milestone with respect to bapotulimab. Pursuant to the terms of the Bayer Collaboration, this program was transferred
to Bayer’s full control for further preclinical and clinical development activities, and worldwide commercialization under milestone
and royalty bearing licenses from us. In September 2018, the program achieved the fourth milestone, following the dosing of the first
patient in the Phase 1 clinical trial of bapotulimab.
On November 29, 2022, Bayer notified us that it has resolved to terminate, effective
as of February 27, 2023, our 2013 research and development collaboration and license agreement.
In accordance with the terms of said agreement, we obtained from Bayer such rights
necessary to allow us to continue the development and commercialization of bapotulimab, should we choose to do so.
Bristol Myers Squibb Collaboration
On October 10, 2018, we entered into the MCTC with Bristol Myers Squibb to evaluate
the safety and tolerability of COM701 in combination with Bristol Myers Squibb’s PD-1 immune checkpoint inhibitor Opdivo® (nivolumab),
in patients with advanced solid tumors.
The collaboration was also designed to address potential future combinations, including
trials to investigate combined inhibition of checkpoint mechanisms. The parties agreed that Bristol Myers Squibb and Compugen will each
supply the other company with its own compound for the other party’s study, and otherwise each party will be responsible for all
costs associated with the study that it is conducting. Any combination trial performed under this agreement is referred to as a Combined
Therapy Study.
Pursuant to the terms of MCTC, as amended from time to time, we conducted triple combination
clinical trials to evaluate the safety, tolerability and antitumor activity of COM701 in combination with Opdivo® (nivolumab), and
Bristol Myers Squibb’s investigational antibody targeting TIGIT known as BMS-986207, in patients with advanced solid tumors, and
dual combination clinical trials to evaluate the dual combination of COM701 and Opdivo® in patients with advanced solid tumors. In
all these clinical trials we were responsible for and sponsored all the clinical trials and Bristol Myers Squibb provided us with Opdivo®
and BMS-986207 at no cost to us.
The MCTC provided Bristol Myers Squibb a right to negotiate a license for commercialization
and further provided Bristol Myers Squibb with certain exclusivity rights.
In conjunction with the signing of the MCTC in October 2018, Bristol Myers Squibb
made a $12 million investment in us and in conjunction with the signing one of the amendments to the MCTC in November 2021, Bristol
Myers Squibb made additional $20 million investment in us. In both investments, the share price paid by Bristol Myers Squibb represented
a 33% premium over the closing price of our ordinary shares on the last trading day immediately prior to the execution of the applicable
securities purchase agreement. In these two investments, we issued to Bristol Myers Squibb 4,757,058 ordinary shares aggregately.
On August 3, 2022, in an effort to adapt to challenging market conditions, we took
a strategic decision to focus on prioritized indications and to wind down our broad Phase 1 cohort expansion program and therefore entered
into a letter agreement with Bristol Myers Squibb pursuant to which the MCTC between the parties was terminated as of such date and all
ongoing clinical trials at the time of the termination entered into a winding down process. Please see “Item 5. Operating and Financial
Review and Prospects Finance - B. Liquidity and Capital Resources.”
Competition
The biotechnology and pharmaceutical industries are highly competitive and characterized
by the rapid evolution of new technologies and the adoption of new therapies. Additionally, the oncology therapeutic space, and in particular
the immuno-oncology or cancer immunotherapy subsector, represents the therapeutic area with what we believe to be one of the highest industry
focus and investment. In addition, in recent years, computational approaches and systems are being integrated into multiple life science
aspects, including the formation of new companies focusing on computational drug target discovery. Our competitors include biotechnology
and pharmaceutical companies both small and large, the research and discovery groups within pharmaceutical companies, computational discovery
and development companies, academic and research institutions, newly founded companies and governmental and other publicly funded agencies.
Any product candidates that we successfully develop will compete with currently approved
therapies and new therapies that may become available in the future. We face, and expect to continue to face, ongoing competition from
entities that discover novel targets and develop novel products, and that have therapeutic product candidates or products that address
the same drug targets or act by similar, or possibly identical, mechanism of action (MOA) as well as by different mechanisms but address
the same drug target or patient population or unmet clinical need. Our potential competitors are also comprised of companies that discover
and develop monoclonal antibody therapies and/or therapeutic proteins to novel targets, and/or other modalities, including cell therapies
for oncology diseases. Specifically, in the field of immune checkpoints for cancer immunotherapy, there are several leading pharmaceutical
and biotechnology companies as well as smaller biotechnology companies and academic institutions that are developing cancer immunotherapies
to enhance immune response towards tumors, some of which may be based on the same targets we pursue. For example, there are a significant
number of anti-TIGIT antibodies that are currently in advanced Phase 3 clinical studies, such as tiragolumab by Roche, vibostolumab by
Merck, rilvegostomig by AstraZeneca, ociperlimab by Beigene, domvanalimab by Gilead/Arcus, and others at earlier clinical stages of development.
There are a number of anti-PVRIG antibodies in Phase 1 clinical development, for example, GSK4381562 (formerly SRF813) by GSK, SHR-2002,
a PVRIG/TIGIT bi specific by Hengrui, SIM-0348, a PVRIG/TIGIT bi specific by Simcere Pharmaceutical, PM-1009, a PVRIG/TIGIT bi specific
by Biotheus and NM1F by Hefei TG ImmunoPharma. In the IL-18 pathway field, Simcha therapeutics is leading with its ST-067, a mutated
IL-18 fusion protein at Ph 1/2. There are three IL-18 related CAR-T therapies CMN-008 by Co-Immune, huCART19-IL18 by Univ of Pennsylvania
and EU-307 by Eutilex that have entered Phase 1 studies. BrightPeak Therapeutics, Sonnet Biotherapeutics, and Xencor are examples of companies
who are developing recombinant IL-18 and are in the preclinical phase or IND enabling stages. Antibodies for IL-18BP are also being developed
in Lassen Therapeutics (LASN-500) in the discovery stage.If advanced or approved, such cancer immunotherapy products would compete with
our product candidates for commercialization or approved products in the respective fields. If in development stage, such cancer immunotherapy
products would compete with our product candidates for entering into strategic partnerships with pharmaceutical and biotechnology companies
which form the basis of our business model.
Our discovery program depends, in large part, on our computational discovery capabilities
in integration with our immune-oncology experimental capabilities and drug development capabilities as well as our proprietary data to
make inventions and establish intellectual property rights in our drug target candidates and product candidates. There are additional
companies exploring computational approaches and systems for drug target discovery and number of other means by which such inventions
and intellectual property can be generated. We believe that our computational capabilities, and specifically our IO predictive computational
discovery capabilities, provide us with a competitive advantage in predicting new protein functions and linking proteins to specific mechanisms
and diseases, and as a result, predicting new immune-oncology drug targets. We believe that this advantage is made possible by building
an integrated immune-oncology platform for predictive discovery based on the integration of scientific understanding and predictive models
as well as our unique team of multidisciplinary research scientists, who have vast experience in computational discovery, including developing
and handling advance data science approaches, and who over time discovered three drug targets that entered clinical studies and have generated
peer reviewed publications in scientific journals.
Many of our potential competitors, either alone or with their collaborative partners,
have substantially greater financial, technical and human resources than we do and significantly greater experience in computational approaches
and the discovery, development and manufacturing of therapeutics, obtaining FDA and other regulatory approvals, and commercialization
of products. Accordingly, our competitors may be more successful than we may be in identifying new drug targets and product candidates,
protecting them with patent applications, developing them, accelerating their development process, obtaining FDA and other regulatory approvals
and achieving widespread market acceptance. We anticipate that we will face intense and increasing competition as advanced technologies
or new therapy modalities become available.
Intellectual Property Rights
Our intellectual property assets are our principal assets. These assets include the
intellectual property rights subsisting in our proprietary know-how and trade secrets underlying our predictive biology capabilities and
discovery capabilities, our patents and patent applications, particularly with respect to our discovered proteins, therapeutic and diagnostic
product candidates. We seek to vigorously protect our rights and interests in our intellectual property. We expect that our commercial
success will depend on, among other things, our ability to obtain commercially valuable patents, especially for our therapeutic and diagnostic
product candidates, maintain the confidentiality of our proprietary know-how and trade secrets, and otherwise protect our intellectual
property. We design our patent strategy to fit the business competitive landscape and continual legislative changes. In addition, we periodically
analyze and examine our patent portfolio to align it with our pipeline strategy and business needs. We seek patent protection for certain
promising inventions that relate to our therapeutic and diagnostic product candidates. As of February 1, 2024, we had a total of 61 issued
and allowed patents, of which 17 are U.S. patents, 8 are European patents and additional 36 patents in other territories. Our issued and
allowed patents expire between 2028 and 2038. As of February 1, 2024, we had over 138 pending patent applications that have been filed
in the United States, Europe and in other territories as well as pending patent applications that have been filed under the Patent Cooperation
Treaty for which we have not yet designated the countries of filing. The patents issued in the U.S. and Europe for COM701 and COM902 were
issued between 2017 and 2023 and should expire no earlier than 2036. These patents include issued claims directed to, among others, the
composition of these product candidates and/or methods of using the same to treat cancer by activating T cells and/or NK cells, and/or
combinations of our product candidates with other checkpoint inhibitors. Our general policy is to continue patent filings and maintenance
for our therapeutic and diagnostic product candidates, only with respect to candidates or programs that are being actively pursued internally
or with partners, or that we believe to have future commercial value. We routinely abandon patent applications and may choose to abandon
maintenance of patents supporting candidates or programs that do not meet these criteria.
We also seek protection for our proprietary know-how and trade secrets that are not
protectable or protected by patents, by way of safeguarding them against unauthorized disclosure. This is done through the extensive use
of confidentiality agreements and assignment agreements with our employees, consultants and third parties as well as by technological
means. We use license agreements both to access third-party technologies and to grant licenses to third parties to exploit our intellectual
property rights.
In October 2020, two parties, one being GSK (following an assignment), filed oppositions
in the European Patent Office, or EPO, requesting revocation of our granted European patent relating to anti-PVRIG antibodies, that expires
in 2036. Following different proceedings, on July 11, 2023, in an oral proceedings hearing, the opposition division of the European
Patent Office ruled in favor of maintaining the broad claims in the patent as granted to us. The opponents can still appeal this
decision. In January 2023, another opposition was filed by GSK, requesting revocation of our granted European patent relating to
method of screening for inhibitors of the binding association of PVRIG polypeptide with PVRL2 and we already responded to this opposition.
In May 2023, two other oppositions were filed by GSK and another party requesting revocation of our granted European patent relating to
anti PVRIG antibodies competing with COM701, and we already provided our response.
Manufacturing
We currently rely on contract manufacturers or our collaborative partners to produce
and control materials, drug substances and drug products required for the research and development activities. We do not currently own
or operate manufacturing facilities for the production of clinical or commercial quantities of our therapeutic drug candidates. We do
not have, and we do not currently plan to acquire or develop the facilities or capabilities to manufacture bulk drug substance or filled
drug product for use in human clinical trials. We rely on CMOs, advisors and third-party contractors to generate formulations and produce
small scale and larger scale amounts of GLP, cGMP clinical and commercial drug substance and the drug product required for our clinical
trials for the foreseeable future. We also contract with CMOs and third-party contractors for the labeling, packaging, storage and distribution
of investigational drug products.
We entered into agreements with certain CMOs for the manufacturing and respective
analytics of COM701, COM902 and COM503. Our manufacturing strategy is currently structured to support the current clinical development
of COM701 and COM902 and to support the current preclinical development and future clinical development of COM503. Although we believe
the general manufacturing strategy developed for the United States will be applicable in other geographies, specific strategies for other
geographies will be developed as part of our clinical and commercial plans for such other geographies. See “Item 3. Key Information
- D. Risk Factors - Risks Related to Our Dependence on Third Parties - We rely and expect to continue to rely completely on third parties
to manufacture and supply our preclinical and clinical drug supplies. Our business could be harmed if those third parties fail to provide
us with sufficient quantities of drug product or fail to do so at acceptable quality and quantity levels, prices or timelines.”
Government Regulation
Regulation of Therapeutic Product Candidates
In the United States, the FDA regulates pharmaceutical and biologic products under
the Federal Food, Drug, and Cosmetic Act, or FDCA, the Public Health Service Act, other statutes and regulations and implementing
regulations. We anticipate that our product candidates will be regulated as biologics. The process of obtaining regulatory approvals and
the subsequent compliance with applicable federal, state and local statutes and regulations require the expenditure of substantial time
and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process,
approval process or after approval, may subject an applicant to administrative or judicial sanctions. The process required by the FDA
before a biologic may be marketed in the United States generally involves the following:
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completion of preclinical laboratory tests and animal studies in compliance with the FDA’s GLP or other applicable regulations;
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submission to the FDA of an IND, which must become effective before human clinical trials may begin; |
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performance of adequate and well-controlled human clinical trials in accordance with GCPs to establish the safety and efficacy of
the product for its intended use; |
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submission of annual reports to regulatory authorities; |
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submission to the FDA of a biologics license application, or BLA; |
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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug or biologic is produced
to assess compliance with current Good Manufacturing Practice, or cGMP, to assure that the facilities, methods and controls are adequate
to preserve the product’s identity, strength, quality and purity; and |
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FDA review and approval of the BLA. |
Once a pharmaceutical candidate is identified for development it enters the preclinical
testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies.
An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, among other
information, to the FDA as part of the IND. The sponsor will also include a clinical protocol detailing, among other things, the objectives
of the first phase of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated,
if the first phase lends itself to an efficacy evaluation. The IND automatically becomes effective 30 days after receipt by the FDA, unless
the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must
resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before
or during a clinical trial due to, among other things, safety concerns or non-compliance with applicable requirements.
All clinical trials must be conducted under the supervision of one or more qualified
investigators in accordance with GCPs. An IRB at each institution participating in the clinical trial must review and approve the study
plan for any clinical trial before it commences at that institution. An IRB considers, among other things, whether the risks to individuals
participating in the trials are minimized and are reasonable in relation to anticipated benefits. The IRB also reviews the information
regarding the trial, participant recruiting materials and the informed consent form that must be provided to each trial subject or his
or her legal representative before participating in the trial. In addition, the IRB will monitor the trial until completed.
Each new clinical protocol must be submitted to the FDA, and to the IRBs. Protocols
detail, among other things, the objectives of the study, dosing procedures, subject selection and exclusion criteria, and the parameters
to be used to monitor subject safety and determine efficacy.
Human clinical trials are typically conducted in three sequential phases that may
overlap or be combined:
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Phase 1: The product candidate is initially
introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In
the case of some products, usually for severe or life-threatening diseases, especially when
the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing may be conducted in patients.
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Phase 2: Involves studies in a limited patient
population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted
diseases and to determine dosage tolerance and optimal dosage. |
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Phase 3: Involves studies undertaken to further
evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These
studies are intended to establish the overall risk-benefit ratio of the product and provide an adequate basis for product labeling and
approval. |
Progress reports detailing the results of the clinical trials must be submitted at
least annually to the FDA and safety reports for serious and unexpected adverse events must be submitted to the FDA and the investigators
more frequently. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding
that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval
of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the applicable regulations or IRB
requirements or if the drug has been associated with unexpected serious harm to patients.
Concurrent with clinical trials, companies usually complete additional nonclinical
studies and must also finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements.
The manufacturing process must be capable of consistently producing quality batches of the product within required specifications and,
among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the product. Additionally,
appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product does not undergo
unacceptable deterioration over its shelf life.
United States Review and Approval Processes
The results of product development, nonclinical studies and clinical trials, along
with descriptions of the manufacturing process, analytical tests, proposed labeling, and other relevant information are submitted to the
FDA as part of a BLA requesting approval to market the product for one or more indications. The FDA initially reviews all BLAs submitted
to ensure that they are sufficiently complete for substantive review before it accepts them for filing. The FDA may request additional
information rather than accept a BLA for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review.
The FDA may refer the BLA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved
and under what conditions. The FDA is not bound by the recommendation of an advisory committee.
The review process is lengthy, and the FDA may issue a complete response letter rather
than approve a BLA if the applicable regulatory criteria are not satisfied or may require the submission of additional clinical or other
data and information. Even if such data and information are submitted, the FDA may ultimately decide that the BLA does not satisfy the
criteria for approval.
If a product receives regulatory approval, the approval will be limited to specific
diseases and dosages or the approved indications for use may otherwise be limited, which could restrict the commercial value of the product.
In addition, the FDA may require a company to conduct post-approval testing and clinical trials, to further assess a product’s safety
and effectiveness after BLA approval and may require testing and surveillance programs to monitor the safety of approved products which
have been commercialized including Risk Evaluation and Mitigation Strategy (REMS) programs to ensure that the benefits of a product outweigh
its risks.
Post-approval Requirements
Approved biologics are subject to extensive and continuing regulation by the FDA,
including, among other things, cGMP compliance, record-keeping requirements, reporting of adverse experiences, providing the FDA with
updated safety and efficacy information, and complying with FDA promotion and advertising requirements. After an approval is granted,
the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if serious problems occur after the
product reaches the market. Biologics may be promoted for use only for the approved indication or indications and in accordance with the
provisions of the approved label. The FDA and other federal and state agencies actively enforce the laws and regulations prohibiting the
promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to criminal and civil
penalties. However, physicians may, in their independent medical judgment, prescribe legally
available products for off-label uses. The FDA does not regulate the behavior of physicians in their choice of treatments, but the FDA
does restrict manufacturer’s communications on the subject of off-label use of their products.
Other Healthcare Laws
Our current and future business operations, including, among other things, our clinical
research activities and our business and financial arrangements and relationships with healthcare providers, physicians and other parties
through which we may market, sell and distribute our products, once approved, may be subject to extensive U.S. federal, U.S. state and
foreign healthcare fraud and abuse, transparency, and data privacy and security laws. For example, U.S. federal civil and criminal laws
and regulations prohibit, among other things: knowingly and willfully soliciting, receiving, offering or providing remuneration, directly
or indirectly, to induce or reward either the referral of an individual, or the furnishing, recommending or arranging for a good or service,
for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs; knowingly presenting or
causing to be presented, a false or fraudulent claim for payment by a federal healthcare program; and knowingly and willfully executing,
or attempting to execute, a scheme to defraud any healthcare benefit program (including a private payor), or knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false statement in connection with the delivery of, or payment for,
healthcare benefits, items or services. Many U.S. states and foreign countries have analogous prohibitions that may be broader in scope
and apply regardless of payor. In addition, we may be subject to U.S. federal, U.S. state and foreign laws that require us to report information
related to certain payments and other transfers of value to certain health care professionals, as well as ownership and investment interests
in our company held by those health care professionals and their immediate family members, and data security and privacy laws that restrict
our practices with respect to the use and storage of certain data.
Efforts to ensure that our current and future business arrangements with third parties
comply with applicable healthcare laws and regulations may involve substantial costs. If we are found to be in violation of any of these
laws, we could be subject to significant civil, criminal and administrative penalties, including damages, fines, disgorgement, imprisonment,
exclusion from participation in government healthcare programs, additional integrity oversight and reporting obligations, contractual
damages, reputational harm and the curtailment or restructuring of our operations.
Healthcare Policy and Reform
Our ability to commercialize our future therapeutic product candidates successfully,
alone or with collaborators, will depend in part on the extent to which coverage and reimbursement for these product candidates will be
available from government health programs, such as Medicare and Medicaid in the United States, private health insurers and other third-party
payors. At present, significant changes in healthcare policy, in particular the continuing efforts of the U.S. and other governments,
insurance companies, managed care organizations and other payors to contain or reduce health care costs are being discussed, considered
and proposed. Drug prices in particular are under significant scrutiny and continue to be subject to intense political and societal
pressures, which we anticipate will continue and escalate on a global basis.
For example, in the United States, there have been several initiatives implemented
to achieve these aims. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation
Act, collectively, the ACA, substantially changed the way healthcare is financed by both governmental and private insurers and significantly
affects the pharmaceutical industry. With regard to biopharmaceutical products, the ACA has, among other things, expanded and increased
industry rebates for products covered under Medicaid programs and changed the coverage requirements under the Medicare Part D program.
There have been congressional, judicial, and executive branch challenges to the ACA, which has resulted in delays in the implementation
of, and action taken to repeal or replace, certain aspects of the ACA. For example, on June 17, 2021, the U.S. Supreme Court dismissed
a challenge on procedural grounds that argued the Affordable Care Act is unconstitutional in its entirety because the “individual
mandate” was repealed by Congress. In addition, there have been a number of health reform initiatives by the Biden administration
that have impacted the ACA. On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or the IRA, into law, which
among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year
2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering
the beneficiary maximum out-of-pocket cost through a newly established manufacturer discount program. It is possible that the ACA will
be subject to judicial or congressional challenges in the future. It is unclear how other such challenges and any additional healthcare
reform measures of the Biden administration will impact the ACA and the pharmaceutical industry.
In addition, other legislative changes have been proposed and adopted since the ACA
was enacted. The Budget Control Act of 2011, triggered automatic reduction to several government programs, including reductions to Medicare
payments to providers, which went into effect in April 2013 and will remain in effect until 2032, unless additional congressional action
is taken.
Additionally, there has been increasing legislative and enforcement interest in the
United States with respect to drug pricing practices. Specifically, there have been several recent U.S. congressional inquiries, presidential
executive orders and legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription
drugs under Medicare, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement
methodologies for drugs. For example, in July 2021, the Biden administration released an executive order, “Promoting Competition
in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on
September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform
and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. In addition, the IRA,
among other things, (i) directs the Secretary of HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics
covered under Medicare Part B and Medicare Part D, and subjects drug manufacturers to civil monetary penalties and a potential excise
tax by offering a price that is not equal to or less than the negotiated “maximum fair price” under the law, and (ii) imposes
rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. The IRA permits HHS to implement
many of these provisions through guidance, as opposed to regulation, for the initial years. These provisions take effect progressively
starting in fiscal year 2023. On August 29, 2023, HHS announced the list of the first ten drugs that will be subject to price negotiations,
although the Medicare drug price negotiation program is currently subject to legal challenges. It is currently unclear how the IRA will
be implemented but is likely to have a significant impact on the pharmaceutical industry.
We cannot predict what healthcare reform initiatives may be adopted in the future.
However, we anticipate that Congress, state legislatures, and third-party payors may continue to review and assess alternative healthcare
delivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations effecting additional
fundamental changes in the healthcare delivery system. We also expect ongoing legislative and regulatory initiatives to increase pressure
on drug pricing.
Coverage and Reimbursement
Market acceptance of products is dependent on the extent to which coverage and reimbursement
is available from third-party payors. Significant uncertainty exists as to the coverage and reimbursement status of any products for which
we may obtain regulatory approval. Coverage decisions may not favor new products when more established or lower cost therapeutic alternatives
are already available. Even if we obtain coverage for a given product, the associated reimbursement rate may not be adequate to cover
our costs, including research, development, intellectual property, manufacture, sale and distribution expenses, or may require co-payments
that patients find unacceptably high. Coverage and reimbursement policies for products can differ significantly from payor to payor as
there is no uniform policy of coverage and reimbursement for products among third party payors in the United States. Additionally, we,
or our collaborators, may develop companion diagnostic tests for use with our product candidates, once approved. We, or our collaborators,
will be required to obtain coverage and reimbursement for these tests separate and apart from the coverage and reimbursement we seek for
our product candidates, once approved.
Non-U.S. Regulations
In addition to regulations in the United States, biologics are subject to a variety
of foreign laws and regulations governing clinical trials and commercial sales and distribution before they may be sold outside the United
States. Whether or not we obtain FDA approval for a product, we must obtain the necessary approvals from comparable regulatory authorities
of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies
from country to country and the time may be longer or shorter than that required for FDA approval. In some countries, we will also have
to get pricing approval.
Environmental Regulation
Some of our research and development activities involve the controlled use of biologic
and chemical materials, a small amount of which could be considered to be hazardous. We are subject to laws and regulations in the U.S.,
European Union and Israel governing the use, storage, handling and disposal of all these materials and resulting waste products. We store
relatively small amounts of biologic and chemical materials. To our knowledge, we substantially comply with these laws and regulations.
However, the risk of accidental contamination or injury from these materials cannot be entirely eliminated. In the event of an accident,
we could be held liable for any resulting damages, and any liability could exceed our resources.
Regulation of Use of Human Tissue
We need to access and use various human or non-human tissue samples for the purpose
of research, development and or validation of some of our product candidates. Our access and use of these samples are subject to government
regulation, in the United States, Israel and elsewhere and may become subject to further regulation. The use of clinical data associated
with human tissue samples is also heavily regulated in the United States, Israel and elsewhere. United States and other governmental agencies
may also impose restrictions on the use of data derived from human or other tissue samples.
Regulations Concerning the Use of Animals in Research
We also are subject to various laws and regulations regarding laboratory practices
and the use of animals in our research. In the United States, the FDA regulations describe good laboratory practices, or GLPs, for various
types of nonclinical laboratory studies that support or are intended to support applications for research or marketing permits for products
regulated by the FDA, including INDs. Nonclinical animal studies conducted by us or third parties on our behalf may be subject to the
U.S. Animal Welfare Act, the U.S. Public Health Service Policy on Humane Animal Care and Use, U.S. Department of Agriculture regulations
for certain animal species or applicable laws and regulations of other countries where we or third parties on our behalf conduct these
studies. In Israel, the Council on Animal Experimentation has regulatory and enforcement powers, including the ability to suspend, change
or withdraw approvals, among other powers. To our knowledge, we and the third-party service providers we work with, as applicable, substantially
comply with these regulatory requirements.
Regulation of Products Developed with the Support of Research and
Development Grants
For a discussion of regulations governing products developed with research and development
grants from the Government of Israel, see “Item 5. Operating and Financial Review and Prospects - C. - Research and Development,
Patents and Licenses - The Israel Innovation Authority.”
C. ORGANIZATIONAL STRUCTURE
We were incorporated under the laws of the State of Israel on February 10, 1993, as
Compugen Ltd., which is both our legal and commercial name. Compugen USA, Inc., our wholly owned subsidiary, was incorporated in Delaware
in March 1997 and is qualified to do business in California.
D. PROPERTY, PLANTS AND EQUIPMENT
In December 2015, we moved to new facilities in Holon, Israel where we leased an aggregate
of approximately 35,250 square feet of office, biology laboratory facilities and warehouse. Following the exercise of our first option,
we lease 30,140 square feet under that lease that expires on March 14, 2026 (with an option to extend the lease for additional five-year
period). In addition, Compugen USA, Inc. currently leases approximately 400 square feet of office space in San Francisco, California,
under a lease that expires on October 31, 2025.
To our knowledge, there are no environmental issues that affect our use of the properties
that we lease.
ITEM 4A. UNRESOLVED
STAFF COMMENTS
None
ITEM 5. OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our operating and financial
review and prospects should be read in conjunction with our consolidated financial statements and related notes, prepared in accordance
with U.S. GAAP as of December 31, 2023, and with any other financial data included elsewhere in this Annual Report.
Background
We are a clinical-stage therapeutic discovery and development company utilizing our
broadly applicable predictive computational discovery capabilities to identify novel drug targets and new biological pathways to develop
therapeutics in the field of cancer immunotherapy. Our innovative immuno-oncology pipeline consists of three clinical stage programs,
COM701, COM902 and rilvegostomig, targeting immune checkpoints we discovered computationally. Two programs that we are pursuing internally,
COM701, a potential first-in-class anti-PVRIG antibody, and COM902, a potential best-in-class therapeutic anti-TIGIT antibody, are in
Phase 1 clinical trials and have been evaluated for the treatment of solid tumors as a monotherapy and in combination of dual (PVRIG/PD-1,
PVRIG/TIGIT) and triple (PVRIG/PD-1/TIGIT) blockade. Based on the data from the Phase 1 trials and as part of our focus on two specific
tumor types for the further clinical evaluation of COM701 and COM902, we initiated in 2023 two clinical trials evaluating the triple combination
treatment of COM701, COM902 and pembrolizumab, one in metastatic microsatellite stable colorectal cancer patients and one in platinum
resistant ovarian cancer patients. Rilvegostomig, a novel anti PD-1/TIGIT bispecific antibody with a TIGIT-specific component that
is derived from our COM902 antibody, is being developed by AstraZeneca pursuant to an exclusive license agreement between us and AstraZeneca
and is being evaluated in multiple clinical trials, including in Phase 3 clinical trial in patients with biliary tract cancer who will
be randomized to receive rilvegostomig or placebo with investigator choice chemotherapy as adjuvant treatment after resection with curative
intent. Our therapeutic pipeline of early-stage immuno-oncology programs consists of programs aiming to address various mechanisms of
immune resistance. Our most advanced early-stage program, COM503, is in IND enabling studies and was licensed to Gilead in December 2023.
COM503 is a potential first-in-class high affinity antibody, which blocks the interaction between IL-18 binding protein and IL-18, thereby
freeing natural IL-18 in the tumor microenvironment to inhibit cancer growth. Our business model is to selectively enter into collaborations
for our novel targets and drug product candidates at various stages of research and development under various revenue-sharing arrangements.
Integrating cutting edge computational capabilities with ground-breaking immuno-oncology research and drug development expertise is our
differentiator and has enabled the advancement of drug targets from computer prediction through successful preclinical studies to the
clinic and as a result, we believe that we are uniquely positioned to discover and develop potential new, first-in-class treatment options
for cancer patients.
A. OPERATING RESULTS
Overview
Since our inception, we have incurred significant losses and, as of December 31, 2023,
we had an accumulated deficit of $474.5 million. We expect to continue to incur net losses for the foreseeable future.
While our predictive computational discovery capabilities have potentially broad applicability
and is not limited to a certain indication or therapeutic field, we focus our predictive computational discovery efforts on the discovery
of novel drug targets and new biological pathways towards the development of new therapeutic antibodies for cancer, a significant unmet
medical need for cancer patients. We have discovered new targets through computational prediction with three different product candidates
currently being clinically evaluated, supporting the power and validity of our computational capabilities.
We are currently pursuing clinical development of COM701 and COM902 independently
and have two partnerships in place, one with AstraZeneca, who is developing rilvegostomig, a novel anti PD-1/TIGIT bispecific antibody
with a TIGIT-specific component that is derived from our COM902 antibody and is in Phase 3 clinical trials, and the second, with Gilead,
pursuant to the License Agreement for our preclinical COM503 program, which is expected to receive IND clearance in 2024.
We incurred net losses of approximately $34.2 million in 2021, approximately $33.7
million in 2022 and approximately $18.8 million in 2023. We expect to continue to incur net losses for the foreseeable future due in part
to the costs and expenses associated with our research, discovery and development activities. While we currently have two collaborations,
our business model primarily involves establishing collaborations for our novel targets and therapeutic product candidates at various
stages of research and development providing us with potential milestone payments and royalties on product sales or other forms of revenue
sharing payments.
Our research and development expenses are expected to continue to be our major operating
expense in 2024, expected to account for approximately 80% of our expected total 2024 operating expenses. Our research and development
expenditures have always comprised a significant portion of our total cash expenditures, and they are expected to remain in 2024 at a
similar level compared to 2023.
We believe that we have sufficient cash and cash equivalents, short-term bank deposits
and investment in marketable securities in order to sustain our operations into 2027, based on our current plans and our expectation that
we will receive IND clearance for COM503 in the second half of 2024, resulting in the receipt from Gilead of the respective milestone
payment without considering the possible receipt of any additional funds, such as proceeds from existing or additional licensing and/or
collaborative agreements, or from financings. However, if our plans change, our cash balances may only be sufficient for a shorter
period of time. For a detailed description of our cash and cash equivalents position, see “Item 5. Operating and Financial Review
and Prospects - B. Liquidity and Capital Resources.”
Years Ended December 31, 2023 and 2022
Revenues. Revenues for the year ended December
31, 2023, were approximately $33.5 million, compared with $7.5 million in the comparable period of 2022. The revenues for 2023 include
the portion of the upfront payment from the license agreement with Gilead allocated to the license and the clinical milestone from the
license agreement with AstraZeneca in the amount of $10 million, while the revenues for 2022 reflect the previous clinical milestones
from the license agreement with AstraZeneca.
Cost of Revenues. During the year ended December
31, 2023, the Company had approximately $2.0 million in cost of revenues compared with approximately $1.0 million cost of revenues in
the comparable period of 2022. Cost of revenues for the years ended December 31, 2023 and 2022, represent milestone and royalty payments
in connection with our revenues.
Research and Development Expenses. Research
and development expenses during 2023 increased by 12% and totaled approximately $34.5 million compared with approximately $30.6 million
in the comparable period of 2022. The increase is mainly due to lower amortization of the deferred participation in R&D expenses following
the termination of the agreement with Bristol Myers Squibb offset by decrease in headcount related expenses. Research and development
expenses, as a percentage of total operating expenses, were 78% in 2023 compared to 73% in 2022.
Marketing and Business Development Expenses.
Marketing and business development expenses decreased by 74% and totaled in approximately $0.2 million in 2023 compared with approximately
$0.9 million in the comparable period of 2022. The decrease is mainly due to headcount reduction. Marketing and business development expenses,
as a percentage of total operating expenses, were 1% in 2023 compared to 2% in 2022.
General and Administrative Expenses. General
and administrative expenses during 2023 decreased by 6% and totaled approximately $9.7 million in 2023 compared with approximately $10.3
million in the comparable period of 2022. The decrease during 2023 was attributed mostly to decrease in D&O insurance premium costs
and in non-cash stock option related expenses. General and administrative expenses, as a percentage of total operating expenses, were
22% in 2023 compared to 25% in 2022.
Financial and Other Income, Net. Financial
and other income increased by 85% to approximately $3.2 million in 2023 up from approximately $1.7 million in the comparable period of
2022. The increase is attributed mainly to increased interest income due to higher interest rates in the market offset by a lower level
of cash and deposits balances.
Taxes on Income. Taxes on income were approximately
$9.0 in 2023 compared with $0.1 million in 2022. The taxes on income in 2022 represent state income taxes of our U.S. subsidiary, and
in 2023, taxes withheld by Gilead on the upfront payment, offset by a negligible U.S. state income tax benefit.
Years Ended December 31, 2022 and 2021
Revenues. Revenues for the year ended December
31, 2022, were $7.5 million, compared with $6.0 million in the comparable period of 2021. The revenues for 2022 and 2021 reflect clinical
milestones from the license agreement with AstraZeneca.
Cost of Revenues. During the year ended December
31, 2022, the Company had approximately $1.0 million in cost of revenues compared with approximately $0.7 million cost of revenues in
the comparable period of 2021. Cost of revenues for the years ended December 31, 2022 and 2021, represent milestone and royalty payments
in connection with our revenues.
Research and Development Expenses. Research
and development expenses during 2022 increased by 7% and totaled approximately $30.6 million compared with approximately $28.7 million
in the comparable period of 2021. The increase is mainly due to higher expenses associated with our preclinical and CMC activities, offset
by higher Bristol Myers Squibb participation in R&D expenses. Research and development expenses, as a percentage of total operating
expenses, were 73% in 2022 compared to 71% in 2021.
Marketing and Business Development Expenses.
Marketing and business development expenses increased by 11% and totaled approximately $0.9 million in 2022 compared with approximately
$0.8 million in the comparable period of 2021. Marketing and business development expenses, as a percentage of total operating expenses,
were 2% in 2022 and 2021.
General and Administrative Expenses. General
and administrative expenses during 2022 decreased by 5% and totaled approximately $10.3 million in 2022 compared with approximately $10.9
million in the comparable period of 2021. The decrease during 2022 was attributed mostly to decrease in D&O insurance premium costs
(that effected our industry) and in non-cash stock option related expenses. General and administrative expenses, as a percentage of total
operating expenses, were 25% in 2022 compared to 27% in 2021.
Financial and Other Income, Net. Financial
and other income increased to approximately $1.7 million in 2022 from approximately $0.9 million in the comparable period of 2021. The
increase is attributed mainly to increased interest income due to higher interest rates in the market offset by lower level of cash and
deposits balances.
Taxes on Income. Taxes on income were approximately
$0.1 million in 2022. The taxes on income represent state income taxes of our U.S. subsidiary.
Governmental Policies that Materially Affected
or Could Materially Affect Our Operations
Our income tax obligations consist of those of Compugen Ltd. in Israel and of Compugen
USA, Inc. in its taxing jurisdictions.
The corporate tax rate in Israel was 23% in 2023, 2022 and 2021.
In the future, if and when we generate taxable income, our effective tax rate may
be influenced by, among others: (a) the split of taxable income between the various tax jurisdictions; (b) the availability of tax loss
carry forwards and the extent to which valuation allowance has been recorded against deferred tax assets; (c) the portion of our income
which is entitled to tax benefits pursuant to the Investment Law; (d) the changes in the exchange rate of the dollar to the NIS and (e)
the Company’s election to submit its tax returns for 2014 and onwards on a dollar basis, which may not be accepted by the Israeli
Tax Authority. We may benefit from certain government programs and tax legislation, particularly as a result of the Benefiting Enterprise
status that resulted from our eligibility for tax benefits under the Investment Law. To be eligible for these benefits, we need to meet
certain conditions. Should we fail to meet such conditions, these benefits could be cancelled, and we might be required to refund the
amount of the benefits previously received, if any, in whole or in part, together with interest and linkage differences to the Israeli
CPI, or other monetary penalty. We also benefit from a Government of Israel program under which we received grants from the IIA. For more
information, please see “Item 5 Operating and Financial Review and Prospects - C. Research and Development, Patents and Licenses
- The Israel Innovation Authority.” There can be no assurance that these programs and tax legislation will continue in the future
or that the available benefits will not be reduced.
The termination or curtailment of these programs or the loss or reduction of benefits
under the Investment Law could have a material adverse effect on our business, financial condition and results of operations.
Currently we have one Benefiting Enterprise program under the Investment Law. The
tax benefits period with respect to this program has not yet begun as we have not yet generated any taxable income. These benefits should
result in income recognized by us being tax exempt or taxed at a lower rate for a specified period of time after we begin to report taxable
income and exhaust any net operating loss carry-forward. However, these benefits may not be applied to reduce the U.S. federal tax rate
for any income that our U.S. subsidiary may generate.
In April 2005, substantive amendments to the Investment Law came into effect. Under
these amendments, eligible investment programs of the type in which we participated prior to the amendment were eligible to qualify for
substantially similar benefits as a ‘Benefiting Enterprise’, subject to meeting certain criteria. This replaced the previous
terminology of ‘Approved Enterprise’, which required pre-approval from the Investment Center of the Ministry of the Economy
of the State of Israel. As a result of these amendments, tax-exempt income generated from Benefiting Enterprises under the provisions
of the amended law will, if distributed upon liquidation or if paid to a shareholder for the purchase of his or her shares, be deemed
distributed as a dividend and will subject the Company to the applicable corporate tax that would otherwise have been payable on such
income. Therefore, a company may be required to record deferred tax liability with respect to such tax-exempt income, which would have
an adverse effect on its results of operations.
Additional amendments to the Investment Law became effective in January 2011, or the
2011 Amendment. Under the 2011 Amendment, income derived by ‘Preferred Companies’ from ‘Preferred Enterprises’
(both as defined in the 2011 Amendment) would be subject to a uniform rate of corporate tax for an unlimited period as opposed to the
incentives prior to the 2011 Amendment that were limited to income from Approved or Benefiting Enterprises during their benefits period.
According to the 2011 Amendment, the uniform tax rate on such income, referred to as ‘Preferred Income’, would be 10% in areas
in Israel that are designated as Development Zone A and 15% elsewhere in Israel during 2011-2012, 7% and 12.5%, respectively, in 2013,
and 9% and 16%, respectively, thereafter. Income derived by a Preferred Company from a ‘Special Preferred Enterprise’ (as
defined in the Investment Law) would enjoy further reduced tax rates for a period of ten years of 5% in Development Zone A and 8% elsewhere.
As of January 1, 2014, dividends distributed from Preferred Income would subject the recipient to a 20% tax (or lower, if so provided
under an applicable tax treaty, subject to the receipt in advance of a valid tax certificate from the Israel Tax Authority allowing for
a reduced tax rate), which would generally be withheld by the distributing company, provided however that dividends distributed from ‘Preferred
Income’ from one Israeli corporation to another, would not be subject to tax. Under the transitional provisions of the 2011 Amendment,
companies may elect to irrevocably implement the 2011 Amendment with respect to their existing Approved and Benefiting Enterprises while
waiving benefits provided under the legislation prior to the 2011 Amendment or keep implementing the legislation prior to the 2011 Amendment.
Should a company elect to implement the 2011 Amendment with respect to its existing Benefiting Enterprises prior to June 30, 2015 dividends
distributed from taxable income derived from Benefiting Enterprises to another Israeli company would not be subject to tax. While a company
may incur additional tax liability in the event of distribution of dividends from tax exempt income generated from its Benefiting Enterprise,
as previously described, no additional tax liability will be incurred by a company in the event of distribution of dividends from Preferred
Income. We have not elected to implement the 2011 Amendment and we do not currently have any Preferred Enterprises.
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying
the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Law, or Amendment 73, was published.
According to Amendment 73, a Preferred Enterprise located in development area A will be subject, under certain conditions, to a tax rate
of 7.5% instead of 9% effective from January 1, 2017, and thereafter (the tax rate applicable to preferred enterprises located in other
areas remains at 16%). Amendment 73 also prescribes special tax tracks for Technological Enterprises, which are subject to regulations
issued by the Minister of Finance on May 16, 2017.
The new tax tracks under the Amendment are as follows:
Technological Preferred Enterprise - an enterprise for which total consolidated revenues
of its parent company and all subsidiaries are less than NIS 10 billion. A Technological Preferred Enterprise, as defined in the Law,
which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development
area A - a tax rate of 7.5%).
Special Technological Preferred Enterprise - an enterprise for which total consolidated
revenues of its parent company and all subsidiaries exceed NIS 10 billion. Such enterprise will be subject to tax at a rate of 6% on profits
deriving from intellectual property, regardless of the enterprise’s geographical location.
Any dividends distributed to “foreign companies”, as defined in the Law,
deriving from income from the Technological Enterprises will be subject, under certain conditions, including holding at least 90% of the
share capital, to tax at a rate of 4%.
As of December 31, 2023, our net operating loss carry-forward for Israeli tax purposes
amounted to approximately $401.1 million. Under Israeli law, these net operating losses may generally be carried forward indefinitely
and offset against certain future taxable income.
As of December 31, 2023, the net operating loss carry-forward of our U.S. subsidiary for federal income
tax purposes amounted to approximately $3.0 million. Approximately $1.9 million of these losses are available to offset any future U.S.
taxable income of our U.S. subsidiary and will expire between 2024 and 2032.
Use of our U.S. net operating losses may be subject to substantial annual limitation
due to the “change in ownership” provisions of the Code and similar state provisions. The annual limitation may result in
the expiration of net operating losses before utilization.
For a description of Israel government policies that affect our research and development
expenses, and the financing of our research and development, see “Item 5. Operating and Financial Review and Prospects - C. Research
and Development, Patents and Licenses - The Israel Innovation Authority.”
B. LIQUIDITY AND CAPITAL RESOURCES
Public Offering of Ordinary Shares
Registered Direct Offering
On June 14, 2018, we entered into a definitive securities purchase agreement with
certain institutional investors and a placement agency agreement with JMP Securities LLC, in connection with a registered direct offering
which resulted in the issuance of 5,316,457 of our ordinary shares at a purchase price of $3.95 per share. In connection with the issuance
of the ordinary shares, we also issued warrants to purchase up to approximately 4.3 million additional ordinary shares. The warrants had
an exercise price of $4.74 per share and had a term of five years from the date of issuance and therefore already expired. Gross proceeds
from the sale of the ordinary shares were approximately $21 million, before deducting placement agent discounts and commissions and offering
expenses paid by us.
During 2020, the Company issued and sold 3,866,139 ordinary shares underlying 3,866,139
warrants (with proceeds of approximately $18.3 million). During 2021, the Company issued and sold 89,557 ordinary shares underlying 89,557
warrants (with proceeds of approximately $0.4 million). As of December 31, 2023, no warrants remained outstanding.
Public Offering
On March 11, 2020, we entered into an underwriting agreement with Leerink Partners
LLC, or Leerink, and Stifel, Nicolaus & Company, Incorporated, as representatives of the several underwriters named therein,
for the issuance and sale in a public offering of 8,333,334 of our ordinary shares at a price to the public of $9.00 per share. In addition,
we granted the underwriters a 30-day option to purchase up to 1,250,000 additional ordinary shares at the public offering price, less
the underwriting discounts and commissions.
In this underwritten public offering we issued a total of 8,816,339 ordinary shares
(including the shares issued upon exercise of the underwriters’ option) at said $9.00 price per share. Gross proceeds from the sale
of the ordinary shares were approximately $79 million, before deducting underwriting discounts and commissions and offering expenses paid
by us.
Sales Agreement with Leerink Partners LLC
On January 31, 2023, we entered into a Sales Agreement, or the Sales Agreement with
Leerink, as sales agent, pursuant to which we may offer and sell, from time to time through Leerink, our ordinary shares. The offer and
sale of our ordinary shares, if any, will be made pursuant to our shelf registration statement on Form F-3, as supplemented by the prospectus
supplement filed on January 31, 2023. Pursuant to the said prospectus supplement, we may offer and sell up to $50 million of our ordinary
shares.
We are not obligated to make any sales under the Sales Agreement and no assurance
can be given that we will sell any ordinary shares under the Sales Agreement, or, if we do, as to the price or number of ordinary shares
that we will sell, or the dates on which any such sales will take place.
Since the date the Company entered into the Sales Agreement and through December 31,
2023, and for the period between January 1, 2024, and February 20, 2024, the Company sold 2,612,822 ordinary shares and 292,728 ordinary
shares, respectively, through the Sales Agreement, for gross proceeds of approximately $ 3.6 million and $0.6 million, respectively, and
net proceeds (after deducting commission paid) of approximately $3.5 million and $0.6 million, respectively.
Shelf Registration Statement
On March 30, 2023, we filed a shelf registration statement on Form F-3 with the SEC
under which we may offer and sell from time to time in one or more offerings, our ordinary shares, debt securities, rights, warrants and
units having an aggregate offering price of up to $350 million, $50 million of which may be offered, issued and sold under the above mentioned
Sales Agreement with Leerink. This registration statement was declared effective by the SEC on June 27, 2023. Although we believe
that we have sufficient cash, cash equivalents, short-term bank deposits and investment in marketable securities in order to sustain our
operations at least into 2027, based on our different expectations and assumptions as specified above, nevertheless, we may seek additional
capital or various reasons, including for our ongoing operations.
Securities Purchase Agreement
Bristol Myers Squibb Securities Purchase Agreement
On November 10, 2021, the Company and Bristol Myers Squibb entered into a securities
purchase agreement pursuant to which Bristol Myers Squibb made a $20 million investment in Compugen comprised of the purchase of 2,332,815
ordinary shares of Compugen at $8.57333 per share, which represented a 33% premium over the closing price of our ordinary shares on the
last trading day immediately prior to the execution of this agreement. This investment is in addition to Bristol Myers Squibb’s
$12 million investment (at $4.95 per share, which represented a 33% premium over the average closing price on the last 20 Nasdaq trading
days prior to signing) that took place in October 2018.
License Agreement
AstraZeneca License Agreement
On March 30, 2018, we and AstraZeneca, entered into an exclusive license agreement
to enable the development of bi-specific and multi-specific immuno-oncology antibody products based on the Company’s monospecific
antibodies that bind to TIGIT, including COM902, pursuant to which the Company received an upfront payment of $10 million and is eligible
to receive up to $200 million in development, regulatory and commercial milestones for the first product as well as tiered royalties on
future product sales, out of which we accrued $2 million in 2020 as a preclinical milestone, $6 million in 2021 as a clinical milestone
(triggered by the dosing of the first patient in a Phase 1/2 trial evaluating rilvegostomig), $7.5 million in 2022 as a clinical milestone
(triggered by the dosing of the first patient in its ARTEMIDE Phase 2 trial evaluating rilvegostomig) and $10 million in 2023 as a clinical
milestone (triggered by the dosing of the first patient in its ARTEMIDE-Bil01 Phase 3 trial evaluating rilvegostomig). If additional products
are developed, additional milestones and royalties would be due to us for each product.
Gilead License Agreement
On December 18, 2023, we and Gilead, entered into an exclusive license agreement,
or the License Agreement, pursuant to which we granted Gilead an exclusive license under our preclinical antibody program against IL-18
binding protein and all intellectual property rights subsisting therein, to use, research, develop, manufacture and commercialize products,
including our COM503 product candidate, or together, the COM503, and additional products
that may be developed by Gilead, together with COM503, the Licensed Products.
Pursuant to the License Agreement, Gilead paid us a gross amount of $60 million upfront
license payment (with a net amount of $51, after withholding taxes of $9 million at source). We are eligible to receive from Gilead $30
million in the form of a milestone payment upon clearance of the IND application for COM503. We are also eligible to receive up to approximately
$758 million in additional milestone payments upon the achievement of certain development, regulatory and commercial milestones. We are
further eligible to receive single-digit to low double-digit tiered royalties on worldwide net sales of Licensed Products.
Unless terminated early by a party pursuant to its terms, the License Agreement will
continue in effect on a Licensed Product-by-Licensed Product and country-by-country basis until the expiration of the last royalty term
in such country.
Gilead will withhold at source all taxes required by law from all payments payable
to us under the License Agreement.
If additional products are developed, additional milestones and royalties would be
due to us.
Capital Resources
In 2023, our primary sources of cash were:
|
• |
cash at hand and yield on investment of such cash balances; and |
|
• |
proceeds from ordinary shares sold through the Sales Agreement with Leerink. |
We used these funds primarily to finance our
business operations.
We expect that our sources of cash for 2024 will include cash at hand at the end of
2023, proceeds received from AstraZeneca in connection with its Phase 3 milestone payment and proceeds received from Gilead in connection
with its upfront payment (both took place in 2024) and expected milestone payment upon clearance of the IND application for COM503. Additional
sources of cash may include proceeds generated from agreements with collaborators and other third parties with respect to our novel targets
and therapeutic drug candidates and proceeds from issuance of ordinary shares as a result of exercise of options, issuance of ordinary
shares pursuant to our employee share purchase plan and/or from financing transactions. In addition, if we choose to do so, we may generate
additional proceeds from sales of our ordinary shares pursuant to the Sales Agreement.
Net Cash Used in Operating Activities
Net cash used in operating activities was approximately $22.7 million in 2021, approximately
$34.1 million in 2022 and approximately $35.9 million in 2023. Increase in net cash used in 2023 compared to 2022 is mainly due to $7
million clinical milestones from the license agreement with AstraZeneca collected, net of milestone payment paid in 2022, offset by higher
interest and yield collected on our cash deposits and marketable securities and a decrease in cash operating expenses, mainly expenses
associated with our CMC and research and drug development activities and headcount related expenses in 2023.
Net Cash Provided by Investing Activities
Net cash provided by investing activities was approximately $6.6 million in 2021,
$37.1 million in 2022 and $35.5 million in 2023. Changes in net cash during the years are affected by the level of cash in the Company
over the years which are deposited or withdrawn from bank deposits, or invested or received from maturity of marketable securities based
on the cash needs to fund our operating activities. During 2023 cash provided by investing activities was lower than 2022 as a result
of ordinary shares sold through the Sales Agreement with Leerink in 2023 compared to much lower proceeds from exercise of stock based
awards in 2022, offset by higher cash used in operating activities in 2023.
Net Cash Provided by Financing
Activities
Net cash provided by financing activities was approximately $16.8 million in 2021,
approximately $0.4 million in 2022 and approximately $3.1 million in 2023. The principal source of cash provided by financing activities
in 2023 was proceeds received sale of ordinary shares through the Sales Agreement with Leerink. The principal source of cash provided
by financing activities in 2022 was proceeds received from stock-based awards exercises.
Net Liquidity
Liquidity refers to the liquid financial assets available to fund our business operations
and pay for near-term obligations. These liquid financial assets mostly consist of cash and cash equivalents as well as short-term bank
deposits and investment in marketable securities. As of December 31, 2023, we had cash and cash equivalents, short-term bank deposits
and investment in marketable securities of approximately $50.7 million compared to approximately $83.3 million on December 31, 2022. We
believe that our existing cash, cash equivalents, short-term bank deposits and investment in marketable securities will be sufficient
to fund our operations over the next 12 months. We believe we will meet longer-term expected future cash requirements into 2027 based
on our current plans and different expectations and assumptions specified above. We believe that our working capital is sufficient for
our present requirements.
The table below summarizes our contractual obligations as of December 31, 2023, and
should be read together with the accompanying comments that follow.
|
|
Payments due by period
(US$ in thousands)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Obligations(1)
|
|
|
1,436 |
|
|
|
690 |
|
|
|
746 |
|
|
|
- |
|
|
|
- |
|
Accrued Severance Pay, net(2)
|
|
|
421 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
421 |
|
Total |
|
|
1,857 |
|
|
|
690 |
|
|
|
746 |
|
|
|
- |
|
|
|
421 |
|
(1)
Consists of operating leases for our facilities and for motor vehicles. Includes the first five-year option period of the lease of the
Israeli facility. The first option was exercised during 2020.
(2)
Severance pay obligations to our Israeli employees. For more information, see “Item 6. Directors, Senior Management and Employees
– D. Employees.”
The above table does not include royalties that we may be required to pay to the IIA.
For more information, see “Item 5. Operating and Financial Review and Prospects - C. Research and Development, Patents and Licenses.”
The above table also does not include contingent contractual obligations or commitments
that may enter into effect in the future, such as contractual undertakings to pay royalties subject to certain conditions occurring.
Although we have sufficient cash, cash equivalents, short-term bank deposits and investment
in marketable securities that we believe will enable us to fund our operations into 2027 based on our different expectations and assumptions
specified above, our ability to fund our capital needs depends on our ongoing ability to generate cash from existing and future collaborations
and from our ability to raise additional funds.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
We invest heavily in research and development. Research and development expenses were
our major operating expenses representing approximately 74% of total operating expenses in 2023, 2022 and 2021. Our research and development
expenses, net, were approximately $34.5 million in 2023, approximately $30.6 million in 2022 and approximately $28.7 million in 2021.
As of December 31, 2023, 46 of our employees were engaged in research and development on a full-time basis. This represents approximately
70% of our entire work force at that time.
We focus our efforts on the development of our discovery capabilities and related
technologies, and the discovery and validation of our drug targets and the preclinical and clinical development of the respective therapeutic
product. Our pipeline programs are continuously evolving and we are working to advance selected drug target programs through research
into preclinical and clinical development of therapeutic products. We expect that in 2024 our research and development expenses will continue
to be our major operating expense.
We believe that our future success will depend, in large part, on our ability to discover
promising drug target candidates and therapeutic product candidates and to successfully advance the research and development of certain
of our product candidates in our internal pipeline towards preclinical and clinical studies and to successfully enter into revenue-sharing
partnering agreements with pharmaceutical companies with respect to our product candidates at the various development stages. In addition,
we expect to continue to expand our discovery infrastructure and capabilities which provide us with the underlying engine for the discovery
of promising drug targets for our therapeutic pipeline.
Research and Development Grants
We have participated in programs offered by the IIA that support research and development
activities. See Note 7b to our 2023 consolidated financial statement. We have not applied for additional grants from the IIA for research
and technological development since 2012.
The Israel Innovation Authority
The government of Israel encourages research and development projects in Israel through
the IIA, pursuant to and subject to the provisions of the R&D Law. Under the R&D Law, research and development projects which
are approved by the Research Committee of the IIA are eligible for grants, in exchange for payment of royalties from revenues generated
by the products and/or services developed within the framework of such approved project and subject to compliance with certain requirements
and restrictions under the R&D Law as detailed below, which must generally continue to be complied with even following full repayment
of all IIA grants (as adjusted for fluctuation in the USD/NIS exchange rate), with applicable interest.
We received grants from the IIA for several projects and may receive additional grants
in the future. Under the terms of the grants received, we are required to pay royalties ranging between 3% to 5% of the revenues we generate
from our products and/or services which incorporate Financed Know-How, or IIA Products, until 100% of the dollar value of the grant is
repaid, plus, as follows: (i) with respect to grants received on or after January 1, 1999 and until December 31, 2023, the applicable
interest is (a) LIBOR interest until December 31, 2023, and (b) from January 1, 2024, the 12 months Term SOFR interest as published on
the first trading day of each year by CME Group, or by any other party authorized by the Federal Reserve, or in alternative publication
by the Bank of Israel, together with an additional 0.71513% to the applicable interest rate, and (ii) with respect to grants received
on or after January 1, 2024, the applicable interest shall be the 12 months Term SOFR interest as detailed in section (b) above.
As of December 31, 2023, we received grants from the IIA in the principal amount of approximately $7.3 million. Therefore, our contingent
obligation for royalties, net of royalties already paid or accrued in the sum of approximately $3.0 million, along with the accumulated
LIBOR interest to date of approximately $4.7 million, totaled to approximately $9.0 million as of December 31, 2023.
In addition, the Company participated in four MAGNET Consortium programs - Drugs and
Diagnostic Kits, or DAAT Consortium, Tevel Biotechnology Consortium, Pharmalogica Consortium and Rimonim Consortium – for which
it received from the IIA a total amount of approximately $2.1 million, and in two MAGNETON programs, for which it received from the IIA
approximately $0.5 million. These grants do not bear any royalty obligations, but as the R&D Law applies to these programs, the restrictions
on transfer of know-how or manufacturing outside of Israel, as detailed below, do apply. The R&D Law requires that the manufacture
of products which incorporate Financed Know-How will be carried out in Israel, unless the IIA provides its approval to the contrary. This
approval may be subject to various conditions, including the repayment of increased royalties equal to up to 300% of the total grant amount
plus applicable interest and an increase of 1% in the royalty rate, depending on the extent of the manufacturing that is to be conducted
outside of Israel. The R&D Law also provides that Financed Know-How and any right derived therefrom may not be transferred to third
parties, unless such transfer was approved in accordance with the R&D Law. The Research Committee operating under the IIA may approve
the transfer of Financed Know-How between Israeli entities, provided that the transferee undertakes all the obligations in connection
with the grant as prescribed under the R&D Law. In certain cases, the research committee may also approve a transfer of the Financed
Know-How outside of Israel, in both cases, subject to the receipt of certain payments calculated according to a formula set forth in the
R&D Law. In the case of transfer outside of Israel, a payment of up to 600% of the total amount of grants plus applicable interest;
and in the case the R&D activity related to the know-how remains in Israel, a payment of up to 300% of such total amount. These approvals
are not required for the sale or export of any products resulting from such R&D activity or based on such Financed Know-How. In addition,
the government of Israel may from time to time audit sales of products which it claims incorporate Financed Know-How and this may lead
to royalties being payable on additional products, and may subject such products to the restrictions and obligations specified hereunder.
Failure to comply with the requirements under the R&D Law may subject us to financial sanctions, to mandatory repayment of grants
received by us (together with interest and penalties), as well as expose us to criminal proceedings.
For a discussion regarding the effects of the grants we received from the IIA on our
business, see “Item 3. Key Information – D. Risk Factors - Risks Related to Operations in Israel - We
received grants from the IIA that may require us to payment of royalties and restrict the transfer of know-how that we develop.”
D. TREND INFORMATION
We are unable to predict with a reasonable degree of accuracy the outcome of our research
and development efforts. As such, it is not possible for us to predict with a reasonable degree of accuracy any material trends, uncertainties,
or other events that are reasonably likely to have a material effect on our net loss, liquidity or capital resources, or that would cause
financial information to not necessarily be indicative of our future operating results or our financial condition. However, subject to
such limitation, we did identify certain trends that may have an effect on us, some of which are as specified below, and as covered in
the risk factors set forth under “Item 3. Key Information - D. Risk Factors.”
Access to Additional Funds
Should we need to secure additional sources of liquidity, we believe that we could
finance our needs through the issuance of equity securities, including through our Sales Agreement with Leerink, debt securities or other
arrangements. However, we cannot guarantee that we will be able to obtain financing through the issuance of any of the above arrangements
on reasonable terms.
Unfavorable Global or Domestic Political or Economic Conditions
The global economy continues to experience significant volatility,
and the economic environment may continue to be, or become, less favorable than that of past years. Higher costs for goods and services,
inflation, deflation, the imposition of tariffs or other measures that create barriers to or increase the costs associated with international
trade, overall economic slowdown or recession and other economic factors in Israel, the U.S. or in any other markets in which we operate
could adversely affect our operations and operating results and can result in increased operations costs. On February 9, 2024, Moody’s
Investors Service, or Moody’s, downgraded the Government of Israel’s foreign-currency and local-currency issuer ratings to
A2 from A1 and assigned it a “negative” credit outlook. In addition, on February 13, 2024, Moody’s downgraded the deposit
ratings of Israel’s five largest banks to A3 from A2. While these downgrades do not have an immediate nor direct impact on us, an
extended period of economic disruption, including a continued market downfall, in Israel, the United States or any other major market
in which we or our partners operate, could materially affect our ability to secure additional funds and could further materially affect
our business, strategy, results of operations and financial condition.
To date, our operations and business have not been materially impacted
by the “Swards of Iron” war and the Russia and Ukraine conflict. However, the “Swards of Iron” war in Gaza and
the hostility around Israel and the ongoing Russia and Ukraine conflict and other global economic factors, have caused a negative impact
on the outlook for the global economy and created significant volatility and disruption of financial markets. In addition, the “Swards
of Iron” war in particular has a potential to have a greater effect for companies that have a significant presence in Israel. For
instance, the “Sward of Iron” war, may have an adverse effect on the Israeli social, economic and political landscape and
in turn, on us, and may cause, among other things, major devaluation in the NIS.Should any of these conflicts still persist or expand
to include additional countries or regions, we could be impacted. We will continue to assess global and regional conflicts and the situation
in the financial markets and any impact they may have on our ability to access additional funds.
Exchange Rate
A significant portion of our expenses is denominated in currencies other than the
dollar. The Company is therefore subject to non-U.S. currency risks and non-U.S. exchange exposure, especially the NIS. Exchange rates
can be volatile and a substantial change of foreign currencies against the dollar could increase or reduce the Company’s expenses
and net loss and impact the comparability of results from period to period. The appreciation (devaluation) of the dollar against the NIS
was 3.1%, 13.2% and (3.3%) in 2023, 2022 and 2021, respectively. For example, for the year ended December 31, 2023, assuming a 10% devaluation
of the dollar against the NIS, we would have experienced an increase in our net loss of approximately $1.4 million, while assuming a 10%
appreciation of the dollar against the NIS, we would experience a decrease in our net loss of approximately $1.1 million. Should Moody’s
or other financial rating firms further downgrade the Government of Israel’s foreign-currency and local-currency issuer ratings,
this could have a negative impact on the value of our NIS denominated holdings. For more information regarding exchange rate risk please
see “Item 11. Quantitative And Qualitative Disclosures About Market Risk – Interest Rate Risk.”
Interest rate
A significant portion of our cash and cash equivalents is invested in bank deposits
or in marketable securities and bear interest or yield that depend on the interest rate. The Company’s financial income is therefore
subject to interest rate risk. Interest rates can be volatile, and a substantial change in interest rates could increase or reduce the
Company’s financial income and net loss. In addition to the impact on our cash and cash equivalents, rising interest rates, or the
perception thereof, may have wide economic impacts, including an adverse impact on capital markets, the price of our shares and on supplies
that we require to conduct our different operations. For more information regarding interest rate risk please see “Item 11. Quantitative
And Qualitative Disclosures About Market Risk – Interest Rate Risk.”
Trend Towards Biologics
Biologics (monoclonal and bispecific antibodies, ADCs, enzymes and pegylated proteins)
represent one of the fastest growing segments in the drug industry, making up 31% of FDA approved drugs in 2023. The growth of this class
has driven a large number of companies to invest in new technologies (e.g., bi-specific monoclonal antibodies, multi-specific antibodies,
antibody fragments, T cell engagers) and new approaches to fully exploit the potential of this class. In addition, the striking efficacy
and recent approval ofcell therapies for the treatment of cancer, such as CAR-T therapies, has also captured much attention in the pharma
industry. The availability of such new technologies and approaches to address drug targets may increase the differentiation and attractiveness
of our novel therapeutic candidates.
E. CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements and other financial information
appearing in this Annual Report requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate on an on-going basis these estimates,
mainly related to share-based payments, deferred participation in research and development expenses, revenue recognition, and research
and development expenses.
We base our estimates on our experience and on various assumptions that we believe
are reasonable under the circumstances. The results of our estimates form the basis for our management’s judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
Share Based Payments
We account for stock-based compensation in accordance with ASC 718, “Compensation
- Stock Compensation”, or ASC 718, which requires companies to estimate the fair value of equity-based payment awards on the date
of grant using an option-pricing model. We account for forfeitures as they occur. The value of the pro-rata portion of the award, assuming
no forfeiture, is recognized in our consolidated statement of comprehensive loss as an expense over the requisite service periods. Upon
forfeiture the expense is adjusted so that expense is recognized for the portion of the award that actually vested.
We selected the Black-Scholes-Merthon option pricing model as the most appropriate
method for estimating the fair value of our share-based awards. The resulting cost of an equity incentive award is recognized as an expense
over the requisite service period of the award, which is usually the vesting period. We recognize compensation expense over the vesting
period using the straight-line method and classify these amounts in the consolidated financial statements based on the department to which
the related employee reports.
This model evaluates the options as if there is a single exercise point, and thus
considers expected option life (expected term). The input factored in this model is constant for the entire expected life of the option.
The determination of the grant date fair value is affected by estimates and assumptions
regarding a number of complex and subjective variables, including the expected term of the options, the expected volatility of our share
price over the expected term, risk-free interest rates and expected dividends. The computation of expected volatility is based on historical
volatility of our shares. The risk-free interest rate assumption is the implied yield currently available on United States treasury zero-coupon
issues with a remaining term equal to the expected life term of the options. We determined the expected life of the options based on historical
experience, representing the period of time that options granted are expected to be outstanding.
Share-based compensation expense recognized under ASC 718 was approximately $3.6 million,
$4.3 million and $4.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Revenue Recognition
Our revenues are generated mainly from collaborative and license agreements. In the
agreements, revenues are typically derived mainly from upfront payment and contingent payments related to milestone achievements.
The Company recognizes revenue in accordance with ASC 606 - “Revenue from Contracts
with Customers.”
As such, the Company analyzes its collaborative and license agreements to assess whether
they are within the scope of ASC 606. In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations
under each of its agreements, the Company performs the following five steps: (i) identification of the contract, or contracts, with a
customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation
of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when, or as, we satisfy a performance
obligation.
The consideration promised in a contract with a customer may include fixed amounts,
variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained.
We use assumptions to determine the standalone selling price of each performance obligation identified in the contract. We then allocate
the total transaction price to each performance obligation based on the estimated standalone selling prices of each performance obligation.
We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance
obligation is satisfied.
After contract inception, the transaction price is reassessed at every period end
and updated for changes such as resolution of uncertain events. Any change in the transaction price is allocated to the performance obligations
on the same basis as at contract inception.
In December 2020 the program under the exclusive license agreement with AstraZeneca
achieved a preclinical milestone and in September 2021, November 2022 and December 2023 such program achieved clinical milestones and
in connection with such milestones, we recognized revenues in an amount of $2 million, $6 million, $7.5 million and $10 million, in the
years 2020, 2021, 2022, and 2023, respectively, in accordance with the criteria prescribed under ASC 606. See Note 2k to our 2023 consolidated
financial statements.
In December 2023, following entrance into license agreement with Gilead, we assessed
the promises under the license agreement and concluded that its promise to deliver the COM503 License, the promise to perform IND research
and development activities and Phase 1 research and development activities represented separate performance obligations in the license
agreement.
We also evaluated as a possible variable consideration all milestones and royalties.
With respect to clinical development and regulatory milestones, we concluded that all such amounts should be fully constrained and are
not included in the initial transaction price. Accordingly, we did not include any potential clinical development, regulatory and sales
milestones and royalties in the initial transaction price.
We allocated the transaction price to each performance obligation on a relative estimated
standalone selling price basis. We developed the estimated standalone selling price for the license. In developing such an estimate, we
applied judgement in determining the timing needed to develop the licensed product, the probability of success, and the discount rate.
We developed the estimated standalone selling price for the IND research and development activities using a “cost plus” reasonable
margin approach. To determine the estimated standalone selling price of the Phase 1 research and development activities obligation, we
estimated the standalone selling price of the underlying performance obligations and estimated the probability of our performance of such
obligations.
We determined that the license granted was a functional license since the underlying
intellectual property has significant standalone functionality and recognized the entirety of the initial transaction price allocated
to the license performance obligation during the year ended December 31, 2023, in the amount of $23.5.
The IND research and development activities and Phase 1 research and development activities
performance obligations are recognized over time when, or as, we perform the required services. We determined that the input method under
ASC 606 is the best measure of progress towards satisfying the performance obligation and reflects a faithful depiction of the transfer
of goods and services. The method of measuring progress towards delivery of the services incorporates actual internal and external costs
incurred, relative to total internal and external costs expected to be incurred to satisfy the performance obligation. The period over
which total costs were estimated reflected our best estimate of the period over which it would perform the activities to achieve clearance
of an IND application and completion of the phase 1 clinical trial.
Research and Development Expenses
Research and development costs are charged to the statement of comprehensive loss
as incurred.
The Company accrues costs for preclinical and clinical trial activities based upon
estimates of the services received and related expenses incurred that have yet to be invoiced by the contract research organizations or
other preclinical or clinical trial vendors that perform the activities. In certain circumstances, the Company is required to make nonrefundable
advance payments to vendors for goods or services that will be received in the future for use in research and development activities.
In such circumstances, the nonrefundable advance payments are deferred and capitalized, even when there is no alternative future use for
the research and development, until related goods or services are provided. Payments made in advance of the performance of the related
services are recorded as prepaid expenses until the services are rendered.
The portion of the Bristol Myers Squibb $12.0 million investment in 2018 over the
fair market value of the shares issued in the amount of approximately $4.1 million and the portion of the Bristol Myers Squibb $20.0 million
investment in 2021 over the fair market value of the shares issued in the amount of $5.0 million were considered as deferred participation
of Bristol Myers Squibb in research and development expenses which was amortized over the period of the clinical trial based on the progress
in the research and development, in accordance with ASC 808 “Collaborative Arrangements”, see Note 1f and Note 8b to our 2023
consolidated financial statements.
Amortization of participation in research and development expenses for the years ended
December 31, 2023, 2022 and 2021 were approximately $0.3 million, $6.0 million and $1.3 million, respectively.
Recent Accounting Pronouncements
See Note 2t to our 2023 consolidated financial statement.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth information with respect to Compugen’s directors
and senior management as of February 20, 2024:
|
|
|
|
|
Paul Sekhri(3)
|
|
65 |
|
Chairman of the Board of Directors (Chairman of the Nomination and Corporate Governance Committee)
|
Anat Cohen-Dayag, Ph.D. |
|
57 |
|
President and Chief Executive Officer, Director |
Mathias Hukkelhoven, Ph.D. |
|
70 |
|
Director |
Gilead Halevy(2)
|
|
57 |
|
Director (Chairman of the Audit Committee) |
Kinneret Livnat Savitzky, Ph.D.(1)(3)
|
|
56 |
|
Director |
Eran Perry(1)(2)
|
|
53 |
|
Director |
Sanford (Sandy) Zweifach(1)(2)(3)
|
|
67 |
|
Director (Chairman of the Compensation Committee) |
Alberto Sessa |
|
61 |
|
Chief Financial Officer |
Henry Adewoye, MD(4)
|
|
59 |
|
Senior Vice President and Chief Medical Officer |
Zurit Levine, Ph.D. |
|
56 |
|
Senior Vice President, Technology Innovation |
Yaron Turpaz, Ph.D. |
|
53 |
|
Senior Vice President and Senior Advisor, Data and Informatics Solutions |
Eran Ophir, Ph.D. |
|
46 |
|
Chief Scientific Officer |
Pierre Ferre, Ph.D. |
|
47 |
|
Vice President, Preclinical Development |
(1) Member
of our Compensation Committee
(2) Member
of our Audit Committee
(3) Member
of our Nomination and Corporate Governance Committee
(4) Dr. Henry
Adewoye retired from his position on February 29, 2024.
Paul Sekhri joined Compugen’s Board of
Directors as its Chairman in October 2017. Mr. Sekhri serves as the President and Chief Executive Officer of vTv Therapeutics Inc. Prior
to joining vTv Therapeutics Inc., from January 2019 until April 2022, Mr. Sekhri served as the President and CEO of eGenesis, Inc. since
January 2019. Prior to joining eGenesis, Inc., Mr. Sekhri served as President and CEO of Lycera Corp. from February 2015 through December
2018. From April 2014 through January 2015, Mr. Sekhri served as Senior Vice President, Integrated Care for Sanofi. From May 2013 through
March 2014, Mr. Sekhri served as Group Executive Vice President, Global Business Development and Chief Strategy Officer for Teva Pharmaceutical
Industries Ltd. Prior to joining Teva, Mr. Sekhri spent five years as Operating Partner and Head of the Biotechnology Operating Group
at TPG Biotech, the life sciences venture capital arm of TPG Capital. From 2004 to 2009, Mr. Sekhri was Founder, President, and Chief
Executive Officer of Cerimon Pharmaceuticals, Inc. Prior to founding Cerimon, Mr. Sekhri was President and Chief Business Officer of ARIAD
Pharmaceuticals, Inc. Previously, Mr. Sekhri spent four years at Novartis, as Senior Vice President, and Head of Global Search and Evaluation,
Business Development and Licensing for Novartis Pharma AG. Mr. Sekhri also developed the Disease Area Strategy for Novartis, identifying
those specific therapeutic areas upon which the company would focus. Mr. Sekhri’s first role at Novartis was as Global Head, Early
Commercial Development. Mr. Sekhri completed graduate work in Neuroscience at the University of Maryland School of Medicine, where he
also received his BS in Zoology. Mr. Sekhri is currently a member of the Board of Directors of vTv Therapeutics Inc., eGenesis, Inc.,
Veeva Systems Inc., and Spring Discovery and Chairman of the Board of Directors of Longboard Pharmaceuticals, Inc. Additionally,
Mr. Sekhri is the Chairman of the Board of the Young Concert Artists (YCA), and a member of Boards of The Metropolitan Opera. Mr. Sekhri
is also an active member of the Patrons Council of Carnegie Hall, where he established the Life Sciences Council of Carnegie Hall.
Anat Cohen-Dayag, Ph.D. joined Compugen’s
Board of Directors in February 2014. Dr. Anat Cohen-Dayag has over 25 years of experience in the biotech industry, both in R&D and
executive leadership roles. Anat joined Compugen in 2002, and has held various senior managerial positions, including VP R&D, before
being appointed President and CEO in 2010. Under her leadership, Compugen transformed from a service provider in the field of computational
biology to a therapeutic discovery and development company advancing an innovative immuno-oncology pipeline originating from the company’s
computational discovery platforms. Anat is also a member of the Board of Directors of Pyxis Ltd. Prior to Compugen, Anat was the Head
of R&D and was a member of the executive management team of Mindsense Biosystems Ltd. Anat holds a B.Sc. in Biology from Ben-Gurion
University, and an M.Sc. in Chemical Immunology and a Ph.D. in Cellular Biology, both from the Weizmann Institute of Science.
Dr. Mathias (Math) Hukkelhoven joined Compugen’s
Board of Directors in March 2022. Dr. Hukkelhoven has a wealth of experience in global regulatory affairs and drug development, evidenced
by his contribution to more than 50 NCEs and hundreds of new indications and line extensions over his career to date. Dr. Hukkelhoven
has participated in activities that have shaped health authority interactions for the industry, including serving as chairperson of the
Regulatory Affairs Coordinating Committee at PhRMA, and recently as a PhRMA negotiator for the PDUFA VII negotiations with the FDA. Since
his retirement from Bristol Myers Squibb in July 2021, Math has been a consultant for several biotech companies, R&D Strategy Advisor
for LianBio and Senior Advisor for McKinsey and on July 1, 2022 he joined the Board of Directors of Centessa Pharmaceuticals plc. Math
joined Bristol Myers Squibb in March 2010 as the Senior Vice President, Global Regulatory, Safety & Biometrics and was also responsible
for the R&D group in BMS China and the Clinical Pharmacology and Pharmacometrics group. As such, he had responsibility for a large
part of the global Bristol Myers Squibb development organization. Since the acquisition of Celgene by Bristol Myers Squibb, he was responsible
for Global Regulatory and Safety Sciences at Bristol Myers Squibb. He was accountable for setting regulatory strategy and driving execution
of global regulatory and pharmacovigilance plans for Bristol Myers Squibb. He led the regulatory and development efforts across the product
development and commercialization process to ensure optimal regulatory strategy and interactions at each step of the process – research
and development, manufacturing, and commercialization. Prior to joining Bristol Myers Squibb, Math held the role of Chairman Portfolio
Stewardship Board at Novartis Pharmaceuticals. From 2001 to 2009, he was the Senior Vice President, Global Head Drug Regulatory Affairs
at Novartis. Math received his B.S. and Ph.D. honors degrees in Biology and Biochemistry from the University of Nijmegen, the Netherlands.
Gilead Halevy joined Compugen’s Board
of Directors in June 2018. Mr. Halevy serves as a general partner of Kedma Capital Partners, a leading Israeli private equity fund, of
which he is also a founding member, since 2006. Prior to establishing Kedma, Mr. Halevy served as a Director at Giza Venture Capital from
2001 to 2006, where he led investments in communication and information technology companies and directed Giza’s European business
activities. From 1998 to 2001, Mr. Halevy practiced law at White & Case LLP. Mr. Halevy was also a founding member of the White &
Case Israel practice group during that time. Mr. Halevy currently serves as chairman of board of directors of Carmel Wineries; Continuity
Software Ltd., Zriha Hlavin Industries Ltd. and a director of S. AL Holdings Ltd., Plas-Fit Ltd. and A.A. Politiv Ltd. Mr. Halevy holds
a B.A. in Humanities (multidisciplinary program for exceptional students) and an LL.B. (Magna Cum Laude) both from the Hebrew University
of Jerusalem.
Dr. Kinneret Livnat Savitzky joined Compugen’s
Board of Directors in June 2018. Dr. Livnat Savitzky currently serves as an entrepreneur in residence at Team8 Dr. Livnat Savitzky also
serves on the boards of the following biotechnology or healthcare companies: Ramot (TTO of Tel-Aviv University), DreaMed Diabetes Ltd.,
and Biomica Ltd. Between 2017 and 2021 she served as the CEO of FutuRx Ltd., an Israeli biotechnology accelerator established by OrbiMed
Israel Partners, Johnson & Johnson Innovation, Takeda Ventures Inc., and LEAPS, the venture arm of Bayer. From 2010 to 2016, Dr. Livnat
Savitzky served as CEO of BioLineRX Ltd., a Nasdaq-listed drug development company focused on oncology and immunology. During her tenure,
BioLineRX signed a strategic collaboration with Novartis as well as licensing agreements with Merck (MSD), Genentech and others. Prior
to being appointed CEO of BioLineRX, Dr. Livnat Savitzky held various R&D management positions at BioLineRX and Compugen. Dr. Livnat
Savitzky holds a B.Sc. in Biology from The Hebrew University of Jerusalem, and an M.S.c and Ph.D. with distinction in Human Genetics from
Tel Aviv University.
Eran Perry joined Compugen’s Board of
Directors in July 2019. Eran Perry brings to Compugen over 20 years of diverse experience across various segments of the healthcare industry
as an entrepreneur and venture capital investor as well as in general management and strategy. In 2018, Mr. Perry co-founded MII
Fund & Labs, a dermatology-focused venture capital fund where he also serves as Managing Director and Chairman of the Investment Committee.
Mr. Perry is also the co-founder and board member of several pharmaceutical companies including ICD Pharma, Seanergy Dermatology, Follicle
Pharma and Upstream Bio. Mr. Perry also serves on the board of directors of MyBiotics Pharma and Noon Aesthetics. From 2006 to 2016, he
served as Managing Director and Partner of Israel Healthcare Ventures (IHCV) and represented IHCV in numerous portfolio companies. Prior
to IHCV, Mr. Perry was a consultant in McKinsey & Company, serving clients worldwide in the pharmaceutical industry, among others.
Prior to that, he was a member of the Global Marketing group at Novartis Oncology. Before moving to the private sector, Mr. Perry
served in the Israeli Ministry of Justice. Mr. Perry holds an MBA from Columbia University, and an LL.B. in Law and a B.Sc. in Mathematics
and Computer Science, both from Tel Aviv University.
Sanford (Sandy) Zweifach joined Compugen’s
Board of Directors in June 2018. Mr. Zweifach is the Founder of Nuvelution Pharma, Inc. and since 2015 through 2019 was the Chief Executive
Officer of Nuvelution Pharma, Inc. From 2010 to 2015, Mr. Zweifach served as CEO of Ascendancy Healthcare, Inc., which he also founded.
He has also been a Partner at Reedland Capital Partners, a boutique investment bank, from 2005 to 2010, where he headed its life sciences
M&A and advisory efforts. From 2003 to 2005, he was CEO of Pathways Diagnostics, a biomarker development company. Mr. Zweifach was
a Managing Director/CFO of Bay City Capital, a venture capital/merchant banking firm, specializing in the biotech and the life science
industry, where he was responsible for oversight of the firm’s finance department, as well as President of the firm’s M&A
and financing division. Prior to this, he was President and CFO of Epoch Biosciences, which was acquired by Nanogen in 2004. Currently
Mr. Zweifach serves as an Executive Chairman of the Board of Directors of Kaerus Bioscience, Chairman of the Board of Directors of Carisma
Therapeutics, Inc., President, CBO and Chair of the Business Advisory Board of IMIDomics, S.L. and as a member of the Board of Directors
of Essa Pharma, Inc. Earlier in his career, Mr. Zweifach was a Certified Public Accountant (US) for Coopers & Lybrand and held various
investment banking positions focusing on biotech. He received his B.A. in Biology from UC San Diego and an M.S. in Human Physiology from
UC Davis.
Alberto Sessa joined Compugen in November 2022
as Chief Financial Officer. Alberto brings more than 30 years of industry experience to Compugen by serving in public and private companies.
Throughout his career he has gained vast experience in leading financing, investor relations, M&A, and business development transactions.
He most recently served as acting CFO at several startup companies in the high-tech industry. Prior to this, as CFO at Nasdaq and TASE
listed Allot, he was instrumental in helping turn around the company to reach a path of sustained growth. Previously, Alberto spent seven
years as Worldwide Group CFO at Nasdaq listed Amdocs with responsibility for the global financial business activities. Alberto holds a
Master of Business Administration and bachelor’s in economics and statistics from the Hebrew University of Jerusalem.
Dr. Henry Adewoye joined Compugen in March
2018 as Chief Medical Officer, bringing to Compugen over 20 years of extensive experience in leading multiple clinical trials in Oncology
and Hematology in both the biopharmaceutical industry and academia. Before Compugen, Dr. Adewoye was with Gilead Sciences Inc., as Clinical
Director in Oncology Clinical Research and was on the Oncology Leadership Team. He most recently served as Project Team and Clinical Lead
for Idelalisib (first-in-class PI3K delta inhibitor approved for the treatment of relapsed CLL, FL/SLL) and Andecaliximab (MMP9 mAb inhibitor).
Previously, he was Clinical Research Medical Director in Oncology at Amgen Inc. Dr. Adewoye was the Global Medical Monitor for the initial
registrational trial of the bi-specific antibody blinatumomab (Blincyto®) and several Phase 2 and 3 studies evaluating VEGF inhibitors
(Motesanib, Trebananib) in patients with solid tumors. Dr. Adewoye completed his fellowship in Hematology/Oncology at Boston Medical Center
and completed his residency in Internal Medicine at Meharry Medical College. Dr. Adewoye received his medical degree at the University
of Jos, Nigeria and Fellowship training in Hematology and Laboratory medicine at the University College Hospital Ibadan, Nigeria. Dr.
Adewoye has initial board certifications by the American Board of Internal Medicine in Medical Oncology, Hematology and Internal Medicine.
Zurit Levine, Ph.D. was appointed as Senior
Vice President, Technology Innovation in 2018, responsible for leading and advancing the Company’s computational innovation towards
new discovery fields and areas. In this capacity, Dr. Levine is also responsible for the Company’s IP strategy and portfolio. Dr.
Levine joined Compugen in 1999 and has held several positions in Compugen’s Research & Development department. In 2004, she
was appointed Director of Therapeutic Selection & Validation, which position she held until 2007 when she was appointed Director of
Therapeutic Discovery. In 2009, she was appointed Executive Director of Research & Development. From January 2010 to August 2011,
she held the position of Vice President, Research and Development. In August 2011 she was appointed Vice President, Research and Discovery.
Dr. Levine holds a B.Sc. in Biology, a M.Sc. in Biochemistry and a Ph.D. in Biochemistry, all from the Tel Aviv University, Israel.
Yaron Turpaz, Ph.D. was appointed as Senior
Vice President and Senior Advisor, Data and Informatics Solutions in May 2023. In his role, Dr. Turpaz is responsible for the overall
data flow inside and outside the organization. Dr. Turpaz supports the Computational Discovery unit in the ongoing development of the
computational platforms, and also oversees the establishment of systems for data analytics across the organization. Dr. Turpaz joined
Compugen in November 2019 as Senior Vice President and Senior Advisor, Computational Discovery. Dr. Turpaz has over 15 years of experience
in the fields of research and development informatics, data sciences and technology in the biotech and pharma space with hands-on experience
using cloud-based high throughput computational, machine learning and genomics platforms for drug discovery and development applications
in precision medicine. In his extensive pharma and biotech career, he held senior R&D Informatics roles at Human Longevity, AstraZeneca,
Eli Lilly, Global Gene Corp. and Affymetrix. Dr. Turpaz continues to serve as Chief Information Officer and Senior Advisor at Engine Biosciences.
Dr. Turpaz received a B.Sc. in Biology from Tel Aviv University, a Ph.D. in Bioengineering from the University of Illinois and an MBA
from the University of Chicago, Booth School of Business. He also held an Adjunct Assistant Professor position at the Centre for Quantitative
Medicine of Duke-National University of Singapore, Graduate Medical School.
Eran Ophir, Ph.D. joined Compugen in 2015 and
was appointed Vice President of Research and Drug Discovery in March 2020 and became a Senior Vice President, Research and Drug Discovery
in March 2022 and Chief Scientific Officer in May 2023. In his role, Dr. Ophir is overseeing the Company’s computational discovery
and the research and drug discovery activities and is responsible for the scientific, translational medicine and biomarker strategy of
the Company’s innovative portfolio of product candidates. Dr. Ophir brings significant expertise in immunology and immuno-oncology
from his research work at the Weizmann Institute of Science and the Ludwig Institute for Cancer Research in Lausanne, Switzerland. Dr.
Ophir joined Compugen as a senior scientist and has since held various positions in the Research and Development department, with increasing
responsibilities, including appointment to the management team in March 2020. Dr. Ophir received a B.Sc. in Bioinformatics from Tel Aviv
University and a Ph.D. in Biology from the Weizmann Institute of Science.
Pierre Ferre, Ph.D. joined Compugen in April
2021 as Vice President Preclinical Development. In his role, Dr. Ferre leads the preclinical development, CMC and drug supply management,
clinical biomarker operations, and project management team and activities across the Company. Dr. Ferre has two decades of experience
in all aspects of clinical and non-clinical drug development in oncology and immuno-oncology. Dr. Ferre joined Compugen from Pierre Fabre
Pharmaceuticals, France, where he spent most of his career in multiple positions, lastly as Director of Oncology Programs in which he
led the development strategy of a portfolio of R&D programs in oncology from initiation and discovery, through preclinical and clinical
development. Previously, at Pierre Fabre Oncology R&D, he acted as Director, Pharmacokinetics/Pharmacodynamics, overseeing also translational,
biomarker-related activities. Before that Dr. Ferre was in charge of oncology preclinical pharmacokinetics. Dr. Ferre is a Doctor in Veterinary
Medicine, holds a PhD in biology from Toulouse INP (Institut National Polytechnique), and a MSc from Aix-Marseille University and Paris
INA-PG (Institut National Agronomique) for his research work conducted in experimental pathophysiology and toxicology.
Arrangements Involving Directors and Senior Management
There are no arrangements or understandings of which we are aware relating to the
election of our directors or the appointment of executive officers in our Company. In addition, there are no family relationships among
any of the individuals listed in this Item 6.A.
B. COMPENSATION
Aggregate Executive Compensation
During 2023, the aggregate compensation paid or accrued by us to all persons listed
in Item 6.A above (Directors and Senior Management) and one member of senior management (Dr. Oliver Froescheis) who ceased to serve before
the end of 2023, was approximately $5.4 million. This amount includes approximately $0.6 million set aside or accrued to provide pension,
severance, retirement or similar benefits, but excludes expenses (including business travel, professional and business association dues
and expenses) reimbursed to our executives and other fringe benefits commonly reimbursed or paid by companies in Israel.
During 2023, we granted to our Directors and Senior Management listed in Item 6.A
a total of 690,000 options to purchase ordinary shares. These options are exercisable at an average exercise price of $1.30 per share,
and generally expire ten years after their respective dates of grant. As of December 31, 2023, there were a total of 4,506,624 outstanding
options to purchase ordinary shares that were held by our Directors and Senior Management listed in Item 6.A.
Individual Compensation of Covered Office Holders
The table below outlines the compensation granted to our five most highly compensated
Office Holders (as such term is defined in the Companies Law - see below under “Approvals Required for Office Holders Terms of Employment”)
with respect to the year ended December 31, 2023. All amounts reported in the table reflect the cost to the Company, as recognized
in our financial statements for the year ended December 31, 2023. We refer to the five individuals for whom disclosure is provided
herein as our “Covered Office Holders”.
Information Regarding the Covered Office Holders |
|
Compensation for Services(2)
|
|
Name and Principal Position(1)
|
|
Base Salary ($) |
|
|
Benefits and
Perquisites ($)(3)
|
|
|
Stock-Based Compensation ($) (4)
|
|
|
Total ($) |
|
Dr. Anat Cohen-Dayag
President & Chief Executive Officer |
|
|
479,234 |
|
|
|
461,150 |
|
|
|
524,064 |
|
|
|
1,464,448 |
|
Dr. Henry Adewoye
Senior Vice President and Chief Medical Officer |
|
|
425,000 |
|
|
|
131,067 |
|
|
|
271,502 |
|
|
|
827,569 |
|
Dr. Pierre Ferre
Vice President, Preclinical Development |
|
|
211,521 |
|
|
|
238,439 |
|
|
|
120,440 |
|
|
|
570,400 |
|
Dr. Eran Ophir
Senior Vice President, Research and Drug Discovery |
|
|
195,677 |
|
|
|
161,131 |
|
|
|
183,835 |
|
|
|
540,643 |
|
Dr. Zurit Levine
Senior VP, Technology Innovations |
|
|
188,631 |
|
|
|
167,207 |
|
|
|
176,426 |
|
|
|
532,264 |
|
|
1) |
All Covered Office Holders listed in the table were full-time officers of the Company during their term of service in 2023.
|
|
2) |
Cash compensation amounts denominated in currencies other than the dollar were converted into dollars at an exchange rate of NIS
3.6897= $1.00, which reflects the average conversion rate for 2023, or the Representative Rate. |
|
3) |
Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites
may include, to the extent applicable to the respective Covered Office Holder, bonuses, payments, contributions and/or allocations for
savings funds, pension, severance, vacation, car or car allowance, medical insurances and benefits, risk insurance (e.g., life, disability,
accident), phone, convalescence pay, payments for social security, tax gross-up payments and other benefits and perquisites consistent
with the Company’s policies. |
|
4) |
Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2023,
with respect to options to purchase our ordinary shares granted to our Covered Office Holders. Assumptions and key variables used in the
calculation of such amounts are discussed in Note 2o to our 2023 consolidated financial statements set forth elsewhere in this report.
|
Compensation Policy
Under the Companies Law we are required to adopt a compensation policy, which sets
forth company’s policy regarding the terms of office and employment of office holders, including compensation, equity awards, severance
and other benefits, exemption from liability and indemnification. Such compensation policy should take into account, among other things,
the provision of proper incentives to directors and officers, management of risks by the company, the officer’s contribution to
achieving corporate objectives and increasing profits, and the function of the officer or director.
Our compensation policy, or the Compensation Policy, is designed to balance between
the importance of incentivizing office holders to reach personal targets and the need to assure that the overall compensation meets our
Company’s long-term strategic performance and financial objectives. The Compensation Policy provides our compensation committee
and our board of directors with adequate measures and flexibility to tailor each of our office holder’s compensation package based,
among other matters, on geography, tasks, role, seniority and capability. Moreover, the Compensation Policy is intended to motivate our
office holders to achieve ongoing targeted results in addition to high-level business performance in the long term, without encouraging
excessive risk taking. The Company draws upon a pool of talent that is highly sought after by large and established global pharmaceutical
and biotechnology companies, as well as by other development-stage life science companies which operate both within and outside of the
Company’s geographic areas. The Company believes that it therefore must offer compensation terms, both to its executives and to
its directors that are competitive with the compensation standards that exist in the companies with whom it competes for such talents.
In accordance with the Companies Law, an Israeli public company’s compensation
policy and any amendments thereto must be approved by the board of directors, after considering the recommendations of the compensation
committee, and by a special majority of our shareholders, or a Special Majority, which should include (i) at least a majority of 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 non-controlling shareholders and shareholders who do not have a personal interest in the matter who were present and voted
against the matter hold two percent or less of the voting power of the company. The compensation policy must be reviewed from time to
time by the board and must be re-approved or amended by the board of directors and the shareholders no less than every three years. If
the compensation policy is not approved by the shareholders, the compensation committee and the board of directors may nonetheless approve
the policy, following further discussion of the matter and for detailed reasons.
Our Compensation Policy for office holders was originally approved by our shareholders
in September 2013, with the most recent amendment adopted at the 2023 Annual General Meeting of Shareholders held on September 20, 2023,
or the 2023 AGM.
Approvals Required for Office Holders Terms of Employment
The term “Office Holder” as defined in the Companies Law includes a director,
the chief executive officer, chief business manager, deputy chief executive officer, vice chief executive officer, any other person fulfilling
or assuming any of the foregoing positions without regard to such person’s title, and any manager who is directly subordinated to
the chief executive officer. In addition to each person listed in the table under “Item 6. Directors, Senior Management and Employees
- A. Directors and Senior Management”, two other individuals have been Office Holders as of December 31, 2023.
“Terms of Office and Employment” means the terms of office and employment
of our Office Holders, including exemption and release of the Office Holder from liability for breach of his or her duty of care to the
Company, an undertaking to indemnify the Office Holder, post factum indemnification or insurance; any grant, payment, remuneration, compensation,
or other benefit provided in connection with termination of service and any benefit, other payment or undertaking to provide any payment
as aforesaid.
Compensation for Office Holders subordinated to the
Chief Executive Officer. The terms of office and employment of Office Holders (other than directors and the chief executive officer)
require the approval of the compensation committee and the board of directors, provided such terms are in accordance with the company’s
compensation policy. Shareholder approval is also required if the compensation of such officer is not in accordance with such policy.
However, in special circumstances the compensation committee and then the board of directors may nonetheless approve such compensation
even if such compensation was not approved by the shareholders, following a further discussion and for detailed reasoning.
Compensation for Office Holders who are Directors
or Chief Executive Officers. The Terms of Office and Employment of directors, other than directors who serve as chief executive
officers and/or who possess a controlling interest in a company or who are external directors (to the extent applicable), require the
approval of the compensation committee, board of directors and shareholders by a simple majority, as long as it complies with the compensation
policy. With respect to our president and chief executive officer, who is also a director, or with respect to any chief executive officer
who is not a director (to the extent applicable in the future), further approval of the shareholders by the Special Majority is required.
However: (A) under certain circumstances, and to the extent that the proposed Terms of Office and Employment are in compliance with the
compensation policy, a company may be exempt from receiving shareholder approval with respect to the Terms of Office and Employment of
a candidate for the position of chief executive officer (provided that the candidate is not a director) (i) provided that the company’s
compensation committee and board of directors approved such terms and that such terms: (a) are not more beneficial than the terms of the
former chief executive officer, or are essentially the same in their effect; (b) are in line with the compensation policy; and (c) are
brought for shareholder approval at the next general meeting of shareholders; and (B) a company’s compensation committee and board
of directors are permitted to approve Terms of Office and Employment of a director, without convening a general meeting of shareholders,
provided that such terms are only beneficial to the Company or that such terms are in compliance with the terms set forth in the Israeli
Companies Regulations (Rules Regarding Compensation and Expenses of External Directors), 2000, or the Compensation Regulations. To the
extent applicable, external directors are entitled to Terms of Office and Employment as set forth in the Compensation Regulations, as
supplemented by the Israeli Companies Regulations (Alleviation for Public Companies whose shares are Traded on the Stock Exchange Outside
of Israel), 2000, or the Alleviation Regulations. In addition, the Israel Securities Authority may issue from time to time bulletins or
staff position statements relating to, among other things, compensation payable to external directors. Since our board of directors determined
to opt out of the requirement to elect and have external directors and composition criteria of the audit committee and compensation committee
under the Companies Law pursuant to the relief available under the Alleviation Regulations, as further detailed in this Item below under
“Board Practices - External Directors and Independent Directors Under the Companies Law”, we are not subject to such bulletins
or staff position statements.
Variable Compensation and Annual Cash Bonuses of
Office Holders. The Companies Law requires that all variable compensation of directors and chief executive officers be based on
measurable criteria, with the exception of a non-substantial portion of up to 3 monthly salaries, which should take into consideration
the applicable Office Holder’s contribution to the company. With respect to Office Holders who are not directors or chief executive
officers, the Companies Law allows that 100% of the variable compensation be based on non-measurable criteria. Our Compensation Policy
allows for a non-substantial portion of up to 20% of the bonus objectives for each year to be based on non-measurable criteria, provided,
however, that with respect to (i) our Office Holders who are not directors nor our chief executive officer, our compensation committee
and board of directors may increase the portion of targets based on non-measurable criteria above the rate of 20%, up to 50% and with
respect to our chief executive officer, our compensation committee and board of directors may increase the portion of targets based on
non-measurable criteria for up to three (3) monthly base salaries. Further, the annual cash bonus of each of our Office Holders who is
not a director is determined according to a formula that is consistent with the Compensation Policy and that links the bonus payment score
to measurable and qualitative objectives relating to both the Company’s performance and to the performance by each such Office Holder
of his responsibilities. In the case of our Office Holders, other than the chief executive officer, assuming that the bonus terms conform
to the Compensation Policy, the annual bonus objectives and subsequent payment scores are determined by the compensation committee and
board of directors, while the bonus terms for our chief executive officer generally require the additional approval by our shareholders.
For each fiscal year, our board of directors determines the maximum target bonus for each of our Office Holders, including our chief executive
officer.
Compensation Paid to our Non-Executive Directors (other than Mr.
Paul Sekhri)
On August 6, 2018, our shareholders approved, following previous resolutions made
by our audit committee (then sitting as a compensation committee) and the board of directors, and consistent with our Compensation Policy,
to compensate each of our non-executive directors whether currently in office or appointed in the future, excluding the Chairman of the
Board (each a “non-executive director”) as follows:
Cash Fee
(i) an annual fee of $45,000; and
(ii) an additional annual amount to be paid to non-executive directors
for service as members on each of the Company’s committees, as follows:
|
(a) |
Audit Committee - $2,500 for a member, or $5,000 for the chairperson; |
|
(b) |
Compensation Committee - $2,000 for a member, or $4,000 for the chairperson; and |
|
(c) |
Nomination and Governance Committee - $1,000 for a member, or $3,000 for the chairperson. |
No additional compensation shall be paid for attendance at a board or committee meeting.
VAT is added to the above compensation in accordance with applicable law.
Equity
In addition to the cash compensation detailed above, each non-executive director is
entitled to a yearly grant of options to purchase the Company’s ordinary shares, so that in the first year of service as a director,
each non-executive director shall be entitled to a one-time grant of 35,000 options, or Initial Option Grant, and, in addition, to a yearly
grant of 10,000 options in each of the following years of service, or the Annual Option Grant, as detailed below.
The grant date of each Initial Option Grant is the date of appointment for service
as director, whether initially appointed by the Board or by the general meeting of shareholders, with an exercise price equal to the closing
price of the Company’s ordinary shares on the Nasdaq on the last trading day prior to the date of their initial appointment to serve
on the Board. The grant date of each Annual Option Grant shall be such date in each year on which the Board approves the annual option
grants to other management Office Holders (provided that the service as director continues at the time of each grant), with an exercise
price equal to the closing price of the Company’s ordinary shares on the Nasdaq on the last trading day prior to such Board approval.
Both the Initial and the Annual Option Grants are subject (other than as described
herein) to the terms and conditions of the 2010 Plan, or any other equity-based incentive plan the Company may adopt in the future and
pursuant to which these equity awards would be granted. All such grants vest over a four-year period as follows: twenty five percent (25%)
of the options granted vest on the first day of the quarter one calendar year immediately following the quarter in which the options were
granted; and an additional 6.25% of the options granted vest each quarter thereafter, for the next 36 months.
Notwithstanding the terms of the relevant plan, all options granted to non-executive
directors become fully vested immediately upon the completion of one or more of the following events, whether by way of a consolidation,
merger or reorganization of the Company or otherwise: (a) a sale of all or substantially all of Company’s issued share capital or
assets to any other company, entity, person or a group of persons, or (b) the acquisition of more than 50% of the Company’s equity
or voting power by any shareholder or group of shareholders. Further, notwithstanding the terms of the relevant plan, all options granted
which shall be vested as of the date of final termination of office as a non-executive director of the Company may be exercised within
one year following such termination of office. To the extent legally available and applicable, such options will be granted to the non-executive
directors through a trustee under Section 102 of the Israel Income Tax Ordinance [New Version], 5721-1961, or the Tax Ordinance, under
the capital gains route.
At the Company’s Annual General Meeting of Shareholders for 2020, held on September
16, 2020, or the 2020 AGM, our shareholders approved, following previous resolutions made by our compensation committee and the board
of directors, and consistent with our Compensation Policy, that instead of an Annual Option Grant, the compensation committee and the
board may issue to all non-executive directors RSUs or other equity awards which are not options, or Other Equity, in which case
the Annual Option Grant of 10,000 options shall be adjusted to 5,000 units of Other Equity awards, provided, that with respect to
an annual equity grant that combines both types of equity awards (i.e., options and Other Equity),
such grant shall be adjusted, on a pro rata basis, to give effect to the relative portion of each type of equity awarded (for
illustration purposes, if the compensation committee and board approve the grant of 4,000 RSUs to the non-executive directors, the relevant annual
equity grant will be comprised of a total of 6,000 units, out of which 4,000 will be RSUs and 2,000 will be options).
The provisions relating to vesting, acceleration and exercise period applicable to
options, as specified above, shall apply to Other Equity that may be granted, mutatis mutandis.
Compensation to the Company’s Chairman of the Board of Directors,
a Non-Executive Director
On October 19, 2017, our shareholders approved, following previous resolutions made
by our audit committee (then sitting as a compensation committee) and the board of directors, and consistent with our Compensation Policy,
the following compensation for our non-executive Chairman of the Board, Mr. Paul Sekhri:
Cash Fees: An annual cash fee in the amount
of $150,000. No meeting fees will be paid in addition to such annual cash fee.
Grant of Options to Purchase Ordinary Shares:
In connection with his appointment as the Chairman of the Board, we issued to Mr. Sekhri an initial grant of options to purchase 500,000
ordinary shares. These options were issued pursuant to the terms and conditions applicable to options granted under the Company’s
2010 Option Plan. Such grant vested over a four-year period as follows: twenty five percent (25%) vested on the first day of the quarter
one calendar year immediately following the quarter in which the options were granted; and an additional 6.25% vested each quarter thereafter
for the next 36 months. These options will expire ten years after the grant date, unless they expire earlier in accordance with the terms
of the Company’s 2010 Option Plan. The acceleration provisions applicable to options granted to other non-executive directors also
apply to the options granted to Mr. Sekhri and all options granted which shall be vested as of the date of final termination of office
as a director of the Company may be exercised within one year following such termination date.
At the 2020 AGM, our shareholders approved, following previous resolutions made by
our compensation committee and the board of directors, and consistent with our Compensation Policy, that Mr. Sekhri, in his role as the
non-executive chairman of the Board, shall be entitled to an annual option grant of 10,000 options to purchase Ordinary Shares each year,
or Chairman’s Annual Option Grant, starting from 2020 and for each of the following years of service, similar to the terms of the
Annual Option Grant to the other non-executive directors as specified above.
As approved for the other non-executive directors, instead of Chairman’s Annual
Option Grant, the compensation committee and the board may issue to Mr. Sekhri Other Equity, in which case the Chairman’s Annual
Option Grant of 10,000 options shall be adjusted to 5,000 units of Other Equity awards, provided, that with respect to an annual
equity grant that combines both types of equity awards, such grant shall be adjusted, on a pro rata basis, to give effect to
the relative portion of each type of equity awarded as specified above with respect to other non-executive directors.
The provisions relating to vesting, acceleration and exercise period applicable to
the options, as specified above, shall apply to Other Equity that may be granted as set forth above, mutatis
mutandis.
Compensation to our President and Chief Executive Officer
Pursuant to Dr. Anat Cohen-Dayag’s employment agreement (and in accordance
with the approval of her updated compensation terms at the 2023 AGM), as the chief executive officer of the Company she is entitled to
a gross monthly salary of NIS 150,000 (approximately $40,650 according to the Representative Rate). Dr. Cohen-Dayag is also entitled to
certain benefits and perquisites customary in Israel, including those mandated by applicable law. In addition, Dr. Anat Cohen-Dayag is
eligible for an annual grant of equity-based compensation and to an annual cash bonus based upon achievement of objectives determined
by the Company, both subject to receipt of all approvals required by applicable law and to the terms of our Compensation Policy.
At the 2020 AGM, our shareholders approved that Dr. Cohen-Dayag shall be eligible
to receive an annual cash bonus of up to nine monthly salaries for each of the calendar years 2021, 2022 and 2023, without the need for
further shareholder approval, subject to meeting the specific performance criteria determined by the compensation committee and board
with respect to each such year, in accordance with the objectives and terms thereof and the continuous employment of Dr. Cohen-Dayag as
the Company’s chief executive officer through the last day of the calendar year with respect to which the annual cash bonus is proposed
to be paid. The same terms were approved at the 2023 AGM with respect to the calendar years 2024, 2025 and 2026.
Additionally, at the 2023 AGM, our shareholders approved an annual equity grant plan
for Dr. Cohen-Dayag for each of the calendar years 2024, 2025 and 2026, according to which Dr. Cohen-Dayag shall be granted options to
purchase up to 300,000 Ordinary Shares, or Equity Framework, in each of these years, as shall be determined by the compensation committee
and board of directors with respect to each such year. In order to align such grants (including the exercise price and vesting period)
with the annual grant of options to other executive Office Holders (for whom shareholder approval is not required), our shareholders resolved
that the annual grant to Dr. Cohen-Dayag will be made on such date in 2024, 2025 and 2026 on which the board of directors approves the
respective year’s annual option grants to management Office Holders in such year.
The compensation committee and the board of directors may nevertheless determine that
as part of an annual equity grant, they wish to issue Dr. Cohen-Dayag Other Equity. For the purpose of demining the applicability
of the Equity Framework to Other Equity, Other Equity shall be given a “double weight” relative to options, so that each unit
of Other Equity will be equal to two (2) option units. For illustration purposes, if the compensation committee and board of directors
approve an annual equity grant to Dr. Cohen-Dayag of 40,000 options and 30,000 RSUs, then for the purpose of determining whether such
grant is within the Equity Framework, the 30,000 RSUs will be given a weight of 60,000 units and the 40,000 options will be counted as
40,000 units, comprising an aggregate of 100,000 units which is within the Equity Framework. In any event, at least 30% of the value of
any annual equity grant to Dr. Cohen-Dayag shall be based on either (i) options granted with fair market value exercise price; or (ii)
Other Equity which vesting is based on both time and performance criteria, as shall be determined by the compensation committee and board
of directors.
The options granted in each respective year shall be subject to the terms and conditions
applicable to options granted under the 2010 Plan (or any other option plan adopted by the Company). Each annual option grant will vest
over a four-year period as follows: twenty five percent (25%) will vest on the last day of the quarter one calendar year from the date
of grant; and an additional 6.25% will vest each quarter thereafter for the next 36 months. These options will have an exercise price
equal to the closing price of the Company’s ordinary shares on Nasdaq on the last trading day prior to the approval of each year’s
grant by the board of directors. These options will expire ten years after the grant date, unless they expire earlier in accordance with
the terms of the 2010 Plan or the terms of the option agreement to be entered into between the Company and Dr. Cohen-Dayag. If applicable,
the options will be granted through a trustee under Section 102 of the Tax Ordinance and, in accordance with the Company’s previous
election in this regard, be subject to the capital gains route for tax purposes.
All vested options and Other Equity (to the extent applicable) granted to Dr. Cohen-Dayag
under the Equity Framework shall have a one-year exercise period following the termination of her employment as the Company’s chief
executive officer, other than in the event of termination for “cause” (as defined in her employment agreement as shall be
in effect from time to time). In addition to the foregoing, and not as part of the Equity Framework, Dr. Anat Cohen-Dayag will be entitled
to participate in the ESPP or any other employee share purchase plan(s) that may be adopted by the Company from time to time until the
end of 2026, as long as the fair market value of the benefit provided to her under such employee share purchase plan(s) (determined by
the Company at the beginning of the respective offering period) in any given twelve (12) month period does not exceed ten percent (10%)
of her annual base salary.
In addition to the foregoing annual equity grant plan for 2024 through 2026 and the
annual grant for 2023 already approved by our shareholders at the 2020 AGM, at the 2023 AGM, our shareholders approved a special option
grant of additional options to purchase 150,000 ordinary shares with an exercise price equal to the closing price of the Company’s
ordinary shares on the Nasdaq on the last trading day prior to the 2023 AGM, or the 2023 Special Option Award. All the terms of the 2023
Special Option Award are the same as those set forth above with respect to the options underlying the annual equity grant plan.
In 2023 Dr. Cohen-Dayag was granted with 300,000 options (including the 2023 Special
Option Award), 150,000 of which with an exercise price of $1.15 (pursuant to the terms of the CEO’s three-year equity framework
approved by our shareholders in 2020 AGM) and 150,000 of which with an exercise price of $1.02 (pursuant to the terms of the 2023 Special
Option Award). As of December 31, 2023, Dr. Cohen-Dayag held options to purchase a total of 1,420,000 ordinary shares. Out of these outstanding
options: (i) options to purchase 932,500 ordinary shares, with a weighted average exercise price of $6.35 per share, were exercisable
as of December 31, 2023; and (ii) options to purchase 487,500 ordinary shares, with a weighted average exercise price of $3.20 per share,
had not vested as of December 31, 2023. Of the unvested options on December 31, 2023, options to purchase 206,250 ordinary shares are
expected to vest during 2024, options to purchase 140,625 ordinary shares are expected to vest during 2025 and options to purchase the
remaining 140,625 ordinary shares are expected to vest during the period between March 31, 2026, and September 30, 2027. These unvested
options were granted under the Company’s 2010 Plan. For additional information on Dr. Cohen-Dayag’s holdings see “Item
6. Directors, Senior Management and Employee - E. Share Ownership - Share Ownership by Directors and Other Executive Officers.”
Dr. Cohen-Dayag’s employment agreement may generally be terminated by either
party by providing six (6) months advance written notice, provided that in the event of termination by the Company for “justifiable
cause” (as such term is defined in her employment agreement as shall be in effect from time to time) the Company may terminate Dr.
Cohen-Dayag’s employment without advance notice and that Dr. Cohen-Dayag may resign with advance notice of only two (2) months in
the event of resignation for “good reason” (as such term is defined in her employment agreement as shall be in effect from
time to time). Upon termination, Dr. Anat Cohen-Dayag will be entitled to receive certain payments associated with termination.
In the event that Dr. Cohen-Dayag’s employment is: (a) terminated by the Company,
other than for “justifiable cause”; or (b) terminated by Dr. Cohen-Dayag for “good reason” (hereinafter, (a) and
(b) shall be referred to together as “Dismissal”), Dr. Cohen-Dayag will also be entitled to an additional one-time payment
equal to six (6) monthly salaries, or the Termination Payment, and upon Dismissal within one year following certain “change of control”
events (as defined in her employment agreement as shall be in effect from time to time), Dr. Cohen-Dayag will be entitled to a special
termination payment (in addition to the Termination Payment) in an amount equal to six (6) monthly salaries.
In addition, upon Dismissal, or in the event of a “change of control”,
all outstanding unvested options granted to Dr. Cohen-Dayag as of such time will be accelerated and become immediately exercisable as
of the effective date of such Dismissal or change of control. Upon Dismissal, Dr. Cohen-Dayag will also be entitled to exercise all outstanding
vested options (including those options vested as a result of such accelerated vesting) for a period of one (1) year from the date of
such Dismissal, provided that such period does not extend beyond ten (10) years from the date of grant. Upon an event of change of control,
following which Dr. Cohen-Dayag’s employment is, within 12 months of the closing of such an event: (a) terminated by the Company,
other than for “justifiable cause”; or (b) terminated by Dr. Cohen-Dayag for any reason, Dr. Cohen-Dayag will be entitled
to exercise all outstanding vested options (including those vested as a result of such accelerated vesting) for a period of one (1) year
from the date of termination of her employment, provided that such period does not extend beyond ten (10) years from the date of grant.
Dr. Cohen-Dayag is not entitled to any compensation (including in connection with
her role as a director) in addition to that being paid to her as the chief executive officer of the Company. However, in the event of
termination of Dr. Cohen-Dayag employment agreement, she will be entitled to receive such compensation to the extent and for as long as
she will serve as a non-executive director of the Company.
Insurance, Indemnification and Exemption
Our Office Holder’s Insurance. Our Articles
provide that, subject to the provisions of the Companies Law, we may enter into contracts to insure the liabilities of our Office Holders
for any liabilities or expenses incurred by or imposed upon them as a result of any act (or omission) carried out by them as our Office
Holders, including with respect to any of the following:
|
• |
a breach of duty of care to us or to another person; |
|
• |
a breach of duty of loyalty to us, provided that the Office Holder acted in good faith and had reasonable grounds to assume that
such act would not prejudice our interests; |
|
• |
monetary liabilities or obligations imposed upon him or her in favor of another person; |
|
• |
A payment which the Office Holder is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the Securities
Law, and expenses that the Office Holder incurred in connection with a proceeding under Chapters H’3, H’4 or I’1 of
the Securities Law, including reasonable litigation expenses, including attorney’s fees, or in connection with Article D of Chapter
Four of Part Nine of the Companies Law; and |
|
• |
Expenses incurred by the Office Holder in connection with a proceeding under Chapter G’1, of the Israel Restrictive Trade Practices
Law, 5748-1988, or Restrictive Trade Law, including reasonable litigation expenses, including attorney’s fees. |
Under the Companies Law, exemption and indemnification of, and procurement of insurance
coverage for, our Office Holders, must be approved by our compensation committee and our board of directors and, with respect to an Office
Holder who is the CEO or a director, also by our shareholders. However, according to regulations promulgated under the Companies Law,
shareholders and board of directors approvals for the procurement of such insurance are not required if the insurance policy is approved
by our compensation committee and: (i) the terms of such policy are within the framework for insurance coverage as approved by our shareholders
and set forth in our Compensation Policy; (ii) the premium paid under the insurance policy is at fair market value; and (iii) the insurance
policy does not and may not have a substantial effect on the Company’s profitability, assets or obligations.
In accordance with our Compensation Policy, approved by our shareholders at the 2023
AGM, we are currently entitled to hold directors’ and officers’ liability insurance policy for the benefit of our Office
Holders with insurance coverage of up to $100 million and with such annual premium reflecting market terms and not having a
substantial effect on our profitability, assets or obligations.
Our Office Holders’ Indemnification. Our
Articles provide that, subject to the provisions of the Companies Law, we may indemnify any of our Office Holders for all liabilities
and expenses incurred by them arising from or as a result of any act (or omission) carried out by them as Office Holders of the Company,
including as follows:
|
• |
For any monetary liabilities or obligations imposed on our Office Holder in favor of another person pursuant to a court judgment,
including a compromise judgment or an arbitrator’s decision approved by a court; |
|
• |
For any payments which our Office Holder is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the
Israeli Securities Law and expenses the Office Holder incurred in connection with a proceeding under Chapters H’3, H’4 or
I’1 of the Israeli Securities Law, including reasonable litigation expenses, including attorney’s fees, or in connection with
Article D of Chapter Four of Part Nine of the Companies Law; |
|
• |
For reasonable litigation expenses, including attorney’s fees, incurred by the Office Holder in consequence of an investigation
or proceeding instituted against the Office Holder by an authority that is authorized to conduct such investigation or proceeding, and
which was concluded without filing of an indictment against the Office Holder and without imposing on the Office Holder a financial obligation
in lieu of criminal proceedings, or which was concluded without filing of an indictment against the Office Holder but with imposing on
such Office Holder a financial obligation in lieu of criminal proceedings in respect of an offense that does not require proof of criminal
intent or in connection with a financial sanction; For the purposes hereof: (i) “a proceeding that concluded without filing an indictment
in a matter in respect of which an investigation was conducted”; and (ii) “financial obligation in lieu of a criminal proceeding”,
shall have the meanings specified in Section 260(a)(1A) of the Companies Law; |
|
• |
For reasonable litigation expenses, including attorney’s fees, incurred by the Office Holder or which the Office Holder is
ordered to pay by a court, in a proceeding filed against the Office Holder by the Company or on its behalf or by another person, or in
a criminal action of which the Office Holder is acquitted, or in a criminal action in which the Office Holder is convicted of an offense
that does not require proof of criminal intent; |
|
• |
For expenses incurred by our Office Holder in connection with a proceeding under Chapter G’1, of the Restrictive Trade Law,
including reasonable litigation expenses, including attorney’s fees; and |
|
• |
For any other liability, obligation or expense indemnifiable or which our Officer Holders may from time to time be indemnifiable
by law. |
The Company may undertake to indemnify an office holder as mentioned above: (a) prospectively,
provided that with respect of the first act (financial liability) the undertaking is limited to events which in the opinion of the board
of directors are foreseeable in light of the Company’s actual operations when the undertaking to indemnify is given, and to an amount
or criteria set by the board of directors as reasonable under the circumstances, and further provided that such events and amount or criteria
are set forth in the undertaking to indemnify, and (b) retroactively.
Indemnification letters, covering indemnification of those liabilities discussed above,
were granted to each of our present Office Holders and were amended at the Company’s Annual General Meeting of Shareholders for
2021, held on September 2, 2021, or the 2021 AGM. The indemnification letters, as amended, seek to indemnify our Office Holders to the
fullest extent permitted under the Companies Law, subject to the specific limitations specified therein.
Our Office Holder’s Exemption. Our Articles
provide that, subject to the provisions of the Companies Law, we may exempt and release our Office Holders, including in advance, from
all or part of such Office Holder’s liability for monetary or other damages due to a breach of their duty of care to the Company.
Our directors are released and exempt from all liability as aforesaid to the fullest extent permitted by law with respect to any such
breach, which has been or may be committed.
Limitations on Insurance, Indemnification and Exemption. The
Companies Law provides that a company may not insure, exempt or indemnify an Office Holder for any breach of his or her liability arising
from any of the following:
|
• |
a breach by the Office Holder of his or her duty of loyalty, except that the company may enter into an insurance contract or indemnify
an Office Holder if the Office Holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
|
|
• |
a breach by the Office Holder of his or her duty of care if such breach was intentional or reckless, but unless such breach was solely
negligent; |
|
• |
any act or omission done with the intent to derive an illegal personal benefit; or |
|
• |
any fine, civil fine, financial sanction or monetary settlement in lieu of criminal proceedings imposed on such Office Holder.
|
Administrative Enforcement
The Israeli Securities Law includes an administrative enforcement procedure that may
be used by the Israeli Securities Authority, to enhance the efficacy of enforcement in the securities market in Israel. Pursuant to the
Companies Law and the Israeli Securities Law, the Israeli Securities Authority is authorized to impose administrative sanctions, including
monetary fines, against companies like ours and their officers and directors for certain violations of the Israeli Securities Law or the
Companies Law. Furthermore, the Israeli Securities Law requires that the CEO of a company supervise and take all reasonable measures to
prevent the company or any of its employees from breaching the Israeli Securities Law. The CEO is presumed to have fulfilled such supervisory
duty if the company adopts internal enforcement procedures designed to prevent such breaches, appoints a representative to supervise the
implementation of such procedures and takes measures to correct the breach and prevent its reoccurrence.
Under the Israeli Securities Law, a company cannot obtain insurance against or indemnify
a third-party (including its officers and/or employees) for any administrative procedure and/or monetary fine (other than for payment
of damages to an injured party). The Israeli Securities Law permits insurance and/or indemnification for expenses related to an administrative
procedure, such as reasonable legal fees, provided that it is permitted under the company’s articles of association.
We have adopted and implemented an internal enforcement plan to reduce our exposure
to potential breaches of sections in the Companies Law and the Israeli Securities Law, applicable to us. Our Articles and letters of indemnification
permit, among others, insurance and/or indemnification as contemplated under the Israeli Securities Law (see “Insurance,
Indemnification and Exemption” above).
C. BOARD PRACTICES
We are incorporated in Israel, and, therefore, are generally subject to various corporate
governance practices under Israeli law such as with respect to external directors, independent directors, audit committee, compensation
committee, an internal auditor and approvals of interested party transactions. These matters are in addition to the requirements of The
Nasdaq Capital Market and other relevant provisions of U.S. securities laws applicable to us. Under the Nasdaq Listing Rules, a foreign
private issuer may generally follow its home country practices for corporate governance in lieu of the comparable Nasdaq Capital Market
requirements, except for certain matters such as composition and responsibilities of the audit committee and the SEC-mandated standards
for the independence of its members. We currently comply with all the above-mentioned requirements. See “Item 3. Key Information
- D. Risk Factors - Risks related to operations in Israel - Being a foreign private issuer exempts us from certain SEC requirements and
Nasdaq rules, which may result in less protection that is afforded to investors under rules applicable to domestic issuers”. For
information regarding home country practices followed by us see “Item 16G - Corporate Governance”.
Board of Directors
Our Articles provide that we may have no less than five nor more than fourteen directors.
Currently our board of directors consists of seven members. Our directors are elected at the annual general meeting for a term of approximately
one year, ending at the annual general meeting immediately following the annual general meeting at which they were elected or upon earlier
termination in circumstanced referred to under the Companies Law or our Articles. Our directors may further be appointed by the board
of director and in this case shall hold office until the end of the immediately following annual general meeting or upon earlier termination
in circumstanced referred to under the Companies Law or our Articles.
None of our directors is party to a service contract with us that provides for any
severance or similar benefits upon termination of his or her service, other than our president and chief executive officer, Dr. Anat Cohen-Dayag,
with whom we entered into an employment agreement. For additional information on the employment agreement entered into with Dr. Cohen-Dayag,
please see “Item 6 - Directors, Senior Management and Employees - B. Compensation - Compensation to our President and Chief Executive
Officer.”
Board of Directors Diversity
The table below provides certain information regarding the diversity of our board of directors.
Board Diversity Matrix as of February 20,
2024 |
Total Number of Directors |
7 |
|
Female |
Male |
Non-Binary |
Did Not Disclose Gender |
Part I: Gender Identity |
|
Directors |
2 |
4 |
|
1 |
Part II: Demographic Background |
|
African American or Black |
|
|
|
|
Alaskan Native or Native American |
|
|
|
|
Asian |
|
|
|
|
Hispanic or Latinx |
|
|
|
|
Native Hawaiian or Pacific Islander |
|
|
|
|
White |
2 |
3 |
|
|
Two or More Races or Ethnicities |
|
1 |
|
|
LGBTQ+ |
1 |
Did Not Disclose Demographic Background |
1 |
Directors Under the Companies Law - General
A nominee for service as a director in a public company may not be elected without
submitting a declaration to the company, prior to his or her election, specifying that he or she has the requisite qualifications to serve
as a director, an external director or an independent director, as applicable, and the ability to devote the appropriate time to performing
his or her duties as such.
A director, including an external director or an independent director, who ceases
to meet the statutory requirements to serve as a director, external director or independent director, as applicable, must notify the company
to that effect immediately and his or her service as a director will expire upon submission of such notice.
External Directors and Independent Directors Under the Companies
Law
Under the Companies Law, Israeli public companies are generally required to have on
their board of directors at least two external directors meeting certain independence criteria, provided under Israeli law. In accordance
with the Alleviation Regulations, we, as an Israeli public company with no controlling shareholder (within the meaning of the Companies
Law), whose shares are listed on The Nasdaq Capital Market, may opt out from the requirement of electing and having external directors
on our board of directors and related requirements concerning the composition of the audit and compensation committees of the board of
directors, provided that we do not have a controlling shareholder, we continue to comply with the U.S. securities laws and Nasdaq Listing
Rules applicable to U.S. domestic issuers regarding the independence of the board of directors and the composition of the audit and compensation
committee, or the Opt Out Criteria. On June 7, 2018, our board of directors determined to opt out of the requirement to elect and have
external directors and of the rules governing composition of the audit committee and compensation committee under the Companies Law pursuant
to the relief available under the Alleviation Regulations, since at that time (and since that time) we have complied and continue to comply
with the Opt Out Criteria. In accordance with this decision, we currently have no external directors on our board of directors and we
are subject to the U.S. securities laws and Nasdaq Listing Rules applicable to U.S. domestic issuers regarding the independence of our
board of directors and the composition of our audit and compensation committees.
The term controlling shareholder, as used in the Companies Law for purposes of all
matters related to external directors and for certain other purposes, means a shareholder that has the ability to direct the activities
of the company, other than by virtue of being an Office Holder. For purposes of all matters related to external directors, a shareholder
is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in the company or has the right
to appoint the majority of the directors of the company or its chief executive officer.
Under the Companies Law, an ‘independent director’ is either an external
director or a director appointed or classified as such who meets the same non-affiliation criteria as an external director, as determined
by the company’s audit committee, and who has not served as a director of the company for more than nine consecutive years. For
these purposes, ceasing to serve as a director for a period of two years or less would not be deemed to sever the consecutive nature of
such director’s service. However, as our shares are listed on The Nasdaq Capital Market, pursuant to the Alleviation Regulations,
we may also classify directors who qualify as independent directors under the relevant non-Israeli rules, as ‘independent directors’
under the Companies Law. In addition, the Alleviation Regulations provide that ‘independent directors’ may be elected for
additional terms that do not exceed three years each, beyond the 9 consecutive years, provided that, if the director is being re-elected
for an additional term or terms beyond the 9 consecutive years, the audit committee and board of directors must determine that, in light
of the director’s expertise and special contribution to the board of directors and its committees, the re-election for an additional
term is to the company’s benefit and the director must be re-elected by the required majority of shareholders and subject to the
terms specified in the Companies Law. Each of our directors, other than Dr. Anat Cohen-Dayag, who also serves as our chief executive officer,
meets the ‘independent directors’ criteria under the Companies Law.
Independent Directors Under the Nasdaq Listing
Rules
In addition to the requirements of the Companies Law as described above, since our
shares are listed on The Nasdaq Capital Market, pursuant to the Nasdaq Listing Rules, a majority of our directors must be independent
(as defined under the Nasdaq Listing Rules). We comply with such Nasdaq independence requirement, as each of our directors, other than
Dr. Anat Cohen-Dayag, who also serves as our president and chief executive officer, has been determined by our board of directors to meet
the Nasdaq independence requirements.
Financial and Accounting Expertise Under the
Companies Law
Pursuant to the Companies Law, the board of directors of a publicly traded company
is required to make a determination as to the minimum number of directors who must have financial and accounting expertise according to
criteria set forth under the Companies Law and regulations promulgated there under and based, among other things, on the type of company,
its size, the volume and complexity of the company’s activities and the number of directors. Our board of directors has determined
that the minimum number of directors with financial and accounting expertise is one. Currently, each of Mr. Gilead Halevy, Mr. Eran Perry
and Mr. Sanford (Sandy) Zweifach qualifies as such.
Board Committees
Audit Committee
The Companies Law requires public companies such as ours to appoint an audit committee,
the responsibilities of which include, among other things: (i) identifying flaws in the management of the company’s business, among
other things, in consultation with the company’s internal auditor or external auditor, and making recommendations to the board of
directors as to how to correct them, (ii) reviewing and considering certain related party transactions and certain actions involving conflicts
of interest (as well as deciding whether certain actions specified in the Companies Law are considered material or non-material and whether
certain transactions are considered exceptional or ordinary), (iii) establishing procedures to be followed with respect to related party
transactions with a “controlling shareholder” (where such are not extraordinary transactions), which may include, where applicable,
the establishment of a competitive process for such transaction, under the supervision of the audit committee, or individual, or other
committee or body selected by the audit committee, in accordance with criteria determined by the audit committee, (iv) determining procedures
for approving certain related party transactions with a “controlling shareholder”, which were determined by the audit committee
not to be extraordinary transactions, but which were also determined by the audit committee not to be negligible transactions, (v) reviewing
the internal auditor’s work program performance, examining the company’s internal control structure and processes and determining
whether the internal auditor has the requisite tools and resources required to perform his or her role, (vi) examining the external auditor’s
scope of work as well as the external auditor’s fees and providing its recommendations to the appropriate corporate organ, (vii)
overseeing the accounting and financial reporting processes of the Company, and (viii) providing arrangements regarding employee complaints
with respect to flaws in the management of the Company’s business and the protection to be provided to such employees.
Under the Nasdaq Listing Rules, we are required to maintain an audit committee that
operates under a formal written charter and has certain responsibilities and authority, including being directly responsible for the appointment,
compensation, retention and oversight of the work of our external auditor. However, under Israeli law and our Articles, the appointment
of external auditor requires the approval of the shareholders and their compensation requires the approval of our board of directors.
In addition, as described above, pursuant to the Companies Law, the audit committee is required to examine the external auditor’s
scope of work as well as the external auditor’s fees and to provide its recommendations with respect thereto to the appropriate
corporate organ. Accordingly, the appointment of our external auditor is approved by our shareholders at the audit committee’s recommendation
and its compensation for audit and non-audit services is approved by the board of directors following the audit committee’s recommendation.
We have adopted a charter for the audit committee, which sets forth the purpose and
responsibilities of such committee.
In carrying out its duties, the audit committee meets with management at least once
in each fiscal quarter at which time, among other things, it reviews, and either approves or disapproves, the financial results of the
Company for the immediately preceding fiscal quarter and conveys its conclusions in this regard to the board of directors. The audit committee
also generally monitors the services provided by the Company’s external auditor to ensure their independence and reviews all audit
and non-audit services provided by them. The Company’s external and internal auditors also report regularly to the audit committee
and the audit committee discusses with our external auditor the quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments and the clarity of disclosures in our financial statements, as and when it deems it appropriate
to do so.
Under the Nasdaq Listing Rules, the audit committee is required to consist of at least
three independent directors, each of whom is financially literate and at least one of whom has accounting or related financial management
expertise.
We have an audit committee consisting of three directors, Mr. Gilead Halevy, who serves
as the chairman of our audit committee, Mr. Eran Perry and Mr. Sanford (Sandy) Zweifach, all of whom are financially literate under the
applicable rules and regulations of the SEC and Nasdaq Listing Rules and each of whom is an audit committee financial expert, as defined
by the SEC rules, and has the requisite financial experience required under the Nasdaq Listing Rules. Additionally, each of the members
of the audit committee is “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 under the Nasdaq Listing Rules.
The audit committee composition requirements referred to under Section 115 of the
Companies Law are not applicable to the Company as our board of directors, as part of its decision to opt out of the requirement to elect
external directors pursuant to the relief available under the Alleviation Regulations, also opted out of such composition requirements
on the basis that the Company complies, and will continue to comply, with the U.S. Securities Law and Nasdaq Listing Rules concerning
the composition of the audit committee, as described above.
Compensation Committee
The Companies Law generally provides that public companies such as the Company must
appoint a compensation committee, the responsibilities of which include, among others: (i) reviewing and making recommendations to the
board of directors with respect to our Compensation Policy and with respect to any updates which may be required thereto from time to
time, (ii) reviewing the implementation of the Compensation Policy by the Company, (iii) reviewing and considering arrangements with respect
to the Terms of Office and Employment of Office Holders, (iv) exempting, under certain circumstances, a transaction relating to the Terms
of Office and Employment of Office Holders from the requirement of approval of the shareholders, and (v) overseeing, subject to applicable
law, the administration of the Company’s various compensation plans and arrangements, including, incentive compensation and equity
based plans. Under the Companies Law, the compensation committee may need to seek the approval of the board of directors and the shareholders
for certain compensation-related decisions, (see “Item 6 - Directors, Senior Management and Employees - B. Compensation - Approvals
Required for Office Holders Terms of Employment”).
We have adopted a charter for the compensation committee, which sets forth the purpose
and responsibilities of such committee.
Under the Nasdaq Listing Rules, we are required to maintain a compensation committee
consisting of at least two independent directors (as defined under the Nasdaq Listing Rules). Each compensation committee member must
also be deemed by our board of directors to meet the enhanced independence requirements for members of the compensation committee under
the Nasdaq Listing Rules, which requires, among other things, that our board of directors considers the source of each such committee
member’s compensation in considering whether he or she is independent.
The compensation committee composition requirements referred to under Section 118A
of the Companies Law are not applicable to the Company as our board of directors, as part of its decision to opt out of the requirement
to elect external directors pursuant to the relief available under the Alleviation Regulations, also opted out of such composition requirements
on the basis that the Company complies, and will continue to comply, with the Nasdaq majority board independence requirement and with
US Securities Law and Nasdaq Listing Rules concerning the composition of the compensation committee, as described above.
We have a compensation committee consisting of three directors, Mr. Sanford (Sandy)
Zweifach, who serves as the chairman of our compensation committee, Dr. Kinneret Livnat Savitzky and Eran Perry. Each member of our
compensation committee is an ‘independent director’ in accordance with the Nasdaq listing standards.
Nomination and Corporate Governance Committee
The Nasdaq Listing Rules require that director nominees be selected or recommended
for the board’s selection either by a nomination committee composed solely of independent directors, or by a majority of independent
directors, in a vote in which only independent directors participate, subject to certain exceptions. Mr. Paul Sekhri, who serves as the
chairman of our nomination and corporate governance committee, Dr. Kinneret Livnat Savitzky and Mr. Sanford (Sandy) Zweifach, each an
independent director, are the members of our nomination and corporate governance committee, which, among other responsibilities, recommends
director nominees for our board’s approval.
Internal Auditor
Under the Companies Law, the board of directors must appoint an internal auditor,
recommended by the audit committee. The role of the internal auditor is to examine, among other matters, whether the company’s actions
comply with the law and orderly business procedures. Under the Companies Law, an interested party or an Office Holder of a company, or
a relative of an interested party or of an Office Holder of a company, as well as the company’s external auditor or any one on behalf
of the external auditor may not serve as a company’s internal auditor. The internal auditor’s tenure cannot be terminated
without his or her consent, nor can he or she be suspended from such position unless the board of directors has so resolved after hearing
the opinion of the audit committee and after providing the internal auditor with the opportunity to present his or her position to the
board of directors and to the audit committee. An interested party is defined in the Companies Law as a holder of 5% or more of the company’s
outstanding shares or voting rights, any person or entity who has the right to designate one or more directors or the chief executive
officer of the company or any person who serves as a director or as a chief executive officer of the company.
Ms. Tali Yaron of Brightman, Almagor, Zohar & Co., a member firm of Deloitte Touche
Tohmatsu, has served as our internal auditor since 2023 (replacing a different partner at Brightman Almagor Zohar & Co., a member
firm of Deloitte Touche Tohmatsu during 2023). Ms. Tali Yaron is not an employee, affiliate or Office Holder of the Company, or affiliated
with the Company’s external auditor.
Fiduciary Duties and Approval of Related Party Transactions Under
Israeli Law
Fiduciary Duties of Office Holders
The Companies Law codifies the fiduciary duties that Office Holders owe to a company.
All persons listed in the table under “Item 6. Directors, Senior Management and Employees - A. Directors and Senior Management”
are Office Holders. In addition to those persons listed in the table under Item 6.A, there were two additional individuals who were Office
Holders of the Company as of December 31, 2023.
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 standard of skills with which a reasonable Office Holder in the same
position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means to obtain:
|
• |
information regarding the business advisability of a given action brought for the Office Holder’s approval or performed by
the Office Holder by virtue of his or her position; and |
|
• |
all other information of importance pertaining to the aforesaid actions. |
The duty of loyalty requires an Office Holder to act in good faith and for the benefit
of the company and includes the duty to:
|
• |
refrain from any act involving a conflict of interest between the fulfillment of his or her position in the company and the fulfillment
of any other position or his or her personal affairs; |
|
• |
refrain from any act that is competitive with the business of the company; |
|
• |
refrain from exploiting any business opportunity of the company with the aim of obtaining a personal gain for himself or herself
or for others; and |
|
• |
disclose to the company all relevant information and provide it with all documents relating to the company’s affairs which
the Office Holder obtained due to his or her position in the company. |
Disclosure of Personal Interests of Office
Holders and Approval of Certain Transactions
The Companies Law requires that an Office Holder promptly discloses to the company
any personal interest that the Office Holder may have, and all related material information known to him or her, in connection with any
existing or proposed transaction by the company. In addition, if the transaction is an extraordinary transaction, as defined under Israeli
law, the Office Holder must also disclose any personal interest held by the Office Holder’s spouse, siblings, parents, grandparents,
descendants, spouse’s descendants and the spouses of any of the foregoing, or a Relative. In addition, the Office Holder must also
disclose any interest held by any corporation in which the Office Holder: (i) holds at least 5% of the company’s outstanding share
capital or voting rights; (ii) is a director or general manager; or (iii) has the right to appoint at least one director or the general
manager. An extraordinary transaction is defined as a transaction which is either not in the ordinary course of business, not on market
terms, or likely to have a material impact on the company’s profitability, assets or liabilities.
Under the Companies Law, unless the articles of association of a company provide otherwise,
a transaction in which an Office Holder has a personal interest and which is not an extraordinary transaction, requires board approval,
after the Office Holder complies with the above disclosure requirement and provided the transaction is not adverse to the company’s
interest. Our Articles do not provide for a different method of approval. Furthermore, if the transaction is an extraordinary transaction,
then, in addition to any approval stipulated by the articles of association, it also must be approved by the company’s audit committee
and then by the board of directors, and, under certain circumstances, by the shareholders of the company.
A person with a personal interest in any matter may not generally be present at any
audit committee, compensation committee or board of directors meeting where such matter is being considered, and if he or she is a member
of the committee or a director, he or she may not generally vote on such matter at the applicable meeting.
Disclosure of Personal Interest of Controlling Shareholders and
Approval of certain Transactions
The Companies Law extends the disclosure requirements applicable to an Office Holder
to a ‘controlling shareholder’ in a public company. For this purpose, a ‘controlling shareholder’ is a shareholder
who has the ability to direct the activities of a company, including a shareholder or a group of shareholders who together own 25% or
more of the voting rights if no other shareholder holds more than 50% of the voting rights.
Extraordinary transactions of a public company with a controlling shareholder or in
which a controlling shareholder has a personal interest, as well as any engagement by a public company of a controlling shareholder or
of such controlling shareholder’s Relative, directly or indirectly, with respect to the provision of services to the company, and,
if such person is also an Office Holder of such company, with respect to such person’s Terms of Office and Employment as an Office
Holder, and if such person is an employee of the company but not an Office Holder, with respect to such person’s employment by the
company, generally require the approval of each of the audit committee (or with respect to Terms of Office and Employment, the compensation
committee), the board of directors and the shareholders of the company, in that order. The shareholder approval must fulfill one of the
following requirements: (i) it received the positive vote of at least a majority of the voting rights in the company who are present and
voting in the meeting and held by shareholders who do not have a personal interest in the transaction; (abstentions are disregarded) or
(ii) the voting rights held by shareholders who have no personal interest in the transaction and who have voted against the transaction,
do not exceed two percent of the voting rights in the company.
Any extraordinary transactions with a controlling shareholder or in which a controlling
shareholder has a personal interest with a term of more than three years generally need to be brought for re-approval in accordance with
the above procedure every three years, unless the audit committee determines that the duration of the transaction is reasonable given
the circumstances related thereto and has been approved by the shareholders for such longer duration.
Pursuant to regulations promulgated under the Companies Law, certain transactions
with a controlling shareholder or his or her Relative, or with directors, that would otherwise require approval of a company’s shareholders
may be exempt from shareholder approval upon certain determinations of the audit committee or the compensation committee and board of
directors.
For information concerning the direct and indirect personal interests of certain of
our Office Holders and principal shareholders in certain transactions with us, see “Item 7. Major Shareholders and Related Party
Transactions - B. Related Party Transactions.”
Shareholders Duties
Pursuant to the Companies Law, a shareholder has a duty to: (i) act in good faith
in fulfilling his obligations towards the company and the other shareholders; and (ii) refrain from abusing his or her power with respect
to the company, including, when voting at a general meeting with respect to the following matters: (a) an amendment to the company’s
articles of association; (b) an increase of the company’s authorized share capital; (c) a merger; or (d) approval of interested
party transactions that require shareholders’ approval.
In addition, any controlling shareholder, any shareholder who knows that it possesses
power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of a company’s articles
of association has the power to appoint or prevent the appointment of an office holder in the company, is under a duty of fairness towards
the company. The Companies Law does not describe the substance of such duty of fairness but states that the remedies generally available
upon a breach of contract will also apply in the event of a breach of the duty of fairness, taking into account such shareholder’s
position.
Approval of Significant Private Placement
Under the Companies Law, a significant private placement of securities requires approval
by the board of directors and the shareholders by a simple majority. A private placement is considered a significant private placement
if it results in a person becoming a controlling shareholder, or if all of the following conditions are met: the securities issued amount
to 20% or more of the company’s outstanding voting rights before the issuance; some or all of the consideration is other than cash
or listed securities or the transaction is not on market terms; and the transaction will increase the relative holdings of a shareholder
who holds 5% or more of the company’s outstanding share capital or voting rights or will cause any person to become, as a result
of the issuance, a holder of more than 5% of the company’s outstanding share capital or voting rights.
D. EMPLOYEES
The following table sets out the number of our full-time employees engaged in specified
activities, at the end of the fiscal years 2023, 2022 and 2021 (the numbers include employees of our wholly owned U.S. subsidiary Compugen
USA, Inc.):
|
December 31, 2023 |
December 31, 2022 |
December 31, 2021 |
Research & Development |
46
|
46
|
51
|
Administration, Accounting and Operations |
21
|
21
|
21
|
Marketing and Business Development |
1
|
2
|
1
|
Total |
68 |
69 |
73 |
In addition to the headquarters in Holon, Israel, we maintain a subsidiary in San
Francisco, California. On December 31, 2021, 58 of our employees were located in Israel, 12 were located in the United States and 3 employees
were located in Europe; on December 31, 2022, 57 of our employees were located in Israel, 8 were located in the United States and 4 employees
were located in Europe; and on December 31, 2023, 58 of our employees were located in Israel, 7 were located in the United States and
3 employees were located in Europe.
We consider our relations with our employees to be satisfactory and we have not experienced
a significant labor dispute or strike. We are not a party to any collective bargaining agreement with respect to our Israeli employees.
However, we are subject to certain labor related statutes and to certain provisions of expansion orders the Israeli Minister of the Economy
has given to collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordinating Bureau
of Economic Organizations and/or the Industrialists’ Association, which are applicable to the employment of our Israeli employees.
These statutes and provisions and additional mandatory Israeli labor law provisions cover a wide range of subjects and provide certain
minimum employment standards, including the length of the workday and work week, minimum wages, travel expenses, contributions to a pension
fund, insurance for work-related accidents, determination of severance pay, annual and other vacations, sick pay and other conditions
of employment. We generally provide our employees with benefits and working conditions beyond the required minimum.
Our severance pay liability to our Israeli employees, based upon the number of years
of service and the latest monthly salary, is in the large part covered by regular deposits with recognized pension funds, deposits with
severance pay funds and purchases of insurance policies. Pursuant to Section 14 of the Israeli Severance Pay Law 5723-1963, certain of
our liabilities for employee severance rights upon termination are covered by regular contributions to defined contribution plans, so
that upon termination of employment of the relevant employees, we are only required to release the payments made by us to such funds on
account of severance and by doing so are deemed to have complied with all of our severance payment obligations relating to the service
of applicable employees with respect to the period during which the provisions of such section apply. For information concerning our liability
for severance pay, see Note 2n to our 2023 consolidated financial statements.
Our employees are not represented by a labor union. We have written employment contracts
(including signed offers of employment) with each of our employees.
E. SHARE OWNERSHIP
Share Ownership by Directors and Other Executive Officers
All of the persons listed above under the caption “Directors and Senior Management”
own ordinary shares of the Company and/or options to purchase ordinary shares of the Company. Except as set forth in the table below,
none of the directors or executive officers beneficially owns ordinary shares and/or ordinary shares underlying options amounting to 1%
or more of the outstanding ordinary shares. The following table sets forth certain information as of February 20, 2024, regarding the
beneficial ownership by our directors and senior management. All numbers quoted in the table are inclusive of options to purchase shares
that are exercisable within 60 days after February 20, 2024. The shares that may be issued under these options are deemed to be outstanding
for the purpose of computing the percentage of ownership of such individual or group but are not deemed to be outstanding for the purpose
of computing the percentage of ownership of the other individual or group shown in the table. The information in this table is based on
89,530,193 ordinary shares outstanding as of February 20, 2024.
Beneficial Owner |
|
Amount Owned |
|
|
Percent of Class |
|
|
|
|
|
|
|
|
Anat Cohen-Dayag(1)
|
|
|
1,026,122 |
|
|
|
1.1 |
% |
All directors and executive officers as a group (13 persons)(2)
|
|
|
3,143,964 |
|
|
|
3.4 |
% |
|
(1) |
Includes (i) 56,122 shares held by Dr. Cohen-Dayag, and (ii) 970,000 shares subject to options that are exercisable within 60 days
after February 20, 2024, with a weighted average exercise price of $6.47 per share, and which expire between March 2024 and March 2032.
|
|
(2) |
Includes (i) a total of 76,259 ordinary shares held by directors and executive officers, and (ii) a total of 3,067,705 shares subject
to options that are beneficially owned by directors and executive officers that are exercisable within 60 days after February 20, 2024,
with a weighted average exercise price of $5.48 per share and which expire between February 2024 and November 2032. |
Share Incentive Plan and Employee Share Purchase Plan
We currently maintain one active share incentive plan, which is our 2010 Share Incentive
Plan, or the 2010 Plan. In addition to the discussion below, see Note 8 to our 2023 consolidated financial statements.
Compugen 2010 Share Incentive Plan
On July 25, 2010, our board of directors adopted the 2010 Plan which was also approved
by our shareholders on May 12, 2011. In addition, the board of directors and shareholders resolved that the options available for grants
under the 2000 Option Plan, at such time, as well as any options that may return to such pool in connection with terminated options, will
be made available for future grants under the 2010 Plan. In May 2020 the board of directors extended the term of the 2010 Plan by additional
ten (10) years. Subject to applicable law, our board of directors may amend the 2010 Plan, provided that any action by our board of directors
which will alter or impair the rights or obligations of an option holder requires the prior consent of that option holder. In August 2023,
our board of directors decreased the number of shares available under the 2010 Plan by 500,000.
The compensation committee administers the 2010 Plan and has the authority to designate
the terms of the options granted thereunder, including the identity of the grantees, exercise prices, grant dates, vesting schedules and
expiration dates, which may be no more than ten years after the grant date. According to the 2010 Plan, options may not be granted with
an exercise price of less than the fair market value of our ordinary shares on the date of grant, unless otherwise determined by our board
of directors. The administration of the 2010 Plan by our compensation committee is subject to applicable law, including with respect to
the approval procedure of compensation to Office Holders required under the Companies Law (for additional information on the approval
procedure of compensation to Office Holders, see “Item 6. Directors, Senior Management and Employees - B. Approvals Required for
Office Holders Terms of Employment”).
If a grantee leaves his or her employment or other relationship with us, or if his
or her relationship with us is terminated without cause (and other than by reason of death or disability, as defined in the 2010 Plan),
the term of his or her unexercised options will generally expire in 90 days, unless determined otherwise by our board of directors.
As of December 31, 2023, options to purchase 8,373,745 ordinary shares at a weighted
average exercise price of approximately $4.65 per share were outstanding (i.e., were granted but not canceled, expired nor exercised)
under the 2010 Plan and 1,202,301 ordinary shares remained available for future grant under the 2010 Plan. Options to purchase 4,319,106
ordinary shares under the 2010 Plan have previously been exercised through December 31, 2023, at a weighted average exercise price of
approximately $4.92. As of December 31, 2023, outstanding options granted by the Company pursuant to the 2010 Plan expire between February
2024 and October 2033 (subject to terms of the plan).
Compugen 2021 Employee Share Purchase Plan
In November 2020, we adopted the Compugen Ltd. 2021 Employee Share Purchase Plan,
or ESPP.
The ESPP currently applies to our employees and officers.
Pursuant to the ESPP, in each twelve (12) months period, there are two offering periods,
comprised of six (6) months each (except for the first offering period under the ESPP which was for five (5) months only). Each eligible
participant, has the right to contribute up to 15% of his or her monthly Compensation (as defined in the ESPP), in order to buy ordinary
shares from us at a price per share equal with respect to each offering period, to 85% of the Fair Market Value of a share on the Entry
Date or the Purchase Date (as such terms are defined in the ESPP), whichever is lower, until changed by the committee of the board administering
the ESPP prior to the commencement of the enrollment process for such offering period. The maximum number of ordinary shares a Participant
may purchase during any calendar year shall be that whole number of ordinary shares determined by dividing $40,000 by the Purchase Price.
The maximum number of shares that were available for issuance under the ESPP upon
its approval was 600,000.
As of December 31, 2023, following issuance of shares in connection with offering
periods already ended and decreasing the number of shares available for issuance under the ESPP by 210,000 as approved by our board of
directors in August 2023, there were 114,146 ordinary shares available for issuance under the ESPP. Currently our ESPP is suspended, and
we reserve the right to resume it at any time.
Taxation of Equity Granted under our 2010 Plan
and ESPP to Israeli Grantees
Our board of directors elected the “Capital Gains Track” (as defined in
Section 102(b) (2) of the Tax Ordinance) for the grant of equity under the 2010 Plan and ESPP to Israeli grantees who are eligible for
grant under said Section 102 of the Tax Ordinance.
Pursuant to such election, and provided such eligible grantees comply with all the
requirements of the “Capital Gains Track”, gains derived by them, arising from the sale of shares acquired pursuant to the
ESPP or the exercise of options granted to them, will generally be subject to a flat capital gains tax rate of 25%, although these gains,
or part of them, will also be considered part of a grantee’s regular salary and subject to such grantee’s regular tax rate
applicable to such salary. As a result of the Company’s election in the “Capital Gains Track” under Section 102, the
Company is not allowed to claim as an expense for tax purposes in Israel the amounts credited to the grantee as capital gains, although
it is generally entitled to do so in respect of the salary income component (if any) of such grant, if any, when the related tax is paid
by the grantee as long as the grantee complies with all the requirements of the “Capital Gains Track”.
F. DISCLOSURE OF A REGISTRANT’S ACTION
TO RECOVER ERRONEOUSLY AWARDED COMPENSATION.
On October 30, 2023 we adopted a Policy for Recovery of Erroneously Awarded Compensation,
or the Clawback Policy, providing for recovery of certain incentive-based compensation from current and former executive officers of the
Company in the event we are required to restate any of our financial statements filed with the SEC under the Exchange Act in order to
correct an error that is material to the previously-issued financial statements, or that would result in a material misstatement if the
error were corrected in the current period or left uncorrected in the current period. Adoption of the Clawback Policy was mandated by
Nasdaq listing standards introduced pursuant to Exchange Act Rule 10D-1. The Clawback Policy is in addition to Section 304 of the Sarbanes-Oxley
Act of 2002 which permits the SEC to order disgorgement of bonuses and incentive-based compensation earned by a registrant issuer’s
chief executive officer and chief financial officer in the year following the filing of any financial statement that the issuer is required
to restate because of misconduct, and the reimbursement of those funds to the issuer. A copy of the Clawback Policy has been filed herewith
as Exhibit 97.1.
ITEM 7. MAJOR SHAREHOLDERS
AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The following table sets forth share ownership information as of February 20, 2024
(unless otherwise noted below) with respect to each person who is known by us to be the beneficial owner of more than 5% of our outstanding
ordinary shares. The information contained in the table below has been obtained from the Company’s records or from information furnished
by an individual or entity to the Company or disclosed in public filings with the SEC. Except where otherwise indicated, and except pursuant
to community property laws, we believe, based on information furnished by such owners, that the beneficial owners of the ordinary shares
listed below have sole investment and voting power with respect to such shares. As of February 20, 2024, there were a total of 36 holders
of record of our ordinary shares, of which 23 were registered with addresses in the United States. Such United States holders were, as
of such date, the holders of record of more than 99.0 % of our outstanding ordinary shares. Our
ordinary shares are traded on the Nasdaq Capital Market in the United States and on the TASE in Israel. A significant portion of our shares
are held in “street name”, therefore we cannot determine who our shareholders are, their geographical location or how many
shares a particular shareholder owns.
Total “Number of Ordinary Shares Beneficially Owned” in the table below
include shares that may be acquired by any of the below entities upon the exercise of options or warrants known to us, that are either
currently exercisable or will become exercisable within 60 days of February 20, 2024.
The shareholders listed below do not have any different voting rights from any of our other shareholders.
Reporting Beneficial
Owner |
|
Number of Ordinary Shares Beneficially Owned
|
|
|
Percent of Ordinary Shares Beneficially Owned(1)
|
|
Bristol-Myers Squibb Company(2)
|
|
|
4,757,058 |
|
|
|
5.3 |
% |
|
(1) |
Based upon 89,530,193 ordinary shares issued and outstanding as of February 20, 2024. |
|
(2) |
Based upon information provided by the shareholder in its Form 13G filed with the SEC on November 19, 2021. With respect to the ordinary
shares reported in its Schedule 13G, Bristol-Myers Squibb Company, indicated as having (i) sole voting power and dispositive power with
respect to 4,757,058 ordinary shares, and (ii) no shared voting power nor shared dispositive power with respect to ordinary shares. Furthermore,
in such filing BMS indicated aggregate beneficial ownership of 4,757,058 ordinary shares. The address of the principal business office
of BMS is 430 East 29th Street, New York, NY 10016. |
B. RELATED PARTY TRANSACTIONS
Other than as set forth below and transactions related to compensation of our executive
officers and directors as described under “Item 6. Directors, Senior Management and Employees - B. Compensation,” since January
1, 2023, we have not entered into any material related party transaction.
Indemnification and Exemption Agreements
Our Articles permit us to exculpate, indemnify and insure our Office Holders to the
fullest extent permitted by the Companies Law. Accordingly, we release our Office Holders from liability and indemnify them to the fullest
extent permitted by law and provide them with letters of indemnification and exemption and release for this purpose, in the form most
recently approved at our 2021 AGM. Under the letters of indemnification and exemption and release (i) our undertaking to indemnify each
Office Holder for monetary liabilities or obligations imposed by a court judgment (including a settlement or an arbitrator’s award
approved by a court) is limited to matters that result from or are connected to those events or circumstances set forth therein, and (ii)
the indemnification that we undertake towards all persons whom it resolved to indemnify for the matters and circumstances described therein,
jointly and in the aggregate, do not exceed the higher of the: (i) an amount equal to 25% of the Company’s shareholders’ equity,
per the most recent financial statements (audited or reviewed) after the time that notice is provided to the Company; or (y) $20 million.
Our Office Holders are also covered by directors’ and officers’ liability
insurance. For more information see “Item 6. Directors, Senior Management and Employees - B. Compensation - Insurance, Indemnification
and Exemption.”
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL
INFORMATION
Consolidated Financial Statements
Our consolidated financial statements are included beginning on page F-1 of this Annual
Report. See also “Item 18. Financial Statements.”
Legal Proceedings
Currently, we are not a party to any legal or arbitration proceedings, including governmental
proceedings, that are pending or known to be contemplated, that our management believes, individually or in the aggregate, may have, or
have had in the recent past, a significant effect on our financial position or profitability, nor are we party to any material proceeding
in which any director, member of our senior management or affiliate is a party adverse to us or our subsidiary or has a material interest
adverse to us or our subsidiary.
Dividend Distribution Policy
We have never paid any cash dividends on our ordinary shares, and we do not intend
to pay cash dividends on our ordinary shares in the foreseeable future. Our current policy is to retain any earnings we have (if any)
for use in our business.
In the event that we decide to pay a cash dividend from income that is tax exempt
under our Benefiting Enterprises program, we would be required to pay the applicable corporate tax that would otherwise have been payable
on such income which would be in addition to the tax payable by the dividend payee. See “Item 10. Additional Information - E. Taxation.”
B. SIGNIFICANT CHANGES
Not applicable.
ITEM 9. THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS
Our ordinary shares were listed on The Nasdaq Global Market through June 16, 2009.
On June 17, 2009, the listing of our ordinary shares was transferred from The Nasdaq Global Market to The Nasdaq Capital Market, and on
January 27, 2014, the listing of our ordinary shares transferred back from The Nasdaq Capital Market to The Nasdaq Global Market. On May
4, 2023, our ordinary shares transferred back from The Nasdaq Global Market to The Nasdaq Capital Market. Our trading symbol on Nasdaq
is CGEN. Our ordinary shares have been dually listed on the Tel Aviv Stock Exchange since January 2002. Our trading symbol on each of
The Nasdaq Capital Market and the Tel Aviv Stock Exchange is CGEN.
B. PLAN OF DISTRIBUTION
Not applicable
C. MARKETS
Our ordinary shares are traded in the United States on The Nasdaq Capital Market and
in Israel on the Tel Aviv Stock Exchange (TASE).
D. SELLING SHAREHOLDERS
Not applicable
E. DILUTION
Not applicable
F. EXPENSES OF THE ISSUE
Not applicable
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
Copies of our Amended and Restated Articles and our Amended and Restated Memorandum
of Association, as in effect as of the date of this Annual Report, are attached as Exhibits 1.1 and 1.2, respectively, to this Annual
Report. The information called for by this Item is set forth in Exhibit 2.1 to this Annual Report and is incorporated by reference into
this Annual Report.
C. MATERIAL CONTRACTS
Please see “Item 4. Information on the Company - B. Business Overview - Business
Strategy and Partnerships – Gilead License”, and “Item 4. Information on the Company - B. Business Overview - Business
Strategy and Partnerships - AstraZeneca License” and “Item 5. Operating and Financial Review and Prospects Finance - B. Liquidity
and Capital Resources” for a discussion of our material contracts.
D. EXCHANGE CONTROLS
There are currently no exchange controls in effect in Israel that restrict the repatriation
by non-residents of Israel in non-Israeli currency of any dividends, if any are declared and paid, and liquidation distributions or the
Company’s ability to import and export capital, except that such restrictions may exist with respect to citizens of countries which
are in a state of war with Israel.
E. TAXATION
The following is a brief summary of certain material Israeli and U.S. federal tax
consequences concerning the ownership and disposition of our ordinary shares by purchasers or holders of our ordinary shares. Because
parts of this discussion are based on new or existing tax or other legislation that has not been subject to judicial or administrative
interpretation, there can be no assurance that the views expressed herein will be accepted by the tax or other authorities in question.
The summary below does not address all of the tax consequences that may be relevant to all purchasers or holders of our ordinary shares
in light of each purchaser’s or holder’s particular circumstances and specific tax treatment. For example, the summary below
does not address the tax treatment of residents of Israel and traders in securities who are subject to specific tax regimes. As individual
circumstances may differ, holders of our ordinary shares should consult their own tax advisors as to U.S., Israeli or other tax consequences
of the purchase, ownership and disposition of our ordinary shares. This discussion is not intended, nor should it be construed, as legal
or professional tax advice and it is not exhaustive of all possible tax considerations. Each person should consult his, her or its own
tax or legal advisor.